The decision itself, cannot be overly criticised, even for a third party funder whose industry has found itself at the heart of an overly dramatised controversy. Security for costs may serve a perfectly valid purpose whether a funder is involved or not. Sometimes, in particular circumstances, notably when a claimant is notorious for his numerous investment treaty claims and his refusal to pay for adverse costs when he loses, it may indeed be appropriate to award security for costs. However, this remains an exceptional situation.

What is surprising is that from exceptional circumstances, general principles regarding security for costs when a third party funder is involved be enunciated. Surely each case is different and the concerns that the claimant may spur at the outset of a case as to its willingness and potential to pay for adverse costs vary drastically from case to case.

I suggest that a couple of facts be considered before any conclusions are drawn on the topic:

  1. Funders simply do not fund spurious claims. They make careful and researched investment decisions with the help of the most sophisticated and experienced practitioners. Gamblers would not last long in this industry. Similarly, lawyers that accept contingency fees only do so when they have as much comfort as possible that they hold a winning hand.
  2. Approximately 50% of funded claimants are in a financial position to pay for the costs of arbitration themselves only they have made a business decision not to freeze their liquid capital in lengthy and expensive proceedings but to allocate that cash to what they do best, make more cash.
  3. Immobilising large sums of money for a considerable period of time comes at price. All arbitration and litigation practitioners have heard about the time value of money. This important fact which is discussed at great length when investigating the quantum value of a claim, should not be forgotten when considering security for costs. If security for costs are requested, by either claimant or respondent, they should naturally agree to remunerate that immobilisation at an appropriate rate should the request have been abusive.

Imposing systematic and unremunerated security for costs when a funder, bank loan, or mortgage are needed by the other 50% of claimants, will inevitably hinder the access to justice for many potentially deserving claimants. It is noteworthy to be reminded that investment treaty dispute resolution mechanisms were designed to protect those that needed protection, the investors, not the contracting states. In numerous occasions, investors have found themselves in dire financial positions precisely because of the acts of the host state, had their assets seized and confiscated by those host states. The proposition that these investors should systematically be asked to pay security for costs if they have managed to obtain third party financial support to pursue redress is ironic.

Notes to Editors:

For more information on Vannin Capital, please contact: Meika Aysal, Marketing at Vannin Capital, T: +44 207 099 5180, E: ma@vannin.com