Arbitrator's general power to award costs includes power to award costs of third party funding (English Commercial Court) | Practical Law

Arbitrator's general power to award costs includes power to award costs of third party funding (English Commercial Court) | Practical Law

In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd (unreported), the English Commercial Court considered whether an arbitrator's general power to award costs included the power to award the costs of third party funding.

Arbitrator's general power to award costs includes power to award costs of third party funding (English Commercial Court)

by Practical Law Arbitration
Law stated as at 21 Sep 2016 • England, Wales
In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd (unreported), the English Commercial Court considered whether an arbitrator's general power to award costs included the power to award the costs of third party funding.
In a landmark decision, as yet unreported, the English Commercial Court has refused an application to set aside a partial award, finding that an arbitrator's general power to award costs included the power to award the costs of third party funding.
In an International Chamber of Commerce (ICC) arbitration, the arbitrator made a partial award ordering the applicant (Essar) to pay costs on an indemnity basis, including £1.94 million, which the respondent (Norscot) had paid to a third party funder. The arbitrator concluded that that Essar had deliberately put Norscot in a position where it could not fund the arbitration from its own resources. Therefore, it was reasonable for it to obtain third party funding. That funding consisted of an advance of approximately £650,000 on terms that if successful, Norscot would repay either 300% of the sum advanced, or 35% of the damages.
HHJ Waksman QC (sitting as a judge of the High Court) dismissed Essar's challenge to the award for serious irregularity under section 68 (2)(b) of the Arbitration Act 1996 (AA 1996), holding that the third party costs were recoverable in principle under section 59(1)(c) of AA 1996 and the applicable ICC Arbitration Rules. The court held that the third party costs fell within the ambit of "other costs" as referred to in section 59(1)(c).
The decision has already provoked much commentary. It is unclear whether Essar was ordered to pay the funder's share of proceeds as well as the original advance. If the costs order against Essar included the funder's share of proceeds, then there is an argument that such order is not purely a "costs" order but also includes some element of damages recovery. On the other hand, the share of proceeds element of the funder may be seen as part of the legitimate costs that Norscot had to incur in order to bring its claim and so, without full recovery it would be out of pocket.
We will provide a full update when the full judgment is published.
Case: Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd (unreported)