tutorial video tutorial video Discover the CiteMap in 3 minutes

Lawyers, other representatives, expert(s), tribunal’s secretary

Ruling on Respondent's Application for Security for Costs

The application

1.
On January 17, 2014, the respondent ("the Government") made an application for security for costs in the amount of £1.4 million.

The Government’s position

2.
The basis of the application was as follows: (1) the claimant ("Sural") had no funds of its own; (2) its costs were being funded by other companies in the Sural Group (in particular through Sural CA and Quantex Financial Ltd), which had assigned their rights in such funding to Sural to enable it to make the claims in this arbitration, and which would share in any Award, but would not be at risk as to costs; and (3) the claim in the arbitration was prima facie fanciful and unrealistic.
3.
The application for security was based on the Tribunal’s power under ICC Rules 2012, Art 28(1), to grant interim measures. The law of Trinidad and Tobago (where the principles of English law relating to security applied) would be applicable as the governing law of the contract and as the seat of the arbitration.
4.
Trinidad and Tobago was the seat of the arbitration and the reference to the arbitration being conducted in Miami, Florida, was, in the light of the provision that the courts of Trinidad and Tobago having exclusive jurisdiction, simply a reference to Miami as the convenient venue: Braes of Doune Wind Farm v Alfred McAlpine [2008] EWHC 426 (TCC), [2008] 1 Lloyd’s Rep 608. The Government relies on the Trinidad and Tobago Arbitration Act 1939, section 31(1) and Sched 2, item 1, which gives the court power to order security, in accordance with Trinidad and Tobago CPR Rule 24.3, without prejudice to any powers of the arbitral tribunal to order such relief.
5.
If Florida were the seat of the arbitration, there would be no impediment to security because an arbitral tribunal has broad powers to order interim measures, even if there were no express power to order security for costs. The agreement to arbitrate, and the pleadings of both parties, envisaged that the tribunal had power to order the losing party to pay the costs of the successful party, and a refusal to give effect to an agreement conferring such a power on the tribunal would be inconsistent with the US Federal Arbitration Act’s basic rule that agreements to arbitrate were enforceable. The application was supported by the affidavit of Mr Akbar Ali.

Sural’s position

6.
Sural’s position was that: (1) under both US law and English law, the agreement to arbitrate is separate and distinct from the substantive agreement in which it is contained: Buckeye Check Cashing v Cardegna, 546 US 440, 445 (2006); Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, [2013] 1 WLR 102; (2) under US law the rule is that the power to award "costs" does not entail the prevailing party’s legal fees being awarded as a matter of right; (3) such fees may only be awarded if a statute or contract grants them; (4) the seat of the arbitration is Miami, Florida, because that is the place of the hearing and there is nothing in the agreement to mandate that Trinidad and Tobago law applies to the arbitration agreement and no agreement as to its governing law: Shashoua v Sharma [2009] EWHC 957 (Comm), [2009] 2 Lloyd’s Rep 376 ; Dicey, Morris & Collins, Conflict of Laws, 15th ed 2012, para 16-035; (5) under US law arbitral tribunals are permitted to grant interim relief, but the grant of security for costs is virtually unknown in the United States; (6) the Government would have to show a probability of ultimate success on the merits to obtain interim relief; (7) the tribunal was bound to apply Florida state law which forbade the award of attorneys’ fees and any interim measures securing them; (8) even if English law applied, security should not be granted because (a) the Government would incur the same costs in its counterclaim; and (b) Sural was deliberately formed as a special purpose vehicle to avoid the substantial risks which a private investor takes when taking a minority position in a government sponsored entity.

The Sural Group undertaking offer

7.
In Holland & Knight LLP’s letter of February 6, 2014, it was stated on behalf of Sural:

"In fact, Sural is part of a group of substantial companies under common control with a strong international reputation for the manufacture of sophisticated aluminum products and significant proprietary technology. Rarely do such companies permit a member to shirk its just debts to legitimate creditors. GORTT was obviously comfortable contracting with Sural on that basis and without seeking financial guarantees from its parent or other members of the Sural Group of companies."

8.
On February 17, 2014 the Tribunal requested Sural, in the light of the statement referred to above, to ascertain from its controlling shareholders whether they would undertake to the Government that Sural would satisfy any valid award of costs made by the tribunal.
9.
On February 27, 2014 Sural replied to the tribunal’s letter, stating that either or both of Sural CA and Quantex Financial Ltd would be prepared to offer an undertaking in the form referred to by the tribunal if the Government would give an equivalent undertaking in respect of any costs award made against the Minister of Finance.
10.
On February 27, 2014 the Government expressed the doubt that an undertaking from Sural’s shareholders would be enforceable or equivalent to security.
11.
On March 5, 2014, the tribunal asked the parties if they would give reciprocal undertakings to abide by any valid costs award, with the undertakings to be governed by English law and subject to the non-exclusive jurisdiction of the English court.
12.
On March 19, 2014 the Government replied that: (1) it would be prepared to consider an alternative proposal for the mutual provision of security by way of cash deposit; (2) under the Minister of Finance (Incorporation) Act, ch 69:03 of the Laws of Trinidad (1973), rev to December 31, 2012, the Minister is vested with substantial assets, and there is no question of the Minister not having adequate funds against which any costs order could be enforced; (3) there was reason to believe that Sural’s shareholders would not meet any costs orders: there was an unsatisfied Trinidad and Tobago High Court default judgment against Sural CA for US$8,678 million in favour of Republic Finance and Merchant Bank Ltd.
13.
On March 26, 2014 Sural stated that the default judgment was part of a broader dispute between Sural and the bank, and that the proceedings had not been properly served. On March 27, 2014 the Government said that the proceedings had been properly served and that it did not accept that the judgment was part of a broader dispute. On April 3, 2014 Sural submitted the court file relating to the default judgment, and re-iterated that there had been no valid service.
14.
On March 28, 2014 the tribunal requested Sural to supply the most recent accounts of Sural CA and Quantex Financial Ltd. After correspondence relating to the terms of confidentiality on which they were submitted, the tribunal wrote to the parties on May 5, 2014 to say that (a) the latest accounts were relevant to the substance of the proceedings, and they would be sent to the Government on the basis that they were subject to the confidentiality undertakings so far given; (b) the tribunal would rule on the Government’s application for security in the light of Sural’s offer that the affiliated companies would offer binding undertakings to meet any valid order for costs, and in the light of the Government’s observations on the accounts when received and on the proposed undertakings; and (c) the tribunal saw no basis for Sural’s misgivings about the Minister's ability to satisfy an order for costs.
15.
The accounts were supplied by the tribunal to the Government on May 8, 2014. In a letter of May 14, 2014 the Government raised questions as to the cash position of Sural CA. It accepted that Quantex Financial Ltd appeared to have ample cash funds, but stated that there was no guarantee that its funds would be diverted to avoid paying a costs order. By letter of May 15, 2014, Sural responded, making the point, in particular, that there was always the risk that an award debtor would divert funds.

Ruling of the tribunal

16.
Clauses 29 and 30 of the Shareholders’ Agreement contain the following relevant provisions:

"29. DISPUTE RESOLUTION

29.5... where any officer notifies the Parties that the dispute has not been resolved by referral to such officers or otherwise by agreement between the Parties, such dispute shall be referred to arbitration, to be conducted in Miami, Florida.

29.6 The arbitration shall be conducted by a tribunal of three (3) arbitrators (the "arbitration tribunal") in accordance with the rules of arbitration established by the International Chamber of Commerce in the United Kingdom, in effect on the Effective Date and as modified from time to time.

29.9 The costs and fees of arbitration shall be determined in the sole discretion of the arbitration tribunal and may be assessed or apportioned to either or both of the Parties in the award.

30 GOVERNING LAW

30.1 This Agreement shall be governed by and construed in accordance with the laws of the Republic of Trinidad and Tobago and subject to Clause 29, the Parties hereto submit to the exclusive jurisdiction of the Trinidad and Tobago courts in respect of any dispute or matter arising out of or in connection with this Agreement."

17.
This is an arbitration under the ICC Rules 2012. There is no express power to order security for costs under the Rules, but the tribunal has the power to order interim measures. Interim measures can be granted to ensure the integrity of a final award, and there is no reason in principle why they may not be granted to ensure the effectiveness of an award of costs, unless a mandatory rule of the law of the seat of the arbitration forbids their grant.
18.
The substantive law of the Shareholders’ Agreement is Trinidad and Tobago law (clause 30.1).
19.
Sural argues that there is a substantial difference between the law of Trinidad and Tobago, on the one hand, and the law of Florida, on the other hand, because, by contrast with the law of Trinidad and Tobago (a) the expression "costs and fees" in the agreement does not under Florida law include attorneys’ fees; (b) an arbitral tribunal with its seat in Florida cannot normally award attorneys’ fees; and (c) a tribunal with its seat in Florida must follow the US rule that interim measures will only be granted if the applicant shows that it is likely to succeed on the merits.
20.
The Terms of Reference dated June 5, 2013, recorded (at paragraph 45) the parties’ disagreement as to whether Florida (as Sural maintained) or Trinidad and Tobago (as the Government maintained) was the seat of the arbitration.
21.
The parties have chosen the law of Trinidad and Tobago to govern the agreement as a whole, but the arbitration agreement may be governed by a different law. Where there is a dispute as to the interpretation of the provision which provides for the place of arbitration, and in particular whether that place is intended to be the seat or merely the convenient place for hearings, it would be circular to decide that the arbitration agreement is governed by the law of that place and then to refer to that law to determine the question whether it is the seat.
22.
In those circumstances the tribunal considers that the arbitration agreement will be governed by the same law as the substantive contract, because there is no clear indication that it is governed by another law, namely Florida law: see Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638, [2013] 1 WLR 102.
23.
In the view of the tribunal the only sensible interpretation of the arbitration agreement is that Florida is the seat of the arbitration, and the reference to the arbitration being "conducted" in Miami is not a mere reference to the convenient place of the arbitration. In addition, it is likely that the submission to the exclusive jurisdiction of the Trinidad and Tobago courts in clause 30 was an error, since the clause is headed "governing law."
24.
This conclusion is supported by the decision in U&M Mining Zambia Ltd v Konkola Copper Mines plc [2013] EWHC 260 (Comm), [2013] 2 Lloyd’s Rep 218, to which the parties were referred by the tribunal. In that case the arbitration clause provided that disputes were to be referred to arbitration in the London Court of International Arbitration (LCIA) in London, the place of arbitration would be England, the contract was to be construed in accordance with and governed by the laws of Zambia, and that "The High Court of Zambia shall have exclusive jurisdiction." It was held that England was the seat of the arbitration. Blair J relied in particular on these matters: the clause providing for exclusive jurisdiction of the Zambian courts did not appear in the part of the agreement with the heading "Dispute Resolution/Arbitration", and appeared under a different heading, "Governing Law and Jurisdiction". He adopted the statement of principle in Dicey, Morris & Collins, Conflict of Laws, 15th ed 2012, at para. 16-035:

"This ‘seat’ is in most cases sufficiently indicated by the country chosen as the place of the arbitration. For such a choice of place not to be given effect as a choice of seat, there will need to be clear evidence that the parties (or the arbitrators if so authorised by the parties) agreed to choose another seat for the arbitration; and that such a choice will be effective to endow the courts of that country with jurisdiction to supervise and support the arbitration."

25.
In this case, as in that case, there is no such evidence. Accordingly the seat is Florida.
26.
In cases decided by US federal courts, it has been held that attorneys’ fees could be awarded if the parties had expressly so agreed. Sural accepts that under Florida law an arbitral tribunal may award legal fees if there is substantial, competent evidence that the parties agreed to submit such a claim to arbitration. The parties have agreed that the ICC Rules 2012 apply, and by Article 37(4) the tribunal has the power to award costs, which by Article 37(1) include "the reasonable legal and other costs incurred by the parties to the arbitration."
27.
Clause 29.9 of the Shareholders’ Agreement provides

"The costs and fees of arbitration shall be determined in the sole discretion of the arbitration tribunal and may be assessed or apportioned to either or both of the Parties in the award."

28.
The tribunal has already expressed the view that the arbitration agreement is governed by the law of Trinidad and Tobago law. It is plain that the intention of the ICC Rules and of the agreement is that the parties confer on the tribunal the power to award costs in the sense of including attorneys’ fees.
29.
The fact that Florida is, in the view of the tribunal, the seat of the arbitration does not mean that the interpretation of the expression "costs" depends on the technical meaning of the word in Florida law. This is so for two reasons. First, it is a question of construction of the agreement, which is governed by the law of Trinidad and Tobago. Second, even if Florida law were the law governing the arbitration agreement, Florida law would only be relevant on this aspect as regards the principles of interpretation and not the meaning of particular words.
30.
It follows, therefore, that (subject to the discretion of the tribunal) the losing party may be in a position whereby it will be ordered to pay the costs of the successful party.
31.
The position would be different if there were a mandatory rule in Florida law prohibiting the tribunal from awarding attorneys’ fees to the prevailing party. From the material supplied by Sural, state law governs the availability of an award of attorneys’ fees. This material also shows that an arbitral tribunal in the United States may order such fees if the parties have so agreed (as they have in this case): see, among other cases, Asturia de Zinc Marketing, Inc v Lasalle Rolling Mills, 20 F Supp 2d 670 (SDNY 1998); Livingston v Associates Finance Inc, 339 F 3d 553 (7th Cir 2003). According to Sural, the rule in Florida is that an arbitrator may not award attorneys’ fees unless there is substantial, competent evidence of an express waiver of the normal rule that counsel fees are not to be awarded: Florida Statutes section 682.11 (2012), which provides that the normal rule applies "unless otherwise provided in the agreement or provision for arbitration"; Carjaval v Banc of America Investment Serv., Inc, 122 So 3d 393 (Fla 3d DCA 2013) ("absent an express waiver of this statutory right").
32.
But the tribunal has come to the conclusion that in its discretion it should not order security. It has taken into account the following matters: (1) Arbitral proceedings are different from court proceedings in countries whose courts regularly award security for costs, because the parties have ex hypothesi agreed to arbitrate. (2) Security for costs is not therefore automatic in international arbitration and the jurisdiction to award costs is exercised sparingly. (3) The tribunal does not consider it appropriate to order security where there has been no substantial change in circumstances since the arbitration agreement was entered into. (4) Third-party funding is relevant where security for costs is sought, but Sural is and was a special purpose vehicle and therefore it follows that, by entering into an agreement with Sural, the Government assumed the risk, if it were to bring arbitral proceedings, of a costs award in its favour not being satisfied. (5) Sural offered an undertaking by Sural CA and Quantex Financial Ltd that any valid award by the tribunal of costs would be complied with. (6) The Government accepted that Quantex Financial Ltd had sufficient cash resources to meet such an award, but declined the offer. In the light of all these matters, the order of security would not be appropriate.
33.
In deciding whether security for costs should be ordered, the tribunal does not consider it necessary or appropriate to consider the merits of the dispute, on which it would in any event be premature to take any view.

Disposition

34.
The application is dismissed.
35.
The costs of the application are reserved.
Whole document
para.
Click on the text to select an element Click elsewhere to unselect an element
Select a key word :
1 /