Cutting Up The Cake: Dividing Awards And Second-Guessing Foreign Courts

Cutting Up The Cake: Dividing Awards And Second-Guessing

Foreign Courts

Winning a big court case or arbitration will be the

culmination of many years work, but a new battle may soon

thereafter ensue as the winning party chases defendants and

their assets across the world in an attempt to convert a paper

award handed down by the tribunal into hard cash.

A judgment or award which holds a party liable is of no

value if that party's assets are located, and that

party's affairs are conducted, in a State which will not

enforce it. Whether a court in one country will enforce a

judgment handed down in another is a complex question. In some

cases countries will be party to reciprocal agreements about

when one another's judgments will be recognised and

enforced. In other cases there will be no such agreements and

so the grounds on which enforcement may be declined vary both

according to where a judgment is given and where it is sought

to be enforced. This can be contrasted with the relative

uniformity in the treatment of arbitration awards. That

uniformity exists because so many countries are party to the

New York Convention1, which requires members to

recognise and enforce arbitral awards made in the territory of

other member states2 and provides only very limited

grounds on which enforcement may be resisted and refused.

Pending challenges as a ground for refusing

enforcement

The Arbitration Act 1996 gives effect to the New York

Convention in England. Section 103 sets out the small number of

grounds on which recognition or enforcement of a New York

Convention award may be refused. The Convention very much

favours enforcement and, even where one of the grounds on which

enforcement may be refused is established, the court will still

have a discretion to enforce the award3. One ground

on which enforcement may be refused is as follows:

" (2) Recognition or enforcement of the award may

be refused if the person against whom it is invoked proves

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...

(f) that the award has not yet become binding on the

parties, or has been set aside or suspended by a competent

authority of the country in which, or under the law of which,

it was made.

...

(5) Where an application for the setting aside or

suspension of the award has been made to such a competent

authority as is mentioned in subsection (2)(f), the court

before which the award is sought to be relied upon may, if it

considers it proper, adjourn the decision on the recognition

or enforcement of the award.

It may also on the application of the party claiming

recognition or enforcement of the award order the other party

to give suitable security."

Where a foreign award is subject to a challenge or appeal

the English court which is asked to enforce it therefore has a

discretion whether to do so, and whether to order the party

resisting enforcement to provide security. The Act gives no

indication as to what sort of test the English court should

apply in its exercise of this discretion.

The English High Court has recently considered these

provisions in IPCO (Nigeria) Limited v Nigerian National

Petroleum Corporation4.

Background to the first decision

The claimant, IPCO, was the Nigerian subsidiary of a Hong

Kong company. In 1994 IPCO had agreed to design and build a

petroleum export terminal, called the "Bonny Export

Terminal", for NNPC, the Nigerian state oil company. The

project overran by 22 months due in large part, IPCO claimed,

to variations which had been ordered by NNPC. The parties

proceeded to arbitration in accordance with their contract, the

case being heard by three Nigerian arbitrators and an award

rendered in Lagos. In October 2004 the arbitrators awarded IPCO

over US$152 million, with interest to run at 14% a year.

NNPC is a very substantial company — Africa's

biggest oil producer with a turnover equivalent to over

£5 billion in 2005. Having received the arbitration

considerable assets in England. Nigeria is party to the New

York Convention, and so enforcement fell to be determined

according to the terms of the Convention, as set out in the

1996 Act.

In November 2004, IPCO applied to the English High Court for

an order that NNPC pay it the sterling equivalent of the award,

converted at the prevailing rates of exchange, along with

interest amounting to more than £800,000 for the 26 days

since the award, and accruing at a rate of more than

£30,000 a day until payment. Mr Justice David Steel

considered the ex-parte application on paper and granted IPCO

an order in the terms sought.

In parallel with this enforcement action, NNPC had begun

proceedings in the Federal High Court of Nigeria, seeking to

have the award set aside under the Nigerian Arbitration and

Conciliation Act. IPCO had responded by filing a 'notice of

preliminary objection' seeking, in effect, to strike out

NNPC's challenge on the grounds that it was frivolous,

vexatious, calculated to delay enforcement of the award and

interfere with or delay the due administration of justice and

so an abuse of process.

NNPC then applied to the English court, seeking that the

enforcement of the award pursuant to the order of Mr Justice

David Steel be adjourned under section 103(5) of the

Arbitration Act 1996, NNPC having applied to a competent

authority to set aside the award. IPCO resisted this

application, but argued in the alternative that, if the court

was to allow that application, it should be conditional upon

the provision of security by NNPC. The application was heard by

Mr Justice Gross and judgment5 given on 27 April

2005.

The test to be applied

Gross J considered what test should apply to the exercise of

the section 103(5) discretion. He first referred to the general

pre-disposition to favour enforcement of New York Convention

Awards and identified that Section 103(5) represents a

compromise between competing concerns: that it should not be

possible to frustrate enforcement merely by making an

application in the country of origin; and that the respect due

to the court before which proceedings are pending in the

country of origin should not necessarily be pre-empted by rapid

enforcement in another jurisdiction.

Having identified that no threshold test for...