Yukos Oil Company v Dardana Limited

Under Arbitration Act 1996, section 103(5), the court may adjourn enforcement proceedings on its own initiative. Where it does so, it may order the party resisting enforcement to provide suitable security. The decision whether to require security is discretionary. Relevant considerations include the apparent strength of the challenge to the award and, where material, the ease or difficulty of enforcement. An appellate court should not interfere with that discretionary order unless the lower court’s exercise was plainly improper or perverse. Security may properly protect the enforcing party pending determination of the challenge, even where the challenge is strongly arguable.

A Swedish arbitral award was made against Yukos Oil Company and assigned to Dardana Limited. Dardana obtained permission to enforce the award in England under Part III of the Arbitration Act 1996. Yukos challenged enforcement, contending that there was no arbitration agreement. The Commercial Court adjourned the challenge under section 103(5) pending proceedings in Sweden and ordered Yukos to provide US$2.5 million security. Yukos appealed those decisions and sought a stay of the security order. The immediate issue was whether the security order should remain in force pending the appeal.

1. The renewed application for a stay of the security order was dismissed. The security had already been provided by solicitor’s undertaking.

2. Section 103(5) of the Arbitration Act 1996 permits the court to adjourn enforcement proceedings without an application by either party. The wording gives the court that power on its own initiative. If the court adjourns under the section, it may order suitable security.

3. The decision whether to order security is discretionary. Following the approach in Soleh Boneh v Government of the Republic of Uganda and National Housing Corporation (1993) 2 Lloyds Rep. 208, the court should give particular weight to the apparent strength of the challenge to the validity of the award. The ease or difficulty of enforcement may also be relevant.

4. The Commercial Court had taken account of the competing considerations. Its order for security amounting to about 25 per cent of the award reflected the arguable nature of Yukos’s challenge. The Court of Appeal could not characterise that exercise of discretion as perverse.

5. A stay would not merely preserve the pre-order position. It would remove protection given to the successful enforcing party pending the appeal and might prejudge the appeal’s outcome. The security order could be discharged if the Swedish court set aside the award, since the English enforcement proceedings would then become academic.

• Commercial Court, Queen’s Bench Division: Judge Chambers Q.C. adjourned Yukos’s challenge to enforcement under section 103(5) of the Arbitration Act 1996 and ordered US$2.5 million security.
• Court of Appeal (Civil Division): Lord Justice Tuckey refused the renewed application for a stay and left the security order in force.