What the new ACICA Arbitration rules mean for legal finance in Australia

The 2021 Australian Centre for International Commercial Arbitration (ACICA) Arbitration Rules and Expedited Arbitration Rules came into effect in April 2021. Yet surprisingly little has been said about the new rules related to third-party funding, one in particular, which has significant benefits for claimants and important economic implications for the parties who use ACICA rules for their arbitrations.

One of the most important headlines from the updates was that third-party funding costs can be recovered by a party or awarded by an arbitrator as part of the “costs of arbitration” if the arbitrator determines that such costs are reasonable. That’s especially significant given that Rule 51.3 provides that arbitration costs are borne by the unsuccessful party, subject to the arbitral tribunal’s discretion.

From a legal finance provider’s perspective, the wording in Rule 48 of the 2021 ACICA Arbitration Rules is one of the first things I’d expect lawyers to tell their clients about.

In the event the client is entertaining the idea of legal finance for an arbitration, that client can now use funding to remove not only the downside cost of legal fees, expenses and adverse costs, but also third-party funding costs that would otherwise be paid out of any award in a successful case. Interestingly enough, this rule is replicated—but not in identical language—in Rule 35 of the Expedited Arbitration Rules, which includes costs incurred in obtaining third-party funding as part of the costs of arbitration.

The apparent genesis of this concept was a 2016 costs award where a sole arbitrator ordered recovery of funding costs. In Essar Oilfields Services Ltd v. Norscot Rig Management PVT Ltd, the High Court held that there was no basis for challenging the arbitrator’s reasoning that the reference to “other costs” of the arbitration in the English Arbitration Act 1996 (which is similarly worded to the ICC Rules) extended in principle to the costs of obtaining third party funding. A similar outcome was achieved in Tenke Fungurume Mining SA v. Katanga Contracting Services and also in at least two recent arbitrations in Singapore. What sets the 2021 ACICA Arbitration Rules and Expedited Arbitration Rules apart is that third-party funding costs are included within a specified list of costs of arbitration rather than relying on a more general “other costs” reference.

As we approach Australian Arbitration Week for 2022, this is a timely reminder that clients, counsel and arbitrators should be aware of this important new rule, which may remove the costs of funding an arbitration for claimants and function as an effective tool in incentivizing parties to settle, or at least cut to the key issues much more quickly.