Bank Mellat v Helliniki Techniki S.A.
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE KERR,LORD JUSTICE ROBERT GOFF,LORD JUSTICE WALLER |
| Judgment Date | 28 June 1983 |
| Judgment citation (vLex) | [1983] EWCA Civ J0628-5 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 83/0382 |
| Date | 28 June 1983 |
[1983] EWCA Civ J0628-5
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT (MR JUSTICE BINGHAM)
Royal Courts of Justice,
Lord Justice Waller
Lord Justice Kerr
Lord Justice Robert Goff
83/0382
1983 H. No. 730
MR MARK LITTMAN. Q.C., and MR N. CHAMBERS (instructed by Messrs. Stephenson Harwood) appeared on behalf of the Appellants.
MR I. GLICK (instructed by Messrs. Denton, Hall & Burgin) appeared on behalf of the Respondents.
This is an appeal from a judgment of Bingham J., given on 25th March 1983 which raises an important question on orders for security for costs in relation to international arbitrations held in this country. In the present case this question arises in the context of the Rules of the Court of Arbitration of the International Chamber of Commerce in Paris, to which I will refer generally as "the ICC Rules".
The facts
The arbitration arises out of a contract in the form of a tripartite "Participation-Agreement" concluded on 29 September 1974 between Bank Omran of Teheran, Helleniki Techniki SA ("H.T.") of Athens, and a Danish company, Larsen and Nielsen. The contract concerned a joint venture for the development of certain land near Teheran. The land was to be provided by Bank Omran, and H.T. and the Danish company were to provide the necessary design and construction services for its development. The contract stated that it was to be governed by the laws of Iran and contained an arbitration clause of which the following terms are material:
"Any dispute arising between the parties hereto in any way related to or connected with the interpretation or implementation of this agreement shall be finally settled by arbitration, by an Arbitral Tribunal composed of 3 arbitrators, in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, Paris.
……The venue shall be the City of London, and the arbitration proceedings shall be conducted in the English language."
None of the parties carried on business in England or had any other connection with this country. Subsequently H.T. took over all rights and liabilities of the Danish company, which disappears from the scene for present purposes. In June 1979 Bank Omran was merged, together with other banks, into Bank Mellat which took over all the rights and liabilities of Bank Omran under the contract. Bank Mellat is registered here under Part X of the Companies Act 1948 and holds a full licence under the Banking Act 1979 to carry on banking business in this country, but its place of incorporation is Iran.
By 1980 serious disputes has arisen between Bank Mellat and H.T. under the contract. On 26 July 1980 H.T. served a Notice of Default and commenced the present arbitration proceedings against Bank Mellat by a request addressed to the ICC dated 20th November 1980. Three arbitrators were thereupon appointed; an English barrister by H.T., an Iranian lawyer by Bank Mellat, and a Swedish lawyer appointed by the Swedish National Committee of the ICC. I shall have to deal with the ICC Rules in some detail hereafter, but meanwhile it is convenient to refer to certain payments made by both parties to the ICC under the ICC Rules at the request of the Court of Arbitration in Paris. Initially each party paid US $ 500 by way of an advance towards the ICC's administrative expenses. Thereafter each party paid a further sum of $ 95,000 following a request from the ICC dated 28 July 1981 in the following terms:
"The deposit to cover the administrative expenses and the Arbitrators' fees has been fixed at US $ 190,000. In accordance with the spirit of arbitration and the customs of the Court, each party is therefore requested to forward to us within 30 days one half of this sum, i.e. US $ 95,000 in the manner set out in the enclosed circular (in deducting the sum of US $ 500 when already paid to the Court)."
The matter was then referred to the three arbitrators who drew up the necessary Terms of Reference pursuant to the ICC Rules on 6 October 1982 in agreement with the parties. These defined the issues in dispute. H.T. claims damages in the sum of $ 6,753,200 and reimbursement of a further sum alleged to be in excess of $ 1,000,000, and Bank Mellat counterclaims damages of about $ 30,000,000. As regards the conduct of the arbitration, the Terms of Reference merely recite the provisions of the contract concerning the application of the ICC Rules, as set out above, and that the contract is governed by the law of Iran.
Having considered the Terms of Reference and the amounts in dispute, the ICC increased the deposit by a letter of 22 October 1982, requiring each of the parties to pay a further sum of $ 50,000 within 30 days. Since the letter also stated that "failure to effectuate the payment in a timely manner may result in the halting of the instruction of this case", it appears that these payments have also been made, but since the increase was largely attributable to Bank Mellat's counterclaim, nothing turns on this further deposit for present purposes.
The arbitration is at present listed to commence on 5 September 1983 and the hearing is estimated to take about four weeks. Meanwhile, however, Bank Mellat issued a summons on 18 February 1983 for an order that H.T. should provide security for Bank Mellat's costs in a total sum of $ 118,850. By far the largest item of this amount is the deposit of $ 95,000 paid by Bank Mellat to the ICC; the remainder relate to legal fees and other costs which have so far been incurred. For present purposes it is unnecessary to consider these in detail, although some of them have also been challenged by H.T. on particular grounds, save to say that they appear to be reasonable, and indeed modest, since each of these items other than the deposit of $ 95,000 has been reduced to take account of the counterclaim. There is no cross-application by H.T. for security for costs in relation to the counterclaim which we understand to raise substantially the same issues as H.T.'s claim. The grounds of the Bank's application are that H.T. is ordinarily resident outside the jurisdiction, and also that there is reason to believe that it will be unable to pay the costs of Bank Mellat if the latter is successful in the arbitration. The submission of H.T. is that any order for security would be inappropriate under the ICC Rules and generally in relation to an arbitration of this kind. Bingham J. declined to make any order, and Bank Mellat is now appealing against this decision. I will deal first with the ground that H.T. are resident outside the jurisdiction, the ICC Rules and the problems concerning international arbitrations generally, which appear to me to raise questions of principle, and then at the end with the additional factor of H.T.'s financial position.
The applicable law:
It is convenient to begin by summarising the general law which provides the background to the issues, even though there is substantially no controversy about it between the parties. Before the Arbitration Act 1934, the power to order security for costs in favour of a defendant (or a plaintiff as defendant to a counterclaim) only existed in relation to actions in the courts, but since 1934 this power has been extended to arbitrations, as explained below. Although always discretionary, such orders have been the norm if a defendant to an action is resident here and the plaintiff is a non-resident with no assets within the jurisdiction. The reason, obviously, is that in the event of the English defendant winning the action and being awarded his costs, he should not be exposed to the difficulties, expense and delay of seeking to enforce the order for costs against the plaintiff somewhere abroad. The fact that the grant or refusal of an order for security for costs against non-resident plaintiffs is discretionary has been made explicit by a change in the wording of the present R.S.C. Order 23 in comparison with the former Order 65. Order 23 provides expressly that the court may make an order for security for costs against (inter alios) plaintiffs who are ordinarily resident outside the jurisdiction "if, having regard to all the circumstances of the case, the Court thinks it just to do so". But the recent decisions do not suggest that there has been any change in the normal practice of making such orders in favour of English defendants against foreign plaintiffs who are outside the jurisdiction and have no assets in this country.
This is the position in relation to actions in the courts. However, the problem in the present case—if one has regard to the position of the original contracting party, Bank Omram, which had no connection with, or assets in, this country—is unlikely to arise in litigation. Defendants in this position are unlikely to be sued here in practice, even though leave to serve them out of the jurisdiction may be given pursuant to R.S.C. Order 11. However, such situations frequently arise in relation to arbitrations, since foreign parties frequently contract on the basis that any disputes arising out of their contracts should be resolved by arbitration in this country, as in the present case. Such agreements may take different forms to which I turn in a moment. First, it is necessary to summarise the position concerning the procedural law applicable to arbitrations held in this country.
The fundamental principle in this connection is that under our rules of private international law, in the absence of any contractual provision to the contrary, the procedural (or curial) law governing arbitrations is that of...
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