The right of a successful party to his costs in arbitrations
governed by the UK 1996 Arbitration Act is provided by sections
59–65. The essential features of the costs rules (almost all
of which are subject to contrary agreement) are as follows:
The Tribunal must award costs on the general principle that
costs follow the event, except where it appears to the Tribunal
that in the circumstances this is not appropriate in relation to
the whole or part of the costs.
This applies not only to the legal or other costs of the
parties, but to the arbitrators' fees and expenses and the fees
and expenses of any arbitral institution concerned.
The Tribunal may (and normally will) determine by award the
recoverable costs of the arbitration on such basis as it thinks
fit. In practice, the award quantifying the costs will have to come
after the substantive award, so that the parties can make their
submissions as to the amount of costs.
If the Tribunal does not quantify the costs, the court can
either do so, or order how they are to be determined.
The basic principles most Tribunals will adopt are that (a)
there shall be allowed a reasonable amount in respect of all costs
reasonably incurred, and (b) any doubt as to whether costs were
reasonably incurred or were reasonable in amount shall be resolved
in favour of the paying party.
Until recently, there had not been any English decision where a
Tribunal awarded the successful party the third-party funding costs
it had incurred as well as the more traditional legal and
experts' fees. Third-party funding can mean many different
things. Typically, third-party funders offer to provide funds
for a party's costs in return for a percentage of any damages
recovered or a bonus multiple of the sums advanced. If the claim is
unsuccessful, the funder recovers nothing.
However, in a decision which is currently unreported1 made by the Commercial
Court in September 2016, Judge Waksman QC held that third-party
costs were recoverable in principle pursuant to section 59(1)(c) of
the 1996 Arbitration Act and Article 31 (1) of the ICC
Section 59(1)(c) provides that the costs of an arbitration
"the legal or other costs of the parties".
Article 31 (1)2 of the old 1998 ICC
Rules provides that:
"Decision as to the Costs of the Arbitration
The costs of the arbitration shall include the fees and expenses
of the arbitrators and the ICC administrative expenses fixed by the
Court, in accordance with the scale in force at the time of the
commencement of the arbitral proceedings, as well as the fees and
expenses of any experts appointed by the Arbitral Tribunal and the
reasonable legal and other costs incurred by the parties for the
In the arbitration in question, Norscot, the successful party,
had sought its costs in the usual way. However, its claim included
the costs of the litigation funding which it said it had been
forced to incur in order to pursue the claim. The third-party
funding consisted of an advance of Ł647,086, which was
repayable either at 300% of the sum advanced from the damages
recovered, or 35% of the damages, whichever was the greater.
Essar disputed the Tribunal's jurisdiction to make an award
in respect of third-party funding. Having lost before the Tribunal,
it obtained permission to appeal from the High Court. But giving
the substantive judgment last week, HHJ Waksman QC accepted that
the terms of section 59(1)(c) and the reference to "legal and
other costs" were wide enough to permit the recovery of
third-party funding costs.
It is understood that the Tribunal had awarded indemnity costs
against the unsuccessful party which is likely to have influenced
the Tribunal's decision to allow the recovery of the
third-party funding. For example, if the conduct had been
such that Norscot had had no option but to turn to third-party
funding to continue with the arbitration, then that might have been
a factor that influenced the Tribunal.
Therefore whilst it is important to bear in mind the specific
circumstances of the decision, until the full transcript has been
released, the consequences of the judgment cannot be fully
assessed. That said, the decision is potentially a very significant
one and we will be reporting in detail on the decision in Issue 20
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