Date: Procedural Order, 2015

Origin of the parties: Middle East

Place of arbitration: Country in the Middle East

On the Claimant's application for Security for Costs against the First Respondent made on 2 April [Year Y]; and

After giving directions for the exchange of written submissions;

And having received written submissions dated 16 April [Year Y] from the First Respondent, together with a copy of the First Respondent's renewed trade licence received on 19 April [Year Y];

And having received written submissions dated 21 April [Year Y] from the Claimant;

And having considered the application and those written submissions;

It Is Ordered That:

The Claimant 's application for Security for Costs is dismissed.

The Application

  1. The Claimant seeks an order for security for costs against the First Respondent in the sum of US$ …. It makes the application under Rule 28(1) or the ICC Rules under which the Tribunal has jurisdiction to order interim measures,
  2. The Claimant refers to the Defence and Counterclaim of the First Respondent in which the sum of … is claimed. It contends that the greater part of the counterclaim arises as a claim for liquidated damages and that substantial cost will be expended on the pleading, analysis and proof of the delay issues. The Claimant says that it has concerns that the First Respondent will be unable to pay the Claimant's costs of the counterclaim in the event that the counterclaim fails and therefore seeks an order against the First Respondent by way of un interim order for security for costs.
  3. In its application dated 12 April [Year Y] the Claimant relies on three matters to establish that the First Respondent would be unable to pay the Claimant's costs of the counterclaim. First it says that, having made searches at the [local] Department of Economic Development, the First Respondent no longer, at that stage, had a valid trade licence as its previous licence had [recently] expired. It points to the fact that the First Respondent is a sole (or special) purpose vehicle created for the [the project] and is supported by other entities in [Respondent 2’s group] by means of funding and the provision of personnel. The Claimant submits that the Tribunal should inter from the absence of a trade licence that the First Respondent was no longer trading and would be unable to pay its debts as they fell due.
  4. 4. Secondly, the Claimant says that there "must be a question" as to whether [the project] is still owned by the First Respondent. The Claimant says that searches carried out did not uncover evidence that [the construction] was still owned by the First Respondent. Thirdly, the Claimant relies on the fact that the First Respondent has not paid its share of the advance of costs of US$ … to the ICC.

The First Respondent’s Response to the application

  1. The First Respondent submits that the Claimant's application should be dismissed. It says that the sole basis of the application was speculation that that the First Respondent had an invalid trade licence and was no longer trading. It submits that there is no proper evidence credibly to show that the First Respondent would be unable to pay the costs of the counterclaim. In any event, the First Respondent says that its trade licence has been renewed within 30-day grace period under [the local law] and on 19 April [Year Y] the First Respondent provided the Tribunal with a copy of the renewed trade licence.
  2. In addition the First Respondent submits that the counterclaim is a set off which operates as a mere defence against the Claimant claims. Further, it says that the counterclaim raises the same issues of dispute and the same facts as the Claimant's claims. As a result the First Respondent says that the ambit of the arbitration in terms of issues, time and costs is not expanded because of the counterclaim. It’s submitted that security for costs should not be ordered against a counter claiming defendant where the defendant is, as a question of substance, simply defending itself.
  3. The First Respondent submits that the counterclaim is a bona fide claim which has a reasonable prospect of success and the Claimant has not established that it has a prima facie defence against the counterclaims.
  4. In relation to payment of the advance for costs to the ICC, the First Respondent says that it has accepted the Claimant's request for separate advances on costs and has agreed to the ICC's revised calculation of the advance for costs indicated by the ICC on 7 April
    [Year Y].
  5. As a result the First Respondent submits that this is not an appropriate case lo order security for costs in respect of the counterclaim.

The Claimants’ Reply

  1. By way of reply the Claimant submits that the First Respondent has failed to address the Claimant’s concerns that the First Respondent will not be able to pay the costs of the counterclaim without the continuing support of its parent. In relation to the trade licence the Claimant submits that … the First Respondent [no longer had] a trade licence and could not legally trade prior to renewal. Contrary to what the First Respondent submits, it says that the provision of the new trade licence … did not establish that the First Respondent was at no time, trading without a valid trade licence. In any event, the Claimant says that the lack of a trade licence is only one facet of its case that the First Respondent would be unable to pay the Claimant's costs of the counterclaim.
  2. In relation to the First Respondent's submission that the application lacks supporting evidence, the Claimant refers to the fact that, under [the local law], a company is not under an obligation to file annual returns or audited accounts and in such circumstances it was the First Respondent who could simply have provided evidence of its continued financial well-being but has not done so. Equally the Claimant says that there is no evidence that the First Respondent continues to own [the project] which forms the subject matter of the dispute or, if it does, the extent to which that asset is charged or subject to any other security.
  3. Rather, the Claimant submits that the Tribunal can conclude from the nature of the First Respondent as a special purpose vehicle, with the lack of a valid trade licence when the application was made and the need for support from its parent in relation to legal services in the present arbitration, secretarial services in relation to the licence and the marketing of the [project], that the First Respondent would not have assets to pay the Claimant's costs of the counterclaim.
  4. The Claimant submits that the First Respondent could have provided evidence of continuing support from its parent and the absence of that evidence should be sufficient for the Tribunal to accept the Claimant's concerns that, for the counterclaim to be permitted to continue, appropriate security for costs should be provided.

Decision

  1. The Tribunal notes that the application is made under Article 28(1) of the ICC Rules which provides:

Unless the parties have otherwise agreed, as soon as the file has been transmitted to it, the arbitral tribunal may, at the request of a party, order any interim or conservatory measure it deems appropriate. The arbitral tribunal may make the granting of any such measure subject to appropriate security being furnished by the requesting party. Any such measure shall take the form of an order, giving reasons, or of an award, as the arbitral institution considers appropriate.

  1. That provision, unlike the rules of certain other arbitral institutions, does not expressly refer to the Tribunal's power to grant security for costs. However, the First Respondent docs not directly challenge the jurisdiction of the Tribunal in this regard and, for present purposes, the Tribunal proceeds on the basis that it has the required jurisdiction to grant an order for security for costs under Article 28(1) of the ICC Rules.
  2. The first issue for the Tribunal is whether interim measures are needed because the First Respondent would be unable to pay the costs of the counterclaim if it were ordered to do so. There is an absence of any direct evidence that the First Respondent would be unable to pay. First, as the Claimant accepts, there is no information in relation to the First Respondent’s accounts as those do not need to be filed [locally]. Secondly, whilst the Claimant raises the possibility that [the project] may no longer be owned by the First Respondent or may be charged by way of security, there is no evidence of the ownership of [the project] or of any such charges. The Claimant's statement that it has found no evidence does not shift the burden of proof to the First Respondent.
  3. Thirdly, the Claimant relies on inferences to be drawn from the failure by the First Respondent to renew its trade licence. That trade licence has now been renewed and the Tribunal is not persuaded that any inferences as to the First Respondent's financial capability can be drawn from its late renewal of its trade licence. Fourthly, the Claimant asks the Tribunal to infer from the nature of the First Respondent as a special purpose vehicle and the fact that legal, secretarial and marketing services are being provided by [Respondent 2’s group], that the First Respondent could not pay the Claimant’s costs of the counterclaim. Again, that method of organizing a project is not unusual nor is the way in which services are provided. It certainty does not allow an inference to the drawn as to the First Respondent's financial status.
  4. The Tribunal has considered all the Claimant’s submissions on the First Respondent's inability to pay. There is no direct evidence that the First Respondent does not have sufficient funds or does not own or have sufficient interest in nor is there any indirect evidence sufficient to inter a likelihood of an inability to pay or otherwise to shift the burden of providing contrary evidence to the First Respondent. In the absence of any such evidence, the Tribunal cannot inter an inability to pay from the matters relied on by the Claimant. Nor does the Tribunal consider that the fact that the First Respondent has not put in financial information in response to the application can properly be taken as evidence of inability to pay or allow the Tribunal to draw an inference to that effect. In summary, the Tribunal is not persuaded that the Claimant bas established the threshold ground of inability to pay costs necessary for an application for security for costs.
  5. For those reasons the Tribunal has come to the conclusion that the Claimant's application should be dismissed.