ICSID tribunal refuses security for costs application

30 July 2015 – Following the decision by an ICSID tribunal to order the claimant to provide security for costs in RSM v St Lucia, another ICSID tribunal (Professors Pierre Mayer, Emmanuel Gaillard and Brigitte Stern) in Eurogas and Belmont v The Slovak Republic has considered a similar application.

The Slovak Republic had applied for security for costs on the basis that the claimants are funded by a third party litigation funder.

In refusing the application, the tribunal said:

  • As the RSM tribunal held, it is “not part of the ICSID dispute 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”;
  • As regularly held by ICSID arbitral tribunals, security for costs may only be granted in exceptional circumstances, “for example, where abuse or serious misconduct has been evidenced”;
  • RSM was an “exceptional” case as not only was the claimant impecunious and funded by a third party, but it also had a proven history of not complying with cost orders;
  • No exceptional circumstances had been evidenced in the instant case.  In particular, the claimants had not defaulted on their payment obligations in the present proceedings or in other arbitration proceedings.
  • The Tribunal took the view that financial difficulties and third party-funding, which it described as having “become a common practice”, do not necessarily constitute exceptional circumstances justifying an order of security for costs.

Harbour commented: “”The Eurogas tribunal has taken a measured approach to the issue, which should restore the balance that appeared to have been in peril after the decision in RSM and the somewhat heated discussion that followed. There will be circumstances in which orders for security for costs are appropriate, whether or not a claimant is funded by a third party funder (or its law firm, or a combination).  We trust that future tribunals will follow the Eurogas approach i.e. start from the position that security for costs is only to be granted in exceptional circumstances, recognise that third party funding is not (in and of itself) an exceptional circumstance, then go on to address the individual situation on its particular merits.””

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