Research On Security For Costs In International Commercial Arbitration

Security for Costs is originally closely related to the litigation,which means that the defendant would request the other party to provide corresponding guarantees for its legal costs that it may incur under circumstances regulated by the law.Security for Costs in international commercial arbitration refers to the fact that the respondent may apply to the arbitral tribunal to require the applicant to provide the corresponding guarantees for the respondent’s possible related reasonable expenses incurred during the arbitration.At present,in both international and domestic commercial arbitration practices,the losing party has to pay for the other party’s expenses incurred during the arbitration,including but not limited to attorney fees,evidence collection fees,expert witness fees,and so on.This is the so-called “Cost Follow Event” rule.In the event that the applicant loses its case and is unable to pay the corresponding arbitration fee and the relevant costs of the respondent,the arbitration award will become a dead letter.If the respondent retained lawyers at high prices,prepared the arbitration material to respond and won the case,but could not recover its costs,this is extremely unfair as the respondent is passive and has no choice of whether to join the arbitral proceedings.In order to avoid such injustices and to ensure the realization of costs in arbitration,a system that requires applicants to provide Security for Costs has been gradually developed in arbitration practice.And with the constant development of international trade,the amount of the subject matter of arbitration cases has continuously increased,the cases have become more and more complex,and the related expenses paid by the parties for arbitration have also continued to increase.Especially in cross-border cases,the respondent is likely to win the case with an arbitral ruling but cannot have the applicant to pay for the corresponding arbitration fee because the applicant is far abroad and the issue of having the applicant to pay the corresponding fee itself may even become a new dispute.In addition,requiring Security for Costs is also an important means to combat malicious arbitration.Some applicants may apply for arbitration due to malicious intentions.If they win,they will take the money.But if they lose,they will disappear.Some applicants use the adverse effects of being engaged in arbitration proceedings to suppress the stock price of the other company and thus facilitate their hostile takeovers.Requiring Security for Costs is a good way to prevent malicious arbitrations.This is also a very important historical reason for the cost security system.Therefore,Security for Costs plays an increasingly important role in the practice of international commercial arbitration.However,at present,there are many problems in the theory and practice of Security for Costs in international commercial arbitration,such as the relationship between cost guarantees and temporary protection measures,the conditions of application for fee guarantees,and whether the arbitral tribunal can actively request the applicant to provide securities on an ex parte basis.Cost guarantees,the impact of third-party funding on fee guarantee applications,and the relationship between fee guarantees and “costs follow the event” rules.This paper intends to clarify and resolve these issues and provide some references for international commercial arbitration practice.This article is mainly divided into five parts:The first part is an overview of the Security for Costs.It first describes the origin of Security for Costs and the UK procedural law,and explains the situation in which the plaintiff was initially required to bear the Security for Costs.Then it analyzes the relationship between the cost security measures in the international commercial arbitration and the “follow-up rules of the costs follow.” “Fee following result” means that the losing party of the arbitration case bears all other reasonable expenses incurred by the other party because of the arbitration case.This rule has become the golden rule of international commercial arbitration.In arbitration cases,the parties will incur a large amount of expenses,for example,due to hire.Costs incurred by lawyers,fees of arbitral tribunals including arbitrator fees,fees for parties to apply for interim measures and arbitral tribunals to take temporary measures,expenses for collecting and producing evidence,costs for expert witnesses to appear in court,etc.In the case of an applicant losing the case,if the applicant is unable to pay the relevant arbitration fees and the relevant costs of the respondent,it will result in an arbitral award becoming a dead letter.The respondent hires a lawyer at a high price and prepares the arbitration material to respond to the case.After winning the arbitration case,it is extremely unfair to allow the losing applicant to bear these costs,because the respondent is passive and has no choice in whether he enters the arbitral proceedings.Therefore,the “follow-up result rule” Is the most fundamental reason behind the release of cost guarantees This chapter concludes by summarizing the role of cost security measures in the practice of international commercial arbitration,and the cost security measures that help to maintain the stability of the arbitral proceedings,and achieve a balance of rights and obligations between the parties,allowing the enjoyment of specific arbitration rights.It is reasonable and necessary for a party(the applicant)to provide guarantees for possible costs in the future,or to provide guarantees for the party who should bear the related expenses,and if the conditions for release are met,requiring the applicant to provide a fee guarantee is beneficial to the maintenance of arbitration.The legitimate rights and interests of the applicants also help to crack down malicious arbitration applications and create a good and orderly arbitration order.The security for costs system plays an increasingly important role in the practice of international commercial arbitration.Next is the discussion about the differences between security for costs and other general temporary protection measures.Arbitration legislation of most countries and the arbitration rules of major international arbitration tribunals do not clearly stipulate“Security for Costs”,but only general provisions for temporary protection measures.Many scholars in their articles have default security measures as a temporary protection measure,but they have not been demonstrated or analyzed.At the same time,by studying the arbitration laws of various countries and the arbitration rules of various international arbitration institutions,it can be found that the arbitration laws of some countries or the arbitration rules of international arbitration institutions also provide temporary protection measures and expense guarantee measures in parallel.For example,Article 12 of the Singapore International Arbitration Act.The provisions of the Model Law also appear to distinguish between cost security measures and temporary protection measures.Therefore,this chapter first demonstrates the basic problem that cost security measures are temporary maintenance measures.The analysis of the definition of both temporary protection measures and expense guarantee measures is mainly conducted to analyze the definition of the relationship between the Security for Costs and the temporary protection measures in the arbitration rules that clearly specify the expense guarantee measures and the arbitration rules of the arbitration institutions.This chapter finally analyzes the particularity of cost security measures relative to other temporary protection measures,mainly as follows:(1)expense guarantee measures may last longer in duration;(2)publication of fee guarantee measures without the need for national public authority(3)The purpose of publishing is different;(4)The main body of the application is only for the respondent.Finally,it analyzes why the Security for Costs are different from other general temporary protection measures and many arbitration and arbitration rules do not regulate them separately.The second part is the discussion of the advantages and disadvantages of the three main systems,which are the court enjoyed alone system,the arbitral tribunal enjoyed alone system,and the system that courts and arbitral tribunals share the power,and finally put forward the best model for issuing Security for Costs was proposed.The above has demonstrated that the Security for Costs is an interim measure.In view of the very few arbitration and arbitration rules that stipulate separate cost security measures,this chapter uses the provisions of the Arbitration Law and Arbitration Rules for the issuing entity of temporary protection measures.Investigate the issue of the issuer of cost security measures.The situation enjoyed by the court alone is a common practice in the development of arbitration laws and is also the practice of many developing countries.With the continuous development of international commercial arbitration practice,the power to issue fee guarantees is constantly being transferred from the court to the arbitral tribunal.Furthermore,the arbitration rules directly stipulate that the selection of the rules means that the parties abandon their power to apply for temporary protection measures from the court.This paper finally analyzes the best model of the main body of the expense guarantee measures,namely,the arbitration tribunal,the court as the supplement,and the party’s autonomy as the chief.This model is the development trend of international commercial arbitration practice.It is also the embodiment of the court’s full respect for the discretion of the arbitral tribunal,and it is also the greatest degree of respect for party autonomy.At present,the arbitration laws of Britain,Hong Kong,Singapore,India and other countries or regions all adopt this model.The third part discusses the main release form of Security for Costs and its release conditions and whether it can be issued unilaterally.The main forms of Security for Costs include:(a)directly requesting the parties to submit a certain amount of money to the arbitral tribunal/court;(b)the parties submitting a payment commitment/guarantee to the arbitral tribunal/court;(c)to the arbitral tribunal/court Submit their approved bank payment guarantee/guarantee,etc.The conditions for the issuance of Security for Costs are the most controversial ones.The Model Law amended its original version in 2006 and expanded the original Article 17 to specify in more detail the relevant contents of the interim measures,including the conditions for their release.As for the revised contents of the Model Law on the conditions for the release of temporary protection measures,it is controversial whether the cost security measures can be applied.The author believes that it cannot be fully applied to Security for Costs.Because of the issuance of expense guarantee measures,there is no“damage that cannot be fully compensated by money” as required by Article 17 of the Model Law.The author summarizes the viewpoints of domestic and foreign scholars,the arbitration law and the arbitration rules,and gives suggestions on the best conditions for the issuance of Security for Costs,that is,the following three aspects are analyzed:(1)The applicant’s property status at the time of applying for arbitration.Significant changes in the state of the property at the time of signing the arbitration agreement(fundamental change of circumstances);(2)The damage caused to the respondent by not issuing temporary protection measures is substantially greater than the provision of temporary protection measures to the applicant;(3)The respondent has a reasonable possibility to win an arbitration case.Only when the above three conditions are met,the expense guarantee measure should be released.And next part discusses whether the issue of cost guarantees can be issued unilaterally.Some arbitration laws and arbitration rules stipulate that temporary protection measures can be issued unilaterally without giving the other party an opportunity,in an emergency,on the application of a party.However,this article argues that the Security for Costs cannot be issued unilaterally due to its own particularity.The fourth part analyzes the hot issue in recent years,which is,the influence of third-party funding on Security for Costs.The International Council for Commercial Arbitration(ICCA)and Queen Mary University of London launched a special third-party funding research project in 2014 and was held in Shanghai in March 2018.One of the contents of the Shanghai International Arbitration Weekly Forum is to discuss “the use and role of third-party funding in arbitration”.It can be seen that the recent influence of third-party funding is very extensive.This section first analyzes the concept of third-party funding in international commercial arbitration,and analyzes some countries’ attitudes towards third-party funding.It then discusses whether the fact that the applicant has used third-party funding indicates that its property status is poor and its disclosure.problem.Finally,the relationship between third-party funding and fee guarantee measures should be analyzed,and the conclusion is whether there is little relationship between whether third-party funding and fee guarantee measures should be issued.The last part discuss the implication of Security for Costs in China arbitration law.This part analyses the current Chinese law regulation on Security for Costs,and then the necessity to incorporate Security for Costs into Chinses arbitration related laws,as well as the legislative proposal.