ACR-GNY - Security for Costs

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Security for Costs

Security for Costs

Friday, August 22, 2025 9:59 AM | Anonymous

When can a defendant seek further security for costs?

Assuming the arbitrator is authorized to award legal costs and expenses, what factors should an arbitrator consider in determining whether to order a party to provide security for costs? E.g., that party's ability or willingness to comply with an adverse decision on costs in the final award; the effect that providing security for costs may have on its ability to pursue its claim or counterclaim; and the conduct of the parties? Should the party seeking security have to show a reasonable likelihood or possibility of prevailing on its claim or defense?

What are your thoughts?

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Comments

Friday, August 22, 2025 10:20 AM | Robert L. Arrington

All of these factors should be considered. Granting such and application should be the exception and not the rule.

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Friday, August 22, 2025 10:20 AM | Joe Manuel

Unless the arbitration agreement or the rules of the administering tribunal specifically grant the Arbitrator authority to require a "security deposit for costs", what basis is there for such an Order by an Arbitrator ?

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- Friday, August 22, 2025 3:09 PM | Steven Skulnik
  
  The rules that almost all commercial arbitrations are governed by give arbitrators that power. There are also soft law instruments to guide arbitrators, for example, https://www.ciarb.org/media/epgj4eb2/5-security-for-costs-2015.pdf. That said, it seems that security for costs are not often granted in US-seated arbitrations.
  
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Friday, August 22, 2025 10:30 AM | Anonymous

I have never been faced with this issue of security for costs. I would tread very very cautiously into this issue because as I understand the issue, this request is presented pre issuance of final award and even early in the case. Because I am unaware how the party against whom the arbitrator would issue such an order, I do not know how it would be appealable for relief in the event the arbitrator erred. It would have to be a burden of beyond reasonable doubt, and not just preponderance of evidence that it is justified, after a full evidentiary hearing.

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Friday, August 22, 2025 10:33 AM | David E. Robbins

If the arbitrator receives such a motion, she/he may want to be cognizant of New York law on the subject: In New York, a party can petition a court for a preliminary injunction in aid of arbitration, but only when the arbitral award could be rendered ineffectual without such provisional relief. This standard, found in CPLR 7502(c), is a high bar, requiring a showing that the award would be meaningless without the court's intervention. Other key aspects include the arbitration needing to be "pending" or "to be commenced." Further, if the arbitrator believes it appropriate to grant such relief, I would suggest that the funds be held by the AAA in escrow pending the outcome of the arbitration.

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Friday, August 22, 2025 10:55 AM | Julia E Sullivan

It's hard to imagine a scenario where I would require only one party to provide security for a potential award on costs. And in addition to the factors listed in the question, I'd need to understand why the courts in the enforcement jurisdiction couldn't provide a complete remedy post-award.

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Friday, August 22, 2025 1:28 PM | Tracy Allen

Tough issue. Very thorny problems, especially at the beginning when the arbitrator hasn’t collected evidence or testimony. It is more or less asking the decision maker to take sides from the outset and thus impinges on neutrality and due process. Interested to hear what others report and how they analyze such a request.

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Friday, August 22, 2025 5:28 PM | William M. Bankston

To award security for costs should not be awarded for the following reasons:
1. It sends a potential signal to the parties of an arbitrator's judgment of the case prior to the final decision to award costs.
2. It diverts the parties' attention to matters that have not been decided.
3. Risk of collection is removed from the process.
risk of collection is always present in any dispute resolution process.

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Friday, August 22, 2025 7:56 PM | Mel Simburg

This is a question about costs and fees that might be awarded to a prevailing party, not the forum and arbitrator costs and fees. There are statutes and arbitration agreements that might provide for a bond or deposit in those circumstances. Outside of a clause or statute, I would not require a cost bond for payment of an ultimate arbitration award. However, if a party asks for interim relief and that relief could result in economic injury to the other party, then it would be reasonable to require a cost bond as a condition of the interim order, especially if the interim order might not be made permanent or is otherwise "reversed" in the Award. In that event, the cost bond should be tied to the potential injury of the interim relief, not the ability of the party to pay an eventual adverse Award.

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Saturday, August 23, 2025 9:16 AM | Geoffrey BH

https://www.arbitrator-engineer-gbh.co.uk/security

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Monday, August 25, 2025 9:27 AM | Robbie MacPherson

R-38 and R-39 of the AAA Commercial Rules and Construction Rules would seem to allow this type of relief. I would require briefing under the law of the governing jurisdiction and if indicated, an evidentiary hearing before granting any such relief.

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Monday, August 25, 2025 7:00 PM | Kathy Smalley

California law provides for that the court may require security from out-of-state plaintiffs (and the order granting or denying the motion is not appealable). Cal. Code. Civ. Pro. 1030. The motion requires an affidavit setting out the fees and costs incurred to date and expected to be incurred, as well as a showing of a reasonable likelihood that the defendant will prevail. If those requirements are met, I don't know why an arbitrator in a California-seated arbitration would not have the same authority. Personally, I would tread carefully on the "reasonable likelihood that the defendant will prevail."

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Monday, September 08, 2025 3:18 AM | Dr. Kishor Shankar Dere FCIArb

Can any arbitrator(s), while ordering a party to provide security for costs, afford to be oblivious to that party's ability to comply with an adverse decision on costs in the final award? All applicable laws - international, municipal - and institutional rules should be scrupulously followed. Conduct (and attitude) of parties is a crucial factor in deciding the fate of the award.

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