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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm) (15 September 2016) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2016/2361.html Cite as: [2017] Bus LR 227, [2016] WLR(D) 576, [2016] EWHC 2361 (Comm) |
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COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN THE MATTER OF AN ARBITRATION UNDER THE
ICC INTERNATIONAL COURT OF ARBITRATION RULES (ICC CASE NO 15790/VRO)
B e f o r e :
sitting as a Judge of the High Court
____________________
ESSAR OILFIELDS SERVICES LIMITED |
Claimant |
|
- and - |
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NORSCOT RIG MANAGEMENT PVT LIMITED |
Defendant |
____________________
(a trading name of Opus 2 International Limited)
Official Court Reporters and Audio Transcribers
25 Southampton Buildings, London WC2A 1AL
Tel: 020 7831 5627 Fax: 020 7831 7737
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____________________
MR. C. KARIA QC and MR. N. BACON QC (instructed by Davies Johnson) appeared on behalf of the Defendant.
____________________
Crown Copyright ©
HHJ WAKSMAN QC:
INTRODUCTION
THE ISSUES
(1) This arbitration claim in the High Court was made on 31 st March 2016. However, it was out of time, because Essar had only 28 days from the date of Award, made on 17th December 2015, and there had been no extension of time granted. So it is out of time, and should be dismissed for that reason alone. In that regard, (a) the fact that the Award was clarified on 3rd March 2016 makes no difference and does not set the 28 day clock running again, and (b) there is no prospect whatever of any retrospective extension of time being granted, having regard, in particular, to the length of the day and the absence of any good reason for it ("the Time Issue");
(2) Further or alternatively, there was no serious irregularity within the meaning o f s.68(2)(b). At best, there was an error of law, in that the arbitrator erroneously thought that "other costs" could encompass the costs of litigation funding, and so he could exercise his undoubted powers to Award costs under s.61(1), so as to include them. An erroneous exercise of such power is not the arbitrator exceeding his powers ("the Characterisation Issue");
(3) Even if the alleged error would constitute a serious irregularity under s.68(2)(b), there was no substantial injustice to Essar by reason th ereof ("the Substantial Injustice Issue");
(4) Even if there was otherwise a claim under s.68(2)(b), Essar lost its right to make it by reason of statutory waiver as a result of its pre and post Award conduct ("the Waiver Issue");
(5) Finally, in the yet further alternative, there was, in fact, no error of law anyway because the arbitrator's construction of "other costs" so as to include the cost of litigation funding, was correct ("the Construction Issue").
I will now consider those issues, though in a slightly different order.
THE CHARACTERISATION ISSUE
Introduction
"Section 68 is really designed as a longstop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected".
"It must always be borne in mind that the erroneous exercise of an available power cannot by itself amount to an excess of power"
- see his paras.24 and 32.
"Section 68(2)(b) does not permit a challenge on the ground that the tribunal arrived at a wrong conclusion as a matter of law or fact. It is not apt to cover a mere error of law. … A mere error of law will not amount to an excess of power under the section".
"The focus of the inquiry under s.68 is due process, not the correctness of the decision. … For there to be a 'serious irregularity' because the tribunal has exceeded its powers it is necessary to establish that the arbitral tribunal purported to exercise a power it does not have. The erroneous exercise of a power which the tribunal does have involves no excess of power. It is not engaged if the tribunal merely arrives at a wrong conclusion of law. … An error, however gross, in the exercise of a power does not involve an excess of that power".
- see his paras.49, 50 and 52.
"The erroneous exercise of an available power could not of itself amount to an excess of power. [It] is only engaged where there is no power at all under the Arbitration Agreement, the terms of reference or the 1996 Act to do what the Arbitrators did".
and at para.42:
"Any error of law or fact, or error of reasoning … when making a declaration, an order for specific performance, any other mandatory order, or when granting other relief does not involve an exercise of powers which the Tribunal does not possess".
"The tribunal may make an Award allocating the costs of the arbitration as between the parties, subject to any agreement of the parties".
"The tribunal shall Award costs on the general principle that costs should follow the event except where it appears to the tribunal that it is inappropriate".
"(1) The parties are free to agree what costs of the arbitration are recoverable;
(2) If there is no such agreement, the following provisions apply;
(3) "The tribunal may determine by an Award the recoverable costs of the arbitration on such basis as it thinks fit. If it does so, it shall specify -
(a) the basis on which it has acted, and(b) the items of recoverable costs and the amount referable to each".
"(1) References in this Part to the costs of the arbitration are to -(a) the arbitrators' fees and expenses, and(b) the fees and expenses of any arbitral institution concerned, and(c) the legal or other costs of the parties.(2) Any such reference includes the costs of or incidental to any proceedings to determine the amount of the recoverable costs of the arbitration".
The arbitrator's decision
"As a consequence, Norscot had no alternative, but was forced to enter into the litigation funding to the full cost of 300 per cent of the sum advanced by the funder or 35 per cent of the sum recovered, whichever was the higher. The funding costs reflect standard market rates and terms for such facility, as evidenced by the expert statement of Mr. Blick, a broker in litigation funding".
"The magnitude of the arbitration resulted in a substantial amount for the claimant's costs in the region of US$3 million. Essar was undoubtedly aware that Norscot's costs could not be financed from its own resources … and it was forced into 'litigation funding'… "It was blindingly obvious to [Essar] that the claimant was at a distinct financial disadvantage … and would find it difficult if not impossible to pursue its claims by relying on its own resources. The respondent probabl y hoped that this financial imbalance would force the claimant to abandon its claims".
"The conduct of the respondent before and during the dispute was a blatant attempt to drive Norscot 'from the judgment seat'. … They pursued their claims with courage and determination. They undertook a huge financial burden and gamble in entering into the funding arrangement. The claimant's conduct throughout … cannot be faulted. Justice and the merits point in [the direction of the claimant's]".
"This entails the higher of a fixed lump sum multiple of the [sum] advanced … or a percentage of the sum recovered".
"The tribunal has a discretion to include in 'other costs' the costs of litigation funding … and it reflected market rates and the terms of such a facility. The claimant was forced to enter into such an arrangement if it was to secure justice. It succeeded substantially in all its claims".
"The statutory focus is narrow. As a matter of natural and ordinary interpretation to the statute and the rules such funding is not included and has never been recoverable at common law".
"The [arbitrator] has no hesitation in deciding that the combined effect of the provisions in the Act and the rules give it a wide discretion as to what costs it can Award to the winning party. The discretion includes the power to include in 'other costs' the cost of litigation funding. Arguments based on 'maintenance' and 'champerty' are outdated and can be safely ignored".
"As a matter of principle, it was difficult to see the difference between, on the one hand, allowing a party to recover pre-judgment on the interest on costs, which is routinely Awarded … and allowing a party to recover the interest it has had [itself] had to pay to the third party to cover those pre-judgment legal fees on his behalf".
"In deciding whether to exercise its discretion, the arbitrator said it is entitled to take account of the conduct of the parties. The tribunal has already condemned the conduct of the respondent in severe terms in the previous Award and in the instant Award".
Clarification
"With hindsight and in the light of the respondent's helpful observations, it would have clarified the matter if the tribunal had expressly referred to sections 59 and 63(3) of the Act".
"The tribunal has no hesitation in deciding that the combined effect of the provisions of the Act [and then he inserts 'i.e. s.59(1) and s.63(3)'] and both rules give it a wide discretion as to what costs it can Award. This discretion includes the power to include in 'other costs' the cost of litigation funding and, if so, whether on the indemnity and standard costs basis.
Analysis
THE CONSTRUCTION ISSUE
The Context
"Nothing in this Part shall be construed as excluding the operation of any rule of law consistent with the provisions of this Part, in particular, any rule of law as to -
(a) matters which are not capable of settlement by arbitration; or
(b) the effect of an oral arbitration agreement; or
(c) the refusal of recognition or enforcement of an arbitral Award on grounds ofpublic policy".
The language
"The considerations contained in this Report are intended to inform users of arbitration how tribunals may allocate costs in accordance with the parties' agreement and/or any applicable rules or law.
However, they should not be regarded as affecting a tribunal's discretion to allocate costs".
"The successful party will itself ultimately be out of pocket upon reimbursing such costs to the third-party funder and may therefore be entitled to recover its reasonable costs, including what it needs to pay to the third-party funder, from the unsuccessful party. The tribunal will need to determine whether these costs were actually incurred and paid or payable. The fact that the successful party must in turn reimburse those costs is, in itself, largely immaterial".
"If there is evidence of a funding arrangement that is likely to impact on the non-funded party's ability to recover costs, that party might decide to apply early in the proceedings for interim or conservatory measures".
"In reality, funding arrangements are rarely limited solely to the costs of the arbitration. Usually, the third-party funder will require payment of an uplift or success fee. … As a tribunal only needs to satisfy itself that a cost was incurred specifically to pursue the arbitration, has been paid or is payable, and was reasonable, it is feasible that in certain circumstances the cost of capital, e.g. bank borrowing specifically for the costs of the arbitration or loss of use of the funds, may be recoverable".
"The requirement that the cost be reasonable serves as an important check and balance in protecting against unfair or unequal treatment of the parties in respect of costs, or improper windfalls to third-party funders. Tribunals have from time to time dealt with this when assessing the reasonableness of costs in general, sometimes including the success fee in the allocation of costs and sometimes not, depending on their view of the case as a whole".
Conclusions
SUBSTANTIAL INJUSTICE
"All that is required is to reverse the procedural irregularity. A reversal of this procedural irregularity [he said] would then cause that substantial injustice - namely [to pay the interest be removed]. In my judgment it cannot be possibly arguable that it would cause substantial injustice to the Claimant if the procedural irregularity were reversed and the correction of the howler prevented, if so doing, would cause, on the one hand, a substantial injustice to the Defendant and, on the other, a wholly undeserved windfall to the Claimant".
He said much the same in para.43.
WAIVER
"If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this part, any objection inter alia that the proceedings have been improperly conducted or that there has been any other irregularity affecting the tribunal or the proceedings, he may not raise that objection later, before the tribunal or the court, unless he shows that at the time he took part or continued to take part in the proceedings".
(1) While Essar contended that Norscot was not entitled to any sum by way of the cost of litigation funding, it did not express that in terms of an irregularity or improper conduct and, in the context here, an excess of power;
(2) After the Award, it continued to participate in the remaining arbitral questions, including the form of the order regarding third party funding and quantum issues relating to that without objecting at all. In response, Essar contends first that, in making the objections that it did in the form of its written submissions as to the correct construction of "other costs" and whether they would allow for third party funding costs, it had done enough for the purpose of s.73. Second, as to the lack of objection post the Award, that was immaterial.
THE TIME ISSUE
When does time start to run?
"An application or appeal may not be brought if the applicant has not first exhausted -
(a) any available arbitral process of appeal or review, and
(b) any available recourse under section 57 (correction of Award or additional Award)".
"Any application must be brought within 28 days of the date of the Award or, if there has been any arbitral process, of the date when the applicant or appellant was notified of the result of that process".
Extension of time
(1) There was a long delay in making the application to extend time or applying for leave to amend the claim form to ask for it 77 days from the expiring 28 day period;
(2) Although not supported by much detail, Essar's evidence is that it worked on the erroneous assumption that time only ran from 3rd March and it was only later that it became aware that Norscot was saying that it was out of time. Mr. Hogan here relied on Norscot's respondent's notice of 11th May 2016;
(3) In fact, Essar was first put on notice somewhat earlier, on 4th April, and there is no explanation as to why it took until 20th May to seek extra time. However, on the facts of this case, I can see how Essar and its legal team might have thought, even if wrongly, that time did not run until 3rd March;
(4) No specific prejudice to Essar has been caused by this delay. It is not as if, for example, the application has had a material impact upon the remaining parts of the arbitration;
(5) On this footing, where the extension of time is to be considered by this court (i.e. me) at the same time as the substance of the application itself, it would be wholly artificial to view the question of merits by reference to anything other than what the court has now decided (see the observations of Popplewell J. in paras.32 to 33 of his judgment in Terna). Thus, on this hypothesis, the merits become a powerful factor in favour of granting the extension;
(6) There is no basis for me to conclude such delay as there was resulted from a deliberate decision to gain some advantage.