In IPCO (Nigeria) Limited v. Nigerian National Petroleum Corporation ([2017] UKSC 16), the Supreme Court was asked to consider whether the Court of Appeal was correct to require a party challenging the enforcement and recognition of a New York Convention award on public policy grounds to provide security for its challenge.

In a unanimous judgment delivered by Lord Mance on 1 March 2017, the Supreme Court held that it was not. The decision was applied in Eastern European Engineering v. Vijay Construction [2017] EWHC 797 (Comm) and highlights the distinction between cases where security may be ordered as the price of an adjournment pending the outcome of foreign proceedings and cases where a properly arguable challenge is raised to the recognition or enforcement of an award.

Background to IPCO v. NNPC

This decision is the latest development in the 14-year legal battle in which IPCO sought to secure recognition and enforcement in England of a 2004 Nigeria-seated arbitration award in respect of a contract under which IPCO undertook to design and construct a petroleum export terminal for NNPC.

The award was, and remains, subject to outstanding challenges by NNPC in Nigeria and England, initially for ‘non-fraud reasons’ and, from 2009, for alleged fraud in relation to IPCO’s presentation of its claim to the arbitral tribunal. Both the judge in the Commercial Court and those in the Court of Appeal accepted that the fraud challenge was made in good faith and that NNPC had a good prima facie case as well as realistic prospects of proving that the award should be set aside on account of the fraud.

Between 2005 and 2009, various Commercial Court judges had ordered that enforcement be adjourned pending determination of the Nigerian proceedings, and that such adjournment was conditional on NNPC putting up security initially of US$ 50 million (which was subsequently increased to US$ 80 million) pursuant to section 103(5) of the English Arbitration Act 1996 (the ‘Act’). At the time, it was envisaged that the Nigerian proceedings, which had been started in 2004, would be concluded with reasonable despatch.

In 2012, IPCO renewed its application to enforce the award on the ground of the continuing delays in the Nigerian proceedings. That application was dismissed at first instance but allowed on appeal. In a decision dated 10 November 2015 (IPCO (Nigeria) Limited v. Nigerian National Petroleum Corporation [2015] EWCA 1144), the Court of Appeal decided, as Lord Mance put it, to ‘cut the Gordian knot caused by the ‘sclerotic’ process of the Nigerian proceedings’ by holding that the fraud challenge, which engages the public policy ground of section 103(3), should be determined by the English (rather than Nigerian) courts. The Court of Appeal thus ordered:

  • the proceedings be remitted to the Commercial Court to determine, pursuant to section 103(3), whether the award should be enforced on the basis that it would be against English public policy in light of the alleged fraud; and
  • that any further enforcement of the award be ‘adjourned’ in the meanwhile pending the section 103(3) determination.

Crucially, the Court of Appeal made its order conditional on NNPC putting up a further US$ 100 million security, in addition to the US$ 80 million already provided, and directed that any failure of NNPC to furnish the further security would result in IPCO being entitled to enforce the award in the same manner as a judgment of the court to the same effect.

NNPC appealed to the Supreme Court on the basis that the order for the further US$ 100 million security had been made without jurisdiction.

The decision of the Supreme Court

Allowing the appeal, the Supreme Court set aside the requirement that NNPC provide further security of US$ 100 million and remitted NNPC’s fraud and non-fraud challenges to the Commercial Court for determination.

Lord Mance gave the lead judgment with which all the Justices agreed. He held that, in contrast to section 103(5), which specifically provides that security may be ordered where there is an ‘adjournment’ within its terms, nothing in sections 103(2) or (3) (or in Article V of the New York Convention) provides a power to make an enforcing court’s decision on a challenge under those provisions conditional on an award debtor providing security in respect of the award.

He further pointed out that the Court of Appeal was wrong in treating its order that the Commercial Court decide the fraud challenge as involving an ‘adjournment’ of the decision on that issue within the terms of section 103(5). In his view, section 103(5) concerns situations where an enforcing court adjourns its decision on enforcement under sections 103(2) or (3) pending the outcome of an application for setting aside or suspension of the award before the court of the country in which, or under the law of which, the award was made. This was the situation when the earlier orders for the provision of security had been made in the Commercial Court, but was no longer the case once the Court of Appeal held that the fraud challenge should no longer await the outcome of the Nigerian proceedings, but should be decided by the English courts. Lord Mance thus concluded that the Court of Appeal erred by requiring security ‘not as the price of a further adjournment falling within section 103(5), but as the price of the decision of an issue under section 103(3)’.

Further, Lord Mance rejected IPCO’s argument that the New York Convention did not affect the ordinary procedural powers of the English courts (including as to security) and that signatory states of the Convention were free to attach procedural conditions to Article V (and thus section 103 of the Act). Instead, Lord Mance declared that the conditions for recognition and enforcement set out in Articles V and VI of the New York Convention constitute a complete code which ‘excludes requiring security for an award in the face of a properly arguable challenge under Article V, except in so far as Article VI provides’. 1 This approach, in his Lordship’s view, properly reflects a balancing of interests, with a prima facie right to enforce being countered by rights of challenge.

Eastern European Engineering v. Vijay Construction

The Supreme Court’s decision confirms that the jurisdiction of the English court to order security is limited to situations falling within the terms of Section 103(5) of the Act.

It now appears that under section 103(5) security may be ordered where the court adjourns its decision on enforcement under section 103(2) or (3) of the Act while an application for setting aside or suspension of the award is pending before the court of the country in, or under the law of which the award was made.

Where an order for security is made on the application of the party claiming recognition or enforcement of the award and the award debtor seeks an adjournment of the enforcement proceedings, the requirement for security is, in effect, the price of the adjournment sought by an award debtor and serves to protect the party seeking enforcement during the adjournment. However, where no adjournment is sought by the award debtor, the domestic enforcement proceedings under section 103(2) would have to be fought out to a conclusion; in these circumstances an order for security is not to be imposed on an award debtor who is resisting enforcement on properly arguable grounds. In IPCO, no adjournment under section 103(5) had either been sought or ordered.

This distinction is clearly illustrated by the English High Court’s recent decision in Eastern European Engineering v Vijay Construction [2017] EWHC 797 (Comm) which followed the IPCO decision. In this case, the ICC award debtor, Vijay Construction (‘Vijay’), made an application to the English court to set aside an ex parte recognition and enforcement order pending the resolution of its application to challenge the award at the seat in France.

Shortly before the hearing of the set aside application, it had been the award debtor’s position that its set aside application should be adjourned pending its application to challenge the award in the French courts. However, at the hearing itself, Vijay changed its position and resisted any adjournment – presumably, recognising that, in the light of the IPCO decision, adjournment would come at the price of being required to post security.

Mr Justice Flaux ultimately granted the adjournment on the claimant’s application on his own initiative and required Vijay to provide security for the award. No security was provided by Vijay and its challenge to the award in the French courts failed.

The award creditor, ‘Eastern European Engineering’, applied to the English court for an order that the set aside application be dismissed unless Vijay complied with the order for security. Mr Justice Andrew Baker dismissed the application. In the decision dated 11 April 2017 Eastern European Engineering v. Vijay Construction [2017] EWHC 797 (Comm), he held that the Supreme Court in IPCO was clear that security for an award could only be ordered where the party resisting enforcement had requested the adjournment of its challenge in the enforcing court. Since Vijay had not sought the adjournment, it would be wrong in principle to order security against Vijay, and directly contrary to the decision in IPCO, to impose ‘unless’ terms on the order for security. The proper course, Mr Justice Andrew Baker held, was to end the adjournment, discharge Mr Justice Flaux’s order for the provision of security and proceed expeditiously with Vijay’s set-aside application. In his judgment, the issue of whether Mr Justice Flaux had been wrong to order security in the first place had to be decided by the Court of Appeal.

Unfortunately it appears that the appeal to the Court of Appeal against Mr Justice Flaux’s decision to order security is no longer proceeding. We therefore await further clarification as to what, following the IPCO decision, the courts in England would regard as the appropriate basis for awarding security for adjournment of enforcement proceedings in England under section 103(5), pending a challenge of the award at the seat of arbitration.

Article VI of the New York Convention provides: ‘If an application for the setting aside or suspension of the award has been made to a competent authority referred to in Article V(1)(e), the authority before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security’.