Security for costs - Defending an arbitration, particularly in complex disputes can be expensive.

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下午 07:03, 2007/5/7

Security for costs

Defending an arbitration, particularly in complex disputes can be expensive. The general principle in Hong Kong arbitration is to have costs follow the event, an award allowing a successful respondent to recover his costs from the claimant will be of little value if it cannot be enforced because the claimant is insolvent or his assets are located in a jurisdiction which makes recovery difficult. An order of security for costs will ensure that there are funds against which the respondent can enforce an award in his favour, but there is also a risk that a respondent may apply for such an order simply to stifle a valid claim.

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Security for costs is the opposite of security for the claim. Security for claim involves the claimant seeking to secure his claim against the respondent. But security for costs is a request by the respondent against the claimant. The logic is: If the respondent turns out to be successful in the defence, he should get his costs.

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Traditionally, the power to order the claimant to give security for costs was outside the arbitrator’s statutory jurisdiction and application to be made to the Court. The s. 2GB of the HKAO bring fundamental changes to the law and practice of arbitration in Hong Kong. In s. 2GB(1), it provides “When conducting arbitration proceedings, an arbitral tribunal may make orders or give directions dealing with any of the following matters-

(a) requiring a claimant to give security for costs of the arbitration;”

The arbitrator now has the power to order the claimant to give security for cost. Importantly, the parties cannot contract out of this provision. Applications should now be made to the arbitrator and not to the court

The Terms of the Order

Security under the HKAO can only be demanded from a claimant or, in accordance with s2(1) (Claimant – includes a person who make a counterclaim) from a counterclaiming respondent. There is no powder for an arbitrator to make such an order in relation to a defence alone.

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If the respondent has a distinctive and separate counterclaim, a cross order for security for costs can be ordered. But the order against the respondent for security for costs should only relate to the defence by the claimant to this counter-claim.

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Making an Order

Prior to the introduction of the s.2GB, one of the grounds most commonly relied on the order by the Court was that the claimant was a person ordinarily resident abroad, or a company incorporated and managed outside Hong Kong. It is now changed the basis on which an order may be made.

Section 2GB(3) ...

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