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Document information Unionmatex v. Turkmenistan: The Emerging

Jurisprudence of Security for Costs in Investor-State
Publication Arbitration
Journal of International Adrian Fourie
Arbitration
(*)
Applications for security for costs raise fundamental principles of legal philosophy, with
Organization leading arbitrators being divided on whether such orders should be available in investor-
International Centre for State arbitration and, if so, in what circumstances. Security for costs has only ever been
Settlement of Investment granted in three decisions, and in two of those decisions the tribunal has been firmly
Disputes divided – a rarity for procedural orders.
Unionmatex v. Turkmenistan marks the third such decision. This article summarizes the key
findings in the case, outlines the framework for making such orders in International Centre
Arbitrators/Judges for Settlement of Investment Disputes (ICSID) proceedings, summarizes the prior
jurisprudence in this area, and concludes with a discussion of how the jurisprudence is likely
Lucy Ferguson Reed,
Presiding Arbitrator to develop in the future.
Nathalie Voser, Co-
Arbitrator 1 INTRODUCTION
Philippe Sands, Co- A recent procedural order in the International Centre for Settlement of Investment
Arbitrator Disputes (ICSID) case of Dirk Herzig as Insolvency Administrator over the Assets of
Unionmatex Industrieanlagen GmbH v. Turkmenistan (ICSID Case No. ARB/18/35)
(‘Unionmatex’) marks only the third time that an order to provide security for costs has
Case date been granted to a respondent State in (publicly known) investor-State arbitration
27 January 2020 proceedings. The January 2020 decision was issued by an unidentified majority of an
esteemed tribunal consisting of Lucy Reed (President), Professor Philippe Sands, Q.C.
(State’s appointee) and Professor Dr Nathalie Voser (claimant’s appointee) (‘Tribunal’).
Case number In making its determination, the majority focused on weighing the State’s right to enforce
a costs award in its favour, on the one hand, and the claimant’s right to access justice, on
ICSID Case No. ARB/18/35 the other. In navigating this balance, and ultimately ordering the claimant to provide
security for costs in the form of an escrow deposit or a bank guarantee, the majority found
P 650 that it would be ‘effectively impossible’ for the State to enforce a costs award in its
Parties favour, and the claimant was financially capable of funding security, based on the
Claimant, Dirk Herzig as evidence before it.
Insolvency Administrator The dissenting arbitrator disagreed and, crucially, found that there was a real risk that
over the Assets of the claimant could not afford to post security and that an order for security for costs
Unionmatex would impede the claimant’s access to justice. (1)
Industrieanlagen GmbH
Respondent, Turkmenistan As the majority found that an order for security for costs would not impede the claimant’s
access to justice, only the dissenting arbitrator went further to consider the competing
tensions between the parties’ interests. In line with past authorities, the dissenting
arbitrator considered that the claimant’s right to unhindered access to justice was the
Key words paramount consideration and that security for costs should not be ordered if there was a
Unionmatex real risk that the order would prevent a claimant from bringing their claim. (2)
Security
Costs The majority’s decision in this case may be of concern for some investors, since it
ISDS represents the first time in ICSID proceedings that a tribunal has made an order for
access security for costs without finding a history of misconduct on the part of the claimant.
justice However, it is important to note that the decision of the majority in this case turned in
third large part upon the particular terms of the funding agreement which the claimant had in
party place with its litigation funder. The decision therefore provides a warning for investors to
litigation pay close attention to such terms when entering funding arrangements for ICSID cases.
funding
2 BACKGROUND
In 2008, a German company, Unionmatex Industrieanlagen GmbH (‘Unionmatex GmbH’)
Bibliographic won a tender from Turkmengallonumleri Cereals Products Association (a Turkmenistan
Government-controlled entity) for a turnkey contract to build five high-tech grain storage
reference and processing facilities, as well as two adjacent bakeries and cafes in Turkmenistan
Adrian Fourie, 'Unionmatex (‘Mill Project’). The claimant alleged that the State later made it impossible for
v. Turkmenistan: The Unionmatex GmbH to complete the Mill Project, and forced Unionmatex GmbH to leave
Emerging Jurisprudence of Turkmenistan, and file for insolvency. (3)
Security for Costs in
Investor-State Arbitration', In December 2016, Dirk Herzig, the insolvency administrator acting for Unionmatex GmbH
in Maxi Scherer (ed), (‘claimant’), filed a claim against Turkmenistan (‘State’) under the 1997 Germany-
Journal of International Turkmenistan Bilateral Investment Treaty (‘BIT’), seeking damages of approximately EUR
Arbitration, (© Kluwer Law 37 million on the grounds that the State violated the BIT’s standards of treatment relating
International; Kluwer Law P 651 to expropriation, fair and equitable treatment, arbitrary or discriminatory treatment,

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International 2020, Volume and also claimed for contractual breaches pursuant to the umbrella clause. (4)
37 Issue 5) pp. 649 - 664
As Unionmatex GmbH was insolvent, the claimant engaged a third-party funder, La
Française, to fund its costs in the proceedings. Importantly, the funding agreement
explicitly provided that La Française would not be liable to the claimant for any adverse
costs order made in favour of the State.
On 20 August 2019, the State filed a request for security for costs of USD 3 million, to be
deposited into an escrow account or provided as a bank guarantee (‘Security for Costs
Application’). (5)
On 30 September 2019, the claimant opposed the Security for Costs Application and also
made a counter-application for security for the claimant’s costs and for the enforcement
of any final award in the amount of approximately EUR 45 million. (6)
On 27 January 2020, a majority of the Tribunal granted the Security for Costs Application
and summarily denied the claimant’s counter-application for security, (7) labelling the
latter application as unprecedented. (8)

3 AUTHORITY TO ORDER SECURITY FOR COSTS

In ICSID arbitration, security for costs are a species of provisional measures. There is a
stable line of authority demonstrating that ICSID tribunals have the power to order
provisional measures. (9) This power stems from Article 47 of the ICSID Convention, which
provides:
Except as the parties otherwise agree, the Tribunal may, if it considers that
the circumstances so require, recommend any provisional measures which
should be taken to preserve the respective rights of either party.
Article 47 is implemented in practice through ICSID Arbitration Rule 39(1) (‘AR 39(1)’)
which regulates the procedure for applying for provisional measures and provides:
At any time after the institution of the proceeding, a party may request that
provisional measures for the preservation of its rights be recommended by the
P 652 Tribunal. The request shall specify the rights to be preserved, the measures
the recommendation of which is requested, and the circumstances that
require such measures.
The original purpose of AR 39(1) was to prevent both the investor and the State from
taking steps that might aggravate or extend the dispute, or otherwise prejudice the
execution of the award. Although there remains some variation in practice, it is now
widely regarded that all or some of the following conditions must be established before a
provisional measure may be ordered under Article 47 and AR 39 (10) :
– the tribunal must have prima facie jurisdiction;
– there must be a prima facie basis to the claim;
– the requested measures must be necessary to protect the applicant’s rights (or
otherwise protect the status quo and avoid aggravating the dispute);
– the requested measures must be urgent; and
– the requested measures must be proportional or necessary in the circumstances.
Tribunals tend to apply these conditions ‘in the round’, meaning that the strengths and
weaknesses of a request are assessed holistically, with the requisite attention and weight
given to each condition depending on the facts of the case; the object of the inquiry is
ultimately to determine whether the requesting party deserves protection in the form of
provisional measures. (11)
The jurisprudence shows that, where the provisional measure sought is an order for
security for costs, not all of these conditions need to be satisfied by the requesting party.
Notably, in Unionmatex, the majority only required the State to prove three conditions in
order to satisfy AR 39(1), namely: (1) specify a right to be preserved; (2) outline the
measures necessary to protect that right; and (3) demonstrate circumstances which move
the tribunal to order the measure. (12)
This was in part because the Tribunal’s jurisdiction was not in issue, and urgency was not
required to be proved, with the proceedings at an early stage. (13) Therefore, the only
condition that the majority did not openly consider was whether the State had a prima
facie basis to its claim, or the ‘smoke of a good right’ (fumus bonis iuris). Understandably,
this would have been difficult in the circumstances, given that at that time the State had
P 653 not yet filed its defence.

4 CASES PRIOR TO UNIONMATEX

4.1 Specifying a sufficient right to be preserved
ICSID tribunals have overwhelmingly considered that Article 47 does not authorize the
issuance of provisional measures for ‘hypothetical’ rights or rights ‘to be created in the
future’ (such as orders for costs). (14) The only known exception to this principle is found

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 in RSM v. Saint Lucia, where Article 47 was successfully used to order a claimant to
provide security for costs. (15)
Tribunals have been reticent to order security for costs for such hypothetical rights in
particular because they are premised on (1) the State winning on the merits; and (2) the
tribunal finding special circumstances which mean the claimant should pay the State’s
costs. (16) RSM v. Saint Lucia overrode these issues, holding that the State had a right to
an enforceable order for costs should it ultimately prevail and be awarded costs (17) ; a
right which RSM v. Saint Lucia found to be self-standing, without a further inquiry
required.
As an aside, it is to be remembered, however, that the object of a security for costs
inquiry is to determine whether the State deserves interim relief. This then raises the
obvious question of whether tribunals are able to consider the State’s prospects of
receiving an adverse costs award in making its determination. Notably, investor-State
tribunals have not done this openly to date, despite recommendations from bodies such
as the Chartered Institute of Arbitrators that the prospects of success of the claim(s) and
defence(s) be taken into account by arbitrators when they determine security for costs
applications. (18)

4.2 Circumstances which justify an order to protect the right

One of the most authoritative decisions on provisional measures in the context of
investor-State arbitration is Burlington Resources v. Republic of Ecuador, in which the
tribunal held that a provisional measure should only be ordered if the harm mitigated by
P 654 making the order substantially outweighed any harm caused by making the order. (19)
Prior decisions on security for costs sit within this wider line of authority. Such orders are
‘extremely rare’ and have only been granted in ‘exceptional circumstances’ because of
the need to ensure potential claimants are not denied access to justice by being forced
to post security which they cannot afford. (20) Therefore, prior to Unionmatex, there were
only two known cases in which a tribunal has ordered an investor claimant to post
security for costs (and only one ICSID decision).
As noted above, the first such case is the ICSID case of RSM v. Saint Lucia, (21) which has
widely been considered to be the product of extraordinary circumstances. The decisive
reason for the order was that RSM had a history of failing to honour cost awards in ICSID
arbitrations, as well as numerous other proceedings, and that such malfeasance justified
the tribunal ordering security for costs. (22) The tribunal also took into account the fact
that costs awards were more significant to small countries with limited resources, such as
St Lucia. (23)
The second case is the UNCITRAL case of García Armas v. Venezuela, (24) which has largely
been considered to be an outlier. Here, the tribunal ordered security for costs because
the third-party funder was not obliged to pay any adverse costs award against insolvent
claimants. (25) Unlike in RSM v. St Lucia, the tribunal did not assess the past conduct of
the claimant.
In the rest of the known cases, tribunals have not awarded security for costs. This is
generally because tribunals have rejected the notion that only investors with sufficient
financial standing to meet a possible costs award will be heard. (26) That is, access to
justice is key. The position is best put by the tribunal in RSM v. Grenada which provided
P 655 that ‘it is simply not part of the ICSID dispute resolution system that an investor’s
claim should be heard only upon the establishment of sufficient financial standing of the
investor to meet a possible costs award’. (27)
This line of authority has most recently been applied in Lao Holdings, where the tribunal
noted that it would ‘not lightly recommend a provisional measure that could impede
access to justice’. (28)
In relation to the issue of third-party funders (TPF) in particular, in EuroGas v. Slovak
Republic, (29) the tribunal found that the financial difficulties of the claimant and the
existence of third-party funding did not necessarily constitute exceptional
circumstances. (30) Further, in EuroGas, the tribunal also held that orders for security will
only be made in exceptional circumstances, ‘for example, where abuse or serious
misconduct has been evidenced’ (31) (such as that seen in RSM v. Saint Lucia).
The decision in EuroGas was followed in South American Silver Ltd. v. Bolivia, (32) where
the tribunal held that the mere existence of a TPF is not an exceptional situation
justifying security for costs. (33) In line with past authorities, the tribunal also stated:
[T]he general position of investment tribunals in cases deciding on security for
costs is that the lack of assets, the impossibility to show available economic
resources, or the existence of economic risk or difficulties that affect the
finances of a company are not per se reasons or justifications sufficient to
warrant security for costs. (34)
The current position on security for costs and TPFs is perhaps best captured in the Report
of the International Counsel for Commercial Arbitration (ICCA)-Queen Mary Task Force on
Third-party Funding in International Arbitration. (35) Notably, in that report the authors

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 make clear that the existence of a funding agreement is not sufficient for a grant of
security, (36) in part, as the authors note, because third-party funding is increasingly used
by solvent companies that simply wish to share risk and maintain liquidity so that they
P 656 can sustain their regular business while arbitral proceedings are on foot. (37)

5 DECISION IN UNIONMATEX
The majority held that the State satisfied the first two requirements as set out in AR 39(1)
as it found (1) the State’s right to an enforceable order for costs was an eligible right to be
preserved; and (2) the State had outlined the measure necessary to protect that right,
specifically, security for costs. (38)
The majority’s focus (and where the anonymous dissenting arbitrator diverged) was on the
third element, being whether the necessary circumstances existed to justify an order for
security for costs. (39) The majority was open to considering all the circumstances in the
case, but, as outlined above, the majority’s decision focused on resolving the tension
between the State’s right to enforce a costs award in its favour and the claimant’s right to
access justice.
In resolving this tension the majority focused on whether there was any prejudice to the
State which favoured the order, and then considered whether any prejudice to the
claimant overrode the prejudice to the State, such that security for costs should not be
ordered.

5.1 Prejudice to the state if security for costs were not ordered
The majority held that practically it was ‘effectively impossible’ for the State to enforce
and collect upon any costs award in its favour, (40) and thus that the State would be
unduly prejudiced without an order for security for costs. (41) This finding was based on a
combination of three factors: (1) Unionmatex GmbH being insolvent; (2) the claim was
being funded by a TPF; and (3) the funding agreement expressly absolved the TPF of
responsibility for an adverse costs award. (42) Importantly, the majority expressly held
that reliance on third-party funding was not sufficient in and of itself to meet this
standard, (43) and further, that a party’s impecuniosity, in and of itself, was also not
sufficient to meet the exceptional circumstances standard. (44) The majority therefore
anchored their finding on the substantive terms of the funding agreement, and not the
existence of the funding agreement itself.
The dissenting arbitrator disagreed, expressing the view that it was ‘not appropriate [for
P 657 the majority] to conclude that Turkmenistan is certain not to recover its costs’ (45) if it
receives an award in its favour because (1) under German insolvency law, obligations
incurred after the opening of the bankruptcy proceedings take precedence over prior
obligations; and (2) Unionmatex GmbH’s balance sheet showed that it still had some
assets of value which may be able to fund a costs award in favour of the State. (46)

5.2 Prejudice to the claimant if security for costs were ordered

The majority held that an order for security for costs would not impede the claimant’s
access to ICSID arbitration as the claimant was only required to provide, and was
financially capable of obtaining, a bank guarantee for USD 3 million. (47) The majority
noted that the claimant had not claimed it would be impossible to post security and
rather had requested to be reimbursed for the costs of posting security if the State was
not ultimately awarded costs. The majority held that the claimant would not have made
this request if it could not afford to post security. (48)
The dissenting arbitrator disagreed and found that there was a real risk that the claimant
would not be financially capable of continuing its claim if security for costs were ordered.
(49) A bank guarantee for USD 3 million would likely be difficult and costly to obtain
without ‘full cash collateral’, (50) and for this reason there was a real risk that banks
would not issue a guarantee for a company that was bankrupt. (51)

5.3 Resolving the tension between the state and the claimant
As above, the dissenting arbitrator found that security for costs should not be ordered as
there was a real risk that it would impede the claimant’s access to justice. (52) The
majority similarly held that it was ‘mindful not to impede a party’s right to bring a claim
before an international tribunal to seek redress for perceived wrongs’. (53)
Therefore, the case turned on the facts. The majority only ordered security for costs on
the basis that it would not impede the claimant’s access to justice; and the majority
expressly provided that it would reconsider its order if the claimant brought forward
P 658 evidence that it was financially incapable of posting security. (54) Thus, as a matter of
law, access to justice was not a clear point of difference between the arbitrators.
One point of difference that did emerge, however, was whether the Tribunal could take
into account the claimant’s allegation that the State was responsible for Unionmatex
GmbH’s impecuniosity. At paragraph 66 the majority stated:
In balancing the Parties’ competing prejudice claims, the Tribunal must ignore

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 [the claimant’s] allegation that it is unreasonable for [the State] to obtain
security for costs when it was [the State] that allegedly caused the insolvency
of Unionmatex [GmbH].
The dissenting arbitrator disagreed, and remarked that the reason why Unionmatex
GmbH was insolvent cannot just be ‘ignored’ in a security for costs application when it is
alleged that it was the State’s breach of standards of international law which caused or
contributed to the insolvency. (55) The dissenting opinion also noted that the majority’s
judgment appeared internally inconsistent on this point, as the majority had previously
provided at paragraph 55 that:
A party’s impecunity, in and of itself, is not sufficient to meet the exceptional
circumstances standard. One reason is that a claimant may be able to prove
on the merits that the respondent wrongfully caused its financial difficulty.
It appears that the majority were of the view that the alleged cause of Unionmatex
GmbH’s impecuniosity was only a relevant factor to be considered in circumstances
where a tribunal had already found that a claimant could not afford to post security.
Conversely, it appears the dissenting arbitrator’s view was that allegations of the State’s
substantive conduct could be assessed as a stand-alone indicia when weighing the
prejudice between the parties, if the allegations made were not ‘entirely arbitrary’. (56)

5.4 Importance of access to justice

In summary, the dicta in Unionmatex is in line with past authorities on access to justice.
For example, the majority held that the ICSID system was ‘established to provide for a
balanced system for the resolution of investment disputes and to enable aggrieved
investors to pursue their rights directly against the host state’ (57) ; and expressly
provided that they would reconsider their order for security for costs if Unionmatex
GmbH brought forward evidence that it was financially incapable of posting security. (58)
P 659 Further, the minority provided that access to justice was the ‘paramount consideration’
(59) and that security should never be ordered if ‘there is a real risk that the Claimant will
not be able to pursue his case’ as the result of the order. (60) Thus, Unionmatex reinforces
the principle that access to justice is the over-arching factor to be considered by
tribunals, and should prevent the order of security for costs where such an order would
prevent a claimant from pursuing its claim.

5.5 Relevance of the terms of the funding agreement

Given that access to justice is the overarching consideration, and that Unionmatex GmbH
was insolvent at the time of the order, the question arises whether, if Unionmatex GmbH
did not have a funding agreement which expressly provided that the TPF had no liability
for adverse costs, the same order for security for costs would still have been issued. For
the reasons outlined below, the answer to this question is likely ‘no’.
First, the majority expressly mentioned that the TPF agreement excluded funder liability
for an adverse costs award seven times in the award. (61) Second, in Unionmatex,
‘Turkmenistan stresse[d] that its request for security for costs is not based primarily on
the financial position of Unionmatex, but on the third-party funding agreement that does
not cover an adverse costs award’. (62)
Third, in line with how Turkmenistan’s request was framed, the majority held that ‘[t]he
question the Tribunal must decide in the instant case is the import of a third factor
beyond impecunity and third-party funding – the explicit non-liability of the third-party
funder for a costs award adverse to its funded party’. (63) And fourth, the tribunal held
that the explicit non-liability of the third-party funder was the critical factor for them in
deciding to order security for costs. (64) The reasoning of the majority therefore suggests
that the terms of the TPF agreement were material to their conclusion.
Importantly, in support of their findings, the majority relied on the Garcia Armas case,
where ‘like the tribunal [in that case], a majority of the Tribunal finds this additional
factor to be critical’ (65) ; such that the ‘determinative factor [was held to be that] the
P 660 third-party funder was not obliged to pay any adverse costs award against the
insolvent claimants’. (66) Given the above, a new line of authority may therefore be
developing on this point.

6 CONCLUSION ON UNIONMATEX
The decision in Unionmatex represents the first time in ICSID proceedings that a tribunal
has ordered security for costs without finding a history of misconduct on the part of a
claimant (and only the third time security for costs has been ordered in investor-State
arbitration). Despite this result, it is important to note that the decision in Unionmatex
turned on its facts, and in particular (1) whether the claimant was capable of satisfying
the security conditions imposed by the majority; and (2) the terms of the third-party
funding agreement in place, namely, that the funder would not be liable to pay an
adverse costs order.
It should also be noted that the decision reinforces the principle that a tribunal must be

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 ‘mindful not to impede a party’s right to bring a claim before an international tribunal’,
(67) and that investors should be able to access justice, even if they do not have sufficient
financial standing to meet a possible costs award. (68)
In practical terms, there would appear to be two main lessons in the Unionmatex
decision:
– First, for a claimant investor opposing a security for costs application, it is
important not to allow the issue of access to justice to remain abstract or
hypothetical. Dr Herzig, as administrator of Unionmatex GmbH, stopped short of
declaring that the company would not be able to post security if it was ordered, and
as a result the majority of the arbitrators felt comfortable that the claimant would
not be denied access to justice if they granted Turkmenistan’s request.
– Second, claimant investors (and TPF) should take particular care in drafting the
terms of their funding agreements, as these terms may be the object of close
scrutiny in any future security for costs applications. In particular, the Unionmatex
decision represents the second time an investment tribunal has ruled that the fact
a funder has no liability to pay adverse costs is determinative in a security for costs
application (the first time being in the Armas case). A new line of authority may
therefore be emerging on this point, and thus investors should be aware of this risk
if they include such clauses in their funding contracts.
P 661

7 COMMENT ON THE PROPOSED AMENDMENTS TO THE ICSID RULES

Given the ongoing proposals for amendment to the ICSID Rules, (69) no commentary on
security for costs in investor-State arbitration is now complete without a discussion of
proposed ICSID Arbitration Rule 53 (‘AR 53’), which contains four mandatory
considerations for tribunals in determining whether to issue security for costs. It bears
noting that the claimant referred to this draft rule in opposing Turkmenistan’s request for
security for costs. (70) AR 53 provides (71) :
(1)In determining whether to order a party to provide security for costs, the Tribunal shall
consider all relevant circumstances, including:
(a)that party’s ability to comply with an adverse decision on costs;
(b)that party’s willingness to comply with an adverse decision on costs;
(c)the effect that providing security for costs may have on that party’s ability to pursue its
claim or counterclaim; and
(d)the conduct of the parties.
Only time will tell how AR 53 will interact with existing security for costs decisions and AR
39(1) jurisprudence. On the one hand, the drafting is flexible, and gives tribunals
discretion to deal with the various factual circumstances that will come before them; and
on the other hand, AR 53 introduces four mandatory (‘shall’) considerations, which
tribunals will be bound to consider moving forward.
The flexibility in AR 53(3) will likely mean that dominant principles established in
accordance with AR 39 jurisprudence will remain highly persuasive in any application of
AR 53. For example, it is highly likely that tribunals will continue to consider security as
warranted only in exceptional circumstances, and will continue to treat a claimant’s right
to access justice as paramount.
Additionally, the four mandatory considerations in AR 53(3) will also likely guide a new
body of case law. One area in which the jurisprudence is sure to develop rapidly is the
meaning of the words ‘the conduct of the parties’ in AR 53(3)(d) – terms that are broad
and open to procedural and substantive interpretations. In the procedural sense, the
‘conduct of the parties’ would certainly include the failure of the party against whom
security is sought to pay its share of advance costs or honour previous costs awards (the
issue in RSM v. St Lucia). Further, the words are also broad enough to allow the tribunal to
P 662 consider the procedural conduct of the party that is requesting security (for example,
whether the applicant for security has paid its share of advance costs in the
proceedings).
In the substantive sense, the words ‘conduct of the parties’ also appear broad enough to
allow the tribunal to consider the effect that the State’s conduct during the period of the
investment had on the claimant’s financial position. Thus, this limb of AR 53 could be
read as an affirmation of the tribunal’s power to consider the merits of the case on a
prima facie basis (e.g. whether there is a non-arbitrary claim that Turkmenistan was
responsible for Unionmatex GmbH’s insolvency) – something ICSID tribunals have
traditionally been reluctant to do (or at least reluctant to do openly).
The explanatory notes to the working paper support this dual (procedural and
substantive) reading of AR 53(3)(d), providing (72) :
1. [AR 53(3)(d)] requires a Tribunal to consider the ‘conduct of the parties’. This
implements a number of suggestions. For example, one State proposed that the rule
require consideration of any abuse of procedure, including the perceived frivolous

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 nature of the claims asserted by a party as well as the requesting party’s non-
payment of advances on costs. Other comments suggested that the Tribunal be
required to take into account the cause of a party’s alleged inability to comply with
an adverse cost award, to address the concern that a party could be denied access
to justice by an order for security for costs if its impecuniosity is the result of
actions of the host State.
2. In practice, Tribunals have found that ‘abuse’ or ‘serious misconduct’ by a party
could weigh in favour of ordering that party to provide security for costs. On the
other hand, it is widely accepted that security for costs would not be appropriate
where a claimant’s impecuniosity is the result of the respondent’s actions. [AR 53(3)
(d)] is stated in broad terms to encompass any relevant conduct by either party.
In light of this explanation of AR 53(3)(d), when there is a case that a State has caused a
claimant’s impecuniosity, this should weigh against a tribunal ordering security for costs
under the new rule. Similarly, it is possible that, under AR 53(3)(d), Unionmatex may have
been decided differently. As the minority noted, it would be unreasonable for a State to
P 663 obtain security for costs where the State caused the claimant’s insolvency.

8 POSTSCRIPT
Subsequent to this article’s authorship, Global Arbitration Review (GAR) reported that on 9
June 2020 a majority of the Tribunal rescinded its order requiring security for costs to be
posted by the claimant. (73)
The report notes that the majority rescinded its order because it found that it would be
commercially impossible for Dirk Herzig to secure a USD 3 million bank guarantee, and
further, due to the terms of the funding agreement, even an after-the-event (ATE)
insurance policy for USD 1.5 million was not feasible.
GAR further reported that ‘the majority said that to deny Herzig an opportunity to
proceed to the merits of his claim – in circumstances where Turkmenistan’s actions are
alleged to be the cause of the company’s insolvency – would be to deny him access to
justice’, and for that reason the order for security for costs could not be maintained.
In practical terms, there would appear to be two main lessons from the Tribunal’s
decision to rescind its order:
– First, the order underscores that access to justice is the over-arching consideration
for tribunals, and will prevent an order of security for costs where such an order
would prevent a claimant from pursuing its claim – especially where it is alleged
that it was the State’s very actions that caused the claimant’s impecunity.
– Second, participants in the Investor-State dispute settlement (ISDS) process should
be aware that commercially it is very unlikely that impecunious investors will be
able to secure a bank guarantee on account of the investor’s risk profile. Further,
although ATE insurance policies may be available to investors, they are also
unlikely to be a viable option, as the commercial reality of TPF is that they will
likely cost the investor three to six times the insurance payout – which is patently
unfair to the investor, especially in the situation where it is alleged that the State
has caused the investor’s impecunity. This means that when requesting security for
costs, States should be aware that the higher the security requested the lower the
chances of the order being successful – where in Unionmatex, security of only USD
1.5 million was ultimately deemed to be too high by the Tribunal.
P 663

References
*) Associate, Clifford Chance, Perth Email: [email protected].
1) Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen
GmbH v. Turkmenistan (ICSID Case No. ARB/18/35) (‘Unionmatex’), Decision on
Security for Costs on (27 Jan. 2020), paras 58, 65, 75, and 79.
2) Ibid., para. 83.
3) Ibid., para. 1.
4) Ibid., para. 2.
5) Ibid., paras 4 and 11.
6) Ibid., para. 5.
7) Ibid., para. 84.
8) Ibid., para. 68.
9) See Emilio Agustín Maffezini v. Kingdom of Spain (ICSID Case No. ARB/97/7), Decision on
Request for Provisional Measures (28 Oct. 1999), para. 8; most recently applied in
Nova Group Investments, B.V. v. Romania (ICSID Case No. ARB/16/19), Procedural
Order No. 7 Concerning the Claimant Request for Provisional Measures (29 Mar. 2017),
para. 228.

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 10) S. Luttrell, ICSID Provisional Measures ‘In the Round’, 31 Arb. Int’l 393, at 397 (2015); S.
Luttrell, The ICSID Convention, Regulations and Rules – A Practical Commentary (2019),
para. 25.07.
11) S. Luttrell, Observations on the Proposed New ICSID Regime for Security for Costs, 26(3)
J. Int’l Arb. 388 (2019).
12) Unionmatex, supra n. 1, paras 51–53.
13) Ibid., para. 67.
14) See e.g. Maffezini v. Spain, supra n. 9, para. 13.
15) RSM Production Corp. v. Saint Lucia (ICSID Case No. ARB/12/10), Decision on Saint
Lucia’s Request for Security for Costs (13 Aug. 2014), paras 65–66.
16) Maffezini v. Spain, supra n. 9, para. 17.
17) RSM v. Saint Lucia, supra n. 15, paras 65–66.
18) See CIArb’s International Arbitration Practice Guidelines on Applications for Security for
Costs, Art. 1, https://www.ciarb.org/media/4196/guideline-5-security-for-costs-
2015.pdf (accessed 8 Apr. 2020).
19) See Burlington Resources Inc. v. Republic of Ecuador (ICSID Case No. ARB/08/5),
Procedural Order No. 1 on Burlington Oriente’s Request for Provisional Measures (29
June 2009), para. 81; most recently applied in Nova v. Romania, supra n. 9, paras 238–
242. For a detailed discussion, see Luttrell, supra n. 10, para. 25.49.
20) In addition to Unionmatex, supra n. 1, para. 50, see also EuroGas v. Slovak Republic,
infra n. 29, para. 121 and Sergei Viktorovich Pugachev v. Russian Federation, UNCITRAL,
Interim Award (17 July 2017), para. 377. In the context of annulment proceedings, see
also Commerce Group Corp. & San Sebastian Gold Mines, Inc. v. Republic of El Salvador
(ICSID Case No. ARB/09/17), Decision on El Salvador’s Application for Security for
Costs (20 Sept. 2012).
21) See RSM v. Saint Lucia, supra n. 15, para. 27.
22) Ibid., para. 90.
23) See ibid., Assenting Decision of Gavan Griffith, para. 15.
24) Manuel García Armas et al v. Bolivarian Republic of Venezuela (PCA Case No. 2016–08),
Procedural Order 9, Decision on Respondent’s Request for Provisional Measures (20
June 2018).
25) Ibid., para. 250.
26) See EuroGas v. Slovak Republic, infra n. 29, para. 120; RSM Production Corp. v. Grenada
(ICSID Case No. ARB/10/6), Tribunal’s Decision on Respondent’s Application for
Security for Costs (14 Oct. 2010), para. 5.19; Lighthouse Corp. Pty. Ltd. & Lighthouse
Corp. Ltd., IBC v. Democratic Republic of Timor-Leste (ICSID Case No. ARB/15/2),
Procedural Order No. 2 − Decision on Respondent’s Application for Provisional
Measures (13 Feb. 2016), para. 60; Víctor Pey Casado Fondation Président Allende v. la
République du Chili, Affaire CIRDI/ARB/98/2, Decision on Provisional Measures on 25
Sept. 2001, para. 86.
27) RSM v. Grenada, supra n. 26, para. 5.19.
28) Lao Holdings N.V. v. Lao People’s Democratic Republic (ICSID Case No. ARB(AF)/16/2),
Procedural Order No. 6, Decision on Respondent’s Application for Security for Costs of
(26 June 2018), n. 76.
29) EuroGas Inc. & Belmont Resources Inc. v. Slovak Republic (ICSID Case No. ARB/14/14),
Procedural Order No. 3 – Decision on the Parties’ Requests for Provisional Measures
(23 June 2015).
30) Ibid., para. 121.
31) Ibid.
32) South American Silver Ltd. v. Bolivia (PCA Case No. 2013–2015), Procedural Order No. 10
(11 Jan. 2016).
33) Ibid., para. 74.
34) Ibid., para. 63.
35) International Counsel for Commercial Arbitration, in Report of the ICCA-Queen Mary
Task Force on Third-party Funding in International Arbitration Ch. 6, 176–183 (S.
Brekoulakis, A. Sheppard QC, S. Dunn, M. Smith & J. Göler eds, Apr. 2018).
36) Ibid., at 176.
37) Ibid., at 180.
38) Unionmatex, supra n. 1, para. 52.
39) Ibid., para. 53.
40) Ibid., para. 58.
41) Ibid., para. 63.
42) Ibid., paras 58 and 59.
43) Ibid., para. 54.
44) Ibid., para. 55.
45) Ibid., para. 74.
46) Ibid., para. 73.
47) Ibid., para. 65.
48) Ibid., para. 65.
49) Ibid., para. 83.
50) Ibid., para. 76.
51) Ibid., para. 77.
52) Ibid., paras 79–83.
53) Ibid., para. 64.

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 54) Ibid., para. 65.
55) Ibid., para. 77.

56) Ibid., para. 78.

57) Ibid., para. 23.
58) Ibid., para. 65.
59) Ibid., paras 79–82.
60) Ibid., para. 83.
61) Ibid., paras 22, 26, 27, 40, 57, 59, and 60.
62) Ibid., para. 40.
63) Ibid.. para. 57.
64) Ibid., para. 60.
65) Ibid.
66) Ibid., para. 27.
67) Ibid., para. 64.
68) See EuroGas v. Slovak Republic, supra n. 29, para. 120; RSM v. Grenada, supra n. 26,
para. 5.19; Lighthouse Corp. v. Timor-Leste, supra n. 26, para. 60; Víctor Pey Casado
Fondation v. la République du Chili, supra n. 26, para. 86.
69) International Centre for Settlement of Investment Disputes, Proposals for Amendment
of the ICSID Rules – Working Paper (Vol. 1, Feb. 2020), Rule 53 Security for Costs.
70) Unionmatex, supra n. 1, para. 18.
71) International Centre for Settlement of Investment Disputes, Proposals for Amendment
of the ICSID Rules – Working Paper vol. 1, Rule 53 Security for Costs (Feb. 2020).
72) International Centre for Settlement of Investment Disputes, Proposals for Amendment
of the ICSID Rules – Working Paper vol. 1, Rule 51 Security for Costs, paras 360–361
(Mar. 2019).
73) See Global Arbitration
Review,https://globalarbitrationreview.com/article/1227877/icsid-panel-rescinds-
security-for-costs-order (accessed 23 June 2020).

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