In 2008, Norscot Rig Management Pvt Limited (“Norscot”), the Claimant, successfully brought a claim in arbitration before the ICC in London, against Essar Oilfield Services Limited (“Essar”), the Respondent. The Arbitrator (Sir Philip Otton) held that the Respondent had breached an operation management agreement relating to an offshore drilling platform and thus was liable to pay over USD 12 million in damages to Claimant.
As such, Claimant sought to recover its costs from the Respondent, including the costs of litigation funding (provided by Woodsford Litigation Funding) it had to incur to pursue its claim.
Third-party funding in international arbitration is defined as “any person or entity that is contributing funds, or other material support, to the prosecution or defence of the case and that has a direct economic interest in, or a duty to indemnify a party for, the award to be rendered in the arbitration.“[1]
In the above-mentioned case, the third-party funding included an advance of £647,086.49 repayable with the greater of either 300% of the sum advanced from the damages recovered, or 35% of the damages.[2]
In the arbitration proceeding, the Arbitrator allowed the recovery of the costs of securing third party funding as costs. The Respondent appealed this decision and argued that the tribunal lacked jurisdiction to determine allocation of third-party funding costs.
The High Court, namely HHJ Waksman Q.C., dismissed the Respondent’s appeal and held, for the first time in the UK, that those costs were recoverable under Section 59(1)(c) of the Arbitration Act 1996 and Article 31(1) of the ICC Rules, on the ground that the expression “legal and other costs” found in Section 59(1)(c) of the 1996 Act includes the third party funding costs.[3]
This ruling enforces the idea that costs orders are at the arbitrator’s discretion, and that the arbitrator’s autonomy in this decision making shall not be questioned by the courts.
It also is encouraging news for claimants who are interested in using third-party funding to pursue their claims.
[1] See IBA Guidelines on Conflict of Interest, Explanation to General Standard 6, para. (b), p. 14, 15.
[2] 4 New Square, Landmark decision, High Court appeal allows recovery of third party funding costs in arbitration proceedings, 15 September 2016 (http://www.4newsquare.com/news/article.aspx?id=305).
[3] Essar Oilfield Services Limited v Norscot Rig Management PVT Limited (2016) QBD (Comm).
