BSG Resources Ltd v Vale SA & Ors

Security under section 70 of the Arbitration Act 1996 requires evidence that the challenge prejudices enforcement or diminishes the applicant’s ability to honour the award. In a challenge under section 68, this ordinarily requires a risk of dissipation, but no preliminary showing that the challenge is weak.

An award has presumptive validity until set aside. Enforcement may therefore continue pending a section 68 challenge unless the court’s discretion to stay enforcement is justified by the strength of the challenge, the recoverability of sums enforced, or other enforcement risks. Security for costs should reflect likely standard-basis recovery, assessed proportionately.

BSG Resources Limited challenged an arbitral award requiring it to pay Vale S.A. US$1.247 billion. The challenge, under sections 24 and 68 of the Arbitration Act 1996, was due to be heard later.

The court determined applications for security for the award, security for Vale’s challenge costs, setting aside or staying enforcement, amendment of the challenge claim, and making payment of an earlier costs order a condition of pursuing the challenge. The central issues were whether there was a present risk of dissipation, whether enforcement should be stayed, and what procedural conditions were appropriate while BSGR was in administration.

1. Security for the award. Vale’s application under section 70(7) of the Arbitration Act 1996 was dismissed. Applying Progas v Pakistan [2018] EWHC 209 (Comm), the relevant question was whether the challenge prejudiced Vale’s ability to enforce or diminished BSGR’s ability to honour the award. In a section 68 challenge, this involved a risk of dissipation. There was no additional requirement to show that the challenge was flimsy. The administrators controlled BSGR’s assets and were acting independently in creditors’ interests. The evidence did not establish a current risk of dissipation.
2. Security for costs. Vale’s application under section 70(6) was allowed in part. The appropriate sum was US$510,000, representing the amount likely to be recovered on a detailed assessment on the standard basis. The court applied the principles in Bluewaters Communications Holdings LLC v Bayerische Landesbank [2018] EWHC 78 (Comm). The estimated costs of US$880,000 were disproportionate. There was no real possibility of indemnity costs, applying Danilina v Chenukhin [2018] EWHC 2503 (Comm).
3. Enforcement and stay. The Set Aside Application was refused. On the proper construction of CPR 62.18(9), “any application” referred to an application to set aside the enforcement order, not the separate section 68 challenge. An award had presumptive validity, applying Peterson Farms Inc v C&M Farming [2003] EWHC 2298 (Comm). The court had power to stay enforcement, either under CPR 83.7 by analogy or under its general discretion, but there was no general rule requiring a stay pending a section 68 challenge. The challenge was not obviously strong, and there was no evidence that Vale could not repay sums recovered.
4. Amendment and costs condition. Permission to amend the challenge claim was granted under CPR 17.1(2). Vale’s application to require payment of the earlier costs order as a condition of pursuing the challenge was refused. Payment would conflict with the pari passu distribution principle applicable in the administration, and the court should not impose an order incapable of compliance or inconsistent with comity and public policy.