In this case, the judge was required to consider five applications arising out of an LCIA arbitration award, which resulted in an order for BSG Resources Limited to pay damages of US$1.247 billion.

Factual background

BSG Resources Limited (BSGR) and Vale S.A (Vale) were parties to a joint venture in Guinea to exploit iron ore deposits. The government of Guinea changed and in April 2014 the mining rights were revoked following allegations of bribery and misconduct on the part of BSGR. This resulted in two arbitration proceedings; one brought by Vale in April 2014 against BSGR under the LCIA rules and one brought by BSGR against Guinea under ICSID.

In the LCIA proceedings, BSGR challenged the appointment of the three arbitrators and, as a result, the chairman was obliged to stand down and was replaced. This affected the timing of the hearing and the date of the final hearing was fixed notwithstanding the fact that BSGR’s leading counsel was not available at such time. This resulted in BSGR not attending the hearing; BSGR therefore did not cross-examine the witnesses. However, BSGR did participate in the ICSID proceedings and cross-examined a number of witnesses in that arbitration who were called in the LCIA proceedings.

Initially it was agreed between the parties that there would be record sharing so that the evidence in the ICSID arbitration would be available to the arbitrators in the LCIA arbitration. However, after the proceedings in the LCIA arbitration had closed, BSGR applied to adduce the evidence of the transcripts of the ICSID proceedings and the post-hearing briefs. This was refused by the LCIA arbitrators.

An award was issued in the LCIA arbitration on 4 April 2019 (the Award). BSG was found to have made fraudulent misrepresentations to Vale inducing it to enter into the joint venture and was ordered to pay damages of US$1.247 billion. BSGR challenged the Award under sections 24 and 68 of the Arbitration Act 1996 (the Act), on the grounds that the arbitrators displayed apparent bias. This challenge (the Challenge Application) was due to be heard in November 2019.

In March 2018, BSGR went into administration.

Legal issues

The judge was required to consider the following five applications:

i) Application by Vale under section 70 of the Act for security for the amount payable under the LCIA Award.

Section 70 of the Act states that the court may order that any money payable under the award should be brought into court or otherwise secured pending the determination of the application or appeal.

The judge held that the law on this issue was that stated by Picken J in Progas -v- Pakistan [2018] EWHC 209 (Comm); it was necessary to show that the challenge in some way prejudiced the ability of the defendant to enforce the award, or diminished the claimant’s ability to honour the award. To show this, it was necessary to satisfy a similar requirement to that of a freezing injunction, namely the risk of dissipation of assets between the time of the application and its final disposal. The parties agreed that there was no additional requirement that the party seeking security should show that the challenge to the award was flimsy or otherwise lacked substance. The judge emphasised that the jurisdiction conferred on the court by section 70 should not be used as a means of assisting a party to enforce an award, which has been made in its favour.

Vale put forward a number of reasons as to why there was a risk of dissipation. However, the judge dismissed Vale’s application, concluding that Vale had not established a risk of dissipation or diminution of assets and that Vale was seeking the application as a means to assist in the enforcement of the Award.

ii) Application by Vale for security for its costs in respect of the Challenge Application.

The only issue the judge was required to consider for this application was the amount of security to be paid.

It was accepted that the court should award the sum which the applicant would be likely to recover in a detailed assessment if awarded costs on the standard basis, having regard to the factors set out in CPR 44.25, as per Popplewell J in Bluewaters Communications Holdings LLC -v- Bayerische Landesbank [2018] EWHC 78 (Comm). However, Vale sought to argue that there was a real possibility that costs would be awarded on the indemnity basis. The judge said that, as per Teare J in Danilina -v- Chenukhin [2018] EWHC 2503 (Comm), Vale’s argument did not involve a consideration of the merits of the claim, but assumed that BSGR would lose its Challenge Application. The judge noted that when it was put to the administrators by Vale that the Challenge Application was hopeless and inappropriate, the administrators sought further advice on the merits, which was to the contrary. The judge held that this suggested that Vale would be unlikely to succeed in any argument that the administrators had improperly pursued the Challenge Application, to warrant an order for indemnity costs. Accordingly, the judge said that Vale had not shown a real possibility of costs being awarded on the indemnity basis.

The judge went on to consider the sum which would be likely to be covered in a detailed assessment on the standard basis and held that the appropriate sum was US$510,000.

iii) Application by BSGR to set aside the order of Bryan J, dated 4 April 2019, granting permission to enforce the Award, or to stay the enforcement thereof (the Set Aside Application).

By order of Bryan J, Vale was given permission under section 66 of the Act to enforce the Award in the same manner as a judgment or order of the High Court. The order was made on an ex parte basis (as was usual) and BSGR had the right, pursuant to CPR 62.18(9)(a), to apply to set it aside.

BSGR submitted that, pursuant to CPR 62.18(9)(b), an award was provisional until any challenge to the award had been finally disposed, and that the order to permit enforcement had to stand or fall with the determination of the challenge to the award. It was accepted by Vale that if the Challenge Application were to succeed, the order for enforcement would be set aside. However, Vale submitted that pending the determination of the Challenge Application, the Award was valid and the order for enforcement should not be set aside.

The judge held that as a matter of construction of the language of CPR 62.18(9), the words ‘any application’ in paragraph (b) referred back to any application to set aside under paragraph (a) and not to any other application such as a challenge under section 68. The judge said that this was consistent with the authority in Peterson Farms Inc -v- C&M Farming [2003] EWHC 2298 that an award had presumptive validity once made, unless and until set aside. Accordingly, the judge disagreed that the final disposal of the Set Aside Application could only be determined once the Challenge Application was determined.

In relation to the stay, the judge said that, in her view, there was no general rule that a stay should be granted pending the determination of the section 68 challenge and that this would be contrary to the principle that an award had presumptive validity. Accordingly, the judge dismissed the application. The judge’s reasons for doing so were as follows: (i) this was not a case of such strength that it was obvious that BSGR would succeed; (ii) there was no evidence to suggest Vale would be unable to repay any amount obtained through enforcement; and (iii) there was no evidence of any other particular concerns which might militate against allowing Vale to pursue enforcement action, pending determination of the Challenge Application.

iv) Application by BSGR to amend its claim form in respect of the Challenge Application (the Amendment Application).

BSGR’s proposed amendments to the claim form reduced the instances alleged of apparent bias from four to one. The permission of the court was required for these amendments, pursuant to CPR 17.1(2).

The judge granted the application, holding that there was nothing in the way in which BSGR had formulated the amendments which would result in a claim which was not maintainable at law and that there was no identified prejudice to Vale in granting the application.

v) Application by Vale to impose a condition of pursuing the Challenge Application that BSGR pay the outstanding costs order of Mr Justice Popplewell.

The evidence of BSGR on this application was that this was a debt that arose prior to BSGR entering into administration and therefore could not be paid in priority to other creditors. Vale argued that the administration had not been recognised in England and therefore its status was not a reason not to order the payment of the costs. In the alternative, it argued that payment should come from those who stood behind BSGR.

The judge held that it was not appropriate to impose this condition in circumstances where the company was in administration, irrespective of the fact that the administration had not been recognised in England, and that she could not see that the court could make an order which compelled those who stood behind BSGR to make the payment. Accordingly, the judge dismissed Vale’s application.

Case Comment

This case reconfirms the high threshold that applies when a party is seeking security for money payable under an award, pursuant to section 70(7) of the Arbitration Act 1996. The party seeking security must show that there is a risk of dissipation or diminution of assets and must not seek the application as a means to assist in the enforcement of the award.

It is also important to note what the judge said in respect of enforcement of awards under CPR 62.18(9). An award has presumptive value once made, unless and until it was set aside. It was not the case that the final disposal of an application to set aside could only be determined once any challenge to an award had been determined.