International arbitration

In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 with regards to international arbitration.

Key developments in 2017

Third-party funding (TPF) is the hot topic in arbitration. Insurers are moving into this area with new products such as cover for enforcement of awards. But the effect is broader than that as so many disputes are dealt with by way of arbitration.

In the Essar v Norscot case, Norscot obtained TPF in its claim against Essar. The funder was entitled to a substantial uplift in the event of success, and indeed Norscot was successful. Norscot claimed £1.94m from Essar as the amount due to the funder as other costs under section 59(1) of the Arbitration Act 1996. The arbitrator awarded this sum to Norscot, and when challenged by Essar before the courts, the award was upheld on a number of grounds, including Essar’s egregious conduct.

It has been hailed as a landmark case by funders, although that may be a slight overstatement. But it is the bigger picture that impacts insurers more generally, as we explore further below.

What to look out for in 2018

Conflicts of interest and ethics in arbitration have generated much noise in relation to TPF. The noise will get louder as the International Council for Commercial Arbitration and Queen Mary University are due to publish a report on TPF in 2018. Insurers need to be aware of the potential impact of its recommendations and the proposed principles it espouses.

There will be a requirement for a party to disclose to the tribunal the existence and identity of funders. The current definition of funders is broad enough to include insurers. This will affect those providing before the event, after the event and liability insurance, as well as subrogated insurers.

The aim is to avoid conflicts of interest, but the application to insurers as a matter of principle and practicality has not been fully considered. What happens in a case where the existence of insurance is confidential, for example? How far-reaching is the requirement in relation to complex insurance programmes? At what point is insurance engaged?

The task force had no representation from the insurance industry on its committee, and we are already seeing arbitral institutions introducing guidance and rules that have not been thoroughly thought out when it comes to considering the insurance implications. The industry needs to be on alert.

Download our full Annual Insurance Review 2018 for more insights.