A security of costs application relating to a court challenge to an arbitration award cannot be used as a way of avoiding enforcement of the award, the High Court has ruled.
Mr Justice Picken said the position was no different because a litigation funder was involved.
“The power to order security under section 70(7) in the event of an arbitral challenge is necessarily linked to the making of such a challenge,” he said.
“There must, therefore, be something brought about by the challenge which makes an order for the provision of security appropriate.”
The High Court heard in Progas Energy and others v Pakistan  EWHC 209 (Comm)  that arbitrators had awarded Pakistan £7.7m in costs plus interest in a dispute over a liquefied petroleum gas terminal in Karachi. The claims of expropriation against Pakistan were dismissed.
Picken J said it emerged during the course of the arbitration hearing that the claimants were funded by a subsidiary of Burford Capital, Pensacola Investments. He said Pensacola was also funding the claimants’ challenge to the award under section 68 of the Arbitration Act.
Pakistan applied for security for costs order for the arbitration appeal under section 70(6) of the Act, totalling over £482,000.
Picken J said he was in “no doubt” that it was right to order the claimants to provide security for costs”, setting the figure at £400,000.
The judge then considered Pakistan’s further application, under section 70(7), that Progas should “pay into court or otherwise” the £7.7m plus interest awarded by the arbitrators.
Counsel for Pakistan argued that there was a risk that the claimants would dissipate their assets.
Picken J said that, to meet this test, the defendants would have to show that “the ability to enforce an award has been prejudiced or the ability of the applicant to honour it has been diminished”, and it was “effectively necessary to satisfy a similar requirement to that of a freezing injunction, namely the risk of dissipation of assets” between the time of the section 68 application and its final disposal. Pakistan’s arguments did not justify that conclusion.
The judge said he struggled to see why there should be “any special or different position” where a third-party funder was involved.
“If a respondent is in no worse position, particularly bearing in mind the power to award security for costs under section 70(6), by dint of the fact that there is an arbitral challenge than it would be were there no such challenge, then, in my view, an order under section 70(7) ought not to be made.
“In this respect, a party ought not to be permitted to use section 70(7) as a way of avoiding having to take enforcements steps which, were it not for the arbitral challenge before the court (in this case under section 68), would have to be taken in the usual way.”
Picken J dismissed Pakistan’s application under Section 70(7) of the Act.