Supreme Court Clarifies the Law on Security and Enforcement of Foreign Arbitration Awards

IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2017] UKSC 16 (1 March 2017)

These proceedings involved the question whether the appellant Nigerian National Petroleum Corporation (NNPC) should have put up a further $100m security in English enforcement proceedings connected to a Nigerian arbitration award for $152,195,971 plus 5m Nigerian Naira plus interest at 14% per annum arising out of an agreement under which IPCO (Nigeria) Limited (IPCO) contracted to design and construct a petroleum export terminal for NPCC. The Supreme Court unanimously allowed the appeal. Giving the sole judgment, Lord Mance reversed the Court of Appeal’s decision and imparted much needed guidance on the provisions of the Arbitration Act 1996. He also said that rule 3.1(3) of the Civil Procedure Rules 1998 was not relevant to the appeal. The recognition and enforcement of foreign awards is addressed by sections 100-104 of Part III of the 1996 Act and these provisions implement the UK’s obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Lord Mance explained that section 103, which sets out conditions for refusal of recognition of enforcement of awards under the Convention, was key to resolving this case. His Lordship construed the provision to hold that the court has no power to impose security when making orders under section 103(2) and section 103(3). Instead, only an order made under section 103(5) can be made conditional upon the provision of security by the award debtor.

IPCO is a turnkey contractor specialising in the construction of on-shore and offshore oil and gas facilities. The arbitration was conducted pursuant to a contract made in 1994 which was subject to Nigerian law and provided that disputes would be settled in accordance with the Nigerian Arbitration and Conciliation Act 1988. IPCO has been seeking to enforce the award in this jurisdiction since November 2004. In 2009, evidence tendered by a former IPCO employee enabled NPCC to challenge the entire award on the basis that IPCO inflated quantum by using fraudulent documentation. The English courts accept that NNPC has a good prima facie case regarding IPCO’s fraudulent behaviour and realistic prospects exist for the whole award to be set aside. NPCC’s challenges to the award are still pending in Nigeria for non-fraud and fraud reasons. Notably, however, NNPC’s application to amend its pleadings in the Nigerian proceedings to raise the fraud challenge was adjourned by consent and never determined.

Raytheon Systems: e-Borders Arbitration Set Aside for ‘Serious Irregularity’

See my article  Failure to Deal with the Issues: The e-Borders Award and ‘Serious Irregularity’ under the Arbitration Act 1996. These judgments given by Akenhead J relate to the e-Borders controversy. The e-Borders passenger information system was marketed as a one-stop solution to the UK’s immigration and security problems. Under e-Borders the Home Office sought to create an electronic system to examine everyone entering and exiting the UK by verifying their details against immigration, police and security related watch lists. In Raytheon Systems Ltd [2014] EWHC 4375 (TCC), Akenhead J set aside an arbitral award (in e-Borders contractor Raytheon’s favour) because of “serious irregularity” within the meaning of section 68(2)(d) of the Arbitration Act 1996 (“the 1996 Act”). In December 2014, the court held that the arbitration tribunal failed to deal with all the issues (of fault and responsibility attributable to Raytheon which were highly relevant to quantum) put to it. Subsequently, in Raytheon Systems Ltd [2015] EWHC 311 (TCC), in February 2015, Akenhead J set the arbitration award (£200+ million) aside in its entirety for serious irregularity and ordered a fresh hearing.

The arbitrators’ identities remain undisclosed to the public and the rulings did not intend to reflect on their integrity or general competence. Despite successfully challenging the award in court, the government continued to negotiate and the Home Secretary announced on 27 March 2015 that the settlement with Raytheon was “a full and final payment of £150m.” The earlier judgments, in the Home Office’s favour, were made publicly available in February 2015 and are perhaps the only authoritative documents in the public domain that shed light on the dispute. The award was set aside for serious irregularity because of the arbitrators’ failure to address issues, highly relevant to quantum, of fault and responsibility attributable to Raytheon. Signed in 2007, the e-Borders contract was worth around £750 million in total. The government terminated it in 2010 because of delays and key milestones being missed.