Security For Costs In ICSID Arbitrations.
For the first time, an arbitral tribunal has ordered security for costs in an ICSID arbitration. The arbitral tribunal has ordered the oil and gas exploration and production company RSM Production Corporation to provide a guarantee of USD 750,000 as security for the costs of an investment arbitration.
This followed on order dated 12 December 2013, whereby RSM was ordered to pay all of the advance on administrative costs of this arbitration, which are normally paid 50% by each party.
While such orders are common in international commercial arbitration, this appears to be the first time that they have been made in an investor-State dispute. While they are merely procedural in nature, such procedural issues can be time-consuming and expensive to comply with for claimants. Respondents often use such procedural tactics to make it more difficult to obtain an arbitration award. Although these procedural mechanisms represent a significant expenditure in terms of time and costs, they have no effect on the ultimate outcome to a dispute.
The ruling on security for costs was based on a finding of “exceptional circumstances” justifying such measures under Article 47 of the ICSID Convention and ICSID arbitration rule 39(1) concerning provisional measures. The exceptional measures were based on (1) the Claimant’s previous failure to pay costs in its ICSID arbitration against Grenada and (2) the fact that third-party funders were paying for the Claimant’s claim and might not agree to pay costs if the case were not a success.
One of three arbitrators dissented from this ruling on security for costs, arguing that an order for security for costs could not be understood as falling within the class of provisional measures that may be “taken to preserve the rights” of a party under ICSID arbitration rule 39(1). According to the dissenting arbitrator, the right in question (to be awarded costs) was merely contingent and did not currently exist. It was therefore improper to speak of the “preservation” of a right to payment. He also noted that under ICSID arbitration rule 39, arbitral tribunals could “recommend” provisional measures but not “order” them, as the majority did in this case. ICSID Arbitration Rule 39 reads:
Rule 39 – Provisional Measures
(1) At any time after the institution of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal. The request shall specify the rights to be preserved, the measures the recommendation of which is requested, and the circumstances that require such measures.
The order to pay 100% of the advance on costs is also unique, since the presumption under article 14 of the ICSID Administrative and Financial Regulations is that each party should pay half the advance on costs for each dispute. The arbitrators applied ICSID arbitration rule 28, which allows an unequal split of advance payments:
Rule 28 – Cost of Proceeding
(1) 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.
(2) Promptly after the closure of the proceeding, each party shall submit to the Tribunal a statement of costs reasonably incurred or borne by it in the proceeding and the Secretary-General shall submit to the Tribunal an account of all amounts paid by each party to the Centre and of all costs incurred by the Centre for the proceeding. The Tribunal may, before the award has been rendered, request the parties and the Secretary-General to provide additional information concerning the cost of the proceeding.