September saw the High Court rule (Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd) that a party can recover the costs of third-party funding awarded following an ICC arbitration, held over the breach of an operations management agreement in the oil industry.
Judge Waksman QC ruled that Norscot Rig Management had been forced to seek external funding to continue a case against Essar Oilfields Services. The sole arbitrator, Sir Philip Otton, had ruled in December 2015 that Norscot was entitled to the costs of litigation funding which it had obtained in order to bring the arbitration.
The funder, had made an agreement with Norscot in 2011 of £647,000 for the arbitration. This agreement entitled the funder a fee of 300% of the funding or 35% of the recovery, if the case was successful. For these costs Norscot sought £1.94m from Essar.
The issue of third party funding, whether it is permissible, and if the extent to which the costs of that funding can be recovered at the end of proceedings, has generated much interest in the arbitration world in recent years.
The High Court has now confirmed that the costs of obtaining third party funding in ICC arbitrations in England are in principle recoverable from the opposition by a successful party to those proceedings. Such an outlay can be classed as "other costs” under the Arbitration Act 1996. The judge outlined that it was in the power of the arbitration tribunal to award such costs. It can be questioned whether the costs of third party funding are characterised as a ‘cost’ or whether they should be viewed as a damage that should be pleaded and proven in the arbitration itself.
It is now likely that other funded claimants with English-seated arbitrations will seek to recover their funding costs, the success will lie with the tribunal. If the paying party disagrees with the tribunal's decision on this question, this judgment suggests there may be a limited amount it can do about it. This will in turn raise further questions about the need for disclosure of funding arrangements at the start of proceedings to enable a respondent to be aware of the ultimate costs it is facing in seeking to fight a claim.