The Czech Republic v Diag Human Se & Anor

Only the court which determines a challenge or appeal against an arbitral award at first instance may grant permission to appeal from its decision on security under section 70(7) of the Arbitration Act 1996. Section 70 is supplementary to challenges under sections 67 and 68 and appeals under section 69. A security decision forms part of determining those proceedings, particularly because non-compliance may result in their dismissal.

The Court of Appeal therefore lacks jurisdiction to grant permission where the first-instance court has refused it. The statutory scheme reflects the policies of avoiding unnecessary delay and expense and limiting judicial intervention in arbitration.

An arbitral tribunal seated in London awarded Diag Human SE and Josef Stava approximately CZK 4 billion against the Czech Republic under a bilateral investment treaty. The Republic challenged the award under sections 67 and 68 of the Arbitration Act 1996.

The award creditors applied under section 70(7) for security for the money payable under the award, with dismissal of the challenges as the proposed sanction for non-compliance. Bright J dismissed that application and refused permission to appeal: [2023] EWHC 1691 (Comm).

At a rolled-up hearing, the Court of Appeal first had to determine whether it had jurisdiction to grant permission. If it did, it also had to decide whether permission should be given and whether the refusal of security was wrong.

1. The Court of Appeal had no jurisdiction to grant permission to appeal. Only the first-instance court may grant permission from a decision whether to order security under section 70(7) of the Arbitration Act 1996. Section 70 is ancillary and supplementary to proceedings under sections 67, 68 and 69. It has no independent application. A security decision is part of the process of determining the relevant challenge or appeal. This is reinforced by the power to direct that the challenge or appeal be dismissed if security is not provided. The structure and policies of the Act supported the same conclusion (paras 36–42).

2. Permission would otherwise have been granted. The circumstances in which section 70(7) permits security for an award had not been considered at appellate level. The established first-instance approach, under which a section 67 challenge must be shown to be flimsy while no equivalent threshold applies under sections 68 or 69, was at least questionable (paras 43–44).

3. Obiter, the merits are generally irrelevant to security. Section 70(7) provides no basis for treating the three forms of challenge differently. Ordinarily, the primary and usually sole inquiry is whether the challenge is likely to prejudice the award creditor’s ability to enforce or the award debtor’s ability to honour the award. A separate flimsiness threshold is unnecessary because a challenge having no real prospect of success can be summarily dismissed. It is also undesirable because it invites a disproportionate mini-trial. At most, the merits should receive brief consideration to identify a manifestly valid or invalid challenge (paras 51–59).

4. Obiter, misconduct may be evidentially relevant. An award debtor’s misconduct can support security if it indicates that enforcement is likely to be made more difficult while the challenge is pending. The Commercial Court judge was entitled to find that historic misconduct did not establish that risk here. The court expressed considerable reservations about treating misconduct affecting an arbitration as an independent ground for security because section 70(7) is not generally intended to assist enforcement and such a rule could generate costly satellite applications (paras 60–63).

5. Snowden LJ and Falk LJ agreed with Males LJ. The first-instance decision therefore stood (paras 42, 64–66).

1. Court of Appeal (Civil Division): In [2023] EWCA Civ 1518, held that it lacked jurisdiction to grant permission to appeal. The first-instance decision stood.

2. High Court, Commercial Court: Bright J dismissed the application for security under section 70(7) of the Arbitration Act 1996 and refused permission to appeal: [2023] EWHC 1691 (Comm).