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Funding Boost for Arbitration?

A recent decision of the High Court is likely to catch the eye of litigation funders and represents good news for potential claimants who need financial support. 

(For the uninitiated, a litigation funder’s business is to supply funds for legal costs to pursue a claim in return for a substantial reward, sometimes but not always in the form of a share of the damages awarded.)

In the case of Essar v Norscot, the High Court upheld an arbitrator’s costs award in which the successful claimant was permitted to recover the full amount that it was liable to pay to a funder without whom the claim could not have been pursued.  This included a 300% uplift on the actual amount the funder paid to support the claimant to pursue its claim. 

This stands in stark contrast to the position in court proceedings where the same claimant would have had to pay the uplift out of the damages awarded.  The reason for the difference is that the statutory regime and rules governing arbitration are not the same as for court proceedings and include provisions that allow the recovery of “other costs” associated with pursuing the claim, not just legal costs.

The uplift was recoverable because:

  • it had been financially necessary for the claimant to enter into the agreement with the funder (i.e. it did not have any other choice in order to be able to pursue the claim);
  • the defendant’s conduct was a material factor that placed the claimant in a position of having to resort to litigation funding; and
  • the uplift was deemed reasonable when compared with the terms for funding that were generally available within the litigation funding market.

The prospect of being able to recover the cost of funding, in addition to damages, is significant.  Funders place great emphasis on ensuring the claimant retains a significant proportion of their damages once the cost of funding has been paid and the prospect of the damages pot not being depleted to pay funding costs will have a marked positive effect on the viability of pursuing a claim via arbitration (where it is available).

The High Court did not deal with the ability to recover other forms of funding costs that claimants may have to incur in the event of winning their case, for example, uplifts payable under conditional fee agreements or damages based agreements with their lawyers or the premiums payable in respect of After the Event Insurance.  However, the Court’s reasoning can arguably be applied equally to other forms of funding costs associated with arbitration proceedings and is likely to help potential claimants consider the full range of funding options that are available. 

This judgment is certainly good news for anyone with a good claim but without the necessary funds to pursue it.

If you are interested in knowing more about the implications of this judgment, please get in touch with myself, Andrew Farrell, Partner.

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