The Eurogas tribunal recently held that security should only be granted in exceptional circumstances such as abuse or serious misconduct. “Financial difficulties” and mere reliance on third-party funding did not in itself necessarily constitute “exceptional circumstances” justifying an order for security for costs.
I was recently speaking at the wonderfully organised AIA-ArbIt Rome Conference in Italy on Third Party Funding and I was surprised by how heated the debate got. One of the most respected arbitration specialists was quite upset about the fact that third party funding was the new excuse for respondents to create time consuming and expensive procedural incidents, pleadings and hearings. It has indeed become the unfortunate new fashion for respondents to harass arbitrators and claimants about their past or existing links to third party funders suspecting a potential conflict of interest on the principle that arbitrators would have no other way of knowing whether a claimant is indeed funded and by which funder than to request the claimant to disclose the fact of funding and the identity of the funder. Transparency of the fact of funding has its own issues, but no one disagrees that it is in everyone’s best interest to protect the sanctity of the arbitral procedure and of the award, especially for the claimant and the funder.
However, this trend has led to another much more harmful quasi-systematic request for security for costs by the respondent. In a blog article published on 10 October, I discussed the RSM vs Santa Lucia investment treaty award which opened the way for an automatic award of security for costs in cases where a funder was supporting the claimant. That decision has given rise to much debate and controversy and I added my pinch of salt to the debate.
I am now pleased to report that a tribunal chaired by Professor Pierre Mayer and French co-arbitrators Emmanuel Gaillard and Brigitte Stern issued a procedural order on 23 June declining the state’s request for security for costs based on the RSM vs Santa Lucia jurisprudence:
“It is true that in RSM v. Saint Lucia, an ICSID tribunal ordered security for costs. However, the underlying facts in that arbitration were rather exceptional since the claimant was not only impecunious and funded by a third party, but also had a proven history of not complying with cost orders. As underlined by the arbitral tribunal, these circumstances were considered cumulatively.
Yet, no such exceptional circumstances have been evidenced in the instant case. The Claimants have not defaulted on their payment obligations in the present proceedings or in other arbitration proceedings. The Tribunal is of the view that financial difficulties and third party-funding – which has become a common practice – do not necessarily constitute per se exceptional circumstances justifying that the Respondent be granted an order of security for costs.”
It is reassuring for all claimants that may potentially need third party funding, that such a respected tribunal has re-established the correct approach to the award of security for costs and one can only hope that this issue has now been finally dealt with.
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