The full transcript of the court's recent
decision in Essar v Norscot is not yet available but the High Court
of England & Wales appears to have made a 'giant leap'
on the recovery of litigation funding in the context of
arbitration. This briefing is informed by 4 New Square's
briefing on the case (in which they acted).
Following a dispute relating to an operation management
agreement relating to an offshore drilling platform, an ICC
arbitration was commenced by Essar Oilfield Services Limited
(Essar) against Norscot Rig Management Pvt Limited (Norscot). A
sole arbitration awarded damages and sums due under the agreement
totaling over USD 12 million in Norscot's favour. The
arbitrator criticised Essar's counsel's conduct and awarded
costs on an indemnity basis including GBP 1.94 million to a third
party funder which had funded Norscot's defence. The arbitrator
found that Essar had deliberately put Norscot in a position where
it could not fund the arbitration out of its own resources and it
had been reasonable for Norscot to seek and obtain litigation
funding. The funding was for GBP 647,000 on terms that if Norscot
was successful it would pay 300% of the amount advanced or 35% of
the amount recovered. The arbitrator found this to be standard
terms in the market.
Essar applied to the High Court for:
Clarification of the basis of the costs award and the
arbitrator's powers under Arbitration Act 1996 (AA 1996), s
59(1)(c) and 63(3) and the applicable ICC Rules
Challenge under AA 1996, s 68 on grounds of serious
irregularity alleging excess of power since 'other costs'
in AA 1996, s 59 (1)(c) did not include the costs of third party
Under AA 1996, s 63(3), 'the tribunal may determine by
award the recoverable costs of the arbitration on such basis as it
thinks fit'. Costs are defined in AA 1996, s 59(1) as
"(a) the arbitrators' fees and expenses (b) the fees
and expenses of any arbitral institution concerned, and (c) the
legal and other costs of the parties". Article 37 of the
ICC rules broadly reflects AA 1996, s 59.
Decision of the High Court
Judge Waksman QC in the High Court dismissed the appeal holding
that third party costs were recoverable in principle pursuant to AA
1996, 59(1)(c) of the Arbitration Act 1996 and Article 31(1) of the
ICC Rules. He accepted that the terms of s.59(1)(c)
including the phrase "legal and other costs" was
wide enough to include the recovery of third party funding
Until the full judgment is available it is not possible to fully
consider the implications of this case. It may also be that the
decision is appealed. That said, it opens a very interesting debate
(not for the first time) and third party funding in arbitration,
If the tribunal's decision is based upon disapproval of
Essar's conduct, that may understandably lead to indemnity
costs but to extend to the costs of third party funding is a major
step-is this welcome or unwelcome though?
Again, if the tribunal's decision is based upon Essar
leaving Norscot no option but to seek funding what is the position
where a party chooses rather than is forced to seek funding –
is it for the tribunal to judge the funded parties'
motivations? How could it do so without detailed due diligence
and/or disclosure? What does 'forced to seek funding' mean,
would it only come into play where a respondent party would be
faced with immediate insolvency or would the litigation impeding
developments or future projects be sufficient?
If the tribunal is willing to award third party funders'
success fees, what impact does this have on the Arkin cap in
respect of funder's potential liability for costs?
We look forward to being able to conduct a full analysis of the
case and its potential impact for funded parties.
The UK Supreme Court last week issued the latest decision in a long-running attempt to enforce a US$150 million Nigerian arbitration award (IPCO (Nigeria) Limited v. Nigerian National Petroleum Corporation...
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