• ICAR


- By Shanu Jain

Keywords- Security for cost, third-party funding, bankruptcy, incapacity, X factor


Security for cost is a type of interim measure which enables a party to post security to cover the legal costs associated with the arbitration (these may include attorney’s fees, tribunal fees, as well as administrative costs).[i] The opinion of Dr Gavan Griffith QC in RSM v. Saint Lucia[ii] (RSM), made stakeholders of investment treaty arbitrations believe that presence of third-party funding (TPF) arrangements in a case is the X factor in arriving at the decision to grant security of cost. The reason was his separate assenting opinion in RSM. He opined, “in my view the preferred ground for making such orders [orders for security of cost] here concern the third party funding issue”.[iii] He further added, “it is increasingly common for BIT claims to be finances by an identified, or (as here) unidentified third party funder, either related to the nominal claimant or one that engages in the business venture of advancing money to fund the Claimant’s claim, essentially as a joint-venture to share the rewards of success but, it security for costs orders are not made, to risk no more than its spent costs in the event of failure. Such a business plan for a related or professional funder is to embrace the gambler’s Nirvana: heads I win, and Tails I do not lose.”[iv]

Post RSM, several cases saw applicants seeking security of cost merely because a party took recourse to TPF. In a recent statical analysis[v] (see the chart below), security of cost was found to be one of the most contested issues whenever TPF was involved in a matter. However, it is not clear whether it is just to consider TPF the X factor in granting security of cost, or if it should only be considered one of the many factors. The present article reflects on this issue.

Why security of cost, and the difficulty in granting it?

Grant of security of cost precedes an assumption (or a finding) that a party may not be able to repudiate a cost order, if such an order is passed against it. It essentially means that a party should reflect some form of bankruptcy or conduct, which makes a tribunal believe that a party will not (be able to) pay costs, if it is so ordered. It is easier said than done. The difficulties tribunals often face in granting such orders is – how to consider a party insolvent? Involvement of multinational corporations on the one hand in investment treaty arbitrations and the states on the other, makes such findings further difficult.

Is TPF the X factor?

Indeed, an easy answer to a question, why party “A” took a loan (or resort to TPF) to finance adjudication of its dispute? – because it does not have money to fund adjudication of its disputes. Another obvious conclusion which would follow – if party “A” does not have money even to fund an arbitration – how would it repudiate a cost award? Hence, TPF could be considered an obvious factor for the tribunals made to decide, whether to grant the security of cost. But is TPF the only factor a tribunal should consider? Would a party only take recourse to TPF when it is not able to fund its disputes – of course not? In my view, a party could take recourse to TPF for the following reasons as well:

1. A corporate investor may seek TPF to keep its cashflow balanced;

2. A state may seek TPF because it wishes to infuse more funds in its economy at a given point in time;

3. A party may seek TPF to have a funder analyse its claims and share the risks;

4. A funder may be interested in funding a party primarily because of the issues involved in the matter, irrespective of the financial status of a party;

There could be several other such reasons behind the provision of TPF, which will not necessarily reflect that the party taking the benefit of TPF arrangement is insolvent or will not be able to pay the costs. Hence, granting orders for security of cost merely based on TPF is not reasonable. Thus, TPF cannot be the X factor for granting security of cost awards.

What is the X factor?

The answer which was often neglected lies in the majority decision in the RSM. RSM majority decision held that, “requirement of ordering security for costs under the provisions in Article 47 ICSID Convention and ICSID Arbitration Rule 39 are not necessarily the same as those of a decision pursuant to which one party is to pay all advances as an exception to the rule as provided for in Administrative and Financial Regulation 14 (3)(d). Regarding the latter, the tribunal required that there be a “good cause” for deviating from the default rule that each party bears half of the advances to be paid.[vi]

The “good cause” for the RSM tribunal were the following facts:

1. RSM’s conduct and unwillingness to advance expenses and ICSID fees as required under ICSID Regulation 14 in the annulment proceedings in RSM v. Grenada[vii]; and,

2. RSM’s failure to pay cost awarded in RSM v. Grenada[viii].

In addition to the above listed “good cause”, the Tribunal considered the presence of TPF as “another” factor to grant security for costs award against RSM. This test was later applied by several ICSID as well as UNCITRAL arbitral tribunals, wherein some tribunals also termed this test as “exceptional circumstances test”.[ix]

Further, the tribunal in the case of Tennant Energy, LLC v. Government of Canada (Tennant)[x], has compiled an impressive list of factors for granting security of cost. On the basis of these factors a tribunal can develop a strong presumption in favour of granting security of cost. List of these factors is as follows:

1. A claimant’s track record of non-payment of costs awards in prior proceedings;

2. A claimant’s improper behaviour in the proceedings at issue, such as conduct that interferes with the efficient and orderly conduct of the proceedings;

3. Evidence of a claimant moving or hiding assets to avoid any potential exposure to a costs award; and

4. Other evidence of a claimant’s bad faith or improper behaviour.[xi]


To conclude, indeed, TPF is not an X factor in granting security of cost awards. However, the tribunals could consider it as one of the factors, although only when other facts of a party’s incapacity to pay or bad faith are apparent on record. Granting of security of cost merely because of a funding arrangement may result in unjustified hardships to a party. It may also demotivate parties seeking funding arrangements which will not do any good to the practice of arbitration but may affect the dispute funding industry. The tribunals should base their conclusions for granting security of cost based on findings in RSM and Tenant. If such facts could not be made available on record, the tribunals should provide the benefit of the doubt in favour of the party seeking funding.

Mr. Shanu Jain is a trainee with the international arbitration team of White & Case LLP, Frankfurt. Prior to this, he pursued an LL.M. Course - Master in International Dispute Settlement (MIDS), a program jointly governed by IHEID and the University of Geneva.

Preferred Method of Citation –Shanu Jain, ‘The X factor in granting security of cost in investment arbitrations (ICAR, 11 December, 2020) <>.


[i] Chiara Cilento and Another, ‘Is Investor-State Arbitration Warming up to Security for Costs?’ (Kluwer Arbitration Blog 2019) <

doing_wp_cron=1597007610.6449820995330810546875#:~:text=Security%20for%20costs%20is%20a,as%20well%20as%20administrative%20costs > accessed 10 August 2020

[ii] Decision on Saint Lucia’s request for security for costs including assenting Opinion of Dr Gavan Griffith QC dated 12 August 2014, RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10

[iii] RSM (n ii), 30

[iv] RSM (n ii), 30

[v] Jain Shanu, ‘Third-party funding in investment treaty arbitrations: contemporary issues and analysis’ (LLM Thesis, MIDS - Graduate Institute (IHEID) and University of Geneva, 2019-2020)

[vi] RSM (n ii), 21

[vii] RSM Production Corporation and others v. Grenada (ICSID Case No. ARB/10/6); ibid (n ii), 22-23

[viii] RSM (n ii), 22-23

[ix] Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54; The Estate of Julio Miguel Orlandini-Agreda and Compañía Minera Orlandini Ltda. v. Bolivia, PCA Case No. 2018-39; Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan, ICSID Case No. ARB/18/35

[x] Procedural Order No. 4, Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54, 36

[xi] Tenant (n x)

The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.


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