In international commercial arbitration, the arbitral tribunals allocate the costs of the arbitration between the parties at the end of the proceedings. In doing so they generally follow the “loser pays” principle. According to this principle, the losing party has to bear the costs of the proceedings of the succeeding party. Contrary to the costs incurred in court, the costs of arbitration may be substantially higher. Hence, it is in the interest of the parties that these costs will be repaid in case they succeed in the proceedings. If there is doubt as to the claimant’s financial situation or its willingness to pay the potential cost award at the beginning or during the arbitration proceedings, it is appropriate for the respondent to be able to obtain adequate security. The respondent may obtain such security by requesting security for costs. An order for security for costs is a type of interim measure, allowing the arbitral tribunal to order the claimant to provide adequate security for the payment of the potential cost award. The issue of security for costs is often encountered in international commercial arbitration and is the subject of many debates. There are two key questions that have to be answered. Firstly, whether arbitral tribunals have the power to order security for costs and secondly, under which conditions security for costs may be ordered. It is widely accepted that arbitral tribunals have such power. On the other hand, none of the arbitration rules or laws govern the appropriate conditions under which security for costs may be ordered. While these conditions have developed in practice and in theory, they are not yet uniform. The development of security for costs should therefore strive towards unification and more detailed regulation. Nevertheless, a certain degree of discretion should be maintained, since flexibility is one of the major advantages of arbitration.
|
