In Gater Assets Ltd v Nak Naftogaz Ukrainiy – Lawtel 17.10.07 the appellant appealed against a decision [reported in the April and May bulletins] awarding the respondent security for costs. The appellant was the assignee of a New York Convention arbitration award of over US$88 million made at the International Commercial Court in Moscow. It sought to enforce the award in England against the respondent as the award debtor. The respondent wished to resist the enforcement of the award on the ground that the award was procured by fraud. The respondent sought security for costs against the appellant on the ground that the respondent was the defendant to the appellant's claim to enforce the award and that it was just that security for the costs of the enforcement issue should be provided In allowing the appeal, the Court of Appeal held that the judge at first instance did not specifically address arguments based on the 1996 Act and the New York Convention 1958 Art.III under either the heading of jurisdiction or discretion beyond accepting that CPR r.25.12 applied equally to the enforcement of both domestic awards and Convention awards. However there was no express application of the security for costs regime to the statutory enforcement of an arbitration award. Doubt was expressed about the general applicability of Dardana Ltd v Yukos Oil Co (No2) [2002] 2 Lloyd's Rep 261.

It held that, given that there was no specific reference to security for costs in CPR Part 62, it was an unsatisfactory basis upon which to found an application for security for costs. Even if the power to order security for costs against an award creditor in enforcement proceedings was technically available, the courts should be reluctant as a matter of principle to do so, save in exceptional circumstances. The ordering of security for costs in the instant case was wrong in principle: it was not just. An award debtor under a domestic award who sat back and awaited enforcement rather than met his liability to pay the award should not be in a better position than if he had challenged the award or irregularity timeously. In the case of an enforcement of a domestic award under s.66 of the 1996 Act, an award debtor would not in principle be entitled to security for costs. Therefore to impose a security for costs order regime upon an award creditor who sought enforcement under s.101 of the 1996 Act would be to impose substantially more onerous conditions, in breach of Art.III of the Convention.