ReSolution Issue 11, Nov 2016 | Page 26

English High Court allows recovery of third-party funding costs in ICC arbitration proceedings

- Mark Hilton, Jamie Curle and James Carter

The use of third-party funding in arbitration has grown significantly in recent years, with many funders now reporting that their portfolio of funded cases is evenly split between litigation and arbitration matters.

Third-party funders typically offer to fund a claimant's legal fees and disbursements on a litigation or arbitration matter (or, increasingly, on a portfolio of matters) in return for either a multiple of the funds advanced or a percentage of the damages awarded. If the claim is unsuccessful, the funder will make no recovery and has no recourse against the claimant. If the claim is successful, the claimant will pay the funder out of the damages recovered from the defendant.

A decision handed down by the English High Court this week has the potential significantly to alter the landscape for third party funding in arbitration. In the currently unreported case of Essar Oilfield Services Limited v Norscot Rig Management Pvt Limited the Court upheld the decision of the arbitrator in an ICC arbitration to allow the recovery of the costs of third party funding in addition to the award of costs and damages as "other costs" as provided for under the Arbitration Act 1996 (the Act) and the applicable ICC Arbitration Rules.

The ICC arbitration was seated in England and, thereby, subject to the Act. Upon succeeding in the arbitration, the Claimant (Norscot) sought its costs from the Respondent (Essar). It included within the claim for costs, the costs of the third-party funding which it had been forced to incur in order to advance the proceedings. The funding was for £647,086.49 with the funder entitled to recover, in the event of












success, either 300% of the funding advanced (being £1,941,259.47), or 35% of the damages recovered, whichever was the greater.

The third-party funding costs payable on success were found to be recoverable in addition to the legal costs as "other costs" by the sole arbitrator, Sir Philip Otton (a former Lord Justice of the Court of Appeal). The Respondent disputed the arbitrator's jurisdiction to make such an award and appealed the decision to the High Court.

In dismissing the appeal, the High Court held that the third-party costs incurred by the Claimant were recoverable pursuant to section 59(1)(c) of the Act and Article 31(1) of the ICC Rules. These provisions set out the types of costs which can be recovered in arbitration and prescribe the power of an arbitrator to make an award. The Court accepted that the 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. In particular, it was held that there was no