‘1.… Respondents filed a “Request for Security for Costs” … In support of this request, Respondents argued in particular:

-that international arbitral tribunals having their seat in Switzerland have the power to order security for costs,

-that the will of the Parties as expressed in the arbitration agreement requires that guiding principles governing security for costs before state courts at the place of arbitration are to be taken into account,

-that, according to § 73 of the Code of Civil Procedure of the Canton of Zurich, “lack of money’’ of a claimant entitles to security for costs and that the general guidelines contained in this § 73 are equally applicable in arbitration,

- that Claimant’s “redressement judiciaire” is comparable to the Swiss insolvency proceedings called “Nachlassstundung” which, according to § 73 of the Code of Civil Procedure of the Canton of Zurich, leads to the obligation to pay security for costs,

-that, at the time when the Parties entered into the now disputed agreement, Respondents were not aware of any financial difficulties of Claimant,

-that the provision of the Zurich Code of Civil Procedure governing security for costs leaves no room for the argument that Respondents’ conduct may have caused or contributed to Claimant’s insolvency,

-that, in any case, Respondents’ conduct cannot be considered the cause of Claimant’s insolvency

and

-that a prudent management (on Claimant’s side) should have foreseen financial difficulties of that type.

2. Within the time limit fixed by the Arbitral Tribunal Claimant replied to Respondents’ Request for Security for Costs …

Claimant opposed Respondents’ Request for Security for Costs relying mainly on the arguments:

-that Respondents’ Request is a further step aimed to destabilize the arbitration, raise overall costs and delay Claimant’s right to redress,

-that Respondents ignore clause X(1) of the Terms of Reference concerning the procedural rules applicable in this Arbitration,

- that Article 73 of the Code of Civil Procedure of the Canton of Zurich is inapplicable,

-that it is doubtful whether a Claimant’s insolvency is per se sufficient, as a matter of Swiss law, in order for security for costs to be granted,

-that a party seeking security for costs in international arbitration must establish an element of bad faith by the other side,

-that lack of money alone is not a sufficient ground for granting security for costs and that Respondents have not proven bad faith on Claimant’s side,

-that both Swiss and non-Swiss authorities are hostile to security for costs in the field of arbitration,

-that access to arbitral justice would be obstructed,

-that Claimant’s claims cannot be construed as abusive or unmeritorious.

3. Having analysed Respondents’ Request and Claimant’s Reply and having deliberated by way of correspondence the Arbitral Tribunal reached the conclusion that Respondents’ Request for Security for Costs is not justified for the following reasons:

a) The Arbitral Tribunal’s power to order security for costs

The Arbitral Tribunal’s power to order security for costs is beyond doubt (Article 23(1) of the ICC Arbitration Rules, Articles 182(1) and 183 of the Swiss Act on Private International Law) and is not contested by Claimant.

b) The rules applicable to Respondent’s Request

Respondents refer to the arbitration agreement which provides for arbitration ‘‘under the Rules of Arbitration Institute of the International Chamber of Commerce, Paris, France ... in accordance with said Rules” and furthermore provides:

The seat of arbitration shall be Zurich, Switzerland. The procedural law of this place shall apply where the Rules are silent.

and rely on § 73 of the Code of Civil Procedure of the Canton of Zurich.

It can be left undecided whether the reference to “the procedural law of [Zurich, Switzerland]” in the arbitration agreement … can reasonably be construed as a reference not to the provisions on international arbitration contained in the Swiss Act on Private International Law, but as a reference to the Code of Civil Procedure of the Canton of Zurich.

The applicable procedural rules are those defined in point X (1) of the Terms of Reference signed by all parties which read as follows:

The Arbitral Tribunal shall follow the ICC Rules. For issues not dealt with in these Rules, it shall apply the rules which the Parties will have agreed upon with the Arbitral Tribunal’s consent. In the absence of such an agreement the Arbitral Tribunal shall determine the rules which it considers fair and appropriate after having given the Parties an appropriate opportunity to be heard.

c) Inapplicability of § 73 of the Code of Civil Procedure of the Canton of Zurich

For the reasons set out in point b) above § 73 of the Code of Civil Procedure of the Canton of Zurich is not applicable.

The Arbitral Tribunal notes that Respondents neither submitted the text of this local provision nor any court cases applying nor any doctrinal writings dealing with this provision.

d) Lack of money

The only ground relied upon by Respondents is “lack of money”. Respondents do not argue that Claimant’s claim is frivolous or obviously abusive, nor do Respondents argue that Claimant behaved fraudulently in any way.

There is no clear arbitral jurisprudence on the question whether “lack of money” is, per se, a sufficient ground for granting security for costs.

According to Karrer/Desax1 Claimant’s lack of money is a “classical case where an application for security for costs may be granted”. Several arbitral tribunals sitting in Switzerland have relied on that ground for ordering security for costs.2

Leaving aside the question what exactly is to be understood by “lack of money” and whether the opening of insolvency proceedings (always) amounts to such a “lack of money’’, there is no unanimous view as to whether financial difficulties of a claimant (with or without opening of insolvency proceedings) always justify the granting of security for costs.

According to Fouchard/Gaillard/Goldman:

The fact that a party is suffering financial difficulties or is the subject of bankruptcy proceedings is certainly not sufficient, in itself, to form the basis of a request for security.3

The same view is expressed by Bernhard Berger.4

The Arbitral Tribunal notes that Respondents who bear the burden of proof for Claimant’s “lack of money” rely exclusively on the fact that insolvency proceedings have been opened, without providing any further evidence as to the financial situation of Claimant whose business is ongoing, as foreseen in case of a “redressement judiciaire” under French law.

This Arbitral Tribunal agrees with the above-mentioned more restrictive approach and finds support in a decision reported by (and apparently rendered by or under the chairmanship of) Prof. Claude Reymond5 which took the position that:

International arbitration arises in connection with contracts or other operations of international trade, in the wide sense of the word, which imply greater risks than domestic trade.

Such risks are to be borne by the parties, including, in the view of this Tribunal, the risk of the other party falling into financial difficulties, up to and including bankruptcy.6

e) Barrier to justice?

Even if one were not to follow this general reasoning, one would have to bear in mind that the granting of security for costs against a party which is in financial difficulties might amount to an undue barrier to justice.7

f) Financial difficulties caused by Respondents?

Claimant has also argued that Respondents’ refusal to pay Claimant the sums requested in this arbitration “is a major cause, if not the cause for Claimant’s current financial situation”. The Arbitral Tribunal does not feel in a position, at this stage of the proceedings, to confirm this statement. It would, however, not be justified either, on the basis of the evidence before this Tribunal, to conclude that Respondents’ attitude is clearly foreign to Claimant’s current financial situation.’

1
“Security for Costs in International Arbitration, Why, When and What if ...”, in: Liber Amicorum K.-H. Böckstiegel, Cologne/Berlin/Bonn/Munich 2001, 339(351 at 346 no. 34.

2
Order for Security 20.11.2001, ASA Bull. 20 (2002), 467 ff., 471 and Order dated 21.12.1998, ASA Bull. 17 (1999), 59 ff., 66 f.; both Orders are mentioned in the Procedural Order dated 19.12.2003 in ICC no. 12542, ASA Bull. 23 (2005), 694 f, quoted by Respondents (p. 3) and by Claimant (annex 2 to Claimant’s Reply).

3
International Commercial Arbitration, p. 688, no. 1256.

4
“Prozesskostensicherheit (cautio judicatum solvi) im Schiedsverfahren”, ASA Bull. 22 (2004) 4ff., 15 f. “The mere opening of insolvency proceedings is not sufficient (‘Zahlungsunfähigkeit des Klägers sollte nicht leichtfertig angenommen werden. Die bloße Eröffnung eines Konkurs- oder eines Nachlassverfahrens genügt m.E. nicht. Solange die Konkurs- oder Nachlassmasse über hinreichende Aktiven zu Deckung eines allfälligen Anspruchs des Beklagten auf Parteientschädigung verfügt, besteht keine Anspruchsgefährdung und somit auch kein Grund für die Anordnung einer Prozesskaution. Anders sieht es u.U. bei Konkursen aus, die mangels Aktiven eingestellt werden.’).”

5
ASA Bull. 19 (2001), 745 ff.

6
The decision went on to state: “By contrast, it may happen that a party takes certain steps in order to divest itself from its assets, so as to be just an empty shell in case it loses the arbitration. Such manoeuvres, contrary to good faith, could justify an order for security for costs.” However, as indicated above, there is no evidence for any such “manoeuvre” or “bad faith” in the present case.

7
See Procedural Order 21.12.1998, ASA Bull. 17 (1999) 59ff., 65. “La cautio judicatum solvi ne devrait pas avoir pour effet de priver le demandeur à I’arbitrage d’un accès à la justice qui lui est garantie en principe ...”; the question of access to arbitration is also referred to in Procedural Order dated 9.11.1999 (ICC no. 10032) quoted by Karrer/Desax, p.348; see also Procedural Order ASA Bull. 12 (1994) 145ff., 147: “[Provisional] measures should not paralyse economically the other party.”; see also Poudret/Besson, Droit comparé de l’arbitrage international, p.554f.: “L’insolvabilité en tant que telle ne devrait pas non plus suffire à justifier un security for costs, car elle risquerait d’empêcher le demandeur de faire valoir ses droits dans un système ou l’assistance judiciaire n’a pas sa place.”