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CIArb Features

Should courts order security in enforcement proceedings?

3 March 2017 Features
By Sabina Adascalitei LLB, LLM, MCIArb, Research and Academic Affairs Coordinator

In the recent decision of IPCO Ltd v Nigerian National Petroleum Corporation, the UK Supreme Court overturned an order requiring the Nigerian National Petroleum Corporation to provide an additional $100m in security as a condition of challenging the enforcement of the award.

The decision was unanimous, concluding that the Court of Appeal had misinterpreted the provisions of the English Arbitration Act 1996 as well as the ones contained in the NY Convention when ordering such security.

The Supreme Court’s decision clarifies that it is not in the spirit of the NY Convention to impose a security condition to hear an enforcement challenge brought in good faith.

In essence, neither Articles 103 (2) and (3) of the Arbitration Act, nor Article V of the NY Convention provide for powers to impose such a condition.

In this regard, the court took the view that in the instance when such a power would have been envisaged by the drafters, this would have been reflected by way of introducing an express provision in the legislation.

Furthermore, allowing the security condition would enable award creditors to have access to assets to satisfy the awards. From a pure interest balance perspective, allowing the security condition would give an advantage to the award creditor and this should not be the case, mainly because courts can normally assist award creditors when necessary through freezing or disclosure orders.

By way of comparison, there are instances when national courts had ordered security in an application to stay proceedings relating to enforcement of foreign arbitral awards.

This was the case in L v B (HCCT 41/2015), where the Hong Kong Court of First Instance had granted a stay of proceedings regarding the enforcement of a foreign arbitral award in Hong Kong. To allow the stay, the court asked the respondent to make a payment of substantial security and security for costs.

Relying on the NY Convention, the court highlighted the importance of finality as well as speedy and efficient enforcement of arbitral awards, as underlying principles of the Convention.

The main reasoning behind the order for security to stay a challenge revolved around the principle that enforcement of arbitral awards should not be postponed indefinitely, especially since at that time it was not clear when the challenge would be heard by the court at the seat of arbitration.

An order for security in cases where a stay is requested is justified by a pro-arbitration position as well as commitment to enforcing arbitral agreements, which have been voluntarily entered into by the parties and which eventually result in final and binding arbitral awards.

In contrast, ordering security to allow a challenge would achieve the contrary and namely, it would condition the rights of a bona fide party wishing to challenge the arbitral award.

These rights should not be limited, especially when the national courts have other means of ensuring a balance between the rights of the parties to the arbitration.