UK: LCIA Arbitration: Tribunal's Power To Order Security For The Amount In Dispute

Last Updated: 27 July 2010
Article by Hannah Khawaja

In the current economic climate, parties to commercial disputes are increasingly concerned about the recovery risk involved in pursuing arbitration proceedings, in particular the risk that an opponent may not be able to comply with an arbitral award made against it or that an opponent's future financial security becomes uncertain (such as a risk of insolvency arising after proceedings have been commenced). The likelihood of successfully enforcing an arbitration award is typically a key consideration for parties considering commencing or continuing arbitration proceedings.

The arbitration rules of the London Court of International Arbitration (LCIA Rules) allow claimants to avail themselves of a unique protection in the form of interim relief – to seek payment of security for the amount of a claim or counterclaim. For example, a claimant that has commenced arbitration proceedings against a respondent that looks likely to become insolvent in the near future may make an application to the arbitral tribunal for an order that the respondent secures the amount in dispute (by a bank guarantee or deposit payment), so that the claimant is protected in terms of enforcement if an award is made in its favour.

This provision differs from the more widely available power to order security for costs, which, in general terms, allows a court or tribunal to require the provision of security for the legal costs of defending a claim or counterclaim.

If a claimant successfully obtains an order for a respondent to pay security for the claim (and the order is complied with1), this guarantees that payment will be made in full and promptly following any award made in the claimant's favour. This exceptional provision in the LCIA Rules provides significant comfort to claimants in pursuing arbitration proceedings in circumstances where there is a risk of non-compliance or insolvency on the part of the respondent. It is also a feature that may amount to a "unique selling point" for the LCIA Rules to be chosen in arbitration agreements, especially where it is anticipated that enforcement of an award may prove problematic.

Basis on which payment of security for the claim can be ordered

Article 25 of the LCIA Rules gives the tribunal the power to award interim and conservatory measures. In particular, Article 25.1(a) of the LCIA Rules gives the tribunal the power to order a respondent to a claim or counterclaim to provide security for all or part of the amount in dispute, by way of deposit or bank guarantee or in any other manner and on such terms as the tribunal may determine.

The LCIA Rules do not provide any specific guidance as to the principles upon which security for the claim can be ordered (which is perhaps unsurprising given the widespread lack of any equivalent tool in other arbitration rules or even domestic litigation systems). Nevertheless, there are various tests or guidelines on the availability of interim measures including security, to which a tribunal may refer. By way of example:

  • interim measures are extraordinary measures that are not granted lightly2;
  • the applicant must show that the measures that it seeks are urgent and necessary in order to avoid serious and irreparable harm and are not merely convenient or appropriate3;
  • the harm to the applicant if the measure is not ordered must substantially outweigh the harm to the respondent if the measure is granted4; and
  • there must be a reasonable possibility that the applicant will succeed on the merits of the claim5.

Practical Considerations

In practice, arbitrators may be reluctant to exercise their power to award security for the claim because they may not want to pre-judge the merits of the case (and may well appreciate the very significant tactical incentive that may commonly lie behind such applications). Most applications will only succeed if there is clear evidence that the respondent will be unable to pay any damages awarded against it and if the applicant can convince the tribunal that, in the circumstances, it is just for the tribunal to exercise its discretion to award security. This may require witness evidence from sources with knowledge of the respondent's financial affairs and documents evidencing the respondent's financial condition, such as the annual accounts or other financial statements.

Further, a key consideration for any potential applicant seeking security for the claim is that Article 21(a) of the LCIA Rules specifically states that the terms for providing security may include a cross indemnity from the applicant for any costs or losses incurred by the respondent in providing security, itself secured as the tribunal deems appropriate.

Therefore, while the ability to seek security for the amount in dispute can be a useful tool for claimants or counter-claimants when there is a risk regarding eventual enforcement of an award, parties should also bear in mind that such an application may not be successful (leaving the applicant at risk of having to pay the other party's costs of the application) and, even if it is successful, a cross indemnity may be required.


Parties considering which institutional rules to apply to arbitration clauses in their commercial contracts should keep in mind that the LCIA Rules contain this unique power for a tribunal to order a party to pay security for a claim, particularly if contracting with a counterparty when there is potential concern about its ability to comply with any arbitration award made against it.

Any claimant contemplating commencing a claim under the LCIA Rules who has concerns that the potential respondent may be impecunious or other bases for serious concern as to difficulty in enforcing an arbitration award (or if a claim has already commenced and the financial position of the respondent changes) should consider making an application for security for the costs of the claim, which, if successful, will limit the risks attaching to enforcement.


1.The LCIA Rules do not expressly provide for a remedy in the event an order to pay security for the claim is not complied with, although it is possible that the successful applicant may eventually be able to obtain a default award (although of course the claimant would then need to enforce the default award in the same manner as any final award).

2.See Paushok v The Government of Mongolia, Order on Interim Measures dated 2 September 2008, paragraph 39 (an arbitration under the UNCITRAL Rules)

3.Paushok, paragraph 39

4.Article 17A(1) UNCITRAL Model Law


The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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