ICSID Tribunal Upholds High Threshold for Granting Provisional Measures and Ordering Security for Costs

[co-author: Nicholas Arruda]

The International Centre for Settlement of Investment Disputes (ICSID) tribunal recently reaffirmed the high threshold for granting provisional measures in investor-state disputes, including in the context of making an order of security for costs against an investor, in the EuroGas Inc. and Belmont Resources Inc. v. Slovak Republic arbitration. The decision confirms that inability to meet a potential costs award on its own will not constitute a sufficient basis to deny the hearing of claims brought by foreign investors seeking resolution of their disputes against host States pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).


The arbitration involves a dispute arising out of allegations of ownership by the claimants EuroGas Inc. (a company incorporated in the U.S.) and Belmont Resources Inc. (a company incorporated in Canada) of Rozmin s.r.o. (Rozmin), a Slovak company, which until 2005 held the exclusive rights for mining activities at one of the world’s largest talc deposits (the Gemerská Poloma deposit) located in the Slovak Republic.

On January 3, 2005, Rozmin received a letter from the Slovak District Mining Office stating that Rozmin’s exclusive mining rights had been revoked and were to be awarded to a different company. The District Mining Office subsequently assigned the Gemerská Poloma deposit to a Slovak company that had little expertise in the mining sector.

The claimants contend that the revocation of Rozmin’s mining rights was unjustified, unlawful, motivated by the rise in price of talc from 2000 to 2005 and in breach of both the Treaty between the U.S. and the Czech and Slovak Federal Republic Concerning the Reciprocal Encouragement and Protection of Investment, which entered into force on December 19,1992, (US-Slovak BIT) and the Agreement between Canada and the Slovak Republic for the Promotion and Protection of Investments, which entered into force on March 14, 2012 (Canada-Slovak BIT). The claimants submitted the matter to arbitration pursuant to the ICSID Convention on June 27, 2014, seeking a declaration that the Slovak Republic has violated the US-Slovak BIT and the Canada-Slovak BIT as well as monetary compensation.


The arbitration is currently pending but, on June 23, 2015, the ICSID tribunal issued Procedural Order No. 3 in the proceeding ruling on requests from both parties for various provisional measures. The ICSID tribunal rejected all the requests. The claimants’ requests arose in the context of the Slovak Republic’s criminal investigations against Rozmin. The respondent’s request, which is the focus of this bulletin, related to obtaining security for its costs of the arbitration proceeding.

The respondent asserted that the ICSID tribunal had the power to order security for costs pursuant to Article 47 of the ICSID Convention and Rule 39 of the ICSID Rules of Procedure for Arbitration Proceedings (ICSID Arbitration Rules). Article 47 of the ICSID Convention states:  “Except as the parties otherwise agree, the Tribunal may, if it considers that the circumstances so require, recommend any provisional measures which should be taken to preserve the respective rights of either party.” ICSID Arbitration Rule 39(1) provides: “At any time after the institution of the proceeding, a party may request that provisional measures for the preservation of its rights be recommended by the Tribunal.”

To support its request for an order of security for costs, the respondent asserted that the claimants were not capable of satisfying a future costs award on the basis that they did not have the means to pay for the costs of the arbitration proceedings, which were entirely funded by third parties. The respondent also alleged that the claimants had a history of engaging in fraud and reneging on payment obligations. The claimants did not deny that they were encountering financial difficulties but alleged that those difficulties were in large part attributable to the acts and omissions of the respondent.

In refusing to grant the respondent’s request for security for costs, the ICSID tribunal stressed that the provisional measures envisioned in Article 47 of the ICSID Convention are mainly those that are formulated to preserve the status quo. The ICSID tribunal affirmed the holding in previous ICSID cases that “security for costs may only be granted in exceptional circumstances, for example, where abuse or serious misconduct has been evidenced.” The ICSID tribunal held that third-party funding, which is now common practice, and financial difficulties on their own do not fall within the ambit of “exceptional circumstances”.

The ICSID tribunal acknowledged that security for costs was ordered in RSM Production Corporation v Saint Lucia (ICSID Case No. ARB/12/10) but distinguished that case on the basis that the claimant in that case was not only impecunious and funded by a third party but had a proven history of not complying with cost orders. In contrast, EuroGas Inc. and Belmont Resources Inc. had not defaulted on their payment obligations in the present proceedings or in other arbitration proceedings. An order of security for costs was therefore not justified.


The ICSID tribunal’s decision and reasoning affirms the high threshold that has been established in ICSID cases for granting requests for provisional measures. This is particularly significant in the context of requests for orders of security for costs as it appears that ICSID tribunals will be unlikely to make such orders in the absence of extreme or exceptional circumstances. Moreover, mere financial difficulty or the existence of third-party funding will not suffice to justify making such an order.

The decision is to be welcome by foreign investors particularly in light of the ICSID tribunal’s other recent decision — Muhammet Çap & Sehil Inşaat Endustri ve Ticaret Ltd. Sti. v. Turkmenistan (June 12, 2015). In that case, the claimant Turkish construction companies were ordered to disclose if their claims in the arbitration were funded by a third party and the tribunal justified that order partly on the basis that the respondent had indicated that it would be seeking an order of security for costs. With the present decision, foreign investors seeking to resolve their disputes with host States under the auspices of ICSID Convention can be confident that, absent exceptional circumstances, ICSID tribunals will not require investors to establish sufficient financial standing to meet a possible costs award as a condition for hearing their claims.