Supreme Court rules no security needed to challenge enforcement under New York Convention

In IPCO (Nigeria) Limited (“IPCO”) v Nigerian National Petroleum Corporation (“NNPC”) [2017] UKSC 16, the UK Supreme Court overturned a ruling requiring NNPC to provide security as a condition to challenging the enforcement of an arbitration award.

Background

The arbitration took place under a contract whereby IPCO undertook to design and construct a petroleum export terminal for NNPC. The contract was governed by Nigerian law with disputes to be resolved under the Nigerian Arbitration and Conciliation Act 1990. A dispute arose and on 28 October 2004 an arbitral award of US$152 million (plus interest at 14%) was awarded in IPCO’s favour.

NNPC challenged the award before the Nigerian Federal High Court. Initially, the challenge was for “non-fraud” reasons but, from 2009, NNPC also challenged the award on the basis that IPCO procured it in substantial part by fraudulent inflation of the quantum of its claim using fraudulently created documents.

Between 2004 and 2009 IPCO tried to enforce the award in England or obtain for security for enforcement pending resolution of the challenges to the award in Nigeria. Initially, the English court adjourned the enforcement proceedings under section 103(5) Arbitration Act 1996. However, the Nigerian proceedings were subject to significant delays and in 2012 IPCO renewed its application to enforce the award in England on the grounds that the delays meant that there was a sufficient change in circumstances to justify it. At the appeal stage in 2012, the Court of Appeal held that there had been a material change in circumstances and decided to cut the “Gordian knot” caused by the “sclerotic” process of the proceedings in Nigeria.

The Court of Appeal ordered (i) the proceedings be remitted to the Commercial Court for determination as to whether or not it would be against public policy, in light of the alleged fraud, to enforce the award pursuant to section 103(3) of the Arbitration Act 1996; and (ii) any further enforcement of the award be adjourned pending determination of that section 103(3) determination. The order, however, was conditional on NNPC providing a further US$100 million security and any failure of NNPC to comply with the condition would result in IPCO being entitled to enforce the award in the same manner as a judgment of the court.

NNPC appealed against the Court of Appeal’s order for security on the ground that the order was made without jurisdiction or wrong in principle and/or was illegitimate in circumstances where NNPC has a good prima facie case of fraud entitling it to resist enforcement of the whole award.

Supreme Court’s decision

Arbitration Act 1996

The five judges in the Supreme Court held that there was nothing in section 103(2) or (3) (or in the underlying provisions of Article V of the New York Convention) which enables an enforcing court to make a decision conditional upon the provision of security in respect of the award.

In this respect, there is a marked contrast with section 103(5) Arbitration Act. That allows the court to postpone making a decision on recognition and enforcement until a foreign competent court has considered a set-aside application and specifically provides that security can be ordered in these terms. The Supreme Court held that once it is decided that there should be no such adjournment, there is no basis for ordering further security under section 103(5).

Lord Mance observed that the Court of Appeal had erroneously required security “not as the price of further adjournment falling within section 103(5), but as the price of the decision of an issue under section 103(3). The Court was lifting the adjournments previously ordered pending the outcome of the Nigerian proceedings, not ordering an adjournment”.

New York Convention

In support of the decision, the Supreme Court held that the conditions for recognition and enforcement set out in Articles V and VI of the New York Convention constitute a code intended to establish a common international approach, within the field with which they cover. They contemplate that a challenge under Article V may only be made conditional upon provision of security in a situation falling within their scope.

Had it been contemplated that the right to have a decision of a properly arguable challenge, on a ground mentioned in Article V (domestically, section 103(2) and (3) of the Arbitration Act 1996), might be made conditional upon provision of security in the amount of the award, that could and would have been said.

Civil Procedure Rules

The Supreme Court also rejected the argument that its power to order security under its general powers of case management, set out in Civil Procedure Rule 3.1(3), had any relevance in the context of an attempt to enforce an award under the New York Convention. Rather, the power under CPR 3.1(3) is a power expressed in general terms, to impose conditions on orders as the price of relief sought not the imposition of a fetter on a person exercising a properly arguable right.

Significance of decision

Whilst the judgment provides clarity and precedent on the attaching of conditions to the raising of a defence to the enforcement of an international arbitral award, it may not be universally welcomed.

The decision means that award creditors bringing proceedings under section 103(2) and 103(3) of the Arbitration Act 1996 will need to find other means of indirectly securing awards. Such powers undoubtedly exist and powers to make disclosure and freezing orders may well be available, without impinging on a defendant’s right to challenge enforcement under section 103 Arbitration Act 1996.

The full text of the judgment can be found here.