The latest judgment in this long-running and complicated saga was handed down by the Court of Appeal on 10 November 2015.
In 2004, a Nigerian-seated arbitral tribunal awarded IPCO approximately US$152 million. Interest runs on the award, and the current value of this award is estimated at US$340 million. In 2004, the respondent to the arbitration, Nigerian National Petroleum Corporation (“NNPC”), applied to the Nigerian court to have the award set aside. This application (the “Original Challenge”) alleged that the tribunal had no jurisdiction, and was guilty of misconduct.
Later still in 2004, IPCO took steps to enforce the award in the English courts. Although IPCO obtained leave to enforce without notice, NNPC applied to resist enforcement, arguing that pursuant to section 103 of the Arbitration Act 1996 (the “Act”) enforcement in England ought to be adjourned until the challenge in Nigeria had been dealt with. In April 2005, Mr. Justice Gross ordered an adjournment of the enforcement proceedings, conditional upon the payment of US$13.1 million (which NNPC accepted was due) and the provision of US$50 million security in respect of the remainder of the award. NNPC made these payments.
The Original Challenge proceeded slowly in the Nigerian Courts and procedural litigation delayed matters further. Accordingly, in 2008 IPCO applied again to the English court for further consideration of enforcement, on the grounds that it appeared that the Original Challenge would not be decided for several more years. Mr. Justice Tomlinson called the delays in Nigeria “catastrophic” and varied the earlier order, granting partial enforcement of US$75 million but continued to stay enforcement provided a further US$30 million was paid as security, which it was.
Later in 2008, new evidence arose in Nigeria which has lead NNPC to allege that the award was procured by fraud. Criminal proceedings were commenced, dropped, and re-filed and a further challenge (the “Fraud Challenge”) was brought to the award in the Nigerian courts. Further delays took place to this litigation and IPCO applied again to the High Court in London arguing that a change in circumstances caused by these delays meant that they should be able to enforce the award in England. In particular, IPCO produced evidence that the Original Challenge and the Fraud Challenge would likely take up to 30 years to be resolved in Nigeria.
Mr. Justice Field refused to lift the stay on enforcement, holding that circumstances had not changed and that there was no prima facie case of fraud. The matter was taken to the Court of Appeal. The Court of Appeal recognised that they had an unpleasant choice:
- Ordering enforcement of the award meant that IPCO might receive the benefit of an award obtained by fraud.
- Ordering enforcement conditional upon IPCO providing security would be difficult and expensive given the delays in reaching a final decision.
- Refusing to order enforcement would mean that IPCO would not receive any money for a generation, making a mockery of the New York Convention.
The Court of Appeal concluded as follows:
- The time had come when the award should be enforced. The matter was passed back to the High Court to consider whether the alleged fraud provided NNPC with a public policy defence to enforcement in England under section 103(3) of the Act. If NNPC did not provide further security this hearing would not take place and IPCO would have permission to enforce the award forthwith.
- Whether the Court’s discretion could be re-opened depended upon whether events had touched the reasons for that order being made. The Court of Appeal considered that Field J had given insufficient weight to the character and extent of the delays in the Nigerian Courts. These meant that any challenge to the award would not be resolved for a generation. These changed circumstances related directly to the reason why an adjournment was granted back in 2005. The issue therefore had to be reconsidered.
- As to the exercise of that discretion, Court of Appeal decided that allowing a further adjournment would make a mockery of the New York Convention, which aimed at allowing the speedy resolution of international commercial disputes. These principles had to be considered alongside respect for the principle that the validity of an arbitral award was a matter for the courts of the seat.
- The Court of Appeal decided that principles of the New York Convention required that there should be a rapid determination of whether the award was obtained by fraud. This solution was consistent with the New York Convention and English public policy and would allow the Fraud Challenge to be decided within a reasonable timescale and to a level of review at least equal to that it would receive in the Nigerian court.
The Court of Appeal issued a further judgment holding it had the power to require the provision of security pending the hearing of the Fraud Challenge in England. NNPC argued that section 103(5) of the Act only allowed the Court to order security if the enforcing party had applied for it, and IPCO had not done so. The Court of Appeal held that this was an overly literal approach as security had been discussed on a number of occasions, and in any event the court had power to impose conditions on any adjournment as part of its case management powers.
This is an exceptional case. The Court of Appeal has shown that the English courts will enforce an arbitration award despite the existence of a challenge in the courts of the seat if that challenge will only be resolved after very lengthy delays. This is something of a unique situation, and it remains to be seen just how long delays overseas have to be before the English court is willing to step in.