HT to Global Arbitration Review (subscription required) for bringing to light the case of the day, Altain Khuder LLC v. IMC Mining, Inc. (Victoria Supreme Court 2011). IMC Mining had a contract with Altain Khuder to provide plans for an iron ore mine in Mongolia and then to operate the mine. Altain Khuder was required, under the contract, to advance $6 million in order to allow IMC Mining to do its work under the agreement, and the claim was that IMC Mining was paid the money but failed to perform its work. The tribunal, which had its seat in Mongolia, gave an award of damages against IMC Mining and IMC Solutions, a related firm, but one that was not named in the underlying contract. The Khan-Uul District Court verified the award, as provided under the Mongolian Law on Arbitration. Altain Khuder sought enforcement of the judgment in Australia, and IMC Solutions opposed the application.
The decision is lengthy and complex. Here is a summary of what I think are the most interesting issues decided.
1. The party seeking recognition and enforcement of the award has no initial burden to prove the existence of a valid arbitration agreement. Article IV of the Convention merely requires the party seeking recognition and enforcement to produce the document purporting to be the arbitration agreement. The burden of showing invalidity of the agreement rests on the party resisting recognition and enforcement. The court cited several authorities for this proposition, but the decision seems clearly correct under Article IV, which only requires the plaintiff to supply, “at the time of the application … the original agreement [to arbitrate] or a duly certified copy thereof.” It seems clear from the plain language of Article IV that this is a mere requirement of form. U.S. courts that have considered similar issues agree. In Sarhank Group v. Oracle Corp., a case to which one of the cited precedents in Altain Khuder refers, the Second Circuit held that because the plaintiff adequately alleged the existence of an agreement to arbitrate (albeit one that did not name the defendant as a party), the court had subject matter jurisdiction under Section 203 of the FAA to consider the action to confirm the award, and that it was for the defendant to show any grounds for non-enforcement. (Interestingly, in Sarhank, the Second Circuit ultimately found that the award was not enforceable against Oracle, which had not signed the arbitration agreement and which had been held bound by the agreement only under the substantive law of Egypt, which apparently bound parent companies by arbitration agreements entered into by their wholly owned subsidiaries. Under federal common law, which governed, “[a]n American nonsignatory cannot be bound to arbitrate in the absence of a full showing of facts supporting an articulable theory based on American contract law or American agency law”).
2. The Mongolian proceedings to verify the award had the effect of estopping IMC Solutions to challenge the award at the place where enforcement is sought. (Note that Sarhank leaves open the possibility that the outcome there could have been different had there been grounds for an estoppel, but see below for a question about what this could mean). Under the Convention, the proper forum for challenges to the arbitrator’s jurisdiction over a party is at the seat of the arbitration. Failing to raise the point there can operate as an estoppel that prevents a challenge at the place where enforcement is sought, particularly if, as in this case, the award was “tested and accepted in its home jurisdiction, the seat of the arbitration.”
Question: is there a conflict between the idea of estoppel in Altain Khuder and the approach reflected in Sarhank? There, the Second Circuit noted:
Merely arguing non-arbitrability to the arbitrators and then to the Egyptian courts does not amount to consent by Oracle to having the arbitrators decide the issue. Oracle objected repeatedly to its being a party to the arbitration, thus preventing a finding that it waived its ability to object.
In Sarhank, the record showed much more clearly than in Altain Khuder that the non-signatory to the arbitration agreement actively litigated the question whether it was bound by the agreement to arbitrate, both in the arbitration proceeding itself and in the judicial proceedings at the seat of the arbitration. So it seems that when Sarhank leaves open the possibility of estoppel, it is not simply talking about issue preclusion.