BY PRANAV GUPTA AND AASHI SHARMA, SECOND- YEAR STUDENT AT RGNUL, PUNJAB
Introduction
The recent cases of Lava International Ltd. and Tomorrow Sales Agency have reignited the confusions regarding the concept of Security for Costs (‘SfC’) in India.Gary B. Born[i] defines SfC as “an interim measure designed to protect a respondent against the risk of non-payment of a future costs award, particularly where there is reason to doubt the claimant’s ability or willingness to comply with such an award.”
The authors in this manuscript shall wade through the confusions raised in the above cases. For that, firstly, we try to conceptually understand the concept of SfC by distinguishing it from the other situated similar concepts, while also emphasizing on the legal provisions governing them. Secondly, we analyze the concept of SfC in light of the leading international investment and commercial arbitration practices. Lastly, the authors propose a two-tier solution to the problem of SfC in India building on the international practices with certain domestic modifications.
Security for Costs: Concept and Law
- Understanding Security for Costs:
The concept of SfC is fundamentally different from that of ‘securing the amount in dispute’, as the latter is a measure to ensure the enforceability of the arbitral award by securing the party with whole or some part of the amount claimed or granted. section 9(1)(ii)(b) and section 17(1)(ii)(b) of The Arbitration and Conciliation Act, 1996 (‘The Arbitration Act’) regulates the regime for ‘securing the amount in dispute’ as an interim measure. The Hon’ble Supreme Court in the cases of Arcelor Mittal and Nimbus Communications clarified that section 9 permits securing the ‘amount in dispute’ on a case by case basis. Further, SfC is also distinct from ‘Recovery of Costs’, as ‘costs’ are recovered post the declaration of award and is addressed by section 31A of The Arbitration Act.
B. Security for Costs and Section 9: A Legal Void:
While, The Arbitration Act deals with the similarly situated aspects of SfC as shown above, it remains silent on a provision for SfC, a gap that remains unaddressed even by the 2015 Amendment and The Draft Arbitration and Conciliation (Amendment) Bill, 2024. A landmark ruling with respect to SfC was delivered in the J.S. Ocean Liner case, by ordering to deposit USD 47,952 as an amount for recovery of legal costs. The court relied on section 12(6) of the English Arbitration Act 1950, akin to section 9(1)(ii)(b) of The Arbitration Act, to award SfC as an interim measure in this case. However, this harmonious interpretation was later rejected in the cases of Intertoll Co. and Thar Camps, by observing that under sub-clause (b) of section 9(1)(ii), only ‘amount in dispute’ can be secured and not the SfC. Hence, The Arbitration Act needs a reform with respect to the provision concerning SfC.
International Precedents concerning Security for Costs
- Investment Arbitration Insights:
The International Centre for Settlement of Investment Disputes (‘ICSID’) Tribunal (‘The Tribunal’), being the world’s primary institution, administers the majority of all the international investment cases. Till the 2022 Amendment to The ICSID Arbitration Rules (‘ICSID Rules’), even ICSID Rules were silent on this concept of SfC, however now Rule 53 of the same Rules contains the express provision for awarding SfC by The Tribunal. As the newly introduced Rule 53 is in its nascent stage with no extensive judicial precedents[ii] on it yet, the authors analyze the cases prior to the 2022 Amendment to understand the mechanism for granting SfC.
Prior to the 2022 Amendment, SfC was granted as a provisional measure[iii] under Article 47 of The ICSID Convention and Rule 39 of The ICSID Rules as observed in the cases of RSM v. Grenada[iv] and Riverside Coffee.[v] However, in the Ipek[vi] case, the Tribunal permitted the granting of SfC only in ‘exceptional circumstances’.[vii] The high threshold[viii] was reaffirmed in Eskosol v. Italy[ix], where even the bankruptcy didn’t sustain an order for SfC. Further, in EuroGas[x] case, financial difficulty and Third-Party Funding (’TPF’) arrangement were considered as common practices, unable to meet the threshold of ‘exceptional circumstances’.
Finally, in the RSM v. Saint Lucia[xi] case, the high threshold[xii] was met as the Claimant was ordered to pay US$ 750,000 as SfC on account of its proven history of non-compliance along with the financial constraints, and TPF involvement. In the same case, The Tribunal established a three-prong test[xiii] for awarding SfC emphasizing on the principles of ‘Exceptional Circumstances, Necessity, and Urgency’,[xiv] with the same being followed in the further cases of Dirk Herzig[xv] and Garcia Armas.[xvi] Further, The Tribunal added a fourth criterion of ‘Proportionality’[xvii] to the above three-prong test in the landmark case of Kazmin v. Latvia.[xviii]
The Permanent Court of Arbitration (“PCA”) is another prominent institution, with nearly half its cases involving Investment-State arbitrations. The PCA resorts to Article 26 of the UNCITRAL Arbitration Rules to award SfC as seen in the Nord Stream 2 case.[xix] In Tennant Energy v. Canada[xx] and South American Silver,[xxi] the PCA applied the same test, devised in the Armas case to grant SfC.[xxii] Similar approaches have been adopted by the local tribunals, including Swiss Federal Tribunal and Lebanese Arbitration Center.[xxiii]
[i] Gary B. Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021); See also Maria Clara Ayres Hernandes, ‘Security for Costs in The ICSID System: The Schrödinger’s Cat of Investment Treaty Arbitration’ (Uppsala Universitet, 2019) <https://uu.diva-portal.org/smash/get/diva2:1321675/FULLTEXT01.pdf> accessed 17 June 2025.
[ii] International Centre for Settlement of Investment Disputes, The First Year of Practice Under the ICSID 2022 Rules (30 June 2023).
[iii] Lighthouse Corporation Pty Ltd and Lighthouse Corporation 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 February 2016) para 53.
[iv] Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6, Tribunal’s Decision on Respondent’s Application for Security for Costs (14 October 2010) para 5.16.
[v] Riverside Coffee, LLC v. Republic of Nicaragua, ICSID Case No. ARB/21/16, Procedural Order No. 7 (Decision on the Respondent’s Application for Security for Costs) (20 December 2023) para 63.
[vi] Ipek Investment Limited v. Republic of Turkey, ICSID Case No. ARB/18/18, Procedural Order No. 7 (Respondent’s Application for Security for Costs) (14 October 2019) para 8.
[vii] BSG Resources Limited (in administration), BSG Resources (Guinea) Limited and BSG Resources (Guinea) SÀRL v. Republic of Guinea (I),ICSID Case No. ARB/14/22, Procedural Order No. 3 (Respondent’s Request for Provisional Measures) (25 November 2015) para 46.
[viii] Lao Holdings N.V. v. Lao People’s Democratic Republic (I), ICSID Case No. ARB(AF)/12/6, Award (6 August 2019) para 78.
[ix] Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Procedural Order No. 3 Decision on Respondent’s Request for Provisional Measures (12 April 2017) para 23.
[x] EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic, ICSID Case No. ARB/14/14, Procedural Order No. 3 (Decision on the Parties’ Request for Provisional Measures) (23 June 2015) para 123.
[xi] RSM Production Corporation v. Saint Lucia, ICSID Case No. ARB/12/10, Decision on Saint Lucia’s Request for Security for Costs (13 August 2014) para 75.
[xii] Transglobal Green Energy, LLC and Transglobal Green Panama, S.A. v. Republic of Panama, ICSID Case No. ARB/13/28, Decision on the Respondent’s Request for Provisional Measures Relating to Security for Costs (21 January 2016) para 7.
[xiii] Libananco Holdings Co. Limited v. Republic of Turkey, ICSID Case No. ARB/06/8, Decision on Applicant’s Request for Provisional Measures (7 May 2012) para 13.
[xiv] BSG Resources Limited (n vii) para 21.
[xv] Dirk Herzig as Insolvency Administrator over the Assets of Unionmatex Industrieanlagen GmbH v. Turkmenistan, ICSID Case No. ARB/18/35, Decision on the Respondent’s Request for Security for Costs and the Claimant’s Request for Security for Claim (27 January 2020) para 20.
[xvi] Domingo García Armas, Manuel García Armas, Pedro García Armas and others v. Bolivarian Republic of Venezuela, PCA Case No. 2016-08, Procedural Order No. 9 Decision on the Respondent’s Request for Provisional Measures (20 June 2018) para 27.
[xvii] Transglobal Green Energy (n xii) para 29.
[xviii] Eugene Kazmin v. Republic of Latvia, ICSID Case No. ARB/17/5, Procedural Order No. 6 (Decision on the Respondent’s Application for Security for Costs) (13 August 2020) para 24.
[xix] Nord Stream 2 AG v. European Union, PCA Case No. 2020-07, Procedural Order No. 11 (14 July 2023) para 91.
[xx] Tennant Energy, LLC v. Government of Canada, PCA Case No. 2018-54, Procedural Order No. 4 (Interim Measures) (27 February 2020) para 58.
[xxi] South American Silver Limited v. The Plurinational State of Bolivia, PCA Case No. 2013-15, Procedural Order No. 10 (Security for Costs) (11 January 2016) para 59.
[xxii] Domingo García Armas (n xvi).
[xxiii] Claimant(s) v. Respondent(s) ICC Case No. 15218 of 2008.
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