Five years ago, Essar vs Norscot brought about a landmark decision. The English High Court upheld a ruling requiring that the defendant cover the claimant’s costs associated with legal funding in the arbitration. Now it appears that arbitral tribunals are increasingly likely to award costs associated with procuring third-party legal funding.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Five years ago, Essar vs Norscot brought about a landmark decision. The English High Court upheld a ruling requiring that the defendant cover the claimant’s costs associated with legal funding in the arbitration. Now it appears that arbitral tribunals are increasingly likely to award costs associated with procuring third-party legal funding.
Omni Bridgeway explains that third-party funding costs may refer to the funder’s success fee, which is one of many payouts funders receive when a claim is successful. Plus, the costs can include reimbursing funders for costs paid over the course of the arbitration itself.
In Essar, courts cited three reasons for awarding WPF costs:
- The respondent engaged in “reprehensible conduct” well beyond typical breach of contract—thus spurring the arbitration.
- The claimant’s lack of resources
- The respondent’s actions, intended to take advantage of the claimant’s lack of financial resources.
Recovery of TPF costs is now a common part of arbitrations in multiple jurisdictions. A recent tribunal decision in Singapore held that tribunals do have the authority to award recovery of claimant legal costs—including those associated with third-party legal funding.
What changes have been spurred by the Essar ruling?
First, disclosure of funding agreements early on in the arbitration process is preferred. Some jurisdictions, Singapore and Hong Kong, for example, now require this. Next, some tribunals have signaled a willingness to include TPF costs of ATE (after the event) insurance premiums. One tribunal determined recently that a claimant’s ATE premium was a necessary part of their TPF costs—and could be recovered just as any other TPF costs. Finally, tribunals are evaluating the “reasonableness” of TPF costs sought, as they determine whether to award costs. In Essar, the TPF costs were about three times the legal and arbitration costs.
Clearly, tribunals are responding to the necessity of third-party funding in arbitrations, and are ruling accordingly.
