The decision is the latest step in IPCO’s long running attempts to secure enforcement of a Nigerian arbitration award dated 28 October 2004 for US$152 million plus interest at 14% per annum arising out of a contract by which IPCO undertook to design and construct a petroleum export terminal for NNPC.
The award was challenged in set-aside proceedings before the Nigerian courts, initially on what were referred to as “non-fraud challenges”, but from 2009 onwards on the basis that NNPC procured the award in substantial part by fraudulent inflation of the quantum of its claim using fraudulently created documentation. Both the judge in the Commercial Court and those in the Court of Appeal considered that the fraud challenge was made bona fide, and that NNPC had a good prima facie case that IPCO had practised a fraud on the tribunal and that NNPC had a realistic prospect of providing that the award should be set aside because of the fraud.
An ex parte order recognising the award in England was made in the Commercial Court in November 2004. This led to an application by NNPC under Sections 103(2)(f) and 103(3) of the 1996 Act to set aside the order requiring payment of the amount of the award or, in the alternative, for enforcement to be adjourned under s.103(5) of the 1996 Act.
There were substantial delays in the hearing of the challenges before the Nigerian courts. However before the challenges alleging fraud had been raised, various Commercial Court judges had ordered the enforcement of the award to be adjourned pending resolution of the non-fraud challenges in Nigeria, but conditional on NNPC putting up security of US$80 million pursuant to section 103(5).
In 2012 IPCO renewed its application to enforce on the ground of the further delay in the Nigerian proceedings. On appeal, the Court of Appeal ordered (a) that the proceedings be remitted to the Commercial Court for it to determine pursuant to Section 103(3) whether the award should be enforced because it would be against English public policy in light of the alleged fraud and (b) that any further enforcement of the award be “adjourned” in the meanwhile under Section 103(5), pending determination of the Section 103(3) proceedings. However the Court of Appeal made its order conditional on NNPC providing a further US$100m security (in addition to the US$80m already provided), and directed that any failure of NNPC to furnish the further security would result in IPCO being entitled to enforce the award in the same manner as a judgment of the court to the same effect.
NNPC appealed to the Supreme Court on the basis that the order for the further US$100m security had been made without jurisdiction.
Decision of the Supreme Court
The Supreme Court allowed NNPC’s appeal and set aside the requirement that NNPC provide further security of US$100 million, and remitted NNPC’s fraud and non-fraud challenges to the Commercial Court for decision. It is thus the English court (the court in which recognition and enforcement of the award is sought) which will determine the validity of these challenges, and not the Nigerian court (the court of the country in which, or under the law of which, the award had been made).
Lord Mance (who delivered the unanimous decision of the Supreme Court) held that, in contrast to what applied where an application to adjourn a decision on recognition or enforcement of an award is made on the basis of Section 103(5) because of an application to set aside or suspend the award made to a competent authority of the country in which the award was made,
nothing in section 103(2) or (3) … provides that an enforcing court may make the decision of an issue raised under either subsection conditional upon the provision of security in respect of the award.
Lord Mance also declared that the Court of Appeal had been in error in regarding its order that the English court as the enforcing court should decide the fraud issue as involving “adjournment” of the decision on that issue within the terms of Section 103(5).
Section 103(5) concerns the situation where an enforcing court adjourns its decision on enforcement under section 103(2) or (3), while an application for setting aside or suspension of the award is pending before the court of the country in, or under the law of which, the award was made. This was the situation when orders for the provision of security had earlier been made in the Commercial Court, but it ceased to be the situation once the Court of Appeal held that the issue whether fraud was an answer to enforcement should no longer await the outcome of the Nigerian proceedings, but should be decided by the English courts.
The “adjournment” contemplated by Section 103(5) is pending the outcome of the application to the courts of the seat of the award, and once it is held that there should be no such further adjournment, there is no basis for ordering further security under Section 103(5). The “adjournment” involved in the decision-making process involved in determining an issue raised under Section 103(2) or (3) did not mean that “the decision” was being adjourned within section 103(5). Such “adjournment” had a different meaning which did not invoke the jurisdiction to order security contained in Section 103(5).
The Court of Appeal had incorrectly required security
not as the price of a 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. It had no power under section 103 to make a decision of the properly arguable case raised by NNPC under section 103(3) conditional on NNPC providing further security.
Impact of the New York Convention
To support his decision, Lord Mance declared that Articles V and VI of the New York Convention (which are given effect to by Sections 103(2) and (3) of the 1996 Act)
constitute a code relating to security for an award when the issue is enforcement or adjournment; and … the code excludes requiring security for an award in the face of a properly arguable challenge under article V, except in so far as article VI provides.
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 1996 Act), might be made conditional upon provision of security in the amount of the award, that could and would have been said. The Convention reflects a balancing of interests, with a prima facie right to enforce being countered by rights of challenge. Apart from the second paragraph of article VI, its provisions were not aimed at improving award creditors’ prospects of laying hands on assets to satisfy awards.
Impact on previous security
The application by NNPC for the release of the security of US$80 million it had previously furnished was denied. Lord Mance held that that security had been the price of earlier adjournments under Section 103(5), which had lasted in total nearly 12 years. Lord Mance held that the fact that the adjournment would now lapse was no reason for the court to permit the existing security to be released.
Implications of the decision
Award creditors bringing proceedings under sections 103(2) or (3) of the 1996 Act will need to seek other means of indirectly securing their award. Provisional measures remain available to the award creditor from the English court which can serve to protect his position. Among these are the court’s power in an appropriate case to make a disclosure order and/or a freezing order with a view to indirectly securing an award. Lord Mance acknowledged that such orders could be made without impinging on a defendant’s right to raise challenges under section 103. He also observed that the court had jurisdiction, in the course of such a challenge, to
make all sorts of other procedural orders, and back them where necessary with sanctions.
Award debtors seeking to resist recognition and enforcement of an award in England must take care. If they seek to have an award set aside in the courts of the seat of the arbitration on any of the grounds contained in Articles V or VI of the New York Convention, they ought not to seek from the English court an adjournment of the necessary application to resist enforcement of an ex parte recognition order because to do so would be to risk an order being made to provide “suitable security” for the award/judgment. Instead, consideration should be given to restricting the relief sought from the English court to an order setting aside the ex parte order.
What should an award debtor do if he does seek an adjournment of the recognition proceedings pending the determination of a set-aside application in the courts of the seat, and is ordered to give security but subsequently feels sufficiently confident of his defences under sections 103(2) or (3) of the 1996 Act and wishes to amend his application to withdraw the application to adjourn? He would be well-advised to seek release of any security already ordered and provided, since the reasoning given by Lord Mance for refusing such release in IPCO are not persuasive.
If you would like a detailed analysis of this decision or would like to discuss any of the issues raised in this article please contact me at Michael.Polonsky@blplaw.com