I. Introduction
The use of third-party funding in international arbitration is on the rise. Third-party funding gives parties the ability to pursue meritorious claims while limiting their own legal costs. Under third-party funding arrangements, an outside investor typically covers all or part of a party's legal costs on a no-recourse basis. In exchange, should the funded party prevail in the dispute, the funder is usually entitled to a multiple of the invested amount or to a share of the proceeds. The recent High Court decision in Tenke Fungurume Mining v Katanga Contracting Services will be welcomed both by funders and funded parties: the judgment provides further confirmation that a tribunal in a London-seated arbitration has the power to award the costs of obtaining third-party funding to the successful party.1 At the same time, the judgment will be welcomed by the London arbitration community more generally as it affirms the English courts' non-interventionist approach to procedural decisions and reinforces the finality of arbitral awards.
II. Background
The underlying arbitration arose out of two commercial agreements relating to a mine in the Democratic Republic of the Congo (the "DRC"). In January 2020, Katanga Contracting Services ("KCS") commenced arbitration proceedings, governed by the ICC Rules and seated in London, against Tenke Fungurume Mining ("TFM"). The arbitral tribunal comprised Mr Charles Kaplan, Mr Jeffrey Gruder QC and Dr Achille Ngwanza (the "Tribunal").
The emerging COVID-19 pandemic and the resulting government mandates affected the conduct of the arbitration in several ways. First, in January 2021, TFM requested an adjournment of the merits hearing, contending that travel restrictions had prevented the parties' mining experts from visiting the site. Moreover, in the same month, TFM's leading counsel contracted COVID-19, rendering him unable to appear at the merits hearing scheduled for March 2021. TFM thus applied for a two-month adjournment to the hearing to allow it to instruct alternative counsel. By two procedural orders issued in January and February 2021, respectively, the Tribunal dismissed TFM's applications and ruled that the hearing should proceed as planned.
Following the hearing, in late March 2021, the parties exchanged submissions on costs and interest. In the course of its submissions, KCS revealed that it had obtained a shareholder loan, described as a "litigation funder agreement", to fund the arbitration. KCS submitted two witness statements in support of its claim for costs and interest. In response, TFM requested permission to cross-examine the witnesses on the new statements relied on by KCS. By a further procedural order, the Tribunal refused any additional cross-examination but ordered that KCS produce certain documents relating to its financial position.
In August 2021, the Tribunal rendered its final award, ordering TFM to pay all sums claimed by KCS and dismissing TFM's counterclaims. In addition, the Tribunal awarded KCS its legal and expert costs of approximately USD 1.4 million, a further USD 1.7 million in respect of litigation funding fees, as well as pre- and post-award compound interest at a rate of nine per cent.
III. The Section 68 Challenge
The proceedings before the English courts were brought under s. 68 of the Arbitration Act 1996 (the "Act"), which allows a party to an arbitration to challenge an award "on the ground of serious irregularity affecting the tribunal, the proceedings or the award". Subsection (2) provides an exhaustive list of nine categories of irregularity that may form the basis of a challenge. Further, the applicant must be able to show that the alleged irregularity caused it to suffer "substantial injustice", which is usually taken to mean that it must have affected the outcome of the arbitration.
In TFM v KCS, TFM challenged the award on the basis that the Tribunal had exceeded its powers or that the Tribunal had failed to comply with its general duty under s. 33 of the Act. Section 33 requires an arbitral tribunal to "act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent" and to "adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined". TFM asserted that a serious irregularity could be made out on four distinct grounds
- Ground 1: Failure to adjourn the arbitration to allow a visit to the construction site
First, TFM contended that its counterclaim required a site visit to the DRC. However, TFM's expert, Deloitte, was not prepared to visit the mine amidst pandemic-related travel restrictions. The Tribunal refused TFM's application for an adjournment of the hearing and dismissed the counterclaim without a site visit having been conducted. In its s. 68 challenge, TFM submitted that, by deciding not to adjourn the arbitration, the Tribunal failed to give TFM a reasonable opportunity to put its case and failed to adopt procedures suitable to the circumstances of the case.
Having reviewed the relevant passages of the final award, the Court concluded that the Tribunal had given adequate consideration to the arguments for and against a site visit. In particular, the parties' experts agreed that no site visit was necessary in respect of a majority of the issues in dispute, and there was disagreement as to whether a site visit would have aided the experts in their assessment of the remaining issues. The Court emphasised the Tribunal's discretion in procedural matters and found that there was "no basis" to conclude that the Tribunal's decision "surmounted the high hurdle of a successful challenge under section 68". The relevant test, as applied by the Court, was whether the Tribunal's conclusion was one "which no reasonable arbitrator could have arrived at".
In any event, the Tribunal confirmed in its final award that the counterclaim was unsuccessful not because of the absence of a site visit, but because TFM had failed to adduce sufficient evidence. TFM could not establish that a site visit might have changed the outcome of the counterclaim. In the circumstances, the requirement to prove "substantial injustice" was not satisfied.
- Ground 2: Failure to adjourn the arbitration notwithstanding the illness of TFM's leading counsel
Second, TFM argued that the Tribunal should have adjourned the merits hearing in light of its leading counsel's COVID-19 infection. TFM submitted that leading counsel's participation in the hearing was vital to its legal representation and formed part of TFM's "fundamental right of due process". Because there were only 10 working days between the Tribunal's decision and the hearing date, TFM contended that fairness demanded an adjournment.
The Court disagreed. Dismissing the second limb of TFM's s. 68 challenge, the Court held that the Tribunal had considered all the circumstances, as it had been required to do. This entailed weighing up "the delay which would be caused by an adjournment against the fact that TFM could still appoint someone to act and they would have the support of a highly experienced team of arbitration lawyers". The Court noted that TFM had been advised by a "highly-qualified legal team from a reputed international law firm", including a senior partner who regularly acts as counsel in international arbitrations.
Moreover, the parties' arbitration agreement specifically provided that any arbitral proceedings should be "concluded as expeditiously as possible", and that, if possible, a final award should be issued "within 90 days" of the Tribunal's first meeting. The Court found that, in deciding whether to grant an adjournment, the Tribunal had been entitled to take into account the wording of the arbitration clause and to give effect to the parties' express intention to conclude the proceedings as swiftly as possible. Against this background, it held that "[t]he fact that a different tribunal may have arrived at a different decision is not sufficient" for the Court to interfere with the award.
Footnotes
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