Someone sues you. You believe they have no reason to and you fear that, when you win, you won't be able to recover the costs you incurred to arbitrate that silly claim. Should the arbitral tribunal require the claimant to post security for costs? But then, what if a company has gone bankrupt because it was wronged by the respondent? Should it be prevented from commencing arbitration just because it cannot guarantee that it can pay the costs in the (of course, unlikely) chance that it loses? And what role does third party funding play in this game?

1. Security for Costs
in International
Arbitration

2. Annulment
Enforceability
What costs, anyway?
Form
Relationship to
Arbitrators Non Compliance
Legal and Non-Legal Issues
Does the tribunal have the
authority to grant security for
costs, or even interim measures?
What is the
test?
Disqualification!

3. Arbitral Powers to Grant Interim Measures and Security for Costs
across the World
ENGLAND
UNCITRAL
SIAC
VCIA
ICC CIETAC
HKIAC
QATAR
ICSID
Art. 47 Convention
and Art. 39 Arb.
Rules: Interim
Measures
Art. 28: provisional
measures, thought
to include security
for costs
Art. 27(j)
security for
costs
Art. 23:
Conservative
and Interim
Measures
Art. 26:
provisional
mesaures,
thought to
include security
for costs
Art. 24:
Security for
Costs
Art. 33(6), (7):
Security for
costs for
claimant only
Art. 17 Qatar Arbitration
Law: Interim and Provisional
Measures, thought to
include security for costs
Art. 38 Arb. Act
(1996): Security
for costs

4. Form and Enforceability
• Recommendation, Order or Award?
• Art. 39 ICSID Convention: tribunals may «recommend» interim measures.
RSM v St Lucia: recommendation = order;
• UNCITRAL Model Law: tribunal may «order» interim measures;
• Qatar Arbitration Law: tribunals may «grant» measures or «preliminary
orders»;
• Art. 33(6) Vienna Rules: tribunals may «order» security for costs;
• Art. 38 ICC Arbitration Rules: tribunals may grant interim measures by way
of orders or awards as they deem appropriate.
• Does an award granting security for costs fall into Art. 3 of the
New York Convention?
• Supreme Commercial Court of the Russian Federation Resolution n.
6547/2010: award for costs is not a final adjudication of a dispute and
therefore not enforceable under the New York Convention;

5. Failure to Comply
• UK: BMDS Ltd v Rafael [2014] EWHC 451 (Comm): failure to comply with an order
for costs (not security for costs) does not itself render the arbitral clause
inoperable or incapable of being performed;
• FRANCE: Societé TRH Graphic v Offset Aubin: a party’s refusal to pay costs may
make the arbitral clause inoperable
• CANADA: Resin Systems Inc. v Industrial Service: a party’s refusal to pay costs
makes the arbitral agreement inoperable;
• GERMANY: Supreme Court Decision 33/2000: impecuniosity is ground for a party
to consider the arbitral clause inoperable and commence litigation;
• RUSSIAN FEDERATION: Arbitrazh Court of St Petersburg decisions A56-
50929/2015 and A56-13914/2016 (appeals pending): lack of money does not
make an arbitral clause inoperable, because this is the normal commercial risk of
a company, which should have taken the potential cost of arbitration into account
when entering into it;
• AUSTRA: Imposing security for costs where it is unaffordable, may entitle the
party receiving the order to terminate the arbitral clause/agreement for due
cause (hardship/force majeure/eccessiva onerosità sopravvenuta).

6. Decision on Security for Costs
• RSM v St Lucia
• Prima facie subject matter jurisdiction, are costs
«a right in dispute»?;
• Existence of «A right to be preserved», does the
right of the Respondent really exist?
• Exceptional Circumstances;
• No prejudice on the merits.
• Ciarb Guidelines: Merits should be taken into
account…without anticipating judgement.

7. So, what is the Test?
•Impecuniosity per se not a sufficient
reason;
•Third party founding per se not a
sufficient reason;
•Material change of circumstances;
•Attempt to move or hide assets.
A Party’s Financial
Circumstances
• After the Fact Insurance (ATI)
•Third-party funder available to refu
nd costs
Availability of Insurance or
Funding
• Court-granted measures;
• Recourse to holdings or shareholders or
even third party founders.
Availability of other
measures
•Foreign domicile not sufficient reson;
•Foreign assets not sufficent reason;
•State-owned Entity with history of
non compliance to awards
Ease of Recovery
• Impecuniosity caused by respondent;
• Balance of Risks
Fairness in the Circumstances
• (legal) Relevance debated
A Party’s Prospects on the
merits

8. So, what is the test?

9. Narratives
Narratives For Claimant Narratives for Respondent
• David v Goliath (hero overcoming obstacles and
hypocrisy)
• Claimant barely affording a fair fight, security
for cost would not benefit respondent as much
as harming claimant;
• It is respondent who is moving or liquidating
assets;
• Respondent’s country or economic base
hinders enforcement of awards;
• Betrayal
• Claimant used its best efforts to avoid
arbitration, it would be unfair to place all the
financial burden on it;
• At the time of contract respondent never
requested collateral, security or guarantees;
• Respondent profited nicely from its actions,
even if they do not amount to a legal breach;
• Triumph of moral virtue against Villany
• High Noon
• Claimant waited a long time to bring
claim and only brought it when found a
wicked third-party founder who cajoled
her;
• Betrayal
• Respondent tried to solve dispute
amicably or less expensively;
• Respondent is itself inpecunious/bankrup
and (powerful) Claimant is now exploiting
its weakness;
• Triumph of Moral Virtue against Villany
• Claimant has threatened to out-litigate
respondent;
• Claimant has a history of arbitral/judicial
hit & runs;
• Claimant walked away from settlement
talks in effort to make its claim balloon

10. Strategies
Strategies For Claimant Strategies for Respondent
• Consider not challenging the request and
posting security to influence Tribunal early: if
recourse to tpf unavoidable, ask for recovery of
costs.
• Ask for a Cap in Costs (early budgeting,
Jackson rule);
• Ask for Security for Claim or other Interim
Measure that might generate cash-flow;
• Pursue an award (order) on agreed terms or
recorded settlement (Vienna rules) by which
respondent undertakes not to challenge
enforcement or other quid pro (e.g.
abandonment of a jurisdictional challenge or
counterclaim, agreement on facts, discovery
documents, etc…);
• Ask to set a revision of the measure after
discovery and/or after evidentiary hearing;
• Challenge decision in court (when possible);
• Ask for a Cap in Costs (early budgeting,
Jackson rule);
• Ask for a Quid pro Quod: a different security
measure, a withdrawal of one claim or of a
ground or challenge or motion to dismiss,
etc…;
• Pursue an award (order) on directed terms or
recorded settlement on an issue or
discovery, etc…
• Pursue an expedited proceeding;
• Ask to enjoin tpf on the basis of Excalibur

11. Thank you for your
attention!
Q&A

12. What Costs?
• Amount: Reasonableness Test
• Active Cost Management
• Legal Issues:
• Are Discovery and other Administrative Costs «legal costs»?
• Must costs be «incurred»?
• Kardassopulos v Georgia: no known principle making third-party
funding relevant in awarding costs;
• Siag and Vecchi v The Arab Republic of Egypt: claims brought
with counsel acting on contingency fees «entail the acceptance
of a degree of risk that should not entirely be shifted to the
[other party]», so only ½ recovery;
• Qasar de Valores v The Russian Federation: if a party obtained
funding for nothing in return, it is not entitled to recovery of
costs
• ICC Case n. 7006 (1992): if a party is obligated to refund its
provider (here, insurer) then such costs are recoverable.