Essar Oilfields Services Limited v Norscot Rig Management PVT Limited  EWHC 2361 (Comm), Judgment 15 September 2016
The cost of funding obtained to bring an arbitration under The Arbitration Act 1996 can be recovered inter partes.
Essar applied to set aside a partial arbitration award totaling $12m including costs.
Norscot’s funder had agreed to advance £647,000 for the arbitration and was entitled to a fee of either 300% of the funding or 35% of the recovery. Norscot sought approximately £1.9m for the funding costs.
The arbitrator had determined that Norscot was entitled to costs of funding obtained to bring the arbitration under s.59(1) (c) of The Arbitration Act 1996, which provides for ‘legal or other costs of the parties’.
Essar’s argued that the Arbitrator had exceeded his powers as ‘other costs’ did not include litigation funding costs.
Norscot contended that there was no basis for setting aside the award since firstly, Essar was out of time for making its application with no prospect of a retrospective extension; and secondly, there was no serious irregularity to be found in the decision (at most there was an error in law).
Judge Waksman QC concluded that ‘other costs’ can include the costs of obtaining litigation funding, describing the arbitrator’s exercise of discretion on the point as ‘a telling example of the good sense of reading “other costs” in this way’. He went on to say that Norscot had no option but to obtain funding from a third party in circumstances where it had been drawn into the litigation by the reprehensible conduct’ of Essar. It would be unfortunate as a matter of justice if the arbitrator was not able to include these costs in an award in such circumstances.