The High Court has ruled that a party can recover the costs of third-party funding awarded following an arbitration over the breach of an operations management agreement in the oil industry. 

His Honour Judge Waksman QC said the Norscot Rig Management had been forced to seek external funding to continue a case against Essar Oilfields Services.

The sole arbitrator, Sir Philip Otton, had ruled last December that Norscot was entitled to the costs of litigation funding which it had obtained in order to bring the arbitration.

The funder, Woodsford Litigation Funding, had made an agreement with Norscot in 2011 to advance the sum of £647,000 for the arbitration: that agreement entitled Woodsford, if the case was successful, to a fee of 300% of the funding or 35% of the recovery. In the event Norscot sought £1.94m from Essar for these costs.

Otton said Essar had acted in an ‘exploitative manner’ towards its opponent prior to and during the dispute, leaving Norscot ‘no alternative’ but to enter the funding agreement.

The arbitrator added that Essar’s conduct had been a ‘blatant attempt to drive Norscot from the judgment seat’ forcing it to undertake a ‘huge financial burden and gamble in entering into the funding arrangement’.

Otton said it was difficult to see the difference between allowing a party to recover pre-judgment on the interest on costs, and allowing a party to recover the interest it had pay to a third party.

In Essar Oilfield Services Ltd v Norscot Rig Management Pvt Ltd, published yesterday, HHJ Waksman said the arbitrator had ruled in ‘detailed and robust’ terms that Essar drove Norscot into expensive litigation because of its own ‘reprehensible conduct going far beyond technical breaches of contract’.

Lawyers for Essar had argued that the arbitrator had no power to include litigation funding in his costs order, and given the amount ordered, it would be a substantial injustice to do so.

But Waksman said as a matter of justice it would seem ‘very odd and certainly unfortunate’ if the arbitrator was not entitled to include the costs of obtaining third party funding as part of ‘other costs’.

‘As a matter of language, context and logic, it seems to me that "other costs" can include the costs of obtaining litigation funding,’ he said.‘The expression should not be confined by some legal straitjacket imposed by reason of what a court might or might not be permitted to order.’