Peterson Farms v C & M Farming Ltd & Anor

Security should not ordinarily be required as a condition of bringing a jurisdictional challenge under section 67 of the Arbitration Act 1996, which is brought as of right. The court should first consider whether the challenge has substance. A challenge which is not flimsy may justify refusing security without deciding its merits. The discretion must also take account of the different procedural routes for challenging jurisdiction. It would be anomalous if the availability of security depended merely on whether the challenge was brought under section 67, section 32 or section 72. The court should be particularly cautious where the proposed order would effectively require an associated third party to fund security for the applicant.

C & M Farming applied under section 70(7) of the Arbitration Act 1996 for an order requiring money payable under an ICC award to be brought into court or secured pending Peterson Farms’ section 67 challenge.

The award included damages suffered by companies within the C & M group. Peterson Farms challenged the tribunal’s jurisdiction to award those losses, while accepting the tribunal’s jurisdiction over losses suffered directly by C & M. C & M argued that the award might become difficult to enforce and that the jurisdictional challenge lacked substance. The central issues were whether security should be ordered in principle and, if so, whether it was appropriate in the circumstances.

1. The application was refused. Section 70(7) of the Arbitration Act 1996 gives the court a discretion to require security pending an application under section 67, but the power should not be exercised routinely.

2. A jurisdictional challenge under section 67 is brought as of right. An award challenged on jurisdictional grounds is not merely presumptively valid pending the challenge. This distinguishes section 67 from challenges for serious irregularity under section 68 or on a point of law under section 69.

3. The court should be very slow to require security where the availability of that power depends on the happenstance of the procedural route chosen for the jurisdictional objection. Such objections may instead be brought under sections 32 or 72. It would be anomalous if security were available under section 67 merely because the applicant had participated in the arbitration and allowed the tribunal to rule on its jurisdiction.

4. In most cases, the party seeking security should first demonstrate that the jurisdictional challenge is flimsy or otherwise lacks substance. That threshold was not crossed. The challenge to the tribunal’s jurisdiction over losses suffered by other group companies was substantial, although it might ultimately fail.

5. The surrounding circumstances also weighed against security. The order would effectively require an associated individual to provide security for the company’s liability. C & M had commenced enforcement proceedings in Arkansas, and those proceedings might enable enforcement of the award. The evidence concerning the company’s financial position and the alleged asset transactions did not justify treating the transactions as fraudulent or as a sufficient basis for exercising the discretion.

6. The court therefore declined to order that any part of the award be brought into court or secured as a condition of pursuing the section 67 challenge.

First-instance decision. No prior appellate history was stated in the judgment.