Security a paltry substitute for enforcement of an arbitral award?

Published: 26/9/2019

The question of enforcement of an arbitral award is a critical consideration for any party involved in international arbitration and should be properly addressed with a party’s advisers before commencement and throughout the arbitral process. In particular, a party will need to consider upfront what challenges might exist in enforcement, whether due to likely sources of delay or the approach of courts in the jurisdiction where a respondent’s assets are located.

The English courts have traditionally been viewed as highly attractive in this regard because of the distinctly pro-enforcement trend they have adopted in cases that come before them.

In the recent case of AIC Ltd v Federal Airports Authority of Nigeria [2019] EWHC 2212 (TCC) however, the English courts' interest in supporting the integrity of the arbitration process was balanced against considerations of comity in avoiding conflicts with the judgments of foreign courts, and an assessment of whether delays in enforcement of awards might be better protected by an award of security. The court in this case decided to adjourn the enforcement of an award in England and order security pending the outcome of a set aside application before a foreign court.

Background

The claimant was a Nigerian construction and property development company. The defendant was the Federal Airports Authority of Nigeria. A dispute arose between the parties over the development of a hotel and resort complex on land near a Lagos airport. The Defendant had directed the Claimant to refrain from working on the development, preventing it from finishing the project.

Arbitration proceedings took place in Nigeria and, in 2010, the Claimant was awarded $48 million plus interest of 18% per annum.

Following the granting of the arbitral award, long-running court proceedings took place in the Nigerian courts concerning the validity of the original arbitral award. In those proceedings, the Defendant sought to set aside the award and the Claimant sought enforcement of the monetary element of the award and remittal of the award to the arbitrator on the ground that he should have ordered specific performance. Although the Nigerian High Court set aside the award, the Nigerian Court of Appeal allowed the Claimant's objection to the High Court's decision and remitted the matter to the High Court. Both parties appealed to the Nigerian Supreme Court.

The question before the English court

In 2019, pending the outcome of the Nigerian proceedings, the Claimant issued proceedings in the English courts to enforce the arbitration award. The Defendant sought to adjourn those proceedings in light of the ongoing Nigerian proceedings. The Claimant sought substantial security ($162 million comprising the amount of the arbitral award plus interest to 2023 when it said the Nigerian proceedings were likely to be determined) if an adjournment was granted.

Section 103(5) of the Arbitration Act 1996 gives the English court the power to adjourn a decision on enforcement if an application to set aside or suspend an award has been made in the country of arbitration. In such circumstances, the court also had the power to make it a condition of the adjournment that security is provided. The provision in the Act reflects terms in the New York Convention.

The judgment

The court followed the principles set out in Soleh Boneh v Uganda Government [1993] 2 L1 Rep 208 and IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2005] EWHC 726 (Comm) on applications for adjournment in enforcement cases and drew out the following propositions from those judgments:

  • The court has a wide and unfettered discretion on adjournment applications;

  • It will consider whether the set aside application before the foreign court is bona fide and not a delay tactic;

  • It will also consider whether the set aside application before the foreign court has at least a realistic prospect of success adopting a "brief consideration" rather than detailed assessment of the foreign proceedings and determining on a "sliding scale" whether the facts suggested a "manifestly invalid" or "manifestly valid" award;

  • The stronger the merits of the foreign proceedings, the stronger the case for an adjournment and the weaker the case for security (and vice versa);

  • The court will also consider the delay which will result from the adjournment and prejudice to the parties; and

  • In assessing the risk of prejudice, it will compare the position of the enforcing party if enforcement was allowed to proceed and its position if enforcement was delayed, with the amount of security reflecting the degree of prejudice.

Applying these principles, although the English court considered that the attempts to set aside the award in Nigeria were unlikely to be upheld and that there was evidence of significant delay given the likely timescale of the Nigerian proceedings, this needed to be balanced against the fact that there had been a Nigerian court decision to set aside the award and it was important to avoid conflicting judgments. The court also took note that not only had the Defendant challenged the validity of the award in Nigeria but the Claimant had too and that there was little evidence that the Defendant would be able to take steps with regard to its assets located in England to avoid enforcement.

The court did, however, recognise that the Claimant should have some protection against deterioration in its prospects of enforcement in England and the award together with interest was a large sum of money for it to be deprived of. It recognised the need to accord some deference to the enforcement of a New York Convention award. In addition, the Defendant had been responsible for the considerable delay that had taken place in the Nigerian proceedings and an order for security would have the bonus of encouraging it to pursue matters more diligently.

In view of these factors, the court ordered the adjournment to be conditional on the defendant providing security of $24 million which represented 50% of the award or approximately three years’ worth of interest on the award.

Conclusion

The case demonstrates the English courts' willingness to temper their support for arbitration and press pause on enforcement in England in circumstances where foreign proceedings challenging the award are ongoing. Whilst the order for security in this case went some way towards mitigating the effect of delay on the Claimant, in the context of such large sums of money and the prospect of several years of delay, the grant of security amounting to just 50% of the award might be viewed as distinctly unfair to a claimant who has succeeded in an arbitration.

Parties to arbitration would be well advised, in light of this judgment, to consider carefully an array of factors in settling their arbitration strategies including:

  • the potential delay arising from foreign court proceedings to challenge an arbitral award;
  • the likelihood of courts in the place of enforcement favouring a 'let's wait and see' approach to such challenges in the interest of avoiding conflicting judgments;
  • the impact of a party's own attempt to challenge aspects of the award on its subsequent attempts to enforce it in another jurisdiction; and
  • the likelihood of any order for security being inadequate to cover the full amount of the award plus interest over the period of delay likely to be encountered and the impact of this on the party's wider business interests.

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