Eastern European Engineering Ltd v Vijay Construction (Proprietary) Ltd

In a challenge to enforcement of a New York Convention award, security may be ordered under section 103(5) of the Arbitration Act 1996 only in the context of an adjournment pending proceedings in the courts of the seat, where security is the fair price of that adjournment. It cannot be imposed as a condition of pursuing an otherwise arguable challenge where the resisting party did not seek the adjournment. Non-compliance may justify terminating the adjournment, but not an unless order making security a condition of pursuing the challenge. The proper course was to terminate the adjournment, discharge the security order and direct expedited determination of the set-aside application.

The claimant sought to enforce an ICC arbitration award seated in Paris under the New York Convention and section 101 of the Arbitration Act 1996. Leave to enforce and judgment in terms of the award had been granted ex parte by Cooke J. The defendant applied to set that order aside under sections 103(2) and 103(3), relying on jurisdictional, procedural fairness and public policy grounds.

Flaux J adjourned determination of the set-aside application pending the defendant’s French challenge and ordered security of €7.5 million. The French challenge failed, and the defendant did not provide security. The claimant sought dismissal, or alternatively an unless order. The central issue was the proper consequence of non-compliance with the security order.

1. The applications were dismissed. The claimant’s applications to require renewed security, set aside or dismiss the defendant’s set-aside application, and set aside the alleged adjournment of leave to enforce were refused.
2. Flaux J had adjourned determination of the defendant’s application to set aside Cooke J’s order. He had not adjourned the leave to enforce. The stay on enforcement arose by operation of CPR 62.18(9), as reflected in Cooke J’s order under CPR 62.18(10).
3. Section 103 of the Arbitration Act 1996, read with Article V of the New York Convention, did not permit security to be imposed as a condition of pursuing an otherwise properly arguable challenge merely because the enforcing court had ordered security. Following the reasoning in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation [2017] UKSC 16, security was permissible, if at all, where the enforcing court adjourned its determination pending a challenge in the courts of the seat and fairness made security the price of that adjournment.
4. That rationale did not apply here. The defendant had resisted the adjournment, which had been sought by the claimant. It would therefore be wrong in principle to impose an unless order requiring security as a condition of continuing the section 103 challenge. The court distinguished the security previously provided in IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation, because it had been the agreed or ordered price of an adjournment sought by that award debtor.
5. Non-compliance was not consequence-free. The proper procedural response was to terminate the adjournment, discharge the security order and give directions for the expeditious prosecution of the set-aside application. The claimant should have made a prompt application under the liberty to apply in Flaux J’s order.
6. In obiter observations, had it been proper to consider dismissal or an unless order, ordinary principles might have justified an unless order but not immediate dismissal. Penal notices would not have been appropriate for failure to provide security as the price of preserving a claim.

Cooke J granted leave to enforce the award and judgment in its terms ex parte on 18 August 2015. Flaux J later adjourned determination of the defendant’s set-aside application and ordered security. This court dismissed the claimant’s applications and directed that the adjournment be terminated, the security order discharged and the set-aside application prosecuted expeditiously.