© 2013 by G. M. Beresford Hartwell

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Security for Costs - the Logic

If I may say so, the assumption that arbitrators have some inherent power to order security for costs is based on the false premise that arbitration is a proceeding at law and that an arbitrator is a kind of judge. I suggest that, if an analogy is to be found at all in the courtroom, it is with the jury, as trier of fact.

 

The position at English Law was clear and simple from re an Arbitration between Unione Stearinerie Lanza and Weiner (1917) until the Arbitration Act 1996, which gave the power to arbitrators solely to take an embarrassing 'hot potato' from the hands of the Courts. .(See Coppee–Lavalin SA/NA & Voest–Alpine AG v Ken–Ren Chemicals & Fertilisers Ltd (in liq)[1994] 2 All ER 449.)

 

 

I suggest that the words of Viscount Reading in Lanza and Weiner apply to the fundamental position regardless of the legal system so that, unless the power is either conferred by Statute or by agreement between the parties, purported orders for security are null and void. A danger could be that a tribunal that refused to proceed without security for the respondent's costs (as opposed to its own fees and expenses) could be in breach of its duty.

 

Per Viscount Reading:

“The arbitrator doubted whether he had the power to make the order; and we are told in fact he thought he had not the power. In my judgment he was right and there is no such power in an arbitrator. He could have been given the power by express agreement between the parties, but it is not suggested that there was any agreement to that effect.

. . . . The dispute obviously can be determined whether security for costs be given or not. The object of the application for security for costs is not to enable the proceedings to continue in order that it may be determined by the reference whether there is a valid claim by the party in the position of a plaintiff, but to put an obstacle in the way of his proceeding until he has done an act which will provide security to the party in the position of the defendant that, should he obtain an order for costs, the amount will be paid. That has nothing whatever to do with the arbitrator ascertaining the true position between the parties in order to determine the case.”

 

There is an interesting article entitled Can You Seek Security for Costs in International Arbitration in Australia? by Simon Greenberg, Associate in the International Arbitration Department of Dechert LLP, Paris and Christopher Kee Lecturer, Deakin University, Melbourne and Consultant, Keelins Lawyers, Melbourne.(Australian Construction Law Newsletter #109 July/August 2006, accessed at  http://www.austlii.edu.au/au/journals/AUConstrLawNlr/2006/57.pdf  on Monday 12 July 2010; It is relevant beyond both Construction and Australia.