Erdenet Mining Corporation LLC v ICBC Standard Bank Plc & Ors

Under section 70(7) of the Arbitration Act 1996, security for an award may be ordered pending a section 67 challenge where the challenge is flimsy or lacks substance and the challenge risks prejudicing enforcement. The first requirement does not demand a finding that the challenge must fail. It is enough that the arguments are unlikely to succeed or are shadowy. The second requirement generally requires evidence of a real risk of dissipation or another circumstance impairing enforcement. A section 67 challenge is heard afresh, but the prospect of a second determination of jurisdiction carries the possible price of security. Separability means that objections concerning the underlying financial obligations, rather than capacity or authority to agree to arbitration, are ordinarily substantive rather than jurisdictional.

Erdenet Mining Corporation LLC challenged two LCIA awards under sections 67 and 68 of the Arbitration Act 1996. The awards held EMC bound by a surety and undertaking agreement and a trade finance facility agreement containing arbitration clauses, and ordered payment of substantial sums.

The defendants applied under section 70(7) for the awarded sums to be paid into court or otherwise secured pending determination of the challenges. The central questions were whether EMC’s jurisdictional challenges were flimsy or lacking in substance and whether the challenges prejudiced the defendants’ ability to enforce the awards.

1. Security ordered. EMC was ordered to pay into court or otherwise secure the amounts due under the two awards. Its applications under sections 67 and 68 were to be dismissed if the order was not complied with.
2. The applicable section 70(7) criteria, identified in Peterson Farms v C&M Farming Ltd, [2003] EWHC 2298 (QB), A v B, [2011] 1 Lloyd’s Law Rep 363, X v Y, [2013] 1 Lloyd’s Law Rep 230, and Konkola Copper Mines PLC v U&M Mining Zambia Ltd, [2014] 2 Lloyd’s Law Rep 507, and approved in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation, [2017] 1 WLR 970, were applicable. Ordinarily, the applicant must show that the jurisdictional challenge is flimsy or lacks substance and that enforcement would be prejudiced, commonly by a risk of dissipation.
3. “Flimsy” did not mean that the challenge had no realistic prospect of success or could be summarily dismissed. The court had to form a provisional view that the arguments were unlikely to succeed or were shadowy, while avoiding conclusions that would bind the judge at the full section 67 hearing.
4. The section 67 court must approach the jurisdiction issue by way of a rehearing and form its own view. Nevertheless, the contemporary documentary evidence showed that EMC’s challenges to the authenticity and effect of the agreements lacked substance. EMC’s conduct in approving, operating and obtaining the benefit of the facilities was inconsistent with its case that it was not bound.
5. Section 7 separability meant that issues concerning the validity of the underlying financial obligations did not necessarily affect the arbitration agreements. Questions concerning EMC’s capacity to guarantee private-company obligations, or the authority to undertake those obligations, were substantive unless they showed that no arbitration agreement had been concluded. Fiona Trust v Privalov, [2007] UKHL 40, did not support the wider submission advanced by EMC.
6. The evidence established a real risk that EMC’s assets might be dissipated before enforcement. Past dissipation, weak financial governance, failures to provide accounts and the absence of enforceable security in Mongolia justified the order. Section 70(7) was intended to prevent prejudice to enforcement, not to improve the successful party’s position.