Can Litigation Financing Fees Be a Recoverable Cost? An English Court Says, “Yes.”
A recent English court decision has held that the cost of litigation funding can be a recoverable cost in arbitration. Although there are a number of unique circumstances in this case that might make it an outlier, the court’s analysis is suggestive. In the right situation, there may be compelling arguments for including litigation funding expenses as a recoverable litigation cost.
The case was Essar Oilfield Services, Lt’d v Norscot Rig Management PVT Lt’d. There, the claimant and respondent had been parties to an operations management agreement. The arbitrator found that Essar was liable for a repudiatory breach of the agreement. In addition, the arbitrator found that Essar’s conduct in breaching the agreement had involved a deliberate attempt to deprive Norscot of resources that could be used in the arbitration. As a result, Norscot had to seek litigation funding of nearly £650,000 from a third party, on terms that if the arbitration succeeded the third party would receive three times the amount advanced or 35% of the amount recovered.
The arbitrator’s award was $12 million in damages and $2 million in litigation costs. The arbitrator determined that the cost of the litigation funding could be included in the recoverable costs, pursuant to an arbitration rule that provided for cost-shifting for “the legal or other costs of the parties.” In making this determination, it was important to the arbitrator that Norscot had obtained the funding by engaging a broker and making a funding agreement at market rates. In light of Essar’s misconduct and the necessity of Norscot’s actions, the arbitrator found that the litigation funding costs could be included as a legal or “other” cost. An English court later affirmed the award, including the award of litigation funding costs.
Of course, there are many things about the Essar case. The cost-shifting was undertaken according to a specific arbitration rule in a legal system that routinely makes the losing party bear the cost of the winner’s attorneys’ fees and other legal costs. Consequently, this kind of cost-shifting could be seen as a product of circumstances simply not present in the U.S. legal system.
But Essar includes an important core principal that could make its way across the ocean intact. This is the idea that when a party is impoverished by its opponent’s misconduct, the pursuit of litigation funding can be a necessary aspect of litigation. As such, there can be a convincing argument that litigation funding fees are one of the costs that should be subject to fee-shifting, even under the traditional “American rule.”
Topics: litigation finance, legal reform , third-party funding, litigation costs, legal costs, law reform, arbitration, cost-shifting
Works Cited:
Essar Oilfield Services, Lt’d v Norscot Rig Management PVT Lt’d, 2016 EWHC 2361 (Comm) available at http://www.bailii.org/ew/cases/EWHC/Comm/2016/2361.html
