Whether the court should order money to be payable under an arbitral award pending a challenge to that award.

http://www.bailii.org/ew/cases/EWHC/Comm/2014/2146.html

Clyde & Co (Peter Hirst, Stephen Lewis and Ricardo Lewandowski) for defendant

The defendant obtained awards in its favour following an arbitration. The claimant issued an arbitration claim form challenging one award under sections 67 and/or 68 of the 1996 Arbitration Act. The defendant applied to court for:

  1. Security for costs pursuant to section 70(6) of the Act. Eder J granted this application, ordering security for GBP 300,000 (although over GBP 600,000 was sought in the application). The key factor was that the claimant had insufficient liquid funds to enable it to pay the defendant’s costs should the claimant’s challenge fail. There was also a real risk here that the claimant would refuse to pay those costs or, at the very least, delay payment for as long as possible. The prospects of the claimant being able to successfully resist enforcement in the country where it is incorporated (Zambia) were entirely irrelevant.
  2. Money payable under the award (totalling more than USD 40 million) to be brought into court pending determination of the claimant’s challenge, pursuant to section 70(7) of the Act. In A v B [2011], Flaux J held that in most cases an applicant will have to show that the claimant’s challenge is “flimsy” and that the challenge will prejudice its ability to enforce the award. That approach was followed by Teare J in X v Y [2013] but has attracted some textbook criticism, on the basis that it will be difficult to ever show that the mere making of a challenge diminishes a party’s ability to honour an award. Nevertheless, Eder J supported the approach in this case.

Here, he held that the claimant’s challenge was indeed flimsy. The challenge was based on an argument that the tribunal had not made a final determination because (a) it had been asked to only make an “interim payment” and (b) there was a “show cause” provision in the “award”, which meant that it had only been a procedural order. The judge described both those points as “highly technical”.

The judge also agreed that there was a real risk of dissipation of assets here. Nevertheless, he refused the application on the basis that there was no evidence that the challenge would prevent, hinder or otherwise prejudice the enforcement of the award. Although the claimant was likely to resist enforcement, “it does not seem to me that such prospect is related to the present challenges and absent evidence to that effect, it does not seem to me legitimate to make such inference”. There would only be strong grounds to allege prejudice if the claimant were to take steps to enforce the award in Zambia and if the Zambian court were to adjourn enforcement, in light of the ongoing challenge to the award, and not itself order security.

COMMENT: This case demonstrates that the English  courts have construed the ground for making an order under section 70(7) very narrowly and, in effect, require enforcement proceedings to be brought while a challenge is also being made to the award in order to justify an order.

This is clearly an unsatisfactory conclusion for a defendant which has an award in its favour, can demonstrate a real risk of dissipation and that the grounds for the challenge are flimsy, yet must still continue to fund its defence to the challenge itself.