In our March edition we considered the judgment of the Supreme Court in IPCO (Nigeria) Limited -v- Nigerian National Petroleum Corporation [2017] UKSC 16 (IPCO -v- NPPC).

In this case, the judge applied IPCO -v- NPPC in deciding that it would be wrong to make it a condition of the defendant’s pursuit of its set aside application that it comply with an order for security.

Factual background

On 14 November 2014 an arbitration award was granted in favour of the claimant in an ICC arbitration seated in Paris and on 18 August 2015, leave to enforce the award and judgment in terms of the award, was granted by Cooke J.

On 23 October 2015 the defendant made an application to set aside Cooke J’s order, however on 8 June 2016 Flaux J adjourned this application pending determination in the French courts of an application brought by the defendant to challenge the award. Flaux J also ordered that the defendant put up security for the award in the sum of €7,500,000 by 16:00 on 20 July 2016; the defendant did not put up security.

As a result of the defendant’s failure to comply with the order for security, and as a result of the application in the French courts having failed, the claimant made two applications to the court. The first application, made on 26 August 2016, sought an order that the defendant provide security by a date to be specified in September 2016. The second application, made on 3 April 2017, requested that the defendant’s application be set aside and for the adjournment made by Flaux J of the leave to enforce the award granted by Cooke J, to be set aside.

The judge dismissed the application made on 26 August 2016, stating that there was no point in reiterating the order already made by Flaux J. He held that the correct question was what consequence, if any, there should be as a result of the defendant’s failure to comply with the order. The judge also dismissed the application made on 3 April 2017 for an order setting aside the adjournment made by Flaux J. In doing so the judge said that it was not the leave to enforce that Flaux J had adjourned, but the determination of the defendant’s application to set aside the leave to enforce.

The judge held that the effective application was for the dismissal of the defendant’s set aside application, because of the defendant’s failure to provide security and because of the failure of the challenge in the French courts.

Legal issues

Relying on the Supreme Court case of IPCO -v- NPPC, counsel for the defendant put forward the following arguments:

  1. There is nothing in section 103 of the Arbitration Act 1996, or in the provisions of Article V of the New York Convention, which provides that an enforcing court may make the decision of an issue raised under S103(2)/(3) conditional upon the provision of security for the award;
  2. The only circumstance in which the New York Convention allows for the party challenging the award to be required to provide security for sums awarded against it is where the challenge in the enforcing court is adjourned pending a challenge in the courts of the seat of the arbitration; and
  3. CPR 3.1(3) does not authorise the making of an ‘unless’ order, the effect of which would be to require the provision of security for an award as condition of pursuing a properly arguable challenge under S103, since that would contravene the first proposition.

In his oral submissions, counsel for the defendant expanded on his second point and said that IPCO -v- NNPC holds that security for an award may only be ordered under S103(5) where the party resisting enforcement requests the adjournment of its challenge in the enforcing court. The judge said that if this was correct then Flaux J was wrong to order security in the first place, as he did so on the basis that the only conditions imposed upon the granting of security under S103(5) are that there is a challenge before the competent authority and the court considers it proper and appropriate to grant an adjournment of an application to set aside the enforcement proceedings until the competent authority has ruled. However, the judge went on to say that this was a matter for the Court of Appeal to decide.

In response to the defendant’s third point, the claimant submitted that there was no special restriction upon the means by which the court may consider enforcing the order for security, or upon the sanctions that may be imposed. The judge disagreed with the claimant’s argument and followed IPCO -v- NPPC in stating that where an adjournment is not sought by the party resisting enforcement, there is no sense in which the security ordered can properly be regarded as the price of relief sought as a matter of discretion or concession. The judge went on to say that, as the adjournment was granted at the claimant’s urging, it would be wrong and contrary to IPCO -v- NPPC to impose ‘unless’ terms upon the order for security, and that to do so would be to require the provision of security as a condition of pursuing a challenge under section 103 otherwise than because of any procedural default by the defendant in that challenge.

The judge compared this case with IPCO -v- NPPC and said that the point of distinction between the two cases was that in IPCO -v- NPPC the prior security ordered had been the price of an adjournment sought by NNPC of its section 103 challenge, and it was therefore the price of the grant of relief sought by NNPC. However, the judge went on to say that this did not mean that non-compliance with Flaux J’s order for security was to have no consequence at all. The judge held that, as Flaux J did not order that the adjournment was conditional upon the provision of security nor that adjournment would terminate upon its not being provided, but instead gave the parties liberty to apply, the claimant’s proper course of action would have been to make an application pursuant to that liberty for the adjournment to be terminated.

In conclusion, the judge dismissed the claimant’s applications. He decided that the proper order to make was for the adjournment to be terminated, for the provision of security to be discharged, and to set directions for the prosecution of the defendant's set aside application, in order to determine the matter as expeditious as fairly possible.

Case comment

Not only does this case confirm that it is wrong to require a defendant to provide security as a condition of pursuing a challenge under section 103 of the Arbitration Act 1996, but it also highlights the importance of making sure that when applications are made they are the correct applications.

It will be interesting to see how the Court of Appeal will consider which of an application by either the defendant or the claimant, or the Court exercising its own inherent jurisdiction, may be the appropriate basis for awarding security for adjournment of enforcement proceedings in England pending a challenge at the seat of arbitration under section 103(5).

This article originally appeared in the May 2017 edition of shipping case digest. Other articles include:

The Ocean Victory

Arthur Aldcroft -v- The International Cotton Association Limited [2017] EWHC 642 (Comm)

Volcafe & others -v- CSAV: permission to appeal granted by the Supreme Court