UK Supreme Court on security and challenging enforcement of arbitral awards

The UK Supreme Court has recently overturned a ruling of the Court of Appeal which effectively required the Nigerian National Petroleum Corporation (“NNPC”) to provide security as a condition to challenging the enforcement of an award on public policy grounds pursuant to section 103(3) of the Arbitration Act 1996 (the “Arbitration Act”). This decision represents the latest development in a long-running legal saga involving protracted proceedings to challenge the award in Nigeria as well as enforcement proceedings in England.

Background

The underlying dispute arose under a contract for IPCO (Nigeria) Limited (“IPCO”) to design and construct a petroleum export terminal for NNPC. Following arbitral proceedings seated in Nigeria, IPCO was ultimately awarded over US$150 million (plus interest) in October 2004. NNPC brought proceedings in Nigeria to have the award set aside. IPCO commenced enforcement proceedings in England. Over 12 years later, the award remains subject to outstanding challenges (including, since 2009, on the basis of fraud).

The English enforcement proceedings were adjourned pending resolution of the challenge brought in Nigeria pursuant to section 103(5) of the Arbitration Act, subject to payment of - amongst other sums - US$50 million security (which was later increased to US$80 million). There were significant delays in the Nigerian proceedings. In 2012, IPCO renewed its application to enforce the award in the English courts on the basis of a change in circumstances. Although this was dismissed at first instance, the Court of Appeal decided in November 2015 that “sclerotic” delays in the Nigerian proceedings warranted the English enforcement proceedings progressing. However, it ordered:

• the case to be remitted to the Commercial Court to determine whether allegations of fraud presented a public policy barrier to enforcement of the award under section 103(3) of the Arbitration Act; and
• pending that decision, any further enforcement of the award to be “adjourned”.

This was made conditional on NNPC paying an additional US$100 million by way of security, failing which the award could be enforced. NNPC appealed the validity of this order for additional security to the Supreme Court on the basis that it “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…”.

Decision

The Supreme Court allowed the appeal, setting aside the order for additional security, for the following reasons.

Section 103(5) provides, in essence, that security may be ordered where an English court adjourns its decision on recognition or enforcement of an award pending the outcome of an application for setting aside or suspension of the award before the courts of the seat. However, the Court of Appeal had actually ordered the underlying challenge to enforcement on public policy grounds to be decided in the English courts under section 103(3), without awaiting the final outcome of the Nigerian proceedings any longer. Properly characterised, this did not amount to adjourning the proceedings for the purpose of section 103(5). Furthermore, in contrast to section 103(5), sections 103(2)-(3) (and the underlying provisions in Article V of the New York Convention) - which set out grounds for challenging recognition or enforcement of an award - do not confer any express powers to order security. Accordingly, the Supreme Court concluded that the Court of Appeal had no power under section 103 to make a decision regarding NNPC’s properly arguable case under section 103(3) conditional on NNPC providing further security.

Further, IPCO’s arguments that the order for further security was justified under the ordinary procedural powers of the English courts were rejected for various reasons. In that regard, the Supreme Court ultimately found that the conditions for recognition and enforcement set out in Article V (which underpins section 103(2)-(3)) and Article VI (which underpins section 103(5)) of the New York Convention “constitute a code” which “must have been intended to establish a common international approach…”. Put simply, if the right to have a properly arguable challenge determined on an Article V ground could be made conditional upon provision of security in respect of the award, the New York Convention would say so.

Interestingly, the Supreme Court expanded further on the rationale for this, noting that the New York Convention “reflects a balancing of interests, with a prima facie right to enforce being countered by rights of challenge”. There is, in its view, no broader aim of “…improving award creditors’ prospects of laying hands on assets to satisfy awards.” In that regard, the Supreme Court acknowledged that the court has other means of assisting award creditors (such as disclosure and freezing orders) which do not impinge upon debtors’ rights of challenge at its disposal.

Implications of the decision

The Supreme Court has helpfully clarified that the English courts do not have jurisdiction to order an award debtor to provide security as a condition to challenging the enforcement of an arbitral award in England under section 103(2)-(3) of the Arbitration Act. Beyond that, the decision provides valuable guidance on the interpretation of Articles V and VI of the New York Convention (and how those provisions interact with relevant provisions of the Arbitration Act). In this respect, it may also have wider significance for other jurisdictions.

We will watch with interest as the latest instalment in this legal drama unfolds, without additional security, in the Commercial Court.

You can access the full text of the decision (IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16) here.