In Gater Assets Limited v Nak Naftogaz Ukrainiy the Court of Appeal has overturned an order which obliged the successful party to an arbitration to give security for the costs of the losing party when the latter sought to prevent enforcement of the award. The outcome is supportive of the spirit of the New York Convention (the primary mechanism for enforcement of international arbitral awards). It has removed what could be a potentially difficult hurdle to enforcement.

As a result of the arbitration, Gater was assigned the benefit of an arbitral award for US$88 million and sought to enforce this in the English Courts. Naftogaz resisted enforcement on various grounds, including that the award was obtained by fraud. In its first instance application to set aside the enforcement order, Naftogaz successfully sought security for costs from Gater.

The majority in the Court of Appeal held that security for costs should not have been given. Each judge reached the same conclusion though for different reasons. In the view of one of the judges (Rix LJ), the courts should be reluctant as a matter of principle, save in exceptional cases, to order security for costs against an award creditor, even if the power to do so is technically available. In this regard, he was influenced by the fact that security for costs could not be ordered in the same circumstances for a domestic award.

The decision will make it very difficult for future award debtors resisting enforcement proceedings to obtain security for costs. This has the positive effect of closing a particular loophole: formerly an award debtor challenging an award was not eligible for security for costs, whereas an award debtor who waited until the enforcement stage to challenge an award may have been. The decision therefore increases the incentive to bring any challenges to an award at the appropriate time rather than delaying and using them to resist enforcement. Given the different reasoning of the judges, the precise legal basis for this outcome will require further clarification in future decisions.