Permission for Enforcement of a New York Convention Award by the English Court of Appeal Notwithstanding the Pending Setting Aside Proceedings in Nigeria – IPCO (Nigeria) Limited v. Nigerian National Petroleum Corporation (No. 3) [2015] EWCA Civ 1144 & 11

On 10 November 2015, the English Court of Appeal decided that IPCO was entitled to enforce an award rendered in its favor in Nigeria and against NNPC, notwithstanding the setting aside proceedings in Nigeria, the seat of the arbitration.

Background:

On 14 March 1994, IPCO entered into a contract with NNPC for the design and construction of a petroleum export terminal in the Port Harcourt area of Nigeria. The contract was governed by Nigerian law and contained an arbitration clause under which the disputes between the parties were to be referred to an arbitration in accordance with the 1990 Nigerian Arbitration and Conciliation Act.

A dispute arose between the parties and on 26 February 2003, IPCO referred the dispute to arbitration pursuant to the parties’ contract.

On 28 October 2004, the arbitral tribunal constituted to determine the parties’ dispute rendered an award in favor of IPCO at an amount of over USD 340 million.

On 15 November 2004, NNPC sought to have the award set aside in Nigeria, primarily on the grounds that there was an error of law on the face of the award and an inadequacy of reasoning.

On 19 November 2004, IPCO objected to NNPC’s challenge to the award.

Meanwhile, IPCO sought to have the award enforced in England and on 29 November 2004, Steel J made an ex parte order pursuant to section 101(2) and (3) of the 1996 Arbitration Act 1996 (the Act)[1] for the payment by NNPC to IPCO of the sterling equivalent of the total sums due under the award.

On 13 December 2004, NNPC applied to set that order aside and on 10 March 2005, NNPC amended its application notice so as to seek either the setting aside of the order of Steel J or the adjournment of the question of enforcement. IPCO cross applied for security in the sum of USD 50 million.

On 27 April 2005 Gross J ordered that there should be an adjournment of the enforcement of the award on condition of (i) payment of USD 13,102,361.72 and (ii) the provision of USD 50 million by way of security (reported at [2005] EWHC 726 (Comm)). NNPC complied with these terms.

On 19 July 2007, IPCO applied in England for further consideration of the question of enforcement of the award, in light of the fact that the preliminary objection had still not been heard and was unlikely to be determined for several years.

On 17 April 2008 Tomlinson J found that the “catastrophic” change in circumstances in the Nigerian proceedings justified revisiting Gross J’s decision. He ordered that the heads of claim representing the unchallenged parts of the award, be paid by NNPC to IPCO.

Meanwhile evidence merged in Nigeria which suggested that the award had been obtained by fraud. On 2 December 2008, NNPC applied to stay the enforcement of the 17 April 2008 order on the ground that the award had been obtained by fraud.

On 18 December 2008, NNPC filed an application to (i) vary the 17 April 2008 order so as to provide that enforcement be set aside on grounds of public policy or (ii) to adjourn enforcement.

In light of the developments in Nigeria and the allegation of fraud it became necessary to decide what to do about the order of 17 April 2008. Accordingly, on 17 June 2009 a consent order was made recording the parties’ agreement, which included NNPC’s amendment of its challenge in the Nigerian courts to include the fraud allegations, that the parts of the 17 April 2008 order directing payment be set aside and that enforcement of the award be adjourned generally under section 103(5) of the Act.

On 24 July 2012, IPCO had issued its renewed application to enforce the award in a sum which was not the full amount due, but a portion which IPCO claimed was on any view due.

On 14 March 2014, Field J handed down his judgment which considered, having recounted the facts up to June 2013, whether there had been a sufficient change of circumstances since the order of 17 April 2008 to justify a re-consideration of whether the award should be further enforced ([2014] EWHC 575 (Comm)). Field J held that IPCO had failed to establish any change of circumstances justifying a further application to enforce the award. Field J also decided that, even if he had been persuaded that it was appropriate to consider enforcement afresh, he would still have refused to enforce any part of the award because, in his opinion, NNPC had a good prima facie case that IPCO practiced a fraud on the tribunal which undermined the validity of the whole award. Accordingly IPCO’s application to enforce the award failed. The judge finished his judgment with a call upon the Nigerian courts to use their powers of case management to expedite not only the hearing of NNPC’s challenge to the award but also any resulting appeals.

NNPC appealed this decision to the English Court of Appeal.

English Court of Appeal Judgment:

The English Court of Appeal referred to the decision of Gross J in this case [2005] 2 Lloyd’s Rep 326 who set out the applicable relevant principles in the following terms:

“11      For present purposes, the relevant principles can be shortly stated. First, there can be no realistic doubt that s. 103 of the Act embodies a pre-disposition to favour enforcement of New York Convention Awards, reflecting the underlying purposes of the New York Convention itself; indeed, even when a ground for refusing enforcement is established, the court retains a discretion to enforce the award: …

…

13        Thirdly, considerations of public policy, if relied upon to resist enforcement of an award, should be approached with extreme caution ….

[…]      Fourthly, s. 103 (5) ‘achieves a compromise between two equally legitimate concerns’: … On the one hand, enforcement should not be frustrated merely by the making of an application in the country of origin; on the other hand, pending proceedings in the country of origin should not necessarily be pre-empted by rapid enforcement of the award in another jurisdiction.…

14        Fifthly, the Act does not furnish a threshold test in respect of the grant of an adjournment and the power to order the provision of security in the exercise of the court’s discretion under s. 103 (5). In my judgment, it would be wrong to read a fetter into this understandably wide discretion (echoing, as it does, Art. VI of the New York Convention). Ordinarily, a number of considerations are likely to be relevant: (i) whether the application before the court in the country of origin is brought bona fide and not simply by way of delaying tactics; (ii) whether the application before the court in the country of origin has at least a real (i.e. realistic) prospect of success (the test in this jurisdiction for resisting summary judgment); (iii) the extent of the delay occasioned by an adjournment and any resulting prejudice. Beyond such matters, it is probably unique to generalize; all must depend on the circumstances of the individual case. As it seems to me, the right approach is that of a sliding scale, ….

15        Sixthly, it is pertinent to underline that the New York Convention contains no nationality condition (unlike the Geneva Convention of 1927) and is thus applicable, as here, when an award is made abroad in arbitration between parties of the same nationality: ….” (emphasis as in English Court of Appeal’s judgment)

The English Court of Appeal also noted that reference is often made in this context to the decision of the US Court of Appeals for the Second Circuit in Europcar Italia S.p.A. v Maiellano Tours 156 F.3d 319 (1998) as to the factors to be weighed when determining whether to adjourn an enforcement application under Article VI of the Convention:

“(1)      the general objectives of arbitration – the expeditious resolution of disputes and the avoidance of protracted and expensive litigation;

(2)        the status of the foreign proceedings and the estimated time for those proceedings to be resolved;

(3)        whether the award sought to be enforced will receive greater scrutiny in the foreign proceedings under a less deferential standard of review;

(4)        the characteristics of the foreign proceedings including (i) whether they were brought to enforce the award (which would tend to weigh in favor of enforcement); (ii) whether they were initiated before the underling enforcement proceedings so as to raise concerns of international comity; (iii) whether they were initiated by the party now seeking to enforce the award in federal court; and (iv) whether they were initiated under circumstances indicated an intent to hinder or delay resolution of the dispute;

(5)        a balance of the possible hardships to each of the parties, keeping in mind that if enforcement is postponed under Article VI of the Convention, the party seeking enforcement may receive ‘suitable security’ and that, under Article V of the Convention, an award should not be enforced if it is set aside or suspended in the originating country … and

(6)        any other circumstances that could tend to shift the balance in favor of or against adjournment…

            Because the primary goal of the Convention is to facilitate the recognition and enforcement of arbitral awards, the first and second factors on the list should weigh more heavily in the district court’s determination.” (emphasis as in English Court of Appeal’s judgment)

The English Court of Appeal noted that IPCO did not submit, and neither expert suggested that the challenge to the award will never be determined.

The English Court of Appeal found that Field J had applied too strict a test, when deciding that the Commercial Court should only consider the re-opening of the exercise of its discretion if IPCO showed that the fraud case was hopeless or not made bona fide. The relevant question was whether there had been a significant change of circumstances since the consent order which impinged on or related to the reason for seeking a variation. A significant change to the plausibility of the argument for annulment of the award might justify a reconsideration of the exercise of discretion to adjourn, especially if taken with other factors such as delay, even if it could not be said that the fraud case was completely hopeless.

In the English Court of Appeal’s view, there were changed circumstances which required at that point a reconsideration of the exercise of the Court’s discretion to adjourn. According to the Court of Appeal, it has become plain, from what has and has not occurred, that the situation in respect of the delay to be expected before any resolution of NNPC’s challenge to the award has gone beyond the “catastrophic” description adopted by the order of 17 April 2008.

The English Court of Appeal noted that if it declined to order enforcement, the result would be that IPCO, if the award was upheld, would not be entitled to receive the fruits of it for a generation. This was a result which, the Court of Appeal considered, “in commercial terms, [to be] absurd” and “inconsistent with the principles that underpin the New York Convention, which was intended to foster international trade by ensuring a relatively swift enforcement of awards and a degree of insulation from the vagaries of local legal systems.”

Accordingly, the English Court of Appeal: (i) ordered that IPCO’s application to enforce should be adjourned pending the determination by the Commercial Court pursuant to section 103(3) of the Act as to whether the award should not be enforced in whole or in part because it would be against English public policy to do so; (ii) made this order conditioned upon the provision by NNPC of further security in a form and within a time period to be agreed, or if not agreed, to be determined by the Court, in the such of USD 100 million; (iii) ordered that, if such security is not provided within a period which the Court shall specify from the time when the form of security is agreed or determined, IPCO shall have permission to enforce the award; (iv) ordered that if such security is provided, then, if and to the extent that it is determined by a final order of the courts of England and Wales that the enforcement of the award is not contrary to the public policy of England & Wales, IPCO may enforce it; (v) permitted an application to the Commercial Court.

The English Court of Appeal regarded this as the appropriate solution for a number of reasons: it is consistent with the underlying purpose of the Convention; it provides a route by which the question of whether enforcement of the award should be granted, or refused on the ground that it was obtained by fraud, will be determined within a reasonable timescale and with a depth of review on that question which is unlikely to be less than that of the courts in Nigeria.

The English Court of Appeal recognized that this will mean that, if enforcement is not inconsistent with English public policy, it will be enforceable in England notwithstanding the challenges to it in Nigeria. It added that it was not however bound to defer enforcement until the court of the seat has ruled on a challenge, however long that may take. In the Court of Appeal’s view, the position has now been reached when the award should (unless the fraud challenge succeeds) be enforced, notwithstanding the existence of a non-fraud challenge which will only finally be determined in Nigeria in a far too distant future.

A more detailed summary and an excerpt of this decision, indexed and searchable according to the list of topics published in http://www.newyorkconvention.org/court+decisions/description will be published in the 2016 volume of the Yearbook Commercial Arbitration, published by the International Council of Commercial Arbitration (ICCA).

Source: English Court of Appeal judgment in www.bailii.org