Security for costs in investment treaty arbitration

Jakob Ragnwaldh

Mannheimer Swartling, Stockholm

10 September 2010

Introduction

• The topic: Can a State during the course of an arbitration obtain an order from a Tribunal securing its costs in the event that the State is ultimately successful in its defence?

• (Security for costs already awarded)

• (Security for costs of the arbitrators)

The issues

• Do international tribunals have the authority to issue orders for security for costs?

• Is there anything inherent in investment treaty arbitrations limiting that authority?

• What criteria should a tribunal consider when assessing an application for security for costs?

Do international tribunals have the authority to issue orders for security for costs?

• The arbitration rules

– Rule 39(1) of the ICSID Arbitration Rules

– Article 26 of the UNCITRAL Arbitration Rules

– The SCC and the ICC Rules

– Article 25.2 of the LCIA Rules

• The lex arbitri

– Article 17 of the Model law

– Article 38(3) of the English Arbitration Act

Is there anything inherent in investment treaty arbitration limiting the authority of a tribunal to order security for costs?

• No express prohibition or limitation in investment treaties

• An unconditional right to arbitration for an investor?

• Investor’s right to arbitration is subject to the terms of the applicable investment treaty, including the arbitration rules to which the treaty refers.

• No tribunal has held that it lacks authority on the basis that the investor has an unconditional right to arbitration

Relevant decisions

• Three publicly available decisions:

• Emilio Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7 (PO No. 2, 28 Oct 1999)

• Casado and President Allende Foundation v. Republic of Chile, ICSID Case No. ARB/98/2 (Decision on the Request for Provisional Measures, 25 September 2001)

• Libananco Holdings Co v Turkey, ICSID Case No. ARB/06/8 (Decision on Preliminary Issues, 23 June 2008)

• Two unreported UNCITRAL decisions

What criteria should a tribunal consider when being seized with a request for an order for security for costs?

• The relevant threshold

• Burden of proof

• Prospect of success

• A right to be preserved

• The investor’s financial situation

• Bad faith on the part of the investor?

• The conduct of the respondent making the request

Conclusion

• To my knowledge no tribunal in an investment treaty arbitration has issued an order for security for costs

• Available decisions suggest that extraordinary circumstances are required for a tribunal to order security for costs

• Available decisions suggest that orders for security for costs are more difficult to obtain in investment treaty arbitrations than in commercial arbitrations