Court of Appeal Delivers Important Judgment on Enforcement under New York Convention

10 November 2015

Court of Appeal Delivers Important Judgment on Enforcement under New York Convention

Where there is excessive delay in the determination of a challenge in the seat, the English court will permit enforcement notwithstanding that the challenge (save in the case of fraud) has a real prospect of success.

In IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation (No.3) [2015] EWCA Civ 1144 & 1145, the Court of Appeal addressed the impact of delays in enforcement of a New York Convention award caused by challenges to the award at the seat of the arbitration.

In 2004 following contested arbitration proceedings, IPCO received an award in its favour the current value of which is over USD 340 million. NNPC made a timely challenge to the award on the principal grounds that there was an error of law on the face of the award and an inadequacy of reasoning (“the non-fraud challenge”).

In 2004 IPCO attempted to enforce the award in England. In April 2005 Gross J gave judgment for the uncontested sum of USD 13.1 million and ordered adjournment of enforcement of the award pending determination of the challenge in Nigeria on the provision of USD 50 million security.

The non-fraud challenge did not proceed quickly in Nigeria and in 2007 IPCO applied to the English courts for reconsideration of the adjournment. In 2008 Tomlinson J held that he had the jurisdiction to revisit the discretion under s.103(5) Arbitration Act 1996 (Article VI New York Convention) and that he should do so in the light of the “catastrophic” delays in Nigeria. He ordered payment of more than USD 75 million but stayed the order pending appeal on the provision of a further USD 30 million by way of security. NNPC’s appeal was dismissed in October 2008. In December 2008 the House of Lords refused leave for a further appeal.

In December 2008 NNPC raised, for the first time, allegations that award was procured by fraud and applied to set aside or adjourn enforcement of Tomlinson J’s order. In March 2009 criminal proceedings against IPCO staff were instituted in Nigeria and NNPC applied to amend its challenge to add “the fraud challenge”. In June 2009 the parties agreed that Tomlinson J’s payment orders be set aside and that enforcement of the award be adjourned generally under s.103(5) of the 1996 Act.

Once again matters proceeded slowly in Nigeria and in July 2012 IPCO renewed its application to enforce the award. In March 2014 Field J declined to re-consider enforcement of the award and held that if it was appropriate, he would still refuse to enforce any part of the award.

The Court of Appeal referred to its decision in Soleh Boneh International Ltd v Government of the Republic of Uganda [1993] 2 Lloyd’s Rep 208 and Gross J’s decision [2005] 2 Lloyd’s Rep 326. It observed that the more plausible the challenge to the validity of the award the less disposed will the court be to enforce it or grant security; the greater the prejudice arising from non-enforcement the less likely will the court be to refuse it without ordering security; and vice versa in each case. If a prima facie case of fraud remains, the Court will be very reluctant to order immediate enforcement. Nor is it appropriate for the Court to be asked to keep some sort of watching brief over the curial court. The Court also referred to the decision of the US Court of Appeals for the 2nd Circuit in Europcar Italia S.p.A. v Maiellano Tours 156 F,3d 319 (1998) emphasizing in particular the following factors: “the expeditious resolution of disputes and the avoidance of protracted and expensive litigation” and “the status of the foreign proceedings and the estimated time for those proceedings to be resolved”.

The Court held that Field J was wrong not to reconsider the court’s discretion to adjourn enforcement in failing “to give any real or sufficient weight to the character and extent of the delay, which is such that any challenge to the Award is not likely to be resolved for up to a generation from now. Such a result makes a mockery of the aim of the Convention which is to secure the expeditious resolution of commercial disputes and the timely enforcement of awards.” The Court was faced with a “stark choice” – order enforcement which could mean that IPCO received payment under an award obtained by fraud or maintain an adjournment which “in commercial terms, is absurd. It is 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”.

The Court of Appeal, while conscious of the need for comity between the courts of friendly foreign States, especially when the court in question is the court of the seat of the arbitration to which the parties agreed, and while intending no disrespect whatever to the judges of the Federal Republic of Nigeria, nevertheless felt that 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. It is therefore necessary to take account of the principles underlying the Convention, to which both the United Kingdom and Nigeria are parties, in determining what course to take, and, so far as possible, to give effect to them.

In the event, it was held that the court is not bound to defer enforcement until the court of the seat has ruled on a challenge, however long that may take. In the present case the position had been reached when the award should (unless the fraud challenge in England 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.

As to the fraud challenge, the Court of Appeal directed the English Commercial Court to determine whether it would be against English public policy to enforce the award. It said that, “in the light of the enormous delay (past and anticipated for the future) the time has come to order enforcement, if the fraud challenge fails”. Further security in the sum of USD 100 million was ordered “to ensure that if the fraud challenge fails, IPCO will not be faced with a further round of attempts to avoid payment of the award or a situation in which its prospects of recovery have worsened” and “an incentive, indeed something of a goad, to progress.”

This is the first reported English appellate decision where delay alone has been held to entitle an award creditor to enforce a New York Convention award notwithstanding a challenge at the seat that cannot be summarily dismissed (the non-fraud change). The position here was complicated by the fraud challenge but the Court of Appeal found a pragmatic solution by directing a determination of whether enforcement would be against English public policy under s.103(3) of the 1996 Act (Article V.2(b) of the Convention): “it provides a route by which the question 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 of Nigeria.”

IPCO was represented by Michael Black QC and Edward Knight of XXIV Old Buildings instructed by Weightmans LLP and subsequently by Goodman Derrick LLP

NNPC was represented by Jonathan Nash QC of 3 Verulam Buildings and James Willan of Essex Court Chambers instructed by Stephenson Harwood LLP