Arbitration -a small addition to the boilerplate called for?

Three years ago, under s.44 and s.46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, a terror was removed from court litigation in accordance with the theme of the Jackson reforms. Since 2013, although a lawyer can agree a success uplift in fees, costs recoverable from the other side are limited to the amount of the “ordinary” fee: the amount of the uplift cannot be recovered.

Not so, it seems, with arbitration. A couple of weeks ago, in Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), the Commercial Court held that costs awardable by ICC arbitrators could include such figures under the general costs power in s.59 of the Arbitration Act 1996. As a result, where the successful party had agreed to borrow money for the arbitration from a litigation funder and had agreed to repay the greater of 300% of the sum advanced, or 35% of the damages, the whole sum payable was recoverable from the losing side. This being arbitration on a grand scale, the sum in question was, as near as makes no difference, a far-from-paltry £2 million.

The decision is noted here, among other places (it was briefly on BAILII but then pulled for some undisclosed reason). It has raised a very large stir. The point is controversial (can the extra costs of getting access to the money to pay one’s lawyers really count as a legal or similar expense?), and there must be a distinct prospect of the decision being disowned on appeal. Meanwhile, risk-averse parties with arbitration clauses to draft might well care to take pre-emptive action. They should remember that the powers possessed by arbitrators are themselves a matter for agreement, and could well consider introducing a standard term in any arbitration clause to the effect that any power in the arbitrators to award costs shall not extend to anything other than monies paid to one’s lawyers and other direct expenses of the litigation (e.g. expert witness fees).

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