English Court of Appeal allows enforcement of an arbitration award on the grounds of excessive delay in the court proceedings challenging the award at the seat of arbitration

By Martin Ewen, Senior Associate, Fenwick Elliott

In its judgment in the case of IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2015] EWHC Civ 1144 and IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2015] EWCA Civ 1145, handed down on 10 November 2015, the Court of Appeal ordered that IPCO (Nigeria) Limited (“IPCO”) should be entitled to enforce an arbitration award made against Nigerian National Petroleum Corporation (“NNPC”) in Nigeria (the seat of arbitration) in October 2004, notwithstanding the fact that there still remained challenges from NNPC to that award in the Nigerian courts.

The Court of Appeal decided that the lengthy delays (which it was estimated could run into decades) in the proceedings challenging the award in Nigeria were such that it would be inconsistent with the principles of the New York Convention if IPCO had to wait until the outcome of those challenges in the Nigerian courts before being able to enforce the award.     

The facts

IPCO is a Nigerian corporation carrying on business as a turnkey contractor specialising in the construction of onshore and offshore oil and gas facilities. NNPC is a state-owned corporation. On 14 March 1994 IPCO entered into a contract with NNPC for the design and construction of a petroleum export terminal in Nigeria.

In October 2004, in arbitration proceedings in Nigeria, IPCO was awarded US$152 million plus interest at 14% per annum (“the Award”). The value of the Award at the time of the Court of Appeal proceedings was over US$340 million. 

NNPC commenced proceedings in Nigeria to have the Award set aside on the grounds that there was an error of law and an inadequacy of reasoning (“the non-fraud challenge”).

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

The non-fraud challenge proceeded very slowly in the Nigerian courts and in 2007 IPCO applied to the English courts for reconsideration of the adjournment, arguing that the Nigerian proceedings were taking much longer than had been expected when Gross J made his order, and that this change in circumstances entitled the court to revisit the order. Tomlinson J held that the delays in Nigeria were now “catastrophic” and varied the order of Gross J. He granted partial enforcement in respect of over US$75 million, but stayed the order, pending appeal, upon the provision of further security. NNPC’s appeal was dismissed in October 2008.

In December 2008, and for the very first time, NNPC argued that the Award had been procured by fraud (“the fraud challenge”) and applied to set aside or adjourn enforcement of Tomlinson J’s order. NNPC also filed an application to vary the order of Tomlinson J so as to provide that the enforcement be set aside on grounds of public policy. The parties then agreed to adjourn the decision on enforcement under section 103(5) of the Arbitration Act 1996. In March 2009 criminal proceedings against IPCO staff were instituted in Nigeria.   

Matters again proceeded slowly in Nigeria and in July 2012 IPCO applied to enforce the Award. It argued that the ongoing delays amounted to a change in circumstances and that the court should therefore enforce the Award. Field J dismissed the application. He found that IPCO had failed to establish that there had been a sufficient change of circumstances since the Tomlinson order to justify a further application to enforce the Award. In any event, he found that he would have exercised his discretion to continue the adjournment because NNPC had a good prima facie case that the Award had been obtained by fraud. IPCO appealed.

The Court of Appeal’s decision

The question at issue in the appeal was whether Field J was right to decline to enforce the Award made in Nigeria in October 2004 and, instead, to continue an adjournment of the enforcement proceedings begun in this jurisdiction.

The Court of Appeal held that “insofar as the judge decided that the 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, he applied, in my view, too strict a test”.

The court decided that the change in circumstances required it to exercise a consideration of the exercise of the court’s discretion to adjourn. Field J had given insufficient weight to the character and extent of delay.

The court said that it was faced with a “stark choice”. It could order enforcement of the Award. That may mean that IPCO receives payment under an Award which it obtained by fraud.  The prospect of NNPC recovering the amount paid if the Award was set aside in Nigeria would be almost non-existent. Another choice was to permit enforcement conditional upon the provision of security by IPCO for return of the monies if the Award was set aside by NNPC. This would be difficult and expensive for IPCO and even if security was provided the final resolution of the validity of the Award would probably not take place for decades.

If, on the other hand, the court declined to order enforcement the result is likely to be that IPCO, if the Award is upheld, will not “receive the fruits of it for a generation”. It went on to say that this was “inconsistent with the principles that underpin the New York Convention”.

The court ordered that IPCO’s application to enforce should be permitted subject to 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 in part because it would be against English public policy to do so. If it is determined that the Award is not contrary to the public policy of England and Wales, IPCO may enforce it.

The court felt that this was consistent with the underlying purpose of the Convention. The court considered that if the Award is not inconsistent with English public policy, it will be enforceable in England, notwithstanding the challenges to it in Nigeria. However, it said that it was not bound to defer enforcement until the court of the seat of arbitration has ruled on a challenge, however long that may take. The position had 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.      

Comment

This is the first reported English appeal court decision where delay alone has been held to entitle the holder of an award to enforce a New York Convention award, notwithstanding a challenge at the arbitral seat.

The Court of Appeal acknowledged that issues as to the validity of an arbitration award were matters for the courts of the seat of arbitration to consider, but it was also necessary to give due consideration to the principles of the New York Convention. The Court of Appeal formed the view that the New York Convention “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 noted the importance of comity and respect for other courts, but nevertheless decided that the time had come when the Award should be enforced (subject to the determination of the fraud defence in the Commercial Court).  

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