‘I. Respondent’s request for security for costs

1. In light of the fact that this arbitration has its seat in London, England, it is appropriate to have regard to the English Arbitration Act 1996 (the “Arbitration Act”), to determine whether an arbitrator sitting in England has the power to enter an order requiring any party to post security for costs. The Arbitration Act expressly addresses the issue of security for costs in Section 38. Section 38 provides, in pertinent part as follows:

38(1) The parties are free to agree on the powers exercisable by the arbitral tribunal for the purposes of and in relation to the proceedings.

(2) Unless otherwise agreed by the parties the tribunal has the following powers.

(3) The tribunal may order a claimant to provide security for the costs of the arbitration.

This power shall not be exercised on the ground that the claimant is (

(a) an individual ordinarily resident in the United Kingdom, or

(b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.

…(Arbitration Act, Section 38)

2. Section 38.3, on its face, empowers an arbitrator to order “a claimant to provide security for the costs of the arbitration” unless the parties have agreed otherwise (see Section 38.2) In the instant case, it is thus appropriate to have regard to the parties’ agreement, as well as the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”) in order to ascertain whether the parties have agreed (either expressly, or by reference) to limit the powers of the arbitrator to order a claimant to post security for costs. The relevant arbitration agreement at issue in this case provides as follows:

2. Jurisdiction Clause

All disputes arising from the above-mentioned contract, unless mutually resolved between [the parties] will be finally settled by arbitration in London, England under the Rules of Conciliation and Arbitration of the International Chamber of Commerce. …

3. Nothing in this arbitration agreement purports to limit the powers of an arbitrator appointed thereunder to enter an order for security for costs as contemplated in Section 38.3 of the Arbitration Act.

4. In light of the fact that the arbitration agreement provides for arbitration under the ICC Rules, it is also appropriate to have regard to such rules to ascertain whether anything in such rules limits or prohibits the arbitrator’s power to enter an order for security for costs under Section 38.3 of the Arbitration Act. The arbitrator is satisfied that nothing in the ICC Rules limits the arbitrator’s powers under Section 38.3 of the Arbitration Act to issue an order for security for costs.

5. Claimant … has argued that (i) the “ICC Rules do not contain any provision about security for costs”; and (ii) that even if such power were to exist under Article 23 of the ICC Rules (which Claimant denies) “Article 23 allows interim measures to be requested ‘as soon as the file has been transmitted’ to the arbitral tribunal”, which Claimant argues precludes its application in this case. The arbitrator is not persuaded by either of these arguments. As Claimant correctly noted … the Tribunal derives its power from the express terms of Section 38.3 of the Arbitration Act. Under these circumstances, it is not necessary for the Arbitrator to rule on whether the power to order security for costs is derived independently from the terms of Article 23 of the ICC Rules.1

6. In light of the foregoing, the Arbitrator holds that he has the power to order the Claimant in this case to provide security for costs of the arbitration. This power is discretionary, and it thus falls to be determined whether it is appropriate, under the circumstances, to enter such an order in this case.

7. Section 38 of the Arbitration Act offers no guidance as to when the entry of an order for security for costs is appropriate. It does, however, provide as follows:

(3) …

This power shall not be exercised on the ground that the claimant is (

(a) an individual ordinarily resident in the United Kingdom, or

(b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.

(Arbitration Act, Section 38.3)

8. Respondent has advanced several arguments as to why the posting of security for costs would, in its view, be appropriate in the present circumstances.

9. First, Respondent argues that a costs order against Claimant would be difficult to enforce, in light of the fact that the [country] (where Claimant is purportedly incorporated) is not a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”).

10. Second, Respondent argues that it is unlikely that Claimant would be able to meet any costs order against it. Respondent argues that Claimant filed a plan of dissolution [two years earlier], and stated at that time that it was “no longer carrying on business” … Respondent further argues that Claimant was “restored to life”[subsequently], but that there is no evidence “that the company has begun trading again” …

11. The Arbitrator considers that the power to order the posting of security for costs should be used sparingly.2 Section 38.3(b) of the Arbitration. Act indicates that the place of incorporation of a claimant, in and of itself, is not sufficient justification for an entry of an order for security for costs. Moreover, parties agreeing to arbitrate their disputes must be presumed to have undertaken some degree of risk that the opposing party would be unable or unwilling to satisfy a costs order against it.3 Here, however, the circumstances under which Respondent agreed to arbitrate disputes with Claimant’s alleged predecessor in interest … differ in several respects from the circumstances that obtain today.

12. First, Claimant argues that it is the successor in interest to [its alleged predecessor], and holds valid title to sue. This fact is disputed by the Respondent. Without prejudging the merits of the case, it appears self-evident that the identity of Respondent’s counterparty has changed.

13. Second, there is considerable dispute as to the status of Claimant. While this, again is an issue for the merits of the case (and cannot be pre-judged), it appears to be common ground that a plan of dissolution was filed with respect to the Claimant in 2004, and remained in place for some time. It has been further alleged that Claimant’s corporate “reinstatement” was accomplished solely for the purpose of prosecuting certain outstanding claims, including against the Respondent, and this issue again will be addressed in the Final Award. For present purposes, it suffices that the corporate existence of the Claimant is in issue.

14. The combined effect of the two sets of circumstances listed above is that (i) Respondent is involved in an arbitration against a party other than the party it initially agreed to arbitrate disputes with; (ii) the existence and status of the Claimant, against whom any cost order would have to be enforced, is in issue; and (iii) it is common ground between the parties that at some stage in these proceedings Claimant was in the process of dissolution. Under such circumstances, the Arbitrator is persuaded that the provision of some form of security for costs is appropriate. The form and amount of this security thus falls to be determined.

15. Respondent initially sought security for costs in the amount of GBP47,500.00, but later increased that request to GBP52,500.00 in light of the subsequent submission by Claimant of two unanticipated witness statements. Of the GBP47,500.00 originally sought by Respondent by way of security, GBP21,366.36 was sought in respect of costs incurred prior to its request, and GBP26,214.27 in respect of future estimated costs. In light of Respondent’s letter of …, the security sought in respect of estimated future costs is increased by GBP 5,000.00 to GBP31,214.27.

16. The Arbitrator notes that many of the grounds for seeking security were known to or should have been known to the Respondent at an earlier stage in these proceedings. Under the circumstances, the Arbitrator does not consider it appropriate to grant security for these previously incurred costs.

17. Respondent claims security in the amount of GBP 31,214.27 for security in respect of future anticipated costs. This includes GBP 5,000.00 in respect of additional costs which Respondent expected to incur in relation to further witness statements ... However, the Arbitrator has indicated to the parties that any additional testimony by these witnesses shall be very limited, shall cover only two discrete issues, and thus is unlikely to result in substantial additional cost.

18. Under the circumstances, the Arbitrator considers that provision of security in the amount of GBP27,000.00 is appropriate. Such security shall be in the terms set out below.

ll. Claimant’s request for security for costs and security for claim

19. … Claimant requests that “Respondent is ordered to give a security for the value of the claim … and for Claimant’s costs of the arbitration, the latter in a figure mirroring the Respondent’s projection of GBP 47,500.00”.

20. Respondent … opposes both of these claims.

(a) Claimant’s request for security for costs

21. The Arbitrator notes that Claimant’s request for security for its costs is conclusory and unsubstantiated. Claimant has provided no breakdown of its own costs, and instead simply seeks security in an amount “mirroring the Respondent’s projection of GBP47,500”. Moreover, Claimant appears to be seeking security for costs in respect of a claim that it has brought against the Respondent. In addition, the timing of Claimant’s request appears to indicate that the request has been made in response to Respondent’s request. Under such circumstances, the Claimant’s request for an order for the provision of security for costs by the Respondent is denied.

(b) Claimant’s request for security for claim

22. The Claimant has also requested that the Respondent provide “security for the value of the claim …”. Claimant has not directed the Arbitrator to any authority pursuant to which such an order could be granted, nor to any circumstances that would justify the making of such an order. Again, the timing of this request appears to be motivated by the Respondent’s request for security for costs.

23. The Arbitrator notes that, unlike security for costs, there is no express provision empowering an arbitrator to order security for claim under the Arbitration Act. However, pursuant to Article 23 of the ICC Rules, the arbitrator is empowered to order “any interim or conservatory measure it seems appropriate” (emphasis added). Even if Article 23 could be construed so as to empower an arbitrator to grant an order for security for claim, such a remedy should be granted only in exceptional circumstances. In this case, the Claimant has not adduced any persuasive justification for the issuance of such relief. Accordingly, Claimant’s request for security for claim is denied.’

1
The Arbitrator notes, however, that Article 23 appears to be worded sufficiently broadly to empower an arbitrator or arbitral tribunal to make such an order.

2
This is consistent with the approach adopted by the English legal practice of ordering the posting of security for costs in international arbitration, namely, that an application for security for costs should be declined unless there are special circumstances that warrant it. See generally Coppee-Lavalin S.A./N.V. v. Ken-Ren Chemicals and Fertilisers Limited (in liquidation in Kenya) [1994] 2 WLR 631 per Lord Mustill; Bank Mellat v. Hellinki Techniki S.A. [1984] QB 291per Goff LJ.

3
See for example the Ken-Ren case, per Lord Woolf (ibid., pp. 658D-E); Bank Mellat case, per Kerr LJ (ibid., at 310).