This article was first published on the Practical Law Arbitration Blog and can be found here.
Mention section 70 of the Arbitration Act 1996 (AA 1996) to most arbitration practitioners and it is likely that they will immediately think of the sections 70(2) and (3). They require:
- An applicant or appellant under sections 67, 68 or 69 of the AA 1996 to first exhaust any other available remedy of challenge.
- An applicant or appellant to bring any application or appeal within 28 days of the award (or where there has been any arbitral process of appeal or review, the date when the applicant or appellant was notified of the result of that process).
However, a recent decision of Moulder J, BSG Resources Limited v Vales and others, has considered the provisions of sections 70(6) and (7), AA 1996. Those provisions provide as follows:
“(6) The court may order the applicant or appellant to provide security for the costs of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.
The power to order security for costs shall not be exercised on the ground that the applicant or appellant is—
(a) an individual ordinarily resident outside the United Kingdom, or
(b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.
(7) The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.”
Section 70(6), AA 1996
It was common ground between the parties that Vale (the respondent to the applications under sections 24 and 68 of the AA 1996) was entitled to security for its costs pursuant to section 70(6) AA 1996, but there was a dispute as to the quantum of that security.
It was also common ground that, in principle, the court should award the sum which the applicant would be likely to recover in a detailed assessment if awarded costs on the standard basis, having regard to the factors set out in CPR 44.5. However, Vale submitted that there was a real possibility it would be awarded costs on the indemnity basis given (what it said) were the weaknesses of the challenge and the history of without merit applications.
The question for the court was whether there was a real possibility that costs would be awarded on an indemnity basis (Danilina v Chenukhin). Moulder J confirmed that the question did not requite a consideration of the merits of the claim but rather an assumption that the appellant loses its challenge application. On the facts, Moulder J was not persuaded that Vale had shown a real possibility of costs being awarded on an indemnity basis. She noted the “unusual feature” of the case that when it was put to the administrators by Vale that the application under section 68 was “hopeless and plainly inappropriate”, the evidence was that the administrators sought further advice on the pending litigation. Having taken legal advice on the merits, they decided to proceed with it as being “clearly in line with the court approved objective of the administration”.
Section 70(7), AA 1996
Moulder J confirmed that the test under section 70(7) is different for appeals under sections 68 and 69 of AA 1996 from applications under section 67 of the AA 1996. Relying on Picken J in Progas v Pakistan, she held that it is necessary to show that the challenge in some way prejudices the ability of the defendant to enforce the award or diminishes the claimant’s ability to honour the award, and that (at paragraph 64):
“In order to show that the ability to enforce the award has been prejudiced or the ability of the applicant to honour it has been diminished, it is therefore effectively necessary to satisfy a similar requirement to that of a freezing injunction, namely the risk of dissipation of assets between the time of the section 67 application and its final disposal.”
It is not necessary (compare the position under section 67, AA 1996 challenges) to satisfy an additional threshold or requirement that the party seeking security should show that the challenge to the award is flimsy or otherwise lacks substance.
In considering the facts before her, Moulder J bore in mind the observations of Teare J in X v Y that “… the jurisdiction conferred on the court by section 70 should not be used as a means of assisting a party to enforce an award which has been made in its favour”. However, on the facts of that case, Moulder J considered that Vale had not established a risk of dissipation or diminution of assets and was seeking by its application to use it as a means to assist in the enforcement of the award.
The case therefore reaffirms the high threshold required for applications under section 70(7) of the AA 1996.