The Republic of Kazakhstan v Istil Group Inc

Where parties agree the amount of security for costs for an entire application, the court should ordinarily hold them to that bargain. Further security should be ordered only in wholly exceptional circumstances, or where the agreement is void or voidable for mistake or misrepresentation, or does not apply to the circumstances that have developed. A significant change in circumstances may otherwise justify increased security. A common mistake as to the likely length, scope or cost of the hearing will not normally avoid the agreement where the resulting hearing remains substantially the same application and the risk of an inadequate estimate is inherent in agreements for security.

Istil applied for further security for costs in proceedings brought by the Republic under sections 67 and 68 of the Arbitration Act 1996 concerning an arbitral award. The parties’ solicitors had agreed that the Republic would provide £30,000 security for the entirety of the Commercial Court proceedings, excluding any appeal.

Istil contended that the later development of the proceedings justified additional security and that the agreement was void or voidable for common mistake. The hearing had become a full rehearing involving expert evidence on Kazakh and French law and a longer time estimate. The central issue was whether the court could order further security despite the agreement.

1. The court had jurisdiction to order security under section 70(6) of the Arbitration Act 1996. That jurisdiction did not depend on the Republic having a residence, and the statutory restriction concerning individuals, corporations and associations outside the United Kingdom did not apply to the Republic as a state.

2. The court may increase security where previously ordered security has become markedly inadequate, normally only after a significant and relevant change of circumstances. The decision in Kristjanson v R. Verney & Co. Ltd. (Court of Appeal, 18 June 1998) supported the proposition that an earlier refusal of security is not an absolute bar to a later application after such a change.

3. However, where the parties have agreed through their solicitors that a specified sum is to cover security for the entire application, the court should, save perhaps in wholly exceptional circumstances, hold them to their bargain. Further security may be ordered only if the agreement is void or voidable for mistake or misrepresentation, or is inapplicable to the circumstances that have developed.

4. The later expansion of the hearing from a shorter review to a three- or four-day rehearing with expert evidence would have amounted to a significant change of circumstances if no agreement existed. It did not make the agreement essentially different from what the parties had made. The risk that an estimate of security may prove too low is inherent in such an agreement, and the alleged assumptions were not shown to be a common mistake sufficient to avoid it.

5. The application for further security was therefore dismissed. The court noted that, absent the agreement, it would probably have ordered £120,000 and would not have refused relief solely for lateness.