The English Courts continue to support an Arbitrator’s decision to award third party funding costs (for now)

England has been seen as the arbitration Seat of choice for many years, due in no small part to the certainty that attaches to English law and the unwavering support the English Court provides to the arbitration process. However, threatened changes to the Arbitration Act may impact on how attractive England remains, particularly on the issue of recoverable costs.

Recent matter

In the recent case of Tenke Fungurume Mining SA v Katanga Contracting Services SAS [2021]  EWHC 3301 (Comm) the High Court upheld the Arbitrator’s decision and rejected a challenge under section 68 of the Arbitration Act on grounds of serious irregularity.

The Claimant held two contracts which related to the running of a mine in the Democratic Republic of Congo. Both contracts contained an arbitration clause nominating London as the Seat. The Defendant commenced two arbitrations which were later consolidated, and the Claimant counterclaimed that the works provided by the Defendant were defective. During the arbitration the Claimant made two unsuccessful applications for adjournment.

The first application was on the basis that Covid restrictions had prevented experts from visiting the site of the allegedly defective work. The second application was because the Claimant’s lead counsel had contracted Covid and was unable to prepare or conduct the hearing. The Arbitrator made out a final award giving the Defendant everything it claimed and dismissing the Claimant’s counterclaims.

The controversy erupted on the issue of recoverable costs. In submissions on costs, the Defendant claimed they had funded the arbitration by way of third-party litigation funding via a shareholder loan. The Arbitrator refused to allow the Claimant to cross examine the Defendant over the funding arrangement or about the Defendant’s claim for compound interest at 9%.

Issues for the Court

The first issue for the Court was whether the Arbitrator’s failure to award an adjournment, and the refusal to direct cross examination over the issue of the third-party funding agreement, and claim to compound interest, amounted to a serious irregularity within the meaning of section 68(2)(a) of the Arbitration Act. Secondly, whether awarding the cost of the shareholder loan (third party funding) was an excess of power within the meaning of section 68(2)(b).

Failure to adjourn

On the failure to adjourn issues, the Court found that the Claimant had to show that in refusing its applications for adjournment, the Arbitrator was making decisions which no reasonable Arbitrator would have made. The Claimant had failed to demonstrate that.

The Arbitrator was compelled to adopt procedures which were appropriate to the circumstances and to ensure that the arbitration progressed without unnecessary delay or expense. The Arbitrator had considered the need for a site visit by experts and had concluded that the utility of a site visit was outweighed by the effect of the adjournment, the issue on defective work being lost already because the Claimant had failed to adduce evidence to support the remedial works that were allegedly undertaken to correct the defective work. There was simply no benefit in the site visit.

On the issue of adjournment for the absence of the Claimant’s Lead Counsel, the Arbitrator had reasoned that the Claimant had an experienced team of arbitration lawyers and had time to appoint an alternative counsel. Again, the effect of the adjournment was outweighed by the requirement to continue the arbitration process without undue delay. The fact a different arbitrator may have made a different decision, was not sufficient basis for the Court interfering with the Arbitrator’s award.

Cross examination

The Court considered that the Arbitrator’s decision over the cross-examination issue was a procedural one, and one which was within the Arbitrator’s jurisdiction to make. The Arbitrator had considered the stage of the proceedings and ordered disclosure. The Claimant had failed to show that the decision of the Arbitrator was not a decision that another reasonable arbitrator would have made in the circumstances, nor that the effect of cross examination would have made any difference to the award.

The Court’s decision to uphold the Arbitrator’s award is not unsurprising, given the Court’s history of reluctance to interfere with an Arbitral award. Successful challenges under the Arbitration Act on grounds of serious irregularity remain exceedingly rare. The most significant part of the Court’s decision to uphold the award, centred on the third-party funding and a challenge that it was an excess of the Arbitrator’s power.

Excess of Power – Third Party Funding

In deciding to uphold the Arbitrator’s decision to award the cost of third-party funding, the Court considered the decisions in Essar Oilfield Services Ltd v Norscot Rig Management PvT Ltd [2016] EWHC2361 (Comm), [2017] BUS. L.R. 227, [2016] 9 WLUK 299, and the earlier decision in Lesotho Highlands Development Authority v Impregilo Spa [2005] UKHL 43, [2006] 1 A.C. 221, [2005] 6 WLUK 756.  In making out the challenge the Claimant had argued that the decision in Essar was wrong, and that the cost of third-party funding was neither a legal cost nor “other cost” as defined in section 59 of the Arbitration Act.  In Essar the Arbitrator’s decision to award third party funding costs as “other costs” under section 59 had been upheld by the Court.

The Claimant’s challenge argument in Tenke had been identical to the argument put forward and rejected by the Court in Lesotho and the Court found it would not deviate from its previous decisions in Lesotho and Essar.  The award of third-party funding costs was within the Arbitrator’s power to award as “other costs” under provision of section 59 of the Act. At worst, the Arbitrator’s decision was nothing more than an erroneous exercise of a power it already had and could not therefore be considered an excess of power.

For now

For now, the issue of awarding third party funding costs in Arbitration appears settled, or at least safe from a challenge under section 68 of the Act. To date, the award of third-party funding costs has not been tested by a challenge under section 69, and a point of law. When it is, the outcome may be different.

With competing jurisdictions like Hong Kong actively promoting the use of third-party funding and CFAs for arbitration, any redrafting of the English Arbitration Act needs to take third party funding into account. The legislation itself needs to reflect the flexibility international commercial entities desire, particularly on what can and cannot be recovered in Costs. The continuing support of the English Courts for the Arbitral process may not be enough without modern and commercially reasoned legislation.