Konkola Copper Mines Plc v U&M Mining Zambia Ltd

Security for costs under section 70(6) of the Arbitration Act 1996 is governed by the overriding objective and the approach under CPR 25.12 and 25.13. The court may order security where there is a real risk that the respondent’s assets will not be readily available to satisfy a costs order, including where assets are illiquid or enforcement abroad is likely to be delayed.

Security under section 70(7) serves a different purpose. It should not be ordered merely to assist enforcement of an award. The applicant must show that the challenge itself prejudices enforcement or diminishes the respondent’s ability to honour the award. No rigid rules apply, although the apparent flimsiness of a challenge may be relevant.

The claimant challenged an arbitral award under sections 67 and 68 of the Arbitration Act 1996. The defendant applied for security for costs under section 70(6), and for security for sums said to be payable under the award under section 70(7).

The claimant was a Zambian company with substantial assets but limited liquid funds, and the defendant relied on evidence suggesting financial distress, difficulty enforcing judgments in Zambia and possible dissipation of assets. The issues were whether security for costs was justified and whether the pending challenges caused the prejudice required for an order securing the sums awarded.

1. Security for costs. The application under section 70(6) was allowed in the sum of £300,000. Following Republic of Kazakhstan v Istil Group Inc [2006] 1 WLR 596, the court had to apply the overriding objective and the principles in CPR 25.12 and 25.13.
2. There was a real risk that the claimant’s assets would not be readily available to satisfy a costs order. A company may have assets exceeding its liabilities yet remain unable to meet liabilities as they fall due where its assets are illiquid. The claimant’s accounts showed a substantial shortfall between current liabilities and current assets, with only a small proportion held as cash. The evidence also showed that enforcement would have to occur in Zambia and might be resisted or delayed.
3. The amount of security was assessed by reference to costs incurred and a reasonable allowance for future costs. The defendant’s larger schedule was not accepted in full.
4. Security under section 70(7). The application was refused. The court remained in agreement with the approach in A v B [2011] 1 Lloyd’s Rep 363 and X v Y [2013] EWHC 1104 (Comm): no hard and fast rules should be imposed, and an order should not ordinarily be made merely to improve enforcement of an award. The applicant must establish that the challenge itself prejudices enforcement or diminishes the respondent’s ability to honour the award.
5. The challenges to the outstanding invoices appeared flimsy, but there was no evidence that the challenges themselves would prevent or prejudice enforcement in Zambia. The separate risk of dissipation, addressed by a freezing injunction, did not establish the required connection with the pending challenges. The section 70(7) application was therefore rejected.

First-instance decision. The judgment does not state any appellate history.