Bona fide challenge to arbitral award cannot be subject to security order
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The UK Supreme Court unanimously overturned the Court of Appeal in finding that the latter had no power, under the UK Arbitration Act 1996 or otherwise, to make a bona fide public policy challenge to the enforcement of a New York Convention arbitral award conditional on the award debtor providing security in respect of the award: IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation  UKSC 16, 1 March 2017.
This is the latest instalment in a long series of English court decisions regarding IPCO's efforts to enforce a 2004 arbitral award against the Nigerian National Petroleum Corporation (NPCC), relating to the construction of the Bonny petroleum export terminal in the Niger Delta. The enforcement claim was initially adjourned by the High Court, under s103(5) of the Arbitration Act 1996 (the Act), because the NPCC commenced setting aside proceedings before Nigerian courts. One of the conditions for adjournment was NNPC's provision of security of USD 50 million. Following further enforcement efforts by IPCO before the English courts, which led to securing an order for partial payment of the award, new evidence surfaced in 2009 which suggested that IPCO employees had forged a number of documents relied on in the arbitration. This led to a further adjournment, pending determination of the fraud allegations in Nigeria. As a result of the various adjournments, the NPCC was required to provide security in the total amount of USD 80 million.
In July 2012, IPCO issued a renewed application to enforce part of the award that it claimed was due on any view. On appeal to the Court of Appeal, IPCO was successful. It was held 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 (for further details, see Arbitral award enforced despite bona fide challenge at the seat). Controversially, the Court of Appeal also ordered, under s103(5) of the Act, that NNPC provide a further USD 100 million in security in respect of the award as a condition for NNPC to continue its challenge of the award on grounds of fraud. If NNPC were to fail to provide this security, the Court of Appeal held, IPCO would be entitled to seek enforcement without any decision of the fraud issue.
NNPC appealed. The issue before the Supreme Court was whether the Court of Appeal was justified in attaching a security condition: (i) by reference to s103(5) of the Act; and/or; (ii) by reference to general English civil procedural rules.
Security as price for adjournment requested by award debtor
The two relevant sections of the Act are:
- s103(3), which allows the court not to recognise or enforce an award if "it would be contrary to public policy" to do so; and
- s103(5), which empowers the court to adjourn enforcement of an award if a challenge is pending before the courts at the seat of arbitration. Under this section, the court may, on the application of the award creditor, "order the other party to give suitable security".
These provisions implement Articles V and VI, respectively, of the 1958 New York Convention Recognition and Enforcement of Foreign Arbitral Awards (the Convention).
The Supreme Court clarified that s103(5) of the Act allows the court to require security from the award debtor only as the "price of an adjournment which an award debtor is seeking, not to be imposed on an award debtor who is resisting enforcement on properly arguable grounds". The court found that s103(3) did not contain any provisions enabling an enforcing court to require an award debtor to post security as a condition for the court to decide a public policy challenge raised under the section. The Court of Appeal incorrectly required security as the price of the decision of a bona fide public policy challenge under s103(3). It did not order adjournment pursuant to s103(5) but, on the contrary, lifted an adjournment previously ordered under that section.
New York Convention – a complete code
The Supreme Court held that the Convention is a "complete code" intended to "establish a common international approach" so that Article V challenges may only be made conditional upon provision of security in "one situation falling within [its] scope", namely when an adjournment is ordered under Article VI because of setting aside proceedings at the arbitral seat. Sections 100 - 104 of the Act simply reflect the Convention and were not intended to grant procedural powers to the English courts beyond those envisaged in the Convention.
Given the general scheme, therefore, the Court of Appeal was found to have no discretion under the Act, and no power under CPR 3.1(3), to order security in the circumstances. The purpose of CPR 3.1(3), which IPCO argued empowered the court to attach security conditions in this case, is the "imposition of a condition as the price of relief sought as a matter of discretion or concession", as opposed to relief sought as a matter of right (as in NNPC's case). In other words, CPR 3.1(3) was never meant to make the exercise of rights, such as a bona fide challenge under s103(3), conditional.
This authoritative judgment is a welcome clarification in a complex area of law that is of much significance to parties seeking to enforce, or resist enforcement of, international arbitration awards in this jurisdiction and beyond. The English courts will respect the delicate balance between the rights of award creditors and award debtors enshrined in the Convention.
As Lord Mance explained, apart from the power to order security on adjournment under Article VI, the provisions of the Convention "were not aimed at improving award creditors' prospects of laying hands on assets to satisfy awards". This does not mean, however, that the English courts will be unwilling to make use of "other means of assisting award creditors, which do not impinge on award debtors’ rights of challenge". This includes interim measures such as disclosure and freezing orders. While no such order was appropriate on the facts, and none was requested by IPCO, the court emphasised that it would be willing to intervene, in appropriate circumstances, to grant relief facilitating the ultimate recovery of an award. Indeed, in the present case the Supreme Court made clear that existing security provided by NNPC should stand, even though the initial adjournment under s103(5) had been lifted.
Because the judgment interprets the Convention generally, and not only in relation to its implementation in England, it can carry authoritative force before courts in other jurisdictions. This is more likely to be the case if the implementing statute in the relevant jurisdiction reflects Articles V and VI of the Convention closely, as does the Act. Both award creditors and award debtors should therefore consider the judgment's implications for the enforcement proceedings in which they are involved, or in which they are likely to become involved in the future. While the availability of assets is the main (and obvious) driver in choosing the enforcement venue, when faced with the comfort of choice among possible enforcement venues, award creditors may wish to consider whether the courts in the relevant jurisdiction have powers available to them, outside the scheme of the Convention, to facilitate enforcement. The English courts' powers to issue freezing and disclosure orders is a good example.
This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards email@example.com, or tel +44 20 3088 3710.