X v Y

Security for costs under section 70(6) of the Arbitration Act 1996 may be ordered where there is a real risk that an applicant’s assets will not be readily available to satisfy a costs order. The court must consider the availability and liquidity of the assets, rather than their mere existence. A jurisdictional challenge may also be relevant where it amounts to a second attempt to argue an issue already determined, although that factor is subordinate to asset availability. Payment into court under section 70(7) requires a flimsy or otherwise insubstantial jurisdictional challenge and prejudice to enforcement. The jurisdiction must not be used merely to improve the successful party’s ability to enforce an award.

The parties’ contract of affreightment provided for London arbitration. Following several awards concerning shipments between 2009 and 2011, X challenged the fourth award under sections 67 and 68 of the Arbitration Act 1996. Y applied under section 70 for security for its costs of resisting those challenges and for payment into court of the sums awarded.

The dispute had involved related proceedings and injunctions in India, Australia and England. X had substantial assets in Australia but had not paid earlier awards or costs. The issues were whether security should be ordered and whether the challenges materially prejudiced Y’s ability to enforce the fourth award.

1. Security for costs. The application for security succeeded. Section 70(6) confers a formally unfettered discretion, but the court followed the guidance in Azov v Baltic [1999] 2 Lloyd’s Reports 39. Security will ordinarily be rare where the applicant has sufficient assets available to satisfy a costs order, because security would then create unnecessary expense.
2. The relevant question was whether X’s assets were readily available for execution. X had substantial, unencumbered shares in an Australian subsidiary, but its refusal to pay earlier awards and costs showed a settled intention to resist enforcement. The shares might also be illiquid. Following the approach in Longstaff International Limited v Baker & McKenzie [2004] 1 WLR 2917, the court concluded that X could probably be made to pay eventually but not promptly. Security of £120,000 was therefore necessary to secure a fair resolution.
3. Payment into court. The application failed. Under section 70(7), the court followed A v B [2011] 1 Lloyd’s Reports 363: a jurisdictional challenge must first be shown to be flimsy or lacking in substance, and the applicant must then show that the challenge will prejudice its ability to enforce the award. X’s ad hoc submission argument met the threshold, but the necessary enforcement prejudice was not established.
4. The court accepted the principle identified in Peterson Farms v C&M Farming Limited [2003] EWHC 2298 (QB) that section 70 should not be used simply to assist enforcement. Delay caused by the challenges would end when they were determined, and Y had the protection of an Australian freezing order. Payment into court would itself improve enforcement rather than remove a material prejudice.

The application for security for costs succeeded. The application for payment into court failed.