The issue of judgment-proof claimants in ICSID arbitration has recently been a focus of attention. As a matter of fact, the Republic of Panama sent a memorandum to ICSID on 12 September 2016, available below, exposing the difficulties of sovereigns being unable to collect costs awards in their favour and requesting the ICSID to examine closely this issue to protect respondent States against “judgement-proof claimants.”[1]
Statistics brought forward by the Republic of Panama indicated that of 35 respondent States that had been granted costs awards, only 17 (48%) had been paid in full, five (14 %) paid in part and 13 (37%) had not been paid at all.
This problem arises in three situations, including bankruptcy, the transfer of shares of a claimant to a judgment-proof party, and when the claimant had been established as a special purpose vehicle.
The ICSID Convention and Arbitration Rules provide three main ways to protect respondent States against judgment-proof claimants.
First, in accordance with Rule 28(1) of the ICSID Arbitration Rules, an ICSID tribunal may issue a cost-shifting order, requiring one of the parties to pay the fees and expenses of the tribunal, the charges for use of the ICSID facilities and the costs related to any part of the proceeding.[2]
Second, an ICSID tribunal may order, in “exceptional” circumstances,[3] security for costs, involving a provision of funds such as a bond, bank guarantee or letter of credit that may be held during the arbitration proceeding and then applied to fulfil an award on costs.[4]
Third, a State party may invoke the inherent authority of the ICSID tribunal to maintain the integrity of a proceeding. Article 44 of the ICSID Convention makes clear that, “if any question of procedure arises which is not covered by this Section [of the ICSID Convention] or the [ICSID] Arbitration Rules or any rules agreed by the parties, the Tribunal shall decide the question.”
However, these mechanisms are not sufficient for States, the Republic of Panama argued in its memorandum. The Central American State thus proposed that the ICSID Secretariat conduct and publish a survey on the current situation and trends with respect to costs awards in favor of respondent States, as well as the views and suggestions of the ICSID Contracting States with respect to enhanced protections for respondent States against judgment-proof claimants, then to develop guidelines accordingly for arbitral tribunals.[5]
- Aurélie Ascoli, Aceris Law
[1] http://res.cloudinary.com/lbresearch/image/upload/v1477064514/rop_memorandum_to_icsid_administrative_council_re_effective_protection_english_version_2_219116_1641.pdf
[2] Rule 28(1) of the ICSID Arbitration Rules provides: “Without prejudice to the final decision on the payment of the cost of the proceeding, the Tribunal may, unless otherwise agreed by the parties, decide: (a) at any stage of the proceeding, the portion which each party shall pay, pursuant to Administrative and Financial Regulation 14, of the fees and expenses of the Tribunal and the charges for the use of the facilities of the Centre; (b) with respect to any part of the proceeding, that the related costs (as determined by the Secretary-General) shall be borne entirely or in a particular share by one of the parties.”
[3] See RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10 (Decision on Saint Lucia’s Request for Security for Costs, 13 Aug. 2014), paras. 51–52 & note 33.
[4] Article 47 of the ICSID Convention and Rule 39 of the ICSID Arbitration Rules.
[5] http://res.cloudinary.com/lbresearch/image/upload/v1477064514/rop_memorandum_to_icsid_administrative_council_re_effective_protection_english_version_2_219116_1641.pdf