The Czech Republic v Diag Human SE & Anor

Under Arbitration Act 1996, s 70(6), security for costs may be ordered where the applicant’s assets are not readily available to satisfy a costs order. A formal undertaking to pay will ordinarily be taken at face value, absent good reason to doubt it. Under s 70(7), security for an award pending a challenge generally requires both a weak challenge and prejudice to enforcement. The weakness requirement does not apply to a s 68 challenge. The relevant prejudice is a risk that enforcement will become more difficult while the challenge is pending. Historic misconduct, without a direct connection to that risk, is insufficient.

The Czech Republic challenged a 2022 bilateral investment treaty arbitration award under ss 67 and 68 of the Arbitration Act 1996. The award required substantial payment to Diag Human SE and Mr Josef Stava. The substantive challenges were listed for a later seven-day merits hearing.

The defendants applied for security for the costs of the challenges under s 70(6), and for security for the amount payable under the award under s 70(7). The central issues were whether the claimant’s assets were readily available, whether its undertaking to pay costs was sufficient, and whether the statutory conditions for securing the award were met.

1. Security for costs under s 70(6). The applicable approach requires consideration both of the claimant’s assets and of whether they are readily available to satisfy a costs order. The statutory test does not precisely mirror the test under CPR 25.12 and CPR 25.13. The approach in Azov Shipping Co v Baltic Shipping Co and the subsequent authorities remained applicable.
2. A formal undertaking given by a state to comply with any costs order is ordinarily taken at face value. The claimant’s undertaking was unequivocal. The defendants had not established sufficient grounds to disregard it. The application for security for costs therefore failed.
3. The court considered the defendants’ unpaid costs order and their proposed set-offs. The Luxembourg costs order had been set aside, and no enforceable entitlement to interest on the earlier partial award had been established. Although the defendants’ claimed costs were excessive, the court held that the undertaking was sufficient to dispose of the application.
4. Security for the award under s 70(7). The conventional approach generally requires two matters: the challenge appears flimsy or lacks substance, and the challenge prejudices the applicant’s ability to enforce the award. The first limb does not apply to a s 68 challenge because the award is presumed valid unless the challenge succeeds. The second limb remains applicable.
5. The relevant prejudice is a risk that enforcement will become more difficult during the period in which the challenge is pending. This requires comparison of enforceability before the challenge and by the end of the challenge proceedings. Historic misconduct, even if established, does not by itself demonstrate that the claimant will place assets beyond reach during that period. The court could not assess the merits of the challenges on the limited material and hearing time, and no sufficient risk of dissipation had been shown.
6. The applications under both s 70(6) and s 70(7) were dismissed.