INTERNATIONAL ARBITRATION 1/3LY
THIRD - PART Y FUNDERS AND THE IR EXPOSURE TO ADVERSE COST S L I ABIL I T IES
The assenting opinion in RSM Production Corporation v. Saint Lucia , ICSID Case No. ARB/12/10 1 raises a highly emotive issue, relevant to the issue of third-party funding which continues its expansion in international arbitration claims. This issue concerns the fact that in principle, tribunals currently lack the jurisdiction to issue a costs order against a third-party funder (“TPF”), because TPFs are not typically a party to the arbitration agreement, with no involvement in the underlying dispute between the parties in an arbitration. A TPF’s involvement in the proceedings cannot readily be interpreted as consent to arbitrate, and litigation funding agreements are commonly designed to ensure that that the TPF cannot be construed as a party to an arbitration. Current research suggests that there have been no published arbitral awards ordering a TPF to pay adverse costs in international arbitration. The ICCA–QueenMary Task Force Final Report on Third-Party Finding in International Arbitration , due to be published in September 2016, amongst other things, will seek to address this issue. This article briefly explores how certain national court jurisdictions have dealt with this issue. In England&Wales the seminal case of Arkin v Borchard Lines Ltd 2 introducedwhat has become known as the “Arkin cap”, effectively endorsing the litigation fundingmarket in the UK. Following the Arkin decision, whilst TPFs still risk exposure to adverse costs, the Arkin cap limits their exposure to the amount of their investment. TPFs will not be found liable to pay all of their opponent’s costs of litigation unless the funding agreement is found to be champertous 3 . The judgment and the principle it established, were designed to balance access to justice, against the need for fairness to successful opponents who should be able to recover their costs. In practice, TPFs reduce their adverse costs exposure bymaking it contractually binding for a funded party to obtain After The Event Insurance, providing sufficient indemnity, thereby insuring the TPFs adverse costs risk. Incidentally, ATE insurance policies are often used to try and satisfy requests for security for costs, both before the English courts 4 and in international arbitration claims 5 . Champerty andmaintenance are concepts found in jurisdictions following common lawdoctrine. In the context of civil litigation, maintenancemeans the improper support of litigation inwhich the supporter has no legitimate concern, without just cause or excuse. In England, whilst these rules are clearly relevant, themodern climate of encouraging access to justicemeans that funding arrangements are less likely to be struck down by the courts. Nevertheless, the courts can hold the agreement to be unenforceable if the TPF exercises excessive control over the proceedings or stands to recover disproportionate sums 6 and in context, the TPF is the ‘real party’. The English courts have provided some guidance on the issue of excessive control, see for example the Arkin and E xcalibur Judgments. 1 Decision on Saint Lucia’s Request for Security for Costs of 13 August 2014, Assenting opinion, paras 13 to 14 2 [2005] EWCA Civ 655 3 See Excalibur Ventures LLC v Texas Keystone Inc [2014] EWHC 3436 (Comm) for an example of where the Arkin cap has been disapplied. Please note certain aspects of this Judgment are currently under Appeal. 4 Al-Koronky and another v Time-Life Entertainment Group Ltd and another [2006] EWCA Civ 1123, Belco Trading Co v Kondo and another [2008] EWCA Civ 205; Michael Phillips Architects Ltd v Riklin and another [2010] EWHC 834 (TCC); Geophysical Service Centre Company Ltd v Dowell Schlumberger (Middle East) Inc. ([2013] EWHC 147 (TCC); Harlequin Property (SVG) Ltd and another vWilkins Kennedy (a firm) [2015] EWHC 1122 (TCC).
BY JAMIE SORRELL, COSTS L AWYER FOR THE INTERNATIONAL ARBITRATION GROUP AT CLYDE & CO LLP
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