ICSID Tribunal Orders Funded Claimant to Provide Security for Costs in ECT Arbitration Against Turkmenistan

In <span class="news-text_italic-underline">Lotus Proje Akaryakıt Enerji Madencilik Telekominikasyon İnşaat Sanayi Taah Ve Tic AŞ v Turkmenistan (ICSID Case No ARB/24/13)</span>, the ICSID arbitration tribunal upheld Turkmenistan's application for security for costs. The tribunal directed the claimant, Lotus, to provide $2 million in security, based on the criteria set forth in Rule 53 of the ICSID Arbitration Rules 2022 (the “<span class="news-text_medium">Rules</span>”). The tribunal’s decision followed an evaluation of several factors, with Lotus being given the flexibility to choose the most suitable and cost-effective method to meet the security requirement, such as posting a guarantee, depositing funds in escrow or securing after-the-event insurance.

In March 2025, Turkmenistan requested an order from the tribunal for Lotus to provide $3 million in security for costs. Turkmenistan’s application highlighted that Lotus, a Turkish-incorporated claimant, had been declared bankrupt in 2016 and, therefore, was unable to satisfy an adverse costs order. Additionally, Lotus was receiving third-party funding from SSL, but the funding agreement did not explicitly cover adverse costs.

The tribunal reviewed the application in light of Rule 53, which provides a "complete code" for addressing security for costs applications. The tribunal systematically evaluated the factors listed in Rule 53(3), including:

1. <span class="news-text_medium">Ability to comply with an adverse costs decision (Rule 53(3)(a)):</span> Lotus did not demonstrate that SSL, its third-party funder, was obligated to cover any adverse costs, as the funding agreement did not expressly mention this.
2. <span class="news-text_medium">Willingness to comply with an adverse costs decision (Rule 53(3)(b)):</span> While Lotus' parent company had failed to comply with an adverse costs decision in a separate arbitration, this did not provide sufficient evidence to suggest that Lotus itself would be unwilling to comply in the current case.
3. <span class="news-text_medium">Effect of ordering security on Lotus' ability to pursue its claim (Rule 53(3)(c)):</span> The tribunal found that while Lotus would struggle to pay a typical costs award, it had adequate funding to proceed with the arbitration. The tribunal concluded that ordering security was the best way to ensure that both parties could maintain their positions in the case.
4. <span class="news-text_medium">The parties' conduct (Rule 53(3)(d)):</span> Both parties had been cooperative throughout the proceedings and therefore, this factor was neutral.

Taking into account investment arbitration costs data and Turkmenistan’s previous arbitration costs, the tribunal set the security at $2 million. While the tribunal acknowledged that the cost of providing security was not insignificant, it determined that this expense could be recoverable should Lotus prevail in the arbitration.

The decision represents a significant development in the interpretation and application of Rule 53, which aims to ensure that arbitration proceedings are not delayed or impeded by a party’s inability to cover the costs of an adverse award.