## Facts

- An Italian company (claimant) initiated institutional arbitration in October 1996 against a German company (respondent) seeking damages arising from a commercial relationship.
- The respondent opposed the claim and asserted counterclaims seeking restitution of amounts paid to the claimant.
- The claimant entered voluntary liquidation in December 1996 and a liquidator was appointed.
- In March 1997, the respondent informed the tribunal of the liquidation and argued it faced a risk of non-recovery of costs if it prevailed.
- The respondent sought (i) a stay of proceedings and (ii) an order requiring the claimant to provide security for the respondent’s costs; the stay request was later withdrawn, but the security request remained.
- The claimant sought dismissal of the security request, disputing either the tribunal’s authority to order security or the propriety of doing so on the asserted facts.
- The tribunal received written submissions focused on the tribunal’s authority to order security for costs under the applicable rules and Swiss arbitration law, and on whether liquidation justified such relief.
- The decision addressed the security-for-costs application as an interlocutory procedural matter, not the merits.

## Issues

1. Whether an arbitral tribunal constituted under the Geneva Chamber of Commerce and Industry arbitration rules has authority to order security for costs.
2. If such authority exists, whether a claimant’s liquidation or insolvency, without more, justifies ordering security for the respondent’s costs.

## Decision

- The tribunal held it had authority to order security for costs as a procedural/interim measure under the applicable institutional rules and the procedural powers recognized under Swiss arbitration law.
- The tribunal treated security for costs as an exceptional measure and indicated it should not be granted routinely.
- The tribunal determined that the claimant’s insolvency or liquidation, standing alone, did not meet the threshold required for ordering security for costs.
- The tribunal emphasized that additional exceptional circumstances would be required beyond ordinary commercial risk.

## Legal Principles

- Arbitral tribunals may possess authority to order security for costs based on broad case-management powers conferred by institutional rules, reinforced by the lex arbitri and party consent to the arbitral framework.
- Security for costs is an exceptional remedy; a party seeking it bears a substantial burden to show circumstances warranting departure from the ordinary allocation of procedural risk.
- Claimant insolvency or liquidation, without evidence of abuse of process or similarly exceptional factors, is insufficient to justify security for costs.
- Tribunals should consider the effect of security on access to arbitration; requiring security may functionally bar an impecunious claimant from pursuing a claim where the claim is its principal asset.
- A respondent’s concern about recovering costs is relevant but is generally treated as part of the commercial risk assumed when agreeing to arbitrate, absent aggravating circumstances.

## Conclusion

The tribunal recognized a power to order security for costs but applied a restrictive standard, indicating that liquidation or insolvency alone does not justify security and that the measure should be reserved for exceptional circumstances while accounting for access-to-arbitration concerns.


Decision of Geneva Chamber of Commerce & Industry, 19 ASA Bull. 745 (Geneva Ch. Arb. Trib. 2001)