Tenke and the English High Court’s return to third party funding costs
In 2016, Essar Oilfields Services v Norscot Rig Management [2016] EWHC 2361 created a splash in the arbitration world. It concerned a costs award made by an English seated ICC arbitration in favour of Norscot, the successful claimant. Norscot had obtained third party funding (“TPF”) and, in light of its success, owed the funder a success fee of three times the funding provided.
The arbitrator included this sum in his award of costs. Essar challenged that before the English High Court, alleging that the tribunal had exceeded its powers leading to a “serious irregularity” under s.68(2)(b) Arbitration Act 1996 (“AA”). That was dismissed principally on the basis that s.68(2)(b) did not apply to an English tribunal’s erroneous use of a power (only the use of a power it does not have “at all”). In obiter reasoning, the court also considered that the tribunal’s general discretion to award costs, arising from ss.59,61 and 63 AA and (then) Article 31(1) ICC Rules, could, as a matter of construction of the reference therein to “other costs”, correctly be said to extend to such a fee.
The result of the case provoked polarised comment. On one hand, a broad discretion for the tribunal enables it to take account of all the circumstances of the case (in Essar the arbitrator had found aspects of Essar’s conduct “reprehensible” in driving Norscot into an expensive dispute). On the other, indirect exposure to the other party’s funding deal struck some as potentially unjust.
Essar revisited?
In the recent case of Tenke Fungurume Mining v Katanga Contracting Services [2021] EWHC 3301, these issues returned to the High Court. TFM and KCS had concluded services agreements. Disputes thereunder were resolved by ICC arbitration (English seat) which resulted in a final award against TFM. Aside from principal sums, this required TFM to pay KCS’s costs, in which the tribunal had included the cost of TPF obtained by KCS. The TPF was provided to KCS by a company owned by one of KCS’s shareholders (and is described in the judgment as a “shareholder loan”). Under the funding arrangement KCS had agreed to pay, in the event of success, 100% of the funding plus a variable fee.
TFM challenged the award, and various aspects of it, before the High Court. It alleged “serious irregularity” under s.68 AA and relied on a number of grounds. However, for present purposes, we focus only on its challenge to the tribunal’s costs award. This had two elements. First, TFM asserted that, in assessing the circumstances behind the TPF, the tribunal should not have limited itself to documentary disclosure but should have allowed cross-examination of witnesses. The High Court rejected the suggestion that this was a breach of the tribunal’s duty of fairness; in the circumstances, this was not a decision which no arbitrator could reasonably have reached.
TFM’s second attack invoked s.68(2)(b )AA and asserted that the tribunal had exceeded its powers. This saw a reprise of the construction arguments in Essar (with TFM attempting to argue that “other costs” should be read differently). However, showing the tribunal had erred on that point was not enough. Given the scope of s.68(2)(b) AA, any such error had to first be categorised as a true instance of a tribunal exceeding its powers. Here, the High Court followed Essar; at its highest there was an erroneous exercise of an available power. So a challenge under s.68(2)(b)AA was not available. The merits of the construction argument were not returned to.
Comment and conclusions
So what does Tenke add to what we know about the recoverability of the TPF costs in English seated arbitrations? In terms of the English court’s ability (and readiness) to reopen a tribunal’s decision on the point, matters stay as they were, Tenke joining Essar in suggesting that s.68 AA seems unlikely to be available to challenge the construction of the scope of a tribunal’s costs discretion. As alluded to in those cases, an alternative candidate might be s.69 AA (appeal on point of English law). There are, however, conditions to its use and it will not be available if the parties have contracted out of that provision (as they often do, including by way of institutional rules containing relevant provisions – as was the case in Tenke and Essar).
By contrast, more interest may lie in examining the tribunal’s actions. Key extracts of the award are set out at paragraphs [74] and [68] of the judgment. From these it is clear that it agreed with Essar as to the scope of its discretion meaning that, ultimately, its award of the TPF costs turned upon its view as to whether they were reasonably incurred. As to that, although KCS made allegations that TFM’s conduct could be equated with Essar’s, this was disputed and, in any event, the tribunal did not regard proof of that as determinative. Nor, in its view, did any bar to the award exist on the basis that the TPF was not provided by an arms-length transaction. Consistent with viewing the issue as one of discretion, the tribunal declined to draw hard rules: the question was simply one of what was reasonable in the circumstances. As to that, it then seems that the tribunal was more robust than in Essar: it appears to have viewed the funding arrangements as reasonable since KCS was not enriched, and because the use of a related party was, given KCS’s financial state, helpful to it in obtaining the required funding.
Some might see in that a case for more liberal recourse to the court, others will no doubt disagree; a more non-interventionalist approach being consistent with the policy underlying the AA. For now, in England, the default dial seems set in line with the latter thereby, generally speaking, placing the power in the hands of English seated tribunals to deal with the issue as they see fit.
