'2.1 Respondents' submissions

27. In their submissions . . . the Respondents advanced four main contentions:

1. The granting of security for costs "is necessary and proper because [Claimant] is insolvent and now relying entirely upon financing from a Mexican bank to maintain this arbitration. Indeed, it is still not clear whether [Claimant] has been able to retain replacement counsel (its third set of attorneys) to represent it in this arbitration."

Moreover, "[i]t is already evident that [Claimant] will not have the funds necessary to satisfy an award of costs in Respondents' favor, and much less an award of damages on Respondent [No. 1]'s counterclaim".

3. Finally, despite repeated requests by both the Tribunal and the Respondents, Claimant "has still never confirmed the exact nature or status of its insolvency".

4. Accordingly, "[b]ecause of the particular history of this case to date, and because the Claimant . . . is currently in some form of receivership, Respondents think it appropriate to have the maximum security feasible, to cover eventual arbitration costs, and legal fees and expenses, arising out from this increasingly complicated arbitration".

28. Based upon the above submissions, the Respondents requested "that Claimant be required to provide security for costs pursuant to Article 23.1 of the ICC Rules of Arbitration" and that they "would leave the amount to the appreciation of the Tribunal, but [...] should in no case be less than USD 400,000 [...]".

2.2 Claimant's submissions

29. In its submissions . . . the Claimant advanced four main contentions:

1. Respondents' request for an interim measure is "totally unfounded", in particular in the light of the ICC practice "to avoid the application of interim measures to guarantee costs [i.e. the award dictated in ICC case number 7047 (1994), ASA Bull (1995), p. 31]".

2. In particular, it should be noted that "Respondents have requested for an interim measure when they have not paid their corresponding costs".

3. As to the state of the insolvency proceedings, "[a]t this moment, Claimant is subject to the conciliation stage" of the concurso mercantil, which is "aimed at preserving the companies through the agreement signed with his recognized creditors".

4. Under Mexican Bankruptcy law1, Claimant "is impeded to grant guarantee or preference to any creditor or third party".

5. [Bank], a duly solvent Mexican bank, [...] has a principal interest in this arbitration, therefore such Institution will be supporting Claimant in all the necessary costs and expenses that may be necessary to the continuance of this procedure".

6. As to the Respondents' economic situation, Claimant emphasizes that "(i) [Respondent No. 1] is insolvent, since it is a subsidiary with none assets, and (ii) the value of [Respondent group]'s stock has decreased during the last months".

30. Based upon the above submissions, the Claimant requested the Tribunal "to deny Respondents' petition for an interim measure to guarantee the legal costs and expenses" and, subsidiarily, "to grant a similar interim measure to guarantee Respondent[s'] payment of legal fees and expenses".

3. Decision of the Arbitral Tribunal

3.1 The Arbitral Tribunal's competence to order security for costs

31. Respondents claim that "Article 23 of the ICC Rules provides that a tribunal may order interim or conservatory measures, which include, as demonstrated by ICC practice, the delivery to an opposing party of security for costs". Respondents do not cite any specific ICC case illustrating that practice.

32. Claimant does not really contest the Arbitral Tribunal's competence to order security for costs. If and to the extent that Claimant's reference to the "ICC case number 7047 (1994), ASA Bull (1995), p. 3[0]1" can be understood as an objection to the tribunal jurisdiction, it is not relevant. In this case, the arbitrators noted that "[t]he [1988] ICC Rules do not provide for security on costs" (and eventually refused to grant the request) but did not conclude that, as a matter of principle, arbitrators acting under the ICC Rules do not have jurisdiction to order security for costs. Already under the 1988 ICC Rules, the arbitrators' authority to order security for costs was upheld (see the detailed analysis resulting from the reasoning in an ICC award published in ASA Bulletin 1997, p. 363).

33. Moreover, it is undisputed among recent legal commentators that Article 23 of the ICC Rules affords the arbitral tribunal the authority to order security for costs (Craig/Park/Paulsson, International Chamber of Commerce Arbitration, Dobbs Ferry 2000, p. 467).

34. Finally, the Tribunal notes that the US courts (New York being the place of the arbitration) have generally upheld the competence of arbitral tribunals to order security for costs (Gary Born, International Commercial Arbitration, The Hague [etc.] 2001, p. 932 and the case law cited at para. 8).

35. In conclusion, the Tribunal holds that it has competence to rule on Respondents' request for security for costs. Having reached that conclusion, it shall turn to the merits of the request, i.e. to the question whether the conditions justifying an order for security for costs are met in the present case.

3.2 The conditions justifying an order for security for costs

3.2.1 General approach

36. Whilst ICC arbitrators do not hesitate to find that they have the power to grant security for costs, they are extremely reluctant to actually grant the remedy. As a matter of principle, the Tribunal agrees with the Claimant when it submits that the ICC arbitrators generally "avoid the application of interim measures to guarantee costs". This general approach is confirmed by leading commentators of the ICC practice (Craig/Park/Paulsson, cit., p. 467 concluding "that security for costs is not usually granted").

37. Indeed, the ICC arbitration system contains specific provisions for the financing of the arbitration costs by advances by the parties to be made in equal shares, which already "offers a certain guarantee against abusive and extravagant claims" (Craig/Park/Paulsson, cit., pp. 468-469).

38. Respondents have submitted no persuasive reasons for the Tribunal to depart from this restrictive general approach. In the next paragraphs, the Tribunal will examine whether the particular circumstances of the case justify the granting, on an exceptional basis, of security for costs.

3.2.2 The payment by the Respondents of their share of the advance on costs

39. As a threshold matter, it should be emphasized that an arbitral tribunal should be particularly restrictive in cases where the request for security for costs is filed by a respondent that had itself defaulted in the payment of its part of the advance of the costs fixed by the ICC Court (Craig/Park/Paulsson, cit., p. 469, according to whom, in such circumstances the applicant for security might be deemed to have "unclean hands").

40. In the present case, as the Claimant correctly points out, the Respondents filed their request before they actually paid their share of the advance of costs set by the ICC. However, it must be emphasized that the deadline set by the ICC for the Respondents to pay their share of the advance of costs had not yet expired. Therefore, the Respondents' request cannot be deemed abusive. Moreover, in the meantime the Tribunal was informed that the Respondents have paid their share of the advance on costs on 12 May 2003 as requested by the ICC's Court (ICC letter of 13 May 2003).

3.2.3 The guarantee against abusive claims

41. As already suggested, the Tribunal shares the generally accepted view that security for costs may be granted only under very exceptional circumstances. In particular, the Tribunal finds that arbitrators overcome their normal reluctance to grant security for costs only in cases where the Claimant's case is abusive or extravagant. From this point of view, the Tribunal considers that the party seeking security for costs has to establish that the claim (of the opposing party) appears prima facie unjustified or frivolous (see for instance François Knoepfler, "Les décisions rendues par l'arbitre à la suite d'un examen 'Prima Facie'", ASA Bull. 2002, p. 600).

42. In the present case, nothing in the record indicates, at this early stage of the proceeding at least, that Claimant's case is unjustified, abusive or frivolous.

3.2.4 The guarantee against insolvency

43. The Respondents' main argument relies upon the fact that the Claimant "is insolvent and now relying entirely upon financing from a Mexican bank to maintain this arbitration".

44. The Claimant does not contest that it is currently embroiled in a reorganization proceeding that could result in its bankruptcy.

45. As a threshold matter, and for the sake of completeness, be it made clear that Article 115 of the Mexican insolvency statute would likely not bar this Arbitral Tribunal from ordering security for costs. Article 115 seems to protect the equality of creditors by voiding fraudulent conveyances, namely the granting of preferences, especially guarantees, after the "retroactivity date". Prima facie, and in itself, such provision would not exclude an order for security for costs.

46. What the Claimant submits is that [Bank] has a principal interest in this arbitration and will therefore support the Claimant in all the necessary costs and expenses that may be necessary to continue this arbitration proceeding.

47. The starting point of the analysis must be the general understanding that insolvency is not sufficient, in itself, to form the basis of a request for security for costs (Gaillard/Savage (ed.), Fouchard, Gaillard Goldman on International Commercial Arbitration, The Hague [etc.] 1999, 1256, p. 158, Poudret/Besson, Droit comparé de l'arbitrage international, Bern [etc.] 2002, p. 554).

48. Specifically, the Tribunal considers that the party seeking security for costs should establish, on a prima facie basis, that the opposing party is organizing its own insolvency (see for instance Knoepfler, cit., p. 600) or that it deliberately provoked its insolvency in order to avoid the financial risks related to an arbitral proceeding (Poudret/Besson, cit., p. 554), or for any other fraudulent reason.

49. Again, at this early stage of the proceeding at least, nothing in the record indicates that the Claimant fashioned its insolvency in view of this arbitration or otherwise abusively. For this (additional) reason, the Tribunal concludes that Respondents' request for security for costs should be dismissed.

3.2.5 The Claimant interest in having access to justice

50. Finally, the Tribunal finds that ordering security for cost involves the inherent risk that it may result in precluding access to justice by claimants who are in a precarious economic situation. Consistent with arbitral practice in this respect, the Tribunal has to balance, on the one side, the Respondents' interest in avoiding costly arbitration proceedings without sufficient security that they will be reimbursed for their expenses in case of success, and, on the other side, the Claimant's interest in having access to arbitral justice (see the decision of the sole arbitrator in the Zurich Chamber of Commerce case no. 415 of 20 November 2001, reported in ASA Bulletin, 2002, p, 467, 471).

51. In the absence of any prima facie evidence that the Claimant's case is unjustified or frivolous or that the Claimant has been organizing its insolvency in view of this arbitration or has otherwise acted abusively, the Tribunal finds that in the present case the Respondents' interest does not prevail over the Claimant's interest in having access to justice.

52. Claimant has filed for reorganization proceedings in Mexico. This is a business risk that Respondents have to bear and nothing on record shows that Claimant has acted in bad faith.

53. Moreover, it is doubtful whether granting an order for security for costs under these circumstances would comply with the paramount principle of equal treatment of the parties. In this respect, the Tribunal notes that in this arbitration Respondents have counterclaims for almost two-thirds of the total amount in dispute and that it is therefore very difficult to draw a clear line between their legal costs to defend against the Claimant's claims and their legal costs to substantiate their own counterclaims.

54. In conclusion, after having carefully reviewed the parties' arguments and analyzed their respective positions, the Tribunal dismisses Respondents' request for security for costs.

3.2.6 The Claimant's subsidiary request for security for costs

55. As the Tribunal dismisses the Respondents' request for security for costs, it does not have to rule on the Claimant's subsidiary request (to grant security for costs to the Claimant) as this would only have been necessary if the Tribunal had granted the Respondents' request for security for costs.'

1
Claimant refers to Article 115 of the Ley de Concursos Mercantiles. Specifically, this provision provides that "[t]he following shall be deemed fraudulent acts against creditors if made after the retroactivity date, unless the interested party proves his good faith: I. The creation of guarantees or the increase on any existing guarantees, if the original obligation did not contemplate such guarantee or increase..."