Recovery of third party funding costs in arbitration proceedings
28th September 2016
A significant decision handed down by the High Court this week has potential to change the landscape for third party funding in arbitration, allowing it to steal a march on litigation.
Essar v Norscot
In the currently unreported case of Essar Oilfield Services Limited v Norscot Rig Management Pvt Limited the Court upheld the decision of the ICC arbitrator to allow the recovery of the costs of third party funding in addition to the award of costs and damages.
Having succeed in the arbitration Norscot sought it’s costs from Essar, including the costs of litigation funding which it had been forced to incur in order to pursue the claim. The funding consisted of an advance of £647,086.49 which was repayable in the event of a successful outcome, along with a success fee of either 300% of the sum advanced, or 35% of the damages, whichever was the greater. The sole arbitrator found the funding costs to be recoverable as “other costs” as provided for under the Arbitration Act 1996 and the applicable ICC Arbitration Rules.
In dismissing the subsequent appeal, the High Court accepted that terms of section 59(1)(c), including reference to “legal and other costs” was wide enough to permit the recovery of third party funding costs – the correct test involved considering what ‘other’ costs were incurred in bringing or defending a claim, according to the circumstances.
Until the full judgment is available it is difficult to fully consider the implications of this case. That said, it opens a very interesting debate about third party funding and arbitration. Some points to consider:
- The tribunal’s decision was, in part at least, based upon disapproval of Essar’s conduct, finding that they had deliberately put the Claimant in the position where it was unable to fund the arbitration proceedings themselves – but what does ‘forced to’ seek funding mean? Must a party be faced with insolvency or would the costs of a dispute imposing cash flow problems be sufficient? What if a party simply wants to litigate off balance sheet?
- If the tribunal is willing to award funders’ success fees, what impact does this have on the funder’s potential liability for costs (i.e. Arkin risk)?
- Do the rules of other arbitral tribunals allow for the award of “other costs”?
We will also wait with interest to see whether the applicant seeks to obtain permission to appeal.