Requirements for Security in English Foreign Award Enforcement Actions

Follow Up on High Court Application of the U.K. Supreme Court’s IPCO v NNPC Judgment

This alert follows our previous review of the judgment of the U.K. Supreme Court in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16 (IPCO). That case concerned a challenge to enforcement of a New York Convention arbitration award and considered whether the provision of security on the award value could be made a prerequisite to launching such a challenge. In a unanimous judgment, the Supreme Court held the provision of security may only be made a prerequisite in cases of adjournment pending resolution of a challenge in the courts of the seat of arbitration.

On 11 April 2017, in light of the Supreme Court judgment, Mr Justice Baker, sitting in the Commercial Court, quashed an order adjourning a challenge to a foreign arbitration award. He also set aside a previous order for award security made by Mr Justice Flaux. Mr Justice Baker further granted leave for an expedited appeal to the Court of Appeal. This appeal will consider the proper basis for award security for adjournment of enforcement proceedings in England pending a challenge at the seat of arbitration under s. 103(5) of the Arbitration Act 1996 (the Act). Specifically, the Court of Appeal shall consider which of an application by either the defendant or the claimant, or the Court exercising its own inherent jurisdiction, may be the appropriate basis.

The judgment of Mr Justice Baker in Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd [2017] EWHC 797 (Comm) is available here.

In this case, Eastern European Engineering sought to enforce a Paris seat arbitration award under s. 101 of the Act. Vijay Construction made a counter-application to set aside enforcement of the award in England under s. 103 of the Act. Following that, Mr Justice Flaux adjourned the defendant’s set aside application pending Vijay Construction’s award challenge proceedings in France, and ordered partial security of €7,500,000 (on the award of approximately €17,000,000) be paid into court. Vijay Construction did not comply with the order of Mr Justice Flaux for security.

Vijay Construction’s challenge to the award in France subsequently failed. In the event, after its original application to the Cour d’Appel de Paris was rejected, Vijay Construction filed a further application with the Cour de Cassation, but neither made further submissions nor attended any hearings. At the time of Mr Justice Baker’s judgment, it was acknowledged that the proceedings before the Cour de Cassation would shortly be dismissed.

Eastern European Engineering then applied for Vijay Construction’s set aside application in England to be dismissed. Mr Justice Baker considered that “[i]f it could be proper to consider dismissal of the defendant’s application in these circumstances, the lesser alternative of an ‘unless’ order, providing for dismissal if the ordered security is not now provided by a new, final deadline, would arise naturally for consideration.”¹

Question of Whose Motion May Empower the Court to Order Security Goes to the Court of Appeal

In IPCO, Lord Mance clarified that security on the award is “the price of an adjournment which an award debtor is seeking, not to be imposed on an award debtor who is resisting enforcement on properly arguable grounds.”² Vijay Construction therefore argued that award security could only be granted where it was the defendant who sought an adjournment of award enforcement in England to await proceedings at the seat; as opposed to the claimant, or an order of the Court of its own volition.

This was an important point, because in this case Mr Justice Flaux had in fact ordered security on his own initiative, with some urging by the claimant. Mr Justice Baker remitted this issue to the Court of Appeal to further interpret the Supreme Court’s judgment in IPCO. An oral hearing is due in the Court of Appeal on 18 May 2017.

Failure to Comply with the Security Order Does Not Lead to Heavy Sanction on the Facts

This question hinged upon the Court’s inherent power under Civil Procedure Rule 3.1(a). In IPCO the Supreme Court asserted that it had no relevance to the action, because the award debtor had previously complied with the order for security and security could not be ordered as “the imposition of a fetter on a person exercising an entirely properly arguable right.”³

The question here was the appropriate sanction for failure to obey Mr Justice Flaux’s order for security. Mr Justice Baker was of the opinion that, as Mr Justice Flaux’s order was of his own decision and not at the urging of Vijay Construction, “there is no sense in which the security ordered can properly be regarded as the ‘price of relief sought as a matter of discretion or concession’”,⁴ citing to the passage from IPCO set out above. As the adjournment of the defendant’s application was not made conditional upon the payment of the security by Mr Justice Flaux’s order, Mr Justice Baker took the view that it was for claimant to make a prompt application for the order to become so. Eastern European Engineering had not, and Mr Justice Baker felt in those circumstances:

[I]t would be wrong in principle now to make it a condition of the defendant’s pursuit of its set aside application that it comply with Flaux J’s order to provide security. Rather, in my judgment the proper order to make in the circumstances is that the adjournment be now terminated, the order for the provision of security be discharged, and there be directions for the prosecution of the defendant’s set aside application, towards as expeditious a determination as is fairly possible.⁵

In obiter comments, Mr Justice Baker also felt strongly that criminal penal notices for failure to comply with a foreign award security order were extremely unlikely to be an appropriate response to conduct where the fundamental issue is “a failure to ‘purchase’ the survival of a claim in court.”⁶

Comment

This judgment is a welcome continuation of the principles of IPCO regarding the enforcement in England of foreign arbitration awards. Commercial in-house counsel and private practitioners in the field will doubtless wish to know the effect of the Court of Appeal’s judgment on strategy for enforcement of foreign awards in England. We shall provide a further update in due course.

We note that these issues would likely not bear on enforcement of a domestic arbitration award in England. Under s. 70(7) of the Act, the Court has an inherent jurisdiction to grant security on the award pending any challenge of the award under sections 67 through 69 of the Act, and may dismiss the action if the award debtor does not comply with such order.

This could motivate commercial actors to draft dispute resolution clauses in their contracts to seat arbitrations in England in order to improve the chances of security against a resistant award debtor.