Arbitration rarely makes headlines, which is part of the reason for using it as a dispute resolution method. Things haven’t been as quiet as normal in recent months though.
Lord Chief Justice Thomas turned the spotlight on arbitration with pronouncements suggesting that its growth as a commercial dispute resolution method retards the development of the common law. We have published other views in Construction Law since then.
Lord Thomas has since made the point that the decisions of leading ex-judges in particular who are now sitting as arbitrators need to be made more widely known. Underlining this has come the news that the retired Master of the Rolls, Lord Dyson, has announced that he is returning to 39 Essex Chambers, where he will act as an arbitrator.
Lord Thomas argues that the cause of the problem is largely that there has been a big drop in the number of appeals from arbitral awards coming before the courts since the narrow test for the grant of permission to appeal was introduced in the 1996 Arbitration Act.
Lord Thomas favours loosening the restrictions on appeal in the Arbitration Act to alleviate the problems, but accepts that other solutions could be found. ‘But it is very, very undesirable that we are entering into a stage where great legal minds have retired from the Bench, are giving awards and setting out principles which are known only to the cognoscenti,’ he says.
A good example of the landmark decisions that can result from arbitration appeals came in the High Court in September when it upheld the decision of an arbitrator (former appeal court judge Sir Philip Otton) to allow the recovery of the costs of securing third party funding as costs in the case of Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd. Norscot was the successful claimant in an ICC Arbitration and sought its costs from the respondent (Essar), including within the claim for costs the costs of litigation funding which it had to seek to pursue the claim.
The case concerned Essar’s repudiatory breach of an operations management agreement. Sir Philip was highly critical of Essar’s conduct both during the agreement and for most of the arbitration period. He said Essar had set out to cripple Norscot financially in not making payments under the contract and then exerted commercial pressure throughout the arbitral process.
Essar made a ‘blatant attempt to drive Norscot from the judgment seat,’ he said, and Norscot was forced to seek third party funding.
The third party funding consisted of an advance of £647,086.49 which was to be repaid at either 300% of the damages recovered or 35% of the damages, whichever was the greater. Essar disputed the tribunal’s jurisdiction to make an award in respect of third party funding and was given permission to appeal from the High Court, where HHJ Waksman QC, sitting as a judge of the High Court, dismissed the appeal, holding that the third party costs were recoverable in principle pursuant to s 59(1)(c) of the Arbitration Act 1996 and art 31(1) of the ICC Rules.
Litigation funding costs fell within the arbitrator’s general costs discretion, which was not to be confined by what may or may not be allowed in a court governed by the Civil Procedure Rules.
Thanks to this ruling third party litigation funding can be expected to be used in other arbitrations; but unless Lord Thomas has his way we might not hear much about them.
Nick Barrett
Editor