In Konkola Copper Mines Plc v U&M Mining Zambia Ltd  EWHC 2146 (Comm), the English Commercial Court considered two related applications on behalf of U&M Mining Zambia Ltd (U&M) for security for costs and a payment into court, under sections 70(6) and 70(7) of the Arbitration Act 1996 (the Act), in relation to challenges made by Konkola Copper Mines Plc (KCM) under sections 67 and/or 68 of the Arbitration Act 1996 to an arbitration award dated 6 January 2014.
Eder J upheld U&M’s application for security for costs under section 70(6) of the Act; however, he rejected U&M’s application for a payment into court of US$41,259,274.47 under section 70(7) of the Act.
The case highlights the need for an applicant under section 70(7) in particular to put before the Court not only evidence that there is a real risk of dissipation of assets that could be used to satisfy the award, but also evidence that the challenges to the award would prevent, hinder or prejudice enforcement of the award.
KCM operates a number of copper mines in Zambia. U&M provided KCM with open pit mining and related services at one of KCM’s mines in the Nchanga area. A dispute arose between KCM and U&M (as reported in our previous blog post here) and U&M commenced LCIA arbitration proceedings seated in London. The tribunal ordered in a first award dated 7 November 2013 (the First Award) that KCM pay U&M US$14,619,900.12 and £15,155.23. KCM did not challenge the First Award in England but is resisting its enforcement in Zambia and has made no payment to U&M pursuant to the First Award.
Following the First Award, U&M made a number of applications in the arbitration which culminated in a further hearing before the tribunal. The tribunal issued a second award (the Second Award) containing various declarations and orders, including the following in particular:
- an order that KCM “make an interim payment of £1,096,876.01 on account of U&M’s legal costs“;
- an order that KCM pay to U&M £15,000 in respect of the deposit paid to the LCIA by U&M on KCM’s behalf; and
- with regard to U&M’s claims in respect of alleged outstanding invoices, an order that “unless KCM shows cause, supported by evidence within 14 days, why the invoices…should not be immediately payable, KCM…pay those invoices totalling US$40,205,995.31 forthwith“.
On 3 February 2014, KCM made an application to the English Court challenging the Second Award under sections 67 and/or 68 of the Act. The hearing of these challenges was fixed to take place on 7-8 July 2014. On 13 February 2014, the tribunal confirmed that certain of the declarations and orders made in the Second Award were final, and on 24 March it issued a third award ordering KCM to pay U&M’s costs relating to the First Award on an indemnity basis (the sum including the “interim amount” referred to in the Second Award).
On 5 March U&M issued applications in the English Court for (i) security for costs in relation to KCM’s challenges to the Second Award under section 70(6) of the Act; and (ii) security for the sums due under the Second Award in the total sum of US$41,259,274.47 (i.e. the outstanding invoices) and £1,096,876.01 (relating to costs and the LCIA deposit) under section 70(7) of the Act.
Security for costs under section 70(6) of the Act
There was no dispute between the parties as to the Court’s jurisdiction to make an order for security for costs pursuant to section 70(6), or as to the applicable rules, as stated by the Court of Appeal in Republic of Kazakhstan v Istil Group Inc  1 WLR 596 at -, namely that:
- The Court has to act in accordance with the overriding objective when exercising its jurisdiction under section 70(6); and
- the correct approach is the same as that under Civil Procedure Rules 25.12 (Security for Costs) and 25.13 (Conditions to be satisfied).
Rule 25.13(1) provides that the Court may make an order for security for costs if it is satisfied, having regard to all the circumstances of the case, that it is just to make such an order and one or more of the conditions in Rule 25.13(2) applies.
For the purposes of Rule 25.13(2), U&M relied in particular on the following factors:
- KCM is a company and there was reason to believe that it would be unable to pay U&M’s costs if ordered to do so (Rule 25.13(2)(c)); and
- KCM had taken steps in relation to its assets that would make it difficult to enforce an order for costs against it (Rule 25.13(2)(g)).
Eder J noted that the test was not one on the balance of probabilities but, as stated by Teare J in X v Y  1 Lloyd’s Rep 230 (see our previous blog post here), one of whether there was a “real risk” that the assets of KCM would not be readily available for the satisfaction of any order for costs which may be made by the Court against KCM, and that it is just in all the circumstances to make an order for security.
Even putting aside the expert evidence provided by U&M as to KCM’s alleged financial state and actions in relation to its assets, Eder J found that there was an overwhelming case in favour of an order for security for costs in favour of U&M for the following reasons.
- Any order for costs against KCM would have to be enforced in Zambia as KCM has no assets in this jurisdiction. The steps employed by KCM in seeking to resist enforcement of the First Award in Zambia demonstrated that there was a real risk that KCM would refuse to pay any costs order made against it or delay payment for as long as possible. The prospects of KCM successfully resisting such enforcement in Zambia were entirely irrelevant in this context.
- Taking at face value the figures from KCM’s latest draft accounts for the year ended 31 March 2014, if U&M defeated KCM’s pending challenges against the Second Award, there were insufficient liquid funds to enable KCM to pay U&M’s costs. This was fatal to KCM’s position on the application for security for costs.
The Court therefore awarded security for costs under section 70(6) of £300,000.
Security for the amount of the Second Award under section 70(7) of the Act
KCM argued that the sums to which U&M’s application under section 70(7) were addressed were not “money payable under” the Second Award since they were awarded on a provisional and/or contingent basis and/or the Second Award was not an award at all, but at most a procedural order, because it did not finally award the respective sums. U&M conceded that it could not pursue the application in relation to the sums representing its legal costs and the LCIA deposit as they did not constitute “money payable under” the Second Award, but maintained its application in relation to the larger figure relating to its outstanding invoices. Eder J noted that he was prepared to assume (for these purposes only) in U&M’s favour that the points made by KCM did not prevent the Second Award from being an “award” within the meaning of section 70(7).
While he noted that the Court’s general approach is and should be strongly to support the arbitral process, Eder J remained in agreement with the approach of the Court in A v B  1 Lloyd’s Rep 363 that “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 …” and that “whilst it would not be advisable or appropriate to lay down hard and fast rules as to the circumstances in which it would be appropriate to order security under section 70(7), […] 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.”
In this case, the Court found that the challenges advanced by KCM were properly to be characterised as “flimsy”, and that the evidence showed a real risk of dissipation of assets by KCM. However, he found that there was no evidence before him that KCM’s challenges in the English Court would prevent, hinder or otherwise prejudice the enforcement of the Second Award in Zambia. Eder J was not prepared to make such an inference having regard to KCM’s conduct both generally and having regard to the steps which it has taken – and continues to take – in resisting enforcement of the First Award. On its face, regardless of the pending challenges, the Second Award was, at least for the time being, valid and binding as a matter of English law, and enforceable in Zambia under the New York Convention. Eder J accepted that the Zambian Court may, it if considered it proper, adjourn the decision on the enforcement of the Second Award and may also, on application of U&M, order KCM to give suitable security, and that if the Court in Zambia were to adjourn the enforcement and not order security, there would be strong grounds for saying that the present challenges were indeed prejudicing U&M, particularly in the light of the risk of dissipation of assets. However, quite apart from the fact that U&M had not taken steps to enforce the Second Award in Zambia, there was no evidence as to what the Court in Zambia might or might not do in such circumstances. The Court was therefore not persuaded that there was any relevant prejudice so as to justify an award under section 70(7).
This decision, which highlights the different factors that will be considered by an English Court when exercising its discretion under section 70(6) of the Act, on the one hand, and section 70(7), on the other, confirms that there is a high threshold for applications under section 70(7), and that it will generally be difficult to obtain payment into the English Courts of sums payable under an award even where it is clear that the other party is likely to resist meeting the award come what may.
Unfortunately, perhaps on the basis that the application would in any case be rejected for the reasons outlined above, the Court declined to grapple with the argument as to what constitutes an award for the purposes of section 70(7).