Gater Assets Ltd v Nak Naftogaz Ukrainiy

The court has jurisdiction under CPR 25.12 to order security for costs against a holder of a foreign arbitral award who obtained an enforcement order and is facing an application to set it aside. Enforcement proceedings under sections 66 and 101 of the Arbitration Act 1996 are subject to the CPR, so applying the rule equally to domestic and Convention awards does not impose a substantially more onerous condition contrary to Article III of the New York Convention. The award holder is properly treated as a claimant and the party resisting enforcement as a defendant. The discretion to order security must, however, take account of the policy of speedy and effective enforcement. A prima facie case of fraud, the substantial judgment sum and the claimant’s position outside the Brussels-Lugano regime justified security, although the amount was reduced to reflect delay and excessive costs.

Gater Assets Ltd obtained an ex parte enforcement order under section 101(2) of the Arbitration Act 1996 in respect of a New York Convention award assigned to it by Monde Re. Naftogaz, a Ukrainian corporation, applied to set aside that order on grounds including lack of jurisdiction, lack of entitlement by subrogation, excess of jurisdiction, irregular composition, fraud, public policy and material non-disclosure.

Naftogaz sought security for the costs of its set-aside application under CPR 25.12. The central issues were whether the court had jurisdiction to order security against an award creditor and, if so, whether security should be ordered and in what amount.

1. Jurisdiction. The application for security was granted in principle. CPR 25.12 applies to claims under both section 66 and section 101 of the Arbitration Act 1996. Under CPR 62.18(3), an application to enforce a Convention award proceeds as an arbitration claim, and the Commercial Court rules therefore apply.
2. New York Convention. Article III requires comparison between the procedural rules applicable to Convention awards and those applicable to domestic awards. Since the CPR applies equally in both contexts, construing CPR 25.12 as permitting security against an award holder does not impose a substantially more onerous condition on recognition or enforcement of a Convention award.
3. Status of the parties. By applying for and obtaining enforcement relief, the award holder advances a claim against the award debtor. The party seeking to set aside the enforcement order is therefore properly regarded as the defendant for CPR 25.12 purposes. The reasoning in Dardana Ltd v Yukos Oil Co [2002] 2 Ll.R.261 was respectfully approved to that extent.
4. Exercise of discretion. The policy of the Arbitration Act 1996 and the New York Convention favours speedy and effective enforcement, but it did not prevent an order in this case. Naftogaz had a prima facie case of fraud, despite the substantial legal hurdles, and the judgment sum was very large. Gater was domiciled outside a Brussels-Lugano Regime State and had no assets apart from the award.
5. Amount. Security was not excluded merely because some costs had already been incurred. However, delay before the applications were made and the excessive level of costs claimed justified reducing the protection afforded to past costs. Security was fixed at £250,000. The court reserved submissions on the time and manner of compliance.