The UK Supreme Court last week issued the latest decision in a long-running attempt to enforce a US$150 million Nigerian arbitration award (IPCO (Nigeria) Limited v. Nigerian National Petroleum Corporation [2017] UKSC 16). Overturning the Court of Appeal's decision, a unanimous Supreme Court held that NNPC did not have to provide security in order to challenge the enforcement of award against it, which was allegedly procured through fraud, on public policy grounds.

The Supreme Court confirmed that the English courts have no power under section 103(2) or (3) of the Arbitration Act 1996 to require a party resisting enforcement in this jurisdiction to provide security (as opposed to where a party seeks an adjournment of English proceedings while a challenge is brought in the country where the award was made). This decision removes a significant potential obstacle to parties hoping to avoid paying out under flawed awards against them by raising defences before national courts where enforcement is sought.

History of the enforcement application

The underlying arbitration arose out of a contract by which IPCO was to design and construct a petroleum export terminal for NNPC. The tribunal rendered an award of more than US$150 million plus 5 milion Nigerian Naira in IPCO's favour in October 2004. NNPC challenged the award in Nigeria, initially for "non-fraud reasons" and (from 2009) for alleged fraud in relation to IPCO's presentation of its claim. The Nigerian proceedings were subject to protracted delays and remain ongoing.

IPCO first tried to enforce the award in England in 2004. Those proceedings were adjourned by the High Court under section 103(5) of the 1996 Act, which permits the court to adjourn where there is an application to set aside the award in the jurisdiction where (or under the law of which) the award was made. Section 103(5) also allows the court to order the party resisting recognition or enforcement to provide security – which the High Court did to the tune of US$50 million, pending resolution of the challenges in Nigeria. This was later increased to US$80 million in return for a continued adjournment granted in 2009, in light of extended delays in the Nigerian proceedings.

Fast forward to 2012, when IPCO again applied to enforce in England. The Court of Appeal decided to end the impasse caused by the "sclerotic" delays in the Nigerian proceedings, and held that the High Court should itself determine whether the award should be enforced in light of IPCO's alleged fraud (pursuant to section 103(3) of the 1996 Act). It ordered NNPC to pay an additional US$100 million in security. NNPC appealed against that order to the Supreme Court.

Distinction between challenge in England and in country of the award

The Supreme Court allowed NNPC's appeal. Lord Mance, delivering the judgment of the court, held that, having decided the alleged fraud should now be decided by the English courts under section 103(3), the Court of Appeal was wrong to "adjourn" the proceedings under section 103(5). The latter section was only relevant when the English proceedings had been adjourned pending the challenge in the Nigerian courts, which was no longer the case.

Section 103(3) provides that "Recognition or enforcement of the award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration, or if it would be contrary to public policy to recognise or enforce the award". Neither this section nor section 103(2) therefore provides for security to be ordered by the court, in marked contrast to section 103(5), which expressly permits this.

Relying on the reasoning in Dardana v. Yukos [2002] EWCA Civ 543, Lord Mance explained that the payment of security pending the outcome of foreign proceedings under section 103(5) is "in effect, the price of an adjournment which an award debtor is seeking" but should not be imposed on "an award debtor who is resisting enforcement on properly arguable grounds".

It is this policy that underlies the distinction in situations where security must be provided for challenges to recognition and enforcement in articles V and VI of the New York Convention, to which sections 103(2), (3) and (5) give effect. In the court's view, if the drafters of the Convention had intended to permit national courts to require security for challenges within their own jurisdictions, they would have provided for this.

Counsel for NNPC argued the New York Convention and sections 100-104 of the 1996 Act did not prevent the English courts from exercising their ordinary procedural powers, and so security could be ordered pursuant to CPR 31.3 or section 70(7) of the 1996 Act. The Supreme Court rejected this, holding the conditions for recognition and enforcement in articles V and VI of the Convention constitute a "complete code" that establishes a common international approach. The provisions reflect a careful balancing of interests, with the prima facie right to enforce being countered by rights of challenge, and are not aimed at improving award creditors' prospects of laying hands on assets to satisfy awards. In any event, English courts have other means at their disposal to help award creditors enforce – for instance disclosure and freezing orders – without impinging on defendants' rights to raise challenges.

The Supreme Court therefore ordered that NNPC's challenges be remitted to the High Court without the payment of further security, although it refused to release the security already in place because this was the price of the previous adjournments.

Cheaper to resist enforcement on public policy grounds?

The Supreme Court's judgment is a significant boost to debtors seeking to challenge tainted foreign awards in the English courts. The courts' inability to order security in such cases may in some circumstances militate in favour of challenging in enforcement jurisdictions rather than in the country of the seat. In the latter case the debtor will have to seek an adjournment of any enforcement proceedings under section 103(5) – and risk being ordered to put up substantial security. This consideration will, of course, have to be weighed against the clear benefit to having the award set aside in the place where it was rendered.

The judgment has potential ramifications beyond this jurisdiction, given the court's view of the Convention as intending to set out a uniform, international code. Other national courts may well take a similar view and refuse to impose security requirements on those seeking to resist enforcement on public policy grounds.