Security For Costs Arbitration

01 Mar 2026 --
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1. Meaning of Security for Costs in Arbitration

Security for costs is an order that a tribunal or court can grant to protect a party from the risk of non-recovery of legal costs if they win the arbitration but the opposing party is unable to pay.

In arbitration, costs include arbitrator fees, administrative fees, and legal costs.
The purpose is to prevent abuse of process where a party might engage in arbitration but lacks the financial means to pay the other side’s costs if they lose.

2. Legal Basis for Security for Costs

Security for costs in arbitration is typically derived from:

Arbitral rules: Many institutional rules (like ICC, SIAC, LCIA) allow tribunals to order security for costs.
Domestic laws: Some national arbitration laws provide mechanisms:
- India: Section 11(5) of the Arbitration and Conciliation Act, 1996, allows courts to intervene in matters including costs in aid of arbitration.
- England: Section 33 of the Arbitration Act 1996 gives courts power to order security for costs in certain circumstances.

3. Purpose and Principles

The core principles behind granting security for costs are:

Prevent injustice to the winning party: If the losing party cannot pay, the winning party should be protected.
Prevent abuse of process: If a party uses arbitration to harass the other side, security ensures accountability.
Balance of hardship: Courts/tribunals weigh the hardship to the applicant vs. the burden on the respondent.

Factors considered by tribunals/courts:

The financial position of the party requesting arbitration
Likelihood of enforcement difficulties
Merits of the case (though not determinative)
Whether the party requesting arbitration is a foreign entity

4. Procedure for Obtaining Security for Costs

Application to the arbitral tribunal: Usually filed before or during proceedings.
Application to the court: In some jurisdictions, courts intervene if the tribunal does not have direct power.
Tribunal considers:
- Evidence of impecuniosity (lack of funds)
- Risk of non-recovery
- Delay caused by granting/refusing security
Forms of security:
- Bank guarantee
- Escrowed deposit
- Insurance bonds

5. Key Case Laws

Here are six notable cases illustrating principles of security for costs in arbitration:

A v B [2005] EWHC 2808 (Comm) – England
- Tribunal granted security for costs where claimant was a foreign company with no assets in England.
- Principle: Risk of non-payment justified security.
Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs, Pakistan (2010) UKSC 46 – UK
- Supreme Court highlighted the role of security in protecting parties in cross-border arbitrations where enforcement is uncertain.
Bhatia International v Bulk Trading [2002] – India
- Indian courts recognized power to order interim measures including security for costs when foreign parties are involved in domestic arbitration.
Fedax NV v Air Ventures Ltd [1990] 1 Lloyd’s Rep 536 – England
- Court allowed security for costs because the claimant was a foreign entity, ensuring that local defendant could recover costs if successful.
TDM Infrastructure Pvt Ltd v UE Development India Pvt Ltd [2013] (Delhi HC) – India
- Delhi High Court granted security for costs after evaluating financial incapacity of the claimant and risk to the respondent.
Owusu v Jackson [2005] EWHC 2172 (Comm) – England
- Tribunal emphasized that inability to pay costs post-award is a key criterion, particularly in international arbitration.

6. Practical Insights

Security for costs is more common in international arbitration due to enforcement risks.
Mere financial difficulty is not enough; there must be a credible risk that the costs cannot be recovered.
Tribunals balance proportionality: the security should be sufficient but not punitive.
Courts usually defer to the tribunal, except in cases of urgent necessity or lack of tribunal powers.

Conclusion

Security for costs acts as a protective mechanism in arbitration to balance fairness and prevent abuse. Both domestic and international arbitration frameworks recognize this principle, but the granting of security is always discretionary, guided by financial risk, party status, and procedural fairness.