The decision of Justice Croft of the Supreme Court of Victoria in Altain Khuder LLC v IMC Mining Inc and IMC Mining Solutions Pty Ltd  VSC 1 illustrates the flexibility of arbitration and the manner in which courts will enforce an arbitral award even against a non-party to the arbitration agreement.
It also shows the extent to which international arbitration, the New York Convention and recognition and enforcement of foreign arbitral awards have become the norm in international business.
The contract and the dispute
Altain Khuder LLC is a Mongolian company that advanced $US6.2 million to the Australian company IMC Mining to prepare mine plans, operating plans and budgets in connection with an iron ore mine forming part of the Tayan Nuur Iron Ore Project in Mongolia.
These contractual obligations were not carried out and Altain Khuder subsequently commenced arbitration proceedings against IMC Mining. The arbitration was administered by the Mongolian National Arbitration Centre. At a preliminary hearing it was agreed that the Arbitral Tribunal had jurisdiction, Mongolian law would apply (the parties had a choice between Mongolian and Hong Kong law), and that the hearing would be held in Mongolian in Ulaanbaatar.
The arbitral award
At its hearing, the Tribunal made orders of approximately US$5.9 million against both defendants, with the second defendant, IMC Solutions, liable to pay for and on behalf of the first defendant.
Both the Tribunal and, subsequently, the Supreme Court of Victoria accepted that IMC Mining and IMC Solutions conducted their business as a common enterprise and that IMC Mining was the alter ego of the second defendant.
Under Article 40:3 of the Mongolian Law on Arbitration the parties could have appealed to the Mongolian courts for an annulment of the award within three months. Neither of the defendants appealed.
Applying to the Victorian Supreme Court for enforcement
Since the defendants failed to pay at all, Altain Khuder applied to the Victorian Supreme Court for an order for enforcement of the award.
Justice Croft made such orders on 20 August 2010, giving the defendants 42 days in which to apply to the court to have the orders set aside. In the event, only the second defendant filed an application. There was no application from the first defendant, IMC Mining, which, although registered in the British Virgin Islands, shares premises in Brisbane with the second defendant and had a common director.
The grounds of the application to set aside the orders included the claims that IMC Solutions was not bound by the award as it was not a party to the "arbitration agreement" and that the plaintiff had failed in its duty of candour to the court.
Why the Supreme Court did not set aside the enforcement order
Justice Croft was of the view that the proceedings had been "quite properly instituted" in accordance with the International Arbitration Act 1974 (Cth), the Supreme Court (Miscellaneous Civil Proceedings) Rules 2008 (Vic) and Practice Note No 2 of 2010 (Arbitration Business). On the first point, Justice Croft found the second defendant's arguments "both unmeritorious and, in any event, circular" and "in all the circumstances, simply implausible."
Each contracting State to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) is required to recognise and enforce foreign arbitral awards. As the court noted, the grounds for refusing enforcement are quite limited and the burden of proving any such grounds is borne by the party opposing enforcement.
Justice Croft cited with approval the judgment of Justice Prakash in the High Court of Singapore in Aloe Vera of America Inc v Asiatic Food (S) Pte Ltd  SGHC 78. In that case, her Honour said that she could only allow the defendant to resist enforcement if he was able to establish one of the recognised grounds. Beyond that, she could not "look into the merits of the Award and allow [the defendant] to re-litigate issues that he could have brought up either before the Arbitrator or the supervisory court."
Justice Croft found that Altain Khuder had complied with its obligations under sections 8 and 9 of the International Arbitration Act (and the relevant provisions of the New York Convention) and that IMC Solutions had failed to establish any grounds for resiting enforcement. He dismissed the summons to set aside his orders.
Who pays the costs?
Orders for costs were made on 3 February 2011 ( VSC 12), with IMC Solutions being ordered to pay costs on an indemnity basis. Justice Croft noted that the general rule is that costs are ordered and taxed on a party-party basis unless "the case is exceptional or there is some special or unusual feature which justifies the exercise of the court's discretion to order costs on an indemnity basis."
The circumstances in which indemnity costs might be appropriate had been restated by Justice Harper in Ugly Tribe Co Pty Ltd v Sikola  VSC 189, and included:
making a knowingly false allegation that the opposing party was guilty of fraud;
making an irrelevant allegation of fraud;
conduct causing loss of time to the court and to other parties;
commencement or continuation of proceedings for an ulterior motive;
conduct amounting to contempt of court;
commencement or continuation of proceedings in wilful disregard of known facts or clearly established law; and
unexplained failure to discover documents in a timely fashion
In respect of indemnity costs in arbitration matters, Justice Croft accepted the views of Justice Reyes in A v R  3 HKLRD 389 and Justice Saunders in Wing Hong Construction Limited v Tin Wo Engineering Company Limited  HKEC 919 on the grounds that the considerations that had moved them applied "with equal force in Victoria."
In the former case, Justice Reyes said that "where a party unsuccessfully makes [an] application (to refuse) an award, he should in principle expect to have to pay costs on a higher basis. This is because a party seeking to enforce an award should not have had to contend with such type of challenge."
You might also be interested in…