This weeks session of the International Arbitration Forum explored a fundamental yet often overlooked question in international arbitration: what happens when a party simply cannot afford to arbitrate?
The discussion was Moderated by Velimir Zikovic, Miljana Bigovic, and Michail Risvas, who guided the conversation and helped frame the debate around one of the most pressing practical issues facing arbitration today. Velimir Zikovic opened the session by introducing guest speaker Maciej Durbas, Counsel and arbitrator at KKG Legal in Poland, who provided an overview of the concept of impecuniosity and its implications for arbitration agreements.
Durbas framed the issue as a tension between two core principles. On one hand lies party autonomy and the contractual obligation to arbitrate once parties have agreed to do so. On the other stands the right of access to justice, particularly relevant where a party lacks the financial resources required to commence or continue arbitral proceedings.
Understanding Impecuniosity in Arbitration
Durbas defined impecuniosity as a genuine lack of financial resources to initiate or continue arbitration. Crucially, this is not the same as insolvency or unwillingness to pay. Rather, it refers to an authentic inability to bear arbitration-related costs.
These costs may include:
- institutional or tribunal fees,
- legal counsel fees,
- expert witness costs,
- logistical expenses such as hearings or travel.
Impecuniosity can arise for either party and may be temporary or permanent. As highlighted during the discussion moderated by Zikovic, Bigovic and Risvas, the consequences depend heavily on the procedural context.
If a claimant cannot pay the advance on costs, proceedings may be suspended or terminated. If a respondent fails to pay its share, the financial burden often shifts to the claimant, who must decide whether to fund the entire arbitration.
This dynamic raises a broader concern. Even where proceedings continue, a financially constrained party may struggle to properly present its case due to lack of legal representation or expert evidence. In such circumstances, the legitimacy of arbitration as an effective dispute resolution mechanism comes into question.
Diverging Legal Approaches
A central theme of the session was the stark difference between common law and civil law approaches to impecuniosity, a point that moderators Zikovic and Risvas explored in the discussion with participants.
In common law jurisdictions, particularly England, the prevailing position is that financial hardship does not invalidate an arbitration agreement. Courts emphasise the contractual nature of arbitration. Just as parties cannot ordinarily escape contractual obligations due to financial difficulty, they cannot rely on impecuniosity to avoid arbitration. The well-known Apache v Eurogas reasoning illustrates this strict approach.
By contrast, many civil law jurisdictions adopt a more access-to-justice-oriented perspective. Courts in countries such as Germany, France, Switzerland, Portugal and, more recently, Poland have shown greater willingness to recognise that arbitration agreements may become incapable of performance if a party genuinely lacks funds.
Durbas highlighted a notable Polish Supreme Court decision, where a claimant argued that enforcement of a previous arbitral award had left it unable to fund a new arbitration. The court accepted that the arbitration agreement could be deemed incapable of performance due to financial incapacity, even if the incapacity was temporary. At the same time, the court warned that such arguments should not be used abusively or in bad faith.
This example illustrates how different legal traditions weigh the competing values of contractual commitment and access to justice.
Who Decides the Impecuniosity Question?
Another key issue explored during the session, particularly in questions raised by Moderators Bigovic and Risvas, was who should determine whether a party is truly impecunious.
In the Polish case discussed, the determination was made by a state court, which allowed the claimant to pursue litigation despite the arbitration agreement. This raises broader questions about the respective roles of courts and arbitral tribunals in assessing financial incapacity.
Participants noted that demonstrating genuine inability to fund proceedings can be evidentially complex. Parties may need to show unsuccessful attempts to secure funding, loan refusals, or other financial documentation. Establishing such proof can be difficult, making claims of impecuniosity challenging to assess in practice.
Possible Solutions and Institutional Responses
Several possible responses to the problem of impecuniosity were explored during the discussion guided by Moderators Zikovic, Bigovic and Risvas.
Third-party funding was identified as one potential solution. However, participants noted that funding is not universally available. Funders typically support cases with strong prospects of recovery, meaning smaller or less commercially attractive disputes may struggle to secure financing.
Another possibility is the introduction of legal aid-like mechanisms within arbitration, although such systems remain rare. The Court of Arbitration for Sport was mentioned as a notable example where a form of assistance exists due to the quasi-mandatory nature of sports arbitration.
Participants also discussed security for costs and other procedural tools. While these mechanisms are increasingly invoked, they remain exceptional in practice. Tribunals tend to exercise caution before intervening in the financial dynamics between parties.
Additional procedural strategies were suggested, including:
- bifurcation of proceedings to address key issues early and potentially encourage settlement,
- flexible procedural management by arbitrators,
- institutional or tribunal creativity in structuring advances on costs.
These ideas reflected the broader theme raised throughout the session: arbitration must remain adaptable to changing financial realities.
Practical Realities in Arbitration
Despite the theoretical possibilities discussed, participants repeatedly returned to the practical realities of arbitration.
In many cases, if a claimant wishes to proceed with arbitration and the respondent cannot pay its share of the advance on costs, the claimant must decide whether to cover the entire cost of the proceedings.
This dynamic reflects arbitration’s contractual nature but also highlights its potential limitations as a dispute resolution mechanism where one party lacks the financial means to participate fully.
Concluding Reflections
The session concluded that impecuniosity presents a growing challenge as arbitration expands beyond large commercial disputes to encompass a broader range of parties and sectors.
Balancing party autonomy with meaningful access to justice remains difficult. Legal systems continue to approach the issue differently, and no universal solution currently exists.
What is clear, however, is that tribunals, institutions and practitioners will increasingly need to grapple with this issue as arbitration evolves and economic realities shift.
