The English Court recently considered whether it was appropriate to require a Respondent asking for a stay of enforcement proceedings to provide security for the award pending the outcome of the Respondent’s challenge to the enforcement. The Arbitration Act provides that the court may require security and the court has granted security in a number of recent cases, save for one which had some unusual features. This case also had some ‘unique’ features and similarly the court declined to require security. Parties wishing to avoid having to provide security in future will no doubt argue that their case also has ‘unique’ features.

Background

Micula & Ors v Romania concerned Swedish Claimants who had invested in a food production operation in Romania relying on investment incentives offered by the Romanian government. Romania partially withdrew the incentives before its accession to the EU. The Claimants claimed that this violated their legitimate expectations contrary to the terms of the Sweden-Romania BIT and commenced an ICSID arbitration for damages. The tribunal found in their favour ordering Romania to pay c. £173m.

The Claimants applied to enforce the award in England under the Arbitration (International Investment Disputes) Act 1966. Romania responded by applying for the enforcement proceedings to be stayed pending a decision from the EU court as to whether the incentives constituted state aid, contrary to the internal market, in which case the claim would fail. The Claimants argued if a stay was to be granted it should be conditional on Romania providing security for £150m. The court agreed with Romania’s argument that the enforcement should be stayed and arranged or a separate hearing on the issue of security.

Decision

It is now a generally established principle in English court proceedings that if a defendant is to be given permission to appeal a judgment it should be conditional upon their providing security for at least part of the judgment debt. This approach is also reflected in s 103(5) of the Arbitration Act 1996 and has been followed in a number of cases when giving permission to challenge arbitral awards. Notwithstanding those decisions, the court found that, in this case, security should not be granted because:

  1. the European Commission had indicated that payment of security by Romania would itself contravene the rules on state aid;
  2. the Claimants had appealed the court’s decision to grant Romania a stay and as the appeal was pending it could be a “recipe for confusion” if the Claimant at the same time sought to enforce an order for security;
  3. most importantly, the European court had confirmed that the final decision as to whether there had been a contravention to the rules on state aid was being given priority so there should not be a lengthy wait for the position to be resolved.

Comments

The Commercial Court recognised that this case turned on facts which were “unusual, and possibly unique". However, it follows a Supreme Court decision earlier this year in IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16. In that case the Claimants applied to enforce a Nigerian arbitration award in the English court under the New York Convention while the Respondents were challenging the award in the Nigerian courts on the grounds of the Claimant’s fraud and challenging its enforcement in England on the grounds that it would be contrary to public policy to enforce an award based on fraud. The Claimants applied for security for the award pending the outcome of the Nigerian court’s decision. The Supreme Court found that the New York Convention did not allow an order for security where enforcement was challenged for reasons of public policy.

The circumstances in both cases were relatively unusual so it cannot be said that they represent a departure from the court’s usual approach. However, if a Respondent can find a distinguishing feature similar to these cases, there is now some authority to support the argument that the court should not automatically make an order for a stay, pending a challenge to enforcement, conditional on providing security for the award.