REUTERS | Gary Hershorn

English Supreme Court clarifies the availability of security in New York Convention enforcement cases

The English Supreme Court has handed down its judgment in the long-running case of IPCO (Nigeria) Ltd v Nigerian National Petroleum Corp.

In the judgment, the Supreme Court provided important guidance on the approach of a court considering an application to enforce an arbitral award in England under the New York Convention, when it is asked to order that the award debtor should provide security for the award sum.

The decision

What is an adjournment?

The Court of Appeal had purported to order the Nigerian National Petroleum Corporation (NNPC) to provide security for US $100 million (which was part of the sum due under the arbitral award) under section 103(5) of the Arbitration Act 1996 (AA 1996). This was pending an “adjournment” for a decision of the Commercial Court as to whether enforcement should be refused pursuant to section 103(3) on the grounds of an alleged fraud committed by IPCO. If the security was not provided, the court would enforce the award immediately without hearing NNPC’s arguments against enforcement. If, on the other hand, the security was provided, the Commercial Court would proceed to a trial of the issues under section 103(3).

The word “adjournment” is used in several senses by English lawyers. As Lord Sumption remarked during the hearing, the Supreme Court would normally “adjourn” for lunch during a hearing. “Hopefully not on the basis of security”, replied Toby Landau QC, who appeared for NNPC.

Section 103(5) provides for security to be ordered, as a condition of adjourning the decision on whether to enforce an award. However, the Court of Appeal in IPCO v NNPC ordered security as a condition of making a decision on the alleged grounds to refuse to enforce, with an automatic decision in favour of enforcement if the security was not provided. That is not what section 103(5) of AA 1996 provides at all. The Supreme Court therefore held that the Court of Appeal could not properly make an order for security, under section 103(5), in those circumstances.

Security as a condition for what?

The Supreme Court provided helpful clarification as to the consequences when a party, who has given security in compliance with an order under section 103(5), fails to provide it or allows it to lapse. The Supreme Court was in a good position to do so, because the bench included Lord Mance, who was part of the Court of Appeal bench in the case of Dardana v Yukos.

The Supreme Court confirmed, as Lord Mance had indicated in Dardana, that the extent of the power to order security under section 103(5) is to order that the adjournment will lapse if security is not provided. It is not to order that failure to provide security will mean that enforcement may follow immediately and without consideration of the merits of any unresolved Article V New York Convention defences.

The New York Convention as a code for refusal of enforcement

The Supreme Court considered that the provisions in the New York Convention, allowing security to be ordered for the award sum as a condition for not enforcing, are to be treated as exhaustive. They are not to be treated as mere illustrations of when security can be ordered. That follows from the court’s conclusion that “the conditions for recognition and enforcement set out in articles V and VI of the Convention do constitute a code”, which is to lay down a common international approach.

National courts ought not to impose a condition, requiring the provision of security for sums payable under the award, upon the right to ask the court to make a decision on a properly arguable ground for refusal of enforcement under Article V. Had that been contemplated, the Supreme Court took the view that “it could and would have been said” in the New York Convention.

The Supreme Court considered this outcome to be consistent with the overall spirit of the New York Convention, which is:

“… a balancing of interests, with a prima facie right to enforce being countered by rights of challenge… Apart from the second paragraph of article VI, its provisions were not aimed at improving award creditors’ prospects of laying hands on assets to satisfy awards.”

Discussion

The New York Convention, whilst generally promoting enforcement, provides important safeguards which protect award debtors from the enforcement of bad awards.

The court should not have a general discretion to order an award debtor to give security as a condition for raising any of the grounds in Article V. This is so for the same reasons that a court, deciding an ordinary claim on the merits, will not normally have a general discretion to order the defendant to give security for the sum claimed. The Supreme Court’s decision therefore protects an award debtor’s right to raise bona fides defences to enforcement, without the fetter of being required to put up security in advance.

Implications of the decision

In summary, the implications of the Supreme Court’s decision are as follows:

  • Articles V and VI of the New York Convention constitute a code for the enforcement of foreign awards. The parts of the AA 1996 under which the English court enforces awards should be construed accordingly.
  • In relation to the matters dealt with specifically in Articles V and VI of the New York Convention, the English courts are likely to consider that those articles set out the whole regime governing resisted applications for enforcement.
  • An order for security for the sums payable under the award, against a debtor resisting enforcement of a foreign arbitration award in the English Court, is only available where an application has been made to adjourn, under section 103(5), and the court does adjourn pending the decision of the courts of the seat.
  • In theory, an order could also be made for security, pursuant to the power under the Civil Procedure Rules (CPR) to make an order subject to a condition, where an award debtor is asking the court for discretionary relief under the CPR, or where the award debtor has defaulted during the court proceedings.
  • It remains to be seen whether the Commercial Court might in future be persuaded to order security to be provided for the award sum under the CPR, where the court has made a preliminary assessment of the merits of the grounds for resisting enforcement and found them to be weak, or “problematic” (as the Supreme Court put it).
Stephenson Harwood Duncan Bagshaw

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