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Arbitral award enforced despite bona fide challenge at the seat

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Tomasz Hara

Senior Associate

London

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01 February 2016

In the ground-breaking decision of IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp (No 3) [2015] EWCA Civ 1144 & 1145, 10 November 2015, the Court of Appeal agreed in principle to enforce an arbitral award subject to setting aside proceedings at the seat of the arbitration (in Nigeria) because of those proceedings suffering exceptional delay.  The decision will be of particular interest to clients who are faced with arbitrations seated in jurisdictions suffering from judicial delays.

This action before the English courts stems from the efforts by IPCO (Nigeria) Limited (IPCO) to enforce a Nigerian arbitral award against Nigerian National Petroleum Corporation (NNPC). The award continues to be subject to setting aside proceedings before the Nigerian courts. Part of the challenge involves allegations of fraud.

The question before the Court of Appeal was whether the High Court judge (Field J) was right to refuse to lift a stay on enforcement that had been in place for nearly a decade. The Court of Appeal found that, due to an extraordinary delay before the Nigerian courts, the stay should be lifted subject to a determination by the High Court – for public policy reasons – of the fraud allegations raised by NNPC in Nigeria.

The underlying dispute between the parties concerns the construction of the Bonny petroleum export terminal in the Niger Delta. In October 2004, IPCO received an arbitral award in its favour of USD 152 million.1  Soon thereafter, NNPC commenced setting aside proceedings before the Nigerian courts.

In parallel, IPCO started enforcement proceedings in England in 2004. Those proceedings were stayed in 2005 as a result of NNPC’s challenge to the award in Nigeria.

In July 2007, Tomlinson J ordered partial payment of the award in light of the delays in Nigeria. Then new evidence came to light, suggesting that IPCO employees forged a number of documents relied on in the arbitration. By reference to this new evidence of fraud, NNPC applied for a stay of execution of Tomlinson J’s order. This delayed enforcement further and the parties agreed to set aside parts of Tomlinson J’s order and to further adjourn the enforcement of the award (the Consent Order). In Nigeria, NNPC applied to have the allegations of fraud included in its original motion. That application has not yet been heard by the Nigerian courts.

High Court – No circumstances justifying re consideration of stay and no reason to enforce the award

In July 2012 IPCO issued a renewed application to enforce part of the award that it claimed was due on any view. Field J refused to reconsider the Consent Order because none of the changes alleged by IPCO were of sufficient significance and/or of causative relevance to the reasons for which the Consent Order had been made. Even if Field J had been persuaded that it was appropriate to re-consider lifting the stay, he would still have refused enforcement because NNPC had a good prima facie case in relation to its fraud challenge (which IPCO conceded by agreeing to the Consent Order). For IPCO to be successful, it would need to show a change of circumstances showing that the fraud allegations were hopeless and/or not bona fide. IPCO appealed.

Court of Appeal – Enforcement consistent with the principles that underpin the New York Convention

Christopher Clarke LJ, with whom Burnett and Sales LLJ agreed, delivered the lead judgment. He recognised that in a matter such as this the English court must, so far as possible, give effect to the principles underlying the New York Convention (the Convention). Those principles are intended “to foster international trade by ensuring a relatively swift enforcement of awards and a degree of insulation from the vagaries of local legal systems”.2 Considerations of judicial comity may need to give way to those principles.

His Lordship disagreed with Field J’s assessment of the circumstances in which the court will re-open the exercise of its discretion. There was no need for IPCO to show that the fraud case was hopeless or not made bona fide. It was sufficient to show that “if the changed situation had been apparent when the original order was made, it would or might have led to a different result”.3  Changes can relate to matters such as: (i) the strength of the judicial challenge; (ii) the prospect of repayment by the award creditor (here IPCO); or (iii) delay in the proceedings. The first two types of changes were of no relevance on the facts but procedural delay had become significantly worse since the Consent Order; it became unlikely that the challenge would be resolved for another generation. In commercial terms, declining enforcement for such a period of time is absurd and “makes a mockery of the aim of the Convention”.4 

Christopher Clarke LJ lifted the stay on enforcement. However, it would be against English public policy – and therefore also impermissible under the Convention – to enforce an award potentially vitiated by fraud. In the circumstances, the enforcement was adjourned and the case sent to the High Court for a determination of the fraud allegations. In the words of Christopher Clarke LJ, the approach chosen was the only “way to cut the Gordian knot in a manner that does substantial justice to the parties”.5 

COMMENT

While the High Court will hear the fraud allegations in full, it will not determine any of NNPC’s other grounds of challenge. As a result, insofar as the non-fraud allegations are concerned, these will not prevent enforcement in England. This is the first reported judgment in which the English courts prioritised a claimant’s interest in having the award enforced over the respondent’s right to have the award reviewed by the courts of the seat.

The facts of the IPCO v NNPC case aptly demonstrate the severe impact (in both time and costs) that a protracted court challenge can have on the enforcement of an arbitral award, particularly if the party resisting enforcement resorts to delaying tactics. While the choice of the arbitral seat is an important factor in mitigating enforcement risk, that choice might be restricted, or altogether unavailable, when contracting with State owned entities in the extractive sector. It is therefore not unusual for companies in that industry to hold awards that are subject to protracted challenges in jurisdictions where severe judicial delay is the norm. Those companies can now consider whether to follow in the footsteps of IPCO and seek to enforce the awards in England, provided that the respondent has assets in the jurisdiction and that the delay in the judicial challenge at the seat is sufficiently severe. 


1 The award interest was fixed at 14% per annum and the award’s current value is over USD 340 million.
2 IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp (No 3) [2015] EWCA Civ 1144, para. 170.
3 Ibid., para. 86.
4 Ibid., para. 167.
5 Ibid., para. 185.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication.  For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.