Security for costs in VIAC arbitration: protection when cost recovery is at risk

Security for costs may become important in VIAC arbitration where recovery of a possible costs award appears to be specifically at risk. Article 33 paragraph 6 of the Vienna Rules permits a targeted application against a party asserting claims or counterclaims. A general concern does not by itself establish the required likelihood.

Security is neither an advance paid to VIAC nor a preliminary decision on the merits. Its purpose is to protect a possible claim for reimbursement of procedural costs. Every party must be given an opportunity to comment before the tribunal decides.

This article explains the requirements of the application, distinguishes security from the general advance on costs and outlines the possible consequences if ordered security is not provided.

When security for costs may be considered

Under Article 33 paragraph 6 of the Vienna Rules, the tribunal may, on a party’s application, order a party asserting claims or counterclaims to provide security for procedural costs. The applicant must show that recovery of a possible costs claim is sufficiently likely to be at risk.

The rule does not create an automatic entitlement to security. The application, factual basis and amount requested must fit the particular proceedings. The tribunal decides only after giving every party an opportunity to comment.

Advance on costs and security are different

The VIAC advance funds administrative costs, arbitrator fees and expected expenses. Security for costs protects a party’s possible claim for reimbursement of procedural costs. Recipient, purpose and legal requirements are therefore different.

The article on the unpaid VIAC advance on costs explains interim funding of the proceedings. An application under Article 33 paragraph 6 does not concern that funding. It concerns the risk that a later costs award cannot be recovered.

What the applicant must show

The central issue is recovery of a possible costs claim. The application should identify specific, current and verifiable circumstances. It should also explain why those circumstances make non-recovery sufficiently likely at the time of the decision.

The Vienna Rules do not prescribe a fixed list of evidence. Documents should therefore not be collected mechanically. Their date, reliability and connection to the possible costs claim matter. Statements about the other party’s financial position require particular care and support.

Comments and the tribunal’s decision

Every party must be given an opportunity to comment before the decision. The party facing the application may challenge the alleged facts, their currency, the conclusions drawn and the proportionality of the request, and may submit its own material.

A complete application should separate the procedural basis, the claims asserted, the possible costs claim and the alleged risk. The topic page on preparing arbitration proceedings provides the broader structure for a VIAC case.

If ordered security is not provided

If a party fails to comply with an order for security, Article 33 paragraph 7 permits the tribunal, on application, to suspend all or part of the proceedings or to terminate them. The consequence does not arise automatically upon the first failure to pay.

The wording of the order, the period set, the affected claim and the further application are therefore central to the review. Article 34 paragraph 2 item 2.4 expressly identifies non-compliance with an order for security as a possible ground for termination.

Distinction from later enforcement

Security for costs is considered during the arbitration. It differs from security in later enforcement or stay proceedings. The article on security in enforcement proceedings addresses that later stage.

The final decision on costs also remains separate. Section 609 ZPO and Article 38 of the Vienna Rules concern which party ultimately bears reasonable procedural costs. An order for security does not prejudge that decision.

Documents needed for legal review

Prepare the arbitration agreement, the applicable Vienna Rules, request for arbitration, response, any counterclaims, existing procedural orders and the current timetable. Add every document relied on to establish the alleged risk of non-recovery.

Create a short chronology and identify which facts are supported by current evidence. The guide to preparing a VIAC request for arbitration helps to organise the claims and procedural basis before addressing costs security.

Common questions about security for costs

Can security for costs be required automatically?

No. Article 33 paragraph 6 of the Vienna Rules requires an application. The applicant must show that recovery of a possible costs claim is sufficiently likely to be at risk.

Is security for costs the same as the VIAC advance on costs?

No. The advance funds the arbitration. Security protects a party’s possible claim for reimbursement of costs.

Does the case end immediately if security is not provided?

No. On application, the tribunal may suspend all or part of the proceedings or terminate them. The specific order, affected claims and further application matter.

Next step

Contract, arbitration clause, correspondence and deadlines should be collected. It can then be assessed whether negotiation, preservation or arbitration is central.