UK Supreme Court rules that no security may be ordered when challenging enforcement of arbitration awards

The UK Supreme Court has overturned a Court of Appeal decision requiring Nigerian National Petroleum Corporation ("NNPC") to provide US$ 100m in security while the case was remitted to the Commercial Court to decide on IPCO (Nigeria) Limited's ("IPCO") challenges to enforcement of an award. The Supreme Court held that while the English courts had the express power to make such orders for security under section 103(5) of the Arbitration Act 1996 (the "Act") in the context of an adjournment pending a challenge to the award in the jurisdiction where it was made, the present proceedings rather concerned a challenge to the enforcement of the award under section 103(3) of the Act. As such, no power to order security was available under the Act or the scheme of the New York Convention 1958 (the "Convention").: IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16.

The Supreme Court also provided guidance on the relationship between the Act and the New York Convention (the "Convention"), on which the relevant sections of the Act are based.

Background

Full background to the proceedings is set out in our previous blog post. In summary, the case concerned enforcement in the English courts of an arbitral award obtained by IPCO against NNPC in 2004 in the amount of USD 150 million plus interest.

Numerous challenges to the enforcement proceedings were brought in subsequent years by NNPC, including an application under s.103(5) of the Act to adjourn the proceedings pending resolution of a challenge to the award brought before the courts of Nigeria, the jurisdiction in which the award was made. This application was granted in 2005 subject to the payment of US$ 50 million by way of security (which sum was increased to US$ 80 million in 2008-9).

In 2012, IPCO brought a new application to enforce the award, which was dismissed by Field J in his judgment of 14 March 2014.  On 10 November 2015, the Court of Appeal, however, ruled that prolonged "sclerotic" delays in the Nigerian proceedings constituted sufficient grounds to recommence the enforcement proceedings. In particular, the Court of Appeal: (i) remitted the case to the Commercial Court to determine whether or not allegations of fraud provided a public policy ground to refuse enforcement under section 103(3) of the Act; and (ii) ordered NNPC to provide an additional US$ 100m in security (in addition to the US$80 million that had previously been ordered).

NNPC applied for and received permission to appeal to the Supreme Court against the Court of Appeal's order for security. In essence, it did so on the ground that the order 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.

The Supreme Court's decision 

In its judgment of 1 March 2017, the Supreme Court upheld the appeal and set aside the order to provide further security.  It ruled that the Court of Appeal had erred in two principal ways.

First, the Court of Appeal had not in fact adjourned the enforcement proceedings within the meaning of section 103(5) of the Act.  It had ordered that the underlying public policy challenge arising from the fraud allegations should be resolved in the English courts, and should no longer await the outcome of the Nigerian proceedings.  As such, this challenge was brought under section 103(3) of the Act, and did not constitute an adjournment within the meaning of Section 103(5).

Further, only section 103(5) provides that security may be ordered in the context of such an adjournment.  Sections 103(2) and (3), setting out grounds for challenging the enforcement of awards, do not contain such a reference to security. The Court of Appeal had, therefore, committed a similar error as the court in Dardana v Yukos [2002] All ER (Comm) 819, in that it had effectively ordered the award debtor to provide security "as the price of the decision of an issue under section 103(3)" of the Act, where no such power existed.

Accordingly, the Supreme Court ruled that the Court of Appeal's order for security was not within the scope of any jurisdiction or power conferred by section 103 of the Act.    

Second, IPCO argued that the courts enjoyed a general discretion, under their ordinary procedural powers contained in the Civil Procedural Rules, to order security in these circumstances. It argued that the provisions of the Convention and sections 100-104 of the Act left those ordinary powers untouched.

The Supreme Court also rejected this argument. It held that Articles V (the basis for sections 103(2) and (3) of the Act) and VI (the basis for section 103(5)) of the Convention  "constitute a code", and that they must have been "intended to establish a common international approach". In this context, the absence of any provision regarding security in respect of Article V, rather than just Article VI, was telling. If it had been "contemplated that the right to have a decision of a properly arguable challenge [under article V] might be made provisional upon provision of security in the amount of the award, that could and would have been said".

The Supreme Court also dismissed IPCO's arguments that the effect of this ruling would be that security could be ordered more readily in relation to challenges to domestic awards than to international awards.

Comment

This further chapter in the long-running case therefore sees the challenge to enforcement remitted to the Commercial Court, but without further security being ordered. Although it dismissed the order of the further US$ 100 million security, it did not permit the US$ 80 million previously ordered to lapse, as this was based upon a separate order and undertaking.

The point of perhaps most interest in the judgment is the Supreme Court's guidance on the relationship between the Act and the Convention. The finding that the Convention is, in this context, a "code", means that the English courts have no jurisdiction to order security as a condition for making a properly arguable challenge to enforcement. They may only do so in the strict circumstances contemplated by section 103(5) (implementing Article VI of the Convention). The Court commented that the Convention reflects a "balancing of interests, with a prima facie right to enforce being countered by rights of challenge". But apart from in the circumstances contemplated by section 103(5), its provisions "were not aimed at improving award creditors' prospects of laying hands on assets to satisfy awards".  The Court noted the existence of its other powers to assist award creditors (such as disclosure and freezing orders), which did not impinge upon award debtors' rights of challenge.