Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd

Factual and Procedural Background

This opinion concerns an application made under section 68 of the Arbitration Act 1996 ("the Act") to set aside the fifth partial Award of the sole arbitrator made on 17th December 2015 and clarified on 3rd March 2016 ("the Award"). The Award addressed interest and costs following earlier awards where the applicants and the defendant in the arbitration, Company A, were found liable to pay damages to the respondent and claimant in the arbitration, Company B, for repudiatory breach of an operations management agreement dated 14th August 2007 ("the Agreement"). Company B was also awarded various unpaid sums under the Agreement.

Company A is liable to Company B for approximately US$12 million, including about US$4 million related to the costs order under dispute. One further award remains outstanding concerning quantum issues and new claims. The arbitrator was highly critical of Company A’s conduct towards Company B during the Agreement and arbitration, justifying an indemnity costs order.

The arbitration was conducted under the ICC Rules, with the parties agreeing to exclude any right of appeal under section 69 of the Act. The Award included a determination that Company B was entitled to recover costs of litigation funding obtained from a third party funder in 2011, who advanced around £647,000 for the arbitration. The funding agreement entitled the funder to a fee of 300% of the funding or 35% of the recovery. Company B sought to recover just over £1.94 million as costs from Company A. The arbitrator held that such litigation funding costs fell within "other costs" under section 59(1)(c) of the Act and could be awarded at his discretion.

Legal Issues Presented

1. Whether, as a matter of statutory construction, "other costs" under section 59(1)(c) include the costs of litigation funding of the kind claimed.
2. Whether the arbitrator committed a serious irregularity under section 68(2)(b) of the Act by exceeding his powers in awarding litigation funding costs.
3. Whether the application to set aside the Award was brought within the statutory time limit.
4. Whether any alleged irregularity caused substantial injustice to Company A.
5. Whether Company A waived its right to object to the Award by continuing to participate in the arbitration without raising the irregularity.

Arguments of the Parties

Appellant's Arguments (Company A)

• The phrase "other costs" in section 59(1)(c) does not encompass litigation funding costs, so the arbitrator had no power to award such costs.
• The Award contains a serious irregularity under section 68(2)(b) as the arbitrator exceeded his powers.
• The application to set aside the Award was filed within time or, alternatively, an extension of time should be granted.
• If the arbitrator had power to award litigation funding costs, it should be narrowly construed and limited to what courts would allow under the Civil Procedure Rules (CPR).
• Any objection to the Award was not waived, as Company A made submissions on construction and objected in writing.

Appellee's Arguments (Company B)

• The application to set aside the Award is out of time and should be dismissed on that basis alone.
• There was no serious irregularity; at worst, the arbitrator made an erroneous exercise of a power he possessed, which is insufficient to set aside the Award under section 68(2)(b).
• There was no substantial injustice to Company A caused by the Award.
• Company A waived its right to object by continuing to participate in the arbitration without raising the irregularity.
• The arbitrator’s construction of "other costs" to include litigation funding costs was correct.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Lesotho v. Impregilo [2006] 1 AC 221	Clarification that section 68 is a longstop remedy available only in extreme cases where the tribunal has gone so wrong that justice requires correction; erroneous exercise of a power is not an excess of power.	Confirmed that the arbitrator’s awarding of litigation funding costs, even if erroneous, was not an excess of power under section 68(2)(b).
Abuja International v. Meridien [2012] 1 Lloyd's Rep 461	Focus of section 68 is due process, not correctness of decision; erroneous exercise of a power does not amount to excess of power.	Supported the conclusion that the arbitrator’s error was not a serious irregularity under section 68(2)(b).
New Age v. Range Energy [2014] EWHC 4358	Erroneous exercise of an available power is not an excess of power; true excess only where no power at all exists.	Applied to reject Company A’s argument that awarding litigation funding costs was an excess of power.
CNH v. PGN [2009] 1 CLC 807	Consideration of substantial injustice in setting aside procedural irregularities.	Used to analyse whether setting aside the Award would cause substantial injustice to Company A.
Terna v. Al Shamsi [2013] 1 Lloyd's Rep 86	Application of section 73 waiver provisions; importance of timely objection to irregularities.	Supported the finding that Company A waived its right to object by continuing participation without timely objection.
K v. S [2015] 2 Lloyd's Rep 363	Clarification on timing for applications following corrected Awards under section 57.	Applied to determine that time for bringing the application ran from the date of the corrected Award, making the claim timely.
Surefire v. Guardian [2005] EWHC 1860	Brief observations on corrected Awards and timing.	Considered but preference given to K v. S on timing issues.

Court's Reasoning and Analysis

The court began by considering the narrow and closed nature of serious irregularities under section 68(2) of the Act, emphasizing that such applications are a longstop remedy for extreme cases where the tribunal has exceeded its powers. The critical distinction drawn was between an erroneous exercise of a power granted to the arbitrator and an excess of power where no such power exists at all.

Applying this principle, the court identified the arbitrator’s power to award costs under sections 61 and 63 of the Act as the relevant power. The issue was whether awarding litigation funding costs fell within this power or was a true excess of power. The court found that even if the arbitrator erred in interpreting "other costs" under section 59(1)(c) to include litigation funding costs, this was an erroneous exercise of a power he possessed, not an excess of power. Analogies offered by Company A were rejected as inapposite because the power to award costs was broad and discretionary.

The court then analyzed the statutory language and context of the Arbitration Act and ICC Rules, rejecting the submission that the Act’s provisions should be constrained by the narrower scope of recoverable costs under the CPR. The court found that "other costs" should be interpreted broadly to include litigation funding costs, particularly where such costs are reasonably incurred to bring or defend the arbitration. The court also noted relevant ICC Commission Report observations supporting this functional and broad interpretation.

Regarding substantial injustice, the court acknowledged that if the arbitrator lacked power to award litigation funding costs, the resulting payment by Company A would constitute substantial injustice. However, it rejected any balancing exercise that would weigh Company B’s conduct against this, emphasizing that the absence of power to award such costs would itself cause injustice to Company A.

On waiver, the court held that Company A lost its right to object under section 73 of the Act by continuing to participate in the arbitration without timely raising the irregularity in terms of improper conduct or excess of power. Mere submissions on construction without framing the objection as an irregularity were insufficient to preserve the right.

Finally, on the timing issue, the court adopted the view that the 28-day limitation period for bringing the application ran from the date of the corrected Award (3rd March 2016), not the original Award date. The correction was material as it clarified the basis for the costs award. Therefore, the application was made within time. The court also considered, hypothetically, that even if time had run from the original Award, an extension would have been granted.

Holding and Implications

The application to set aside the Award is dismissed.

The court held that the arbitrator did not commit a serious irregularity under section 68(2)(b) of the Arbitration Act 1996 by awarding litigation funding costs as part of "other costs" under section 59(1)(c). The arbitrator’s interpretation of "other costs" to include litigation funding costs was correct and within his discretion. The application was brought in time, and Company A waived any objection by continued participation without timely raising the irregularity. Although Company A would suffer substantial injustice if the Award were set aside, this was academic as no serious irregularity was found.

The decision directly affects the parties by upholding the Award for costs of litigation funding but does not establish new precedent beyond confirming the broad discretion of arbitrators under the Act to award such costs. The ruling reinforces the strict and narrow scope of challenges under section 68 and the importance of timely and properly framed objections to arbitral awards.