A v B

Security under section 70(7) of the Arbitration Act 1996 should be ordered cautiously where the challenge is under section 67. In most cases, the applicant must first show that the jurisdictional challenge is flimsy or lacks substance. The court must also consider whether the challenge will prejudice enforcement of the award. This will often require evidence of a risk that assets may be dissipated, although other forms of enforcement prejudice may suffice. The fact that the award is challenged under section 67 does not itself justify security. Similar principles apply to a section 69 application. Security was refused where enforcement abroad could proceed and there was no evidence of dissipation, delay tactics or other prejudice.

B obtained awards in two FOSFA arbitrations against A. A challenged the awards under sections 67 and 69 of the Arbitration Act 1996. B applied under section 70(7) for security for the sums awarded and for the costs of the jurisdiction challenges.

The underlying dispute concerned whether binding contracts had been concluded, and whether they incorporated FOSFA arbitration clauses. The Board of Appeal found for B. A contended that the jurisdiction challenge was arguable and that the applications should not proceed without security. The central issues were the threshold for ordering security and whether A’s challenges would prejudice B’s ability to enforce the awards.

1. The applications for security under section 70(7) were dismissed. A section 67 challenge is a complete rehearing of the jurisdiction issue. The court approaches jurisdiction afresh and does not presume that the tribunal’s conclusion is correct. That distinction justified a cautious approach to security.

2. Following the reasoning preferred in Peterson Farms v C & M Farming Limited, the applicant will in most cases have to demonstrate that the section 67 challenge is flimsy or otherwise lacks substance. The competing approach in Tajik Aluminium Plant v Hydro Aluminium AS, which treated the discretion as unfettered and imposed no threshold, was not followed. A full determination of the merits should not ordinarily be undertaken at the security stage.

3. The threshold is necessary but not sufficient. As a general principle, security should not be ordered unless the applicant demonstrates that the challenge will prejudice its ability to enforce the award. A risk of dissipation of assets is a common example. The court should not draw an adverse inference merely because a party has not disclosed assets where it has no obligation to do so.

4. A’s jurisdiction challenge was not flimsy. There were arguable issues concerning whether the quality terms had been agreed, whether FOSFA arbitration had been agreed on the relevant date, compliance with the contractual signing requirements, and the evidential significance of later conduct. B therefore failed the threshold requirement.

5. The same result applied to the section 69 application. Permission to appeal requires an obviously wrong decision or, in a case of general public importance, a question open to serious doubt. Security would ordinarily be appropriate only where the appeal could prejudice enforcement, such as by being used as a delaying tactic while assets were dissipated. Enforcement in Kazakhstan could continue, and there was no evidence of dissipation or other prejudice. The applications were dismissed.