As reinsurance practitioners know, parties to reinsurance arbitrations are with increasing frequency requesting panels to issue interim awards requiring adverse parties to post prehearing security. The purpose of prehearing security is to maintain the financial status quo in order to ensure that any eventual award does not become meaningless because the assets of the adverse party have been dissipated elsewhere. Courts have consistently recognized arbitrators’ authority to issue interim orders of security in the absence of a contractual provision expressly precluding it, and have routinely upheld such orders where a colorable justification for the award exists. Despite the clear recognition of a panel’s broad authority to require security, some arbitrators have on occasion been reluctant to require security unless the movant demonstrates that its adversary already suffers from a deteriorated financial position or has through its past conduct raised questions about its compliance with a panel’s ultimate award. The problem with such an approach is that it might be too late — ordering security only after compliance with a final award is in question frustrates the purpose of security. 

To better preserve the meaning of any ultimate award, this article suggests that arbitrators should exercise their clear authority to order interim security before the collectability of the ultimate award has already become an issue. Ordering security where the possibility exists that any final award could be rendered meaningless serves to better protect the integrity of the arbitration process by preventing the dissipation of assets. This approach can be particularly valuable in these uncertain economic times.

There is no question that arbitrators have broad power to order interim security, as recently reaffirmed by the Southern District of New York in CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, No. 12 Civ. 8087 (S.D.N.Y. Dec. 10, 2012) (upholding interim security award where parties’ agreement indirectly granted arbitrator such authority). In CE International, a sole arbitrator issued an interim award ordering respondents to post $10 million in security. The petitioner sought to confirm and enforce the award in court, arguing that the parties’ agreement authorized arbitrators to award interim security under the agreed-upon rules, which provided that “the tribunal may take whatever interim measures it deems necessary, including injunctive relief and measures for the protection or conservation of property…[including]…an interim award, and…may require security….”