Date: Procedural Order 3, 2015

Origin of the parties: Middle East

Place of arbitration: Doha, Qatar

I. Procedural History

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A. Respondent's Application for Security for Costs

11. On 13 April [Year Y], the Respondent filed an application for the Claimant to provide security for the Respondent's costs (the Applicant).
12. On 30 April [Year Y], the Claimant filed its Reply to the Respondent's Application.
13. On 18 May [Year Y], the Respondent filed its Sur-Reply with respect to its Application.
14. On 28 May [Year Y], pursuant to an extension granted by the Tribunal, the Claimant filed its Rejoinder to the Respondent’s Application.

II. Parties' Positions

A. Respondent's Position

15. The Respondent argues, in reliance on the Claimant's Commercial Registration and financial situation, that the Claimant (i) is a shell company with no assets; (ii) is not trading and therefore not in a position to generate income and/or create wealth; (iii) has no bank accounts; (iv) has a significant number of court judgments against it; (v) is not in a position to satisfy any adverse cost order against it; and (vi) is likely to be dissolved within the lifetime of these proceedings.
16. The Respondent further argues that there is a possibility of the Respondent successfully defeating the claims advanced by the Claimant.

17. The Respondent therefore submits that ‘there is a serious risk of harm to the Respondent in that it will incur significant costs in defending the claims made by the Claimant and which the Claimant will not be in a position to pay in the event that its Claim fail’.
18. The Respondent accepts that the value of the security is only to cover the costs the Respondent will incur defending the claim and not the costs associated with the distinctive elements of the counterclaim. The Respondent therefore seeks security in the sum of US$ … to be paid by the Claimant into an escrow account on terms to be agreed.

B. Claimant's Position

19. Conversely, the Claimant argues that the Respondent's Application does not meet any of the requirements for the granting of security for costs.
20. In particular, the Claimant argues that the Respondent has not established that it is likely to prevail in this Arbitration and that the Claimant is compelling the Tribunal to prejudge the Claimant's likelihood of success ‘in a biased manner’.
21. The Claimant further argues that there is no risk of imminent irreparable or substantial harm, which may not be remediated by monetary compensation.
22. Finally, the Claimant argues that the granting of security for costs would constitute a harm that would largely outweigh any harm that may be caused to the Respondent if the Application is denied.
23. The Claimant therefore requests that the Tribunal:
1. reject the Respondent's Application;
2. draw all negative inferences from the Respondent's manner of pleading its Application;
3. declare that the Respondent has abused the process and its right to file an application for security for costs when it could have avoided it by agreeing to separate advances on costs;
4. order, through either an award or a procedural order and as of now, the Respondent to bear the additional costs, in the sum of US$ … incurred by the Claimant for having had to defend against the Application; and
5. order any other relief the Tribunal deems fair and appropriate in light of the Claimant's comments to the Respondent's Application.

II. Tribunal's Analysis

A. Authority to Grant

24. The Arbitral Tribunal has authority to grant interim and conservatory measures, including security for costs.
25. Indeed, Article 28(1) of the ICC Rules provides in pertinent part:

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 ... Any such measure shall take the form of an order, giving reasons, or of an award. as the arbitral tribunal considers appropriate.

26. The Secretariat's Guide to ICC Arbitration further states:¹

Types of measures ... Common types of interim and conservatory relief include: ...

Security for costs. Where, for example, there is a substantial risk that a party (usually the claimant) may not be able to cover the opposing side's arbitration costs (i.e. if ultimately ordered to do so), the arbitral tribunal may be prepared to order that party to place funds into an escrow account that is either controlled by the arbitral tribunal or jointly by the parties. The costs may alternatively be secured by way of a hank bond or guarantee.

27. Further, nothing in Qatari procedural law prevents an arbitral tribunal from granting security for costs.
28. Accordingly, the Tribunal is persuaded that it does indeed have authority to grant security for costs.

B. Basis for Granting Security for Costs

1. General Principle

29. Having reviewed the legal authorities submitted, the Tribunal is of the view that, while it is not commonly recognized that arbitral tribunals, including those acting under the ICC Rules, have the authority to award security for costs, this power is, in practice, used rarely and restrictively. Indeed, ordering security for costs is justified only in ‘exceptional circumstances’:

‘Arbitral precedents ... show that security for costs should only be granted in exceptional circumstances and with the greatest reluctance. (ASA Bulletin 2005. al p. 112)’.² (emphasis added)

‘Security for costs is in our opinion only justified in very special cases, for instance where a party has deliberately become insolvent with a view to avoiding the financial risks of arbitral proceedings’.³ (emphasis added)

30. Accordingly, the Respondent must meet a very high threshold to justify its application for security for costs.

2. Specific Factors to be Considered

31. A review of the scholarly writing and arbitral decisions filed indicates that security for costs may only be awarded where the situation is ‘urgent’ and there exists ‘a risk of substantial damage for the requesting party’.⁴
32. Financial difficulties alone do not constitute sufficient ground tor an award for security for costs. ⁵
33. Practically, the case law indicates that two circumstances may warrant an order for security for costs:

situations in which a serious deterioration of a party's financial status has occurred compared to the lime when the arbitration agreement was concluded ... [and]

situations in which the party against whom the request is directed appears to have engaged in had faith maneuvers specifically intended to frustrate the other party's potential future cost claim.⁶

C. Present Factual Circumstances

34. In the Tribunal' s assessment, the Respondent has not established that security for costs is urgent or that a clear and present danger exists or that a future costs award would not be enforceable.
35. The documents filed confirm that the Claimant exists and is duly registered with the Ministry of Economy and Commerce … and that its Commercial Registration Certificate has been renewed … The company is not under liquidation and is not subject to any bankruptcy proceedings.
36. Further, the Respondent has not provided any conclusive evidence that the financial situation of the Claimant has seriously deteriorated since the signature of the Sub­ Contract Agreement.
37. White there are a number of proceedings involving the Claimant that are recorded on its Commercial Registration Certificate, the Tribunal does not deem this issue determinative.
38. Importantly, the Claimant has met, and continues to meet, its financial obligations in the present Arbitration.
39. Under the circumstances, the Tribunal is reluctant to impose an additional financing requirement on the Claimant, beyond that which is clearly set forth in the ICC Rules, namely the advance on costs.

39. In summary, the Tribunal is of the view that parties entering into international arbitration agreements must be presumed to have assumed some degree of risk that the opposing party would not be able to satisfy a costs award. This is the nature of international business transactions and, absent ‘exceptional circumstances’, the Tribunal is unwilling to shift that risk.

D. Additional Issues Raised

40. The Claimant has argued that its financial situation is the result of the Respondent's conduct. The Tribunal declines to take a view in this regard. Indeed, more generally, any assessment as to which party has caused what harm is highly premature at this juncture in the Arbitration, and, a fortiori, any assessment as to the allocation, if any, of related costs.
41. Similarly, the Tribunal declines to draw any negative inferences from the Respondent's manner of pleading its application or to find that the Respondent has abused the process in any way by filing an application for security for costs.
42. In the circumstances, it is not necessary for the Tribunal to consider whether the amount of security requested by the Respondent is reasonable and that issue is therefore dismissed at this juncture.

IV Order

43. Having read and duly considered all submissions and evidence submitted thus far in the present Arbitration, and on the basis of the above, the Tribunal:

1. determines that the Respondent has not demonstrated that the circumstances of this case require provisional measures for security for costs. Accordingly, the Tribunal rejects the Respondent’s Application;
2. dismisses all other requests and/or claims raised by either Party in connection with the Respondent's Application: and
3. determines that the allocation of costs is reserved for a later decision or award.

For the avoidance of doubt, this Order is without prejudice to all substantive issues in dispute and does not prejudge, and should not be read or deemed as prejudging, any issue of fact or law in this Arbitration.

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