In Erdenet Mining Corporation LLC v ICBC Standard Bank PLC & Others [2017] EWHC 1090 (Comm) the High Court clarified the criteria applicable to the exercise of its discretion under s.70(7) of the Arbitration Act 1996 (the “Act”), pursuant to which the Court may order (in relation to an arbitration seated in England) that any money payable under an arbitral award shall be brought into court or otherwise secured pending the determination of a challenge to the award under ss.67, 68 or 69 of the Act.

Background

Erdenet Mining Corporation LLC (“EMC”) was the co-respondent in two LCIA arbitrations concerning disputes arising out of two trade finance facilities provided by (amongst others) ICBC Standard Bank PLC (“Standard”). EMC contended that the arbitrators lacked jurisdiction, on the basis that the agreements containing the arbitration clauses each allegedly bore a forged signature.

The arbitrators refused EMC’s application to have the Court determine the jurisdictional question pursuant to s.32 of the Act. The tribunals, hearing the two arbitrations together, declared that EMC was bound by the arbitration clauses and found EMC liable to Standard. EMC subsequently challenged the arbitral awards pursuant to (inter alia) s.67 of the Act, prompting Standard to apply for security for costs. The parties reached agreement on that issue, however EMC resisted Standard’s application under s.70(7) of the Act for an order that any money payable under the awards should be paid into court pending the determination of EMC’s challenge.

Relevant criteria

Sir Jeremy Cooke (sitting as a Judge of the High Court) began by observing that there is nothing in s.70(7) of the Act to fetter the Court’s discretionary power. He then went on to consider the criteria for the exercise of that discretion, as expressed in Peterson Farms v C & M Farming Limited & Another [2003] EWHC 2298 (QB) and subsequent authorities which established that there were two limbs to it. Specifically:

1. In Peterson, Tomlinson J (as he then was) held that in most cases, the party pursuing the s.70(7) application will need to satisfy the Court that the jurisdictional challenge is “flimsy or otherwise lacks substance” (Peterson, at paragraph [35]). Cooke J clarified that for the purposes of this test, it is not necessary to show that the challenge will necessarily fail. What is required is for the Court to take a view that the points at issue are “unlikely to succeed” or “shadowy”.

2. There is a general principle that the Court should also only grant relief under s.70(7) if it is satisfied that the challenge to the award will prejudice enforcement of the award. Cooke J held that simple delay in enforcement could not in itself satisfy this limb. Rather, it is effectively necessary for the party pursuing the s.70(7) application to demonstrate that there is a risk of dissipation of assets between the time of the challenge and its final disposal.

Decision

After reviewing the evidence before the Court, Cooke J concluded that EMC’s version of events was inherently improbable and inconsistent with the contemporaneous documents. As the grounds put forward by EMC for its jurisdictional challenge were indeed “flimsy and lacking in substance”, the first limb of the test was satisfied.

As to the second limb, the evidence before the Court demonstrated serious deficiencies in EMC’s financial governance, and Cooke J was satisfied that EMC had engaged in significant dissipation of assets in the period immediately before and after the arbitral awards were rendered. Therefore, the second limb of the test had also been met.

Accordingly, EMC was ordered to pay into Court or otherwise secure the amounts due under the arbitral awards.

Implications

As Cooke J observed, where a party has argued a jurisdictional point before the arbitral tribunal, s.67 provides “a second bite at the cherry” by allowing that party to re-run its jurisdictional arguments before the Court. The decision in Erdenet serves as a useful reminder that, under s.70(7), “the potential price to be paid for the ‘second bite at the cherry’ is however the possibility of an order that the amount awarded be brought into court or otherwise secured” (Erdenet, at paragraph [9]).

Erin Marsh

Associate
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