Third Party funding is becoming an increasingly important part of the armoury of litigators both for fighting disputes in court and behind the closed doors of arbitration, but a recent High Court case may just have given arbitration a huge advantage over resolution by the courts.

In an ICC arbitration, Sir Philip Otton had found in favour of the claimant and, as a result of the respondent’s conduct had awarded the claimant indemnity costs. However, in addition he had awarded the claimant the success fee it had to pay its funders - 300 % of the funding advanced or 35% of the damages recovered, whichever was the greater. Sir Philip took this huge step pursuant to the jurisdiction to award “other costs” pursuant to s. 59(1)(c) of the ICC Rules. Unsurprisingly, the Respondent went to the High Court to set aside this aspect of the award upon the basis that it amounted to a material irregularity (Essar Oilfield Services Limited v Norscot Rig Management Pvt Limited currently unreported)

Judge Waksman Q.C. dismissed the application. He held that the jurisdiction to award “other costs” should be widely construed and could include the success fee aspect of the claimant’s funding requirement. Given the claimant’s own financial position, it was perfectly reasonable for it to have entered into these funding arrangements. Finally, the ICC Rules could not be construed in the light of the provisions of the Civil Procedure Rules, which would not have allowed for such recovery.

Before becoming too excited about the prospects afforded by this case to recover success fees in arbitrations, three factors need to be considered:

  1. After licking its wounds, the applicant in the court case may seek and obtain permission to appeal, leading to a successful appeal;
  2. Arbitrators enjoy wide discretion in reaching decisions. The arbitrator was very critical of the losing side’s conduct leading to an award of indemnity costs and, in a more standard case it may be that an arbitrator would exercise his discretion differently;
  3. The rules of other arbitral tribunals may not allow for the award of “other costs”.

However, if there is no appeal or any appeal does not succeed, claimants will be looking more favourably on arbitration than litigation as a means of resolving disputes.