Litigation that goes on for any length of time tends to have its twists and turns. But few will have had as many as IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation.
The difficulty with so many twists and turns is that it can leave one dizzy and confused. That is essentially what happened in this case. Various adjournments in different contexts created confusion as to the jurisdictional basis for the grant of security in the context of an enforcement of an arbitral award.
The difficulty with so many twists and turns is that it can leave one dizzy and confused.
On 1 March 2017, the Supreme Court unravelled the confusion, and in so doing, provided its interpretation of the power of national courts to order security under the New York Convention. With now some 156 Contracting States to the New York Convention, its a decision one might expect to have implications well beyond this jurisdiction.
The appeal concerned a claim for an enforcement of an arbitral award commenced by IPCO as long ago as November 2004. The award was issued in Nigeria in an arbitration conducted under the Nigerian Arbitration and Conciliation Act 1988.
Nigerian National Petroleum Corporation (“NNPC”) applied to the Nigerian courts to set aside the award of just over US$150 million plus 14% interest. Although initially the grounds for set aside of the award were not fraud related, this changed when a former IPCO employee came forward with evidence that IPCO had obtained the award by fraud.
In parallel, IPCO applied to the English Court to enforce the award as a foreign award under section 103 of the English Arbitration Act, and an ex parte order for enforcement was granted. NNPC applied to either set aside the enforcement order or that it be adjourned pending the set aside application before the Nigerian court.
At that stage, it was thought that the set aside proceedings before the Nigerian court would be over without due delay. The English court adjourned the enforcement proceedings on the condition that NNPC pay IPCO US$13 million and provide security of US$50 million.
Over the next few years the Nigerian proceedings chugged along without resolution. IPCO made several attempts to lift the adjournment on the enforcement of the award. The adjournment was kept in place, but the security NNPC was required to pay increased.
Over the next few years the Nigerian proceedings chugged along without resolution.
In light of the fact that the Nigerian set aside proceedings had been ongoing for a decade, in 2015 the Court of Appeal held there had been a material change in circumstances and remitted the enforcement case to the Commercial Court for determination. The Court of Appeal also ordered that adjournment of the enforcement proceedings be kept in place and that further security in the sum of US$100 million be paid by NNPC (in addition to the US$80 million already provided).
The core issue was whether the Court of Appeal had the jurisdiction to order NNPC to pay this additional security of US$100 million. The Supreme Court found it did not. In order to understand why, we have to go back to the nature of the proceedings remitted to the Commercial Court.
What was the nature of the pending application?
IPCO had obtained an order from the English court for recognition and enforcement of the award under the provisions of the Arbitration Act 1996 which give effect to the New York Convention. Section 103 sets out the grounds on which the court may refuse to enforce the award. NNPC had sought to set aside the award in reliance on either:
- under Section 103(2)(f), on the basis that the award has been set aside or suspended by a competent authority, which was consistent with NNPC’s application to set aside the award in Nigeria (the competent authority); or
- under Section 103(3) on the grounds that to enforce the award would be contrary to public policy.
While NNPC’s application for set aside of the enforcement order on these grounds was being determined by the Commercial Court, the Court of Appeal directed that further enforcement of the Award shall be “adjourned” pursuant to Section 103(5).
The question was whether this adjournment fell within the meaning of Section 103(5), which was also the provision which conferred power on the court to grant security. This sub-section provides:
“Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in [Section 103(2)(f)], the court before which the award is sought to be relied upon may, if it considers proper, adjourn the decision on the recognition or enforcement of the award.
It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security.”
This provision was intended to operate where an application has been made before the English court for recognition or enforcement of an award and determination of that application is adjourned on account of the fact that an application to set aside the award is pending before a competent court, most likely the court at the seat of the arbitration. In those circumstances, the English court has the power to direct that the resisting party – who is also challenging the award before the competent court – provide security.
The purpose of this being to allow the court to strike a balance between protecting the fruits of the award for the party who has the benefit of it and recognising that there is a challenge to the award which may render it void.
In this case the Supreme Court held that there had been no “adjournment” within the meaning of section 103(5). The confusion arose as a consequence of the fact that the enforcement proceedings before the English court had originally be adjourned under section 103(5) on the basis of the set aside proceedings in Nigerian. But the Court of Appeal had determined that that adjournment – the adjournment within the meaning of section 103(5) – should be lifted so that a determination could be made as to whether the enforcement order should be set aside.
So in other words, the parties went back to square one; the Commercial Court was charged with determining whether the award should be enforced regardless of the set aside proceedings in Nigeria. And as there was no adjournment pending those set aside proceedings, there was no power to order security under section 103(5).
As Lord Mance observed the Court of Appeal’s error was that: “It required security, not as a price of further adjournment falling within section 103(5), but as the price of the decision of an issue under section 103(3).”
What are we to make of this?
The case is of broader significance because section 103(5) adopts the second paragraph of Article VI of the New York Convention. That being so, this judgment may influence the interpretation of the New York Convention in other jurisdictions.
The decision of the Supreme Court essentially shuts off the ability of an enforcing party to obtain security for an award in circumstances where an application is pending contesting enforcement of the award in the normal course. Although of course, the power to order security still remains if the English court orders an adjournment pending a set aside application before a competent authority.
The decision of the Supreme Court essentially shuts off the ability of an enforcing party to obtain security for an award, unless a set aside application is also pending.
As noted in the judgment, the risk of abuse which the authors of the New York Convention sought to guard against by including this provision was where proceedings were commenced before the competent court to set aside the enforcement of an award as a tactical device to delay enforcement. (This was taken from the Summary Record of the Seventeenth Meeting of the United Nations Conference on International Commercial Arbitration held on 3 June 1958).
Does this leave the party with the benefit of an arbitral award unfairly exposed in the event that he seeks to enforce an award and this takes some time to resolve? In some senses the position of the award creditor is the same. He has an award and enforcement of that award is being resisted, just at the place of enforcement rather that at enforcement and before the courts at the seat. Commonly the same issues will be raised on enforcement and on a set aside application; for example an argument that the tribunal lacked jurisdiction or, as in this case, allegations of fraud. And strategically, a party may not make an application to the courts at the seat but instead reserve its objections for the enforcing court. In addition, depending on the jurisdiction, enforcement proceedings can still take a long time to resolve. So they could be as much of a tactical delay device as any set aside application to a competent court.
The Supreme Court’s answer to that was that the English court still has certain powers to indirectly secure an award in the circumstances where it is only concerned with enforcement; for example disclosure orders and freezing orders but also potentially other procedural orders which can be backed by necessary sanctions.
This is a domestic answer to a possible international lacuna in the New York Convention. As already noted, some 156 states are parties to the New York Convention, but many will not have the same domestic tools available to stop the award creditor from being prejudiced on prolonged enforcement proceedings. Perhaps this highlights an area ripe for reform at the international, but perhaps more realistically at the domestic, level.