The High Court of Justice handed down its decision in Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd  EWHC (Comm) 2361 on 15 September 2016. It is a significant decision for claimants, lawyers and litigation / arbitration financiers alike. HHJ Waksmans QC refused a challenge made by Essar to an arbitral award that provided for the recovery from Essar of the external finance costs that Norscot had incurred in bringing the claim.
While it is based on an egregious set of facts, this decision is nonetheless noteworthy and could have wide-ranging effects on the availability of external financing arrangements.
Norscot commenced London-seated ICC arbitral proceedings against Essar for repudiatory breach of an operations management agreement. Accordingly, the arbitration attracted the jurisdiction of the Arbitration Act 1996. Norscot sought litigation financing for the costs of the arbitration. The financing agreement entitled the funder to returns that the arbitrator Sir Philip Otton noted were in accordance with market rates.
Norscot was successful at arbitration and sought from Essar its costs including not only its legal fees but also the costs of the arbitration finance. The arbitrator's findings on Essar's conduct in the arbitration were a key consideration in the arbitrator's decision on costs. The Arbitration Act provides that a tribunal has a wide discretion when awarding “other costs” as per s59(1)(c). The arbitrator considered that under the provisions of the Act and the ICC Rules he was entitled to exercise his wide discretion to decide which "other costs" should be awarded in the arbitration. The arbitrator considered that Essar had set out to cripple Norscot financially. He called this a “David and Goliath” battle and found that, as a consequence of Essar's treatment, "Norscot had no alternative, but was forced to enter into litigation funding… The funding costs reflect standard market rates and terms for such facility." The arbitrator found that it was appropriate to include the arbitration finance costs incurred by Norscot (being £1.94m) within “other costs”. He awarded those costs (together with Norscot’s indemnity costs) as recoverable from Essar.
Essar challenged the award on the basis that the arbitrator’s inclusion of the costs of arbitration finance into the costs award was beyond the tribunal’s powers under s68(2)(b) of the Arbitration Act 1996 and would cause substantial injustice.
HHJ Waksmans QC held that the arbitrator’s award was within s59(1)(c) and not an exercise of power beyond the scope of the tribunal’s. The Court also held as a matter of “language, context and logic” that an arbitral tribunal has the power to award a successful party a costs order inclusive of the costs of arbitration finance, subject to its exercise of discretion.
In this case, the Court cited numerous factors in support of the award of other costs: Essar’s conduct during the arbitration, Essar’s conduct pre-arbitration (that was held to have forced Norscot to such a state of impecuniosity that Norscot needed arbitration finance) and also Norscot’s virtuous conduct all as reasons sufficient for the arbitrator to exercise his powers to include the arbitration finance costs in the costs award.
The precedent set by this decision is welcome. It is significant that the court confirmed that "other costs" under s59(1)(c) jurisdiction of the Arbitration Act 1996 can include the costs of litigation funding. In circumstances such as the facts of this case, it is wholly appropriate that a tribunal is able to ensure that a wronged claimant be able to be made whole. If one of the goals of the civil justice system is to put a wronged claimant back into the position it would otherwise have been in but for the wrongdoing, that result in this case was only available with the compensation for its arbitration finance costs. Justice was done in this case.