When Claimants Can’t Pay: A new Approach to Security for Costs in Arbitration?

A ground often invoked for security for costs in arbitral proceedings is the counterparty’s financial difficulties. Yet, a request on this ground is rarely successful because of one key requirement: That of a significant deterioration of finances. There is a consensus in Swiss doctrine to uphold this requirement for international arbitration. It also appears in domestic arbitration, despite the relevant provision only requiring the appearance of insolvency. However, it is not paralleled in Swiss-based litigation when it comes to security of costs. This article first examines the reasoning behind requiring a significant deterioration in finances. It then seeks to examine the justification of the requirement and proposes an adjusted approach which still seeks to adequately restrict security orders while more fairly dividing the burden of proof.