If you are the winning party to an arbitration, but the other side decides to mount a challenge to the award under sections 67 or 68 of the Arbitration Act 1996, or tries to appeal under section 69, how do you protect your position with respect to the award, pending the challenge or appeal?

In a suitable case, you can get security for the costs of the proceedings, but what about the award itself?

Help may be at hand in the form of section 70(7) of the Act.

This confers on the court the power to protect the winning party by securing the amount of the award.

It provides as follows: "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."

In the 2004 case of Peterson Farms Inc v C&M Farming, Mr Justice Tomlinson considered how the court should approach the exercise of this power, specifically in the context of a jurisdiction challenge under section 67 of the Act. (This article adopts the writer's own report of the 2004 Peterson case in the International Arbitration Law Review.)

Case background

C&M Farming, an Indian company, contracted with Peterson Farms, an Arkansas company, for the purchase of certain livestock.

The sale agreement provided for all disputes arising between the parties in connection with the contract to be finally settled by International Chamber of Commerce (ICC) arbitration in London.

In 2000, C&M commenced an ICC arbitration,claiming damages against Peterson for the sale and delivery of livestock infected with a virus.

An ICC tribunal was duly appointed and, following a hearing in London in 2002, published the award of substantial damages against Peterson.

A significant part of the damages awarded related to the losses suffered by 'C', an affiliated company of C&M, which was neither a signatory to the purchase agreement nor a party to the ICC proceedings.

The ICC tribunal awarded damages in respect of C's losses, applying (a) the 'group of companies' doctrine developed in Dow Chemical v Isover-Saint Gobain and a line of other ICC decisions and (b) agency principles.

Peterson disputed the tribunal's jurisdiction to award any damages to C on the basis that it was neither party to the purchase agreement, nor to the proceedings themselves, and following the tribunal's award, issued an arbitration application under section 67 of the Arbitration Act 1996 challenging the relevant parts of the award.

C&M applied for security for costs pursuant to section 70(6) of the 1996 Act and sought an order that Peterson pay into court or otherwise secure the full amount of the ICC award pursuant to section 70(7) of the Act, pending determination of the section 67 challenge.

Decision time

The court declined the application under section 70(7).

In principle, the court should be slow to impose as a condition of pursuing a section 67 challenge payment of or security for the amount of the impugned award.]

A section 67 challenge was made as of right under a mandatory provision of the Act (section 4(1) and Schedule 1).

Such a challenge went to the root of the arbitral proceedings since, on the challenger's case, there had never been an agreement to arbitrate either at all or in respect of the issue(s) the subject of the challenge. Moreover, whether or not a jurisdiction challenge was made under section 67 could be a matter of 'happenstance'.

A party challenging jurisdiction could, for example, in different circumstances, have proceeded under section 72 by taking no part in the arbitration but seeking a declaration or injunction from the court; or under section 32, seeking a determination of jurisdiction as a preliminary issue by the court.

Where it was purely a matter of good housekeeping or taking a sensible approach to the arbitration that the challenge had been made under section 67, the court should be slow to require security to be posted under section 70(7).

The judgment was unreserved and the court was reluctant to attempt to lay down any general principles or guidance as to the circumstances in which it would be likely to exercise its power under section 70(7) where a challenge was made under section 67.

But it appeared correct to say that a threshold requirement was that the section 70(7) applicant should show that on its merits, the challenge was flimsy or lacking in substance.

The application should be refused unless that requirement was met.

If the challenge was shown to be flimsy or lacking in substance, then the court should consider whether in all the circumstances it was appropriate to require, as a condition of proceeding under section 67, that money payable under the award should be secured.

It was not possible to legislate for what those circumstances would be in any given case, but such factors as the conduct of the section 67 challenger and any likely prejudice to the challenger if it had to find the requisite security would be taken into account.

William Godwin is a barrister at 4 New Square.