Worldwide: Supreme Court Overturns Court Of Appeal: No Security To Challenge Enforcement Of An Arbitral Award

In a significant decision, the English Supreme Court recently set aside a decision of the Court of Appeal which had ordered adjournment of an order for enforcement of an arbitral award pending payment of security. The Supreme Court found that the Court of Appeal had exceeded its jurisdiction and that nothing in the Arbitration Act 1996 (AA 1996) nor the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) gave the court such power. This is understood to be the first appellate court decision on this issue worldwide and is therefore likely to be relied upon by other national courts when interpreting the New York Convention.

The dispute

The dispute arose out of a contract between the contractor (IPCO) and the Nigerian National Petroleum Company (NNPC) to design and construct a petroleum expert terminal in Nigeria. The contract was governed by Nigerian law with disputes to be resolved under the Nigerian Arbitration and Conciliation Act 1990.

A dispute arose and arbitration was conducted. An award was made in Nigeria in 2004 in IPCO's favour for around US$ 340 million. NNPC sought to have the award set aside in Nigeria (this claim is still yet to be heard).

Between 2004 and 2009 IPCO sought enforcement of the award in England or for enforcement adjourned pending resolution of challenges to the award in Nigeria (initially, on non-fraud but subsequently fraud charges). The courts ordered adjournment of enforcement of the award and security under AA 1996, s 103(5) (note the Supreme Court decision relates to s 103(3)).

In 2014, IPCO again sought enforcement in England but Mr Justice Field in the Commercial Court refused the application because of further delays in Nigeria which were found to amount to a change of circumstance. Field J did however highlight that the substantial delays in the Nigerian proceedings (the so-called 'Gordian knot') should not be permitted to continue in the interest of the parties and the Nigerian legal system. IPCO appealed this decision to the Court of Appeal.

The Court of Appeal were concerned by the length of time that it would take to reach a resolution of the Nigerian proceedings and remitted the case to the Commercial Court to determine whether enforcement of the award would contravene English public policy under section 103(3) of the 1996 Arbitration Act 1996 (AA 1996). The Court of Appeal also adjourned any further enforcement of the award under AA 1996, s 103(5) but ordered NNPC to pay a further US$100 million in security in addition to the US$80 million it had already paid. If the security was not paid, the court ordered the whole award to become payable.

Decision of the Supreme Court

NNPC appealed to the Supreme Court on grounds that the order for security under AA 1996, s 103(2) and (3) was made without jurisdiction or was illegitimate in circumstances where the court had found that NNPC had a good prima facie case of fraud which entitled it to resist enforcement of the whole award.

The Supreme Court allowed the appeal. In doing so, it set aside the decision of the Court of Appeal, finding that it had exceeded its jurisdiction and powers in making its order. The five judges of the Supreme Court (Lord Mance delivering the leading judgment) found that there is no express power in AA 1996,s 103(2) or 103(3), or in the same provisions of Article V of the New York Convention, which enables the enforcing court to make its decision conditional on the award debtor providing security.

Lord Mance did however clarify that, where an adjournment is sought under AA 1996, s 103(5) security may be ordered (thus leaving the original order for US$80 million security made under this section in place). The court may postpone making a decision on recognition and enforcement until a foreign competent court has considered a set-aside application and security may be ordered on these terms as this is specifically provided for.

In arriving at its decision, the Supreme Court demonstrated its willingness to look to the spirit of the New York Convention as reflecting a balancing of interests between the award creditor and debtor.

Impact

For the parties the saga of this case and IPCO's efforts to enforce its arbitral award continue. While this decision is positive for arbitration in that it clarifies a question on enforcement, it does highlight the continuing difficulties with enforcing awards and the opportunities to thwart enforcement by challenging the award in jurisdictions where the courts are unable to address the application without significant delay.

IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16

Supreme Court Overturns Court Of Appeal: No Security To Challenge Enforcement Of An Arbitral Award

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