May 22, 2017 Articles

Litigation Funding: Are These Costs Recoverable in Arbitration?

By Jim Reiman

The use of third parties to fund plaintiffs' legal and litigation expenses ("litigation funding") is becoming an increasingly common practice in Europe and the United States, and has been used in Australia for many years. As the litigation funding industry has grown and evolved, it is becoming more common in arbitration. Indeed, there are some litigation funding companies that limit their investments to cases that are being arbitrated rather than tried in a country's court system. Thus, arbitrators are being increasingly asked to award litigation funding expenses as costs.

As a result, the question has arisen: may they? Corollary questions are: If permitted, what elements of litigation funding fees may be awarded? Only the money actually advanced for legal and other fees and litigation-related expenses? Interest? The "uplift" (the fee over and above normal interest)? All of the above? Additionally, if permitted, should litigation funding costs be awarded? What principles should guide the arbitrator or arbitration panel in reaching its decision?

These questions were the subject of a U.K. (England and Wales) case decided in December 2016—Essar Oilfields Services Ltd. v. Norscot Rig Management Pvt Ltd. [2016] EWHC (Comm) 2361 (Eng.). The case is reportedly the first U.K. decision to address the issue, and is notable not only for its initial statement on the issue for U.K. litigants but also for the reasoning of its decision, which this commentator believes is an appropriate guide for arbitrators around the world.

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