Arbitrator’s costs award upheld

A sole arbitrator did not exceed his powers in including the cost of third-party litigation funding within a costs award, the High Court has held.

Ruling in Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm), Judge Waksman QC said Norscot was entitled to recover the £1.94m cost of arranging external funding for the arbitration.

Essar argued that the arbitrator’s power to include “other costs” did not extend to litigation funding and that it would be a “substantial injustice” to do so, given the size of the sums involved.

Judge Waksman noted that the arbitrator had ruled “in detailed and robust terms that Essar drove Norscot into this expensive litigation because of its own reprehensible conduct” and Norscot had no option but to approach this third party funder. He said: “As a matter of justice, it would seem very odd and certainly unfortunate if the arbitrator was not entitled…to include the costs of obtaining third party funding as part of ‘other costs’ where they were so directly and immediately caused by the losing party.”

Vanessa Naish, arbitration practice manager, Herbert Smith Freehills, said: “This decision is significant because it recognises that third party funding costs are, in principle, covered as ‘other costs’ under s 59 of the English Arbitration Act.

“But it is important not to overstate the position: the judgment does not say that funding costs must be awarded. Instead it is very clear that it is within the tribunal’s discretion to allow recovery of third party funding costs, or, indeed, any ‘other costs’ linked to the arbitration.

“Whether other tribunals will be willing to exercise that discretion to award funding costs is yet to be seen but, no doubt, parties to arbitration seated in London will be alive to the issue and willing to test the scope of application of the principle.”