16/11/2015

Third time lucky? Enforcing an arbitration award which remains under challenge in the seat

On 10 November 2015, the Court of Appeal handed down its latest decision in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation ([2015] EWCA Civ 1144 and 1145).  The case arises from a long running attempt by the claimant (IPCO) to enforce a Nigerian arbitration award from 2004 of some USD 152 million (current value with interest over USD 340 million) against the state owned defendant company (NNPC).  The award is under challenge by NNPC in Nigeria.

The case is important in deciding that excessive delay in the determination of a challenge was sufficient to justify enforcement of the award without further adjournment under section 103(5) of the Arbitration Act 1996 (save in so far as the challenge relating to fraud was successfully made out in England under the section 103(3) public policy ground).   The Court of Appeal also provided clear guidance on the circumstances in which it was appropriate for the court to revisit previous orders adjourning enforcement.

The decision shows that the English courts are willing to adopt pragmatic solutions to ensure the efficacy of arbitration.

Background

The judgment sets out in detail the 11 year narrative of IPCO’s attempts to enforce the award in England set against NNPC’s attempts to overturn the award in Nigeria.  A summary of the most important points follows.

Initial challenge and enforcement attempts Matters began reasonably straightforwardly in 2004 when NNPC challenged the award in Nigeria (for error on the face of the award and inadequacy of reasoning) and IPCO applied, pursuant to section 101 of the Arbitration Act 1996 to enforce the award in England.

In these first enforcement proceedings, in 2005, Gross J: (1) gave judgment for an uncontested sum of USD 13.1 million; and (2) adjourned enforcement of the rest of the award pending resolution of the Nigerian challenges (and subject to provision by NNPC of USD 50 million in security).   The adjournment was pursuant to section 103(5) of the Arbitration Act which provides that,

“Where an application for the setting aside or suspension of the award has been made to [a competent authority] … the court before which the award is sought to be relied upon may, if it considers proper, adjourn the decision on the recognition or enforcement of the award.”

A second attempt at enforcement and the emergence of fraud allegations By 2007, no real progress had been made in the Nigerian proceedings.  IPCO returned to court to ask it to reconsider Gross J’s adjournment decision.   In his 2008 judgment, Tomlinson J held that what had occurred in the Nigerian proceedings could be “properly and uncontroversially described as catastrophic” and that, in “these dismaying circumstances” he was entitled to consider whether enforcement of the award should be further adjourned.  He then ordered payment of over USD 75 million subject to the provision of security by IPCO.   NNPC’s attempts to appeal were unsuccessful.

In late 2008, however, NNPC’s brought a new challenge to the award alleging that it had been obtained by fraud. These allegations formed the basis for a fresh application by NNPC to stay enforcement of Tomlinson J’s 2008 order.  The application was resolved by a consent order in 2009 which again adjourned enforcement under s.103(5) of the Arbitration Act 1996.

A third attempt at enforcement By 2012, however, it was still the case that little real progress was made in relation to NNPC’s challenges.  Criminal proceedings had been begun and abandoned and refiled in Nigeria but with no result.

IPCO thus made a renewed application to the English court to enforce a further part of the award (some USD 100 million).

In his judgment in March 2014, Field J rejected IPCO’s application because, in his view, IPCO had failed to establish any change of circumstances to justify the further application to enforce.  Field J also decided that even had IPCO demonstrated a relevant change of circumstances, he would have refused to enforce the award because NNPC had a good prima facie case that IPCO had practised a fraud on the tribunal so as to undermine the validity of the whole award.

The Court of Appeal’s decision (judgment given by Christopher Clarke LJ)

The Court of Appeal had to decide two questions: first, was it appropriate to re-open the exercise of the court’s discretion; and second, if so, how should that discretion be exercised?   The questions depended on similar considerations and were considered together.

In relation to the first issue, the Court of Appeal held that the relevant question was “whether there had been a significant change in circumstances since the Consent Order which impinged on or related to the reason for seeking a variation”.    Field J had applied too strict a test when he decided that he should only consider the re-opening of the exercise of the court’s discretion under section 103(5) if IPCO showed that the fraud case was hopeless or not made bona fide.

The Court of Appeal concluded that:

• There remained a good prima facie case that the award was in part obtained by fraud. By the time of the hearing before Field J there had not been such a change of circumstances relating to the plausibility of the fraud challenge as required the judge to decide that the discretion should be exercised again in favour of enforcement.
• There was no real prospect of repayment by IPCO if the award was set aside – the award was its only asset.
• Nevertheless, the likelihood that the validity of the award would not be determined in Nigeria for 20 years or more (i.e. not in “any commercially relevant timescale”) was sufficient to constitute changed circumstances at the time of Field J’s decision in 2014 and a fortiori sufficient by 2015.

In deciding what order to make, the Court of Appeal recognised that ordering payment of the award could mean that IPCO would receive payment under an award obtained by fraud and was reluctant to take this course.   The court also observed that while conscious of the need for comity between the courts of friendly foreign states, “the plain fact of the matter is that the operation of the judicial system in Nigeria has not kept pace with the need to give effect to the principles underlying the New York Convention.”

Accordingly, the Court of Appeal  concluded that the best way to proceed “in a manner that does substantial justice to the parties” was to adjourn IPCO’s application to enforce pending determination by the Commercial Court pursuant to section 103(3) of the Arbitration Act 1996 as to whether the award should not be enforced in whole or part because it would be against English public policy so to do.  The Commercial Court would thus determine the fraud challenge.  If that challenge failed, the award would be enforced notwithstanding the existence of a non-fraud based challenge “which will only finally be determined in Nigeria in a far too distant future”.

The Court of Appeal also ordered that NNPC should provide further security in the sum of USD 100 million.  Its second judgment contains detailed consideration of its jurisdiction to make such an order.