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Securing award and costs pending challenge (Commercial Court)
Practical Law UK Legal Update Case Report 0-523-1934 (Approx. 5 pages)
Securing award and costs pending challenge (Commercial Court)
by PLC Arbitration
| Published on 18 Dec 2012 • England, Wales |
In Moondance Maritime Enterprises SA v Carbofer Maritime Trading APS [2012] EWHC 3618 (Comm), Field J considered applications to secure sums awarded, including costs, pending a challenge to an award.
Speedread
The Commercial Court has confirmed that the power, under section 70(7) of the Arbitration Act 1996, to order a party challenging an award to pay money into court to secure the award does not apply to an unascertained sum. The issue arose in the context of a charterparty dispute in which the Owner sought to challenge an award of costs made in favour of the Charterers, prompting the Charterers to apply for a payment into court. Field J held that there was no power to order the Owner to make a payment into court in respect of an award of costs yet to be assessed.
However, the court went on to order the Owner to provide security for costs of the challenge. The Charterer's own liability to the Owner under a separate but related award did not amount to a defence of equitable set-off and there was no other basis for refusing security for costs on the facts of the case.
There is relatively little case law on section 70(7) but it appears from this judgment that it will be difficult to rely on the section in connection with unassessed awards of costs. (Moondance Maritime Enterprises SA v Carbofer Maritime Trading APS [2012] EWHC 3618 (Comm).)
Background
Challenges to award: power to order security
Sections 67 to 69 of the Arbitration Act 1996 (1996 Act) set out the basis on which an arbitration award may be challenged under English law. Where such a challenge is made, section 70 of the 1996 Act provides:
"(6) The court may order the applicant or appellant to provide security for the costs of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with….
(7)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."
For further discussion of challenges to awards, see Practice note, Challenging awards in the English courts: an overview.
Equitable set-off
Equitable set-off operates as a defence to a claim. An equitable set-off arises where the defendant's cross-claims are so closely connected with the claimant's demands that it would be "manifestly unjust" to allow the claimant to enforce payment without taking into account the cross-claims (see Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA Civ 667 discussed in Legal update, Test for equitable set-off clarified).
Security for costs of court proceedings
Security for the costs of court proceedings is governed by CPR 25. The grounds on which security may be ordered are set out in CPR 25.13 and include:
"(c) the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so;
(d) the claimant has changed his address since the claim was commenced with a view to evading the consequences of the litigation."
For further discussion of security for costs, see Practice note, Security for costs: an overview.
Facts
Disputes arose under a time charterparty and were referred to two arbitrations:
- In the first arbitration, the Owner alleged that the time charter had been induced by misrepresentation, and claimed damages. The claims were dismissed and the tribunal made an award of costs in favour of the Charterer (the first award), although these costs were not yet assessed at the time of the application to court.
- In the second arbitration, following the Charterer's bankruptcy, the Owner claimed unpaid hire and other sums. The tribunal made an award in favour of the Owner, including an award of costs which the tribunal then went on to assess.
The Owner applied under section 68 of the 1996 Act for an order setting aside the first award. The Charterer applied to court for:
- An order under section 70(7) requiring its unsecured costs in the first reference to be paid into court.
- An order under section 70(6) for security for costs.
Decision
Field J dismissed the application under section 70(7) but ordered the Owner to provide security for costs under section 70(6).
The costs awarded in the first award had not yet been assessed. Section 70(7) was predicated on there having been a specific sum of money ordered to be paid under the award appealed or challenged. Until the costs were assessed, therefore, the requirements of the section were not satisfied.
As to section 70(6), Field J held that two principal issues arose:
- First, had the Charterer established the conditions contained in CPR 25.13(2)(c) or (d), namely that the Owner would be unable to pay the Charterer's costs of the section 68 application and/or that Owner had taken steps in relation to its assets that would make it difficult to enforce an order of costs against it? Field J held that, on the evidence, the Owner (a one-ship company) had been operated in a such a way as to make it difficult to enforce a costs order.
- Secondly, did the award in the Owner's favour in the second arbitration constitute a set-off, effectively securing Charterer's costs, or otherwise afford a discretionary reason for refusing security? Applying Geldof, Field J held that, on the facts, the Owner's cross-claims were not so closely connected with the Charterer's costs claim as to make it manifestly unjust to allow the Charterer to enforce the first costs award without taking into account the second award. This conclusion was borne out by the fact that the section 68 challenge to the first award was made before the second award had even been made. Nor did the Owner's offer to allow the Charterer to set the two awards off against each other provide any basis for refusing security.
In the circumstances, the appropriate order was to require the Owner to provide security for the Charterer's costs of the section 68 application.
Comment
The decision that section 70(7) applies only to ascertained sums does not necessarily appear to follow from the wording of that provision, but is worth noting. There is relatively little case law on section 70(7) but it appears from this judgment that it will be difficult to rely on the section in connection with unassessed awards of costs. Practitioners should therefore consider alternative means of securing such awards, for example by obtaining security for costs in the arbitration reference, or applying for speedy assessment of costs. (In the present case, the Charterers had obtained an order for security for costs in the first arbitration, but this did not cover the entirety of their costs.)
Practitioners should also note that the Owner's offer to set the awards off against each other did not amount to a reason to refuse security for costs in circumstances where there was no actual defence of equitable set-off.