Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd
| Jurisdiction | England & Wales |
| Judge | HHJ Waksman |
| Judgment Date | 15 September 2016 |
| Neutral Citation | [2016] EWHC 2361 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No. CL-2016-000188 |
| Date | 15 September 2016 |
[2016] EWHC 2361 (Comm)
IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION
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)
His Honour Judge Waksman QC
sitting as a Judge of the High Court
Case No. CL-2016-000188
Mr. A. Hogan (instructed by Squire Patton Boggs) appeared on behalf of the Claimant.
Mr. C. Karia QC and Mr. N. Bacon QC (instructed by Davies Johnson) appeared on behalf of the Defendant.
HHJ Waksman QC:
INTRODUCTION
This is an application made under s.68 of the Arbitration Act 1996 ("the Act") to set aside the fifth partial Award of the sole arbitrator, Sir Philip Otton, made on 17th December 2015 and as clarified on 3rd March 2016 ("the Award"). The Award was concerned only with the question of interest and costs, and followed earlier awards in which he found the applicants on this application and the defendant in the arbitration, Essar Oilfields Services Limited ("Essar"), liable to pay damages to the present respondent and claimant in the arbitration, Norscot Rig Management Pvt Limited ("Norscot"), for repudiatory breach of an operations management agreement dated 14th August 2007 ("the Agreement"). He also awarded to Norscot various sums which were due, but unpaid under the Agreement.
The present position is that Essar is now liable to Norscot for the total sum of around US$12m. This includes around US$4min respect of the costs order that is in issue here. There is one further award to be made dealing with some quantum issues and new claims.
As will become clear, the arbitrator was highly critical of Essar's conduct towards Norscot, both during the currency of the agreement and also for most of the arbitration period, so as to justify an order for indemnity costs.
The arbitration proceeded according to the ICC Rules. It is common ground that, by Article 28(6) thereof, the parties have excluded any right of appeal under s.69 of the Act.
By the Award, the arbitrator held, among other things, that Norscot was entitled to the costs of litigation funding which it had obtained in order to bring the arbitration. The litigation funder, Woodsford Litigation Funding, had made an agreement with Norscot in 2011, whereby it advanced to it the sum of around £647,000 for the purpose of the arbitration. That agreement entitled it, in the event of Norscot's success, to a fee of 300 per cent of the funding or 35 per cent of the recovery. In that regard, Norscot sought as against Essar the total sum of just over £1.94 million, being the sum now owed to Woodsford. The precise quantification of this Award of costs has yet to be done, but it will be in that region. The arbitrator held that he was entitled so to order in his discretion, because such litigation funding costs were "other costs" for the purpose of s.59(1)(c) of the Act, which refers to "legal or other costs of the parties".
THE ISSUES
At first blush, Essar's present challenge is simple. It says that, as a matter of construction of s59(1)(c), "other costs" do not include the costs of litigation funding of the kind claimed here, so the arbitrator had no power to include them in his costs order. Therefore, there was a serious irregularity under s.68(2)(b) of the Act, because the arbitrator exceeded his powers and, given the amount ordered, it would cause substantial injustice to Essar if it had to be paid.
However, Norscot contends that such simplicity is deceptive and, in truth, there is no basis for setting the award aside for the following reasons or any of them:
(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
Some initial observations are appropriate. First, it is well established that the categories of serious irregularity as set out in s.68(2) are closed and exist in a context which is designed to permit such applications only in very narrow circumstances. In para.27 of the judgment of Lord Steyn in the leading case of Lesotho v. Impregilo [2006] 1 AC 221, he approved the oft-cited para.280 of the DAC Report, which said that:
"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".
As to s.68(2)(b) itself, Lord Steyn also stated that it only applies where the tribu nal has purported to exercise a power which it did not have, not where it erroneously exercised a power that it did have:
"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.
Secondly, and again referring to the judgment of Lord Steyn at paras. 31 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".
Furthermore, as Hamblen J. (as he then was) put it in the case of Abuja International v. Meridien [2012] 1 Lloyd's Rep 461, at paras.49 to 50:
"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.
Finally, I refer to some observations of Cooke J. in New Age v. Range Energy [2014] EWHC 4358, at para.15, referring to Lord Steyn:
"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".
I now turn to the relevant provisions of the Act governing the question of costs. First of all, s.61(1) provides that:
"The tribunal may make an Award allocating the costs of the arbitration as between the parties, subject to any agreement of the parties".
s61 (2) then provides that:
"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".
Then, by s63:
"(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".
Section 59 is a defining section. It states that:
"(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".
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