Arbitration International, 2017, 33, 427–495

doi: 10.1093/arbint/aix014
Advance Access Publication Date: 29 May 2017
Article

Security for Costs in Investor–State Arbitration

Christine Sim*

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ABSTRACT
When the tribunal in RSM v St Lucia became the first investor–state arbitration tribu-
nal to order the claimant to post security for costs, it paved the way for other applica-
tions to follow. Despite investor–state arbitration’s unfamiliarity with the mechanism,
security for costs could be an economically effective mechanism to regulate costs, con-
trol complex proceedings, and restrict frivolous claims in investor–state disputes.
Domestic jurisdictions use this mechanism effectively to tackle abuses of process, regu-
late extra-jurisdictional influences on proceedings, and ensure equal access to justice.
Against the backdrop of anxiety over third-party funding and repeated calls for proce-
dural efficiency, this article evaluates the potential of security for costs to improve
investor–state arbitration. What is the regime currently available for security for costs?
Is security for costs inherently unfair to claimants? Which policy arguments are impor-
tant to the investor–state arbitration system? How should tribunals assess applications
for security for costs? What sanctions can safely be imposed for a breach without
threatening the enforceability of the award? This article answers key questions in order
to clarify unease with the mechanism, de-bunks the myths of third-party funding, and
suggests solutions for practitioners dealing with applications for security for costs.

1. INTRODUCTION
Arbitration lawyers and arbitral institutions have begun to re-examine their position
on security for costs in international arbitration.1 It is now heralded as the time for
applications for security for costs to be welcomed in international arbitration as a
proper and potentially valuable interim measure of protection.2 But should security
for costs be just as warmly embraced in investor–state arbitration?
This article attempts a full assessment of security for costs in investor–state arbi-
tration. The assessment begins with a discussion of the current regime for security
for costs including under International Centre for the Settlement of Investment
Disputes (ICSID),3 United Nations Commission on International Trade Law

* LLM (Master in International Dispute Settlement, Institut de hautes études internationales et du développement
and University of Geneva); LLB, (National University of Singapore), Email: [email protected]
1 Alan Redfern and Sam O’Leary, ‘Why it is Time for International Arbitration to Embrace Security for
Costs’ (2016) 32 Arb Intl 397.
2 Redfern and O’Leary, ibid, 397.
3 International Centre for the Settlement of Investment Disputes, Convention on the Settlement of
Investment Disputes between States and Nationals of other States 1965 (ICSID) Arbitration Rules (as re-
vised in 2006).

C The Author 2017. Published by Oxford University Press on behalf of the London Court of International Arbitration.
V
All rights reserved. For Permissions, please email: [email protected]

 427
428  Security for Costs in Investor-State Arbitration

(UNCITRAL),4 and other arbitral rules, the practice of institutional advances on

costs and security for costs in support of arbitration available under national laws.
Given the public law aspect of investment arbitration, the second section follows
with critical analyses of the utility of security for costs in investment arbitration based
on policy reasons highlighted by tribunals, and theoretical considerations examined
by academics.

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Finally, this article concludes with strategic considerations in applications for se-
curity for costs, including the appropriate test to determine whether to order security
for costs, suitable forms of security, appropriate sanctions for breach of an order, and
corollary issues such as the appropriate forums for security for costs applications, its
operation under various arbitration rules, arbitrators’ and counsels’ ethical issues, and
the interaction with other supporting provisional measures such as disclosure.

1.1 What is security for costs?

Security for costs orders make the right of a claimant5 to proceed on his claim, condi-
tional on provision of partial security to guarantee, in the case of an unsuccessful claim,
any eventual award of legal costs assessed against the claimant by the arbitral tribunal.6
Security can be provided in the form of a bank guarantee or other forms of surety.
It should be distinguished from security ordered to guarantee the substantive
claims in the proceedings, such as posting a bond for the stay of enforcement in the
context of annulment proceedings. Further, security for costs relates only to the legal
fees and expenses arising from the defence of claims in the proceedings.7 Security for
costs is often classified as an interim measure. It depends on a policy of eventual
costs-shifting to the losing party.8
In spite of the increased interest that security for costs has attracted in international ar-
bitration recently, traditional reluctance in awarding security for costs remains.9 Various le-
gal systems have different degrees of acceptance of security for costs.10 Security for costs
is common and well utilized in common law jurisdictions.11 In civil law jurisdictions,12 it
is known as cautio judicatum solvi13 which traces its roots to the French Napoleonic

4 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules (as revised in
2010) (Hereafter, UNCITRAL Arbitration Rules).
5 Including counter-claimants; Michael Bühler and Marco Stacher, ‘Chapter 13, Part IV: Costs in
International Arbitration’ in Manuel Arroyo (ed), Arbitration in Switzerland: The Practitioner’s Guide
(Kluwer Law International 2013) 1371, 1384.
6 Lawrence Craig, William W Park and Jan Paulsson, International Chamber of Commerce Arbitration
(Oceana 3d edn, 2000) 467, para 26.05; Greg Reid, ‘Security for Costs in International Arbitrations:
Forget It?’ (2002) 152 New Law Journal 1427.
7 Joseph M Tirado and Max Stein, ‘Security for Costs in International Arbitration – A Briefing Note’
(2012) 9(4) TDM 1.
8 Richard H Kreindler, ‘Final Rulings on Costs: Loser Pays All?’ (2010) 7(1) TDM 6.
9 Bernhard Berger, ‘Arbitration Practice: Security for Costs; Trends and Developments in Swiss Arbitral
Case Law’ (2010) 28(1) ASA Bulletin 12, 7–15.
10 Wendy Miles and Duncan Speller, ‘Security for Costs in International Arbitration – Emerging Consensus
or Continuing Difference’ (2007) The European Arbitration Review GAR, 32.
11 Neil Andrews, English Civil Procedure: Fundamentals of the New Civil Justice System (OUP 2003).
12 Data Delecta and Forsberg [1996] ECR I-4661.
13 Jeffrey Waincymer, Procedure and Evidence in International Arbitration (Kluwer Law International 2012) 642.
 Security for Costs in Investor-State Arbitration  429

Code.14 However, caution judicatum solvi has largely fallen out of use in the last century as
a result of the 1905 Hague Convention on Civil Procedure.15 The European Court of
Justice has emphasized that security for costs cannot discriminate against persons entitled
to equal treatment under European Union law.16 Security for costs has, therefore, some-
times been referred to as an ‘idiosyncrasy’ of the common law legal system, regarded with
‘certain reservations in arbitration in countries of other legal traditions’.17

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In investment arbitration, security for costs orders remain rare. Some jurisdictions at
the forefront of development in international arbitration have demonstrated strong hos-
tility towards applications for security for costs. For example, Swiss courts and aca-
demics traditionally perceive security for costs as giving unfair advantage to respondents
in violation of the principle of neutrality or equal treatment, and especially in arbitration
where parties contracted with each other presumably with full knowledge of their for-
eign domicile.18 The adoption of the revised version of Article 17 of the UNCITRAL
Model Law was noted as laborious precisely because of this clash of legal cultures.19

1.2 How is security for costs relevant to investment disputes?

Security for costs has been named as one of the ‘most neglected and misunderstood
forms of interim relief’.20 However, this form of interim relief should become increas-
ingly useful as costs have become a central issue in investment arbitration. Costs are
a key risk, representing more than 10% of awards, and on average amounting to over
US$1.2 million21 per investor–state dispute.
In addition, the ‘legitimacy crisis’22 of investment arbitration has risen to a
global chorus—not only Latin American,23 but now Asian24 and EU25 states have

14 William Kirtley and Koralie Wietrzykowski, ‘Should an Arbitral Tribunal Order Security for Costs When
an Impecunious Claimant is Relying on Third Party Funding?’ (2013) 1 J Intl Arb 30, 19.
15 Hague Convention on Civil Procedure (17 July 1905, amended on 1 March 1954) art 17.
16 Francesco Guarnieri & Cie v Vandevelde Eddy VOF (Case C-291/09), Reference for a Preliminary Ruling,
Opinion of Advocate General Sharpston (14 September 2010) paras 34–35; Krystyna Alder, Ewald Alder
v Sabina Orlowska,Czeslaw Orlowski (Case C-325/11), Reference for a Preliminary Ruling, Opinion of
Advocate General Bot (20 September 2012) para 76.
17 South American Silver Ltd (Bermudas) v Bolivia (PCA Case no 2013-15), Procedural Order No 10 (11
January 2016) (SAS v Bolivia) para 45; Jean-Baptiste Pessey, ‘When to Grant Security for Costs in
International Commercial Arbitration: the Complex Quest for a Uniform Test’, Georgetown University
Law Center, <https://www.cpradr.org/news-publications/articles/2011-05-06-when-to-grant-security-
for-costs-in-international-commercial-arbitration-the-complex-quest-for-a-uniform-test-2011-writing-con
test-winner> (last accessed 13 May 2017) 11–12.
18 Noah Rubins, ‘In God We Trust, All Others Pay Cash: Security for Costs in International Commercial
Arbitration’ (2000) 11 Am Rev Intl Arb 307, 55.
19 Pessey (n 17) 13; Christopher Kee, ‘International Arbitration and Security for Costs – a Brief Report on
Two Developments’ (2006) 17 Am Rev Intl Arb 273, 275–76.
20 Weixia Gu, ‘Security for Costs in International Commercial Arbitration Security for Costs in
International Commercial Arbitration’ (2005) 22 J Intl Arb 167.
21 Susan D Franck, ‘Rationalising Costs in Investment Treaty Arbitration’ (2011) 88 Wash UL Rev 777.
22 Susan Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International
Law Through Inconsistent Decisions’ (2005) 73 Fordham L Rev 1521, 1536–38.
23 Julius Cosmas, ‘Improving the Legitimacy of Investor – State Dispute Settlement System: Can the WTO
DSU System Act as a Model?’ (2005) 4(1) Intl L Res, Canadian Center Sci Ed, 1.
24 International Institute for Sustainable Development, ‘News in Brief’, Investment Treaty News (14 May
2014) < https://www.iisd.org/itn/2014/05/14/news-in-brief-15/>.
25 Douglas Thomson, ‘EU Parliament Votes Against Investment Arbitration’ GAR (13 July 2015).
430  Security for Costs in Investor-State Arbitration

denounced the current system. One of the main complaints is the inefficiency,
length, and cost of proceedings. The median time for an ICSID award is 26 months,
often compared by frustrated users of investment arbitration to the system for resolu-
tion of international trade disputes under the World Trade Organization,26 where
proceedings are limited to 9 months.27
Security for costs, if used correctly, could be an economical mechanism for han-
dling issues of multi-tiered shareholdings,28 ethics, third-party funding,29 unenforce-

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able final awards, and procedural inefficiency.30 Procedural tools such as costs orders
can shorten proceedings, and reduce case-management strain on institutions such as
International Centre for the Settlement of Investment Disputes (ICSID) and the
Permanent Court of Arbitration (PCA), improving the speed of investment arbitra-
tions. Cost-shifting may assist in perceptions of legitimacy, both by preventing frivo-
lous or vexatious claims, and by reversing states’ refusals to honour awards and the
re-emergence of the over-legislated ‘toothless’ investment treaty.31 For its potential
in handling these current issues, the security for costs mechanism received significant
attention when it was used for the first time in investment arbitration in the latest
RSM cases.32

1.3 Scope of this article

The scope of this article is limited to examining security for costs as a procedural
tool in fresh claims. Some references will be made to similar policy considerations in
applications for guarantees for stay of enforcement of awards pending annulment.
However, discussion on security given in annulment applications will be limited be-
cause such guarantees are given in the context of an award of already adjudicated
rights, mandating a different legal approach.

26 Marrakesh Agreement Establishing the World Trade Organization, ‘Dispute Settlement Rules:
Understanding on Rules and Procedures Governing the Settlement of Disputes’, Annex 2, The Legal
Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations 354 (1999), 1869 UNTS
401, 33 ILM 1226 (1994).
27 Understanding on Rules and Procedures Governing the Settlement of Disputes, World Trade
Organization, Uruguay Round Report, art 12(8)–(9); Adam Raviv, ‘Achieving a Faster ICSID’ (2014)
11(1) TDM 22.
28 Zachary Douglas, ‘Admissibility: Shareholder Claims’ in The International Law of Investment Claims 417–
20.
29 William W Park and Catherine A Rogers, ‘Third-Party Funding in International Arbitration: The ICCA
Queen Mary Task Force’ (2014) Legal Studies Research Paper No 42, 5 < http:ssrn.com/ab
stract¼2507461>. The working definition developed by the Task Force is:
‘[A]ny person or entity that is contributing funds or other material support to the prosecution or de-
fense of the dispute and that is entitled to receive a benefit (financial or otherwise) from or linked to an
award rendered in the arbitration.’
30 Raviv (n 27) 2, 45; Jean E Kalicki and Anna Joubin-Bret, ‘Reform of Investor-State Dispute Settlement:
In Search of A Roadmap’ (2014) 11(1) TDM 9.
31 Raviv, ibid 42.
32 RSM v St Lucia (ICSID ARB/12/10) Decision on Saint Lucia’s Request for Security for Costs (13
August 2014), Decision on Saint Lucia’s Request for Suspension or Discontinuation of Proceedings (8
April 2015) (Hereafter St Lucia Breach); RSM v Grenada (ICSID ARB/05/14) Decision on Security for
Costs (14 October 2010); RSM v Central Africa (ICSID Case No ARB/07/02); RSM v Cameroon
(ICSID Case No ARB/13/14).
 Security for Costs in Investor-State Arbitration  431

2 . E X I ST IN G R EG IM E F O R SE C UR IT Y F O R C O S T S
Security for costs is currently categorized as one of the tools in the general system of
provisional or interim measures. In investment arbitration, unlike commercial arbitra-
tion, security for costs is also considered in the context of public international law.
Although arbitration rules commonly used for investment disputes give tribunals the
discretion to order security for costs, in reality, security for costs applications are al-

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most always rejected. One reason that security for costs has been rejected so often is
that it serves the same function as institutional advances on costs. Furthermore, secu-
rity for costs applications appear to be more appropriately pursued and enforced be-
fore state courts. A detailed discussion of the existing security for costs regime
follows.

2.1 Provisional measures

Security for costs is currently regarded as a provisional measure, which are incidental
to the main proceedings. Provisional measures are meant to facilitate the conduct of
proceedings, the enforcement of the award, or the preservation of the status quo.33
As a provisional measure, security for costs manages the conduct of proceedings and
facilitates enforcement of a final award on costs. Jurisdiction to grant security for
costs is part of general jurisdiction over provisional measures34—grounded in the lex
arbitri, express party agreement, or inherent adjudicatory powers.35
Provisional measures, by nature, are temporary orders that should lapse36 upon
decision on the merits. However, depending on the sanction, security for costs could
dispose of the claim in reality. Therefore, if the sanction for non-compliance is an in-
determinate stay or termination of proceedings, the claimant’s right to proceedings is
effectively curtailed. The question remains whether security for costs orders are
strictly ‘provisional measures’.

2.2 Public international law

The principle that parties bear equal costs originates from the classic view of public
international law dispute resolution—as mediation between sovereigns.37
Investment arbitration is, therefore, often approached from a public international law
perspective, as a form of global governance.38 The purpose of ICSID and the PCA39

33 Yves Fortier, ‘Interim measures: An arbitrator’s provisional views’ (16 June 2008) Fordham Law School
Conference Paper, Nijhoff, 9.
34 Peter Fitzpatrick, ‘Security for Costs under the Arbitration Act 1996’ (1998) Int ALR 139; John Beechey,
‘International Arbitration and the Award of Security for Costs in England’ (1994) 12 ASA Bull 179; Otto
Sandrock, ‘The Cautio Judicatum Solvi in Arbitration Proceedings or the Duty of an Alien Claimant to
Provide Security for the Costs of the Defendant’ (1997) 14(2) J Intl Arb 17; Philippe
Fouchard, Emmanuel Gaillard and Berthold Goldman, Fouchard, Gaillard, Goldman on International
Commercial Arbitration (1999, Kluwer International Law), 687.
35 Gu (n 20) 184.
36 Bühler and Stacher (n 5) 1384.
37 ICJ Statute art 64; 1907 Hague Convention for the Pacific Settlement of International Disputes 2 AJIL
Supp 43 (1908) art 57.
38 Benedict Kingsbury and Stephen Schill, ‘Investor-State Arbitration As Governance: Fair and Equitable
Treatment, Proportionality and the Emerging Global Administrative Law’ (2011) 8(2) TDM 1; Stephen
Schill (ed), International Investment Law and Comparative Public Law (OUP 2010) 836.
39 Permanent Court of Arbitration.
432  Security for Costs in Investor-State Arbitration

is to promote peaceful resolutions of disputes between states.40 Although the

European Court of Justice (ECJ) recognizes security for costs as a procedural tool,
an underlying principle of equal sovereignty continues to foster reticence towards se-
curity for costs.41
Based on the principle of equal sovereignty, public international law tribunals are
also reluctant to grant interim measures that effectively guarantee the execution of
the award.42 In addition, the arbitration agreement or procedural rules rarely contain

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specific security for costs provisions, unlike domestic civil procedure rules43 or rules
commonly used for commercial arbitration.44 Jurisprudence developed in interna-
tional investment treaty law similarly lacks clear rules about the exercise of jurisdic-
tion and discretion in applications for security for costs.45
However, the situation in modern investment arbitration is different from a medi-
ation between sovereigns. Direct-recourse rights granted to corporations by invest-
ment treaties, contracts, and legislation, require re-examination of this classic
characterization. Significant investment disputes over the last 15 years have arguably
given ICSID more of a ‘commercial’ nature, as a forum for arbitrating high value in-
vestments,46 instead of the ‘public’ nature of a state-to-state mediation. Even where a
classic equal-costs division is the standard,47 exceptions exist for ‘manifestly spurious
or unmeritorious’48 claims, unprofessional conduct, and breach of good faith.49
Investor–state disputes undeniably have a hybrid nature, made up of a combination
of public and private international law. In the context of this hybrid nature, assump-
tions of equal sovereignty in state–state disputes should accordingly fall away.

2.3 Treaties
States which are, by the very nature of investor–state proceedings, always the respon-
dents, have a strong policy impetus to institutionalize security for costs in their in-
vestment treaties.
Recently, in the Vietnam–EU Free Trade Agreement January 2016 draft, Article
22(1) provides specifically that, ‘the Tribunal may order the claimant to post security
for all or a part of the costs if there are reasonable grounds to believe that the

40 Nina Hall, ‘Global Arbitration Litigation Services’ (2008) Arb Costs Bull 1.
41 European Court of Justice; Stephen Austin Saldanha and MTS Securities Corporation v Hiross Holding AG
(Case C-122/96) Judgement of 2 October 1997; DEB Deutsche Energiehandels- und Beratungsgesellschaft
mb Bundesrepublik Deutschland (Case C-279/09), Opinion of Advocate General Mengozzi (2 September
2010); Francesco Guarnieri & Cie v Vandevelde Eddy VOF (C-291/09), Judgment of 7 April 2011;
Krystyna Alder, Ewald Alder v Sabina Orlowska, Czeslaw Orlowski (Case C-325/11), Opinion of Advocate
General Bot (20 September 2012).
42 Régis Bismuth, ‘Anatomy of the Law and Practice of Interim Protective Measures in International
Investment Arbitration’ (2009) 26(6) J Intl Arb 773, 821.
43 English Arbitration Act 1996, s 38(3); Singapore International Arbitration Act 2012 (Cap 143A) s
12(1)(a); Hong Kong Arbitration Ordinance (Cap 609) s 56(1)(a).
44 LCIA Rules 2014, art 28.
45 Gu (n 20) 201.
46 Hall (n 40) 1.
47 Eg in NAFTA and ICSID cases.
48 SD Myers v Canada, (UNCITRAL) Final Award on Costs (30 December 2002) para 33.
49 International Thunderbird Gaming Corporation v. The United Mexican States (UNCITRAL), Separate
Opinion of Thomas Wðlde (1 December 2005) para 139.
 Security for Costs in Investor-State Arbitration  433

claimant risks not being able to honour a possible decision on costs issued against
the claimant’. Article 22(2) states specifically the consequences for a breach of a se-
curity for costs order, that ‘If the security for costs is not posted in full within 30
days after the Tribunal’s order, or within any other time period set by the Tribunal,
the Tribunal shall so inform the disputing parties. The Tribunal may order the sus-
pension or termination of the proceedings’.50 Therefore, the EU has demonstrated

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its approval of the mechanism of security for costs, and taken a positive step to allow
investment arbitration tribunals to make security for costs orders. A similar provision
exists in the draft Transatlantic Trade and Investment Partnership.51

2.4 Arbitral rules

This section will examine security for costs in the most commonly used arbitration
rules in investment arbitration, starting with ICSID, followed by UNCITRAL,
Stockholm Chamber of Commerce (SCC),52 and International Chamber of
Commerce (ICC)53 arbitration rules.

2.4.1 ICSID
2.4.1.1 Article 47 ICSID Convention and Rule 39 of the ICSID Arbitration Rules.
Jurisdiction to order security for costs arises from Article 47 of ICSID, which was in-
spired by Article 41 of the Statute of the International Court of Justice.54 The tribu-
nal ‘may, if it considers that the circumstances so require, recommend any
provisional measures which should be taken to preserve the respective rights of ei-
ther party’.55
If a respondent proves that the claimant is insolvent or will be unable to pay an
award, it is generally agreed that based on the wide scope of Article 47, a tribunal
does have the power to order financial guarantees.56 Both tribunals and academics
have acknowledged that security for costs may be justified when a claimant brings a
clearly dubious claim and is unwilling or unable to cover the other party’s costs.57

2.4.1.2 Tribunal’s discretion. The provisions of Article 47 of the Convention and

Article 39 of the Arbitration Rules ‘contain no indication or exact statement’ restrict-
ing the powers of tribunals.58 In addition, the second sentence of Article 44 of the

50 EU–Vietnam Free Trade Agreement (January 2016 Draft) < http://trade.ec.europa.eu/doclib /docs/
2016/february/tradoc_154210.pdf>, s 3, Resolution of Investment Disputes, art 22.
51 Draft Transatlantic Trade Investment Partnership, 14 July 2016, Chapter II, art 21.
52 Stockholm Chamber of Commerce (SCC).
53 International Chamber of Commerce (ICC).
54 Christoph Schreuer and others, The ICSID Convention: A Commentary (2nd edn, 2009) Cambridge
University Press, ‘Article 47’, 764–66.
55 ICSID Convention, art 47.
56 Schreuer and others (n 54) 784.
57 Atlantic Triton Company Limited v People’s Revolutionary Republic of Guinea (ICSID Case No ARB/84/1)
unreported decision (1984) para 106; Antonio R Parra, ‘The Practices and Experience of the ICSID’ in
Conservatory and Provisional Measures in International Arbitration’ ICC Publication No 519 (1993) 348.
58 Vıctor Pey Casado and President Allende Foundation v Pey Casado v Chile (ICSID Case No ARB/98/2),
Decision on Provisional Measures (25 September 2001) (French) para 15.
434  Security for Costs in Investor-State Arbitration

Convention confirms the tribunal’s procedural discretion.59 Therefore, the tribunal

in Pey Casado v Chile held, ‘[t]he drafters of the ICSID Convention in effect decided
not to delimit the range of possible measures, given the infinite variety of situations
in which such measures can justifiably be invoked.’60 Provisional measures ‘can be ex-
tremely diverse and are left to the appreciation of each [a]rbitral [t]ribunal’.61
Discretion to order provisional measures depends on threat of harm, and the nature
of the rights that such measures aim to preserve.62

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The design of the ICSID arbitration rules supports the idea that security for costs
is one of the regulatory mechanisms most compatible with the spirit of ICSID.63
First, provisional measures are not limited to any particular phase of proceedings.64
Secondly, tribunals have powers to apportion costs.65 Although Article 61(1) of the
Conciliation Rules66 explicitly provides that costs ‘shall be borne equally by the par-
ties’, no such rule exists for arbitration. Thirdly, the system encourages tribunals to
be proactive, instead of dealing with costs only at the end. Arbitration Rule 20 directs
tribunals to consult parties on apportionment of costs.67
Adopting the view that ICSID tribunals, like the ICJ, have inherent adjudicatory
powers, tribunals arguably have discretion to order security for costs.68 Furthermore,
in ICSID arbitration, tribunals may grant provisional measures proprio motu,69 based
on parties’ consent to arbitration.70 Although the Arbitration Rules emphasize that
tribunals should ‘give priority’ to the consideration of a request made by a party,71
the tribunal ‘may also recommend provisional measures on its own initiative or rec-
ommend measures other than those specified in a request’.72 Therefore, the existence
of proprio motu powers in the arbitration rules supports the idea that ICSID tribunals
have wide powers over provisional measures, even without an express and specific
provision for security for costs by the parties.73
However, in practice, ICSID tribunals have been reluctant to grant security for
costs based on assumptions about the outcome of the arbitration.74 In Tanesco v
IPTL, the tribunal rejected a request for provisional measures to protect the interests

59 ICSID Convention (n 55) art 44, second sentence.

60 Pey Casado v Chile (n 58) para 15.
61 ibid, para 15.
62 Amco Asia Corporation and others v Republic of Indonesia (ICSID Case No ARB/81/1), Decision on
Respondent’s Request for Provisional Measures, 24 ILM 365 (1985) paras 3–4.
63 Amco v Indonesia, Decision on Request for Provisional Measures of 9 December 1983; Rubins (n 18).
64 Railroad Development Corp. v Republic of Guatemala (ICSID Case No ARB/07/23), Decision on
Provisional Measures (15 October 2008) para 31; Bismuth (n 42) 782.
65 Togo Electricité v Togo (ICSID Case No. ARB/06/07) (ARB/06/07), Decision on Annulment (6
September 2011) para 257.
66 ICSID Conciliation Rules 2006, Article 6(1).
67 ICSID Arbitration Rules 2006 (n 3) r 20(1)(j).
68 Bismuth (n 42) 810; Karin Oellers-Frahm, ‘Article 41’ in Andreas Zimmermann, and others (eds), The
Statute of the International Court of Justice: A Commentary (OUP 2006) 923, 945.
69 Bismuth, ibid 782.
70 Fortier (n 33) 5.
71 ICSID Arbitration Rules (n 3) art 39(2); ICSID Additional Facility Rules, art 46(1).
72 ICSID Arbitration Rules, ibid, art 39(3); ICSID Additional Facility Rules, ibid, art 46(2).
73 Bismuth (n 42) 781–82.
74 Romesh Weeramantry and Montse Ferrer, ‘Case Comment: RSM Production Corporation v Saint Lucia:
Security for Costs—A New Frontier?’ (2015) 30 ICSID Rev 1, 30–34, 32.
 Security for Costs in Investor-State Arbitration  435

of the respondent in case a substantial monetary award was made against the claim-
ant which later might not be honoured, based on the principle that ‘conservatory or
provisional measures under Rule 39 should not be recommended in order, in effect,
to give security for the claim’.75

2.4.1.3 Atlantic Triton v Guinea76. In 1984, in the case of Atlantic Triton v Guinea, the

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tribunal decided that provisional measures under ICSID Article 47 include financial
guarantees to cover costs. Security for costs may be ordered when a claimant brings
a clearly dubious claim and is unwilling or unable to cover the respondent’s costs.77
However, security for costs requires unusually compelling circumstances, first, be-
cause assessment of a request for security for costs frequently involves examination
of the basic claims in dispute—scrutiny that might unfairly and prematurely preju-
dice the proceedings. Secondly, ICSID’s enforcement provisions were deemed suffi-
ciently robust to ensure payment in most circumstances.78

2.4.1.4 Maffezini v Spain79. Several years later in 1999, in Maffezini v Spain, the re-
spondent argued that the claim was ‘totally without merit, forcing the Respondent to
spend unnecessary money on the costs and expenses incurred in defending against
the Claimant’s claim’.80 The tribunal acknowledged that the lack of precedent was
not determinative of its competence to order security for costs,81 however, security
for costs was improper because it would require the tribunal to prejudge the merits.82
The tribunal also took the view that costs were not related to the subject matter of
the dispute.83

2.4.1.5 Pey Casado v Chile. In 2001, Chile requested security for costs, arguing that it
had strong jurisdictional objections and there was reasonable doubt of the claimant’s
solvency and ability to pay a costs award in the event that jurisdictional objections
were successful.84 The claimant argued that provisional measures could be ordered
to safeguard only actual and existing rights, not hypothetical rights.85
The tribunal rejected the claimant’s argument, and found that even conditional
rights may be protected by way of provisional measures.86 The tribunal noted that
Article 47 gave tribunals a wide and varied discretion to grant provisional measures,87

75 Tanzania Electricity Supply Co. Ltd. v Independent Power Tanzania Ltd., (ICSID Case No ARB/98/8),
Decision on Request for Provisional Measures (20 December 1999) para 14.
76 Atlantic Triton v Guinea (n 57).
77 RSM v Grenada (n 32) para 5.14
78 Rubins (n 18) 346–47.
79 Maffezini v Kingdom of Spain (ICSID Case No ARB/97/7), Procedural Order No 2 (28 October 1999)
paras 18, 24–25.
80 ibid, para 19.
81 ibid, para 5.
82 ibid, para 21.
83 ibid, para 24.
84 Pey Casado v Chile (n 58) paras 79.
85 ibid, paras 80–81.
86 ibid, para 81.
87 ibid, paras 83, 88.
436  Security for Costs in Investor-State Arbitration

and the tribunal had the powers to order security for costs if there was evidence that
the claimant was insolvent.88 However, the tribunal interpreted the absence of an ex-
press provision for security for costs in Article 47 of ICSID as implying a presumption
against security for costs—by acceding to the ICSID Convention, respondent states
had assumed the risk that the claimant may turn out to be impecunious.89 The tribu-
nal found that the facts did not present a particularly likely or probable risk of the

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claimant not being able to pay an eventual costs award, and decided that security for
costs were not justified. 90

2.4.1.6 Libananco v Turkey91. In 2008, applications for security for costs were revived
by disputes involving Turkey and an investor with Turkish links. Turkey argued that
Libananco was a Cyprus-based shell company without assets, ‘and is therefore un-
likely to be able to meet an eventual award of costs against it should either its juris-
dictional or its merits claims be rejected by the Tribunal’.92 The arbitrators noted
that it is common for foreign investors embroiled in ICSID arbitrations to have used
special-purpose corporate vehicles similar to the Cyprus-based claimant,93 and de-
clined Turkey’s request for security for costs. The tribunal held that security for costs
should be ordered only in the most extreme case, where ‘an essential interest of ei-
ther Party stood in danger of irreparable damage’.94 The claim later failed on jurisdic-
tional grounds.
In Libananco v Turkey, despite some sympathy for the state, the annulment com-
mittee expressed similar concern over the burden of having to post security due to
the investor’s financial situation, albeit in the situation of a request for stay of en-
forcement,95 thus emphasizing the general reluctance of investment tribunals to pre-
condition the claimant’s access to proceedings.96

2.4.1.7 Saba Fakes v Turkey97. In Saba Fakes v Turkey, the respondent filed jurisdic-
tional objections based on the failure of the claimant to prove ownership of the in-
vestment.98 The transfer of ownership of the investment was made just one day
prior to the alleged expropriation.99 Turkey requested security for costs of $750,000.
The arbitrators declined Turkey’s request, noting that no ICSID tribunal was known

88 ibid, para 88.

89 ibid, para 86.
90 ibid, para 89.
91 Libananco Holdings Co. Limited v Republic of Turkey (ICSID Case No ARB/06/8), Decision on
Preliminary Issues (23 June 2008).
92 ibid, paras 31–38, 56–60.
93 ibid, para 59; Luke Eric Peterson, ‘In-Depth: Turkey Resists Effort by Two Claimants to Withdraw
ICSID Cases in Electricity Company Disputes’ (10 February 2009) IAReporter.
94 Libananco v Turkey (n 91) para 57.
95 Crina Baltag, ‘Annulment Committee Rejects Turkey’s Bid to Lift Stay of Enforcement on $15million
Costs Award against Investor’ (22 May 2012) IAReporter (Hereafter, IAReporter 22 May 2012).
96 Libananco Holdings Co. Limited v Republic of Turkey (ICSID Case No ARB/06/8) Award (2 September
2011) para 570.
97 Saba Fakes v Republic of Turkey (ICSID Case No ARB/07/20), Decision on Preliminary Issues (1
October 2008).
98 ibid, para 26.
99 ibid, para 28.
 Security for Costs in Investor-State Arbitration  437

to have ordered security for costs. The tribunal stated that, “[a] recommendation of
security for costs can only be issued in exceptional circumstances.”100

2.4.1.8 Cemetownia v Turkey101. In Cemetownia v Turkey, the respondent state applied

for security for costs following the claimant’s sale of its factories, land rights, and
equipment to other related companies.102 It appeared that the claimant was dispos-

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ing of its assets prior to the conclusion of the arbitration. Security for costs was de-
nied, but when the final award was rendered, the tribunal noted that the claimant
was ‘now an empty shell’ that had pursued a ‘fraudulent claim’ for more than 2 years,
and constituted an ‘abuse of process’.103 The tribunal used its discretionary power to
order that the claimant bear all the tribunal’s fees and respondent’s costs.104

2.4.1.9 Burimi v Albania105. In 2012 in Burimi v Albania, the respondent filed an ap-
plication for security for costs based on the allegation that the claimant had no cur-
rent business operations and did not own any assets.106 Albania argued that the
claimant companies did not generate profits and could organize their own insolvency
at any time. The tribunal rejected the security for costs application because the risks
were not ‘imminent’. The claimant’s insolvency was speculative107 because it was
contingent on future action.
The tribunal, however, pointed out the risk that, ‘non-payment of awards of dam-
ages or costs by respondents and claimants poses a systemic risk to the arbitration of in-
ternational investment disputes’.108 The tribunal accurately observed that ‘[t]oo often,
the rendering of an award results not in prompt payment but rather the beginning of
a negotiation, or in some notable cases a wilful refusal to honor the terms of the
award and the provisions of the Convention.’109

2.4.1.10 Commerce v El Salvador110. Following the increase in security for costs appli-
cations, in 2012, in Commerce v El Salvador, the respondent applied for security for
costs in the context of ICSID annulment proceedings, alleging that the claimant initi-
ated an annulment proceeding it could not fund.111 This was distinguished from se-
curity for the amount of the award typically furnished for a stay of enforcement.

100 ibid, para 65.

101 Cemetownia “Nowa Huta” SA v Republic of Turkey (ICSID Case No ARB/06/2), Award (17 September
2009).
102 ibid, para 21.
103 ibid, para 159.
104 ibid, para 178.
105 Burimi SRL v Albania (ICSID Case No ARB/11/18) Procedural Order No 2 (3 May 2012) paras 39–
41.
106 ibid, para 12.
107 ibid, para 47.
108 ibid, para 49 [emphasis added].
109 ibid, para 49.
110 Commerce Group. Corp. & San Sebastian Gold Mines Inc v Republic of El Salvador (ICSID Case No ARB/
09/17), Decision on El Salvador’s Application for Security for Costs, (20 September 2012) para 44.
111 ibid, para 27.
438  Security for Costs in Investor-State Arbitration

The respondent agreed that security for costs would not be assessed as a provi-
sional measure under Article 47 ICSID Rules.112 The tribunal considered security for
costs purely as an ‘exercise of an international tribunal’s inherent powers to safeguard
the integrity of the proceedings’.113 The tribunal was of the view that ‘as the guardian
of the integrity of the proceeding, the Committee may, in the appropriate situation, use
its inherent powers to order security for costs’.114 On the facts, however, the integrity
of the proceeding was not ‘endangered’115 even though the claimant admitted to be-

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ing in a ‘difficult financial situation’.116

2.4.1.11 RSM v Grenada. In 2010, in RSM v Grenada, Grenada requested $500,000 as

security for costs, alleging that RSM had insufficient assets to pay a costs award.117
The tribunal confirmed that it had the power to grant provisional measures for secu-
rity costs under the ICSID Convention and Rules, but that tribunals ‘will rarely think
it right to grant such an application’.118
The tribunal found that Grenada had not demonstrated RSM’s lack of funds or
unwillingness to pay a costs award.119 Thus, Grenada had failed to establish the cir-
cumstances necessary to justify security for costs. The tribunal noted that the US
courts were available to enforce any costs order, and the risk of default was reduced
because there were four jointly and severally liable claimants.120

2.4.1.12 RSM v St Lucia. Finally in 2014, RSM v St Lucia was the first instance an
ICSID tribunal granted security for costs. The order has been described as ‘water-
shed’,121 an ‘important jurisdictional development’,122 and a ‘new frontier’.123 Based on a
finding of consistent disregard of orders to pay costs, lack of assets and reliance on third-
party funding, the majority ordered the investor to pay further institutional advances, re-
imburse the respondent’s advances, and post security for costs of US$750,000.124
When RSM did not comply, the tribunal took a further step in the development
of security for costs in investment arbitration. The tribunal sanctioned the breach by
staying its proceedings, although it refused to immediately dismiss the case. If the
claimant did not post security for costs within 6 months, the respondent could apply
for proceedings to be terminated.125

112 ibid, para 41.

113 ibid, para 43-45.
114 ibid, para 45 [emphasis added].
115 ibid, para 49.
116 ibid, para 51.
117 Luke Eric Peterson, ‘ICSID Panel declines Grenada’s request to order investor to post security’ (4
November 2010) IAReporter.
118 RSM v Grenada (n 32) para 5.18.
119 ibid, para 5.21–22.
120 ibid, para 5.21.
121 Weeramantry and Ferrer (n 74) 30.
122 Friedrich Rosenfeld, ‘Security for costs in ICSID arbitration’ (2016) 32 Arb Intl 157, 165.
123 Weeramantry and Ferrer (n 74) 30.
124 RSM v St Lucia (n 32) para 89.
125 RSM v St Lucia (n 32) paras 59–66.
 Security for Costs in Investor-State Arbitration  439

Illustrating how controversial the issue of security for costs is in investment arbitra-
tion, one of the arbitrators appended an assenting opinion and his co-arbitrator ap-
pended a dissenting opinion. The assenting arbitrator expressed the view that his
‘preferred ground’ for making a security for costs order is third-party funding, because
third party funders were in the ‘business venture of advancing money to fund the
Claimant’s claims’. The arbitrator stated that ‘[t]he founders of [ICSID] could not have

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foreseen in any way the emergence of a new industry of mercantile adventurers as pro-
fessional BIT claims funders,’ and therefore exceptional circumstances may be found to
justify security for costs orders arising under BIT claims as against a third-party funder
which does not proffer adequate security for adverse costs orders.126 Later, the claimant
challenged the impartiality of this arbitrator based on the assenting reasons.127
In contrast, the dissenting arbitrator stated that ICSID Article 47 did not em-
power tribunals to grant binding orders for security for costs,128 and that the right to
a costs award was ‘contingent’ and ‘hypothetical’.129 In addition, he disagreed with
his co-arbitrators’ emphasis on third-party funding.130
To date, this case stands alone as the only publicly known order for security for
costs in an investment arbitration. The circumstances of RSM v St Lucia were excep-
tional. The majority of the tribunal distinguished the exceptional circumstances in
this case from all the previous cases, recording that the ‘difference between the pre-
sent proceeding and previous ICSID arbitrations in which the request for security for
costs was in every case denied, is that in this case the circumstances which were brought
forward in other proceedings occur cumulatively’.131 The claimant had been ordered to
reimburse Grenada in Grynberg and RSM v Grenada132 for costs advances Grenada
had incurred. The claimant also did not comply with the award voluntarily.133 The
claimant had pursued another claim in RSM v Grenada, from 2005 to the annulment
stage in 2011,134 in which the claimant was dilatory in paying advances on costs for
the annulment, and eventually discontinued proceedings with Grenada incurring
wasted costs.135 The tribunal relied on these particularly egregious circumstances,
namely, the claimant’s ‘proven history’ of non-compliance with costs orders and
awards, the fact that it admitted it did not have sufficient financial resources, and its
admission that it was funded by an unknown third party, which reasonably would
not comply with any costs award against the claimant.136 To date, this case stands as
the only known example of ‘exceptional circumstances’ in investor–state arbitration.

126 RSM v St Lucia (n 32) Assenting Opinion of Gavan Griffith, paras 11–16.
127 RSM v St Lucia (n 32) (ICSID Case No ARB/12/10), Decision on Claimant’s Proposal for the
Disqualification of Dr Gavan Griffith QC, (23 October 2014) paras 40–53.
128 RSM v St Lucia (n 32) Dissenting Opinion of Edward Notttingham, paras 4, 10.
129 ibid, para 6.
130 ibid, paras 17-20.
131 RSM v St Lucia (n 32) para 86 [emphasis added].
132 Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v Grenada
(ICSID Case No ARB/10.6) Award (10 December 2010).
133 RSM v St Lucia (n 32) paras 79–80.
134 RSM Production Corporation v Grenada (ICSID Case No ARB/05/14), Order of the Committee
Discontinuing the Proceeding and Decision on Costs (28 April 2011).
135 RSM v St Lucia (n 32) para 78.
136 ibid, para 86.
440  Security for Costs in Investor-State Arbitration

2.4.1.13 EuroGas v Slovak Republic137. In 2015, in EuroGas v Slovak Republic, the re-
spondent requested security for costs of EUR 1,000,000 in the form of a bank
guarantee with a reputable international bank in the USA, Canada, or EU.138
The respondent alleged that the claimants had a ‘history of engaging in fraud and re-
neging on payment obligations’, and did not have the means to pay for the costs of
the arbitration proceedings, which were entirely funded by third parties.139 The

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claimants acknowleged that they had financial difficulties, however they argued that
their difficulties were ‘attributable to acts and omissions of [r]espondent’.140 The
claimant also argued that since there was no clear trend of costs-shifting in invest-
ment arbitration, the respondent’s right to a costs award was highly hypothetical.141
The tribunal made a distinction between ICISD arbitrations and investment arbi-
trations under different arbitral rules, stating that it was ‘not part of the ICSID dis-
pute resolution system that an investor’s claim should be heard only upon the
establishment of a sufficient financial standing of the investor to meet a possible
costs award’.142 The tribunal rejected the request for security for costs as no excep-
tional circumstances, such as defaulting on payment obligations in arbitrations, were
evidenced.143 The tribunal also emphasized that financial difficulties or third-party
funding per se did not constitute exceptional circumstances.144

2.4.2 UNCITRAL Rules

2.4.2.1 Article 26(2)(c) and Article 42(1) of UNCITRAL Rules. The UNCITRAL
Arbitration Rules similarly provides tribunals with wide discretion over costs.
Regardless of the phase of proceedings, an award on costs can be made.145 The 2010
UNCITRAL Rules state that the tribunal can in ‘any other award’, determine any
amount that a party may have to pay as a result of allocation of costs.146 In addition,
Article 26(2)(c) of the UNCITRAL Rules expressly gives tribunals powers to order
interim measures to ‘provide a means of preserving assets out of which a subsequent
award may be satisfied’. Security for costs is encompassed by the words ‘preserving
assets’, including a costs award.147 UNCITRAL tribunals have thus found the power
to grant security for costs under Article 26 of the UNCITRAL Rules.148

137 EuroGas Inc. & Belmont Resources Inc. v Slovak Republic (ICSID Case No ARB/14/14), Procedural
Order No 3—Decision on Requests for Provisional Measures, 23 June 2015.
138 ibid, para 114.
139 ibid, para 111.
140 ibid, para 118.
141 ibid, para 116.
142 ibid, para 123.
143 ibid, para 120; RSM v Grenada (n 32) para 48; Pey Casado v Chile (n 58) para 86.
144 EuroGas v Slovak Republic (n 137) paras 122–23.
145 UNCITRAL Arbitration Rules 2010 (n 4) arts 32, 38.
146 ibid, art 42(2).
147 Gabrielle Kaufmann-Kohler and Aurélia Antonietti, ‘Interim Relief in International Investment
Agreements’ in Katia Yannaca-Small (ed), Arbitration Under International Investment Agreements: A Guide
to the Key Issues (OUP 2010) 507, 528; UNCITRAL Report of the Working Group on the work of its
47th Session, Vienna, September 10–14, 2007, A/CN.9/641, para 48.
148 UNCITRAL Arbitration Rules 2010 (n 4) art 26(2)(c); Jakob Ragnwaldh and Nils Eliasson ‘Security
for Costs in Investment Arbitration’ in Kaj Hobér and others (eds), Beween East and West: Essays in
Honour of Ulk Franke (JurisNet 2010) 406.
 Security for Costs in Investor-State Arbitration  441

An application for security for costs under the UNCITRAL Rules is particularly
appropriate. In contrast, the ICSID Rules do not have in-built costs-shifting provi-
sions. Article 42(1) of the UNCITRAL Rules imposes the principle of costs-shifting
to the ‘unsuccessful party’.149 Further, Article 17(1) of the Rules directs the tribunal
to exercise its ‘discretion’ to ‘avoid unnecessary delay and expense and to provide a
fair and efficient process’.150

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2.4.2.2 Guaracachi v Bolivia151. In Guaracachi v Bolivia, the respondent requested se-
curity for costs of US$1.5 million, to be posted as a guarantee with a reputable US or
UK bank, or deposited at the PCA.152 The respondent argued that the first claimant
was a ‘shell company’ with no business activities or income, and the second claimant
was in a precarious financial position and had obtained third-party funding.153 The
claimants argued that the respondent had not shown a reasonable possibility of an
eventual costs award against the claimants, and that the second claimant’s recent fi-
nancial statements demonstrated its solvency.154 In addition, the claimants pointed
out that they had paid all the tribunal’s advances on costs.155 The claimants also em-
phasized that an order for security for costs in investment arbitration was
‘unprecedented’.156
First, the tribunal stated that the lack of precedent and cautious approach sug-
gested by case law does not limit the tribunal’s power because Article 26 of the
UNCITRAL Rules ‘expressly envisages’ security for costs.157 However, the tribunal
emphasized that a condition for security for costs were that the applicant meet its
burden of proof.158 The tribunal found on the facts that the second claimant’s finan-
cial statements demonstrated that is was an ‘ongoing concern with assets beyond
those involved in this arbitration’.159 Next, the tribunal held that security for costs or-
ders are ‘very rare and exceptional’, and Bolivia had failed to meet the requisite bur-
den of proof to justify ‘the extraordinary measure’.160
Finally, the tribunal elaborated on the conditions for granting security for costs
under Article 26(3)(a) that harm not adequately reparable by an award of damages
is likely to result if the measure is not ordered, and such harm substantially out-
weighs the harm that is likely to result to the claimant.161 In investment arbitration,
this was an ‘appropriate balance between the right of access to justice of entities that

149 UNCITRAL Arbitration Rules 2010, ibid, art 42(1).

150 ibid, art 17(1).
151 Guaracachi America, Inc. and Rurelec PLC v The Plurinational State of Bolivia (UNCITRAL, PCA Case
No 2011-17) Procedural Order No 14, 11 March 2013.
152 ibid, para 2.
153 ibid, para 3.
154 ibid, para 4.
155 ibid, para 4.
156 ibid, para 4.
157 ibid, paras 5–6.
158 ibid.
159 ibid, para 7.
160 ibid, para 6; David Riesenberg, ‘Fee Shifting in Investor-State Arbitration: Doctrine and Policy,
Justifying Application of the English Rule’ (2011) 60 Duke LJ 977, 980.
161 Guaracachi v Bolivia (n 151) para 5.
442  Security for Costs in Investor-State Arbitration

have been allegedly expropriated and the protection of States against alleged frivo-
lous claims by parties who may not have sufficient assets to guarantee the payment
of an adverse costs award’.162
The tribunal also commented on the condition under Article 26(3)(b) that there
is a reasonable possibility that the requesting party will succeed on the merits of the
claim.163 The tribunal took the view that security for costs was ‘best avoided’, as it

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“can be a difficult hypothetical exercise, even with the benefit of the Parties’ full writ-
ten submissions”.164 In addition, the tribunal considered it was ‘unwise to risk even
the most minor prejudgment of the case’, and noted that the security for costs appli-
cation was very close to the date of the final hearings.165

2.4.2.3 Sergei Paushok v Mongolia166. In Sergei Paushok v Mongolia, the claimant ap-
plied for provisional measures. Although the respondent had not applied for security
for costs, the tribunal ordered the claimant to put up security for $2 million.167
Although Sergei v Mongolia did not deal directly with a security for costs application,
it is useful as the tribunal elaborated on the requirements to be satisfied for the grant-
ing of provisional measures under UNCITRAL Rules. The tribunal considered that
the UNCITRAL Rules applicable in this arbitration left ‘wider discretion to the
Tribunal in the awarding of provisional measures’.168 However, the tribunal empha-
sized that interim measures are ‘extraordinary measures not to be granted lightly’,
they had to be ‘urgent and necessary’, and to avoid ‘irreparable harm’.169 The tribu-
nal proceeded to examine five conditions for the granting of interim measures under
the UNCITRAL Rules: (i) that the tribunal had prima facie jurisdiction,170 (ii) that a
reasonable case has been made without having proven the facts,171 (iii) that mone-
tary compensation is not sufficient to repair the potential harm,172 (iv) that there is
an imminent danger of such irreparable harm,173 and (v) that the ‘balance of incon-
venience’ is proportionate.174

2.4.2.4 SAS v Bolivia. Following these cases, most recently in SAS v Bolivia,175 the re-
spondent filed an application for cautio judicatum solvi alleging that there is a high
risk the shell company would not have sufficient funds to reimburse costs incurred at

162 ibid, para 9.

163 ibid, para 5.
164 ibid, para 8.
165 ibid, para 8.
166 Sergei Paushok, CJSC Golden East Co. and CJSC Vostokneftegaz Co. v Mongolia, Order on Interim
Measures (UNCITRAL, 2 September 2008) para 36.
167 ibid, para 91.4.
168 ibid, para 36.
169 ibid, para 39.
170 ibid, paras 52–54.
171 ibid, paras 55–56.
172 ibid, paras 59–62.
173 ibid, paras 65, 68–70.
174 ibid, paras 79, 865, 90.
175 South American Silver Ltd (Bermudas) v Bolivia (PCA Case No 2013-15) Request for Cautio Judicatum
Solvi and Disclosure of Information (8 October 2015).
 Security for Costs in Investor-State Arbitration  443

the expense of ‘public funds’176 because the claimant had not provided requested in-
formation on its assets and financial statements.177 Bolivia submitted that the claim-
ant was a Bermuda shell company only used by the real investor to improperly
obtain protection under the Treaty, the real investor had publicly announced that it
would run out of funds soon and the claimant’s costs were being funded by a third
party.178 The claimant argued that the mere existence of third-party funding did not

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justify security for costs, it did not have a history of unpaid costs awards, their finan-
cial situation was a result of the respondent’s measures,179 and that the speculative
risk that they would fail to pay any adverse cost award was outweighed by the imme-
diate harm of not being able to proceed with their claim.180
The SAS v Bolivia tribunal confirmed that in the absence of a provision for secu-
rity for costs in the law of the seat, they were empowered to order security for costs
under the UNCITRAL Rules.181 However, the tribunal highlighted Article 26(3)(b)
of the UNCITRAL Rules which states that ‘[t]he determination on this possibility
shall not affect the discretion of the arbitral tribunal in making any subsequent deter-
mination.’182 The tribunal interpreted Article 26(2)(b) as mandating it to avoid the
risk of pre-judgment. The tribunal was reluctant to grant security for costs because
they could not decide that the claimant was a shell company improperly used to ob-
tain investment treaty protection without pre-judging jurisdictional issues.183 The tri-
bunal stated that the specific issue whether the claimant was the real investor was a
central jurisdictional issue, and cautioned that ‘[i]t is unwise to risk even the most
minor prejudgment of the case.’184
The SAS v Bolivia tribunal continued to examine the standard of necessity and ur-
gency for an order granting security for costs. Particularly in investment arbitration,
the tribunal emphasized that tribunals may ‘only exercise this power where there are
extreme and exceptional circumstances’.185 To prove extreme and exceptional cir-
cumstances, the tribunal identified two situations: either a ‘high real economic risk
for the respondent’ or ‘bad faith’.186 The threshold of proof was set very high.187
The applicant failed to prove such circumstances as the claimants’ financial state-
ments showed a potential ‘cash flow difficulty’ but could not prove a ‘total lack of
funds or assets to pay’,188 and there was no evidence of constant abuse or breach
that may cause an irreparable harm.189

176 ibid, paras 3–4, 7.

177 ibid, para 15.
178 ibid, para 13.
179 South American Silver Ltd (Bermudas) v Bolivia (PCA Case No 2013-15), Claimant’s Opposition to
Bolivia’s Request for Cautio Judicatum Solvi and Disclosure of Information (14 December 2015) para
24.
180 ibid, para 3.
181 SAS v Bolivia (n 17) para 52.
182 Bolivia Opposition (n 179) para 54.
183 ibid, para 55.
184 SAS v Bolivia (n 17) paras 55–56.
185 ibid, para 59.
186 ibid, para 59.
187 ibid, para 67.
188 ibid, para 66.
189 ibid, para 68.
444  Security for Costs in Investor-State Arbitration

The tribunal also expressed the view that the existence of third-party funding
should be taken into account, but the existence of the funder alone is not sufficient
to grant security for costs.190 However, the disclosure of the name of the third-party
funder was ordered, but not the term of the funding because it was not relevant in
the circumstances to determine whether the third-party funder would assume re-
sponsibility for an eventual costs award.191

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2.4.3 Institutional Rules
Although arbitration rules of commercial institutions are less commonly used, insti-
tutional rules are increasingly being chosen for investment disputes. The 2017
Investment Arbitration Rules of the Singapore International Arbitration Centre pro-
vide the tribunal with powers to order any party to provide security for legal or other
costs.192
Investment arbitrations have occasionally been submitted under investment trea-
ties to arbitration under ICC Rules.193 A recent survey counted 18% of international
investment treaties provided for arbitration under ICC Rules.194 Commercial institu-
tion rules are also relevant in investment contracts with state entities.195
Approximately 10% of all ICC cases involve a state or state-entity.196
Article 28 of the ICC Arbitration Rules is widely accepted to give tribunals au-
thority to grant interim measures.197 Arbitration rules of commercial institutions
may be structurally more amenable to provisional measures, as illustrated by the in-
troduction of emergency arbitration to many arbitration institutions.198 In practice
however, ICC arbitrators only occasionally grant security for costs.199
In ICC Case 10032, regarding the embargo declared in 1999 by the EU against
Yugoslavia and Serbia, the tribunal ordered security for costs. The tribunal also out-
lined a useful test:200 (i) if the respondent shows that (a) the factual situation at the
present time is substantially different from that which existed at the time the parties
entered into their arbitration convention, and (b) the present situation is of such a

190 ibid, para 78.

191 ibid, paras 80–81.
192 Investment Arbitration Rules of the Singapore International Arbitration Centre 2017, art 24.1(k).
193 Vladimir Antonov v Republic of Lithuania, Crespo and others v Poland ICC, Award (1 January 2005) East
Cement for Investment Company v Poland, ICC Arbitration 16509/JHN Partial Award (26 August 2011) ,
Kaliningrad Region v Lithuania, ICC Award (28 January 2009).
194 ICC Commission Report, States, State Entities and ICC Arbitration, Arbitration Involving States and State
Entities under the ICC Rules of Arbitration, International Chamber of Commerce (2012) 2.
195 Eduardo Silva Romero, ‘Are States Liable for the Conduct of their Instrumentalities?’ in E Gaillard and J
Younan (eds), ICC Case Law, State Entities in International Arbitration, IAI Series on International
Arbitration No 2 (Juris Publishing 2008); Eduardo Silva Romero, ‘Arbitrage institutionnel et investisse-
ments internationaux’ (2005) 2 Revista de Arbitragem e Mediaç~ao 4, 120.
196 ICC Commission Report (n 194).
197 ICC Arbitration Rules 2017, art 28; Rubins (n 18) 339.
198 ICC Rules 2012, art 29 and Appendix V; SIAC Emergency Arbitration Rules 2013 art 26.1 and s 1.
199 ICC Case No 8786: Claimant and Counter-defendant (Turkey) v Defendant and Counter-claimant
(Germany), Interim Award (1996), (2001) ASA Bull 751, 754. (Hereafter, ICC Case 8786)
200 Pierre A Karrer and Marcus Desax, ‘Security for Costs in International Arbitration – Why, when and
what if’ in Briner, Fortier and others (eds), Law of International Business and Dispute Settlement in the
21st Century (Heymann 2001) 339–53, 343.
 Security for Costs in Investor-State Arbitration  445

nature as to render it highly unfair to require it to conduct the arbitration proceed-

ings without the benefit of security; (ii) unless the claimants, which oppose the mak-
ing of an order for security can show: (a) security for costs would in effect deny their
right of access to arbitration for reasons not attributable to them, and (b) after
weighing the parties respective interests, considering both the subject matter of the
dispute and the circumstances giving rise to the request for an order for security for

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costs, the order would appear highly unfair to the claimants.
A tribunal seated in Paris applying the provision on interim measures in the ICC
Rules, also ordered a bank guarantee to cover the respondent’s costs because the
claimant was near insolvency and entered into numerous recent debt arrange-
ments.201 Although these cases were not investment arbitrations against a state, these
reflect the considerations of ICC tribunals when dealing with applications for secu-
rity for costs.202
The Stockholm Chamber of Commerce Rules have been used in at least 40 in-
vestment arbitrations under the Energy Charter Treaty and numerous bilateral in-
vestment treaties.203 The 2010 SCC Rules did not specifically deal with security for
costs, however, tribunals may grant any interim measures it deems appropriate under
Rule 32.204 Article 32 of the 2010 SCC Rules provided the tribunal authority to
make final costs awards having regard to the ‘outcome of the case’. Under Rule
32(2), an SCC tribunal could order an applicant to put up security in connection
with the interim measure.205 In 2017, the SCC amended its arbitration rules.
Particularly significantly, the SCC 2017 Rules inserted Article 38 to expressly provide
security for costs in SCC arbitrations. Article 38(1) allows the tribunal to ‘in excep-
tional circumstances and at the request of a party, order any Claimant or Counter-
claimant to provide security for costs in any manner the Arbitral Tribunal deems ap-
propriate’.206 Thus, future investor–state arbitrations commenced under the 2017
SCC Rules, including those under the Energy Charter Treaty, would clearly have re-
course to security for costs.
Reflecting the current general acceptance of security for costs in most common law
jurisdictions, security for costs is expressly provided for in Article 25(2) of the
Arbitration Rules of the London Court of International Arbitration (LCIA).207 The
LCIA Rules provide that arbitrators ‘shall have the power to order any claiming or
counterclaiming party to provide security for the legal or other costs of any other party’,
and that ‘[i]n the event that a . . . party does not comply . . . the Arbitral Tribunal may
stay that party’s claims . . . or dismiss them in an award.” Before 1996, the LCIA Rules
allowed parties to apply to the London Court, the High Court of Justice, or any other

201 Rubins (n 18) 324.

202 ibid.
203 See list of investment arbitrations under SCC Rules on < www.italaw.com > (accessed 16 November 2015)
<http://www.italaw.com/browse/arbitration-rules?field_case_type_tid[0]¼1090&fieldarbitration_rules_
tid¼74&page¼3>
204 SCC Arbitration Rules 2010 (n 52) art 32.
205 ibid, r 32(2).
206 ibid 2017, art 38.
207 LCIA Rules (n 44) 1998 and 2014.
446  Security for Costs in Investor-State Arbitration

national judicial forum as well as to arbitrators for interim relief. Currently, however,
parties are effectively restricted to apply for security for costs before the tribunal.208
Similarly, Article 24(2) of the American Arbitration Association’s International
Dispute Resolution Procedures provides for security for costs.209 In the USA, parties
to a dispute usually each bear their own costs in proceedings, but arbitrators usually
have broad power to order security for costs.210

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In Switzerland, historically one of the most adverse jurisdictions towards security
for costs in arbitration, the primary justification is that parties “knowingly run the
risk of not being able to collect costs”.211 Under the Swiss arbitration rules, it is ‘not
common usage to allow a provision covering the expenses inflicted on the defender
by the arbitral procedure, even if it is abusive’.212 In A SpA v B AG, the application
for security for costs was made on grounds that claimant filed for liquidation after
the start of proceedings. The tribunal refused to order security for costs because the
claimant’s insolvency was a normal commercial risk that the defendant had to
bear.213
In principle, under the Swiss rules, arbitrators can order interim relief in if parties
have not excluded this possibility.214 A Swiss tribunal granted security for costs be-
cause the claimant was an offshore company who acquired the claim 15 days before
filing the request for arbitration as a deliberate manoeuver to use an entity unable to
pay a potential costs award.215

2.5 Advance on costs

Apart from security for the opposing party’s costs, arbitration institutions mandate
payment of advances on the institution’s and tribunal’s costs. Advance on institu-
tional and tribunal costs similarly acts as a regulator of the veracity of the claimant’s
claims. For example, ICSID Administrative and Financial Regulation 14(3)(d) re-
quires each party to ‘pay one half’ of the costs of the proceeding216 before each phase
of the arbitration. Therefore, advance on costs is a practical alternative to security for
costs. As illustrated in this section, tribunals have agreed with the policy argument
that security for costs is unnecessary in international arbitration because it serves the
same function as the institution and tribunal’s advance on costs.

208 Rubins (n 18) 342.

209 American Arbitration Association International Dispute Resolution Procedures 2014.
210 Rubins (n 18) 329.
211 Marc Blessing, ‘The Conduct of Arbitral Proceedings under the Rules of Arbitration Institutions; the
WIPO Arbitration Rules in a Comparative Perspective, paper presented at the Conference on Rules for
Institutional Arbitration and Mediation’ (Geneva, 20 January 1995)<www.arbiter.wipo.int/events/con
ferences/1995/blessing.html>.
212 Swiss Arbitration Rules 2012, art 26(2); Rubins (n 18) 334.
213 A SpA v B AG, 25 September 1997 (2001) ASA Bulletin 745; Jean Ho, ‘Getting the Shoe to Fit –
Obtaining Security for Costs under the Rules of Arbitration of the International Chamber of
Commerce’ (2005) 9 Vindobona J Intl Comml Law Arb 329, 336–37.
214 Rubins (n 18) 334.
215 Verfügung Nr 6 vom 25 Juli 2003 des Schiedsgerichts der Handels-, Industrie- und Gewerbekammer
des Kantons Tessin (Ccia-Ti Nr 103/00) in der Streitsache zwischen X SA, Panama (Kl€agerin) und A, B,
C a.s. sowie D. a.s., alle Tschechische Republik (Beklagte) (Hereafter 25 July 2003 Order); Berger (n 9).
216 ICSID Administrative and Financial Regulation 14(3)(d).
 Security for Costs in Investor-State Arbitration  447

2.5.1 Practice of advance on costs

There have been more instances of arbitrations being stayed or discontinued due to
the failure to pay advance on costs than a failure to post security for costs. Ambiente
Ufficio v Argentina was one of the first cases stayed due to non-payment of advances
for arbitration costs, and later discontinued. One of the arbitrators noted that the ter-
mination of the proceeding ‘was long overdue’, not only for lack of payment, but
also for failure of the parties to act in accordance with ICSID Arbitration Rule 45.217

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The failure to pay the required advance on costs, in effect, performed the function of
regulating claims.
In the annulment application of RSM v Grenada, ICSID requested that the claim-
ant pay an advance of US$150,000. RSM initially paid only $118,105 and the remain-
der 4 months later. ICSID then requested a second advance of US$300,000, but
RSM was only willing to pay US$100,000. In late March 2010, the Tribunal stayed
proceedings after receiving no further payment from RSM.218 In RSM v St Lucia, the
tribunal ordered RSM to bear all further advances and reimburse St Lucia’s
portion.219
ICC arbitration often focuses on advances on institutional and tribunal’s costs, as
the preferred tool for regulating claims. In ICC Case 7047, the tribunal denied the re-
quest for security for costs because the Respondent failed to pay his own share of
ICC’s advance.220 In ICC Case 7137, the tribunal decided that since arbitration costs
were specifically provided in Article 9 of the ICC Rules, it would be inappropriate
for arbitrators to create other conservatory measures such as security for costs, be-
cause security for costs deals with the same subject of regulating vexatious claims.221
Even without an institution, ad hoc tribunals in practice request advances.
UNCITRAL Rules Article 43222 gives tribunals the power, on its establishment, to
request deposits of equal amounts from parties as an advance for tribunal costs,223
and supplementary deposits if necessary.224 If the required deposits are not paid
within the stipulated time, the tribunal will request that one party covers the share of
the defaulting party, and if such payment is not made, proceedings can be suspended
or terminated.225 The rationale offered for suspension or termination is that ‘arbitra-
tors are engaged under a contract of service, a term of which would be that the de-
posits in question were made’.226

217 Clovis Trevino, ‘One of Three Argentine Bond Arbitrations collapses due to Lack of Funding’ (2 June
2015) IAReporter (Hereafter, IAReporter, 2 June 2015)
218 RSM v Grenada Annulment (n 32).
219 RSM v St Lucia (n 32) Decision (12 December 2013).
220 ICC Case No 7047, (1997) 8(1) ICC International Court of Arbitration Bulletin Vol 8 No 61
(Hereafter ICC Case 7047).
221 ICC Case No 7137 (1993); ICC Case 13359, Procedural Order (February 2006), Special Supplement
2014: Procedural Decisions in ICC Arbitration, 63.
222 UNCITRAL Arbitration Rules 2010 (n 4) previously art 41.
223 ibid, art 43(1).
224 ibid, art 43(2).
225 ibid, art 43(4).
226 UN Doc A/10017, (1975) VI UNCITRAL Yearbook 24, 45, para 225.
448  Security for Costs in Investor-State Arbitration

2.5.2 Different functions of advances and security for costs

There is, however, a fundamental difference between failure to pay the tribunal’s ad-
vances and failure to comply with a security for costs order. In the first situation, the
parties breach the contractual obligations owed to the arbitrator or institution, depriv-
ing the parties of adjudicative services. In the second situation, the duty to provide
security for costs is a duty owed to the opposing party based on the arbitration agree-
ment.227 Even if institutional advances produce some effect in counteracting frivo-

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lous claims, they do nothing to protect the respondent’s costs.
In addition, advances on institutional costs are less suitable for regulating pro-
ceedings than security for costs. Refusal to pay the advance may be used unfairly by
respondents. In Abaclat v Argentina the claimant complained:

Argentina has refused to pay nearly US$1,400,000.00 in arbitration costs, an

amount which Claimants have been forced to pay in order to ensure access to
justice for their treaty claims against Argentina. Indeed, despite its failure to pay,
Argentina has availed itself fully during the written and oral phases of the pro-
ceeding and, throughout the nearly nine years that have passed since the filing of
Claimants’ Request for Arbitration, has utilized guerrilla procedural tactics and
other sandbagging techniques to delay and complicate the proceeding.228

2.6 National courts

Why should arbitral tribunals order security for costs when parties may apply for
such security before national courts? Currently, in the absence of a robust regime for
security for costs before investment arbitration tribunals, respondents resort to seek-
ing the assistance of national courts to protect their potential costs awards.

2.6.1 Security for costs in court procedure

Most common law courts actively exercise discretion in ordering security for costs.
Highly technical civil procedure codes codify the grounds for an application for pro-
visional measures. In domestic courts, a combination of the factors described below
are generally assessed strictly against the specific facts in individual cases. Balancing
the rights of both parties is usually crucial in this exercise of discretion.
The UK Civil Procedure Rule 25 provides detailed security for costs provisions.
Case law considers insolvency,229 difficulty of enforceability,230 high probability of
success or failure, delay, and risks of stifling a genuine claim.231 Security for costs
may be ordered against third parties.232

227 Gu (n 20) 200; Karrer and Desax (n 200) 352.

228 Abaclat and Others v Argentina (ICSID Case No ARB/07/5), Letter from Claimant to ICSID Secretariat
regarding further advance on costs (31 May 2015).
229 Frost Capital Europe v Gathering of Developers (2002) LTL 20/6/02; A Practical Approach to Civil
Procedure, 295.
230 Civil Procedure Rules, r 25.13(2)(g).
231 Trident International Freight Services v Manchester Ship. Canal Co [1990] BCLC 263; Civil Procedure
296.
232 Re Unisoft Group. (No 1) [1993] BCLC 1292.
 Security for Costs in Investor-State Arbitration  449

In the USA, security for costs is common in civil litigation in the federal district
courts. Courts decide on security for costs based on the claimant’s absence of assets
within the jurisdiction,233 a strong likelihood of success on the merits,234 conduct of
the litigant,235 and length and complexity of proceedings.
Similarly in Singapore, the Civil Procedure Rules provide similarly detailed
grounds for security for costs applications. The courts consider the inability to pay
costs, parties’ conduct,236 the extreme strength of the defence or weakness of the

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claim, balancing prejudice between the parties, and whether the application becomes
a pre-mature trial.237 To avoid pre-judgment, the weakness of the claim or strength
of defence, similar to much US case law, is only considered to weigh in favour of an
order for security for costs if it is extreme.

2.6.2 Application in court for provisional measures

Article 9 of the UNCITRAL Model Law provides that a party may request, both before
and during proceedings, interim protective measures from the court of first instance.238
UNCITRAL Model Law further recognizes that “[i]t is not incompatible with an arbi-
tration agreement for a party to request, before or during arbitral proceedings, from a
court an interim measure of protection and for a court to grant such measure”.239 Such
protective measures are broadly interpreted to include security for costs applications.
Article 17 of the UNCITRAL Model Law also provides that ‘unless otherwise agreed
by the parties, the arbitral tribunal may, at the request of a party, grant interim mea-
sures’,240 which allows parties to agree to make requests for security for costs in domes-
tic courts. Although jurisdictions that have adopted the 2006 Model Law as arbitration
legislation tend to defer the power to grant provisional measures to the tribunal, provi-
sions are nevertheless available for provisional measures, including security for costs.
Municipal courts have ordered attachments to secure ultimate recovery in arbitra-
tion, including a final award or costs award,241 where there is: (i) a risk that the
award may prove unenforceable, and (ii) a likelihood of success on the merits of the
dispute.242 Reference to domestic courts for attachment orders is not incompatible
with ICSID arbitration.243 Often, domestic courts are perceived as more suited than
tribunals to make orders regarding assets within their jurisdiction.244

233 Beverly Hills Design Studio (N.Y.) Inc. v Morris, 126 FRD 33, 39 (SDNY 1989); See John A Gliedman,
‘Access to Federal Courts and Security for Costs and Fees’ (2000) 74(1) St John’s Law Review 953, 963.
234 Fisch v Fidelcor Business Credit Corp, No 91 Civ 5047 (SDNY, 23 March 1994); Gliedman, ibid 966.
235 Tri-Star Pictures v Kurt Unger, 32 F Supp.2d 144, 148 (SDNY 1999); Gliedman, ibid 967.
236 Frantonios Marine Services v Kay Swee Tuan [2008] 4 SLR 224, para 51
237 Abdul Salam Asanaru Pillai v Nomanbhoy & Sons Pte Ltd [2008] SGHC 48.
238 UNCITRAL Model Law 2006, art 9.
239 Rubins (n 18) 328.
240 Kee (n 19) 274; Christopher Huntley, ‘The Scope of Article 17: Interim Measures under the
UNCITRAL Model Law’ (2005) 9 VJ 69, 82.
241 S.A. Coppée Lavalin N.V. v Ken-Ren Chemicals and Fertilisers Ltd [1995] 1 AC 38;
Dermajaya Properties Sdn Bhd v Premium Properties Sdn Bhd [2002] 2 SLR 164.
242 Paul D Friedland, ‘Provisional Measures and ICSID Arbitration’ (1986) 2 Arb Intl 335, 348.
243 Atlantic Triton v Guinea (n 57) 16.
244 Chartered Institute of Arbitrators (CIArb), Practical Guideline 11: Guideline on Security for Costs, s
2.1; Anthony Connerly, ‘Bifurcation, Challenges to Jurisdiction and Security for Costs’ in Diora Ziyaeva
and others (eds), Interim and Emergency Relief in International Arbitration (JurisNet 2015) 11.
450  Security for Costs in Investor-State Arbitration

However, the assistance of national courts in international arbitration is contro-

versial.245 Proving the likelihood of success on the merits may be impracticable for
courts because the international character and complexity of investment arbitrations
prevent quick judgments.246 However, if courts have the power to enforce awards
under the relevant treaties such as the ICSID Convention and New York
Convention (NYC), they should consequently have the parallel power to secure the
enforcement of the future award.247

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In practice, courts rarely grant provisional measures where tribunals are compe-
tent.248 Article 17J of the 2010 UNCITRAL Model Law directs courts to ‘exercise
such power in accordance with its own procedures in consideration of the specific fea-
tures of international arbitration’.249 Section 38 of the UK Arbitration Act 1996250
provides that unless otherwise agreed by the parties, the tribunal has the power to or-
der a claimant to provide security for costs of the arbitration. Similar Rules exist in
Singapore251 and Hong Kong.252 Therefore, this reflects a general policy that the tri-
bunal before which the substantive dispute has been submitted is better suited to as-
sess an application for security for costs.

2.6.2.1 United Kingdom. Section 38 of the English Arbitration Act gives the tribunal
power to order security even in the absence of prior agreement by the parties, as
long as the order is not based on a party’s residence outside the UK.253 The Court
of Appeal in Dabouran Group Int Inc v Sims & Ors set relevant factors for provisional
measures: (i) it should be ‘just and convenient’, ensuring effectiveness without being
‘oppressive’; (ii) all relevant circumstances and options must be considered including
proportionality; (iii) there should be balancing of interests of the parties including
third parties; (iv) the applicant should not obtain relief in other proceedings superior
to the relief sought; (v) there must be a ‘real prospect’ that the assets are located as
asserted; (vi) there must be evidence of a risk of dissipation of the assets; (vii) notice
is not required in cases of urgency, but should be given as soon as possible.254
This is not limited to arbitrations seated in the UK, as long as there is a connec-
tion between the dispute and the English courts. In Bank Mellat v Helliniki
Techniki,255 an Iranian bank applied to the English High Court for a Greek plaintiff
to put up security for costs for defending an ICC arbitration in London. The court
held that it was empowered to order security for costs. The court considered the

245 Alan Redfern, ‘The Role of National Courts During the Proceedings’, Alan Redfern and others (eds),
Law and Practice of International Commercial Arbitration (4th ed, 2004, Sweet & Maxwell) 328.
246 Friedland (n 242) 348.
247 ETI Euro Telecom Int’l N.V. v Republic of Bolivia & another [2008] EWCA (Civ) 880; Bismuth (n 42)
806–07.
248 Bismuth, ibid 807.
249 UNCITRAL Model Law (2010) art 17J [emphasis added].
250 UK Arbitration Act 1996.
251 Singapore International Arbitration Act (n 43).
252 Hong Kong Arbitration Ordinance (n 43).
253 English Arbitration Act (n 43) ss 38, 44; Rubins (n 18) 325.
254 Dabourian Group. Int Inc. v Sims & Ors [2009] EWCA Civ 169.
255 Bank Mellat v Helliniki Techniki SA [1984] QB 308.
 Security for Costs in Investor-State Arbitration  451

necessity of security against the connection between the dispute and the English le-
gal system.256
Ken-Ren involved claims by a Kenyan government company against a Belgian and
an Austrian company over alleged breaches of joint venture agreements governed by
Belgian and Austrian law and under the ICC Arbitration Rules. Lord Mustill stated
that in an ICC arbitration, the court’s discretion to order security for costs should be

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approached on a case-by-case basis, keeping in mind the prime consideration that ar-
bitration was in nature a consensual process.257

2.6.2.2 Switzerland. Article 10 of the Federal Private International Law Act (PILA)258
gives Swiss courts the jurisdiction to grant interim measures in aid of foreign arbitra-
tions.259 However, Swiss courts usually defer decisions to the tribunal. Article 183(1)
of the PILA260 establishes a presumption that the parties have conferred upon the ar-
bitral tribunal the general authority to order interim measures.261 A Swiss tribunal
stated the view that the power to order security for costs ‘in international arbitration
located in Switzerland may be derived from Article 182(2) and 183 of the Act’.262
An ICC tribunal sitting in Lausanne held that it had powers to grant a request for se-
curity based on PILA 183(1) and Article 8(5) of the ICC Rules. The arbitrator noted
that arbitrators should be able to order security for costs ‘particularly since in arbitral
cases the costs are often higher than those before state jurisdictions’.263
Although the PILA does not specifically refer to security for costs, some aca-
demics are of the view that Swiss courts have the power to order security when the
claimant appears to be insolvent.264 Article 183(2) provides that Swiss courts are to
assist the tribunal in orders for interim measures.265 The PILA requires that courts
look to the procedural rules the parties have chosen.266 Therefore, it has been argued
that if the parties choose an institutional scheme which expressly provides for interim
measures, such as the ICC or LCIA, Swiss courts may order security for costs.267

2.6.2.3 USA. The Federal Arbitration Act does not provide for security for costs spe-
cifically. However, courts have recognized tribunal-ordered security for costs as ‘arbi-
trators have powers to fashion relief’.268 In 1986, New York Civil Practice Law and
Rules section 7502 was amended specifically to empower New York courts to order

256 Beechey (n 34) 190.

257 Ken-Ren (n 241) 116.
258 Swiss Federal Statute on Private International Law 2007, ch 12 (Hereafter, PILA).
259 PILA, ibid, art 10; Georg von Segesser and Christopher Boog, ‘Interim Measures’ in Elliott Geisinger
and Nathalie Voser (eds), International Arbitration in Switzerland: A Handbook for Practitioners (Kluwer
Law International 2013) 123.
260 PILA, ibid, art 183.
261 Segesser and Boog (n 259) 121.
262 A SpA v B AG (n 213) 745.
263 Rubins (n 18) 335.
264 ibid 334
265 PILA (n 258) art 183(2).
266 ibid, art 182.
267 Andreas Bucher, Pierre-Yves Tschanz, International Arbitration in Switzerland (Helbing & Lichtenhahn
1988) 167.
268 Sperry International Trade v Government of Israel, 689 F2d 301, 306 (2d Cir 1982).
452  Security for Costs in Investor-State Arbitration

the attachment of assets or preliminary injunctive relief in aid of arbitration if the

award to which the applicant may be entitled may be rendered ineffectual without
such provisional relief.269

2.6.2.4 France. French courts may order interim measures in support of the arbitra-
tion if permitted by the parties’ agreement or arbitration rules. In SA Eurodif v
Gouvernement de la République Islamique d’Iran,270 the French court held that it had

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authority to honour a request for interim attachment. En référé proceedings permit
attachment of assets in France in accordance with the ICC rules.271 Applicants
should show urgency, imminent damage, or denial of justice.272 French tribunals
have ordered provisional measures on a showing of ‘urgency’, a denial of justice, or if
‘the273 safety of individuals or the conservation of their goods is at risk’.274 However,
French courts are often reluctant to order security for costs and to intervene where
an arbitral tribunal is competent.275

3 . P O LI C Y C O NS I D ER A T I O N S F O R W H ET HE R I N VE S T M EN T
TRIBUNALS SHOULD ORDER SECURITY FOR COSTS
This section examines three main considerations investor–state tribunals face—
(i) the investor’s concerns with due process, (ii) the state’s concerns with the
legitimacy of investor–state arbitration, and (iii) the influence of external third-party
actors on the dispute.

3.1 Security for costs risks due process

Arguments against security for costs are generally based on the claimant’s right to ac-
cess a dispute resolution forum and fundamental procedural fairness. The concerns
of claimants in investment arbitration in relation to access to justice should be criti-
cally discussed. This section examines policy arguments commonly raised against in-
troducing security for costs into the system of investor–state arbitration.

3.1.1 Access to dispute settlement forum

3.1.1.1 Frustrating legitimate claims. First, access to justice is a serious countervailing
concern.276 An order for security for costs can limit or eliminate the investor’s ability
to pursue its rights by arbitration.277 Yet, provisional measures should not

269 Rubins (n 18) 328.

270 République Islamique d’Iran v Framatome & S.A. Eurodif, Cour de Cassation (20 March 1989).
271 French Nouveau Code de Procedure Civile 2011, art 809. (Hereafter, NCPC)
272 Rubins (n 18) 333.
273 ibid.
274 Société Casa v Société Cambior, ICC Case No 6697 (26 December 1990).
275 Gérard Pluyette, ‘A French Perspective’ in Provisional Measures in International Arbitration (ICC
Publication No 519 1993) 76.
276 Jean-François Poudret and Sebastien Besson, Droit comparé de l’arbitrage international (Bruylant LGDJ
Schulthess 2002) 610; Procedural Order (21 December 1998), (1999) 17 ASA Bull 59, 65; Thomas H
Webster and Michael W Bühler, Handbook of ICC Arbitration: Commentary, Precedents, Materials (3rd
edn, Sweet & Maxwell 2014) paras 28.35–38.
277 Ragnwaldh and Eliasson (n 148) 407.
 Security for Costs in Investor-State Arbitration  453

economically paralyse the other party.278 Advances on costs amounting to US$1.35

million have been criticized as denying access to justice.279 In the annulment applica-
tion of Libananco, the committee declined security for costs because of concern over
the financial situation of the investor.280 It has been argued that the purpose of secu-
rity for costs should not be to guarantee a costs award, but to protect a party’s right
of defence against claims. Thus, security for costs should apply only to future
costs.281

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When investors are in dire financial positions precisely because the state confis-
cated their assets, they should not be asked to pay security for costs simply because
they used third-party funding.282 In Teinver v Argentina, the claimants stressed that
they had no choice but to obtain external funding because the respondent state’s ac-
tions had caused the investor’s ‘distressed financial state’, and were not bound to dis-
close any agreements with third parties regarding funding of the proceedings.283
Cost orders without the availability of insurance cover are a prejudicial disadvantage
to claimants.284 Arbitrations have been aborted due to lack of funding.285 Ordering
security for costs on the sole basis of financial status could deprive small companies
from using international arbitration in good faith.286 Security for costs, if granted eas-
ily, would increase loss exposure by assuming both parties’ costs risks.287

3.1.1.2 Consent. Secondly, governments have voluntarily accepted arbitration as an ex-

ception to their sovereignty. The purpose of investor–state arbitration clauses in
bilateral investment treaties (BITs) is to give investors an unconditional, unilateral
right to sue.288 Investors operate their businesses within the legal framework of the
host state, and are generally at the mercy of the state’s regulatory acts. Arbitration is
often the only forum for an investor to seek redress for injury caused by a govern-
ment. Therefore, the risk of depriving a claimant of access to justice often outweighs
the risk of frustrated costs awards.
The 29th Hague Convention on International Access to Justice abolished ‘any
practice requiring litigants to give security for costs solely on account of their resi-
dence in a another country’,289 because the respondent knew the nationality and

278 Procedural Order (1994) 12 ASA Bull 145, 147.

279 Gus Van Harten, ‘Investment Treaty Arbitration as a Species of Global Administrative Law’ (2006) 17
Eur J Intl L 121, 138.
280 IAReporter, 22 May 2012 (n 95).
281 ICC Case 14661 (Extract), Procedural Order (December 2008), Special Supplement 2014: Procedural
Decisions in ICC Arbitration, 76. (Hereafter, ICC Case 14661)
282 Yasmin Mohammed, ‘A Partial Commentary of the RSM Production Corporation v Saint Lucia Decision
on Security for Costs’, 6. < http://emailing.iccwbo.org/events/Yasmin-Mohammad.pdf>
283 The tribunal decided not to order disclosure. Teinver v Argentina (ICSID Case No ARB/09/1) Decision
on Jurisdiction (21 December 2012) paras 24–26.
284 Christopher Bogart, ‘RSM v St Lucia: Why the Majority Got It Wrong on Security for Costs’ GAR
(Global Arbitration Review, 11 September 2014).
285 IAReporter (n 217) 2 June 2015.
286 Pessey (n 17) 15.
287 Bogart (n 284).
288 Ragnwaldh and Eliasson (n 148) 403.
289 Harten (n 279) 124.
454  Security for Costs in Investor-State Arbitration

place of residence of his counterparty, and assumed the risk of dealing with an out-
of-state party.290
In ICC case no 10032, the tribunal required a ‘fundamental change of circum-
stances’, since the time that the agreement to arbitrate was entered into, because
‘[w]ho contracts with a person located in a country already subject to an interna-
tional embargo does so at his own risk and cannot later invoke such embargo to ob-
tain security for costs.’291 In X v Y and Z, ICC case, the tribunal similarly considered

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whether there was a ‘fundamental change of circumstances’ caused by the claimant
entering into a third-party funding agreement which allowed the funder to terminate
the funding at its discretion and did not cover a potential adverse costs order.292
Bankruptcy alone was not sufficient.293 There should be ‘a fundamental change of
situation since the agreement to arbitrate was entered into which results in a clear
and present danger that a future cost award would not be enforceable’.294
The tribunal in ICC case no 10032 found that ‘the factual situation at the present
time is substantially different from that which existed at the time the parties entered
into their arbitration convention’. Principles of contract relieve a party from material
changes in circumstances that could not reasonably have been foreseen at the time
the agreement was signed.295 If the financial status of a claimant does not deteriorate
between the time of the arbitration agreement and the time when proceedings are in-
stituted, a respondent is not entitled to request cautio judicatum solvi.296
In Tze Yap Shum v Peru, the tribunal recalled the principle of split costs in state–
state disputes.297 As states are sovereign equals, the costs of dispute resolution are
split equally. The tribunal in Pey Casado stated that by acceding to the ICSID
Convention, states assume the risk that the claimant may turn out to be impecu-
nious.298 Similarly, the tribunal in Libananco held that states accepted the risk that in-
vestments are made through an investment vehicle.299 In ICC case no 7074,
Yugoslavia applied for security for costs because the claimant was a Panama shell
company and the absence of treaties between Yugoslavia and Panama regarding arbi-
tral costs. The tribunal refused security for costs because these facts were known to
Yugoslavia when concluding the arbitration agreement.300 In commercial arbitration,

290 ICC Case No 7047 (n 220); Rubins (n 18) 360.

291 ICC Case No 10032, Order (9 November 1999) (Nos 82–84).
292 X v Y and Z, ICC Case, Procedural Order of 3 August 2012 (Charles Poncet, Louis Degos, Stephen Bond)
cited in ICCA-Queen Mary Third Party Funding Task Force, ‘Report on Security for Costs and Costs’
(Draft Report, 1 November 2015) 14.
293 ICC Case 14355 (Extract), Procedural Order (January 2007), Special Supplement 2014: Procedural
Decisions in ICC Arbitration, 70; Fouchard Gaillard and Goldman (n 34) 687–88.
294 Marc D Veit, ‘Security for Costs in International Arbitration – Some Comments to Procedural Order
No. 14 of 27 November 2002’ (2005) 23 ASA Bull 116; Procedural Order of October 2008 in ICC
Case 14433 (Extract) Special Supplement 2014: Procedural Decisions in ICC Arbitration (Hereafter
ICC 14433) 73, para 46.
295 Gu (n 20) 201; Rubins (n 18) 357.
296 Gu, ibid 187.
297 Tza Yap. Shum v The Republic of Peru (ICSID Case No ARB/07/6) Award 7 July 2011, para 296.
298 Pey Casado v Chile (n 58) Decision on Provisional Measures (25 September 2001) paras 80–81.
299 Libananco v Turkey (n 91).
300 ICC Case No 7074 in Sigvard Jarvin, Yves Derains and Jean-Jacques Arnaldez, Collection of ICC Arbitral
Awards 1996-2999 (ICC Publishing 2003) 51.
 Security for Costs in Investor-State Arbitration  455

the general view is that parties should have anticipated most financial eventualities
and a party bears the risk of not requesting security at the very inception of the arbi-
tration agreement.301

3.1.1.3 Costs barrier. Thirdly, in-depth additional hearings add time and costs.302
Users of arbitration seek administrative convenience. Cumbersome interim proceed-
ings burden adjudication.303 Costs of defending investment claims may be viewed as

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expenditure due to a failure to invest in effective domestic courts. Investors should
not be required to bear costs arising from a failure of the host state to provide satis-
factory legal protection.304
Investment arbitration is also a mechanism for the enforcement of public interna-
tional law.305 Therefore, the investor should not be treated less favourably compared
to its host state.306 At the European Court of Human Rights (ECHR), only claimants
recover legal expenses.307 Similarly, if investment arbitration is perceived as a forum
for the benefit of the investor such as the ECHR, only the claimant should recover
costs.308
It has also been argued that legal costs are incurred for the development of inter-
national investment law. Since many arbitrations might be avoided if provisions of in-
vestment treaties were more specific, investors should not have to assume the full
costs externality of uncertain treaty language.309 However, this does not apply to spu-
rious or frivolous claims, or bad faith arbitration.310

3.1.2 Prejudgment
3.1.2.1 Premature stage. One of the most serious risks of a security for costs order is
prejudgment of the merits. Assessing security for costs involves examining the
claims—scrutiny that might prematurely prejudice the proceedings.311 Arbitration is
designed to provide parties with the expertise needed to adjudicate complicated
commercial and technical matters, which can hardly be accomplished before com-
plete review of all documents and testimony. Incomplete review of evidence under-
mines the legitimacy of arbitration.312
The Maffezini tribunal held that protecting a right that did not exist at the time of
the order would prejudge the merits of the case in an undue manner.313 In RSM v St
Lucia, one of the arbitrators was challenged for his separate opinion revealing bias

301 Ho (n 213) 330.

302 Rubins (n 18) 370.
303 Franck (n 21) 793.
304 Stephan W Schill, ‘Arbitration Risk and Effective Compliance: Costs-Shifting in Investment Treaty
Arbitration’ (2006) 7(5) J World Inv & Trade 653–697, 668.
305 ibid 683.
306 ibid 696.
307 ibid 680.
308 ibid 674–75.
309 ibid 687.
310 ibid 687.
311 Rubins (n 18) 346.
312 ibid 370.
313 Maffezini v Spain (n 79) para 20; Kaufmann-Kohler and Antonietti (n 147) 519.
456  Security for Costs in Investor-State Arbitration

against third-party funders.314 If the tribunal is perceived to have drawn conclusions

about the final award, the impartiality of the forum will be in doubt—disqualifying it-
self from proceeding further.315 This approach is especially problematic in security
for costs.316 Security for costs protects a purely hypothetical right to costs.317
Requests are decided before full presentation of evidence and memorials, so dismis-
sal or stay of arbitration without some consideration of the merits raises due process
concerns.318

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The court in Porzelack KG v Porzelack (UK) Ltd identified that when the merits
of the case are difficult to assess at the preliminary stage and the claimant is unable
to post security, security for costs can stifle legitimate actions and lead to miscarriage
of justice.319 In RSM v St Lucia, the tribunal carefully stated, ‘[t]his decision does not
imply any ruling to the effect that the Tribunal considers Respondent’s defence on
the merits to be successful.’320
In Guaracachi v Bolivia, the tribunal cautioned against pronouncing on whether
there is a ‘reasonable possibility that the requesting party will succeed on the merits
of the claim’ under Article 26(3)(a) of the UNCITRAL Rules, because it can be a
‘difficult hypothetical exercise’.321
The SAS v Bolivia tribunal dismissed the application for security for costs to avoid
prejudgment of a jurisdictional issue.322 The tribunal took the view that in order to
decide on security for costs, they had to first decide if the claimant was the ‘real in-
vestor’.323 Thus in SAS v Bolivia, the issue of the claimant’s financial health was
linked to the issue of the jurisdictional determination of ‘investor’ under the invest-
ment treaty. However, in SAS v Bolivia, the claimant admitted that it is a ‘special-pur-
pose, holding company’ with its ‘primary assets’ being the shares of the companies
that directly owned the investment.324 Arguably, the issue of the financial viability of
the claimant during the time of the arbitration proceedings could be clearly separated
from whether the claimant satisfied the definition of ‘investor’ under the treaty at the
time the dispute arose.
Article 38(2)(i) of the 2017 SCC Rules mandates that the tribunal must consider
in making a security for costs order: ‘the prospects of success of the claims, counter-
claims and defences’,325 indicating that the SCC has taken the position that such
evaluation of prospects of success do not amount to pre-judgement.
Therefore, tribunals should consider the framing of issues carefully. Some believe
that the tribunal’s preliminary evaluation of the merits of the parties’ respective

314 RSM v St Lucia (n 127).

315 Gu (n 20) 197–98.
316 Stephen Colbran, ‘Security for Costs of Arbitration Proceedings in England, New Zealand and
Australia’, (1993) 9 J Intl Arb 85.
317 RSM v St Lucia (n 32) para 38.
318 Gu (n 20) 197–98.
319 Rubins (n 18) 362.
320 RSM v St Lucia (n 32) para 88.
321 Guaracachi v Bolivia (n 151) para 8.
322 SAS v Bolivia (n 17) paras 56.
323 ibid, paras 55.
324 SAS v Bolivia Opposition (n 179) para 24.
325 SCC Rules (n 206).
 Security for Costs in Investor-State Arbitration  457

positions in the context of making an order for security for costs can be clearly distin-
guished from the tribunal’s pre-judgement of the outcome of the dispute.326
Nevertheless, pre-judgment of a substantive issue of the dispute could give rise to
challenges based on impartiality. In addition, the argument that the claim is likely to
fail should be given little weight in an assessment of security for costs. One practical
alternative might be to appoint another arbitrator to hear the security for costs appli-

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cation. This practice coincides with the use of different judges in domestic courts to
hear interlocutory applications such as security for costs. However, this would re-
quire parties’ express consent and increases time and costs.327

3.1.2.2 Due process. If a claim is dismissed for failure to provide security, it should be
‘without prejudice’ and without deciding the substantive merits.328 A failure to give
the other party an opportunity to be heard will amount to a serious departure from a
fundamental rule of procedure.329 The dismissal could be a breach of due process330
as the claimant was ‘unable to present his case’ allowing courts to refuse enforcement
under Article V(1)(b) of the NYC.331 Under ICSID Article 52, any award dismissing
a claim without examining the merits risks being annulled for a failure to state rea-
sons or breach of due process.332 Therefore, the ideal method of dealing with
breaches of security for costs should be to stay proceedings, and discontinue the pro-
ceedings ‘without prejudice’ to future claims.
However, as stated in Pey Casado, ‘provisional measures . . . are . . . above all ur-
gent . . . they must be or be able to be decided quickly . . . These measures must
therefore be capable of being taken . . . at any stage of the proceedings and . . . also
before the Tribunal has been able to rule on all of the objections to its jurisdiction or
on the admissibility of the claim on the merits’.333 There is a delicate balance be-
tween the urgency of provisional measures and potential prejudice to the claim.
Nevertheless, tribunals are tasked to strike that balance, and not to avoid every kind
of preliminary decision. Similarly, this rationale is reflected in provisions for summary
proceedings. Article 36 of ICSID gives the Secretariat the power to refuse registra-
tion of arbitration requests that manifestly lack jurisdiction. ICSID Article 41(5) was
added so ‘that the tribunal may at an early stage of the proceeding be asked on an ex-
pedited basis to dismiss all or part of a claim on the merits’.334

3.1.3 Prohibition by the arbitration agreement

General powers over the granting of interim measures can, however, be restricted by
the lex specialis. For example, as North American Free Trade Agreement (NAFTA)

326 Redfern and O’Leary (n 2) 401.

327 Gu (n 20) 198.
328 ibid 200.
329 Schreuer and others (n 54) 750.
330 Gu (n 20) 198.
331 NYC, art V(1)(b).
332 Commerce v El Salvador (n 110) para 52.
333 Pey Casado v Chile (n 58) para 5.
334 Raviv (n 27) 16; Antonio Parra, ‘The Development of the Regulations and Rules of the Int’l Centre for
Settlement of Investment Disputes’ (2007) 41 Intl Law 56.
458  Security for Costs in Investor-State Arbitration

restricts the tribunal’s authority to ‘order attachment or enjoin the application of the
measure’, in Pope & Talbot, the tribunal accordingly found that ‘it lacks power to
grant such relief’.335 Similarly, states can expressly provide in their investment trea-
ties that a tribunal constituted pursuant to an arbitration agreement under that treaty
shall not have the power to grant security for costs.
Institutional rules or the investment treaty could contain rules apportioning costs

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to each party. The Netherlands–Poland BIT states: ‘Each Party shall bear the cost of
the arbitrator appointed by itself and its representation. The cost of the chairman as
well as the other costs will be borne in equal parts by the Parties.’336 Since the tribu-
nal has no powers to issue a costs award, such treaty provisions imply that the tribu-
nal would have no powers to order security for costs.337

3.4 Protection of states

Weighing strongly against the investor’s right of access to an agreed dispute settle-
ment forum and risks of due process, are serious policy considerations in favour of
security for costs orders related to the prohibitive costs of arbitration for less devel-
oped or small states.

3.4.1 Survey of costs in investment arbitration

3.4.1.1 High aggregate amounts. Critics are increasingly pointing out the astronomical
costs of investment arbitrations.338 In PSEG v Turkey, costs and legal fees amounted
to about $20 million.339 UPS v Canada took 7 years to arbitrate.340 In Plama v
Bulgaria, the investor’s costs were approximately US$4.7 million, the respondent’s
costs were US$7 million, and the tribunal’s costs was nearly US$1 million.341 In Pey
Casado, the state’s costs were US$4.3 million, and the investor’s reduced costs were
US$2 million.342 In ADC v Hungary, the claimant’s deducted costs were US$7.6 mil-
lion.343 In Siag v Egypt, the investor’s costs were US$6 million, the respondent’s costs
were US$3.5 million, and tribunal’s costs were US$600,000.344 An average investor–
state arbitration costs about US$9.7 million.345
The high aggregate amounts of costs should be assessed by whether the system of
investor–state arbitration is able to efficiently allocate and enforce liabilities for costs.
Respondents incur estimated average annual legal costs ranging from 1 to 2 million

335 Bismuth (n 42) 806.

336 Agreement Between the Kingdom of the Netherlands and the Republic of Poland on encouragement
and reciprocal protection of investments (24 September 1996) art 12(9).
337 John Yukio Gotanda, ‘Awarding Costs and Attorneys’ Fees in International Commercial Arbitrations’
(1999) 21 Mich J Intl L 1, 9, 13; John W Hinchey and Thomas V Burch, ‘An Arbitrator’s Authority to
Award Attorney Fees for Bad-Faith Arbitration’ (2005) 60 Dispute Res J 10.
338 Franck (n 21) 769.
339 PSEG Global Inc. et al. (U.S.) v Turkey (ICSID Case No ARB/02/05) Award (19 January 2007) 352.
340 United Parcel Service of America v Canada (UNCITRAL) 2 Award (24 May 2007) para 29.
341 Plama Consortium Limited v. Republic of Bulgaria (ICSID Case No. ARB/03/24) Award (27 August
2008),, paras 310, 312, 322–24.
342 Pey Casado v Chile (n 58) paras 723–24, 730–31.
343 ADC v Hungary (ICSID Case No ARB/03/16) Award (2 October 2006) para 543.
344 SIAG v Arab Republic of Egypt (ICSID Case No ARB/05/15) Award (1 June 2009) paras 604–05, 611–
12, 631.
345 Matthew Hodgson, ‘Counting the Costs of Investment Treaty Arbitration’ GAR 24 March 2014.
 Security for Costs in Investor-State Arbitration  459

dollars per dispute.346 The expected legal fees incurred by Czech Republic for 1 case
exceeded $13.8 million in 1 year. In Jan Oostergetel and v Slovakia, respondent’s costs
were estimated $16 million. In Libananco, respondent’s costs alone amounted to $35
million. In EDF v Romania, the respondent’s costs alone amounted to $18.5
million.347
Since investment disputes are unavoidably complex and very often high-value dis-

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putes, criticizing the absolute value as such leads to no more than limited improve-
ment of the system. Instead, the focus should be on whether these costs are properly
used. Importantly, it should be borne in mind that in cases where the respondent
succeeds, costs amount to the entire financial outcome of the dispute.348

3.4.1.2 Increasing costs-shifting. An increasing trend of costs-shifting supports the de-

velopment of security for costs in investment disputes.349 In Eurogas v Slovak
Republic, the claimant argued that there was no trend of costs-shifting in investment
arbitration. 350 However, according to a general survey in 2007, tribunals had or-
dered parties to pay their own legal fees in about four-fifths of disputes.351
Although most NAFTA and ICSID cost awards have not reimbursed the winning
government’s costs,352 tribunals are increasingly adopting a ‘costs-follow-the-event’
approach. In Generation v Ukraine, the tribunal criticized, the claimant’s ‘written pre-
sentation of its case has also been convoluted, repetitive, and legally incoherent’,
which ‘obliged the Respondent and the Tribunal to examine a myriad of factual is-
sues which have ultimately been revealed as irrelevant to any conceivable legal theory
of jurisdiction, liability, or recovery’, and ordered the claimant to pay the entire cost
of the arbitration, and $100,000 of the respondent’s legal fees.353 In Hussein Nuaman
Soufraki v UAE, the tribunal dismissed the claim for lack of jurisdiction and ordered
the claimant to bear two-thirds of the arbitration costs.354 In EDF v Romania,355 the
tribunal ordered the claimant to pay $6 million of Romania’s legal costs. The Czech
Republic was reimbursed $1 million costs, and $200,000 on ICSID fees.356
In cases after 2010, the trend of costs-shifting has grown. In AWG v Argentina, the
tribunal established that to deny the successful party recovery of costs incurred pur-
suing its case would have the effect of denying that party’s full reparation as required

346 United Nations Conference on Trade & Dev, Issues Related to International Arrangements: Investor-
State Disputes and Policy Implications, UN Doc TD/B/COM.2/62 (14 January 2005) para 14.
347 Hodgson (n 345) 2.
348 ibid 12.
349 Redfern and O’Leary (n 2) 404–05.
350 Slovak Republic (n 137) para 116.
351 Susan D Franck, ‘Empirically Evaluating Claims About Investment Treaty Arbitration’ (2007) 86 NCL
Rev 1, 49, 69.
352 Schill (n 304) 660; Thunderbird v Mexico (n 49) Annex (see Table).
353 Generation v Ukraine (ICSID Case No ARB/00/9) Award (16 September 2003) para 96.
354 Hussein Nuaman Soufraki v The United Arab Emirates (ICSID Case No.ARB/02/7) (5 June 2007).
355 EDF (Servs.) Ltd. v Romania (ICSID Case ARB/05/13) Award (8 October 2009) para 329.
356 Luke Eric Peterson, ‘In Rare Turn of Events, Claimant makes Good on Costs Owed in BIT Arbitration’
(17 January 2010) IAReporter. (Hereafter, IAReporter 17 Jan 2010)
460  Security for Costs in Investor-State Arbitration

by international law.357 Chevron v Ecuador I indicated its preference for the more re-
cent practice of ‘costs follow the event’, save for exceptional circumstances.358 In
AFT v Slovak Republic, Apotex v United States, and Forminster v Czech Republic ren-
dered between 2011 and 2014, the tribunals similarly awarded indemnity costs
against the unsuccessful party.359 In Yukos v Russia, the tribunal affirmed the pre-
sumption that costs are to be awarded to the successful party and against the unsuc-
cessful party.360

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The ICCA-Queen Mary Task Force on third-party funding in international arbi-
trations has identified a nascent body of investment arbitration cases which factors
third-party funding into the allocation of costs. It has been argued that where the
claimant was funded by a third-party funder, they should not benefit from an award
of those costs or the award on costs should be accordingly reduced. In Quasor de
Valores v Russia, the tribunal found that the claimant could not recover costs because
they had no obligation to repay the funder.361 In Siag v Egypt, the dissenting arbitra-
tor also suggested that by using a contingency fee, the claimant’s recovery of costs
should be reduced because the claimant had accepted the risk.362 However, in
Kardassopoulos v Georgia, RSM v Grenada, and ATA v Jordan, the tribunals found
that the third-party financing should not be taken into consideration in determining
the amount of costs the claimants are entitled to recover.363 Costs should be recover-
able when the claimant is obliged to repay the costs to the third-party funder. It
should also be equally recoverable where the claimant is obliged to pay a success fee
or portion of the returns from the award.
The importance of ordering costs-to-follow-the-event is supported by general
principles of customary international law.364 Costs can be perceived as compensation
for the unnecessary defence of a frivolous claim.365 More generally, costs awards com-
pensating respondents follow from the principle that as far as possible, reparation

357 AWG Group. Ltd v The Argentine Republic, UNCITRAL, Award, 9 April 2015, para 111.
358 Chevron Corporation (U.S.A.) and Texaco Petroleum Corporation (USA) v Republic of Ecuador [I], PCA
Case No AA 277, Final Award, 31 August 2011, para 375; ST-AD GmbH v Republic of Bulgaria, PCA
Case No 2011-06 (ST-BG), Award on Jurisdiction, 18 July 2013, para 427; Khan Resources Inc et al v
Government of Mongolia, UNCTIRAL, Award on the Merits, 2 March 2015, para 431.
359 Alps Finance and Trade AG v Slovak Republic, UNCITRAL, Award [Redacted], 5 March 2011, para 238;
Apotex Inc v United States, UNCITRAL, Award on Jurisdiction and Admissibility (14 June 2013), paras
339–52; Forminster Enterprises Limited (Cyprus) v Czech Republic, UNCITRAL, Final Award (15
December 2014), paras 110–12.
360 Yukos Universal Limited (Isle of Man) v Russian Federation, (PCA Case No AA 227), Final Award, 18 July
2014, paras 1867–68.
361 Quasor de Valores v Russia (SCC Case No 24/2007) Award (20 July 2012) para 223.
362 Siag and Vecchi v Egypt (ICSID Case No ARB/05/15) Dissenting Opinion of Francisco Orrego Vicu~ na
(11 May 2009) 6.
363 ICCA-Queen Mary Third Party Funding Task Force (n 292) 7 citing Kardassopoulos and Fuchs v
Republic of Georgia (ICSID Case No ARB/05/18 and ARB/07/15) Award (3 March 2010) para 691;
RSM v Grenada (n 134) para 68, ATA Construction, Industrial and Trading Company v The Hashemite
Kingdom of Jordan (ICSID Case No ARB/08/2) Order Taking Note of the Discontinuance of the
Annulment Proceeding (11 July 2011) para 34.
364 Schill (n 304) 653–98, 684.
365 ibid 665.
 Security for Costs in Investor-State Arbitration  461

must wipe out all the consequences of the illegal act and re-establish the situation
which would, in all probability, have existed if the act had not been committed.366
While it seems increasingly frequent367 for arbitrators to order final costs awards
against the losing party,368 tribunals still show significant reluctance to order security
for costs.369 This leads to unenforceable costs awards, representing overall inefficien-
cies in the system of investment arbitration. From the economic and regulatory per-

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spective, when governments, as the ultimate creators of the international investment
arbitration system, have to internalize the costs of such inefficiencies, they are likely
to reject or change the system.370 Costs mechanisms like security for costs can,
therefore, effectively mitigate the two most current complaints—the system’s alleged
pro-investor bias and its chilling effect on states’ exercise of regulatory power.371

3.4.2 Collecting on final costs orders

In RSM v Grenada, the claimants were ordered to reimburse Grenada for the cost ad-
vances of US$93,605.92 that Grenada paid to ICSID. The proceedings were later dis-
continued, and Grenada’s costs amounting to US$186,072 are still outstanding.372
Czech Republic also wasted substantial time and expense pursuing claimants such as
German investors for debts of EUR 3,150,000, and a Swiss company for EUR
300,000.373
In CDC v Seychelles, the tribunal shifted costs to the losing respondent despite the
fact that it was noted to be virtually impecunious,374 thus giving the respondent very
little chance at collecting its costs award. In Generation v Ukraine, the tribunal was
sharply critical of the conduct of the case and ordered the claimant to pay Ukraine
US$465,000 in costs and tribunal fees. However, the claimant was a nearly insolvent
company, giving the respondent virtually no chance of reimbursement.
Governments have inherent difficulty recouping costs from shell companies. In
Plama v Bulgaria, the investor’s claims were dismissed because the investor commit-
ted illegal acts in making the investment in Bulgaria. The claimant was ordered to
pay Bulgaria US$460,000 for tribunal costs and US$7,000,000 for part of Bulgaria’s

366 ILC Draft Articles on State Responsibility art 42(1) (1996); Chorzow Factory (Germany v Poland),
Judgement, (13 September 1928) PCIJ (A) 17, 47.
367 Hodgson (n 345) 6–7.
368 See list of costs awards against the investor in Mexico (n 49) Annex; Fouchard, Gaillard and Goldman
(n 34) 686.
369 David Smith, ‘Shifting Sands: Cost-and-Fee Allocation in International Investment Arbitration’ (2011)
51 Virginia J Intl L 3, 749; Pessey (n 17) 11.
370 Riesenberg (n 160) 993; Cecilia Malmström, ‘The Way Ahead for an International Investment Court’
(18 July 2016) <https://ec.europa.eu/commission/commissioners/2014-2019/malmstrom/blog/way-
ahead-international-investment-court_en>; Cecilia Malmström, ‘In Davos, Discussing Investment
Disputes Court’ (19 January 2017) <https://ec.europa.eu/commission/commissioners/2014-2019/
malmstrom/blog/davos-discussing-investment-disputes_en>.
371 Riesenberg (n 160) 978.
372 RSM v Grenada, Order of the Committee Discontinuing (n 134).
373 Luke Eric Peterson, ‘Czech Republic Government Releases Cache of BIT Awards, Strives to Collect
Costs Orders, and Currently Faces Eleven Pending Treaty Claims’ (24 February 2015) IAReporter.
(Hereafter, IAReporter 24 February 2015)
374 CDC Group. plc v Republic of the Seychelles (ICSID Case No ARB/02/14), Decision on the Application
for Annulment (29 June 2005) para 89.
462  Security for Costs in Investor-State Arbitration

legal costs. To date, Bulgaria has not collected its costs because the investor was a
shell company.375 In Thunderbird v Mexico, the Government of Mexico has yet to
collect upon a US$1 million costs award rendered in 2006.376 Such losses are ulti-
mately borne by the taxpayers and citizens of the respondent state.

3.4.3 Public cost

3.4.3.1 Economic costs. The state faces three-fold costs.377 First, the state bears the

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costs of proceedings. Being unable to afford defence lawyers, Uruguay had to seek
the support of Bloomberg Philanthropies against an arbitration brought by Philip
Morris.378 Second, small states may suddenly face large and immediately enforceable
awards in proportion to their tight annual budget.379 The highest award to date
amounted to $50 billion plus $64 million in legal fees.380 In Paushok v Mongolia, the
tribunal considered Mongolia’s ‘tight budgetary constraints’.381
Third, there is a policy cost of negating government acts that were implemented
for the public good.382 The threat of being sued causes the dreaded ‘regulatory chill’
and welfare loss.383 The UNCITRAL Rules on Transparency in Treaty-based
Investor–State Arbitration has recognized ‘the need for provisions on transparency
in the settlement of such treaty-based investor-State disputes to take account of the
public interest involved in such arbitrations’.384 Critics argue that global supply
chains, capital flows and 2600 investment treaties, place governments at risk of in-
vestment claims for regulatory measures, for example legislation for banning capital
flight to alleviate economic crises.385
On top of transactional costs arising from the legal costs of proceedings, the state
faces opportunity costs of diverting state budgets, reputational costs that may impact
the credit rating of sovereign debt,386 and political costs of sacrificing aspects of sov-
ereignty and increasing domestic taxes or seeking international aid.387 States incur

375 IAReporter (n 356) 17 January 2010.

376 Luke Eric Peterson, ‘Gov’ts Have No Success in Forcing Claimants to Post Security while Treaty
Arbitrations are Ongoing’ (10 February 2009) IAReporter.
377 Jeswald W Salacuse, ‘Is There a Better Way? Alternative Methods of Treaty-Based, Investor-State
Dispute Resolution’ (2007) 31 Fordham Intl LJ 138, 145–46.
378 Katia Savchuk, ‘Michael Bloomberg And Bill Gates Launch $4 Million Legal Fund To Fight
Tobacco Industry’ (Forbes, 3 March 2015) <https://www.forbes.com/sites/katiasavchuk/2015/03/18/
michael-bloomberg-and-bill-gates-launch-4-million-legal-fund-to-fight-tobacco-industry/#5d3be1722dfd>.
379 Jennifer A Heindl, ‘Toward A History of NAFTA’s Chapter Eleven’ (2006) 24 Berkeley J Intl L 672,
686.
380 Hulley Enterprises Limited (Cyprus) v The Russian Federation (PCA Case No AA 226); Veteran Petroleum
Limited (Cyprus) v The Russian Federation (PCA Case No AA 228); Yukos Universal Limited (Isle of
Man) v The Russian Federation (PCA Case No AA 227).
381 Paushok v Mongolia (n 166) para 84.
382 Abba Kolo, ‘Tax -Vetok as a Special Jurisdictional and Substantive Issue in Investor- State Arbitration:
Need for Reassessment?’ (2009) 32 Suffolk Transntl L Rev 475, 478, 492.
383 Schill (n 304) 654, 655.
384 UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration and Arbitration Rules
(2013) A/RES/68/109 (18 December 2013).
385 Franck (n 21) 771–72.
386 ibid 783.
387 Susan D Franck, ‘International Decisions, Occidental Exploration & Production Co. v. Republic of
Ecuador’ (2005) 99 Am J Intl L 675, 681.
 Security for Costs in Investor-State Arbitration  463

social costs,388 for example the case of Aguas del Tunari v Bolivia which led to riots
and a state of emergency.389 Arbitrations arising from Argentina‘s currency crisis sim-
ilarly created public upheaval.390
Security for costs can discourage frivolous claims brought to waste public funds,
and ensure that funds expended by states in a successful defence of an investment
claim are returned to the welfare of the public through enforceable costs awards.

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Considering that an enforceable costs award would safeguard and stabilize the risks
that states face in investor–state arbitration, security for costs should be identified as
a potential tool for enhancing the system.

3.4.3.2 Unequal positions. It may be argued that a state which has entered into an arbi-
tration agreement has given the investor the unilateral right and access to arbitration.
As the state did not qualify their consent to arbitration with the right to request secu-
rity for costs,391 this consent should not be later qualified by an order for security for
costs. While there are express qualifications to consent in investment treaties such as
the ‘denial of benefits’ clause, there are no known investment treaties in force with
the specific condition of security for costs. The principle of pacta sunt servanda that
the state should be held to its negotiated agreement, and the prohibition of with-
drawal of consent in Article 25(1) of ICSID392 supports arguments against security
for costs.
However, even in commercial arbitrations, the unequal bargaining power of arbi-
trating parties is recognized. While it may be reasonable to deny security for costs in
an arbitration between two contracting parties of equal bargaining power, the same
cannot be said for parties whose business standings are disparate.393 Furthermore, in-
vestment treaty arbitration, unlike commercial arbitration, is arbitration without priv-
ity.394 The risks and expectations of states are vastly different from expectations of
private parties in commercial arbitration. The state’s unilateral offer of arbitration is
often a ‘standing’ offer, open to the whole world. Because of ‘treaty-planning’
through undisclosed multi-tier shareholdings, claimants are largely unknown to the
state before the notice of arbitration is received.
Unlike the private party who chose flexibility of arbitration as an escape from the
strict requirements of litigation, for a state, ‘arbitration is a loss of liberty, an acceptance
of constraints from which it is otherwise free’.395 If arbitration without privity exposes

388 Franck (n 21) 769.

389 Oscar Olivera and Tom Lewis, Cochamamba! Water War in Bolivia (Athabasca University Press 2004).
390 David Collins, ‘Reliance Remedies at the International Center for the Settlement of Investment
Disputes’ (2009) 29 NW J Intl L Bus 195, 211–12; Mary Helen Mourra, ‘Privatization of Water
Management in Latin America’ in Thomas E Carbanneau and Mary H Mourra (eds) Latin American
Investment Treaty Arbitration: The Controversies and Conflicts (Wolters Kluwer 2008) 83, 88–89; Alan
Ciblis, ‘ICSID Bleeds Argentina’ (Multinational Monitor, 1 July 2005) <https://www.thefreelibrary.
com/ICSID+bleeds+Argentina.-a0138399525>. In 1998, the Asian Financial Crisis also led to several
Asian states imposing bans on capital transfers.
391 ICC Case No 7074 (n 300).
392 ICSID Arbitration Rules (n 3) art 25(1).
393 Ho (n 213) 330.
394 Jan Paulsson, ‘Arbitration Without Privity’ (1995) 10 ICSID Rev 232.
395 Hazel Fox, ‘States and the Undertaking to Arbitrate’ (1988) 37 ICQL 4; Fortier (n 33) 15.
464  Security for Costs in Investor-State Arbitration

respondent states to additional risks, security for costs can be a far more delicate tool
for regulating such risks, compared to other tools such as a ‘denial of benefits’ clause.

3.5 External actors involved in the dispute

3.5.1 Third-party funding
According to a recent study, 60 per cent of all investors consult third-party funders

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and at least two-thirds of ICSID cases filed in 2013 were filed using third-party fund-
ing.396 The intervention of external actors in investment disputes has raised contro-
versial concerns about ethics and procedural fairness. In Quasar de Valores and others
v Russia, the tribunal agreed with the respondent that ‘it is a total free ride’ for the in-
vestor who had a ‘Good Samaritan’ funder.397
When a frequent claimant partners a litigation funder, it raises questions whether
it will pay adverse costs orders.398 Therefore, ‘[i]f a party has become manifestly in-
solvent and . . . is likely relying on funds from third parties, the right to have access
to arbitral justice can only be granted under the condition that those third parties are
ready and willing to secure the other party’s reasonable costs to be incurred.’399 The
danger of abuse of process is heightened where the third party cannot be joined to
proceedings.400 The importance of making the third-party funder responsible for an
adverse costs order has been recognized by the English Courts.401
Concerns over ethics and procedural fairness arising out of third-party funding were
evident in Chevron Corporation v Donziger. The plaintiffs’ lawyer in the Lago Agrio lawsuit
against Chevron brought the suit with a third-party investment, in exchange for a percent-
age of an award. The plaintiff’s lawyers were sued for procuring the judgment fraudu-
lently. The court criticized the claimant counsel’s ‘romancing of Burford’ as the cause of
its unethical litigation strategy of multiplying proceedings in several jurisdictions to harass
and increase defence costs.402 In RSM v St Lucia, one arbitrator agreed with the risks of
third-party funding, stating that the presence of third-party funding casts the onus the
claimant403 to show why security for costs should not be granted, instead of casting the
burden on the applicant–respondent to justify the application for security for costs.
Third parties cannot be joined into the arbitration404 because there is no arbitra-
tion agreement between the third-party funder and the respondent. Unlike third-

396 Park and Rogers (n 29) 3.

397 Renta 4 S.V.S.A, Ahorro Corporacion Emergentes F.I., Ahorro Corporacion Eurofondo F.I., Rovime Inversiones
SICAV S.A., Quasar de Valors SICAV S.A., Orgor de Valores SICAV S.A., GBI 9000 SICAV S.A. v The
Russian Federation, SCC No 24/2007, Award (20 July 2012) paras 223–24; See also Ioannis
Kardassopoulos v The Republic of Georgia (ICSID Case No ARB/05/18) Award (3 March 2010) para
691.
398 Peter Griffin, ‘RSM v St Lucia: Why the tribunal is to be applauded for security for costs order’ GAR, 24
September 2014.
399 X SARL (Lebanon) v Y AG, (Germany), ICC Arbitration (Berne), Procedural Order No 3 (4 July 2008)
37, para 21; Berger (n 9) 37.
400 Gu (n 20) 191.
401 Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144, para 27; Essar Oilfields
Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), paras 70–72.
402 Catherine Rogers, ‘Gamblers, Loan Sharks and Third Party Funders’ 215–16.
403 RSM v Saint Lucia, Assenting Reasons of Gavan Griffith, paras 12–14, 18.
404 Gu (n 20) 197.
 Security for Costs in Investor-State Arbitration  465

party funding in domestic litigation, security for costs is, therefore, one of the only
remedies in arbitration for the risks arising from third-party financing.405 An order
against the funded party to post security effectively requires the funder to provide
the security for costs upfront. However, since the order remains against the funded
party and whether or not the funder steps in for the funded party remains a matter
of agreement between them, the tribunal does not exceed its jurisdiction.406 Security

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for costs could, therefore, be a useful tribunal controlled and tailored regulator of
third-party funding.

3.5.2 Insurance
Political risk insurance and after-the-event insurers may also control arbitration strat-
egy and settlement. However, they are not generally considered subject to potential
ethical conflicts. Unlike the third-party funders that intervene after the dispute has
arisen, insurers generally do not target a particular case and are presumed less di-
rectly involved.407 However, an insurer paying for the defence of a matter can be just
as interested in the dispute,408 and have just as much control, as a third-party funder
which enters the picture after the dispute has arisen.

3.5.3 Trust-fund facilities

It has been suggested that institutions or NGOs could set up trust-fund facilities to
be funded by donors in order to provide legal expertise to respondent states in in-
vestment arbitration.409 The risk of ‘NGO activist lawyer teams’,410 however, reflects
a similar concern as third-party funding—that over-zealous counterclaims or de-
fences will be brought. Similarly, such trust funds act as third-party funders of the ar-
bitration, except for being in support of the respondent, and could also bring
frivolous counterclaims. Considering this, security for costs provides the most fair,
appropriate, and economical method for protecting respondent states against frivo-
lous claims.

3.5.4 Shell companies

Abuse of proceedings increases when the claimant has no assets, by accident or de-
sign. Shell corporations or special purpose vehicles are frequent investment tools.411
The participation of parent companies, shareholders, entities in the chain of compa-
nies, and other parties external to the dispute can give rise to unique concerns in the
management of arbitral proceedings. For example, in Quasor de Valores v Russia, the

405 ibid 169.

406 Jonas von Goeler, Third-Party Funding in International Arbitration and its Impact on Procedure,
International Arbitration Law Library, vol 35 (Kluwer Law International 2016) 364.
407 Park and Rogers (n 29) 6.
408 Bogart (n 284).
409 Thomas W W€alde, ‘Improving the Mechanisms for Treaty Negotiation and Investment Disputes’ in
Karl P Sauvant (ed), Yearbook on International Investment Law & Policy 2008-2009 (OUP 2009) 565–66.
410 ibid 566.
411 Ho (n 213) 338.
466  Security for Costs in Investor-State Arbitration

claimant was funded by its shareholder.412 It is entirely conceivable that an investor

could obtain funding for an arbitration in its own name as well as on behalf of, or as
a guarantor, of a funding agreement for an arbitration brought by its subsidiary com-
pany. The frequent success of reflective loss claims413 increases the claimant’s choice
of which holding company to designate as the ‘claimant’. Claimants who sense dis-
missal of their claims are incentivized to undertake evasive dissipation of assets pend-
ing the award.414

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4 . C O N T R IB U T IO N O F S E C U R I T Y F O R C O S T S T O T H E SY S T E M O F
INVESTOR–STATE ARBITRATION
Having considered the concerns of participants in the system of investor–state arbi-
tration on a policy level, this sections evaluates the potential that security for costs
could contribute to improving the system, as a procedural mechanism.
If the investment arbitration system needs reworking, its rule on legal costs is a
promising instrument of reform.415 Security for costs is where both common law
and civil law arbitration practice416 could benefit greatly from cross-fertilization.417
This section critically examines the effectiveness of security for costs as a mechanism
for developing the investment arbitration system—whether it provides certainty of
procedural rights, efficient administration, and fairness.

4.1 Security for costs protects the foundations of dispute resolution

4.1.1 Certainty of procedural rights and efficient administration
4.1.1.1 Procedural rights. The right to reimbursement of costs is considered a proce-
dural right.418 In Piero Foresti et al. v South Africa, the tribunal stated ‘if one party is
entitled to withhold something, and is obliged to defend itself in arbitral proceedings
against a demand for that thing, it should not have to bear the costs of defending its
right to withhold the thing’.419
Tribunals are increasingly inclined to grant provisional measures in the interests
of assisting the functioning of international transactions.420 The Libananco tribunal
held that ‘like any other international tribunal, it must be regarded as endowed with
the inherent powers required to preserve the integrity of its own process’421 includ-
ing security for costs. The inherent powers422 of public international law tribunals

412 Quasor de Valores v Russia (SCC Case No 24/2007) Award (20 July 2012).
413 Douglas (n 28) 421–25, 430–43.
414 Rubins (n 18) 361–62; Gu (n 20) 191.
415 Riesenberg (n 160) 979.
416 Gliedman (n 233) 956–57.
417 Gu (n 20) 203.
418 RSM v St Lucia (n 32); Inna Uchkunova and Oleg Temnikov, (Kluwer Arbitration Blog, 10 February
2015) <http://kluwerarbitrationblog.com/2015/02/10/security-for-costs-in-icsid-arbitration/>.
419 Piero Foresti et al. v South Africa ARB(AF)/07/1, Award 4 August 2010, para 110.
420 Gu (n 20) 202.
421 Libananco v Turkey (n 91) para 78.
422 Chester Brown, ‘The Inherent Powers of International Courts and Tribunals’ (2005) 76 Br Ybook Intl
L 195.
 Security for Costs in Investor-State Arbitration  467

was recognized also in the security for costs application in Commerce v El

Salvador.423

4.1.1.2 Certainty. The system would be more efficient as a whole if parties know in ad-
vance whether they can recoup costs.424 Costs influence strategic decisions.425 The
ICC Case No 6697 tribunal granted security for costs because,

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When claimants are defeated in arbitration and default with impunity on costs
payments, international businesspeople are deprived of the assurance of even
that institution’s effectiveness. The risks of doing business across borders rise,
the cost of capital for the initiation of international ventures rises, and global
expansion is checked to some degree.426

In investor–state arbitration, the high cost amplifies this effect.

The International Court of Justice stated the purpose of interim measures, is
‘to ensure that the execution of a future judgment on the merits shall not be frus-
trated by the actions of one party pendente lite’. If cost-shifting is likely practice,
then security for costs is a general provisional measure of international legal sys-
tems.427 The enforceability of final awards is emphasized in Article 54(1) of
ICSID.428
Victory is merely symbolic,429 if the state is unable to enforce the award because
the claimant has transferred its assets to a safe haven or organized its insolvency.430
Cost-shifting at various interim stages of the arbitration is useful where plaintiffs are
judgment proof, by foreign residence or impecuniousness.431
Without security for costs, the respondent in an arbitration commenced by a future
bankrupt has only the choice either to lose and become an award debtor, or to win and
become an unsecured creditor.432 The respondent state, therefore, stands to lose in any
event.433 In large international commercial arbitrations, it has therefore been regarded as
essential to request security for costs434 because of the proportionately high costs.
Similarly, if the state ignores the claim, an adverse award will likely be rendered—
enforceable all over the world pursuant to the NYC.435 If the state participates by filing
a defence, it incurs indefinite legal costs.

423 Commerce v El Salvador (n 110) paras 43–45.

424 Michael Bühler, ‘Costs in ICC Arbitration: A Practitioner’s View’ (1992) 3 Am Rev 116, 117.
425 Schill (n 304) 654.
426 Rubins (n 18) 359.
427 ibid 364.
428 ICSID Convention (n 55) art 54(1).
429 Ho (n 213) 340; Redfern and O’Leary (n 2) 399.
430 Gu (n 20) 168.
431 Rubins (n 18) 313.
432 Gu (n 20) 168.
433 Frances Kirkham, ‘Security for Costs’, Millennium Conference of the Chartered Institute of Arbitrators
(18 –19 November 1999) 3.
434 Gunther J Horvath, ‘How May Commercial Arbitral Tribunals Cope With and Sanction Guerrilla
Tactics of the Parties/Their Counsel?’ (2010) 7 TDM 2, 9.
435 Gu (n 20) 168.
468  Security for Costs in Investor-State Arbitration

4.1.2 Prevention of frivolous or vexatious claims

4.1.2.1 Arbitral guerrilla tactics. First, robust allocation of costs influences the types of
claims,436 claimants,437 and manner of resolution.438 Considering the onerous costs
and unpredictable jurisprudence, the more likely the investor can avoid paying costs,
the higher its incentive to file claims.439 Costs sanctions are the most effective sanc-
tion to ‘guerrilla warfare’,440 and breach of interim orders.441

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As noted by the tribunal in a case where both claimant and respondent aban-
doned the proceedings after the jurisdictional phase by both failing to pay the re-
quired institutional advance, ‘the idea should never be allowed to gain ground that
launching claims, or maintaining defences, that turn out to be unsustainable is a cost-
free option’.442
The same concerns have been raised against respondents. A serious challenge for
equal treatment can arise if better-funded governments exploit vastly greater financial
resources for litigation against small claimant companies. They could delay arbitral
appointments, obtain anti-suit injunctions from courts, submit procedural and juris-
dictional objections; maximize time periods at every phase, insist on physical hear-
ings, change counsel, delay appointment of experts and witnesses, file post-award
challenges, and obstruct enforcement.443

4.1.2.2 Claimant’s immunity from execution. Second, security for costs discourages ‘hit
and run’ claims.444 Courts have ordered third-party funders to bear the costs of the
proceedings based on equitable considerations.445 The situation may be far more
egregious when the claimant caused the respondent’s breach. One tribunal noted,
‘had it not been for the claimant’s uncompromising attitude, especially its unlawful
and unjustified refusal to return the registration certificates in 1999, these proceed-
ings would never have taken place’.446 Analogously, if the investor acts in an illegal
way that triggers the state’s expropriation, for example by breaching environmental
regulations or shareholding requirements, the claim would seem even more vexa-
tious. Cost penalties act as a filter against abuses of the forum.447

436 Keith N Hylton, ‘Fee Shifting and Predictability of Law’ (1995) 71 Chicago-Kent L Rev 427, 444–45.
437 Richard A Posner, Law and Theory in England and America (Clarendon 1996) 70–73.
438 J Robert S Prichard, ‘A Systemic Approach to Comparative Law: The Effect of Cost, Fee, and Financing
Rules on the Development of the Substantive Law’ (1988) 17 J Legal Stud 451, 463–64.
439 Schill (n 304) 655.
440 ICC Case No 8486, (1999) XXIVa Y B Comm Arb 162, 172; Horvath (n 434) 8.
441 Horvath, ibid 9; Schill (n 304) 657.
442 Giovanni Alemanni and Others v The Argentine Republic (ICSID Case No ARB/07/8), Order of the
Tribunal Discontinuing Proceedings (14 December 2015) para 19.
443 Thomas W W€alde, ‘ “Equality of Arms” in Investment Arbitration: Procedural Challenges’ in Katia
Yannaca-Small (ed), Arbitration Under International Investment Agreements: A Guide to the Key Issues
(OUP 2010) 173.
444 Rubins (n 18) 361; RSM v St Lucia (n 32) para 31.
445 Excalibur Ventures LLC v Gulf Keystone [2012] EWHC 3436.
446 Elliott Geisinger, ‘ “Dissuasive Costs” in International Arbitration and the (Apparently) “Hopeless
Case” ’ (2007) 3 Arb Costs Bull 6.
447 Schill (n 304) 665.
 Security for Costs in Investor-State Arbitration  469

4.1.2.3 Narrowing pleadings. Third, investment arbitration has no requirement of

‘good-faith’ pleadings, unlike those imposed by ethical rules of domestic jurisdic-
tions.448 Costs mechanisms are necessary to promote efficiency.449 Frivolous claims
on the merits have been a source of recurring complaints. Amendments to ICSID
Arbitration Rules in 2006 introduced a procedure for early dismissal of patently
unmeritorious claims.450
Costs can be leveraged to influence the parties’ incentive structures.451 Security

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for costs can minimize inflated claims,452 discourage tactical delays or bad-faith argu-
ments, and minimize inefficient management of timetables and evidence.453 Security
for costs can also encourage admissions and settlement opportunities.454 Weak
claims can be weeded out before the merits hearing.455 By analogy, the rare Rule
41(5) dismissals have allowed for very fast disposition of cases.456 A failure to utilize
costs orders means that parties lack information that could facilitate their full costs–
benefit analysis in pursuing the arbitration.457

4.1.3 Legitimacy
All relevant actors including institutions, arbitrators, states, and investors are working
to improve the legitimacy of investor–state arbitration. As the tribunal of ICC Case
No 6697 stated:

Experience shows essentially that international arbitration constitutes practi-

cally the only way of regulating disputes that parties from different countries
want to recognize. It therefore constitutes a vital and irreplaceable mechanism
for the security of international transactions.458

If states deem the overall costs of investment arbitration too high, they could reject
arbitration, install preconditions like negotiations or exhaustion of local remedies, re-
turn to international diplomacy, or withdraw from investment treaties entirely.459
The US review of its model investment treaty considered these options.460 This

448 Eg US Federal Rules of Civil Procedure, s 11.

449 Franck (n 21) 779.
450 Raviv (n 27) 16; Parra (n 334) 47, 56.
451 Barnali Choudhury, ‘Recapturing Public Power: Is Investment Arbitration’s Engagement of the Public
Interest Contributing to the Democratic Deficit?’ (2008) 41 Vand J Transntl L 775, 820.
452 Franck (n 21) 851.
453 ibid 796.
454 ibid 787.
455 Raviv (n 27) 20; Adam Raviv, ‘No More Excuses: Toward a Workable System of Dispositive Motions in
Int’l Arbitration’ (2012) 28(3) Arb Intl 487, 494–96.
456 Raviv (n 27) 18.
457 Franck (n 21) 777.
458 Rubins (n 18) 359.
459 Public Statement on the International Investment Regime 31 August 2010 <http://www.osgoode.
yorku.ca/public-statement-international-investment-regime-31-august-2010/>.
460 US Department of State, Report of the Advisory Committee on International Economic Policy
Regarding the Model Bilateral Investment Treaty (2009), recommendations II(4)-(7), IV(1)-(4), V(1)-
(3) <http://www.state.gov/e/eb/rls/othr/2009/131118.htm>.
470  Security for Costs in Investor-State Arbitration

section examines how security for costs can bolster the legitimacy of investment arbi-
tration, as a simpler procedural alternative to investor–state arbitration reform.

4.1.3.1 Procedural tool to regulate disputes. Protecting the reputation of arbitration and
showing that its procedures respond to modern circumstances,461 requires effective
enforcement of awards, including costs awards.462 Furthermore, security for costs is

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often only a fraction of the respondent’s total costs—a token of willingness to arbi-
trate with good-faith.
By shifting costs against an investor who brings frivolous claims, that investor fully
internalizes the costs of its behaviour, and the system removes externalities.463
However, alarm was recently raised that even ‘the power to allocate costs, have been
criticised as nowadays insufficient deterrents’, and the ‘growing phenomenon of
abuse of process calls for legal rules that are specifically designed to address such situa-
tions’.464 Such legal rules need to be available at an earlier stage of proceedings, and
not merely effective at the final award. Therefore, security for costs should be consid-
ered for abusive, frivolous, or extravagant claims,465 for example, in situations such as
in Generation v Ukraine where the tribunal criticized the submissions as ‘convoluted,
repetitive, and legally incoherent’.466

4.1.3.2 Early disposal of claims manifestly without legal merit. Investment arbitration al-
ready offers greater flexibility467 for states to deal with the case early.468 The 2006
amendments to the ICSID Convention,469 as well as some US investment treaties
modelled after the 2004 US Model BIT,470 have special expedited hearings for frivo-
lous claims. ICSID Article 41(5) provides, ‘a party may, no later than 30 days after
the constitution of the Tribunal . . . file an objection that a claim is manifestly with-
out legal merit’.471
In Global Trading v Ukraine,472 an ICSID tribunal ordered dismissal of all claims pur-
suant to a Rule 41(5) jurisdictional objection that the commercial transactions giving
rise to the claims were not ‘investments’ within the meaning of Article 25 of the ICSID
Convention. In Greenberg v. Grenada,473 the tribunal dismissed the claim summarily be-
cause they were resolved in RSM v Grenada. Similarly, in Corona v Dominican Republic

461 Gu (n 20) 205.

462 Pessey (n 17) 18.
463 Schill (n 304) 665.
464 Gaillard on tackling abuse of process, GAR (21 July 2015) [emphasis added].
465 Kaufmann-Kohler and Antonietti (n 147) 528.
466 Generation v Ukraine (n 353) para 24.1.
467 Andrea K Bjorklund, ‘The Emerging Civilization of Investment Arbitration’ (2009) 113 (4) Penn State
L Rev 1269, 1275.
468 ibid 1274.
469 ICSID Arbitration r 41(5) (n 3); Additional Facilities r 45(6).
470 2004 US Model BIT, arts 28(4)–28(6); Treaty Between the United States of America and the Oriental
Republic of Uruguay Concerning the Encouragement and Reciprocal Protection of Investment (2004),
arts 28(4)–28(6).
471 ICSID Arbitration r 41(5) (n 3).
472 Global Trading Resource Corp. v Ukraine (ICSID Case No ARB/08/3) Award (1 December 2010).
473 RSM v Grenada (n 132) para 7.2.
 Security for Costs in Investor-State Arbitration  471

the tribunal was able to determine in an expedited award under the Dominican
Republic-Central America Free Trade Agreement (DR-CAFTA).474
In response to concerns about pre-judgment, written exchanges of legal submis-
sions and documents, with an oral hearing pursuant to Rule 41(5) are generally
viewed as equally capable of providing a proper answer as a full enquiry.475 It can be
obvious that some cases are ‘fundamentally lacking in merit’ and the claimant was ‘to
any reasonable and impartial observer, most unlikely to succeed’.476

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Another concern is that security for costs applications prima facie increase time
and costs.477 Respondents may take advantage of security for costs applications to
delay the satisfaction of investors’ legitimate claims. However, the overall benefits
brought by efficient management of frivolous claims could outweigh potential delays.
As a safeguard, tribunals can refine the requirements for security for costs.
In addition, compared to summary dismissal, security for costs is less harsh. Where
bargaining imbalances threaten to skew settlements, third-party funders themselves
have taken the position that the solution is more likely to be found in a market mecha-
nism than in procedural reform.478 Advance guarantees can delicately target unfair ef-
fects of corporate structuring such as setting up a ‘straw-man’ as claimant.479 Security
for costs offers a gentler, more sophisticated mechanism—instead of risking blunt dis-
missal, truly meritorious claim are likely to find third-party funders who have done their
calculations and are willing to post security. On the contrary, frivolous claims would in
reality, be far less likely to receive the financial support of third-party funders.

4.2 Fairness in enforceability of final awards

This section weighs equal treatment and fairness between investor and state, by ex-
amining the procedural mechanisms available to both. In particular, it addresses the
question whether security for costs should not be granted because it gives the re-
spondent state an unfair strategic advantage.

4.2.1 Consistency
Concerns justifying cautio judicatum solvi have arguably been mitigated by the
NYC.480 As an ICC tribunal stated, the country where the claimant’s assets were lo-
cated ‘is a signatory to the New York Convention’, therefore if the respondent ob-
tains a costs award, it can seek enforcement through the courts in accordance with
the NYC.481 ICSID’s enforcement provisions were deemed sufficiently robust to en-
sure payment in most circumstances.482

474 Corona Materials LLC v Dominican Republic (ICSID Case No ARB(AF)/14/3), Award on the Respondent’s
Expedited Preliminary Objections in Accordance with Article 10.20.5 of the DR-CAFTA (31 May 2016).
475 Raviv (n 27) 18.
476 CDC v Seychelles (n 374) para 89.
477 Gu (n 20) 202.
478 Christopher Bogart, ‘Third Party Funding in International Arbitration: An Overview of Arbitration
Finance’, 3. (Burford, 4 October 2016) <http://www.burfordcapital.com/blog/international-arbitra
tion-financing/>.
479 Horvath (n 434) 14.
480 Rubins (n 18) 372.
481 ICC Case 12393, Procedural Order (30 July 2003) para 38.
482 Atlantic Triton v Guinea (n 57); Rubins (n 18) 346.
472  Security for Costs in Investor-State Arbitration

From a procedural fairness standpoint, the question of consistency arises—why

should security for costs guarantee the respondent’s ease of enforcement, when on
the other hand, the claimant already faces the uphill task of enforcing an award with
multiple barriers such as state immunity?
This section shows two reasons that fairness in the arbitral procedures is re-
spected through security for costs: (i) that claimants have enjoyed a vast array of pro-

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visional measures in aid of securing their final awards; and (ii) that empirical
evidence unfortunately shows that it is the claimants, not the tribunal, who have con-
trol over the costs of proceedings.

4.2.2 Provisional measures to secure final award

A diverse range of provisional measures have been granted to claimants. These in-
clude orders relating to production and preservation of evidence,483 termination of
parallel proceedings,484 restrictions on encashing bonds,485 injunctions against trans-
fer of funds,486 termination of contracts,487 injunctions against collecting pay-
ments,488 directions not to aggravate the dispute,489 and financial guarantees
regarding satisfaction of the award.490
In courts, ETI v Bolivia (UK) demonstrated in principle the possibility of obtain-
ing freezing orders to secure a final remedy. ETI obtained freezing orders491 over the
disputed property in New York492 and London493 at first instance.
In arbitration, the ETI v Bolivia tribunal ordered suspension of the payment of the
tax imposed by the state and that claimants provide a security of US$2 million, either
through an escrow account or through a bank guarantee, until a final award is ren-
dered, to ensure that the state would not be ‘thrown the keys’ if the claimant was left
with assets significantly lower than the taxes owed to the state.494
In Exxon Mobil v Petroleos de Venezuela, an ICC arbitration, Mobil obtained from
the English courts a freezing injunction of up to US$12 billion for the potential

483 Tokios Tokelés v Ukraine (ICSID Case No ARB/02/18), Procedural Order No 3 (18 January 2005)
paras 24–36; Bismuth (n 42) 803.
484 Ceskoslovenska Obchondi Banka, A.S. v Slovak Republic (ICSID Case No ARB/97/4) Decision on
Jurisdiction (24 May 1999) para 9 (Procedural Order No 4); SGS v Pakistan (ICSID Case No ARB/
01/13), Procedural Order No 2 (16 October 2002) 304; City Oriente Ltd v Republic of Ecuador and
Empresa Estatal Petroleos del Ecuador (ICSID Case No ARB/06/21) Order on Provisional Measures (19
November 2007) para 92; Bismuth (n 42) 803.
485 Saipem SpA v People’s Republic of Bangladesh (ICSID Case No ARB/05/07) Decision on Jurisdiction
and Recommendation of Provisional Measures (21 March 2007) para 183.
486 Paushok v Mongolia (n 166) dispositif para 3; Bismuth (n 42) 803.
487 Perenco Ecuador Ltd. v Republic of Ecuador and Empresa Estatal Petroleos del Ecuador (ICSID Case No
ARB/08/6) Decision on Provisional Measures (8 May 2009) para 79; Bismuth (n 42) 803.
488 Perenco v Ecuador (n 487) para 79(2); Bismuth (n 42) 803.
489 Paushok v Mongolia (n 166) dispositive para 11; Bismuth (n 42) 803.
490 ibid, para 4; Bismuth, ibid.
491 Although the attachment orders were set aside on appeal, it was due to the courts’ deference to ICSID
tribunals on provisional measures.
492 ETI Euro Telecom Int’l N.V. v Republic of Bolivia and Empresa Nacional de Telecommunicaciones Entel S.A.,
(2008) SDNY, No 08 Civ 4247 (LTS)(FM) <www.asil.org/ pdfs/ilib080814.pdf>.
493 ETI v Bolivia (UK) (n 247).
494 Paushok v Mongolia (n 166) para 86.
 Security for Costs in Investor-State Arbitration  473

arbitral award.495 In Chevron v Ecuador, the tribunal ordered Ecuador to take mea-
sures against its courts not to enforce the Lago Agrios judgment as a provisional
measure to secure a potential remedy.496 In City Oriente v Ecuador,497 the tribunal or-
dered Ecuador and Petroecuador to refrain from ‘demanding that City Oriente
Limited pay any amounts’. In Paushok v Mongolia498 and Perenco v Ecuador, the tribu-
nal ordered suspension of tax.499

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In Atlantic Triton v Guinea, the tribunal considered but rejected the request to
stay court proceedings because ‘there is no reason to suppose that the government
would not perform any obligations for which the final award might hold it responsi-
ble’.500 However, the possibility that the claimant could obtain such provisional mea-
sures was clear. In Niko Resources v Bangladesh, the tribunal ordered staying court
proceedings, to ensure that before the decision on the request for provisional mea-
sures, the situation was not aggravated or compliance with a possible provisional
measure order was not rendered more difficult.501
All the above measures show there is a general willingness to order provisional
measures to secure the claimant’s final remedy. In contrast, there are few measures
designed to secure the respondent’s final remedy—the costs award.

4.2.3 Claimant’s direct control over costs

Finally, it is crucial to note that statistics show a direct bivariate relationship between
the quantum claimed by the claimant and total costs of the arbitration.502
Furthermore, an extensive statistical analysis of costs awarded in international arbitra-
tion showed there was no reliable relationship between total costs of the arbitration
and the size of the final award.503 This means that in spite of final costs awards, the
amount spent on costs in each proceeding depends critically on the quantum initially
claimed. The tribunals could not control the total costs of the arbitration in propor-
tion to the size of the final award because the tribunals have no interim control as the
arbitration proceeds.
Ultimately, the total costs of the proceeding is a variable not within the tribunal’s
control, but entirely in the hands of the claimant504—who determines the amount
claimed from the outset. The fundamental difference between a claimant’s applica-
tion for provisional measures and the respondent’s application for security for costs,
is that ‘[f]rom the perspective of respondents, the possibility of recovery costs at the

495 The award was lifted 1 month later.

496 Chevron v Ecuador (PCA Case No 2009-239) 4th Interim Award on Interim Measures (7 February
2013).
497 Perenco v Ecuador (n 487) para 92.
498 Paushok v Mongolia (n 166) dispositif para 1.
499 Perenco v Ecuador (n 487) para 79; Bismuth (n 42) 803.
500 Atlantic Triton v Guinea (n 57); Kaufmann-Kohler and Antonietti (n 147) 528; Friedland (n 242) 347.
501 Niko Resources (Bangladesh) Ltd. v Bangladesh Petroleum Exploration & Production Company Limited, and
Bangladesh Oil Gas and Mineral Corporation (ICSID Case Nos ARB/10/11 and ARB/10/18)
Procedural Order No 5.
502 Franck (n 21) 835.
503 ibid 837.
504 ibid 838.
474  Security for Costs in Investor-State Arbitration

end of the day may be the only hope for emerging unscathed from a dispute they did
not initiate.’505
Therefore, it is critical that investment arbitration imposes an interim mechanism
to regulate the reasonableness of the claim. Respondents have to mount a defence,
regardless of the merits or the claimant’s ability to reimburse the respondent’s
costs.506 The direct bivariate statistical relationship between the quantum claimed

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and total costs demonstrates that an interim procedural mechanism is necessary to
take control over costs out of the hands of claimants, and to give tribunals control
over proceedings.
All interim measures entail certain prejudice—security for costs potentially causes
lost interest, missed investment opportunities, and exclusion from the forum.507 Yet,
interim measures, even on an emergency basis, are justified if they target procedural
unfairness. The LCIA Rules deal with fairness concerns by allowing ‘cross-indemni-
ties’ from the party demanding security, to cover ‘costs and losses incurred by the
claimant or counterclaimant in providing security’.508

5. ST RATEGIC C ONSI D E R A T I O N S W H E N A P P L Y I N G F O R S E C U R I T Y
F O R C O S T S I N I N VE S T M EN T A R BI T R A T I O N
5.1 Suitability of tribunal ordered security for costs
5.1.1 Preference for courts
First, supporting courts may be more suitable for security for costs applications be-
cause arbitrators cannot appear to prejudge the merits of the case.509 Secondly, the
mandatory norms of the lex fori may override the parties’ grant of authority to a tri-
bunal to order security for costs.510 Some courts more hostile to security for costs
may check for compliance with domestic public policy during enforcement.511
Article 1468 of the 2011 French Civil Procedure Code states that an arbitral tribunal
may order any provisional or conservatory measures ‘it deems appropriate’, which in-
cludes preservation of evidence or assets, putting in place escrows, ordering security,
and injunctions,512 but ‘only courts may order conservatory attachments and judicial
security’.513 If the lex fori has adopted the revised draft of UNICTRAL Model Law
Article 17, it is likely that security for costs is available.
Thirdly, it has been argued that the courts where the financial status and assets of
the company are located provide more effective forums for obtaining security. In
French courts, a creditor may seek a provisional attachment order from the juge de
l’exécution in an ex parte proceeding if the debtor is bordering on insolvency.514

505 Jean Kalicki, ‘Security for Costs in International Arbitration’ (2006) 3 TDM 5.
506 Pessey (n 17) 5; Colbran (n 316)
507 Rubins (n 18) 315.
508 Fitzpatrick (n 34) 141; Rubins (n 18) 343.
509 Gu (n 20) 184.
510 ibid 204.
511 ibid 170.
512 Nancy M Thevenin (ed), The Grant and Enforcement of Interim Measures in International Arbitration,
Section C, Baker & McKenzie International Arbitration Yearbook: 2012-2013 (Juris Publishing 2013) 161.
513 NCPC (n 271) art 1468.
514 ibid.
 Security for Costs in Investor-State Arbitration  475

Provisional measures for security are most effective if granted spontaneously by the
court in order to prevent the dispersion of assets.515

5.1.2 Enforceability of tribunals’ orders

However, concentrating authority in arbitrators increases the neutrality, speed, econ-
omy, confidentiality, expertise, and informality of arbitration. Some courts have less

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experience with security for costs and judges are less familiar with predicting any po-
tential shift in cost than the arbitrator.516
First, key arbitral provisions like the French NCPC Articles 1465 and 1448517 re-
inforce the principle that courts should defer to tribunals on matters relating to the
arbitration. Under the ICC and LCIA Rules, applications to courts are permitted
only ‘before the file is transmitted to the Arbitral Tribunal’ or in appropriate or ex-
ceptional circumstances thereafter.518 ICSID Rule 39 does not explicitly rule out re-
quests for security before domestic courts.519 ICSID Rule 39(6) has been
interpreted by English courts, however, as deferring to the tribunal: ‘provisional mea-
sures may be sought only from the ICSID tribunal itself, and not from national
courts, unless the parties agree otherwise’.520 The ICSID Additional Facility Rules
state that parties ‘may apply to any competent judicial authority for interim or con-
servatory measures’.521 UNCITRAL Arbitration Rules also allow for parallel provi-
sional measures applications before courts.522
Furthermore, the enforceability of anti-suit arbitral awards in preference to court-
ordered anti-suit injunctions in Gazprom523 shows the growing deference of courts
to tribunals. While a domestic court could offend the comity of another court where
the arbitration is seated, a tribunal-issued security for costs order could be enforced
without offending comity. Arbitral orders avoid the problem of competing courts.524
The underlying theory of independent arbitral space supports the notion that arbitral
provisional measures are preferable.
Secondly, provisional measures applications in courts such as for security for costs
can be abused to harass the claimant in multiple forums. In ETI v Bolivia (UK), the
English Court of Appeal stated that the investor ETI’s application was ‘an attempt by
ETI to use national courts to secure its position in an international arbitration arising
out of the nationalisation of its interests in Bolivia’.525 Preference for arbitration
avoids the situation of parties trying to have two bites of the cherry by applying for
provisional measures in multiple fora before the tribunal and other courts. For exam-
ple, in A v Z, ICC Case No 5, the tribunal declined the applicant’s request for

515 Bismuth (n 42) 805.

516 Gu (n 20) 173.
517 Emmanuel Gaillard, ‘France Adopts New Law On Arbitration’ (2011) 245 NY LJ 15.
518 ICC Rules (n 198) art 23(2); LCIA Rules (n 44) art 25(3).
519 ICSID Arbitration Rules (n 3) art 39.
520 ETI v Bolivia (UK) (n 247) paras 58, 108.
521 ICSID Additional Facility Rules (n 71) art 46(4).
522 UNCITRAL Arbitration Rules 2010 (n 4) art 26(3). See also SCC Rules (n 205) art 31(2); ICC Rules
(n 198) art 23(2).
523 Gazprom (Judgment) [2015] EUECJ C-536/13
524 Bismuth (n 42) 808.
525 ibid 809.
476  Security for Costs in Investor-State Arbitration

provisional measures because the same application had essentially been decided in
New York courts.526
Thirdly, the appropriateness of court-ordered security for costs in investment ar-
bitration is questionable, given the serious consequences of breach of a security for
costs order. It can be illustrated by an example:

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One can imagine the awkward situation that might ensue should a Brazilian
state enterprise initiate arbitration against a private corporation in Washington,
D.C. under the ICSID Convention, and the U.S. court stays the proceedings
pending the foreign government’s payment of security for the claimant’s costs.
More importantly, the exclusion of judicial intervention in the ICSID system
stems from the presumption that an arbitrating state entity may have unfair in-
fluence over the courts in its home jurisdiction, enabling it to obtain either
unwarranted judicial assistance or block valid requests from the opponent pri-
vate investor.527

Finally, attempts have been made to distinguish between provisional measures in re-
lation to the dispute, and protecting the execution of the award.528 However, there is
a more natural allocation between tribunals and courts—tribunals should have juris-
diction over measures in relation to the dispute, and courts are the more efficient fo-
rum over documents and assets within their jurisdiction. While tribunals are the
master of proceedings, courts can order attachment of assets within their jurisdic-
tions. Depending on the type of security for costs order, the tribunal could sanction
non-compliance without the aid of a court by ordering a simple provision of a bond,
or a court’s assistance may be required for the application for attachment of assets
within its jurisdiction as security.

5.2 Investigation into assets of claimants

Before an application can be made for security for costs, the respondent must evalu-
ate the assets available for later execution of a costs award. The ICCA-Queen Mary
third-party funding Task Force recommends that ‘tribunals should ascertain the fi-
nancial situation of the claimant starting from general financial records, such as an-
nual accounts and statutory returns’.529 This involves accounting data, for example,
current ratio, quick assets ratio, profit margin, return on net operating assets, return
on equity, ratio of net interest paid to total income, gearing, etc.530 Often there is no
access to basic financial data in possession of the claimant.531 It is a separate issue
whether the tribunal has jurisdiction to order disclosure of funding documents.

526 A v Z, ICC Case No 5 (Order, 2 April 2002), ASA Bulletin, (Kluwer Law International 2003, Volume 21
Issue 4) 810–21.
527 Rubins (n 18) 346.
528 Bismuth (n 42) 805.
529 ICCA-Queen Mary Third Party Funding Task Force (n 292) 3.
530 Tony Levitt and Arthur Harvard, ‘Securing Costs in Arbitration Proceedings’ (1998) 64 JCI Arb 182;
Gu (n 20) 189.
531 Gu, ibid 196.
 Security for Costs in Investor-State Arbitration  477

In RSM v St Lucia, the tribunal refused to interrogate parties as to its sources of

funding.532 Funders often impose restrictions on disclosure of the exact terms of a
funding agreement.533 However, the Muhammet Çap & Sehil Inşaat Endustri v
Turkmenistan tribunal stated that it was ‘sympathetic to [r]espondent’s concern that
if it is successful in this arbitration and a costs order is made in its favour, [c]laimants
will be unable to meet these costs and the third-party funder will have disap-
peared’.534 The question also arises to whom disclosure should be made—disclosure

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only to the tribunal could affect procedural fairness, as the other party would have
no chance to object to potential conflicts or apply for security for costs.535 Overall,
any confidentiality requirements between the claimant and the third-party funder
should be less important than the ethical integrity of the arbitration and protection
of the enforceability of the final award. The International Bar Association (IBA)
Guidelines on Taking of Evidence Articles 3 and 9(2)(e)536 reflects the tribunal’s au-
thority to order disclosure of information in spite of commercial confidentiality obli-
gations of the disclosing party.
In Eurogas v Slovakia,537 the tribunal ordered that the claimant disclose the iden-
tity of the third-party funder. In SAS v Bolivia, the tribunal ordered the disclosure of
the name of the third-party funder but not the terms of the funding, because it was
not relevant in the circumstances to determine whether the third-party funder would
assume responsibility for an eventual costs award.538 Similarly, in Muhammet Çap &
Sehil Inşaat Endustri v Turkmenistan,539 the tribunal ordered disclosure of third-party
funding for the purpose of ‘ensuring the integrity of the proceedings and to deter-
mine whether any of the arbitrators are affected by the existence of a third-party
funder’.
It might be preferable to require disclosure of third-party funding at the outset of
the arbitration540 to protect the ethical standards in the arbitration. The IBA
Guidelines on Conflict of Interests General Standard 7(a) provides that parties must
disclose any direct or indirect relationship between the arbitrator and a third-party
funder, ‘at the earliest opportunity’.541 The ICC has also issued a guidance note for
conflict disclosures by arbitrators, stating that arbitrators should disclose relation-
ships with entities that have a direct interest in the dispute or an obligation to indem-
nify a party for the award.542 Third-party funders who have an economic interest
with the arbitrators can endanger the impartiality of the arbitrator.543 Recently

532 ETI v Bolivia (UK) (n 32) para 67.

533 Maxi Scherer, ‘CDR hit- Out in the open? Third-party funding in arbitration’ <http://www.cdr-news.
com/categories/expert-views/out-in-the-open-third-party-funding-in-arbitration> 4; Burford (n 478) 1.
534 Muhammet Çap. & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v Turkmenistan (ICSID Case No ARB/12/6)
Procedural Order No 3 (12 June 2015) para 12.
535 Scherer (n 533) 6.
536 IBA Guidelines on the Taking of Evidence 2010, arts 3 and 9(2)(e).
537 Slovakia (n 137) Transcript of the hearing (17 March 2014) 145.
538 SAS v Bolivia (n 17) para 80–81.
539 Muhammet v Turkmenistan (n 534) para 10.
540 Scherer (n 533) 3.
541 IBA Guidelines on Conflict of Interests in International Arbitration (23 October 2014).
542 ICC, ‘Note to Parties and Arbitral Tribunal on the Conduct of Arbitration’ (22 February 2016) 5, para
24.
543 SAS v Bolivia (n 17) para 34.
478  Security for Costs in Investor-State Arbitration

negotiated investment treaties such as the EU–Vietnam Free Trade Agreement in-
clude specific provisions requiring the disclosure of third-party funding, and directing
the tribunal to take into account the existence of third-party funding.544 The 2017
Investment Arbitration Rules of the Singapore International Arbitration Centre also
provide the tribunal with additional powers to order the disclosure of the existence
of third-party funding, the identity of the funder, and details of the funding
arrangement.545

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Disclosure of third-party funding should be assessed like any other piece of docu-
mentary evidence not in the possession of the requesting party, but which is required to
assess the request for security for costs.546 If the claimant breaches disclosure orders, an
adverse inference may be drawn in relation to the application for security for costs.547

5.3 Appropriate test for order for security for costs

There is no standard test for security for costs.548 For example, Article 38(2) of the
2017 SCC Rules mandates three issues that the tribunal must consider in making a
security for costs order: ‘(i) the prospects of success of the claims, counterclaims and
defences; (ii) the Claimant’s or Counterclaimant’s ability to comply with an adverse
costs award and the availability of assets for enforcement of an adverse costs award;
(iii) whether it is appropriate in all the circumstances of the case to order one party
to provide security’, but adds Article 38(iv) which requires the tribunal to consider
‘any other relevant circumstances’. 549 Since arbitrators have different legal back-
grounds, defining a clear and restrictive standard would limit any side effects.550
Transaction risks are clearer if interim cost orders followed standard guidelines.551
Interim measures in investor–state arbitration generally require: (i) prima facie ju-
risdiction, (ii) probability of success on the merits, (iii) urgency, (iv) imminent dan-
ger of irreparable harm, 552 and (v) proportionality.553 Just as modifications exist for
requests for preservation of evidence,554 the test is distinct for security for costs.555
The ‘potentially decisive nature’556 of early dismissal means that arbitrators should
resolve doubts in the claimant’s favour. The particular nature of investor–state

544 EU–Vietnam Free Trade Agreement (January 2016 Draft) < http://trade.ec.europa.eu/doclib /docs/
2016/february/tradoc_154210.pdf> s 3, Resolution of Investment Disputes, art 11.
545 Investment Arbitration Rules of the Singapore International Arbitration Centre 2017, art 24(l).
546 Jonas von Goeler, ‘Chapter 9: Security for Costs and Third-Party Funding’ in Third-Party Funding in
International Arbitration and its Impact on Procedure, International Arbitration Law Library, vol 35
(Kluwer Law International 2016) 333–66, 339.
547 IBA Rules on Taking of Evidence 2010, art 3(3).
548 Kalicki (n 505) 1.
549 SCC Rules (n 206).
550 Pessey (n 17) 17.
551 Gu (n 20) 204–05.
552 Paushok v Mongolia (n 166) para 45.
553 Ali Yesilirmak, Provisional Measures in International Commercial Arbitration (Kluwer Law International
2005) 175; Gary Born, International Commercial Arbitration, Volume II (Kluwer Law International 2009)
1981, 1992.
554 Kaufmann-Kohler and Antonietti (n 147) 533.
555 ibid 544.
556 See ICSID Rule 41(5).
 Security for Costs in Investor-State Arbitration  479

arbitration also brings unique concerns. This section sets out and analyses the rele-
vant considerations for a security for costs application.

5.3.1 Prima Facie Jurisdiction

Although perceived as a provisional measure, in the case of security for costs, juris-
diction is a negligible requirement. The ICSID secretariat’s Article 36 screening pro-

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vides reasonable basis for the tribunal’s prima facie jurisdiction to consider security
for costs. In non-ICSID cases, the tribunal could simply look for mere evidence that
there is no other more appropriate forum for the ordering of security for costs.
On the criteria of prima facie jurisdiction, the assenting opinion in RSM v St Lucia
noted accurately that:

First, it is no function of the respondent State to establish jurisdiction: indeed

the application may be based upon the contention that there is none. Second, a re-
spondent has no obligation to advance any case in defence on jurisdiction or
on the merits before the claimant has made its case. Third, to require a respon-
dent to establish the negative against its own interests, namely, as a pre-
condition for the making of such orders in defence, would be a plain breach of
Article 52 of the Convention as a serious departure from a fundamental rules
of procedure.557

In RSM v St Lucia, the president of the tribunal noted that ‘it has regularly been held
in previous ICSID arbitrations that a tribunal needs to have, on a prima facie basis,
subject matter jurisdiction’, but also noted the respondent may have a legitimate in-
terest in security for costs where no subject matter jurisdiction was present.558
The second statement is a key in cases of jurisdictional objections. Since security
for costs applications are particularly relevant to cases where the tribunal lacks juris-
diction, there is some theoretical tension between the prima facie jurisdiction re-
quired for interim measures and a lack of jurisdiction on the merits. This tension
should be resolved by lowering the requirement for prima facie jurisdiction to a mini-
mal. Whether the tribunal is authorized to decide upon a security for costs applica-
tion even though its jurisdiction is contested is not important, because tribunals may
award costs even if it ultimately determines it has no jurisdiction. Therefore, tribu-
nals are authorized to grant security for costs even if its jurisdiction is questioned,559
and arguably especially where its jurisdiction is highly questionable.

5.3.2 Plausible success on the merits

The applicant must show with a reasonable degree of certainty a potential claim for
reimbursement of costs.560 In public international law, this requirement is often re-
ferred to as fumus boni iuris. UNCITRAL Model Law 2006 Article 17A(1)(b)

557 RSM v St Lucia (n 126) para 5 [emphasis added].

558 RSM v St Lucia (n 32) para 59.
559 Julian DM Lew and others Comparative International Commercial Arbitration (Kluwer Law International
2003) 653; Berger (n 9) 53.
560 Redfern and O’Leary (n 2) 410.
480  Security for Costs in Investor-State Arbitration

provides conditions for granting interim measures including: ‘a reasonable possibility

that the requesting party will succeed on the merits of the claim’.561 Therefore, appli-
cants should consider its strategically vulnerable position by having to prove its sub-
stantive defence at a preliminary stage. In RSM v St Lucia, the respondent did not
elaborate on the merits of the case,562 possibly for this strategic reason.
A potential claim is ‘an actual right or legally protected interest’, in contrast to ‘a
simple interest, which does not entail legal protection’.563 This is often linked to the

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issue that the claimed right should be related to the main claim.564 This can be inter-
preted as a ‘prospect of success’ or the state must ‘demonstrate that it has a right to
be preserved’.565
In RSM v St Lucia, the tribunal made a finding that St Lucia’s position was ‘at least
plausible’.566 The tribunal decided ‘[w]ithout making any prejudgment of the merits,’
that the state’s merits defence was ‘plausible’, and that an eventual costs order against
the claimant was ‘not evidently excluded’.567 However, provisional measures must
not prejudge the dispute on the merits.568 This test was distinguished from the ‘good
cause’ required for ordering that RSM bear all the institutional and tribunal’s ad-
vances on fees.569
The reasons for ordering that parties bear equal share of costs, provide examples
when security for costs should not be ordered: (i) the claimant being successful on
key points;570 (ii) the respondent would not be completely successful;571 or (iii)
claimant’s allegations were not frivolous.572 For security for costs, the tribunal would
simply have to determine the flip-side of a manifest lack of merits—that of a reason-
able possibility of success on the merits.

5.3.2.1 Claims manifestly without legal merit. For interim measures, the tribunal need
only deal with the nature of the rights,573 not full assessment of the merits. In NAI
Case No 1694, the tribunal was not able to make detailed findings on the factual is-
sues involved, but identified areas the claimant would clearly fail.574 Tribunals have
made determinations on frivolity. In the context of granting positive provisional mea-
sures, the ‘at least plausible’ test is often a demonstration that the applicant’s case is

561 UNCITRAL Working Group. II (Arbitration and Conciliation), 38th Session, UN Doc A/CN.9/
WG.II/ WP.123 (2003) Item 3, 2.
562 RSM v St Lucia (n 32) para 43.
563 Occidental Exploration and Production Company v The Republic of Ecuador (ICSID Case No ARB/06/11)
Decision on Provisional Measures (17 August 2007) para 65; Kaufmann-Kohler and Antonietti (n 147) 519.
564 Bismuth (n 42) 817.
565 Ragnwaldh and Eliasson (n 148) 410.
566 RSM v St Lucia (n 32) para 74.
567 ibid, para 74.
568 ibid, para 58.
569 ibid, para 76.
570 Middle East Cement Shipping and Handling Co. S.A. v Arab Republic of Egypt (ICSID Case No ARB/99/
6).
571 Autopista Concesionada de Venezuela, C.A. v Bolivian Republic of Venezuela (ICSID Case No ARB/00/5).
572 Mihaly International Corporation v Democratic Socialist Republic of Sri Lanka, (ICSID Case No ARB/00/
2).
573 Fortier (n 33) 10.
574 Interim Award in NAI Case No 1694 (1996) 23 YB Comm Arb 97 (1998).
 Security for Costs in Investor-State Arbitration  481

not entirely without merit.575 Therefore, this test is merely the other side of the
same coin. ‘Essentially, the Tribunal needs to decide only that the claims made are
not, on their face, frivolous or obviously outside the competence of the Tribunal.’576
At the provisional measures stage, it is possible to identify cases ‘clearly without
merit’,577 without pre-judging the merits.

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5.3.2.2 Manifest lack of jurisdiction. A finding of ‘clearly without merit’ includes cases
of manifest lack of jurisdiction. Where the tribunal lacks jurisdiction, the respondent
should either apply to dismiss the claim under available summary dismissal provi-
sions, or in the alternative, especially if there is less confidence of success in a sum-
mary dismissal, seek security for costs.
A result of advance and broad consent in investment treaties are frequent jurisdic-
tional objections, for example, to ratione personae based on nationality, ratione materiae
regarding the definition of investment, or ratione temporis regarding local remedies, wait-
ing periods and negotiations. For example, NAFTA requires that claims be brought
within 3 years since the investor ‘first acquired, or should have first acquired, knowledge
of the alleged breach and knowledge that the enterprise has incurred loss or damage’.578
In Methanex, the tribunal dismissed the case because there ws no jurisdiction.579

5.3.3 Urgency
While frivolity is a persuasive justification for security for costs, urgency is likely to
be more important.580 Similarly, in domestic court practices, judges often avoid pre-
judgments on the merits but focus on other factors such as risk of dissipation of as-
sets.581 The focus in investment arbitration should be on the risk that the claimant
will frustrate a final costs award.

5.3.3.1 Material and serious risk. The level of urgency required depends on the type of
measure requested.582 Urgency should be interpreted in a security for costs applica-
tion as a ‘material and serious risk’ of non-compliance with an eventual costs order
against it.583 The Perenco v Ecuador tribunal held, ‘[p]rovisional measures may only
be granted where they are urgent, because they cannot be necessary if, for the time
being, there is no demonstrable need for them.’584 Tribunals must assess how the

575 Kaufmann-Kohler and Antonietti (n 147) 534.

576 Paushok v Mongolia (n 166) para 55; Kaufmann-Kohler and Antonietti, ibid 534.
577 David Caron, Lee Caplan, The UNCITRAL Arbitration Rules, A Commentary (2nd edn, OUP 2013) 523;
Kaufmann-Kohler and Antonietti, ibid 533.
578 NAFTA Articles 1116(2), 1117(2); Bjorklund (n 467) 1275–86.
579 Methanex Corp. (Can.) v United States (UNCITRAL) Final Award of the Tribunal on Jurisdiction and
Merits (3 August 2005) p IV, Ch E, paras 10, 22.
580 Ragnwaldh and Eliasson (n 148), 411.
581 UK Civil Procedure Rules, 1998 (SI 1998/3132) as amended, r 25.13(2); Porzelack KG v Porzelack
(UK) Ltd [1987] 1 WLR 420, 423.
582 Biwater Gauff (Tanzania) Ltd. v United Republic of Tanzania (ICSID Case No. ARB/05/22), Procedural
Order No. 1 (31 March 2006), para 76.
583 RSM v St Lucia (n 32) para 77–78.
584 Perenco v Ecuador (n 487) para 43, Kaufmann-Kohler and Antonietti (n 147) 535.
482  Security for Costs in Investor-State Arbitration

circumstances may affect a party’s right.585 RSM v St Lucia considered urgency based
on the claimant’s conduct in two previous arbitrations586 against another state
Grenada,587 and found ‘compelling grounds’ for granting security for costs.588
In SAS v Bolivia, the tribunal provided examples of such risks: the claimant is in a sit-
uation where it does not want to pay, that the claimant has breached its obligations, or
that it has carried out acts from which the tribunal may clearly and sufficiently conclude
that it would not have the means to comply with an eventual award on costs.589

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The applicant must show immediate danger of being deprived of his costs.590
Tribunals exercise ‘a degree of speculation’ whether prejudicial circumstances are
likely.591 The risk cannot simply be substantive, grave, or sufficient. It must in addi-
tion, be imminent because urgency is the decisive justification for acceleration of the
arbitration.592 For security for costs, the applicant should show that insolvency is not
merely speculative. In Burimi v Albania, the claimant’s insolvency was not deemed
imminent because it depended on future steps.593 In OPC v Ecuador, the tribunal re-
jected the request for provisional measures because ‘the claimants are seeking a pro-
visional measure in order to prevent an action which they are not even sure is being
planned’.594
According to the ICJ, ‘[a] measure is urgent where ‘action prejudicial to the rights
of either party is likely to be taken before [a] final decision is given.’595 Although it
may be tempting for tribunals to measure urgency against the closeness of the date
to the substantive hearing of the case,596 it is scant comfort for the respondent if the
tribunal pushes ahead with incurring the full costs of the substantive hearing, and the
imminently insolvent claimant becomes insolvent in the meantime. Urgency should
thus be decided in relation to the danger of the claimant becoming insolvent or oth-
erwise unable to pay a costs award. Closeness between the date of the application for
security for costs and the date of the substantive hearing, is a factor better considered
in the context of the respondent’s good faith, and balancing the claimant’s access to
justice.597

5.3.3.2 Financial difficulty. The claimant’s financial situation such as having no assets,
cash-flow problems, or insolvency, is a major consideration.598 Swiss tribunals have

585 Bismuth (n 42) 812.

586 RSM v St Lucia (n 32) para 28; RSM v Grenada (n 132) Annulment proceeding discontinued (n 134).
587 Weeramantry and Ferrer (n 74) 31.
588 RSM v St Lucia (n 32) para 81.
589 SAS v Bolivia (n 17) para 83.
590 Berger (n 9) 9.
591 Bismuth (n 42) 817.
592 Pey Casado v Chile (n 58) para 5.
593 Burimi v Albania (n 105) para 31.
594 OPC v Ecuador (ICSID Case No ARB/06/11) Decision on Provisional Measures (17 August 2007)
para 89.
595 Occidental v Ecuador (n 563) para 59.
596 Gustav F W Hamester GmbH & Co KG v Republic of Ghana (ICSID Case No ARB/07/24) Award (18
June 2010) para 17.
597 UNCITRAL Arbitration Rules 2010 (n 4) art 26(1)(a); RSM v St Lucia (n 32) para 87; Guaracachi v
Bolivia (n 151) para 9.
598 Gu (n 20) 190.
 Security for Costs in Investor-State Arbitration  483

relied on insolvency for ordering security for costs.599 In its Guidelines for
Arbitrators, the Chartered Institute of Arbitrators specifically refers to the location of
assets and whether the claimant would be able to avoid paying.600 In X v Y, the court
granted security even though X had substantial assets in Australia and India, because
the assets were illiquid shareholdings and not ‘readily available’ for enforcement.601
RSM v St Lucia found no evidence that RSM had funds to satisfy a costs award,602

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supporting a finding of material and serious risk. However, if the state’s actions have
left the investor without resources, it could be unfair to grant security for costs.603
In ICC Case No 14661, the liquidators had to show liabilities of EUR13 million,
and that the claimant’s only assets were the claims in the arbitration.604 In Ken-Ren,
the plaintiff was found to be only a nominal claimant, sponsored by a third party. 605
In SAS v Bolivia, the tribunal required a ‘high real economic risk’.606 A potential ‘cash
flow difficulty’ was not sufficient to prove that there was such a high risk.607 The tri-
bunal indicated that it was looking for a situation where there was a ‘total lack of
funds or assets to pay’.608

5.3.3.3 Third-party funding. RSM v St Lucia considered that ‘third party funding fur-
ther supports the tribunal’s concern that Claimant will not comply with a costs award
rendered against it’.609 The tribunal added that it was unjustified to burden the state
with the uncertainty of whether the unknown third party would comply with a costs
award.610 It has been argued that a lack of assets to satisfy a final costs award, com-
bined with third-party funding gives rise to a ‘strong prima facie case’ for security for
costs.611 Some are convinced that third-party funding is a relevant factor in a security
for costs application. Their reasons are that the availability of third-party funding
means that stifling a claim becomes much less of a concern, and the funder who con-
trols and benefits from the arbitration should be made liable for costs if his funded
claim fails.612 These are important moral and ethical reasons.
However, from an economic perspective, funding is similar to a bank loan or
mortgage.613 The claimant might have significant assets but use third-party funding
for managing risk or cash flow.614 Third-party funding does not automatically prove

599 Order for Security (20 November 2001), (2002) 20 ASA Bull 467 471; Order (21 December 1998),
(1999) 17 ASA Bull 59 66; ICC Case No 12542, Procedural Order (19 December 2003) (2005) 23 ASA
Bull 694.
600 Gu (n 20) 193.
601 X v Y [2013] EWHC 1104 (Comm) paras 17–18.
602 RSM v St Lucia (n 32) paras 76–77.
603 Weeramantry and Ferrer (n 74) 33.
604 ICC Case 14661 (n 281) 74.
605 Gu (n 20) 197.
606 SAS v Bolivia (n 17) para 59.
607 ibid, para 66.
608 ibid, para 66.
609 RSM v St Lucia (n 32) para 83.
610 ibid, para 83.
611 Gary Born, International Commercial Arbitration (Wolters Kluwers 2014) 2496.
612 Redfern and O’Leary (n 2) 409–10.
613 Mohammed (n 282) 3.
614 Scherer (n 533) 3.
484  Security for Costs in Investor-State Arbitration

that the parties would not pay an eventual costs award rendered against them.615
The ICCA-Queen Mary third-party funding Task Force studying third-party funding
in international arbitration concluded rightly that ‘[a] third-party funding agreement
may be considered as an indication of the funded party’s financial situation along
with other financial records, however on its own it is no necessary indication that a
claimant is impecunious.’616

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The ICCA-Queen Mary Task Force studying third-party funding in international
arbitration has concluded that ‘it is important for arbitrators to be aware of and take
account of arrangements between the funder and the funded party that the former is
not liable for adverse costs’, and ‘[w]here a funded party steps forward and shows
that a solvent funder is contractually liable for a potential costs award, this will usu-
ally render unnecessary an order for security for costs.’617 Where the funded claimant
can show that the third-party funder has adequate financial means and is obliged to
pay the adverse costs of the funded claimant, this may mitigate the judgment of the
claimant’s ability to pay a potential costs award.618 The focus should be on the ability
of the claimant to satisfy a potential costs award instead of the mere use of third-
party funding. The ICSID tribunal in EuroGas v Slovak Republic619 and the
UNCITRAL tribunal in SAS Bolivia both agreed with this conclusion.620
Nevertheless, a majority of 71 per cent of arbitration practitioners surveyed in
2015 expressed the need for third-party funding to be regulated to guard against
abuse of process and ethical integrity of the proceedings.621 However, guidelines tar-
geting the funders or funding agreements are unenforceable because they are outside
the jurisdictional reach of the tribunal,622 and mere guidelines targeting ethical issues
are possibly ill-fitting.
Third-party funding could be a neutral data-based assessor. One major funder chose
to fund only 1 claim out of 28 claims, providing a ‘reality check’.623 Economic interests
in a dispute may be structured as insurance, debt or equity instruments, risk-distribution,
or full assignments; some permitting active participation in strategy, while others simply

615 Guaracachi v Bolivia (n 151); Luke Eric Peterson, ‘As hearings loom, US/UK investors not obliged to
post security in BIT arbitration; Bolivia frets about claimants’ reliance on “third-party funding” ’ (26
May 2013) IAReporter; Riesenberg (n 160) 980.
616 ICCA-Queen Mary Third Party Funding Task Force (n 292) 3.
617 ibid 18.
618 von Goeler (n 406) 342.
619 EuroGas v Slovak Republic (n 137) paras 122–23.
620 SAS v Bolivia (n 17) para 78.
621 Francisco Blavi, ‘It’s About Time to Regulate Third Party Funding’ (Kluwer Arbitration Blog, 17
December 2015); 2015 Queen Mary University of London International Arbitration Survey:
Improvements and Innovation in International Arbitration. <http://kluwerarbitrationblog.com/2015/
12/17/its-about-time-to-regulate-third-party-funding/>.
622 ICCA-Queen Mary Third Party Funding Task Force (n 292) 10; See in contrast, the ability of courts to
order that third-party funders be joined to the proceedings in exercise of compulsory jurisdiction in
Excalibur Ventures LLC v Texas Keystone Inc & Ors v Psari Holdings Limited & Ors, English High Court,
Order (23 October 2014) [2014] EWHC 3436, paras 4, 161.
623 Victoria A Shannon, ‘The Impact of Third-Party Funders on the Parties They Decline to Finance’
(Kluwer Arbitration Blog, 6 July 2015) <http://kluwerarbitrationblog.com/2015/07/06/the-impact-of-
third-party-funders-on-the-parties-they-decline-to-finance/>.
 Security for Costs in Investor-State Arbitration  485

get periodic updates.624 The Bloomberg Foundation providing financial support for the
Uruguayan government and crowd-sourcing funds625 raises the same issues.626
Adopting a blanket approach to third-party funding would unfairly penalize claim-
ants with meritorious claims and unfairly reward respondents use security for costs
applications as tactical tools.627 As noted in by the tribunal in SAS v Bolivia, ‘[i]f the
existence of these third-parties alone, without considering other factors, becomes de-

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terminative on granting or rejecting a request for security for costs, respondents
could request and obtain the security on a systematic basis, increasing the risk of
blocking potentially legitimate claims.’ 628
However, claimants could seek funding even in situations where they are fully sol-
vent, have sufficient funds for the costs of arbitration and the funds to cover a poten-
tial adverse costs award.629 The rationale for claimants to use third-party funding
could be a reasonable business decision to distribute business risks over the long
term, or not to freeze large amounts of capital for an arbitration, when the same
funds could be mobilized for business operations. 630
The presence of third-party funding per se does not cause procedural problems
but raises ethical issues. It should not be the focus of the application for security for
costs. The greater risk is that a shell claimant and the third-party funder can benefit
from any award in their favour, yet avoid responsibility631 because of its separate le-
gal entity. By requiring the claimant to post security, which will likely be provided by
the third-party funder, security for costs will be one of the few procedural mecha-
nisms capable in effect, of reaching beyond the arbitration agreement.

5.3.3.4 Bad faith. A tribunal’s stewardship over the integrity of proceedings could jus-
tify an order security for costs if there is evidence of bad faith. However, bad faith re-
quires ‘extreme circumstances’, such as ‘abuse or serious misconduct’,632 or
‘intention to deceive’.633
First, the dissipation of assets or refusal to provide financial information can indi-
cate bad faith.634 An example of bad faith was where the claimant was an offshore
company, which had acquired the claim recently by an assignment against no appar-
ent compensation. The tribunal stated it ‘cannot but assume that at least one of the
reasons for such assignment was to prevent Respondents from recovering their cost
claim in case the dispute should be decided against Claimant’.635

624 Park and Rogers (n 29) 4.

625 IAReporter, 24 February 2015 (n 373).
626 Park and Rogers (n 29) 5.
627 Kirtley and Wietrzykowski (n 14) 30.
628 ICCA-Queen Mary Third Party Funding Task Force (n 292) 3; SAS v Bolivia (n 17) para 83.
629 The Plurinational State of Bolivia (n 151) paras 4, 7; See also Rosenfeld (n 122) 165.
630 EuroGas v Slovak Republic (n 137) paras 122–23.
631 RSM v St Lucia (n 32) paras 71–74; Redfern and O’Leary (n 2) 399.
632 Commerce v El Salvador (n 110); Luke Eric Peterson, ‘ICSID Annulment Committee weighs in with a
ruling on Security for Costs in El Salvador mining case’ (22 September 2012) IAReporter.
633 Singapore Supreme Court Adjudicature Act (Cap 322), Rules of Court (2006) Order 23, r 1(2).
634 ICCA-Queen Mary Third Party Funding Task Force (n 292) 17.
635 X v Y (n 399) para 21.
486  Security for Costs in Investor-State Arbitration

In Cemetownia v Turkey, the tribunal found that the claimant had ‘intentionally
and in bad faith abused the arbitration’ because it ‘purported to be an investor when
it knew it was not the case’. The tribunal also found ‘procedural misconduct’ and ‘ex-
cessive delays’.636 In particular, the tribunal noted that the claimant had ‘sold virtu-
ally all its operating assets and has gone out of business’, the purpose of which was
to ‘pursue this arbitral proceeding without any exposure to an award on costs’.637

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Secondly, procedural history, if consistent, provides compelling
grounds.638American courts often look to the claimant’s past behaviour, including
the party’s compliance with other orders of the same court or ‘whether the party at
issue has a record of ignoring court orders and/or failing to pay judgments entered
against it’.639 RSM v St Lucia adopted the same approach. Courts consider if the
claimant gave misleading information, or changes the location of the assets during
the course of the proceedings.640 In SAS v Bolivia, the tribunal gave examples of bad
faith such as evidence of constant abuse or breach that may cause an irreparable
harm.641
Thirdly, bad faith may be determined from conduct of the parties: (i) before and
during the proceedings; (ii) whether it was reasonable to pursue a particular issue;
(iii) the manner in which a party has pursued his case; and (iv) whether a claimant
exaggerated his claim.642
5.3.4 Irreparable harm
Circumstances justifying provisional measures require the threat of irreparable
harm.643 The Libananco tribunal held that security for costs could be ordered only
‘in the most extreme case—one in which an essential interest of either [p]arty stood
in danger of irreparable damage’.644 Manifest insolvency645 evidences irreparable
harm646 because the respondent will suffer irreparable losses from never being able
to satisfy its costs award.
UNCITRAL Model Law 2006 Article 17A(1)(a) provides an important condition
for granting interim measures: ‘[h]arm not adequately reparable by an award of dam-
ages is likely to result if the measure is not ordered.’647 Article 26(3)(a) of the 2010
UNCITRAL Arbitration Rules provides the same. However, in Paushok v Mongolia,
the tribunal astutely recognized that ‘the possibility of monetary compensation does

636 Cemetownia v Turkey (n 101) para 159.

637 ibid, para 158.
638 RSM v St Lucia (n 32) para 82.
639 Rubins (n 18) 374.
640 ibid.
641 SAS v Bolivia (n 17) para 68.
642 UK Civil Procedure Rules, r 44.3(5); Hew R Dundas, ‘The Award of Costs and Interest on Costs: a
Case Note - Amoco (UK) Exploration Company v British American Offshore Limited’ (2003) 0(10)
TDM .
643 CEMEX Caracas Investments BV v Bolivarian Republic of Venezuela (ICSID ARB/08/15) Decision on the
Claimant’s Request for Provisional Measures (3 March 2010); Occidental v Ecuador (n 563) para 59;
Kaufmann-Kohler and Antonietti (n 147) 529.
644 Libananco v Turkey (n 91) para 57.
645 X v Y (n 399) para 21; Berger (n 9) 37.
646 Berger (n 9) 8-9.
647 UNCITRAL Working Group (n 561).
 Security for Costs in Investor-State Arbitration  487

not necessarily eliminate the possible need for interim measures’.648 The tribunal
also pointed out that Article 17A(1)(a) of the Model Law provided a more flexible
requirement than a strict showing of irreparable harm.649
The respondent bears the evidentiary burden of (i) providing credible testimony
of the claimant’s financial affairs, (ii) exhibiting relevant and persuasive documents
including, the annual accounts and statutory returns of the claimant, and (iii) proving

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that such evidence gives rise to a reasonable belief that the claimant will be unable to
pay the respondent’s costs if successful in the defence.650
In RSM v St Lucia, the ‘right to be preserved’ was ‘the (conditional) right to reim-
bursement of legal costs’,651 which need not definitely exist at the time security for
costs is issued.652 In ICC Case No 14433, the tribunal held there was ‘no evidence
indicating that Claimant will be unable to cover costs involved in this arbitration’,
where the claimant’s cash position ‘is sufficient to cover short term liabilities and an
additional costs award’. 653 A respondent’s assertion regarding the lack of informa-
tion about the claimant’s corporate structure and particulars are not sufficient proof
of potential irreparable harm.654
In Guaracachi v Bolivia, one claimant was a shell company and the other was in
precarious financial shape and had recently taken a loan from a third-party funder.
However, the tribunal noted that the claimant ‘appears to be an ongoing concern
with assets beyond those involved in this arbitration and the Claimants have
promptly paid all the requested deposits of costs with no suggestion that they have
had trouble’.655

5.3.5 Proportionality
5.3.5.1 Link to the claim. There must be a strict relationship between the provisional
measure and the main dispute. In Plama, arbitrators adopted the ICJ standard that
‘the rights to be preserved by provisional measures . . . must be related to the specific
disputes in arbitration’.656 It has been argued that Article 26 of the 1976
UNCITRAL Rules did not allow orders for security for costs because such orders
were not made in respect of the subject matter of the dispute. This was criticized as
too restrictive.657
In RSM v St Lucia, the tribunal approached this question with a three-part test. First,
it classified security for costs as a procedural right. Second, it decided that the potential
right to obtain reimbursement of costs was capable of being protected. Third, it found

648 Paushok v Mongolia (n 166) para 68; Behring International Inc v lslamic Republic Iranian Air Force, Iran
Aircraft Industries, and The Government of Iran, Award (21 June 1985) 8 Iran-US Claims Tribunal Reports
238, 276.
649 Paushok v Mongolia (n 166) para 69.
650 Michael J Needham, ‘Orders for Security for a Party’s Costs’ (1997) 63 JCI Arb 122; Gu (n 20) 189.
651 RSM v St Lucia (n 32) para 72.
652 ibid, paras 72–3.
653 ICC Case 14433 (n 294) 73.
654 Luxembourg company v UK company, ICC Case 12393, Procedural Order (30 July 2003) (Extract)
Special Supplement 2010: Decisions on ICC Arbitration Procedure.
655 Guaracachi v Bolivia (n 151) para 7.
656 Plama v Bulgaria (n 341) para 40.
657 Kaufmann-Kohler and Antonietti (n 147) 528.
488  Security for Costs in Investor-State Arbitration

that provisional measures protect the integrity of the proceedings, including protection
of procedural rights.658 However, the more direct view would have been simply to rec-
ognize the right to reimbursement of a final costs award as a substantive right. A final
costs award is the respondent’s real, enforceable award on the merits.
In Maffezini v Kingdom of Spain,659 Libananco v Turkey,660 and Burimi S.R.L. v
Albania,661 security for costs requests were rejected because the right to claim reim-

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bursement of costs was hypothetical and therefore, there was insufficient link between
the provisional measures requested and the relief claimed by the respondent in the
dispute. However, following such reasoning risks being flawed as it conflates the link
between the provisional measure and the relief claimed (a question of necessity of
the measure), with an evaluation of the hypothetical nature of the claims (a question
of plausibleness). The criteria of necessity and plausibleness ought to be entirely sep-
arate questions. The low likelihood of the respondent succeeding with a costs award
does not imply that there is no link between a security for costs application and the
relief claimed by the respondent.

5.3.5.2 Balancing prejudice to each party. Article 26(1)(a) of the UNCITRAL Rules
provides an important balancing test, that ‘such harm substantially outweighs the
harm that is likely to result to the party against whom the measure is directed if the
measure is granted’.662 This balancing test should be adopted as a general principle
in applications for security for costs even in arbitrations conducted under other rules.
This is the most difficult part of the tribunal’s analysis.
Arbitrators need to strike an extremely careful balance of interests between both par-
ties.663 As a matter of the ‘balance of convenience’, the consequences for the respondent
should be carefully balanced against the prejudice to the claimant.664 The respondent’s in-
terest in an enforceable costs award is balanced against the claimant’s access to justice.665
When costs of the arbitration are increased because of the respondent’s own
counterclaims, security for costs could be, on the balance of convenience, not justi-
fied.666 This is especially so if the counter claims ‘greatly exceed in size Claimant’s
claims’. 667 Tribunals should reduce the risk that a security for costs is used by weal-
thy respondents to suppress legitimate claims, by balancing the risks of prejudice to
the claimant against risks to the respondent.

5.3.5.3 Good faith of the respondent. The respondent’s failure to pay the tribunal’s ad-
vance may be construed as a ‘highly relevant factor to be taken into account in the

658 RSM v St Lucia (n 32) para 64.

659 Maffezini v Spain (n 79) paras 18, 24–25.
660 Libananco v Turkey (n 91) para 59.
661 Burimi v Albania (n 105) paras 39–41.
662 UNCITRAL Arbitration Rules 2010 (n 4) art 26(1)(a); The Plurinational State of Bolivia (n 151) para 9.
663 Gu (n 20) 195.
664 Kaufmann-Kohler and Antonietti (n 147) 539.
665 RSM v St Lucia (n 32) para 87.
666 ICC Case 14661 (n 281) 74.
667 ibid 74.
 Security for Costs in Investor-State Arbitration  489

overall exercise of the Tribunal’s discretion’.668 In ICC Case No 13620, the tribunal
held that even though the ‘Respondent has repeatedly argued that it is a poor coun-
try with limited resources (according to World Bank one of the 20 poorest countries
in the world), and is facing a claim that is over a quarter of the Government’s entire
budget for 2005,’ it signed an ICC arbitration clause.669 Therefore, failing to pay the
advance would ‘create a substantial obstacle’, implying a lack of ‘clean hands’. 670

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In Guaracachi v Bolivia, the tribunal intended to proceed with examining the ‘gov-
ernment’s own “good faith” in the proceedings’, in terms of ‘whether payment of its
own deposits in the case should be a prerequisite to any request for a security-for-
costs order’.671 In ICC Case No 7047,672 the tribunal refused to grant security for
costs because the respondent refused to contribute to ICC’s advances.
However, a ruling that a respondent’s failure to pay tribunal advances disentitles
the respondent from security for costs is misguided. Although a respondent’s failure
to pay tribunal advances can be annoying for the tribunal, the very nature of the ap-
plication for security for costs is that the respondent has the right to protect its costs
in mounting its defence. The tribunal’s costs are part of that defence—that is why
tribunals have ordered unsuccessful claimants to refund respondents their paid ad-
vances. This purpose behind security for costs is significant for respondents such as
extremely poor developing states.
A better indication of the good faith of the respondent is whether the respon-
dent’s acts placed the claimant in those very dire financial straits.673 If the claimant’s
insolvency was caused by the respondent, 674 the tribunal should take this into
account.675
Another relevant consideration of good faith is the timing of the application. An
application close to the hearing may stifle the claim.676 In Hamestar v Ghana, the tri-
bunal rejected an application for security for costs as there was a serious risk that se-
curity for costs would stifle the claims and an order for ‘security for costs would not
serve its purpose without cancelling or postponing the Hearing, which was neither
requested nor practicable at that stage of the proceeding’.677

5.3.5.4 Full and fair hearing. Depending on the extent of the arbitral hearing on secu-
rity for costs, it is possible that courts would view an award dismissing a case for fail-
ure to provide security as a denial of natural justice.678 Any such provisional order or
award could be annulled or unenforceable.

668 ICC Case 13620, Procedural Order (May 2006) (Extract), Special Supplement 2014: Procedural
Decisions in ICC Arbitration (ICC Case 13620), 65, para 3.4.
669 ibid, para 3.7.
670 ibid, para 3.5.
671 Riesenberg (n 160), 980.
672 ICC Case No 7047 (n 220).
673 Gu (n 20) 193.
674 EuroGas v Slovak Republic (n 137) para 118; Paushok v Mongolia (n 166) para 83.
675 Ragnwaldh and Eliasson (n 148) 414; Gu (n 20) 149.
676 Gu (n 20) 195.
677 Gustav F W Hamester GmbH & Co KG v Republic of Ghana (ICSID Case No ARB/07/24) Award (18
June 2010) para 17.
678 Gu (n 20) 194.
490  Security for Costs in Investor-State Arbitration

It is vital that both parties are given the opportunity to make submissions.
Therefore, although emergency proceedings for provisional measures are possible,679
security for costs should not be heard ex parte or prior to the constitution of the tri-
bunal such as by an emergency arbitrator under SCC Rules. When both parties have
been given ample opportunity to be heard however, even if one of the parties failed
to make submissions, the tribunal should be able to decide on the request.680

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In Article 41(5) ICSID proceedings, after the request is filed there would be ‘suc-
cessive rounds of written and oral submissions by the parties’ lasting several months,
followed by possibly extended deliberations. The tribunal will only dismiss a claim
on the merits if it can do so with ‘relative ease and dispatch’. A similar process should
be followed for security for costs to ensure due process.681
ICSID’s Administrative and Financial Regulation 14(3)(d) provides useful safe-
guards for procedural justice. Modified for security for costs, the parties first have 30
days to pay, then the tribunal informs the parties of any default and gives further 15
days, after which the tribunal can stay the proceeding. If any proceeding is stayed for
non-payment for more than 6 months, the tribunal may, after notice to and as far as
possible in consultation with the parties, discontinue the arbitration.682

5.4 Form and amount of security

The form of security to be furnished can include a cash deposit with the institution
or tribunal, bank guarantee, or a letter of credit.683 Another alternative is for a willing
arbitral institution to hold the deposit. Security could be payment into an escrow ac-
count, bonds, liens on property, a solicitor’s undertaking, a guarantee from a parent
company, third-party funder, or the claimant’s directors or shareholders. Depending
on the nature of the claimant’s domicile, assets, business and the organization of the
arbitration, the tribunal should order an appropriate form of security.
The amount of security should be calculated up to the stage of proceedings that
parties envision and the tribunal deems likely. Costs of the arbitration consist of: (i)
the arbitrator’s fees and expenses; (ii) the fees and expenses of any arbitral institution
concerned; and (iii) the legal or other costs of representation.684 Tribunals should
state whether the amount should accrue interest, and whether the interest should re-
turn to the claimant, respondent or contribute to administrative costs. 685
Further applications may be allowed where there has been a material change in es-
timated costs. Calculations require the respondent’s draft bill of costs to date and de-
tailed estimate of future costs.686 A large discount should be applied to reflect the
uncertainty of proceeding,687 and the claimant’s ability to pay. It is ideal to set the

679 ICSID Arbitration r 39(2) (n 3); art 46(1) of the Additional Facility Arbitration r 39(5).
680 City Oriente v Ecuador (n 484) para 70.
681 Raviv (n 27) 17–18; Trans-Global v Petroleum, Inc. v The Hashemite Kingdom of Jordan (ICSID ARB/
07/25) Decision on the Respondent’s Objection under r 41(5), para 88.
682 ICSID Administrative and Financial Regulation (n 216).
683 25 July 2003 Order (n 215) para 25; Berger (n 9) 13.
684 English Arbitration Act (n 43) s 59(1).
685 Gu (n 20) 199.
686 ibid 198.
687 ibid 199.
 Security for Costs in Investor-State Arbitration  491

amount at a reasonable fraction of the respondent’s estimate, to protect the claim-

ant’s access to justice.
In addition, it has been suggested by the ICCA-Queen Mary third-party funding
Task Force that the tribunal should consider indicating to the respondent that if the
claimant eventually succeeds in its claim, the respondent would be held liable for
other costs reasonably incurred in posting security688 such as bank transaction fees.

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This may be considered in the tribunal’s overall allocation of costs reasonably in-
curred in the proceedings, but is unlikely to amount to a major sum or be strictly cal-
culated into the tribunal’s overall costs allocation.

5.5 Appropriate sanction for breach

5.5.1 Binding nature of provisional orders
During drafting of the ICSID Convention on interim measures, the text ‘[t]he
Tribunal may fix a penalty for failure to comply with provisional measures’ was sug-
gested, but withdrawn by ‘nearly unanimous vote’.689 Drafters changed the word
‘prescribe’ to ‘recommend’.690 The only way interim measures granted by an ICSID
tribunal may be enforced before courts is incorporation into the final award.691
The NYC similarly cover only ‘awards’,692 so non-ICSID provisional orders cannot
be enforced directly. Security for costs orders thus cannot be directly enforced, but
are recommended as provisional measures.
Although Article 47 of the ICSID Convention and Article 39 of the ICSID
Arbitration Rules use ‘recommend’, in practice, tribunals have given them binding
force.693 Provisional measures are binding because tribunals must have authority to
sanction non-compliance.694 In any event, negotiators chose ‘recommend’ to avoid
enforceability of interim measures before courts. Therefore, this does not affect the
binding nature of provisional measures such as security for costs issued within the
proceedings,695 especially if its breach is also sanctioned within the proceedings.

5.5.2 Staying proceedings

The standard enforcement tool is a stay of arbitral proceedings, rather than the sei-
zure of assets or compulsion.696 Based on the principle of judicial economy, ‘the
principle of bona fide should allow the respondent to stay the arbitral proceed-
ings’.697 In RSM v St Lucia, the tribunal stated, ‘As a matter of compelling and neces-
sary principle . . . the open non-compliance firstly has to be resolved by an

688 ICCA-Queen Mary Third Party Funding Task Force (n 292) 18.
689 David Caron, ‘Interim Measures of Protection: Theory and Practice in Light of the Iran-United States
Claims Tribunal’, (1986) 46 Zeitschrift für ausl€andisches öffentliches Recht und Völkerrecht 465, 511.
690 RSM v St Lucia, Dissenting Opinion Edward Nottingham (n 128) para 16.
691 Bismuth (n 42) 789.
692 NYC, art 1(1).
693 Bismuth (n 42) 794–800; Maffezini v Spain (n 79) para 9; Tokios Tokelés v Ukraine (n 483) para 4; Pey
Casado v Chile (n 58) para 17; LaGrand, ICJ 466, Judgment (27 June 2001).
694 RSM v St Lucia (n 32) paras 49–50.
695 Bismuth (n 42) 799.
696 Rubins (n 18) 315; Redfern and O’Leary (n 2) 399.
697 Sandrock (n 34) 17 [sic].
492  Security for Costs in Investor-State Arbitration

immediate vacatur.’698 Unlike most interim measures, security for costs can be
enforced directly699 against claimants without injunction or attachment of assets.
Comparatively, court-ordered interim measures involve possible non-recognition, de-
lays, costs, and loss of confidentiality.700 Security for costs also needs to be ordered
as early as possible in the proceedings, to be effective.701
Some insist that the arbitration should never be stayed on failure to pay security

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because ‘the definitive arbitral award retains all of its value, even when there is no
guaranty of execution’ and ‘the goal of arbitral procedure is not to provide executory
title to the co-contractant of a debtor in default’.702 Exclusion from the game is the
ultimate sanction for grave misconduct affecting the integrity of the process.703
However, a comparison with a tribunal’s treatment of other procedural issues can
be persuasive. In the context of procedural orders dealing with document produc-
tion, if evidence has not been produced within an ordered timeline, the tribunal can
refuse to admit late pleadings proceed to making an award.704 In the case of ex-
tremely unethical conduct, there could be dismissal of the claim or default judg-
ment,705 without offending the principle of given each party equal opportunity to be
heard.
The principle of audiatur et al. tera pars needs to be balanced against abuse de
droit. Cautious tribunals could develop a system of sanctions706 including warnings,
recommendations, and procedural orders in controlling misconduct.707 For example,
if an order for security for costs is not complied with, the tribunal may extend the
time given for the claimant to post the security further.

5.5.3 Without prejudice to the right to resume the claim

If an order for security for costs under Section 38(3) of the English Arbitration Act
1996 is not complied with, and no good explanation is given, then by Section 41(5),
the tribunal can make a peremptory order to the same effect, stating a date for com-
pliance. If that peremptory order is not complied with, then by Section 41(6), the tri-
bunal may make an award dismissing the claim.708 This policy is reflected in RSM v
St Lucia, where the tribunal considered that an indefinite stay may be inappropriate
because the proceedings would come to a halt without there being an award that
could be challenged.709

698 RSM v St Lucia Breach (n 32) para 66.

699 Gu (n 20) 167.
700 ibid 172.
701 RSM v St Lucia (n 32) para 34.
702 Pascal Ancel, ‘Note’ (1992) Rev Arb 146, 150; Rubins (n 18) fn 304 [sic].
703 W€alde (n 443) 182.
704 Horvath (n 434) 9.
705 Abba Kolo, ‘Witness Intimidation, Tampering and Other Related Abuses of Process in Investment
Arbitration: Possible Remedies Available to the Arbitral Tribunal’ (2010) 26 (I) Arb Intl, Kluwer Law
International, 43–85; Horvath (n 434) 10.
706 W€alde (n 443) 183.
707 ibid 182.
708 Gu (n 20) 200.
709 RSM v St Lucia (n 32) para 62.
 Security for Costs in Investor-State Arbitration  493

Article 38(3) of the 2017 SCC Arbitration Rules provides: ‘If a party fails to com-
ply with an order to provide security, the Arbitral Tribunal may stay or dismiss the
party’s claims in whole or in part.’ Article 38(4) follows, stating ‘Any decision to stay
or to dismiss a party’s claims shall take the form of an order or an award.’ This provi-
sion does not state whether the tribunal’s order or award is to dismiss the claim with
prejudice to the claimant’s right to commence future proceedings, of whether the or-

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der or award is without prejudice.
An award dismissing the claim without hearing the merits is not appropriate in in-
vestment arbitration. An outright dismissal could be a disproportionate sanction, in
breach of the customary international law principle of proportionality. Article 35 of the
ILC Articles on State Responsibility for example, provides that ‘[a] State responsible for
an internationally wrongful act is under an obligation to make restitution . . . provided
and to the extent that restitution . . . (b) [d]oes not involve a burden out of proportion
to the benefits deriving from restitution instead of compensation.’ Alternatively, a dis-
proportionate interim measure could be perceived as a serious breach of due process.
The most appropriate sanction is to stay proceedings, and discontinue the arbitra-
tion without prejudice to the claimant’s rights to file a new claim, similar to the prece-
dents where a claimant fails to pay advances. Importantly, an order of
discontinuation is not res judicata. In Quadrant v Costa Rica, the tribunal warned, ‘the
termination of this arbitration cannot be understood in terms of success or failure for
either side’.710 In ICC Case No 13620, the tribunal dismissed the claim ‘without prej-
udice’ to a future change of circumstances justifying an extraordinary remedy.
In Philippe Gruslin v Malaysia (Annulment)711 and S & T Oil Equipment and
Machinery Ltd. v Romania,712 the proceedings were discontinued for non-payment of
fees according to ICSID’s Administrative and Financial Regulation 14(3)(d). The
ICSID Secretary-General may, after notice to and as far as possible in consultation
with the parties, move that the Tribunal discontinue the proceeding, if it has been
stayed for non-payment of an advance for a consecutive period in excess of 6 months.
Similarly, a claim could be discontinued for non-payment of security for costs.
One remaining issue is the respondent’s right to claim its costs of the discontin-
ued proceedings from the defaulting claimant. According to one tribunal’s analysis of
Article 61(2) of the ICSID Convention, ICSID Arbitration Rules 28(1) and
47(1)(j), an ICSID tribunal does not have the power to allocate costs upon the dis-
continuance of proceedings.713 Arguably however, tribunals may issue interim costs
orders in exercise of its procedural discretion.

710 Quadrant Pacific Growth Fund LP. and Canasco Holdings Inc, v Republic of Costa Rica (ICSID Case No
ARB(AF)/08/1), Order of the Tribunal Taking Note of the Discontinuance of the Proceeding and
Allocation of Costs (27 October 2010), para 67; RSM v Grenada (n 134) para 61.
711 Philippe Gruslin v Malaysia (ICSID Case No ARB/99/3), Order for Discontinuance of the of
Annulment Proceedings (2 April 2002).
712 S & T Oil Equipment and Machinery Ltd. v Romania (ICSID Case No ARB/07/13) Discontinuance
Order (16 July 2010).
713 Giovanni Alemanni and Others v The Argentine Republic (ICSID Case No ARB/07/8) Order of the
Tribunal Discontinuing Proceedings (14 December 2015) paras 21–26.
494  Security for Costs in Investor-State Arbitration

5.5.4 Alternative Sanctions

Tribunals can recommend a different measure than the one requested based on its in-
herent powers.714 Article 44 of the ICSID Convention gives tribunals discretion to order
‘measures taking into account the goals of the ICSID Convention as well as the special
circumstances of the individual case’.715 Tribunals have also ordered alternative forms of
interim measures regardless of the explicit provisions of Article 26 UNCITRAL
Rules.716 The tribunal can within its discretion, tailor the interim measures.717 An illus-

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tration can be found in Holiday Inns, in which the tribunal declined to recommend a se-
ries of measures sought in the request and chose to recommend instead that both
parties ‘abstain from any measure incompatible with the upholding of the contract’.718
Damages could be ordered for non-compliance.719 Another alternative is for the “tri-
bunal draw adverse inferences when making its award.”720 Adverse inferences shift the
balance of proof to the wrongdoer. This is a subtle tool that avoids the tribunal jeopar-
dizing the enforceability of the award.721 However, adverse inferences are more appro-
priate for breaches of evidentiary orders, and are less suitable for security for costs.

5.5.5 Sui Generis provisional measure

Security for costs should be recognized as a sui generis provisional measure—as a
mere procedural order if the breach of the order leads to merely procedural sanctions
such as inadmissibility of evidence or a delay in submissions, and more as a substan-
tive order if sanctioned by an indefinite stay of proceedings. Classifying between pro-
cedural or substantive orders is incapable of strict universal definition. Even an
adverse inference could be considered to have substantive effect. While there is
clearly jurisdiction to order security for costs as implied from arbitral rules for invest-
ment tribunals, tribunals must adjust the sanctions accordingly to protect the claim-
ant’s right to be heard.

6. CONCLUSION
Investor–state arbitration is a clash of civilizations where international commercial
arbitration borrows techniques from litigation and international practices. In terms
of substantive law, public international law meets and merges with municipal law.722
In terms of procedural law, international arbitration aggregates the most effective
practices of domestic court procedures.723 Investor–state arbitration has inherited

714 Nuclear Tests (Australia v France) Judgment of 20 December 1974, ICJ 253, 259–60, para 23.
715 RSM v St Lucia (n 32) para 52; ICSID Convention (n 55) art 44, second sentence.
716 Rockwell International Systems, Inc. v Islamic Republic of Iran, Award No ITM 20-430-1 (6 June 1983) 2
Iran-US CTR 369, 369.
717 Bismuth (n 42) 820–21.
718 Pierre Lalive, ‘The First World Bank Arbitration (Holiday Inns v. Morocco) – Some Legal Problems’,
(1980) 51 Brit Yb Int’l L 123, 137.
719 Schreuer and others (n 54) 768–69.
720 Schreuer, ibid 761; Pey Casado v Chile (n 58) para 24.
721 Schreuer and others (n 54) 766; RSM v St Lucia (n 32) para 50.
722 Bjorklund (n 467) 1270; Douglas, ‘The Hybrid Foundations of Investment Arbitration’ (2004) 74 Brit
YB Intl L 151.
723 Andreas F Lowenfeld, ‘The Two-Way Mirror: International Arbitration as Comparative Procedure’
(1985) 7 Mich YB Intl Legal Stud 163.
 Security for Costs in Investor-State Arbitration  495

the practices of international commercial arbitration, but departs from commercial

arbitration in various crucial areas such as jurisdictional objections raised by states,
transparency, and public participation.724 This hybrid public–private nature of inves-
tor–state arbitration justifies increasing use of security for costs orders.
The time has come for investor–state arbitration to institutionalize security for
costs as a strong procedural mechanism, just as preliminary objections, provisional

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measures and cross-examination have been generally adopted as relatively standard
arbitral practice.725 Security for costs does not work solely for the benefit of the state,
although they are most frequently the respondents in investor–state arbitration, and
public interest considerations have been identified. As defined in the beginning of
this article, a claimant is any party which submits a claim before an investment tribu-
nal, and includes states filing counterclaims.
Urgent issues facing investment arbitration—indefinite and nominal investors
given access to arbitration through multiple shareholdings, increasingly critical public
perceptions of the system, and proliferation of procedural harassment techniques—
could benefit from the ‘light-touch’ regulation provided by the mechanism of security
for costs. Where the claimant’s claim is funded by a third party who could gain from
the arbitration but would not be liable for costs, security for costs is a targeted and
effective regulatory mechanism.726 Creating a presumption for granting security for
costs based solely on the existence of third-party funding, is however, wrong.727
Several broader issues must be clear for practitioners dealing with security for
costs. Security for costs borrows the foundations of interim measures, but they are
better understood in the context of summary proceedings, if the sanction for breach
will have a prohibitive effect on the claimant’s ability to pursue its claim. Security for
costs are, therefore, sui generis provisional measures, which require exceptional and
compelling circumstances.728 The evidence must show exceptional circumstances.
Furthermore, even where there is proof of prima facie jurisdiction, plausible success
on the merits, urgency, and irreparable harm, the tribunal must balance the potential
prejudice faced by both claimant and respondent by applying a test of proportional-
ity. If granted and breached, the appropriate sanction for a breach of an order for se-
curity for costs is to discontinue the proceedings without prejudice to the claimant’s
right to commence future proceedings when its financial situation improves.

724 Bjorklund (n 467) 1300.

725 Judge Stephen M Schwebel, ‘In Defence of Bilateral Investment Treaties’, Keynote Address at
International Council on Commercial Arbitration (6 April 2014, Miami) 21–22.
726 Kalicki (n 505) para 5.
727 EuroGas v Slovak Republic (n 137) paras 122–23.
728 Commerce v El Salvador (n 110) para 44; SAS v Bolivia (n 17) paras 59, 68.