In Eskosol SpA v Italian Republic, ICSID Case No ARB/15/50, which is one of the many solar photovoltaic ECT cases being brought against Italy following changes to the tariff system, Italy sought to obtain two provisional measures:
- i) security for costs against Eskosol given the company is insolvent, and
- ii) disclosure of Eskosol’s third party funding arrangement.
Eskosol, is a client of TheJudge and for whom we brokered, following a reasonable market search, their funding and insurance arrangements. Through their attorney’s, Winston & Strawn, Eskosol argued against the applications made by the Respondent.
The tribunal ultimately concluded that it had authority to grant security for costs in support of arbitration, but it declined to so. Among other arguments, Eskosol contended that its insolvency would not have occurred but for Italy’s actions and it should not be further financially penalized by being required to lodge security for costs.
It appears the key issue which shaped the tribunals decision not to allow security was the fact that Eskosol had prudently obtained insurance cover for potential adverse costs, brokered by TheJudge.
The use of adverse cost insurance is widespread in England & Wales as a means for claimants to remove the associated risk of an adverse cost order. It is particularly used as a cost-effective measure to avoid a claimant needing to put up security for costs and it used by corporates as well as impecunious claimants.
The application of cost shifting and disclosure of funding arrangements are both very topical subjects in the world of international arbitration at the moment.
Just last week it was reported that a subsidiary of Australian mining company OceanaGold had paid El Salvador more than US$8 million to satisfy an ICSID adverse costs award . While it’s unknown if OceanaGold had adverse cost insurance in place, had it done so then the $8m would have been a cost for the insurer to bear rather than the claimant.
Whether a claimant is a small business or a large corporate enterprise, having to pay $8m in addition to potentially writing off their own sides fees and costs incurred is always going to be a painful outcome. But it doesn’t need to be that way.
Adverse cost insurance for international arbitrations is a key tool to remove the adverse cost risk in a cost-effective manner. While some litigation finance companies will provide this additional protection to a claimant as part of their overall funding arrangement, it will rarely, if ever, be as cost effective as using an insurance policy with a large A-rated international carrier.
Furthermore, funders could risk straying into unregulated waters if they are essentially transacting what is essentially “insurance business”.
There is evidence of a growing sentiment by tribunals to award costs orders in favour of successful parties, which could often be higher than the claimants own legal fees. It’s imperative that lawyers and their clients alike consider at the outset the potential risks of either a security for costs application or worst still an adverse cost award following an unsuccessful outcome in the case.
Matthew Amey, Director at TheJudge, advises: “With the decision in Eskosol, specifically referencing the ATE policy in rationale for refusing security for costs, we’re delighted to once again be at the forefront of industry developments in the litigation finance and insurance market.
The recent case of Essar v Norscot was another landmark decision where we brokered the arbitration finance arrangements, as well as providing evidence to the tribunal to demonstrate the efforts made on behalf of the client to carry out a reasonable market search to justify the reasonableness of the funding arrangement.
While the Eskosol decision is one contained to its own facts, it is a prime example of why international arbitration lawyers need to think carefully about the advice they are providing their clients with regards the risk of security for costs and exposure to the opponent’s costs.
The arbitration community has become highly cognisant of funding but there is far less awareness and appreciation for the important role legal expense insurance can play in high value international arbitration.
This case is a perfect example of where good advice has resulted in the combination of funding and insurance products to help an insolvent client get access to justice against a powerful and well-resourced opponent.
Because the tribunal was satisfied that no security for cost order was necessary, given the existence of the adverse costs insurance, the further disclosure of details of the litigation funder was deemed a moot point. There was therefore no order for disclosure of the funding arrangement.
Contact us if you have a case potentially in need of arbitration finance or adverse cost insurance.