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CIArb Features

Eskosol SPA in Liquidazione v Italian Republic

31 July 2017 Features
By Sabina Adascalitei LLB, LLM, MCIArb, Research and Academic Affairs Coordinator

Parties and Background

This case concerns a dispute arising between Eskosol SPA in liquidazione (Eskosol) and the Italian Republic (Italy) under the auspices of the ICSID Convention and the Energy Charter Treaty. This case report will focus on Italy’s request for security for costs in support of its application for summary dismissal. In this respect, the arbitral tribunal rejected Italy’s application for security for costs, taking into consideration, inter alia, that Eskosol had third party funding in the form of ATE insurance.

Italy’s Position

Italy relied on Article 47 of the ICSID Convention and ICSID Arbitration Rule 39(1) to argue that the tribunal had the power to order interim measures, admitting that the power to order security for costs might be more controversial. Italy submitted that the tribunal’s power to order provisional measures was subject to the following two conditions:

a.      There is a right in need of protection;

b.      The circumstances require the grant of provisional measures to preserve such a right.

With regard to the specific order for security for costs, Italy argued that such an order “must be required by the circumstances”. To support its position, Italy further submitted that the case raised a material risk with regard to whether a prospective costs award would be complied with. Furthermore, Italy noted that the mere fact that Eskosol had been declared bankrupt was sufficient  to indicate that it did not have the necessary financial resources to satisfy a potential costs award.

Finally, Italy relied on the findings of the Brindisi bankruptcy tribunal to contend that the value of Eskosol’s assets were very low and therefore, Italy’s prospects of recovering the costs of the proceedings were virtually impossible. Italy maintained that the fact that Eskosol had third party funding did not solve the issue, as the funder would not have been bound by any costs award and the tribunal would not have had the power to compel the funder to secure payment of the costs.

Eskosol’s Position

Eskosol disputed the tribunal’s power to order security for costs under Article 47 of the ICSID Convention and ICSID Arbitration Rule 39(1). Eskosol mainly relied on Judge Nottingham’s dissenting opinion in RSM v Saint Lucia to argue that granting security for costs would create a procedural entitlement “that the ICSID framework does not envisage”.

It further submitted that ordering security for costs was neither urgent nor necessary and that there were no extraordinary circumstances to justify such an exceptional measure. In this respect, Eskosol relied on the fact that it had ATE insurance, which diminished any potential risk of not being able to pay a costs award.

Furthermore, Eskosol contended that Italy’s application was purely speculative and that the tribunal should not allow Italy to benefit from its own misconduct by imposing additional financial burdens on the claimant through a security for costs application.

The Tribunal’s Analysis

With regard to its power to order interim measures, the tribunal found that it was not limited to certain types of measures and concluded that it had the power to grant security for costs. It further noted that in order to grant an interim measure, the following conditions should be satisfied:

a.      It was necessary to preserve an identified right;

b.      Preservation of such a right was urgently required;

c.       The requested measures were proportionate and did not impose undue burdens on the other party.

The tribunal considered the “right sought to be preserved” and departed from RSM v Saint Lucia, where the tribunal in that case qualified such right as procedural. The tribunal in the present dispute stated that what Italy was seeking was an assurance that at the end of the proceedings there would be sufficient available assets to satisfy a costs award and therefore, the concern was not so much procedural, but rather outcome-related.

Furthermore, the tribunal acknowledged Italy’s concern with regard to its ability to enforce a final award against the claimant, but found that Italy had not shown sufficient evidence to demonstrate that exceptional circumstances existed.

With respect to Eskosol’s ATE and third party funding argument, the tribunal was satisfied that Italy’s request for security for costs was neither necessary nor urgent, given the existing ATE insurance policy. The insurance policy aimed to protect Eskosol from an adverse costs order or award and covered up to €1million of Italy's costs.