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How JP Morgan argued to win $1.7 billion case against Nigeria

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JP Morgan Chase has won a $1.7 billion London High Court battle against Nigeria over its role in a disputed 2011 oilfield deals involving energy majors Shell and Eni.

Nigeria had filed a lawsuit against U.S. bank JP Morgan Chase at a London high court in February, claiming more than $1.7 billion as damages.

The trial opened with Nigeria’s lawyer Roger Masefield alleging that JP Morgan was “grossly negligent” in its decision to transfer funds paid by the energy majors into an escrow account to a company controlled by the country’s former oil minister Dan Etete instead of into government coffers.

According to Masefield, the transactions put JP Morgan in breach of its Quincecare duty, which obliges banks to disregard a customer’s instructions if following those instructions might actually facilitate a fraud against that customer.

“Under its Quincecare duty, the bank was entitled to refuse to pay for as long as it had reasonable grounds for believing its customer was being defrauded,” Masefield said.

The damages sought include cash sent to Etete’s company Malabu Oil and Gas, around $875 million paid in three instalments in 2011 and 2013, plus interest, taking the total to over $1.7 billion.

But a London High Court judge said no such breach took place in a ruling published on Tuesday.

JP Morgan’s counsel Paul Erekoro, argued that the allegations against it were “baseless and false” and denied any complicity in the case.

The bank said that it did not breach the Quincecare duty, neither did it act with gross negligence as claimed by the Nigerian government.

Erekoro said that release of Malabu’s claims over OPL 245 was a vital part of the transaction, because without this Shell and Eni would not have been prepared to take on the block, and it would therefore have continued to languish in an unproductive state.

“The Resolution Agreements were subject to detailed scrutiny by a large number of senior ministers and officials within the FGN, most of whom are not accused of any wrongdoing

“The agreements were personally approved by President Jonathan, and represented the policy of his administration.

“JPMC agreed to provide the Depository Account for this purpose, and charged a fee of $25,000 for its services. Its role was thus intended to be discrete and limited,” the bank said.

A spokesman for the bank said in a statement on Tuesday, that the judgment “reflects our commitment to acting with high professional standards in every country we operate in, and how we are prepared to robustly defend our actions and reputation when they are called into question”.

Brief Background

The London case dates back to 1998 when Nigerian military ruler Sani Abacha awarded the offshore oilfield licence, OPL 245, to a company Etete owned.

The $20 million price tag – of which Etete paid about $2 million, according to court documents – was widely viewed by industry experts as too low given the block was expected to yield billions of dollars of crude, although it remains undeveloped.

Subsequent Nigerian administrations contested Etete’s rights to the field, triggering years of legal wrangling until a deal designed to end the battles was struck in 2011.

Etete’s company Malabu Oil and Gas handed the undeveloped OPL 245 back to Nigeria as part of a resolution agreement involving Shell and Eni.

To complete the deal, Shell and Eni also paid a signature bonus of about $200 million directly to the Nigerian government and then deposited $1.1 billion in the Nigerian government’s escrow account with JP Morgan, court documents showed.

A report by the anti-corruption group, Global Witness, released in November 2018, said that Shell and Eni’s deal for Nigeria’s OPL 245 oil block reduced Nigeria’s expected revenue by nearly $6 billion.

The report urged Nigeria to revoke the OPL 245 licence rather than allow the oil companies to make enormous profits from the deal.

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