English Court Stays Award Enforcement Proceedings And Orders Security

In AIC Limited v The Federal Airports Authority of Nigeria [2019] EWHC 2212, AIC obtained an award for US$48.1m arising from the FAAN directing AIC to cease development of a hotel complex on a parcel of land leased by AIC from the FAAN. Following various applications in the Nigerian courts, AIC obtained an order in the High Court for enforcement of the award without notice, following which the FAAN applied to set aside the order and sought an adjournment of the enforcement proceedings pursuant to s.103(5) of the English Arbitration Act, and AIC sought an order that the FAAN should give suitable security for the Award under the same provision in the event that an adjournment was granted.

Section 103 of Act contains the grounds on which enforcement of a New York Convention Award may be refused:

(1) Recognition or enforcement of a New York Convention award shall not be refused except in the following cases
(2) Recognition or enforcement of the award may be refused if the person against whom it is invoked proves …
(f) that the award has not yet become binding on the parties or has been set aside or suspended by a competent authority of the country in which, or under the law of which, it was made.

(5) Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award.
It may also on the application of the party claiming recognition or enforcement of the award order the other party to give suitable security.”

Section 103(5) is almost identical to Article VI of the New York Convention.

The application of s.103(5) has been considered in Soleh Boneh v Uganda Government [1993] 2 L1 Rep 208 and IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2005]1 CLC 613, which set out the following test for the exercise of the court’s discretion to grant adjournment and/or require provision of security under s103(5):

  • Whether the application before the foreign court is bona fide and not a delay tactic;
  • Whether the application before the foreign court has at least a realistic prospect of success;
  • The extent of the delay occasioned by an adjournment and any resulting prejudice.

In considering whether to adjourn AIC’s enforcement application under s103(5), the Court extracted the following propositions from the IPCO decision [35]:

  • The discretion to adjourn an enforcement application is wide and unfettered under s103(5);
  • The questions of bona fide, realistic prospect of success and extent of resulting delay or prejudice may be relevant depending on the individual circumstances of the case but are not exhaustive;
  • In considering the merits of the set-aside application before a foreign court, the enforcing court is to undertake a “brief consideration” rather than a detailed examination of the foreign proceedings, and determine where on a “sliding scale” the particular facts fall as between an award that is manifestly invalid and one that is manifestly valid;
  • The stronger the merits of the application before a foreign court appear, the stronger the case for an adjournment and the weaker any corresponding application for security (and vice versa);
  • Where enforcement will be rendered more difficult as a result of delay, the stronger the case for security;
  • The weaker the risk of prejudice to the enforcing party caused by an adjournment, the weaker the corresponding application for security;
  • Soleh Boneh is not authority for the proposition that security should always be ordered;
  • When considering the risk of prejudice, the comparison is between the position of the enforcing party if it were allowed to enforce immediately and its position if enforcement is delayed. The amount of security to be ordered ought to reflect the degree of prejudice;

Applying these principles, the Court considered that the pending appeals at the Nigerian Supreme Court would not be heard until 2023/2024 and found that an adjournment would therefore cause “potentially considerable” delay to enforcement, but that the delay had to be balanced against FAAN’s prospect of success in the set aside application (which the court found was bona fide). That, plus the fact that the award had been set aside on the only occasion on which the merits of the set aside application were considered by a Nigerian court, resulted in the court concluding that it was appropriate to adjourn the application for enforcement. The Court stated [54]:

“Bringing the various factors together, in my judgment this is a case where the Award lies towards the “manifestly valid” i.e. top end of the scale, in which significant further delay is likely to ensue and in which some element of prejudice to AIC will result from a continuing delay in enforcement. However, those factors must be balanced against the matters set out in paragraph 44 of my judgment and in particular the fact that on the only occasion on which the Set Aside Application did come before the Nigerian Courts on its merits the Award was set aside. I am mindful of the fact that it is important to avoid conflicting judgments. Accordingly, I have concluded that this is a case in which an adjournment is appropriate and in which the factors militating against an adjournment fall to be addressed further in the context of AIC’s application for security.”

In dealing with the question of security, the Court found the FAAN responsible for the delays in the Nigerian proceedings and considered that an order for security would encourage the FAAN to diligently pursue them. The court stated [58-59]:

FAAN are the primary appellant and one would therefore expect them to take the lead in diligently pursuing their appeal. However, the indications are that FAAN are not pursuing their appeal timeously which may not be surprising in circumstances in which the Award cannot be enforced in Nigeria pending resolution of the various appeals. As Staughton LJ observed in Soleh Boneh in relation to the employers in that case, “in reality they are defendants and have no reason to see that it is decided promptly” (at 212). The same applies in the present case. An order making the adjournment conditional on FAAN providing some security should have the added bonus of encouraging FAAN to get on with pursuing the Nigerian proceedings more diligently.

FAAN submits that if security is ordered that will put AIC in a better position than it would have been in had FAAN not sought an adjournment and would confer a tactical windfall on AIC. That submission depends on a finding that FAAN has no assets against which AIC can enforce within this jurisdiction which I have not accepted for the reasons already given. It is inevitable that an order for security provides some advantage but it is designed to recognise the element of prejudice that AIC will suffer from the continuing delays in enforcement, the strength of AIC’s case on the validity of the Award and the proper deference that should be given to enforcement of a New York Convention arbitration award.

While AIC requestd security in the sum of US$161m, the Court ordered security of US$24m.

See the review of this case by Herbert Smith Freehills, who conclude:

This case highlights most of the factors that tend to arise in consideration of a s103(5) application for adjournment of enforcement and an application for security. Significantly, the case demonstrates the increasing prominence of delay as a determinant factor in applications of this nature. Evidence of delay in set aside proceedings at the seat was equally decisive in IPCO which also involved proceedings in Nigeria.

This case also demonstrates that it is not always straightforward to secure immediate enforcement of foreign awards in English courts in circumstances where set aside proceedings are pending at the seat. This difficulty is however balanced by the willingness of the English courts to order appropriate security as a condition for adjournment of enforcement, which will often motivate the party seeking set aside to prosecute those proceedings diligently.

See also the review by Mayer Brown

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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