Uk Supreme Court: Security Deposit Not A Pre -Condition To Challenge Enforcement On Public Policy Grounds

The UK Supreme Court held that:-

Power to order security is only given to the English courts under Section 103(5) of the English Arbitration Act when challenge proceedings are pending before courts of seat of arbitration; Enforcing Courts cannot impose security as a condition to decide issues under the grounds of Public Policy and Arbitrability for resisting enforcement; English Procedural rules vest no power to direct payment of security to allow challenge to enforcement of New York Convention Awards The UK Supreme Court ("UKSC") in its recent ruling of IPCO (Nigeria) Limited ("IPCO") v. Nigerian National Petroleum Corporation ("NNPC")1 held that security cannot be imposed as a condition to hear issues resisting enforcement of the award on grounds of public policy and arbitrability. However, courts may adjourn enforcement in light of on-going setting aside proceedings in the country where the award was made, upon taking appropriate security from the award debtor (which is statutorily prescribed under Section 103(5)) of the English Arbitration Act, 1996 ("Act").

Factual Background:

NNPC had engaged IPCO to design and construct a petroleum export terminal. Pursuant to certain disputes between the parties under Contract dated March 14, 1994, arbitration proceedings were commenced and an arbitral award was passed in favor of IPCO on October, 2004 ("Award"). The Award directed NNPC to pay USD 152,195,971/- and an additional 5 million Naira plus interest at 14% per annum to IPCO.

The overview of the developments that took place between the parties have been summarized below:-

S. No.

Jurisdiction

Date

Nature of Proceedings

Outcome

1. Nigeria Federal High Court

   -

   NNPC challenged award on "non-fraud" grounds

   Pending

2. UK High Court of Justice

   29 Nov 2004

   IPCO filed application for enforcement of award

   Justice Steel passed an ex parte enforcement order in favor of IPCO

3. UK High Court of Justice

   27 Apr 2005

   Pursuant to the enforcement order being passed, NNPC filed an application for setting aside the 2004 Enforcement Order based on two grounds under Section 103 (2) and (3) of the Act or alternatively for its enforcement to be adjourned under Section 103(5), pending the resolution of the non-fraud challenges in the Nigerian Courts.

   NNPC was directed to pay IPCO a sum of $13 million and provide security of $50 million for the adjournment sought. ("First Security/Adjournment Order").

   This amount was paid and security was duly deposited by NNPC.

4. UK High Court of Justice

   17 April 2008

   IPCO challenges decision arguing that Nigerian proceedings will go on for years.

   IPCO, applied for reconsideration of the First Security/Adjournment Order as it seemed difficult for the Nigerian proceedings to be determined for several years.

   IPCO's argument was rejected and it was held that delay was not sufficient to justify complete re-opening of the earlier order.

   The High Court therefore, directed NNPC to pay a further amount of USD 52m plus USD 26m by way of interest.

   The High Court gave permission to appeal and stayed the order pending the appeal, conditional upon NNPC providing to the value of USD 30m and adjourned any decision regarding enforcement of the balance of the award under Section 103(5). ("Second Security/Adjournment Order"). The additional...