IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2017] UKSC 16

NNPC challenged enforcement of a Nigerian arbitration award in England, alleging fraud. The Court of Appeal had ordered NNPC to provide a further USD 100m security as a condition of having its section 103(3) challenge determined. The Supreme Court allowed NNPC's appeal, holding this exceeded the court's jurisdiction.

Facts

IPCO obtained a Nigerian arbitration award against NNPC dated 28 October 2004 for over USD 152m plus interest, arising from a 1994 contract for the design and construction of a petroleum export terminal. The award was challenged by NNPC in the Nigerian Federal High Court, initially on non-fraud grounds and, from March 2009, on the basis that IPCO had procured the award by fraudulent inflation of its claim.

IPCO obtained an ex parte enforcement order from Steel J on 29 November 2004. Through subsequent orders by Gross J (2005), Tomlinson J (2008), Flaux J (2008) and a consent order (June 2009), enforcement was adjourned under section 103(5) of the Arbitration Act 1996 pending the Nigerian proceedings, with NNPC providing security totalling USD 80m. By 2012, faced with extraordinary delay in Nigeria, IPCO renewed its enforcement application. Field J dismissed it, finding NNPC had a good prima facie case of fraud which should be tried in Nigeria.

The Court of Appeal allowed IPCO’s appeal, finding a material change of circumstances given the “sclerotic” Nigerian proceedings, and ordered that the fraud issue be determined in England under section 103(3), conditional upon NNPC providing a further USD 100m security (in addition to the existing USD 80m).

Issues

The principal issues before the Supreme Court were:

• Whether the Court of Appeal’s order requiring further security of USD 100m was justified under section 103(5) of the Arbitration Act 1996.
• Whether, alternatively, the order was justified by reference to the English court’s general procedural powers, in particular CPR 3.1(3), and by analogy with section 70(7) of the 1996 Act.

Arguments

Appellant (NNPC)

NNPC argued that the order for further security was made without jurisdiction or was wrong in principle. Section 103 contained no power to make the determination of a properly arguable challenge under section 103(2) or (3) conditional upon the provision of security for the award. Section 103(5) only permitted security as the price of an adjournment pending foreign set-aside proceedings; once the Court of Appeal had decided the fraud issue would be determined in England, there was no longer any such adjournment.

Respondent (IPCO)

IPCO submitted that the New York Convention and sections 100-104 of the 1996 Act left untouched the English court’s ordinary procedural powers, including the power under CPR 3.1(3) to impose conditions on orders. Article III of the New York Convention prohibited the imposition of substantially more onerous conditions on foreign awards than on domestic ones; given section 70(7) permitted security in domestic challenges, an equivalent power should exist for Convention awards. Reliance was placed on Gater Assets Ltd v NAK Naftogaz Ukrainiy.

Judgment

The Supreme Court (Lord Mance giving the leading judgment, with whom Lord Clarke, Lord Sumption, Lord Hodge and Lord Toulson agreed) allowed the appeal.

Section 103(5)

Lord Mance held the Court of Appeal had erred in two respects. First, nothing in section 103(2) or (3) (or in article V of the New York Convention) permitted an enforcing court to make the decision of an issue raised under those subsections conditional upon provision of security. Section 103(5) provided a specific and limited power to order security as the price of an adjournment pending foreign set-aside proceedings.

Second, the Court of Appeal had wrongly characterised its order as involving an “adjournment” within section 103(5). Once the Court of Appeal had decided that the fraud issue should no longer await the Nigerian proceedings but be determined in England, there was no further adjournment within section 103(5) onto which a security requirement could be attached. The delay inherent in the English decision-making process did not amount to an “adjournment” within section 103(5).

Lord Mance reaffirmed and clarified the reasoning in Dardana Ltd v Yukos Oil Co, noting a typographical error in the original judgment (“seeking” should have read “resisting”). Security under section 103(5) is the price of an adjournment sought by the award debtor, not a condition imposed on an award debtor resisting enforcement on properly arguable grounds.

General procedural powers and article III

The Court held that articles V and VI of the New York Convention constitute a code regulating recognition, enforcement and security. The Convention contemplates security being required only in the limited circumstances of article VI. Had it been intended that a properly arguable challenge under article V could be made conditional on security, this would have been said.

The argument based on article III and section 70(7) was rejected. The 1996 Act contains no equivalent to section 70(7) in relation to Convention awards, and even section 70(7) is only exercised where a challenge is “flimsy or otherwise lacks substance” — which could not be said of NNPC’s fraud challenge.

CPR 3.1(3) was held to provide no basis for the order. Citing Huscroft v P & O Ferries Ltd, the Court emphasised that CPR 3.1(3) is for granting relief on terms, not for imposing fetters on a party exercising a properly arguable right. NNPC had not misconducted itself such that any procedural sanction was warranted.

Existing security

The existing USD 80m security was to remain in place pursuant to NNPC’s undertaking in the June 2009 consent order, until further order.

Implications

The decision clarifies important principles in relation to enforcement of New York Convention awards under the Arbitration Act 1996:

• Articles V and VI of the New York Convention, as enacted by sections 103(2), (3) and (5), constitute a code in relation to security for award amounts in the context of enforcement and adjournment.
• An English court has no power, under section 103 or by reference to general procedural powers such as CPR 3.1(3), to make the determination of a properly arguable challenge to enforcement of a Convention award under section 103(2) or (3) conditional upon the award debtor providing security for the award.
• The power to order security under section 103(5) is exercisable only as the price of an adjournment pending foreign set-aside or suspension proceedings.
• Award creditors are not left without recourse: freezing orders, disclosure orders and similar measures remain available to protect their position without impinging on the award debtor’s right of challenge.

The case is significant for parties seeking to resist enforcement of foreign arbitral awards in England on properly arguable grounds, confirming that such challenges may not be subjected to onerous security conditions, even where the proceedings have been substantially delayed. It reinforces the principle that the Convention reflects a balance between a prima facie right to enforce and the award debtor’s rights of challenge, and that English courts must not, through procedural mechanisms, upset that balance. The judgment also confirms that the Court of Appeal’s earlier decision in Dardana v Yukos remains good law, subject to the textual correction identified by Lord Mance.

Verdict: Appeal allowed. The Court of Appeal’s order requiring NNPC to provide further security of USD 100m as a condition of having its challenges determined was set aside. NNPC’s fraud and non-fraud challenges were remitted to the Commercial Court for decision free of such conditions, although the existing USD 80m security was to remain in place pursuant to NNPC’s undertaking until further order.

Source: IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2017] UKSC 16