Diag Human SE v The Czech Republic

A defendant resisting enforcement of a domestic or New York Convention arbitration award may, in principle, seek security for its costs under CPR 25.12. The New York Convention permits non-discriminatory procedural conditions under Article III, including security for costs and sanctions for non-compliance. The defendant’s burden of proving a passive defence does not prevent it being treated as a defendant for this purpose.

The discretion is exercised cautiously, but no rule requires wholly exceptional circumstances. Security was refused where the claimant had already received interim damages without interest and the final award, even if reopened, was likely to leave a substantial interest entitlement exceeding the defendant’s anticipated costs.

The claimant sought enforcement in England of a New York Convention award issued in Prague. The defendant resisted enforcement on the ground that an outstanding application for review meant that the award was not yet binding. It applied for security for the costs of resisting enforcement.

The claimant argued that security was unavailable under the Convention, that it would discriminate against Convention awards compared with domestic awards, and that the defendant was effectively in the position of a claimant because it bore the burden of proof. The court also considered the claimant’s non-disclosure on the earlier without-notice enforcement application and the ordinary discretionary factors governing security.

1. Jurisdiction. The defendant was a defendant to the enforcement claim for the purposes of CPR 25.12, despite bearing the burden of establishing its passive defence. The claim was proceeding on an arbitration claim form, and the defendant was defending enforcement rather than attacking the award itself.
2. Article III of the New York Convention permits the forum court to impose its own procedural conditions, provided they are not substantially more onerous than those imposed for domestic awards. Security for costs is such a procedural condition. The possibility of sanctions, including dismissal for non-compliance, does not offend Article V. Article VI does not exhaust the circumstances in which procedural security may be ordered.
3. The statutory provisions for security against a party making an active challenge under sections 67 to 69 of the Arbitration Act 1996 did not exclude security against a defendant advancing a purely passive defence under section 66 or Article V(1)(e). The decision in Gater Assets Ltd v Nak Naftogaz Ukrainiy supported the existence of jurisdiction, although arguments rejected on jurisdiction could not simply be redeployed as a rule requiring wholly exceptional circumstances.
4. The discretion under CPR 25.12 remained cautious and fact-sensitive. The claimant was impecunious, was not said to face stifling, and had third-party funding, but no bank guarantee. The merits and alleged delay did not justify refusing security, and the claimant did not establish that its impecuniosity resulted from the defendant’s conduct.
5. The decisive consideration was the substantial unpaid interest component of the arbitration award. Even if the final award were reopened and substantially reduced, the established interim damages were likely to carry a significant interest entitlement. That indebtedness would exceed the defendant’s anticipated costs. The application for security was therefore dismissed.

The judgment records an earlier without-notice order permitting enforcement under CPR 62.18. The defendant’s application to set aside that order was to be heard subsequently. This judgment determined the defendant’s separate application for security for costs.