Arbitration SpeedRead: Supreme Court rules on whether payment of security can be ordered in relation to the enforcement of an arbitration award

The award and the enforcement proceedings have a lengthy history. In brief, the arbitration concerned a contract between IPCO (Nigeria) Limited ("IPCO") and NNPC for the design and construction of a petroleum export terminal, which was subject to Nigerian law and included an agreement to arbitrate in Nigeria. IPCO obtained an arbitral award in its favour on 28 October 2004 for $152 million plus interest (the “Award”). Shortly thereafter, NNPC issued proceedings in Nigeria to set aside the Award on jurisdictional and other grounds. In parallel, IPCO issued enforcement proceedings in England in the Commercial Court, which were subsequently adjourned under s.103 (5) of the Arbitration Act 1996 (the “1996 Act”)[1] pending the resolution of the fraud challenge in Nigeria. In 2005, the English Court held that NNPC should provide security of US$50 million, which was duly provided.

The set aside proceedings were hampered by years of delay in the Nigerian courts. In 2008, IPCO renewed its application for enforcement. The English Court (later upheld by the Court of Appeal) granted partial enforcement for US$75 million but stayed the order, pending appeal, upon provision of further security.  NNPC then argued that the Award had been procured by fraud and sought to adjourn or resist enforcement on that basis. The parties subsequently agreed to set aside parts of the English Court's order and adjourned the enforcement proceedings.

Following more delays in the Nigerian courts, in July 2012, IPCO issued a fresh application to enforce in England. Field J dismissed this application on the basis that it was not appropriate to enforce in England in circumstances where NNPC had a good prima face case of fraud pending in Nigeria. IPCO appealed this decision to the Court of Appeal, which, motivated by the principles underlying the New York Convention, decided to “cut the Gordian knot” caused by the delays. The Court of Appeal "adjourned" enforcement and remitted to the Commercial Court  the issue of whether the alleged fraud provided a public policy defence to enforcement under section 103(3) of the 1996 Act (rather than continuing the adjournment pending the outcome of the Nigerian set aside proceedings). The Court also ordered that if NNPC did not provide a further $100 million of security then IPCO would be entitled to enforce the Award immediately.

The Supreme Court unanimously allowed the appeal, finding that there was no jurisdiction to impose a pre-condition of security under either: (i) s. 103 AA 1996; (ii) the New York Convention; or (iii) general English procedural rules, including CPR 3.1 (3)[2].

In particular, the Supreme Court stated that the Court of Appeal had erred by characterising the security as the price of adjournment when it was, in fact, the price of the determination of NNPC’s fraud defence to enforcement. There was therefore no adjournment under s.103 (5) AA 1996 on which the Court could “hang” the requirement for further security. The judgment goes on to state that Articles V and VI of the New York Convention constitute a “complete code” which does not contain any power which would allow a properly arguable challenge to be made contingent on payment of security. In such circumstances, the Court's general power to make conditional orders was not relevant. The judgment also pointed out that an award creditor has recourse to other remedies, such as freezing injunctions, which provide indirect security but do not impinge on an award debtor’s right to challenge under s.103 AA 1996.

The Supreme Court therefore held that the set aside challenge raised by NNPC must be remitted to the Commercial Court for determination free of any pre-condition relating to security.