Another advantage of international arbitration - recovering a wider range of costs
There has been a fair bit of talk about the arbitration costs award and subsequent English High Court decision in Essar Oilfields Services Limited v Norscot Rig Management Pvt Limited [2016] EWHC 2361, which has allowed a claimant to recover the costs of litigation funding as part of the costs award.
In the arbitration, the arbitrator awarded Norscot the costs of the litigation funding which Norscot had obtained in order to bring the arbitration. The arbitrator ordered Essar to pay the amount that Norscot now had to pay the litigation funder under the funding agreement (being the greater of a fee of 300% of the funding or 35% of the recovery from Essar). The arbitrator did this on the basis of his conclusions about Essar's conduct prior to and during the arbitration, which he considered had crippled Norscot financially and left it with no alternative but to obtain litigation funding.
In ordering the payment of the costs of the litigation funding, the arbitrator relied on his power under the ICC Arbitration Rules to determine the "reasonable legal and other costs incurred by the parties" and his power under the English Arbitration Act 1996. The English High Court agreed that other costs in the ICC Arbitration Rules and in s59 of the English Arbitration Act could include the costs of obtaining litigation funding. As to what are other costs, the High Court held that the limiting factor is a functional one "Do the costs relate to the arbitration and are they for the purposes of it?"
Other arbitration rules, like the SIAC Arbitration Rules and the LCIA Arbitration Rules, also give the arbitration tribunal to decide that the other costs or other expenses of a party should be paid by another party. Interestingly the HKIAC Arbitration Rules are much more proscriptive about what costs can be awarded (see Article 33).
What this decision highlights is that a wider range of costs are potentially recoverable in arbitrations, depending on the procedural rules and the jurisdiction of the seat, such as management time, dirty (non-testifying) expert fees and funding costs. From my own experience tribunals are also more realistic, compared to the costs assessors / courts in many jurisdictions, about what are the reasonable legal costs of the proceedings. Tribunals also have greater flexibility to consider issues such as the proportionality between the size of the claim and the size of the costs bill. Of course this also makes costs awards less predictable. As the High Court noted in this case the arbitrator is not "confined by some legal straightjacket imposed by reason of what a court might or might not be permitted to order".