IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation

When we circulated our judgment in draft paragraph 175 indicated that we proposed to require security for the whole of the Award including principal and interest both accrued and outstanding. After we had done so we received a letter from NNPC’s solicitors which invited the Court to reconsider its judgment in respect of two matters:

As to security it was said that our proposed order was made without jurisdiction since, in the light of section 103 (5) of the Arbitration Act 1996 security may only be ordered on the application of the enforcing party. Since no such application was made by IPCO to the court below the appeal court was not entitled to order security of its own motion.

In addition it was said to be wrong in principle to make an order save on the basis that there were assets in the jurisdiction that might be dissipated in the interval between the making of any order and the determination of the fraud challenge. That was said to be apparent from the passage in Soleh Boneh cited at [123] of the judgment. There was, it was said, no misprint in the report. Staughton LJ was dealing in the penultimate line with a case where there were insufficient assets within the jurisdiction. In such a case the case for security was weakened because, if there were insufficient assets anyway, the effect of any difficulty of access or dissipation would be much reduced. In the present case there was no evidence as to the assets which NNPC has within the jurisdiction against which enforcement could be ordered or as to whether and to what extent delay would affect the prospects of enforcement. It would, therefore, it was said, be wrong in principle, or at least require some special justification, to make an order which requires the Award debtor to bring assets into the jurisdiction as a condition of further adjournment or enforcement.

Reliance was placed on the case of Dardana Ltd v Yukos Oil Co [2002] Lloyd’s Rep 326 at [31] in support of the contention that it was wrong to make it a condition of any fraud challenge under the section 103 (3) public policy head that security be provided. If any order for security was to be made it should only be on the basis that, if security was not provided, the adjournment would lapse, but that the fraud challenge under section 103 (3) would fall to be determined prior to any order for enforcement taking effect.

As to jurisdiction, we regard it as somewhat artificial to say that there was and is no extant application on the part of IPCO, the party claiming enforcement, for the court to order security if enforcement itself is not ordered. Gross J had before him an application by NNPC to set aside the order giving leave to enforce the Award or, in the alternative, for an adjournment of enforcement of the Award. IPCO issued a cross application for security in the event that adjournment was ordered. Thereafter the possibility of an adjournment subject to the provision of security has always been in play. Gross J ordered an adjournment upon payment of security. Tomlinson J increased the security as a condition of permission to appeal. IPCO then applied for further enforcement of the Award. It was implicit in this string of applications that, if the court declined to enforce to the extent sought, it should, at least, order security. In any event IPCO plainly seeks such security now.

In Dardana Mance LJ (as he then was), with whom Neuberger J (as he then was) and Thorpe LJ agreed, was

“fully prepared to proceed on the basis that s.103(5) provides the court with jurisdiction to make such an order, in a case where it, either of its own motion (cf Soleh Boneh (Footnote: ¹)) or at the instance of the party seeking recognition or enforcement, decides to adjourn, pending a foreign application to set aside by the party resisting recognition or enforcement”.

It is not wholly clear to us how s 103 (5) was thought to provide jurisdiction to the Court to act of its own motion but, in any event, a court which is asked to adjourn, or continue an adjournment of, enforcement is entitled to impose conditions on the exercise of its discretion to do so: CPR 3.1 (3) (a); and may do so of its own initiative: CPR 3.3. Section 103 (5) cannot be treated as precluding the exercise of that right. We also note that in its skeleton argument before Field J NNPC argued (paragraph 322) that either no security should be required as a price of continuing the adjournment or that the amount of security should be substantially reduced. It did not suggest that the court simply lacked jurisdiction to make any order for security at all.

As to the contention that the order would require NNPC to bring assets into the jurisdiction, it does no such thing. It imposes a condition of full security, in the form of a bank guarantee, for the further adjournment sought by NNPC so that, if successful, IPCO will be afforded “simple and swift enforcement from a creditworthy source”, per Popplewell J in Monde Petroleum v Westernzagors [2015] EWHC 67 (Comm) [61].

The essence of the submission, however, is that it is wrong to make an order the effect of which is to require the Award debtor to bring assets into the jurisdiction, or procure the equivalent. Staughton LJ, it was submitted, was contemplating a situation where there were insufficient assets within the jurisdiction with the result that the case for security was weakened because there could be no question of losing the possibility of enforcement against that which did not exist (Footnote: ²). That such loss was one of the matters that Staughton LJ had in mind does, indeed, appear from a later passage at page 213 (“some protection for the contractors against any deterioration of their prospects of enforcement here”). But the first sentence of the passage cited in [123] of our judgment made clear that the risk of a reduction in assets already within the jurisdiction was one factor and that there might be others. One factor to which he referred was the desirability of providing a real incentive to the award debtor to proceed with its challenge to the award in Sweden expeditiously. In the event the court appears to have ordered the provision of security for about half the principal.

In Continental Transfert Technique Ltd v Federal Government of Nigeria [2010] EWHC 780 Hamblen J took much the same view, ordering £ 100 million by way of security, when the amount due on the due date for payment was about £ 140 million. That was a case where he thought that the challenge to the Award had no real prospect of succeeding. The matters he took into account were (a) the lack of merits (as he saw them); (b) the fact that there was an element of delaying tactics on the part of the award debtors; and (c) the prejudice the award creditor would suffer from being kept out of the fruits of its award. The security was ordered to be provided by the first three defendants, being the Federal Government of Nigeria, the Attorney General of the Federation, and the Ministry of the Interior.

In Dowans Holding SA v Tanzania Electric Supply Co Ltd [2011] EWHC 1957 (Comm), at [50], Burton J accepted that he ought to be looking for prejudice specifically by reference to any delayed enforcement of the award by converting it into an English judgment. But he also held that there was nothing in the authorities that limited him to considering assets within the jurisdiction. In that case it was the evidence of the award debtor that it had no assets in England and Wales. But he thought it was a highly likely possibility that it had assets in a European country subject to the Judgments Regulation. In a case in which the merits of the challenge were at the lower end of the scale he made an order for security because he thought that there was a real risk that in the interval before enforcement there could be assets within the relevant European countries, which might have been the subject of execution, in relation to which arrangements to make them free from execution might be adopted.

Gross J in IPCO v NNPC [2005] EWHC 726 at [15] said that it would be “wrong to read a fetter into this understandably wide discretion”. In that case he ordered security of $50 million in addition to judgment for the $ 13 million indisputably due. That was the amount of the Award with which IPCO, as he thought, would end up if NNPC succeeded on its duplication point. He considered that, given the size of the Award, any delay in enforcement was likely to prejudice IPCO because very few commercial companies would not be prejudiced by delay in the availability of so large a sum. He thought it right to minimise that prejudice so far as it was practicable and appropriate so to do ([51(v)]).

No suggestion appears to have been made to Gross J that it was wrong in principle to require a guarantee, or that any guarantee should be measured by reference to whatever assets NNPC had within the jurisdiction or the prospect of their dissipation, or that there was any difficulty in providing a guarantee. No such difficulty was indicated to us at the hearing. A bank guarantee for $ 80 million has been in force for years. Any supposed difficulty in the provision of such a guarantee sits ill with the submission that IPCO would suffer no prejudice from delay because NNPC would be “good for the money”. No suggestion was made at the hearing that a guarantee in an increased amount would cause any insuperable problem.

The decision in Yukos Oil Co v Dardana Ltd [2002] EWCA Civ 643, on which NNPC relies, involved a complicated set of facts. An award was made against Yukos in Sweden in favour of Dardana. Yukos applied in Stockholm to set the award aside. Permission to enforce was given in England by an ex parte order with liberty to apply. Yukos applied to set the order aside and/or for a stay, contending that there was no valid arbitration agreement. Dardana asked for security if there was to be a stay. An order was made for an adjournment on the basis that Yukos would provide security. Yukos appealed.

The Court of Appeal decided that in reality the party seeking an adjournment was Dardana, the award creditor, and not Yukos, the award debtor. Dardana came to England to pursue enforcement proceedings and did so vigorously for two days. They did not go as planned and Dardana began to realise that it faced very considerable problems. So it sought an adjournment pending resolution of the Swedish proceedings.

This court first decided that, where it was the award creditor who in reality sought the adjournment, security from the award debtor could not be required as a condition of the adjournment. In those circumstances it was illegitimate to attach to an outstanding application by Yukos, the award debtor, to set aside the award under section 103 (2) a provision that adjournment should be conditional on the provision of security.

That did not mean that the court could not order security under section 103 (5) at all either of its own motion or at the instance of the award creditor. But in the circumstances of that case (where it was the award creditor who sought the adjournment) any order would have to be made without a condition attached to it whereby there would be enforcement of the award if the security was not provided: [29] – [31].

As far as the exercise of the discretion to order security (without that condition) was concerned the judge, so the Court of Appeal held, had approached the case from the wrong angle because he had treated Yukos, the award debtor, as the party seeking adjournment when in fact it was the award creditor who was doing so: [32]. The fact that adjournment was sought by an award creditor, who was abandoning his primary aim of having the relevant issue decided in England, did not necessarily mean that security was inappropriate: [34]. But it was highly material to the exercise of discretion and a significant distinction to the Soleh Boneh case. On the evidence the court did not find there was any real pointer towards a need for security during the period of the adjournment: [37]. As to the merits the court agreed with the view of the judge that Yukos’ case (that the award was not enforceable against them) was substantially the stronger: [52]. The court, exercising the discretion afresh, decided that no security should be ordered.

In the present case it seems to us that in reality it is NNPC, the Award debtor, which sought the continuance of the adjournment in the face of IPCO’s attempt to enforce the Award and bring the adjournment to an end. In its Respondent’s notice NNPC said that, if the judge’s contingent exercise of his discretion was in error, he was nevertheless correct to conclude that it was appropriate to adjourn under section 103 (5) so that the challenge could proceed in Nigeria inter alia because, if the court were minded to enforce the Award, it would still have to decide whether the enforcement of the award was contrary to English public policy. In other words it was relying on the possibility of a later English public policy challenge as a reason to uphold the continuance of the adjournment, ordered by consent on 17 June 2009, pending resolution of the fraud challenge in Nigeria, rather than suggesting that enforcement should only abide a section 103 (3) determination.

So far as the ability of IPCO to enforce any judgment is concerned, much will depend on whether NNPC has sufficient assets in this country, or any other country in which an English judgment may be enforced, to ensure that it can swiftly receive the fruits of any judgment in its favour.

Although NNPC is a large business we have no details of its assets within such countries, or the form in which they are held, how long they have been held there, or how readily any trading arrangements might be changed so as to render enforcement difficult or impossible. That was exactly the position in Soleh Boneh (p. 212: “We do not know what assets the employers have here. or how long any assets are likely to remain here”), in which this Court, whilst declining to require security in respect of the whole award, ordered security in a lesser amount in circumstances where it could not be satisfied that further delay would “definitely not prejudice the enforceability of the award”. In the first IPCO v NNPC case Gross J thought it likely that NNPC, given its trading activities, had assets in London but does not appear to have had any specific evidence as to the nature of NNPC’s assets within the jurisdiction (or elsewhere). In Continental Transfer, no evidence appears to have been adduced as to the ease of recoverability of any judgment from (in effect) the Nigerian Government either in England & Wales or any other country.

What all the judges in those cases explicitly or implicitly accepted was that where there is a very large award, delay without security is inherently likely to prejudice the award creditor and certainly risks doing so. We regard that as a factor which should incline us towards providing some security to ensure that if the fraud challenge fails, IPCO will not be faced with a further round of attempts to avoid payment of the Award or a situation in which its prospects of recovery have worsened.

Another material factor is the need in a case involving such extraordinary delay, extending over a decade, to provide a strong incentive to securing finality. NNPL says that, now that the fraud challenge is to be heard in London, the prospects of excessive delay are much reduced. Hopefully so. But the history of these proceedings, and their inordinate delay, persuades us of the need to provide an incentive, indeed something of a goad, to progress.

Lastly we bear in mind that the delay which has already taken place has meant that the ratio between the amount of security in place and the amount due has greatly decreased. Interest under the award is running at 14% per annum. Gross J ordered that security of $ 50 million be provided 10 ½ years ago. $ 50 m x 14% x 10 = $ 70m. The same exercise applied to the $ 30 million security provided in 2008 produces about another $ 31.5m ($ 30m x 14% x 7.5).

We have, however, reconsidered the quantum of the security, and have concluded that our original proposal to require security for the entirety of the Award does not adequately take account of the fact that there is a good prima facie case of fraud as to at least part of it. Accordingly, in the light of all the circumstances, we propose to order that the further security to be provided shall be $ 100 million. We take account of the fact that the amount that is said to be outstanding in respect of both principal and interest is of the order of $ 350 million and that IPCO’s calculation of the amount of principal and interest in respect of items unchallenged and unpaid is $ 90 million. Like Gross J we regard requiring further security of $ 100 million as a course of practical justice, steering a course between immediate enforcement and adjournment with no further security at all, and consistent with the importance under the New York Convention of securing timely enforcement. An order of this nature should provide the necessary incentive to progress.

We do not accept that there has been any procedural unfairness which should preclude our taking the course proposed. At the hearing Christopher Clarke LJ raised with Mr Black the possibility that one outcome of the appeal was that provision for a guarantee of the whole of the Award might be made a condition of further adjournment. He did this in order to give notice to Mr Black that the Court might make an order in his client’s favour, but to a lesser extent than sought. It would also be an order to some extent favourable to NNPC (because it would have granted an adjournment) but not as favourable as it would like (because of the increased security).

Mr Black accepted that the Court has jurisdiction to do that. On the third day of the hearing he submitted that there should be full security (“we would accept the suggestion of a s 103(3) trial here against full security, we would argue, in those circumstances”.) This was itself a form of application. NNPC did not submit that we had no jurisdiction to make any such order, or that it was wrong in principle, or that it was unfair that we should contemplate doing so.

As to the contention that our order should not provide for enforcement if the fraud challenge fails because the non fraud allegations remain to be determined, we decline to make any change to our proposed order. Our decision was, and is, that in the light of the enormous delay (past and anticipated for the future) the time has come to order enforcement, if the fraud challenge fails. That was what IPCO sought and had sought before Gross J and Tomlinson J and Field J; NNPC has had a full opportunity to address the point at every stage.

Further, since the enforceability of the Award will now depend on whether or not it is contrary to English public policy to enforce it, no useful purpose would be gained by ordering the provision of security but upon the footing that the Award could not be enforced until the fraud challenge was determined here. NNPC would, in those circumstances, be able to decline to provide security and could readily mount the fraud challenge without putting up any security at all. The order would be fruitless.

We were invited by NNPC to order that the security be in the form of a guarantee from a Nigerian Bank and with security for the costs of giving it provided by IPCO’s parent. Neither course was suggested at the hearing (or any previous hearing) and, in those circumstances, we do not regard it as appropriate to make either of these changes now. The proposal that the guarantee should be from a Nigerian bank seems to us wholly inappropriate. It is not the form of guarantee determined by Gross J nor the form usually adopted in cases in the Commercial Court. We see no good reason for a change. We do not regard the provision of security by a first class Nigerian bank as providing the same assurance as that which is to be obtained from a first class London bank.

IPCO succeeded in showing that the judge was wrong to decide (i) that there was no change of circumstances (NNPC’s principal submission), in respect of which he applied the wrong test and (ii) that, if there was any change, no different order should be made. It failed, however, to establish that there had been a significant change in the plausibility of the fraud claim ([133] – [136]), one of its primary assaults on the judgment below (the other being the delay); or that there should be immediate enforcement of any part of the Award, which was the remedy which it had sought. The only basis upon which IPCO succeeded under the change of circumstances head was in relation to the delay in the progress of the case, which, as we have held, required that the matter should not simply remain adjourned. NNPC will have achieved a hearing of the fraud allegation but not in Nigeria. The result of our judgment is, thus, not the one primarily sought by either party. In our view the right order, in those circumstances is that IPCO should recover 50% of their costs of the appeal.

IPCO suggest that the costs below should be costs in the enforcement proceedings. That seems to us to give rise to potential difficulties. What happens if part of the Award is held to be enforceable and part is not?

NNPC says that it should receive 90% of its costs because it succeeded in demonstrating that there was an arguable case of fraud, which IPCO was invited to concede (but did not); and the exercise of dealing with the fraud challenge caused huge expense in terms of investigation, obtaining witness evidence from many witnesses, expert evidence on forensic document analysis, and dealing with the evidence served by IPCO on an item-by-item basis. By far the bulk of the evidence related to the alleged fraud. Of the changes of circumstances relied on by IPCO only one (delay) was, in the end, sufficient to require a different order. The issue of delay, on which IPCO succeeded, involved facts not seriously in dispute (being largely confined to an account of the developments in the proceedings in Nigeria) and the argument was limited in scope.

We regard these submissions as having considerable force. At the same time we have overturned the judge’s decision. We think that the just order is to award NNPC 85% of their costs, the deduction reflecting the fact that IPCO have shown the order of the judge not to be justified, but only on the basis of the delay and that the bulk of the hearing was used up in dealing with matters upon which it failed.

We decline to grant permission to appeal to the Supreme Court.