Posting Security As A Condition Of Obtaining An Interim Or Conservatory Measure
In many arbitral disputes, the claimant may consider that unless the respondent is restrained from continuing its alleged misconduct or from taking a particular step on an interim basis, the final Award will ring hollow. For example, the assets in question may have been transferred to a third party, the claimant may suffer irreparable harm from the respondent's continuing breach of the substantive contract, the respondent may be taking active steps to obstruct enforcement of the eventual Award and so on. In those circumstances, and recognising the inevitable delay required before a fair final Award can be issued, the claimant may apply to the tribunal for interim or conservatory measures, which are intended to restrain the respondent from engaging in the problematic conduct.
In many cases, and sometimes even in the absence of an express request by the respondent, the tribunal will condition such an interim or conservatory measure on the claimant's posting of security sufficient to indemnify the respondent for its losses if, at the end of the procedure, the interim measure turns out to have been unnecessary or inappropriate. This note focuses on the circumstances in which, by particular reference to an ICC arbitration, a party may be required to post security as a condition of obtaining an interim or conservatory measure.
Rule 28(1) of the 2012 ICC Rules provides:
1. Unless the parties have otherwise agreed, as soon as the file has been transmitted to it, the Arbitral Tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate. The Arbitral Tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party. Any such measure shall take the form of an order, giving reasons, or of an Award, as the Arbitral Tribunal considers appropriate.
Although relatively few Awards become publicly-available, experience suggests that tribunals typically consider certain factors when determining whether to require security to be posted, and when setting the amount of any such security. In particular, tribunals typically consider factors such as (1) the actual costs incurred by the respondent in complying with the measure, (2) the potential damages of the respondent if the measure is subsequently found to have been unnecessary or inappropriate, and (3) the financial capacity of the claimant to post security. Underlying the entire analysis is the tribunal's obligation to maintain the balance between the parties, and to avoid pre-judging (or appearing to pre-judge) the substantive dispute.
ICC Case No. 7544 is often cited as the leading Award concerning the posting of security. In that case the claimant sought an interim measure mandating a provisional payment that it claimed it was entitled to under the contractual arrangement between the parties. The tribunal found it appropriate to require the claimant to guarantee repayment of the sum ordered in the interim Award, recognizing that the final decision might not be consistent with the interim Award. While that was a relatively straightforward case in that the amount of the respondent's potential loss could be quantified easily, cases in which the respondent's potential losses cannot be quantified so easily pose more difficult issues. For example, ICC Case No. 3540 involved a dispute between a French contractor and its Yugoslavian sub-contractor concerning damages for faulty performance. The sub-contractor counterclaimed and sought interim payment of a fixed sum owed to it under the contract. The tribunal found that it could enter an interim Award for payment "upon the moving party giving adequate security, with damages between the parties to be liquidated definitively in the final Award."
Unfortunately, the amount of the "adequate security" is not recorded in the public version of the Award.
Some further general guidance is available in the UNCITRAL Model Law on International Commercial Arbitration, adopted in 2006 (the “Model Law”). Articles 17 and 17A establishes the power of an arbitral tribunal to order interim measures, provides a generic definition of interim measures and sets out the conditions for granting such measures. Article 17E of the Model Law stipulates that when requiring a party to provide security for interim measures granted to it, the security must be “appropriate” and “in connection with the measure”. Security may be an appropriate condition to the granting of interim measure where the resisting party faces some risk of loss as a result of the interim measure being granted against it. The security recognises that the tribunal may prejudice the resisting party's rights if the interim measure proves unjustified when the final Award is rendered in its favour.
Parties faced with an application for interim or conservatory measures should be aware of their right to seek, as a condition of any such measure, a requirement that the claimant post security. While the circumstances in which security will be necessary and appropriate cannot be defined with precision, requiring security to be posted is a useful tool tribunals can use to maintain the balance between the parties pending the final Award, and to avoid the misapprehension that, in granting the interim measure, the tribunal has in any way prejudged the merits of the case.
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