In its judgment in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation (No.3) [2015] EWCA Civ 1144 & 1145, handed down on 10 November 2015, the Court of Appeal considered whether the Appellant ("IPCO") was entitled to enforce an arbitration award made against the Respondent ("NNPC") in Nigeria in October 2004 (the "Award").

In this significant decision, the Court of Appeal ordered that IPCO should be able, in principle, to enforce the Award, notwithstanding the existence of challenges to it in Nigeria, given the very significant delay in resolving those challenges before the Nigerian courts. On the facts of this case, the Court of Appeal considered that the alternative result (of yet further adjournment) would, in commercial terms, be absurd and inconsistent with the principles underpinning the New York Convention.

Background

The question at issue in the appeal was whether Field J had, in IPCO (Nigeria) LTD v Nigerian National Petroleum Corporation [2014] EWHC 576 (Comm) ("Field J's Judgment"), been right to decline to enforce the Award and, instead, to continue the adjournment of the enforcement proceedings in England.

The Award and the challenge in Nigeria

In 2004, following arbitration proceedings seated in Nigeria, IPCO was awarded over USD 150 million plus interest. NNPC, however, brought a challenge to the Award before the Nigerian courts, principally on the grounds that there was an error of law and inadequate reasoning.

The enforcement proceedings in England up to Field J's Judgment

Despite this challenge, IPCO nevertheless sought to enforce the Award before the English courts. These enforcement proceedings have a long history‎.

  • On 29 November 2004 Steel J made an ex parte order pursuant to s.101(2) and (3) of the Arbitration Act 1996 (the "Act") for the payment by NNPC to IPCO of the sterling equivalent of the total sums due under the Award.
  • On 13 December 2004 NNPC applied to set that order aside, and on 10 March 2005 it amended its application to seek, in the alternative, the adjournment of the question of enforcement.
  • On 7 April 2005 Gross J (as he then was) considered that, on the facts of the case, the challenge was bona fide and had a realistic prospect of success, and that proper deference should be shown to those proceedings. He accordingly ordered that there should be adjournment of the enforcement of the Award subject to payment of an uncontested part of the Award and USD 50 million by way of security. NNPC complied with these terms.
  • On 19 July 2007 IPCO renewed its application to enforce. It argued that the Nigerian proceedings were taking much longer than was expected when Gross J made his order (it was expected the challenge to the Award would not be determined for at least another five years) and that Gross J had been misled as to the strength of the Nigerian challenge.
  • On 17 April 2008 Tomlinson J found that the 'catastrophic' change in circumstances in the Nigerian proceedings justified revisiting Gross J's decision. He ordered (in the "Tomlinson Order") that certain heads of claim under the Award, representing the unchallenged parts of the Award, be paid by NNPC to IPCO.
  • On 2 December 2008 NNPC applied to stay enforcement of the Tomlinson Order, raising, for the first time, allegations that the Award had been obtained by fraud.
  • On 18 December 2008 NNPC filed an application to (i) vary the Tomlinson Order so as to provide that enforcement be set aside on grounds of public policy or (ii) adjourn enforcement of the Tomlinson Order. NNPC then filed particulars of the fraud alleged on 19 January 2009.
  • An order dated 17 June 2009 (the "Consent Order") recorded the parties' agreement, following developments in Nigeria which included NNPC's amendment of its challenge in the Nigerian courts to include the fraud allegations, that the parts of the Tomlinson Order directing payment be set aside and that enforcement of the Award be adjourned generally under s.103(5) of the Act.

Field J's Judgment

On 24 July 2012, IPCO brought a new application to enforce the Award.

Field J, in his judgment of 14 March 2014, dismissed this application. He found that IPCO had failed to establish there had been a sufficient change of circumstances since the Tomlinson Order to justify a further application to enforce the Award. By agreeing to the Consent Order, IPCO had conceded that NNPC's pleaded case on fraud amounted to an arguable challenge to the Award in Nigeria. On this basis, a change of circumstance relating to NNPC's fraud case would have to show that that fraud case was "hopeless and/or not bona fide" to justify re-opening the exercise of the Court's discretion to adjourn enforcement under the Act.

Field J further found that, even if he had been persuaded that it was appropriate to consider enforcement afresh, he would still have refused to enforce any part of the Award. In his opinion, NNPC had a good prima facie case that IPCO practiced a fraud on the Tribunal, which undermined the validity of the whole Award.

The Court of Appeal's Decision

The Court of Appeal found that Field J had applied too strict a test. IPCO was not required to show that the fraud case was "hopeless and/or not bona fide", but only whether there had been a significant change of circumstances since the Consent Order which impinged on or related to the reason for seeking a variation. A significant change to the plausibility of the argument for annulment of the award might justify a reconsideration of the exercise of discretion to adjourn, especially if taken with other factors such as delay, even if it could not be said that the fraud case was completely hopeless.

In the Court of Appeal's view, there were now, and had been before Field J, changed circumstances requiring a reconsideration of the exercise of the Court's discretion to adjourn. The difference between the delay which had crystallised in the Nigerian proceedings and that expected at the time of the Tomlinson Order was itself a significant development, and that increase in delay would potentially apply to any subsequent series of appeals in relation to the various challenges to the Award in Nigeria.

The Court acknowledged that ordering enforcement of the Award could mean that IPCO would receive payment under an Award it had obtained by fraud, and that NNPC's prospects of recovering the amount paid if the Award was ultimately set aside in Nigeria would be practically non-existent. It agreed with NNPC's submission that this was a course the Court should be deeply reluctant to take. The Court was also conscious of the need for comity between the courts of friendly foreign states, especially when the court in question is the court of the seat of the arbitration to which the parties agreed.

On the other hand, if the Court declined to order enforcement and the Award was upheld, the evidence of the Hon Justice S.M.A. Belgore, former Chief Justice of Nigeria, instructed on behalf of IPCO, was that it was "conceivable that there will be no fixed determination of the issue of whether the arbitral award will be set aside for twenty or thirty years or longer". This was a result which, the Court deemed, "in commercial terms, is absurd" and "inconsistent with the principles that underpin the New York Convention".

Accordingly, the Court ordered that IPCO be permitted to enforce the Award, subject to determination by the Commercial Court pursuant to s103(3) of the Act as to whether the Award should not be enforced in whole or in part because it would be against English public policy to do so. This route would allow NNPC's fraud challenge to be determined within a reasonable timescale, and with a depth of review unlikely to be less than that of the Nigerian court.

The Court also considered it necessary to provide an incentive to progress the enforcement proceedings. It accordingly ordered that NNPC provide further security in the sum of USD 100 million. In setting the amount, it took into account the fact that there is a good prima facie case of fraud as to at least part of the Award, as well as IPCO's calculation of the amount of principal and interest in respect of items unchallenged and unpaid (USD 90 million).

Comment

This is the first reported English appellate decision where a New York Convention award creditor has been permitted to enforce on the basis of extraordinary delay notwithstanding a bona fide challenge at the seat. The decision is also helpful in establishing that the Court will have jurisdiction to reconsider a prior decision to adjourn enforcement proceedings where there has been a significant change in circumstances, and that new evidence of a delay in respect of which there was previously only speculation may constitute such a significant change.

This decision underlines once more the English courts' commitment to giving effect, so far as possible, to the principles of the New York Convention, which, in the Court of Appeal's words, "was 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". While faced with "a stark choice", particularly in view of the allegations of fraud, the Court nevertheless considered its chosen solution appropriate.

Assuming NNPC provides the required security, it now remains for the Commercial Court to determine whether enforcement of all or part of the Award would be against English public policy.