Security for Costs

This guide by the International Institute for Sustainable Development (IISD) examines the use of 'security for costs' in investor-state dispute settlement (ISDS), where tribunals require investors to deposit funds to cover a state's potential legal costs. The document analyzes the high financial burden on taxpayers, the challenges states face in obtaining such orders due to high judicial thresholds, and the impact of third-party funding. It concludes by recommending stronger, more explicit treaty language to ensure states can recover costs and prevent 'arbitral hit and run' scenarios.

• States seek security for costs to protect taxpayers from the high expense of defending ISDS claims, which average USD 8 million. Specific examples include the Philippines spending USD 58 million on two cases and Australia spending USD 39 million on a case brought by Philip Morris.
• While it is generally accepted that tribunals have the implied power to order security for costs under ICSID, UNCITRAL, and ICC rules, these rules provide no guidance on the principles or factors tribunals should use to decide such requests.
• Recent treaties and model agreements have begun to include explicit language on security for costs. The EU-Vietnam FTA and the Slovakia-Iran BIT allow for security if there are reasonable grounds to believe the claimant cannot honor a costs decision. The 2016 Czech model BIT provides the most guidance, specifically mentioning the investor's inability to pay or the divestment of assets to avoid proceedings.
• Arbitral jurisprudence has historically been reluctant to grant security for costs, often requiring 'extreme' or 'exceptional' circumstances. Some tribunals have argued that states have no 'right' to cost reimbursement that can be protected as a provisional measure, while others require evidence of bad faith or serious misconduct.
• Many tribunals have ruled that an investor's lack of assets or status as a shell company is not sufficient grounds for security for costs, contradicting the focus of newer treaty language on the investor's financial ability to pay.
• Third-party funding is generally not viewed by tribunals as sufficient grounds for security for costs on its own. However, it is associated with the risk of 'arbitral hit and run,' where a funder pays for the claim but does not commit to paying adverse costs.
• Security for costs has been granted in only two known cases. In RSM v. St Lucia, the order was based on the claimant's history of non-payment and lack of resources. In a July 2018 case (García Armas and García Gruber v. Venezuela), it was granted because the third-party funder denied liability for adverse costs.
• The IISD recommends that states adopt strong treaty language that reaffirms the tribunal's power to order security, mandates termination of proceedings if security is not paid, and requires disclosure of third-party funding arrangements, specifically whether the funder has irrevocably committed to adverse costs liability.

APA

Brewin, S. (2018). Security for Costs. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/security-for-costs-best-practices-en.pdf

Chicago

Brewin, Sarah. Security for Costs. International Institute for Sustainable Development, 2018. https://www.iisd.org/system/files/publications/security-for-costs-best-practices-en.pdf.

Wikipedia

{{cite report |last1=Brewin |first1=Sarah |title=Security for Costs |publisher=International Institute for Sustainable Development |date=October 2018 |url=https://www.iisd.org/system/files/publications/security-for-costs-best-practices-en.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{brewin2018security, author = {Brewin, Sarah}, title = {{Security for Costs}}, institution = {International Institute for Sustainable Development}, year = {2018}, month = oct, url = {https://www.iisd.org/system/files/publications/security-for-costs-best-practices-en.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }