Case Alert - [2018] EWHC 209 (Comm)

Judge considers whether security for costs/payment into court should be made pending a challenge to an arbitral award

The claimants challenged (pursuant to section 68 of the Arbitration Act 1996) an arbitral award which awarded the defendant its costs of the arbitration. The defendant applied to the court for a security for costs order (pursuant to section 70(6) of the 1996 Act) and/or an order that the claimants pay the amount of the award into court (pursuant to section 70(7) of the 1996 Act). Picken J ordered as followed:

(1) The security for costs order should be granted. The relevant test is whether it is just to make the order and whether the person bringing the challenge has sufficient assets and whether those assets are available to meet any costs order. The claimants had sought to argue that it was unfair for the defendant to rely on the claimants' impecuniosity when the defendant had allegedly caused that impecuniosity. However, the judge said that unless and until the section 68 challenge succeeds, it was not possible to go behind the tribunal's decision that the defendant had not done anything wrong. There was also no basis for saying that the defendant's application stifled the claim, since the claimants had funding to bring the section 68 challenge. Nor was it possible to argue that security was unnecessary because the defendant could make a different application (under section 51 of the Senior Courts Act 1981) against the funder (especially since such an application could only be made at the conclusion of the challenge, whereas the security for costs order could be made now).

(2) The order to pay the amount of the award into court was refused.

In a "classic" case, an order under section 70(7) will generally be made only if (i) the challenge is "flimsy or otherwise lacks substance" and (ii) the challenge in some way prejudices the defendant's ability to enforce the award or the claimant's ability to honour it (ie it is "effectively necessary to satisfy a similar requirement to that of a freezing injunction, namely the risk of dissipation of assets" between the date the section 68 challenge is made and the date it is decided). That test was not satisfied here.

However, the defendant sought to argue that a different test applied where, as here, the claimant (who is bringing a section 68, rather than a section 67 challenge) was funded by a professional third party funder, who has not paid the costs ordered by the tribunal and the sum in respect of which payment is sought is for adverse costs alone (rather than damages). That argument was rejected by the judge, who held that a different test did not apply just because the case involved commercial funding: "The power to order security under section 70(7) in the event of an arbitral challenge is necessarily linked to the making of such a challenge. There must, therefore, be something brought about by the challenge which makes an order for the provision of security appropriate. If a respondent is in no worse position, particularly bearing in mind the power to award security for costs under section 70(6), by dint of the fact that there is an arbitral challenge than it would be were there no such challenge, then, in my view, an order under section 70(7) ought not to be made".