Third party funding (“TPF”) in international arbitration is a hot topic. The Commercial Court in London recently upheld the decision of a sole arbitrator to award the successful party its costs of TPF, including, controversially, its success fee.

In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd, the defendant “Norscot” entered into an Operations Management Agreement (OMA) with the claimant “Essar” relating to the operation of a drilling rig. The arbitration was seated in England and was subject to the ICC Arbitration Rules and the Arbitration Act 1996 (“the Act”). Essar was found liable to Norscot in the sum of US$12m which included the costs of Norscot’s funding. The funder had advanced £647,000 to fund Norscot’s claim. The event of success entitled the funder to either 300% of the funding or 35% of the recovery, whichever was the greater. Norscot sought to recover such costs in the arbitration. The tribunal found it had the discretion to award the costs of the funding pursuant to s.59(1)(c) of the Act, which provides that costs of the arbitration includes “the legal or other costs of the parties”. Similarly, what is now Article 37(1) of the ICC Rules provides for “reasonable legal and other costs incurred by the parties for the arbitration”.

In dismissing Essar’s challenge to the award on the ground of serious irregularity under s. 68 of the Act, Judge Waksman QC approved of the reasoning of the authors of the ICC Commission Report of 2015, concerning costs decision in international arbitrations, that uplifts or success fees were usual terms of litigation funding which, providing they were reasonable, would fall within the arbitrator’s general costs discretion.

Can a party now safely assume that the success fee will be recoverable? This remains a matter of discretion; both the Act and the ICC Rules reserve the fullest measure of discretion to the tribunal awarding costs. The circumstances in the present case were exceptional. The arbitrator found that Norscot had no alternative but to use TPF because of the conduct of Essar. Essar was found to have set out to cripple Norscot financially by flouting its agreement to pay the crew wages. It was a “David and Goliath” battle in which Essar exerted commercial pressure on Norscot both before and during the arbitration, and had made unfounded personal attacks and allegations of fraud and dishonesty.

The judgment is a welcome clarification on the question of an arbitral tribunal’s jurisdiction to award costs of TPF under the Act, and an indication that the court will not readily interfere with the tribunal’s exercise of its discretion. While the increased access to justice which TPF provides is desirable, the allocation of such costs must still be constrained by principles, including that the award of costs should be an indemnity and not a punishment.