In Tenke Fungurume Mining SA v. Katanga Contracting Services[i], a recent High Court decision reinforces the reluctance of the English courts to intervene in arbitration appeals and confirms the approach taken by the court in Essar[ii] in which a section 68 challenge to an award of cost for third-party litigation funding as “other costs” of the arbitration. The judgment confirmed the distinction between an excess of power and an error of law; the latter can only be challenged under section 69 of the 1996 Act, which in this case was excluded by agreement in Tenke Fungurume.

Mrs Justice Moulder DBE ruled that the Congolese mining company, Tenke Fungurume Mining (Tenke) failed to show that an ICC tribunal made a procedural error or exercised excess power when it ordered the company to pay US $1.7million in costs related to its counterparty’s funding agreement with a third party.

Katanga Contracting Services (KCS) began experiencing financial difficulty at the time of the dispute with Tenke, and turned to a related entity with a common shareholder to help it fund the cost of the arbitral action. The funding arrangement came to Tenke’s attention when KCS made a costs submission on the final day of the hearing. At the hearing, Tenke pointed out that the arrangement raised questions about its counterparty’s financial position and claimed, that the funding agreement represented an attempt by KCS to “confer a windfall benefit on a related party”.

The arbitral tribunal did make a disclosure order to enable Tenke to examine KCS’s financial position in more detail, the funding options KCS had available, and the terms of the funding agreement, but it rejected Tenke’s request to allow it to cross-examine witnesses that had provided statements to the tribunal concerning the third-party funding arrangements.

Tenke’s challenge of the third-party funding costs award had two limbs. Firstly, Tenke argued that the Tribunal’s refusal to allow them to cross-examine KC’s witness constituted a procedural error on the part of the tribunal which amounted to “serious irregularity” that had caused it or would cause it, substantial injustice. However, the High Court rejected the grounds of that appeal on the basis that Tenke had not shown that the refusal to allow cross-examination was a decision that no arbitrator could reasonably have reached under the circumstances.

Secondly, Tenke asserted that the proper interpretation of “other costs” did not extend to the cost of obtaining third party funding and that the Tribunal had no power to award such costs. Tenke argued against the decision in Essar v Norscot and further argued that the decision of the Tribunal, in this case, was even worse because the funding came from a company owned by one of KCS’s shareholders, rather than from a regulated, professional third-party funder as in Essar v Norscot. Tenke emphasised that fees payable to litigation funders are not recoverable in litigation and that Parliament would not have intended the rules for arbitration to be different. However, the Judge found that Tenke’s argument was alleging an error of law, and passing it off as ‘excess of powers’ in order to permit it to make a challenge under section 68, and declined a departure from Essar.

Mrs Justice Moulder DBE’s decision reinforces the non-interventionist approach favoured by the English courts concerning challenges to arbitration awards and highlights the high threshold which must be met for a section 68 challenge to be allowed.  The judgment also confirms the approach of HHJ Waksman QC in Essar v Norscot (a matter in which Erso’s affiliate, TheJudge were instrumental in arranging the third party funding and providing supporting evidence). The question remains as to whether the courts would approach the question of the award of the costs of third-party litigation funding differently in a section 69 appeal, nonetheless, it is a significant ruling which will be of particular interest to the litigation funding industry, and those seeking alternative funding for the cost of

[i] Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S. [2021] EWHC 3301 (Comm)

[ii] Essar Oilfields Services Ltd v Norscot Rig Management Pvt Ltd [2016] EWHC 2361 (Comm)