Essar v Norscot: Impact on Third Party Funding in Arbitration

Published: 25/11/2016

On 22 November, John Beechey CBE, Former President of the ICC Court of Arbitration, and Steven Friel, Chief Investment Officer at Woodsford Litigation Funding, delivered a seminar at Enyo Law on Third Party Funding in arbitration.

The seminar focused on issues arising out of the growing use of third party funding in arbitration with a particular focus on the immediate issues arising out of the recent High Court decision in Essar v Norscot.

Steven and John discussed the decision in which HHJ Waksman QC agreed that Sir Philip Otton had been within his powers to award a party its third party litigation funding costs as “other costs” under s.59(1)(c) of the Arbitration Act 1996. Steven did not think that the case in itself would change the underlying principle of how a party funds itself, but could be seen as an “access to justice” tool allowing parties in arbitration to structure their fees in the same way as in litigation, including with success fees. Both speakers agreed that the Essar v Norscot decision and the underlying arbitral award would be seen as important by arbitration practitioners given its provenance under English jurisdiction, ICC arbitration and arising out of an award by Sir Philip Otton as a respected arbitrator. Though the speakers acknowledged that the award arose out of a relatively extreme set of circumstances, it is not wholly unusual for defendants to try to take advantage of a relatively impecunious claimant in the hope that the claim would not be brought. As was commented, similar circumstances are likely to arise again in future cases. Prior to the decision, arbitration tribunals had already begun to look seriously at whether to award litigation funding costs and John added that “Tribunals don’t shy away from it.”

The disclosure of the identity of third party funders was also a hot topic, linked to the Essar decision and the risk of exposure to an opponent’s funding costs giving rise to a need to be aware of the existence and scope of that exposure from the outset. The speakers discussed the case of Wall v RBS in which the court held that it had the power to disclose the identity of the third party funder to allow an application for security for costs to be made against it. John noted that he had seen this more and more frequently in commercial arbitration, and commented that funders should be prepared to disclose their identities to avoid issues relating to disclosure and security for costs further down the line.

The speakers also referred to SIAC’s newly drafted arbitration rules, specifically tailored for investment arbitration, which contain express powers for tribunals to order the disclosure of third party funding and to take this into consideration when deciding costs matters; and  to recent guidance on the issue of arbitrator conflicts, which was adopted by the ICC in February 2016, requiring arbitrators to disclose “relationships with any entity having a direct economic interest in the dispute or an obligation to indemnify a party for the award.”

Steven’s concern about such disclosure was that this trend could provide defendants with a “tactical distraction” from the resolution of disputes and allow defendants to start “messing about”. For example, where a defendant knows there is a funder in the background, a claimant does not want to find itself amidst a mass of satellite litigation between the defendant and the funder. Steven noted that there may also be commercial reasons why a claimant is unwilling to disclose that it has funding. John agreed, but had found that arbitrators were “quite savvy” about these points.

The speakers finished the seminar by discussing the need for regulation of third party funding – a topic which has attracted a great deal of attention from the legal community. John thought that there was international reluctance to regulate. While the recent decision of Excalibur may be the sort of case which will set the tone for the rest of the market, emphasising a need for change, Steven stressed the extent of self-regulation and hyper-scrutinisation already present within the market. Steven thought that even a decision such as Excalibur was not so scandalous that it created a need for regulation in circumstances where litigation funding has created such a limited number of problems in its ten year existence.

The event was the fifth in the series of Arbitration Breakfast Seminars hosted by Enyo Law.

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