The Supreme Court held that Nigerian National Petroleum Corporation did not have to provide a further 100 million US dollars of security before the English courts would decide its challenge to enforcement of a Nigerian arbitration award. IPCO had sought enforcement in England since 2004, while NNPC said that the award had been obtained in large part by fraud. Lord Mance, with whom the other Justices agreed, held that the Arbitration Act 1996 does not allow a properly arguable public-policy challenge to be made conditional on security for the award.
The award and the fraud allegation
On 28 October 2004 an arbitral tribunal awarded IPCO (Nigeria) Ltd 152,195,971 US dollars, 5 million naira and interest at 14 per cent a year against Nigerian National Petroleum Corporation. The dispute arose from a contract of 14 March 1994, governed by Nigerian law, under which IPCO was to design and construct a petroleum export terminal. The contract provided for arbitration under the Nigerian Arbitration and Conciliation Act 1988.
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NNPC challenged the award in the Nigerian Federal High Court. The original challenge did not allege fraud. From 27 March 2009, relying on evidence from a former IPCO employee, Mr Wogu, NNPC also said that IPCO had procured the award in substantial part by fraudulently inflating its claim with fabricated documents. Field J and the Court of Appeal later concluded that this challenge was made in good faith, that NNPC had a good prima facie case of fraud on the tribunal, and that it had a realistic prospect of showing that the whole award should be set aside. The Nigerian proceedings were extremely slow. Christopher Clarke LJ did not think it useful to decide which party, if either, was more to blame; the delay appeared largely to result from the workings of the Nigerian legal system.
Why security had already been ordered
Steel J made an order for enforcement in England on 29 November 2004. NNPC asked the court either to refuse enforcement or to wait while the Nigerian challenge continued. Section 103 of the Arbitration Act 1996 gives effect to the New York Convention and limits the grounds on which recognition or enforcement of a foreign award may be refused. Section 103(5) covers a narrower situation. Where an application to set the award aside or suspend it is pending in the country where, or under whose law, it was made, the English court may adjourn its own decision. On the application of the party seeking enforcement, it may also order the other party to give suitable security.
While enforcement was being adjourned for that reason, security was ordered. On 27 April 2005 Gross J required NNPC to pay just over 13 million US dollars, which then appeared indisputably due, and to provide 50 million US dollars of security. In 2008 Tomlinson J ordered further sums to be paid and made a stay pending appeal conditional on another 30 million US dollars of security. After the fraud allegation emerged, a consent order of 17 June 2009 set aside those parts of Tomlinson J’s order which required payment. NNPC undertook to maintain security totalling 80 million US dollars until further order, and the decision on enforcement was adjourned under section 103(5).
In 2014 Field J refused IPCO’s renewed application to enforce the award in England. He considered that the fraud case should go to trial in Nigeria. The Court of Appeal found a material change of circumstances and described the Nigerian process as sclerotic. It ordered that the Commercial Court decide, under section 103(3), whether enforcement would be contrary to English public policy. The parties later agreed that the non-fraud issues should also be decided in England.
The further 100 million US dollars
The Court of Appeal made that course conditional on NNPC providing a further 100 million US dollars by a first-class London bank guarantee, in addition to the existing 80 million. If it did not, IPCO could enforce the award as an English judgment and call on the existing guarantees. The Court had first proposed security for about 300 million US dollars, covering the principal and interest then claimed. After NNPC asked it to reconsider, it rejected the submission that it lacked jurisdiction but reduced the further sum to 100 million. Its reasons included prejudice from delay, the need for a goad towards finality after more than a decade, and the erosion of the existing security by interest at 14 per cent.
Why that condition was unlawful
Lord Mance held that the order was outside section 103. Neither section 103(2) nor section 103(3), nor the corresponding Convention provision, allows the enforcing court to decide a challenge only if the award debtor secures the award. Security is expressly available under section 103(5), and only in connection with an adjournment of the kind that subsection describes: a wait for the outcome of a setting-aside or suspension application in the relevant foreign court.
The Court of Appeal had not ordered such an adjournment. Earlier orders had adjourned enforcement while the Nigerian challenge continued. The Court of Appeal ended that wait and required the English court to decide the fraud issue itself. Time spent considering that issue was part of the decision, not an adjournment under section 103(5). Security pending foreign proceedings is the price of an adjournment sought by the award debtor. It is not to be imposed, as the Court of Appeal had held in Dardana Ltd v Yukos Oil Co, on an award debtor resisting enforcement on properly arguable grounds, with dismissal of the challenge as the sanction for non-payment.
General procedural powers did not supply the missing jurisdiction. Lord Mance treated Articles V and VI of the Convention, reflected in sections 100 to 104, as a code: a properly arguable Convention challenge may be made conditional on security for the award only in the adjournment situation those provisions identify. Disclosure or freezing orders may protect an award creditor without removing the right to argue the challenge. Section 70(7), which can require security for sums payable under an award during certain challenges, applies to arbitrations seated in England, Wales or Northern Ireland, not to this Nigerian award. Even there, the first-instance authority cited by Lord Mance confined the power to challenges that appear flimsy or lacking in substance. That could not be said of NNPC’s case. CPR 3.1(3) allows conditions to be attached when the court grants discretionary relief. It does not allow the court to fetter a properly arguable right, and NNPC had not misconducted itself.
The security already given
NNPC suggested that it could therefore allow the existing guarantees to lapse. Lord Mance rejected that suggestion. The 80 million US dollars had been the agreed price of adjournments in 2005 and 2008 to 2009, lasting nearly 12 years. NNPC had undertaken in the 2009 consent order to maintain the guarantees until further order. Ending the adjournment was no reason to release security already given.
Verdict: The Court unanimously allowed NNPC’s appeal and removed the requirement for a further US$100 million in security. Both challenges returned to the Commercial Court. The existing US$80 million guarantees continued under NNPC’s undertaking. The Supreme Court did not decide whether the award was obtained by fraud.
Source: IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16
