Australia: Litigation funding in international arbitration: recovering the costs of litigation finance
- Andrew Stephenson and Lee Carroll
The High Court in London recently upheld a decision of an arbitrator allowing recovery of £1.94 million in litigation funding costs.
This is the first decision of its kind and will no doubt be regularly referred to when a claimant seeks to recover such costs. The decision is particularly relevant as litigation funding is becoming more common in international arbitration.
Brackground
In Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited,1 an application was made to the Court under section 68 of the Arbitration Act 1996 (UK) to set aside the arbitrator's award on costs. The arbitrator had found Essar liable to pay damages to Norscot for repudiatory breach of an operations management agreement and awarded costs in the order of US$4 million. This included Norscot's costs of obtaining litigation funding. The litigation funder had advanced to Norscot the sum of about £647,000 for the purpose of the arbitration. The agreement between the two provided that, in the event of Norscot's success, the litigation funder would be entitled to recover the greater of 300% of the funding or 35% of what Norscot recovered. The arbitrator considered that section 59(1)(c) of the Arbitration Act 1996 (UK) and Article 31(1) of the ICC Rules were wide enough to permit recovery of litigation funding. Section 61(1) of the Act provides that: "The tribunal may make an Award allocating the costs of the arbitration as between the parties, subject to any agreement of the parties".
Section 63(3) provides that (inter alia): "The tribunal may determine by award the recoverable costs of the arbitration on such basis as it thinks fit..." Section 59 is a defining section. It states that: (emphasis added) 1. References in this Part to the costs of the arbitration are to – 2. a. the arbitrators' fees and expenses, and b. the fees and expenses of any arbitral institution concerned, and c. the legal or other costs of the parties. 3. Any such reference includes the costs of or incidental to any proceedings to determine the amount of the recoverable costs of the arbitration." Article 31(1) of the ICC Rules 1998 is similarly worded to section 59(1)(c). It provides that "The costs of the arbitration shall include... the reasonable legal and other costs incurred by the parties for the arbitration". The arbitrator considered that "other costs" in section 59(1)(c) could include the costs of litigation funding. Further, in respect of the ICC Rules, the ICC Commission Report of 2015 headed "Decision on Costs in International Arbitration" supports the view that the costs of litigation funding can be recovered under Article 31(1)2.