On 1 March 2017 the Supreme Court overturned an order of the Court of Appeal and decided that Nigerian National Petroleum Corporation (NNPC) could not be required to provide monetary security as a condition for resisting enforcement of a Nigerian arbitral award made in favour of IPCO (Nigeria) Limited (IPCO). The Supreme Court confirmed that the English courts do not have
jurisdiction under section 103(5) of the Arbitration Act 1996 (the Act) to compel a party to provide security as a condition for resisting enforcement of an award under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), unless an adjournment of the English enforcement proceedings is sought pending resolution of an application to set-aside or suspend the award in the courts of the seat.
Following an arbitration in Nigeria, NNPC sought to resist enforcement of the award under section 103(2)(f) of the Act (asserting that the award had not yet become binding or had been set aside or suspended by the Nigerian courts) and section 103(3) (asserting that enforcement should be refused as it would be contrary to public policy). Alternatively, NNPC requested that the enforcement proceedings be adjourned under section 103(5) of the Act pending resolution of the issues before the Nigerian courts. The Commercial Court adjourned enforcement proceedings on the condition that NNPC provided security pending resolution of the Nigerian proceedings.
Some time later, although the proceedings in Nigeria were still ongoing, IPCO renewed its application to enforce the award in England. The Commercial Court dismissed IPCO’s application on the grounds that NNPC had a good prima facie case on fraud and that the Nigerian proceedings should be permitted to run their course.
On appeal, the Court of Appeal overturned the Commercial Court’s decision, holding that:
- the proceedings should be remitted to the Commercial Court to decide, pursuant to section 103(3) of the Act, whether enforcement should be refused on grounds of public policy;
- any further enforcement of the award should be adjourned pursuant to section 103(5) of the Act pending determination of NNPC’s public policy defence to enforcement; and
- as a condition of this further adjournment, NNPC must provide further security, failing which enforcement could proceed.
The Supreme Court judgment
NNPC appealed on the basis that the Court of Appeal’s order for further security was made without jurisdiction or, alternatively, was manifestly wrong.
The Supreme Court agreed that the Court of Appeal had erred:
- The English courts have no jurisdiction to make the provision of security a condition of resisting enforcement under section 103(2) or (3) of the Act. There is nothing in section 103(2) or (3) to that effect.
- Section 103(5) of the Act provides for security to be ordered, but only where the English court adjourns its decision on enforcement while an application for setting aside or suspension of the award is pending before the court of the seat of arbitration. Once the Court of Appeal had decided that there should be no further adjournment, and that NNPC’s fraud-based public policy challenge should be decided by the Commercial Court, there was no basis for ordering security as the fraud issue was no longer before the Nigerian courts.
- Security cannot be ordered as the price of deciding a challenge to enforcement under section 103(3) of the Act. Under section 103(5), the security is the price paid by the resisting party for an adjournment due to proceedings in the seat. In this instance, the Court of Appeal was considering whether or not to lift the existing adjournment that had been ordered by the Commercial Court and allow a challenge to enforcement to proceed.
- General rules of English procedure cannot be used to justify a requirement for security. The Supreme Court rejected IPCO’s attempt to rely on CPR 3.1(3)(a), which gives the court the power to make conditional orders, and section 70(7) of the Act, which provides that the court may order a party challenging an award to provide security for the amount payable under the award. There are no grounds for importing English procedural provisions which would undermine the operation of section 103 of the Act and the provisions of the New York Convention on which it is based. The Act is a complete code and, had provision for security been intended, this would have been made explicit.
The Supreme Court’s decision is an important authority on an aspect of the New York Convention that has received little attention. Given that section 103(5) of the Act gives effect to Article VI of the New York Convention and largely mirrors its wording, courts in other jurisdictions dealing with enforcement applications will undoubtedly consider this decision very carefully.
The Supreme Court made clear that Article VI of the New York Convention was not designed to assist an award creditor in obtaining payment. Rather, it was designed to balance one party’s right to enforce an award with another party’s right, in limited circumstances, to have enforcement refused.
It will be interesting to see if this decision impacts the strategies of parties seeking to resist the enforcement of awards, both in terms of making challenges at the seat of arbitration and as regards the grounds relied on during enforcement proceedings in England.
The Supreme Court judgment can be found here.