A High Court ruling will prove a boon to third-party funders.

A High Court decision this month was manna from heaven for the third-party funding industry, and opens up a potentially important gap between International Chamber of Commerce (ICC) arbitration and litigation.

In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd, as yet unreported, the successful claimant in an ICC arbitration was allowed to include the costs of securing third-party funding as part of its recoverable costs.

This was no small sum: according to chambers 4 New Square, the funder had provided an advance of £647,087, which was repayable either at 300% of the sum advanced from the damages recovered, or 35% of the damages, whichever was greater.

Funders will often take around a third of damages, in exchange for the risk of being paid a big fat zero if the case fails. So for them to be able to take that princely sum from the losing defendant, instead of the claimant needing to sacrifice a sizeable slice of their winnings, is a major development.

If funding costs are recoverable, this is arguably better from a justice perspective, as the claimant gets to keep the whole amount that the arbitration court awarded them in recompense for their loss. This could also lower the threshold in terms of how much a dispute needs to be worth before it is financially viable to bring.

From the defendant’s perspective, an ICC dispute where the claimant is financed by third-party funding suddenly gets a lot more expensive to lose – which could prove an incentive to settle.

There is another aspect to this, which is the choice of forum in this type of dispute. From a funded claimant’s perspective, ICC arbitrations - which can be international or domestic - become decidedly more appealing than the courts. But for defendants, the potential downside is suddenly higher than it would have been in litigation, where funders’ costs are not recoverable – and unlikely to become so.

Indeed, Lord Justice Jackson made it clear last week - speaking at the Chartered Institute of Arbitrators - that in his own view, the means by which parties fund litigation is their own business, but it should not be allowed to drive up their opponent’s costs. He said he did not believe third-party funding costs should ever be recoverable in the courts.

It is not yet known whether the defendants will appeal Essar, and they still have a few more weeks to make that decision. But if the ruling stands, the third-party funding industry could see many more claimants knocking on its door.

Rachel Rothwell is editor of Litigation Funding magazine 

Follow Rachel on Twitter: @LawJourno