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.

Public Law Duty and Cross-Undertaking for Losses to Third Parties

The Financial Services Authority (a company limited by guarantee) (Respondent) v Sinaloa Gold plc and others (Respondents) and Barclays Bank plc (Appellant) [2013] UKSC 11

Affirming the Court of Appeal’s decision reported at [2011] EWCA Civ 1158, see Patten LJ at [55], the Supreme Court has unanimously dismissed the appeal in this case. The court held that there is no general rule that an authority such as the Financial Services Authority (FSA), acting pursuant to a public law duty, should be required to give a cross-undertaking in respect of losses incurred by third parties. Equally, on the facts of this case, no particular circumstances existed whereby the FSA should be required to give such a cross-undertaking. For the full details of this case in the Court of Appeal and High Court (which held that the FSA was required to give a cross-undertaking in respect of losses incurred by third parties), the preview to this case is available here.

Just to recap briefly, cross-undertakings are a critical feature of a freezing (formerly Mareva) injunctions. Usually, applicants must give a cross-undertaking in damages to the court. This is to compensate respondents and any affected third parties in the event  the court decides that the applicant was not entitled to injunctive relief (a discretionary remedy). Where no cross-undertaking is given, the courts will refuse to grant an injunction. However, in situations where freezing injunctions are procured by public bodies (such as the FSA) pursuing law enforcement functions, the courts usually do not require such bodies to provide a cross-undertaking in damages to safeguard the respondent’s position. Lord Mance of Frognal gave the leading judgment and Lord Neuberger PSC, Lady Hale, Lord Clarke and Lord Sumption JJSC concurred with his Lordship.

UK Supreme Court: Does the FSA Need to Give a Cross-Undertaking as to Damages in Favour of Third Parties?

On 12 and 13 December 2012, the UK Supreme Court will be hearing an extremely interesting appeal. The case of The Financial Services Authority (a company limited by guarantee) (Respondent) v Sinaloa Gold plc and others (Respondents) and Barclays Bank plc (Appellant) UKSC 2011/0244 concerns cross-undertakings, damages, freezing injunctions and third parties. The issue thrown up by the appeal is whether the Financial Services Authority (FSA) should generally be required to give a cross-undertaking in damages to third parties affected by a freezing injunction obtained pursuant to its statutory regulatory functions over and above the costs incurred in complying with the order. See Supreme Court’s judgment here. 

I. Background

The FSA regulates financial services and markets under the powers and duties conferred upon it by the Financial Services and Markets Act 2000 (FSMA). In December 2010, the FSA commenced proceedings in the Chancery Division against the three named defendants, Sinaloa Gold (S), PH Capital Invest (PH) and Mr Glen Hoover (GH), whom it alleged were involved in what is commonly referred to as a “boiler-room fraud” involving the sale of S’s shares.