Republic of Kazakhstan v Istil Group Inc

Where parties agree the amount of security for costs, the court ordinarily applies the usual rule for further security: a further order requires a material change of circumstances and must be just in all the circumstances. A contractual term excluding further security despite such a change must be expressed clearly and is construed by ordinary contractual principles. The court should not readily infer such a term, because it may discourage settlement and generate satellite litigation. Even where the parties have agreed to exclude further security, the court retains a residual discretion to intervene in wholly exceptional circumstances.

The Republic challenged an arbitral award under sections 67 and 68 of the Arbitration Act 1996. Istil sought further security for its costs. The parties’ solicitors had agreed that the Republic would provide £30,000 for the Commercial Court proceedings, excluding any appeal. Christopher Clarke J held that the agreement prevented further security except in wholly exceptional circumstances, although he found that the proceedings had materially expanded and that £120,000 would otherwise have been appropriate.

The central issue was whether the agreement excluded a further application for security following a material change of circumstances.

1. Appeal allowed. The order dismissing Istil’s application was set aside. The Republic was ordered to provide further security of £120,000 for the proceedings up to and including the hearing beginning on 12 December 2005, subject to the specified payment deadline and the consequences of default.
2. The court’s jurisdiction under section 70(6) of the Arbitration Act 1996 is not dependent on the applicant’s residence. The discretion must be exercised justly and in accordance with the overriding objective in CPR Part 1.
3. The approach under section 70(6) is the same as under CPR 25.12 and 25.13. Where security has been provided for the whole action or application, the court will not ordinarily order more unless there has been a material change of circumstances. That principle applies whether the original security was ordered by the court or agreed by the parties, subject to the agreement’s express terms.
4. Any agreement that the security will not be increased even after a material change of circumstances must be construed by ordinary contractual principles. The court should not readily infer such an agreement. If it exists, the court nevertheless retains a residual discretion to vary the security in wholly exceptional circumstances.
5. On either possible construction of the solicitors’ correspondence, the agreement did not exclude a further application following a material change of circumstances. The expanded section 67 rehearing, the increase in the estimated hearing length, and the later permission to adduce French law evidence amounted to a material change. The judge’s conclusion on that issue and his assessment of the appropriate amount were matters with which the Court of Appeal had no proper basis to interfere.
6. Lord Justice Richards agreed with Sir Anthony Clarke’s judgment and reasons. Lord Justice Rix also agreed. Costs were summarily assessed, and security could be provided in another form satisfactory to the court, provided it was given by the deadline.

• Court of Appeal (Civil Division) [2005] EWCA Civ 1468: allowed the appeal, set aside the order of Christopher Clarke J, and ordered further security.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Christopher Clarke J dismissed the application for further security on 18 October 2005 because of the parties’ agreement for £30,000 security, although he found that a material change of circumstances would otherwise have justified £120,000.