Neutral Citation Number: [2026] EWHC 1003 (Comm)
Case No: CL-2025-000198
IN THE HIGH COURT OF JUSTICE
KING'S BENCH DIVISION
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Date: 1 May 2026
Before :
THE HONOURABLE MRS JUSTICE DIAS
IN AN ARBITRATION CLAIM
Between :
| GENEL ENERGY MIRAN BINA BAWI LIMITED | Claimant |
| - and - | |
| THE KURDISTAN REGIONAL GOVERNMENT OF IRAQ |
Defendant |
Mr Charles Graham KC and Ms Jade Fowler (instructed by Quinn Emanuel Urquhart &
Sullivan LLP) for the Claimant
Mr Ricky Diwan KC (instructed by Wilmer Cutler Pickering Hale and Dorr LLP) for the
Defendant
Hearing date: 16 April 2026
Approved Judgment
This judgment was handed down remotely at 9:30am on 1 May 2026 by circulation to the
parties or their representatives by e-mail and by release to the National Archives.
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1. Section 63(3) of the Arbitration Act 1996 (the “Act”) provides as follows:
“The tribunal may determine by 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.”
2. The matter before me relates to the costs of a two-week arbitration which took place in
February 2024 arising out of the termination of two Production Sharing Contracts relating to
the exploitation of oil and gas reserves in the Kurdistan Region of Iraq. On 2 December
2024, a distinguished tribunal issued a Partial Final Award holding that the claimant in the
arbitration (“KRG”) had validly terminated the Contracts and dismissing the counterclaim
brought by the respondent (“GEMBBL”) for damages for repudiation.
3. In subsequent costs proceedings, KRG as the successful party presented a claim which
included the truly eye-watering sum of over US$35.5 million in respect of legal and expert
fees over the roughly 2½ year period of the arbitration. It might have been expected that a
claim for costs of this magnitude would be supported by lengthy schedules breaking down
those costs by reference to particular workstreams, fee earners, rates and hours allocated to
each workstream. Far from it. The only information that KRG condescended to provide in
support of its claim consisted of:
(a) A total aggregate figure for each category of fee earner (not even each individual fee
earner) over the entire life of the proceedings, with the total hours spent by each such
category and the range of hourly rates applied within each category;(b) The total aggregate figure charged in each month by all fee earners;
(c) The total aggregate fees and expenses charged in each month by each expert.
4. There was no attempt to allocate costs to particular workstreams and no information to
show how much time was spent on any particular item of work by any individual fee
earner. This meagre information was supplemented to a limited extent in reply costs
submissions by a very high-level summary of the work carried out in each month,
although this consisted of little more than bald headline descriptions such as “Legal
advice regarding issues in dispute”, “correspondence with GEMBBL regarding issues in
dispute”, “procedural issues”.
5. In those costs proceedings, GEMBBL argued that this was insufficient to enable the
tribunal to make any reasoned award on costs which complied with the requirements of
sections 63(3)(a) and (b) set out above (to which I shall refer as the "Specificity
Provisions") and that it should therefore decline to do so and instead direct that the
assessment of costs be referred to the court under s.63(4) of the Act. The Tribunal
rejected this submission, holding that the provisions of s.63(3) and following subsections
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of the Act had been displaced by the agreement of the parties to arbitrate under LCIA
Rules 2020 (the “Rules”) and, specifically, by Article 28(3) which gave it the power to
decide the amount of Legal Costs (as defined in the Rules) “on such reasonable basis as
it thinks appropriate.” In that regard, it commented that “... there is no basis from the
Claimant's costs submissions on which the Tribunal can determine whether given items
of the work in question were suitable to be performed by a partner rather than more
junior fee earners, nor whether the volume of hours spent on those given items of work
was reasonable, in the light of the tasks performed....” Nonetheless, despite the paucity
of material available, it concluded that it had sufficient information to allow it to reach a
reasoned decision on the costs claimed and that in any event, it was appropriate for it to
undertake the assessment itself given its familiarity with the proceedings.
6. In the event, the Tribunal determined that the costs claimed were not reasonable and
applied a blanket reduction of 20% to the legal fees and 50% to the fees of one of the
experts resulting in a total costs award for these heads of something over US$26 million.
The Tribunal also made an award in respect of KRG's disbursements and Arbitration
Costs (as defined in the Rules).
7. Under the Rules, the parties agreed to exclude any appeal on a question of law. However,
GEMBBL now seeks to challenge the Tribunal's award of costs in relation to legal and
expert fees for serious irregularity under s.68(2)(b) of the Act on the grounds that it
exceeded its powers by issuing an award which failed to comply with the requirement in
s.63(3) to “specify the items of recoverable costs and the amount referable to each.” No
issue is raised in relation to the award for disbursements or Arbitration Costs.
8. KRG applied for summary dismissal of the s.68 challenge on the basis that it had no real
prospect of success. The matter came before Robin Knowles J on the papers, who
dismissed the application on the basis that it was unsuitable for summary determination
and required a full hearing. In the reasons he gave for his decision, he held that it was
arguable that “itemisation” for the purposes of s.63(3) required more than was set out in
the costs award, but that the question of how much more was required and the
consequences in the context of a s.68 application should be the subject of oral argument.
9. That hearing now comes before me.
10. Determination of GEMBBL's s.68 challenge requires consideration of the following
provisions of the Act:
“General Principles
1.The provisions of this Part are founded on the following principles, and shall be
construed accordingly –(a) the object of arbitration is to obtain the fair resolution of disputes by an impartial
tribunal without unnecessary delay or expense;(b) the parties should be free to agree how their disputes are resolved, subject only to
such safeguards as are necessary in the public interest;...
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4.(1) The mandatory provisions of this Part are listed in Schedule 1 andf have effect
notwithstanding any agreement to the contrary.(2) The other provision of this Part (the “non-mandatory provisions”) allow the parties
to make their own arrangements by agreement but provide rules which apply in the
absence of agreement.(3) The parties may make such arrangements by agreeing to the application of
institutional rules or providing any other means by which a matter may be decided....
COSTS OF THE ARBITRATION
Cost of the arbitration
59.(1) References in this Part to the costs of the arbitration are to –
(a) the arbitrators' fees and expenses;
(b) the fees and expenses of any arbitral institution concerned, and
(c) the legal or other costs of the parties.
...
Award of costs
61.(1) The tribunal may make an award allocating the costs of the arbitration as
between the parties, subject to any agreement of the parties.(2) Unless the parties otherwise agree, the tribunal shall award costs on the general
principle that costs should follow the event except where it appears to the tribunal that
in the circumstances this is not appropriate in relation to the whole or part of the costs....
The recoverable costs of the arbitration
63.(1) The parties are free to agree what costs of the arbitration are recoverable.
(2) If or to the extent there is no such agreement, the following provisions apply.
(3) The tribunal may determine by 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.
...
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(5) Unless the tribunal or the court determines otherwise –
(a) the recoverable costs of the arbitration shall be determined on the basis that there
shall be allowed a reasonable amount in respect of all costs reasonably incurred, and(b) any doubt as to whether costs were reasonably incurred or were reasonable in
amount shall be resolved in favour of the paying party."
11. As already stated, the parties in this case agreed to arbitrate under the auspices of the
LCIA Rules. Article 28 of those Rules provides in relation to costs as follows:
“28.1 The costs of the arbitration other than the legal or other expenses incurred by the
parties themselves (the “Arbitration Costs”) shall be determined by the LCIA Court in
accordance with the Schedule of Costs. The parties shall be jointly and severally liable to
the LCIA and the Arbitral Tribunal for such Arbitration Costs.28.2 The Arbitral Tribunal shall specify by an order or award the amount of the
Arbitration Costs determined by the LCIA Court. The Arbitral Tribunal shall decide the
proportions in which the parties shall bear such Arbitration Costs (in the absence of a
final settlement of the parties' dispute regarding liability for such costs). If the Arbitral
Tribunal has decided that all or any part of the Arbitration Costs shall be borne by a
party other than a party which has already covered such costs by way of a payment to the
LCIA under Article 24, the latter party shall have the right to recover the appropriate
amount of Arbitration Costs from the former party.28.3 The Arbitral Tribunal shall also have the power to decide by an order or award
that all or part of the legal or other expenses incurred by a party (the “Legal Costs”) be
paid by another party. The Arbitral Tribunal shall decide the amount of such Legal Costs
on such reasonable basis as it thinks appropriate. The Arbitral Tribunal shall not be
required to apply the rates or procedures for assessing such costs practised by any state
court or other legal authority.”
12. In the light of these provisions, the following issues arise for determination:
(a) Whether the power exercised by the Tribunal in determining legal and expert costs
derived from s.63 of the Act or from Article 28 or from a combination of the two and,
in particular, whether the Tribunal was bound to comply with the Specificity
Provisions. This requires an examination of the relationship between the relevant
provisions in the Act and the Rules.(b) If the Tribunal was bound to comply with the Specificity Provisions in exercising its
power to determine costs, whether those provisions circumscribed and limited the
existence and/or exercise of that power or were merely incidental or ancillary
obligations relating to the manner in which it fell to be exercised. In other words,
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would non-compliance constitute an excess of power or merely an erroneous exercise
of power?(c) Whether the Tribunal's award in fact complied with the Specificity Provisions;
(d) If not, and if there was an excess of power, whether substantial injustice had thereby
been caused or would be caused to GEMBBL.
13. Mr Ricky Diwan KC, who appeared for KRG, submitted that the answer to issue (b) was
decisive in this case, since a challenge under section 68 could not get off the ground at all
unless GEMBBL could satisfy the court that non-compliance with the Specificity
Provisions was capable of amounting to an excess of power. He said that it could not
and, as will appear, I agree with him. It follows that GEMBBL's section 68 challenge
must fail in any event. Nonetheless, the other issues were fully argued and raise matters
of potential importance for arbitration practice. I will therefore address them in the order
set out above.
14. In his skeleton argument, Mr Diwan referred to the following principles of statutory
interpretation which were not controversial:
(a) Statutory interpretation requires an objective assessment of the meaning which a
reasonable legislature would be seeking to convey by the statutory language used:(b) A statute must be construed as a whole, since a provision in one part of an act may
cast light on the meaning of provisions elsewhere;(c) There is a presumption against construing a statute in a way which would produce an
impossible, unworkable, impracticable, inconvenient, anomalous or absurd result: see
Bennion, Bailey & Norbury on Statutory Interpretation (8th ed.)(2020) para 13.1ff.
15. Applying these principles, he emphasised that sections 1 and 4 of the Act enshrine and
give primacy to the concept of party autonomy in respect of those arbitrations to which
the Act applies, subject only to the specified mandatory provisions. Furthermore, section
4(3) expressly contemplates that parties may make their own arrangements regarding
matters to be decided by agreeing to the application of institutional rules.
The correct approach
16. There was a fundamental difference of approach between the parties in their analysis of
the relationship between section 63 and Article 28. Mr Charles Graham KC, who
presented the appeal for GEMBBL with Ms Jade Fowler, treated it first and foremost as a
matter of statutory interpretation. As I understood it, his argument ran as follows:
(a) The intention underlying section 63(1) is to permit the parties to make an agreement
which differs from the default rules set out in section 63(3)ff. If and to the extent they
make such an agreement, the default rules are ousted pro tanto. On the other hand, if
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the parties simply make an agreement which is the same as the default rules, then the
question of ouster becomes meaningless and the default rules continue to apply.1(b) It follows that, on a proper interpretation of section 63(1), the default rules will only
be ousted by an agreement which makes it unnecessary to look further at section
63(3), i.e., an agreement that renders the remainder of that section otiose.(c) This can be achieved in two ways:
(i) By agreeing that the relevant matter should be taken outside the purview of the
tribunal altogether. This could be, for example, by agreeing on a specific amount
of costs for a particular item, or by agreeing a mechanism for the assessment of
costs which requires no further reference to section 63, for example Article 28.1
of the Rules which stipulates that Arbitration Costs are to be determined by the
LCIA Court in a specified manner.(ii) Alternatively, by agreeing an arrangement which is incompatible or inconsistent
with the default rules or which specifically excludes them. In this context, Mr
Graham argued that there must be a specific agreement to do something which is
incompatible or inconsistent with the default rules. He referred me to a footnote
to paragraph 5-112 of Russell on Arbitration (24th ed.) (2015). This suggests that
mere agreement to a set of institutional rules which confer a general power on the
tribunal to decide or order something in circumstances where that general power
could encompass an alternative approach to that in the Act, might not of itself be
sufficiently specific to oust any non-mandatory provisions of the Act. He also
drew attention to a passage in the DAC Report accompanying the draft Bill that
became the Act where it is stated in relation to what became section 4 of the Act
that the non-mandatory provisions of the Act can be changed or substituted by the
parties “and exist as “fall-back” rules that will apply if the parties do not make
any such change or substitution, or do not provide for the particular matter in
question." This, he submitted, supported the proposition it is only agreement
which provides for something different to that contained in the default rules which
will achieve their ouster. He further drew an analogy with sections 15, 16, 18 and
23 of the Act which all used similar language to section 63(1) in providing that the
parties should be “free to agree” on specific matters and where such agreement
would render the applicable default rules unnecessary. This was to be contrasted
with the wording “unless otherwise agreed” used in other parts of the Act which
he said operated as a general “get-out” without it being necessary to reach any
specific alternative agreement.(d) In the present case, the second sentence of Article 28.3 addressing the assessment of
costs was to all intents and purposes identical to the default rules in sections 63(3) and
(5).(e) Section 63(3) has two limbs: a power to determine the recoverable costs of the
arbitration on such basis as the tribunal thinks fit, and the Specificity Provisions in
sections 63(3)(a) and (b). The Specificity Provisions are couched in mandatory
language indicating a clear statutory intention that they should apply wherever a
1 It was slightly unclear to me whether in those circumstances, it was his case that the parties' agreement fell to
be ignored entirely or whether it was to be treated as merged or subsumed into the default rules. I return to this
at paragraph 21 below.
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tribunal exercised its power to assess costs. As Mr Graham colourfully put it, the
second limb containing the Specificity Provisions “had got its hooks ... into the first
sentence so firmly that the one cannot be looked at without the other.” Parliament
must therefore be taken to have intended that a tribunal should not award costs
without any reasoning or substantiation. In so far, therefore, as Article 28.3 simply
replicated the first limb of section 63(3), that necessarily attracted the application of
the Specificity Provisions.
17. Thus, on Mr Graham's approach there is an inherent limitation as a matter of statutory
interpretation on the nature and type of agreement falling within section 63(1) which is
capable of ousting the default rules.
18. By contrast, Mr Diwan's approach was to treat the matter primarily as one of construing
the parties' agreement. He submitted that there is no basis for ignoring the agreement
made by the parties. To do so would be inimical to the concept of party autonomy
enshrined in the Act. Party autonomy likewise means that - subject only to the
application of any mandatory provision or considerations of public interest - the ability of
the parties to reach their own bespoke agreement should not be constrained.
19. The starting point is therefore always to construe the parties' agreement in order to assess
whether and to what extent it has the effect of ousting the default rules. Mr Diwan
accepted that, in principle, the agreement of the parties might leave a lacuna which would
need to be filled by the default rules. Indeed, this is implicit in section 63(2) which
applied the default rules “[i]f or to the extent there is no such agreement...” However,
he submitted that there was no such lacuna in this case. (I return to this below.)
20. I agree that it is necessary to interpret section 63(1) in order to determine what needs to
be covered by any party agreement in order to oust the default rules. Nonetheless, I
cannot accept the premise of Mr Graham's argument that there is any conceptual limit on
the nature or type of agreement which can be effective for that purpose. There is nothing
in the statutory language to suggest any such limitation. Indeed, I consider that it would
be unduly prescriptive and contrary to the entire notion of party autonomy to provide on
the one hand in sections 63(1) and (2) in apparently unqualified language that the parties
are free to agree what costs of the arbitration should be recoverable and that such
agreement will have the effect of ousting the default rules, but then on the other to
impose an implicit qualification on the type of agreement which will have that effect. I
agree with Mr Diwan that this is an unnecessarily complicated and strained approach
which is not mandated by the language of the Act and which is contrary to the clear
intention of the Act to provide a simple, straightforward framework for arbitration which
is easy to apply and leaves maximum flexibility for the parties to agree their own
procedures subject only to the mandatory provisions (of which section 63 is not one).
21. Nor do I accept (to the extent it was suggested) that an agreement made by the parties will
be wholly ineffective to oust the default rules unless it is inconsistent with them. If the
parties are free to agree that legal costs can be assessed by a tribunal on a basis which is
inconsistent with or contradicts the default rules, I can see no reason in logic or principle
why they cannot reach an agreement that the tribunal should assess legal costs on a basis
which partially or entirely replicates what is already in the default rules. Particularly
where parties sign up to institutional rules, this seems to me quite likely to be the case.
Like Mr Diwan, I can see no principled basis on which the parties' agreement can simply
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be ignored, even if it adds nothing to the default rules. On the contrary, the underlying
ethos of the Act is to give primacy to such agreements.
22. In my judgement, therefore, the correct approach is entirely straightforward. First, it is
necessary to determine what section 63(1) requires an agreement to cover in order for the
default rules to be ousted. Then it is simply a question of construing the agreement to see
whether it does cover those matters or, if not, to what extent it leaves a lacuna to be filled.
Section 63(1)
23. By virtue of section 63(2), the default rules are ousted if and to the extent that no
agreement is reached as referred to in section 63(1). Section 63(1) refers to an agreement
as to “what costs of the arbitration are recoverable.”
24. Mr Diwan submitted that in the context of ouster, this can only mean an agreement as to
those matters which would otherwise be covered by the default rules, viz: (i) the heads of
cost defined as “costs of the arbitration” in section 59; (ii) the basis of assessment; and
(iii) matters to be specified in the award. In the event, I did not understand this to be
contentious and it makes practical sense since the rationale for ousting the default rules is
because the parties have made express arrangements for matters which they would
otherwise cover. Thus Mr Graham accepted that an agreement within section 63(1) could
cover the recoverability of identified heads of cost, or items of costs, or a mechanism by
which costs were to be determined.
25. Both sides further accepted that the parties could, of course, go much further in any
agreement than simply the matters covered by the default rules, for example by agreeing
specific amounts for specific items. However, for the purpose of seeing whether the
default rules have been ousted, the only enquiry is whether the parties agreed to cover the
matters which would otherwise be provided for.
Article 28.3
26. There can be no real dispute that Article 28 contains an agreement that all the heads of
cost identified in section 59 should be recoverable. Thus, the costs set out in sections
59(1)(a) and (b) (the fees and expenses of the arbitrators and of the LCIA itself) are both
included in the definition of Arbitration Costs in the Rules and so covered by the
provisions of Articles 28.1 and 28.2. Legal Costs as defined in the Rules are addressed
by Article 28.3.
27. Article 28 also covers the basis on which both Arbitration and Legal Costs should be
assessed. Arbitration Costs fall to be determined by the LCIA Court in accordance with
its published Schedule of Costs. The amount of Legal Costs is to be decided by the
tribunal “on such reasonable basis as it thinks appropriate.”
28. The battleground was as to whether Article 28 made provision for what, if anything,
needed to be specified in the award in relation to recoverable costs. As to this, Article
28.2 provides that the tribunal should specify in an order or award “the amount of
Arbitration Costs determined by the LCIA Court.” In relation to Legal Costs, Article
28.3 simply provides that the tribunal “shall decide the amount of such Legal Costs ...”
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29. Mr Diwan submitted that on its proper construction, Article 28.3 only required the
Tribunal to state the amount of the Legal Costs awarded in its order or award. “Legal
Costs” were explicitly defined in the Rules and there was no need or requirement to break
them down further.
30. On that basis, he argued that Article 28.3 represented a complete package and implicitly
excluded or was inconsistent with the Specificity Provisions. There was therefore no
need to resort further to the default rules because there was no lacuna to be filled.
31. In response, Mr Graham returned to the footnote from Russell on Arbitration referred to
in paragraph 16.(c)(ii) above in support of his argument that signing up to a set of
institutional rules is not necessarily a sufficient agreement to oust the default rules under
section 63. I can certainly see force in the argument that mere agreement to institutional
rules does not per se oust all non-mandatory provisions of the Act and, further, that a
particular institutional rule may not in fact amount to an agreement on a relevant matter.
32. However, that is simply to beg the question as to what, on its true construction, Article
28.3 means, and whether it expressly or impliedly covers the matters provided for in the
default rules. I accept Mr Diwan's submissions that it is not possible to have two
different regimes applying in parallel: either Article 28.3 covers the ground completely
(in which case the default rules fall away), or it does not cover the ground at all (in which
case they apply in toto), or it partially covers the ground (in which case they apply to fill
the gap but no further).
33. Mr Graham argued that Article 28.3 does not contain anything which on its proper
construction is effective to displace the Specificity Provisions. On the contrary, it is
entirely consistent with the first limb of section 63(3) and so does not evince any
objective intention to dispense with the essential and mandatory adjuncts contained in the
Specificity Provisions in the second limb. Indeed, it does not make any provision at all
for what needed to be stated in any award or order.
34. In response, Mr Diwan emphasised that although Article 28.3 is similar in its effect to the
provisions of section 63, it is not identical. For example:
(a) Costs are categorised and defined differently under the Act and under the Rules. This,
he suggested, was an indication that the parties intended to apply a completely
different and free-standing regime for the assessment of costs to that applicable under
the default rules.(b) Under Article 28.3, the power conferred on the tribunal is to award costs “on such
reasonable basis as it thinks appropriate”. Section 63(3), by contrast, provides that
the tribunal shall determine costs “on such basis as it thinks fit”, but with the added
proviso in section 63(5) that, unless it decides otherwise, it must award a reasonable
amount in respect of costs reasonably incurred.(c) The power to determine costs in section 63(3) is permissive, whereas once the tribunal
has determined the incidence of costs under the first sentence of Article 28.3, it is
mandatory to determine the amount of those costs.
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35. He further drew attention to the express provision in the final sentence of Article 28.3
which made clear that the tribunal is not constrained in assessing costs by any court
practices or procedures.
36. In short, Mr Diwan submitted that Article 28.3 provides for an entirely free-standing
regime which depends on a different categorisation of costs to that in the Act and which
confers on a tribunal a discretion to assess costs on such reasonable basis as it thinks
appropriate without any requirement to specify in its award the basis on which it has
acted or to itemise the costs in any way beyond stating the amount awarded for
Arbitration Costs (as determined by the LCIA Court) and the amount determined for
Legal Costs, those being the only two categories of cost contemplated under the Rules.
This regime is capable of standing on its own and there was therefore no lacuna which
could only be filled by reference to the default rules. On the contrary, to apply those –
non-mandatory – default rules by effectively bolting them on to Article 28.3 would
actually be fundamentally inconsistent with the parties' agreement that the Tribunal
should have a discretion to assess costs on such reasonable basis as it thought appropriate
because that would, by definition, constrain the exercise of such discretion.
37. I have considerable sympathy for GEMBBL. Even taking into account the amounts at
stake, the quantum of legal and expert costs claimed by KRG was staggering for
arbitration proceedings which lasted no more than 2½ years in total and culminated in a
mere two-week hearing. It is profoundly unsatisfactory that those costs were not vouched
in a manner which would have allowed GEMBBL to make properly informed
submissions as to their reasonableness. Best practice would undoubtedly have been to
compile a schedule in a format akin to that provided by GEMBBL in relation to its
bifurcation costs. That said, I bear in mind that by agreeing to arbitrate in England under
the Act, the parties accepted that there could be no appeal on a question of fact (such as
the reasonableness of the costs awarded) and by agreeing specifically to arbitration under
LCIA Rules, they also accepted that there could be no appeal for error of law. In other
words, the parties deliberately and consciously elected for a form of dispute resolution
which precluded any complaint that the Tribunal reached the wrong decision.
38. In those circumstances, and even accepting (as I do) that mere agreement to a set of
institutional rules does not per se exclude all non-mandatory provisions of the Act, I
would have held (had it been necessary to do so) that Article 28.3 provided a mechanism
for the assessment of Legal Costs which was a complete package sufficient to exclude the
operation of the default rules under section 63 in their entirety.
39. I regard this conclusion as being entirely consistent with section 4(3) of the Act and I
reject Mr Graham's suggestion that it would be uncommercial. On the contrary, I suspect
that many parties would be surprised to learn that what they supposed to be a watertight
package of institutional rules turned out to be no more than a leaky sieve which required
ad hoc patching by bringing in odd bits and pieces from the Act. Indeed, requiring a
particular level of specificity in institutional rules before they can be regarded as capable
of ousting the default rules in the Act, would require a minute parsing of the rules in
question. This would entail an unnecessarily cumbersome and complex exercise. There
is also force in Mr Diwan's submission that the LCIA Rules are international rules and
that the logical consequence of Mr Graham's argument is that their effect (and, indeed,
that of any other institutional rules) might be different depending on the seat of the
arbitration. I regard this as being the antithesis of what commercial parties anticipate or
expect when they agree to a London seated arbitration under institutional rules. By
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signing up to a London seat, they also accept the principle of party autonomy. There are
sufficient safeguards in the Act in the form of the mandatory provisions and to accede to
Mr Graham's arguments would be to confer on section 63 a quasi-mandatory status that
Parliament did not see fit to accord it directly. Moreover, it is always open to parties to
incorporate the default rules from section 63 into their agreement expressly if they feel
that the institutional rules do not adequately cover the position. Alternatively, they could
expressly exclude Article 28.3 in which case the default rules would apply in any event.
If they do not adopt either course, then there is nothing in my judgment to warrant
construing Article 28.3 as anything other than a complete free-standing agreement for the
determination of Legal Costs which is effective to exclude the default rules in section 63.
40. It follows from my conclusions above, that the Specificity Provisions did not apply in this
case. If I am wrong about that and they were applicable (whether because the default
rules applied in their entirety or because the Specificity Provisions applied alongside and
in addition to Article 28.3), it is necessary to consider whether non-compliance amounted
to an excess of power challengeable in principle under section 68(2)(b), or merely an
erroneous exercise of power challengeable, if at all, only for error of law, which under
the Rules is of course excluded. Mr Graham accepted that his challenge under section 68
can only succeed if he can demonstrate that non-compliance with the Specificity
Provisions amounted to an excess of power.
41. The parties agreed that the starting point was the decision of the House of Lords in
Lesotho Highlands Development Authority v Impregilo SpA, [2005] UKHL 43; [2006] 1
AC 221 and, in particular, the speech of Lord Steyn at [23]-[34]. As is well-known, that
case concerned a challenge to a decision of an arbitration tribunal to make an award of
damages in a foreign currency converted from the contractual currency of account at the
rate specified in the contract notwithstanding a subsequent dramatic collapse in the value
of that currency. Lord Steyn's speech repays setting out at some length:
“23 ... I will now assume that the tribunal committed an error of law.2 That error of law
could have taken more than one form. The judge and the Court of Appeal approached
the matter on the basis that the tribunal erred in the interpretation of the underlying
contract. Another possibility is that the tribunal misinterpreted its power, under section
48(4) to express the award in any currency. Let me approach the matter on the basis that
there was a mistake by the tribunal in one of these forms. Whichever, is the case, the
highest the case can be put is that the tribunal committed an error of law.24. But the issue was whether the tribunal “exceeded its powers” within the meaning of
section 68(2)(b). This required the courts below to address the question whether the
tribunal purported to exercise a power which it did not have or whether it erroneously
exercised a power that it did have. If it is merely a case of erroneous exercise of power
vesting in the tribunal no excess of power under section 68(2)(b) is involved. Once the
matter is approached correctly, it is clear that at the highest in the present case, on the
currency point, there was no more than an erroneous exercise of the power available
under section 48(4). The jurisdictional challenge must therefore fail.
2 In fact Lord Steyn would have held that the tribunal in that case did not make any error in their award. What
he thereafter said was on the basis that he was wrong about that. What he said was expressly agreed with by a
majority of the House which held that there had indeed been an error of law. Lord Phillips would have gone
further and held that the error amounted to an excess of power, but he was a lone voice in that regard.
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26... A major purpose of the new [Arbitration] Act was to reduce drastically the extent
of intervention of courts in the arbitral process.27. The legislative technique adopted to achieve this purpose was spelled out explicitly
in the Report on the Arbitration Bill and in particular in discussion of clause 68, which
became section 68 of the 1996 Act. The DAC observed about clause 68 that it “is really
designed as a long stop, 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”: p 58,
para 280. On the other hand, the DAC recommended adoption of “the internationally
accepted view that the court should be able to correct serious failure to comply with the
‘due process' of arbitral proceedings: cf article 34 of the Model Law:” p 59, para 282.
The ethos of the DAC report was that parties are entitled to a fair hearing leading to an
impartial adjudication. But the idea that section 68 contemplated an adjudication which
arrives at the “right” conclusion would have been wholly out of place in these
recommendations. The DAC report was the matrix of the Parliamentary debates....
29. It will be observed that the list of irregularities under section 68 may be divided into
those which affect the arbitral procedure, and those which affect the award. But nowhere
in section 68 is there any hint that a failure by the tribunal to arrive at the “correct
decision" could afford a ground for challenge under section 68. On the other hand,
section 68 has a meaningful role to play. An example of an excess of power under
section 68(2)(b) may be where, in conflict with an agreement in writing of the parties
under section 37, the tribunal appointed an expert to report to it. At the hearing of the
appeal my noble and learned friend, Lord Phillips of Worth Matravers MR, also gave the
example where an arbitration agreement expressly permitted only the award of simple
interest and the arbitrators in disregard of the agreement awarded compound interest.
There is a close affinity between section 68(2)(b) and section 68(2)(e). The latter
provision deals with the position when an arbitral institution vested by the parties with
powers in relation to the proceedings or an award exceeds its powers. The institution
would exceed its power of appointment by appointing a tribunal of three persons where
the arbitration agreement specified a sole arbitrator....
31. By its very terms, section 68(2)(b) assumes that the tribunal acted within its
substantive jurisdiction. It is aimed at the tribunal exceeding its powers under the
arbitration agreement, terms of reference or the 1996 Act. 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. This view is reinforced if
one takes into account that a mistake in interpreting the contract is the paradigm of a
“question of law” which may in the circumstances specified in section 69 be appealed
unless the parties have excluded that right by agreement. In cases where the right of
appeal has by agreement, sanctioned by the Act, been excluded, it would be curious to
allow a challenge under section 68(2)(b) to be based on a mistaken interpretation of the
underlying contract. Moreover, it would be strange where there is no exclusion
agreement, to allow parallel challenges under section 68(2)(b) and section 69.
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32. In order to decide whether section 68(2)(b) is engaged it will be necessary to focus
intensely on the particular power under an arbitration agreement, the terms of reference,
or the 1996 Act which is involved, judged in all the circumstances of the case. In making
this general observation is must always be borne in mind that the erroneous exercise of
an available power cannot by itself amount to an excess of power. A mere error of law
will not amount to an excess of power under section 68(2)(b)....
34. I am glad to have arrived at this conclusion. It is consistent with the legislative
purpose of the 1996 Act, which is intended to promote one-stop adjudication. If the
contrary view of the Court of Appeal had prevailed, it would have opened up many
opportunities for challenging awards on the basis that the tribunal exceeded its powers in
ruling on the currency of the award. Such decisions are an everyday occurrence in the
arbitral world. If the view of the Court of Appeal had been upheld, a very serious defect
in the machinery of the 1996 Act would have been revealed. The fact that this case has
been before courts at three levels and that enforcement of the award has been delayed for
more than three years reinforces the importance of the point.”
42. In the light of these passages, both parties invited me to bring an intense focus to bear on
section 63(3) although the lenses which each of them suggested I should apply to my eye
were rather different.
43. Mr Diwan relied on the repeated emphasis in Lesotho that challenges for excess of power
are not designed to provide a remedy if the complaint is simply that the tribunal reached
the wrong answer. To the contrary, the Act was intended to limit the scope of possible
challenges such that section 68 is a long-stop for exceptional cases where there has been a
failure to comply with due process in the conduct of the arbitration. It is not concerned
with errors of law or fact and therefore cannot be used as a vehicle for challenging errors
in statutory construction, still less an assessment of reasonableness. Furthermore, the
logic of Lord Steyn's reasoning in Lesotho is that an excess of power only occurs if a
tribunal purports to exercise a power which it does not have. Accordingly, section 68(2)
(b) does not cover errors or mistakes made by a tribunal in the exercise of a power which
it indisputably does have.
44. Mr Diwan submitted that, having regard to the high hurdle posed by section 68(2)(b), the
relevant question to ask is whether the tribunal had no power at all to do what it did, or
whether it simply went wrong in the exercise of its power. He referred to Essar Oilfields
Services Ltd v Norscot Rig Management PVT Ltd, [2016] EWHC 2361 (Comm); [2017]
Bus LR 227 as a good example of a case where Judge Waksman QC (as he then was)
deprecated attempts to dress up an appeal on a question of law as an excess of power by
arguing that the relevant power could only be exercised in a particular way. In that case,
the tribunal had an undoubted power to award costs either under section 59(1)(c) of the
Act or under the ICC Rules which also applied. The tribunal made an award in respect of
the costs of third party funding and the paying party argued that it was not within its
power to do so under either the Act or the ICC Rules.
45. Section 63(3) as such was not in issue but the following comments of Judge Waksman are
nonetheless relevant:
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“41,As Lord Steyn noted, in order to see if what the arbitrator did fell within section
68(2)(b) as being in excess of his powers or whether it was no more than an erroneous
exercise of a power that he did have, it is necessary to focus “intensely on the power
concerned”. In my judgment, the relevant power here is the undoubted power to award
costs. If the arbitrator fell into error, it was an error as to the scope of such costs by
reason of his allegedly erroneous interpretation of section 69(1)(c) and article 31(1).42. I accept that, if one characterised the relevant power as being the power to order
that one side pays the other side's costs of obtaining litigation funding, or conversely, the
power to order by way of costs such sums which do not include the costs of litigation
funding, one could say as a matter of language that he was exercising a power that he did
not have. But, if that was the correct approach, one could re-describe many, if not all,
errors of law in that way. Indeed, an erroneous exercise of power itself could in theory
almost always be re-described as an excess of power. However, according to the Lesotho
Highlands Development Authority case, there is a real and vital distinction to be made
between the two. In my judgment, to characterise the arbitrator's error here in that way
would be wholly unrealistic and artificial, and it goes against the grain of the strict and
narrow confines in which section 68 is to operate.”
46. Basing himself on these propositions, Mr Diwan argued that in the present case, the
Tribunal undoubtedly had the power to determine and award legal and expert costs under
either section 63 or Article 28.3. However, the question of what evidence was required
for that purpose and what needed to be specified about it in the award was nothing to do
with the existence of the power itself but simply related to the manner of its exercise.
Moreover, once it is accepted that the parties have autonomy to make alternative
arrangements which may be inconsistent with the Specificity Provisions, it is difficult, if
not impossible, to regard failure to comply with those (non-mandatory) provisions as so
fundamental that non-compliance goes to the very existence of the power.
47. He also made the powerful point that if GEMBBL's arguments were accepted, it would
open up the prospect of post-award costs challenges under section 68(2)(b) in virtually
every case since it would almost always be possible to argue that the tribunal had not
sufficiently itemised the costs awards and had therefore exceeded its powers. He
submitted that such an unpalatable outcome could only be avoided if the court laid down
a prescriptive rule as to what the Specificity Provisions required by way of itemisation,
which was capable of application in every case. This, he suggested, was a chimera given
the infinite variability in arbitration procedures and the nature of the costs which might be
incurred.
48. In response, Mr Graham reiterated that it was impossible to sever the Specificity
Provisions from the power contained in the first limb of section 63(3). They were an
inseparable part of that power which could not therefore be exercised save in compliance
with them. Accordingly, they were properly to be regarded as delimiting the power itself.
By contrast, the power in issue in Lesotho and Essar was entirely general and did not
have any such adjuncts.
49. He accepted that the nature of the itemisation required would necessarily vary from case
to case depending on the nature and complexity of the proceedings, the amount at stake,
and the manner in which it was presented and that it was impossible to be prescriptive
about it. He pointed to GEMBBL's own bifurcation costs schedule as a paradigm of what
a proper costs schedule should look like, and suggested that in 99 cases out of 100 there
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would not be a problem because the parties would either provide something similar or the
tribunal would demand it.
50. Mr Graham further submitted that holding the Tribunal's power to be circumscribed in
this way would do no damage to party autonomy or to the reputation of London as a
global centre for arbitration. He suggested that Mr Diwan's submissions to the contrary
were mere scaremongering which were not supported by any evidence. On the contrary,
he argued, arbitrating parties have a legitimate interest in ensuring that they are only
required to pay reasonable and proportionate costs and that they are provided with
sufficient information to allow them to make meaningful submissions in that regard. If
anything, therefore, they were more likely to be deterred from arbitrating in London if
faced with a regime where a tribunal could make a wholly unspecific award of costs
unsupported by any material which allowed transparent interrogation. It can be assumed
that Parliament was of a similar view otherwise it would not have included the Specificity
Provisions in section 63 to start with. An incidental beneficial effect of circumscribing a
tribunal's power in this way would be to discourage excessive and profligate expenditure
on legal costs.
51. These were powerful points well made, but even taking them at their highest, I have little
hesitation in preferring the submissions of Mr Diwan on this point. The fact remains that
the Specificity Provisions are essentially adjectival and I could not really see an answer to
Mr Diwan's submission that if the parties were free to confer on a tribunal the power to
act on a basis inconsistent with the Specificity Provisions, the latter could hardly be said
to be fundamental to the existence of that power – a point only underlined by the fact that
Parliament could have designated them as mandatory provisions but chose not to.
52. The concern that a contrary conclusion would open the floodgates to a deluge of costs
challenges is neither illusory, nor a prospect that the court can view with equanimity
given the clear objective of the Act to provide for one-stop adjudication and to limit the
scope for challenges to arbitral decisions. For all these reasons, I am satisfied that even if
the Tribunal was wrong in making an award in the manner and form in which it did, there
was no excess of power but at most an erroneous exercise of that power. In an
appropriate case, such an error might have been challengeable by way of an appeal under
section 69 but it is GEMBBL's misfortune in this case to have agreed to institutional rules
which exclude any such possibility.
53. On this ground alone, therefore, the section 68 challenge must fail.
54. The Tribunal clearly set out in paragraph 49 of its award the basis on which it acted in
assessing legal and expert costs (even though, on KRG's case, it was not obliged to do
so). This explained that:
“The Tribunal must assess the Claimant's costs on the ordinary basis in international
arbitration – that is, whether the Claimant's costs are reasonable and proportionate.
The Tribunal accepts the general principle put forward by the Respondent that the
Claimant must establish that its costs are reasonable, in the sense that it was
necessary for the costs to be incurred, and that the expenditure referable to the work in
question was reasonable in amount. This involved showing that the expenditure on that
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item was not disproportionate, given the work involved and its relative importance to the
outcome of the dispute...”
55. GEMBBL's complaint is limited to its submission that in relation to the legal and expert
costs the Tribunal did not sufficiently “specify the items of recoverable costs and the
amount referable to each.” Mr Graham submitted that an award which simply awarded
amounts for “Legal costs” and “Experts' costs” was not good enough to comply with the
Specificity Provisions. An “item of recoverable costs” for this purpose denoted (i) an
item of work carried out by the lawyers or experts as appropriate; (ii) in respect of which
costs had been incurred; (iii) which costs were both incurred reasonably and reasonable in
amount. For such a determination to be carried out, the items in question needed to be
sufficiently particularised so that a tribunal could make an assessment of each of these
matters. As he accepted, it was impossible to be prescriptive about what would constitute
an "item of work" in any particular case since this would vary depending on the
circumstances. However, as a bare minimum each item specified should identify the
particular fee earners involved, their seniority and the hours and rates charged by each of
them for that particular item. Having carried out the necessary assessment, the tribunal
should then specify in its award each item of work in respect of which it was awarding
costs and set out the figure awarded. In most cases, it would be sufficient to refer to the
receiving party's costs schedule but where there was insufficient information to make a
proper assessment, the tribunal should either request further particularisation or direct the
parties to refer the matter to court under section 63(4).
56. Mr Diwan's response was to point out that an “item of work done” is nowhere referred to
in the Act and moreover is not the same as an “item of recoverable costs”. The latter is
the only concept referred to in the Specificity Provisions and this must refer back to the
first limb of section 63(3), which in turn refers back to section 63(1), which in turn leads
back to section 59 where “costs of the arbitration” are defined. Thus, he submitted that
an “item of recoverable costs” meant no more or less than the headline categories set out
in section 59. This was clear, simple and easy to apply in practice. By contrast, Mr
Graham's approach was impractical in the absence of any clear guidance as to what was
required by way of itemisation, something which both parties agreed was impossible to
provide a priori.
57. I have given some idea above of the nature of the costs claim advanced by the KRG and
the extent to which it was (or was not) substantiated. Suffice it to say that I found it
wholly unimpressive. If KRG was willing and able to spend over US$35 million on a
two-week arbitration, it would hardly have been an excessive burden to require it to
vouch its costs properly. As it is, I have considerable sympathy with GEMBBL's
complaint that the scant information furnished by KRG's solicitors was completely
inadequate to permit any proper examination of the reasonableness of the costs and so
denied GEMBBL any opportunity to make informed submissions on the question.
58. The Tribunal was also clearly uneasy about the lack of particularisation but nonetheless
felt that in view of its familiarity with the case it was in a position to do substantial
justice. I emphasise that I am not here concerned with whether I would have taken the
same view. The only question for me is whether in proceeding on that basis, the Tribunal
complied with its obligation (on the hypothesis that the Specificity Provisions applied) to
set out the items of recoverable costs.
[Page 18]
59. With some hesitation, I have ultimately concluded that Mr Diwan is right about this as
well as a matter of statutory interpretation and that “items of recoverable costs” in section
63(3)(b) refers back to the headline categories in section 59. I am fortified in this
conclusion by the sheer impracticality of any other solution given that an “item of work
done” is an impossibly elastic concept which will differ in every case. Moreover, there is
scope for almost infinite disagreement as to appropriate “items of work” and a tribunal
cannot know in advance what it needs to do in order to stay within its powers unless it
takes pre-emptive precautions in agreeing with the parties what is required at an early
stage, if only to ensure that appropriate records are compiled. Nothing of that nature
appears to be contemplated by either the Act or the Rules.
60. However, the decisive point in my judgment is that I am considering this point on the
basis that (contrary to my conclusions above), compliance with the Specificity Provisions
was an essential pre-requisite to the proper exercise of the Tribunal's power to determine
costs. Given that premise, I consider it unsatisfactory that the exercise of a general power
to determine costs should be circumscribed depending on the vagaries of the way in
which the parties choose to present their respective cases and incur costs. This would
mean, in effect, that a different power fell to be exercised in every single arbitration, the
precise ambit of which could not be known until costs fell to be assessed – unless it had
been presciently agreed in advance. I cannot accept that this was the intention of either
Parliament or the parties. Rather, in my judgment, that intention was to confer on a
tribunal a general power to assess costs which should be the same in every case to which
the default rules applied.
61. On that basis, there was no failure by the Tribunal to comply with the Specificity
Provisions and the challenge fails for this reason as well.
62. A challenge under section 68 requires the serious irregularity in question to be one which
the court considers has caused or will cause substantial injustice to the applicant. As
appears from RAV Bahamas v Therapy Beach Club, [2021] UKPC 8; [2021] AC 907 at
[34], the test for substantial injustice is whether “had the irregularity not occurred, the
outcome of the arbitration might well have been different... It is not necessary to show
that the outcome would necessarily or even probably be different... In general, there
will, however, be no substantial injustice if it can be shown that the outcome of the
arbitration would have been the same regardless of the irregularity...”
63. Applying this test, if I had found that the Tribunal exceeded its powers by failing
sufficiently to itemise the recoverable costs, I would have had no difficulty in concluding
that the outcome of the costs award might well have been different and that a substantial
injustice had been established in the sense set out above. Mr Diwan argued that there was
nothing to suggest that the Tribunal would have reached any different conclusion even if
full particularisation had been provided. However, that is pure speculation and I consider
that it might, at the very least, have reached a different conclusion more favourable to
GEMBBL. If KRG wished to rebut that suggestion, then it should have provided the
court with the necessary material to substantiate its case. Indeed, it might be said that the
very fact that we have no way of knowing what the Tribunal might have decided had it
been provided with proper particularisation is a substantial injustice in itself. I also agree
with Mr Graham that Essar (supra) provides support for the submission that there is
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substantial injustice in the very fact that the Tribunal awarded costs in a manner which it
had no power to adopt.
64. I recognise, however, that my conclusion in GEMBBL's favour on this point is likely to
be cold comfort.
65. The only other matter debated briefly before me related to the nature of the order that I
should make had I allowed the challenge. As to this, GEMBBL's claimed relief asked for
the question of costs to be referred to the court on the basis that the Tribunal could not
realistically be expected to reach any different conclusion in the absence of further
material. However, as I indicated during the course of argument, the obviously sensible
course would be to remit the matter to the Tribunal with directions as to the further
information that should be provided by KRG to substantiate its costs. It seemed to me
that, in view of the Tribunal's familiarity with the case and the nature of the arguments, it
would make no sense at all to send the matter to the court which would have to approach
it from scratch. Neither party dissented from this approach although, in the event, it does
not arise.
66. For all these reasons, GEMBBL's application under section 68(2)(b) is dismissed.