The Supreme Court overturned the Court of Appeal’s decision that the Nigerian National Petroleum Corporation (NNPC) must provide a further $100 million in security, having earlier provided $80 million in security, to continue to challenge the enforcement of a Nigerian arbitration award made in favour of IPCO (Nigeria) Limited (IPCO).
The history of the dispute
More than 12 years have passed since IPCO were awarded over $152 million in damages plus interest at 14% by a Nigerian ad hoc arbitration tribunal. The damages were awarded in respect of a contract under which IPCO were to design and build a petroleum terminal for the NNPC.
The award has been the subject of a long and drawn out series of challenges in the Nigerian courts. In 2008, NNPC added a challenge on the basis that the award should be annulled because IPCO allegedly fraudulently inflated the quantum of its claim.
Meanwhile, IPCO’s attempts to enforce the award in England were delayed while the Court waited for the Nigerian courts to deal with NPCC’s challenges. After several years and very little progress in the Nigerian courts, the Court of Appeal of England and Wales decided that it was time to take control and release the case from the ‘sclerotic’ Nigerian proceedings. It remitted the case to the Commercial Court to determine whether, in accordance with section 103(3) of the Arbitration Act 1996 (‘the AA 1996’), the enforcement of the award would be in contravention of English public policy because of the allegations of fraud that were pending in the Nigerian courts.
The Court of Appeal also stayed all enforcement proceedings on the condition that NNPC provided $100 million in additional security. If this was not provided the whole award would become payable. NNPC appealed against the order for security.
The Supreme Court handed down its ruling on 1 March 2017, overturning the decision and releasing NNPC from any obligation to provide further security.
The Supreme Court’s reasoning
Section 103 of the Arbitration Act 1996
Lord Mance delivered the leading judgment. He noted that Sections 103(2) and 103(3) give effect to Article V of the New York Convention, allowing for the refusal of recognition and enforcement of foreign arbitration awards only in specific listed circumstances. However, nothing in these provisions gives the Court the authority to make the consideration of these circumstances conditional on security being provided. Lord Mance noted that the contrast between sections 103(2) and 103(3) on the one hand, and section 103(5) on the other, which includes an explicit provision allowing the court to make security a condition of an order under that provision adjourning a decision on the recognition and enforcement of an award.
Lord Mance considered that the reason for the difference between these provisions lay in the nature of the orders that are available under these provisions. Section 103(5) provides for an adjournment of recognition or enforcement, and allows the Court to require security as the price the award debtor must pay to delay satisfying the award. By contrast, sections 103(2) and 103(3) address the circumstances in which the Court may refuse to recognize or enforce an award. Lord Mance noted that requiring the award debtor to provide security in these circumstances would be tantamount to having to pay the court to hear a bona fide challenge made ‘on properly arguable grounds.’
Lord Mance dismissed IPCO’s argument that section 103(5) was applicable to the proceedings and that security was therefore justified on that basis. This was not a case where the Court of Appeal had adjourned a decision on recognition or enforcement of the award, so that its judgment would fall within section 103(5), because by remitting the case to the Commercial Court to consider the public policy issue under section 103(3), the Court of Appeal had effectively decided that the enforcement proceedings were to continue without waiting for the outcome of challenge in the Nigerian Courts.
Furthermore, Lord Mance noted that there was no adjournment within the terms of section 103(5) to attach the requirement for security to, as the determination of the public policy issue by the Commercial Court was ongoing.
The Civil Procedure Rules
The Supreme Court confirmed that the Court of Appeal’s general powers under the Civil Procedure Rules, in particular those relating to case management, were not capable of saving the Court of Appeal decision.
CPR 3.1(3) allows the court to make an order subject to conditions, including a condition that a party must pay a sum of money into court. Nevertheless, Lord Mance concluded that the Convention and therefore the provisions of domestic statute which give it effect ‘do constitute a code’ and this ‘must have been intended to establish a common international approach.’ This interpretation precludes the CPR from being applied to override the limitations on the Court’s power that appear in the AA 1996.
The New York Convention was drafted after the conflicting interests of the award debtor and the award creditor had been considered. An award debtor will wish to challenge the decision without having to pay large amounts of money into the court, while the award creditor will wish to obtain some form of guarantee that the relevant assets will still be available if and when enforcement is granted. The Convention seeks to achieve the right balance between these interests. Although security is not available in the circumstances of section 103(2) and 103(3), it was available in other appropriate circumstances, such as an adjournment application under section 103(5). Other options are also open to the courts to ensure that the assets of the debtor are not dissipates, such as freezing orders and disclosure of UK assets, which may provide similar protection to the award creditor.
Conclusion
Whilst IPCO’s fight to enforce the award continues this case clarifies an important area of arbitration enforcement proceedings. It confirms that English court’s adherence to the structure established by the New York Convention, whilst protecting the rights of award debtors to pursue the limited challenged available to them under sections 103(2) and 103(3) without having to pay security into the Court for the privilege of exercising those rights. Where the award itself if not challenged, but the award debtor is seeking to delay its recognition and enforcement pending the decision of a competent authority on an application to set aside, the Court retains discretion to make an order conditional on security.
The circumstances of this case act as a reminder of the importance of choosing a seat of arbitration that can be expected to deal efficiently with any applications relating to the arbitration, including as in this case an application to set aside the award. The Nigerian courts’ long delay in dealing with the challenges raised by NNPC to the award has prevented IPCO from recovering the award debt, and has spawned lengthy and costly enforcement litigation.
IPCO (Nigeria) Limited (Respondent) v Nigerian National Petroleum Corporation (Appellant) [2017] UKSC 16