Security For Costs In Investment Arbitration

Security for costs has become an increasingly important procedural issue in investment arbitration. A respondent State may spend millions defending a treaty claim and, even after prevailing and obtaining a costs award, remain exposed to non-recovery where the claimant is insolvent or has few assets against which the award can be enforced. Security for costs is designed to mitigate that risk before a final costs award is rendered.

The remedy is potentially powerful. It may require an investor to procure a bank guarantee, deposit funds in escrow, obtain after-the-event insurance or provide another form of security for a possible future costs award. If the investor fails to comply, the arbitration may be suspended and, under the current ICSID Arbitration Rules, ultimately discontinued.¹