September 15, 2016

Arbitration - Essar v Norscot (High Court)

Court confirms that arbitrators can award the costs of litigation funding/time limits for challenging a corrected award

The claimant challenged an award of costs in which the arbitrator had included the costs of litigation funding. In so doing, the arbitrator had concluded that he had power to do so because such costs fell within the scope of "other costs" for the purpose of section 59(1)(c) of the Arbitration Act 1996 ("the Act").

HHJ Waksman QC held as follows:

(1) Even if the arbitrator was wrong about the meaning of "other costs", that would not amount to a "serious irregularity" and hence no challenge under section 68 could be brought.

(2) Although not necessary to deal with the point, the judge agreed that the costs of litigation funding could "in principle" extend to the costs of obtaining third party legal funding: "Whether then to Award it is a matter of discretion".  Although the exercise of the arbitrator's discretion was not being challenged here, the judge noted that it had been based on factors which were "perhaps unusual": namely, it was said that the claimant had driven the defendant into expensive litigation as a result of "its own reprehensible conduct" and the defendant had also been left with no option but to obtain third party funding. The judge concluded that "As a matter of justice, it would seem very odd and certainly unfortunate if the arbitrator was not entitled…to include the costs of obtaining third party funding as part of "other costs" where they were so directly and immediately caused by the losing party".

(3) In any event, there had also been a statutory waiver of the right to object here (pursuant to section 73 of the Act) because of continued participation, without objection, in the arbitral proceedings. Although the "paradigm case" for section 73 is where an arbitrator could have corrected a procedural irregularity had the complaint been made at an earlier stage, the judge noted that "there is no causal requirement in s.73".

(4) The judge also considered the time for making an application to challenge an award (if the claim had been well-founded). Citing the earlier decision of K v S [2015], the judge confirmed that the reference to arbitral review in section 73 (which could be the starting point for the 28 day period to bring the challenge), does not apply to corrected awards, which are not the same thing. The fact that a party has sought a corrected award does not, without more, extend time: "However, if the application to correct was material to the issue now being raised under section 68(2), then the 28 days would indeed run only from the date of the corrected award". Material in this context means "necessary to enable the party to know whether he has grounds to challenge the Award or not".