English Court Considers Applications In Set Aside Matter Where Party In Administration

In BSG Resources Limited v Vale SA & Ors [2019] EWHC 2456 (Comm), the English High Court dealt with various applications arising out of a dispute concerning a joint venture agreement in Guinea to exploit iron ore deposits (whose mining rights were revoked following a change in government in Guinea) and allegations of bribery and misconduct on the part of BSGR.

An award was made in Vale’s favour requiring BSGR (who went into administration in 2018) to pay US$1.247b; the award is being challenged by BSGR under s.24 and s.68 of the Arbitration Act and due to be heard in November 2019. This judgment considers various applications, including:

  • by Vale for security for the amount payable under the award;
  • by Vale for security for costs;
  • by BSGR to set aside the enforcement order or a stay of enforcement;
  • by Vale for payment of outstanding costs as a condition of BSGR pursuing its application to set aside the enforcement order/stay of enforcement.

In respect of the application by Vale for security for the amount payable under the award (on the basis that there was a risk of dissipation of assets), the Court considered that Vale had to show that BSGR’s application would prejudice its ability to enforce the award or diminish BSGR’s ability to honour it. The Court found that no such risk had been established by Vale, citing Teare J in X v Y [2013] EWHC 1104 (Comm), where the court stated that “the jurisdiction conferred on the court…should not be used as a means of assisting a party to enforce an award which has been made in its favour”.

In respect of Vale’s application for security for costs, the Court considered that the only question was the quantum of security. The Court ordered that US$510,000 be provided by way of security for Vale’s costs.

In respect of BSGR’s application to set aside of the enforcement or a stay of enforcement, the Court rejected the argument that the award was provisional until a challenge to the award has been finally disposed of. The Court considered that the issue before it was whether it should exercise its discretion to order a stay on enforcement pending determination of BSGR’s challenge to the award, there being no general rule that a stay should automatically be granted merely because an appeal is pending. The Court refused to stay enforcement, stating [55-56]:

“There is in my view no general rule that a stay should be granted pending the determination of the Section 68 challenge. This would be contrary to the principle that an award has a presumptive validity and would be inconsistent with the approach of the courts on an appeal where there is no automatic stay merely because an appeal against an order is pending. In determining whether or not the court should exercise such discretion in this particular case, it seems to me that the outcome is likely to be the same whether one applies CPR 83.7 by analogy (as in Far Eastern Shipping) or the principles identified in Socadec.

Assessing … the strength of the claimant’s case, this is not a case where, on a brief assessment of the Challenge Application, it can be said that it is of such strength that it is obvious that BSGR will succeed such that a stay should be granted. A challenge of apparent bias against experienced arbitrators is not a challenge which will be easy to establish.”

In rejecting the stay application, the Court also considered that there was no evidence before the court which suggested that Vale would be unable to repay any amount obtained through enforcement, and that there was no evidence of any other particular concerns in relation to Vale which might militate against allowing Vale to pursue enforcement action pending the determination of BSGR’s challenge.

In respect of Vale’s application for payment of outstanding costs as a condition of BSGR pursuing its application to set aside the enforcement order/stay of enforcement, the Court considered that it was not appropriate to make such an order in circumstances where BSGR was in administration (irrespective of the fact that the administration had not been recognised in England), stating [67]:

“Assuming that there is a power to impose such a condition, in my view it is not appropriate to impose such a condition in circumstances where the company is in administration, irrespective of the fact that the administration has not been recognised in England. I cannot see that the court could make an order which compels those who stand behind BSGR to make the payment. In relation to the administrators there appears to be no power for them to make such a payment and if it were paid at this time it would be contrary to the principle of pari passu distribution. Accordingly I am not satisfied that such an order could be complied with and if I am wrong on that, it seems to me that as a matter of comity and public policy, the court should not exercise its discretion and require the company to act in a way which is contrary to the principle of pari passu distribution.”

See the review of this case by Herbert Smith Freehills, who comment:

“As this decision shows, where an unsuccessful party in an arbitration has gone into administration and its administrators challenge the award under the Act, while enforcement of the award will not necessarily be stayed pending the determination of the challenge, the award creditor will likely struggle to obtain any further assistance from the Court. Indeed, if the Court finds the administrators to be acting independently and in accordance with their duties to act in the best interests of the company and the creditors as a whole, it is unlikely to find there to be a risk of dissipation of assets or be prepared to require the administrators to act in a way contrary to the principle of pari passu distribution.

This case accordingly provides a cautionary reminder of the importance of considering, from an early stage of a dispute against a counterparty in financial difficulties, all the options available to maximise the chances of recovering any loss and damages from that counterparty.”

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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