Comparative Study On Security For Costs In International Commercial Arbitration

According to the rule of"costs follow the event", the failing party is obligated to pay reasonable costs of the successful party incurred in arbitration. Thus if the failing party is not able to pay such a sum, the costs award would become meaningless. Justice would be undermined more severely if a respondent is involved in arbitration and yet would have to face an impecunious claimant after a successful defense since it is not he who initiated arbitration which incurs so high costs. Therefore the claimant is required to post security for the costs of the respondent. Such an interim measure of protection is named"security for costs". Ever since the 1990s, the rule of"costs follow the event"is increasingly popular in international commercial arbitration, thus security for costs has been increasingly recognized and adopted.Notably, while the mechanism is widely recognized, there is no consistency on the basic issues such as the circumstances of issuing a security for costs order, the issuer of such an order and the bearer thereof. After a careful review of the experiences of courts and arbitral tribunals in the world, and an observation of the tendency in international arbitration, this paper draws the following conclusions. First, it is reasonable to impose the burden of security for costs on the claimant only. This is because failure to furnish security would drive the party who bears the burden out of arbitration while a defending party should not be deprived of the right to defense due to the principle of natural justice. Second, it is recommended that the tribunal should be vested with the power to adopt security for costs whereas the court is allowed to intervene only when the tribunal refuses to hear the request of security, unless the parties have agreed otherwise. This is due to the policy concern that is aimed at pursuing high efficiency, effectiveness of the arbitration procedure while respecting party autonomy. Third, the tribunal or the court should make balance between protection of the claimant's meritorious claim and execution of a costs award to the benefit of the respondent. Therefore there are at least four factors to be considered, i.e. the claimant's financial inability, the place of the claimant's assets, the merits of the claim (including prospects of success of both parties and whether the security request would stifle a meritorious claim), and behavior of both parties.Lastly, the paper observes that while international trade disputes have been arising increasingly frequently with the development of international trade in China, it's essential and feasible to stipulate security for costs in the arbitration law. This paper also provides a draft article for the arbitration law.