Erdenet Mining Corporation LLC v ICBC Standard Bank Plc & Ors, Court of Appeal - Commercial Court, May 12, 2017, [2017] EWHC 1090 (Comm)

Resolution Date:May 12, 2017
Issuing Organization:Commercial Court
Actores:Erdenet Mining Corporation LLC v ICBC Standard Bank Plc & Ors
 
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Neutral Citation Number: [2017] EWHC 1090 (Comm)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT

IN THE MATTER OF AN ARBITRATION CLAIM

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 12th May 2017

Before:

Sir Jeremy Cooke

Sitting as a Judge of the High Court

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Between:

Claim Nos: CL-2015-000645; CL-2016-000629

AND BETWEEN:

Claim No. CL-2016-000630

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Philip Marshall QC and Shane Sibbel (instructed by Taylor Wessing) for the Claimants

David Joseph QC, Edward Brown and Stephen Donnelly (instructed by Clifford Chance LLP) for the Defendants

Hearing dates: 27th April 2017

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JudgmentSir Jeremy Cooke:

Introduction

  1. In two Arbitration Claim Forms, the claimant (``EMC'') challenges two arbitration awards under section 67 and 68 of the 1996 Arbitration Act (``the Act''). The two awards were made by two separately constituted LCIA Arbitral Tribunals which heard two claims which arose out of two independent but connected trade finance facilities provided by the defendants (``Standard''):

    (1) Claim CL-2016-000629 is a claim arising out of an LCIA arbitration between the first three named defendants which claimed against EMC and Just Group LLC (``Just'') as respondents. The arbitration agreement in dispute was contained in a written Surety and Undertaking Agreement dated 9th July 2009 (``the SUA'') purportedly signed by Mr Ganzorig, the General Director of EMC. Under the SUA, EMC guaranteed and agreed to indemnify the Funding Costs and Relevant Obligations of Just in an underlying trade finance facility of the same date (``the 2009 Facility'') as subsequently amended. Mr Thomas H. Webster was appointed as presiding arbitrator of the tribunal. Mr Christopher Lau SC and Mr Dominic Underhill were the co-arbitrators.

    (2) Claim CL-2016-0000630 is a claim arising out of an LCIA arbitration between the first, second and fourth named defendants which claimed against EMC and Just as respondents. The relevant arbitration agreement in dispute was contained in a written facility agreement dated 5th August 2010 (``the Original 2010 Facility'') pursuant to which EMC guaranteed and agreed to indemnify the obligations of just in an underlying trade finance facility. In that arbitration, Mr Thomas H. Webster was the sole arbitrator.

  2. EMC maintained that the SUA and the Original 2010 Facility, which enshrined the arbitration clauses in question were not binding upon it and that each bore a signature of Mr Ganzorig which was forged. Consequently it was said that the Arbitrators lacked any jurisdiction. Issues also arose as to the authority of Mr Ganzorig to sign the agreements in question and the capacity of EMC under its charter and as a matter of Mongolian law to conclude the guarantee of the obligations of Just which was a private company in Mongolia. EMC was, at the relevant time, owned 51% by the Government of Mongolia through a para-statal organisation and 49% was owned by Rosneft, the Russian gas and oil company.

  3. EMC sought to have the jurisdictional issue determined by this Court under section 32 of the Act but Standard did not agree and when an application was made to the arbitrators for permission to apply to the court for that purpose, the arbitrators decided that the question of jurisdiction was so tied up with the issues of substantive liability that they should deal with all issues at the same time.

  4. The tribunals heard the two arbitrations together because of a number of common issues and issued two awards dated 20th September 2016 with elements of common reasoning in them:

    (1) They declared that EMC was bound by the SUA and the Original 2010 Facility and by the arbitration clauses therein.

    (2) In the arbitration under the SUA they found EMC liable in the sum of USD $36 million plus interest thereon, the amount of which was to be determined.

    (3) The tribunal in the Original 2010 Facility arbitration found EMC liable in the sum of USD $14,988,425.60 plus interest thereon with the amount of such interest to be determined.

    (4) The tribunals reserved jurisdiction in respect of Standard's claims in tort against EMC (which came in by late amendment) and the issues of interest and costs.

  5. The issue of the claim forms led to the making of an application by Standard under section 70(6) and 70(7) of the Act, seeking security for costs and an order that the amounts found due under the awards should be brought into court pending the determination of EMC's challenges under sections 67 and 68. Although EMC initially opposed both applications, there is now, subject to some questions of detail, agreement on the subject of security for costs and the issue with which this Court is primarily concerned is the question arising under section 70(7), namely whether the court should order that the money payable under the Awards should be paid into court, or other security given.

  6. The terms of section 70(7) apply both to applications under section 67 and 68 and read as follows:

    ``The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application ... and may direct that the application ... be dismissed if the order is not complied with.''

    The Criteria to be applied under section 70(7) of the Act

  7. The Departmental Advisory Committee Report on the Arbitration Bill in 1996 included the following in reference to the proposed clause 70 which became section 70. In commenting on the power to order security or bring the money payable under the award into court, the report said:

    ``This is a tool of great value, since it helps to avoid the risk that while the appeal is pending, the ability of the losing party to honour the award may (by design or otherwise) be diminished.''

  8. Although there is nothing in the terms of section 70(7) to fetter the discretion of the court in exercising this power, there is now a series of authorities which speak with one voice as to the criteria to be applied. The first of these is a decision by Tomlinson J (as he then was) in Peterson Farms v C&M Farming Ltd [2003] EWHC 2298 (QB) [2004] 1 Lloyd's Law Rep 614 where he discussed the different nature of the applications which arise under sections 67, 68 and 69. An award which is challenged either under section 68 as having been made in the wake of a serious irregularity or an award which is alleged to be wrong in law under section 69, has a presumptive validity unless and until set aside. The same is not true of an award challenged under section 67, as to which it is only possible to say of it either that it was made with jurisdiction or that it was not. Under the terms of section 70, the court approaches the matter de novo, by way of a re-hearing and not in any review capacity of the decision made by the arbitrators.

  9. The judge also drew attention to the difference between the provisions of section 32 and section 72 of the Act where the jurisdiction of the arbitrators could come before the court without any power in the court to require security. I do not find this in any way surprising however, since section 32 is a provision which enables the court to determine a question as to the substantive jurisdiction of the tribunal as a preliminary point and section 72 makes provision for the situation where an entity who is alleged to be party to arbitral proceedings but has taken no part in them then challenges the jurisdiction of the arbitrators after the event. The essential difference in the position under section 70, where a section 67 application is made is that, ex hypothesi, because the other sections do not apply, the applicant has already taken the opportunity to argue the jurisdiction point before the arbitrators themselves and is thus having ``a second bite at the cherry'' in making an application to the Court. Since the Act appears to envisage that the normal course will be for arbitrators to determine their own jurisdiction under sections 30 and 31 of the Act and provides for the court to determine a preliminary point of jurisdiction only if the parties agree or the permission of the Tribunal is obtained, the result is that there is the inherent possibility under s 67 of a re-run of the same jurisdictional issues before the court that have been determined by the arbitrators. 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.

  10. The criteria for the exercise of the power under section 70(7), as set out in Peterson, in A v B [2011] 1 Lloyd's Law Rep 363, in X v Y [2013] 1 Lloyd's Law Rep 230 and in Konkola Copper Mines PLC v U&M Mining Zambia Ltd [2014] 2 Lloyd's Law Rep 507, as approved by the Supreme Court in the judgment of Lord Mance in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2017] 1 WLR 970 at paragraph 43 can be expressed as follows:

    (1) In most cases there will be a threshold requirement that the party making the section 70(7) application demonstrates that the challenge to the jurisdiction is flimsy or otherwise lacks substance.

    (2) As a general principle the court should not order security unless the applicant can demonstrate that the challenge to the award will prejudice its ability to enforce the award. Often this will entail the applicant demonstrating some risk of dissipation of assets, although there may be other ways in which enforcement could be prejudiced.

  11. There was debate before me as to whether or not the first limb referred to above amounted to a decision by the court akin to the granting of summary judgment or whether it reflects the situation where what used to be referred to as ``conditional leave'' might be given on such an application. It appears to me that what is required is for the court to...

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