Originally from Investment Treaty Arbitration and International Law - Volume 14

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I. INTRODUCTION

An order for security for costs guarantees to the party requesting the security that a given sum of money will be available throughout the proceedings to satisfy an eventual costs award in its favor.  The requesting party, however, will not have a right to such sum unless (i) the tribunal issues an award in its favor, and (ii) the tribunal issues a costs award in its favor as well.  While the former condition is dependent upon the merits of the dispute and the tribunal’s reasoning, the latter condition, at least with respect to ICSID Arbitration, is solely dependent on the tribunal’s discretion to allocate costs in favor of the winning party.   In other words, “[t]he tribunal is effectively invited at a very early stage to prejudge how it will exercise an extremely broad discretion in relation to costs much later in the proceedings, or at least to put in place safeguards which will only have any relevance if its discretion is exercised in a particular way.”   Moreover, throughout the history of investment arbitration, tribunals have not exercised their discretion to award costs to the prevailing party in a consistent manner.  In fact “[t]he ICSID Convention gives tribunals a broad discretion in deciding how costs should be apportioned between the parties, and does not provide guidance as to which [] approach[] should be followed and in what circumstances.”   Thus, tribunals have adopted a “wide range of approaches” to costs allocation resulting in unpredictable outcomes.   A study conducted by Matthew Hodgson and Alistair Campbell, which relies on publicly available empirical evidence as of 2017, showed that 57% of investment tribunals made a partially adjusted costs order, 7% made a fully adjusted costs order, and 36% required that each party bear its own costs.   A previous study conducted by Hodgson found that “[s]uccessful claimants are more likely to recover their costs than successful respondents,” with tribunals making a successful costs order in favor of respondents in only 38% of the cases.   As demonstrated by the foregoing, security for costs is irrelevant without a subsequent costs award, and costs awards are by no means guaranteed to be awarded to the winning party, particularly where the prevailing party is a respondent state.