Section 70(7) of the Arbitration Act 1996, which applied when the losing party sought to challenge an arbitration award in the court, provided that: “The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.” Under the 1996 Act, an award could be challenged on appeal to the Court of Appeal (1) under section 67, as a challenge to the arbitral tribunal’s substantive jurisdiction; (2) under section 68, on the grounds that there had been a serious irregularity ; and (3) under section 69, on a question of law arising out of the award. Sections 67(4), and equivalent provisions in section 68 and 69, each provided that such an appeal under those sections may only be brought with the leave of the first instance court.
The defendants were granted an arbitration award for CZK 4 billion payable by the claimant state, the Czech Republic, following London arbitration proceedings for breaches of the requirement for fair and equitable treatment contained in a Bilateral Investment Treaty made between the claimant and the Swiss Confederation. The tribunal found that the claimant had exerted pressure on and/or corrupted members of a previous Czech Review proceedings tribunal in respect of the defendants’ claim. The claimant sought to challenge the award under sections 67 (contending that the tribunal had no substantive jurisdiction because the applicants did not have a qualifying investment in the Czech Republic required under the treaty) and 68 (contending serious irregularity, in that the tribunal decided the case on a basis that had not been argued and failed to decide some of the issues put to it) of the 1996 Act. The defendants sought an order under section 70(7) of the Arbitration Act 1996 that the money payable under the award be secured pending the determination of the claimant’s challenges and that if such security was not provided, the claimant’s challenges should be dismissed under section 70(7). The judge refused to order security for costs in the light of an undertaking given to the court by the claimant to comply with any order to pay costs and refused permission to appeal. The defendants applied to the Court of Appeal for permission to appeal on the grounds that the judge had erred in his approach to the power to order security contained in section 70(7), that he ought to have concluded that there was compelling prima facie evidence of the claimant’s corruption of an arbitral tribunal; that although the principles summarised by the judge were appropriate for the general run of cases, the present case was an interference with the integrity of the arbitral process and contrary to fundamental requirements of due process, the rule of law and public policy, which ought to have led to an order for security under section 70(7); and that section 70(7) should be approached in the light of the rule of interpretation in section 1 of the 1996 Act that “the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense”. The preliminary question arose as to whether the Court of Appeal had jurisdiction to grant permission to appeal, which in turn depended on whether the dismissal of an application for security made pursuant to section 70(7) was a “decision under” section 67 or 68. The defendants contended that a decision whether to order security under section 70(7) was not a necessary step in determining a challenge under section 67 or section 68, but was an ancillary matter which did not form part of the critical pathway of decisions leading to the substantive determination of the challenge to the award.
On the application—
Held, leave to appeal refused. (1) The following points were to be derived from the previous case law: (i) The policy underlying section 67(4) and other equivalent provisions had consistently been stated as being to avoid delay and expense. That was not achieved by excluding appeals altogether, but by making the first instance court the sole gatekeeper to control whether permission to appeal should be given; (ii) a decision which was “part of the process” of reaching a final decision on a challenge to an award was a decision under section 67 or section 68 and the restrictions on appeal contained in section 67(4) and section 68(4) would therefore apply; (iii) there was no support in such cases for the view that only a decision finally disposing of a challenge to an award was capable of being a decision under section 67 or section 68. Deciding whether to order security was part of the process of determining a challenge under section 67, 68 or 69. Section 70 was ancillary or supplementary to an application under sections 67, 68 or 69, and had no application independent of those sections. That was spelled out by subsection (1), which stated that the provisions of the section applied to an application or appeal under section 67, 68 or 69 and was clear from the heading of the section (“Challenge or appeal: supplementary provisions”). Only the first instance court could give leave to appeal from a decision either to order or not to order security under section 70(7). For those reasons, the Court of Appeal did not have jurisdiction to grant permission to appeal and the decision of the judge should stand (paras 32–33, 36–42, 64, 65, 66).
(2) If the Court of Appeal had been entitled to grant permission to appeal, it would have done so. Where a court was considering whether to exercise its power under section 70(7) of the 1996 Act to order security for money payable under an award which was subject to challenge under sections 67, 68 or 69, in general, the merits of the challenge were likely to be irrelevant to the question whether security for the award should be ordered and in general, the primary and usually the only question was whether the making of the challenge was likely to prejudice the ability of the award creditor to enforce the award or the ability of the award debtor to honour it. That was the mischief at which section 70(7) was directed. It struck a fair balance. The losing party had a right to challenge an award under section 67 or section 68, and (with the agreement of the other party or the leave of the court) to appeal on a question of law under section 69, but if doing so was likely to prejudice the award creditor, the price of exercising that right might be the provision of security. Moreover, there was no need to introduce a threshold requirement of “flimsiness” in respect of the challenge, and it was undesirable to do so. If a challenge to an award had no real prospect of success, the appropriate course was for the challenge to be summarily dismissed, if necessary without a hearing. It was undesirable to adopt a criterion that an application be shown to be “flimsy”, “unlikely to succeed” or “shadowy” before security could be ordered. The merits of a challenge ought not to have to be examined twice, once in order to see whether they were “flimsy” for the purpose of an application for security, and then again on the hearing of the substantive application. Such an approach could only add to the delay and expense which section 1 of the 1996 Act stated it was the object of arbitration to avoid. That was supported by the practice of the Commercial Court that applications for security under section 70(7) should in general be marked with a time estimate of one hour or less and it plainly envisaged that it would not be necessary or appropriate to investigate the merits of the substantive challenge in any detail. To go beyond a brief consideration of the award and the challenge in order to see whether the challenge was manifestly valid or invalid was unlikely to be helpful on an application of that nature (post, paras 43, 51–58, 65, 66).
(3) On appropriate facts, an award debtor’s misconduct might be evidence that the debtor was likely to take steps to render enforcement of the award more difficult while a challenge was pending. If so, that was capable of supporting an application for security in accordance with the conventional approach. However, it was not the purpose of an order under section 70(7) to assist in the enforcement process. To recognise misconduct in the course of an arbitration as a sufficient ground in itself for ordering security under section 70(7) would open up a significant volume of such applications, the overall effect of which would be to add expense to the challenge process and to delay the resolution of the substantive challenge (post, paras 60–63, 64, 65, 66).
Patrick Green KC and Ognjen Miletic (instructed by Mishcon de Reya LLP) for the defendants.
Lucas Bastin KC, Peter Webster and Katherine Ratcliffe (instructed by Arnold & Porter Kaye Scholer (UK) LLP) for the claimant.