Genel Energy Miran Bina Bawi Limited v The Kurdistan Regional Government of Iraq

Under the Arbitration Act 1996, non-mandatory default rules on recoverable arbitration costs may be displaced by the parties’ agreement, including institutional rules. The agreement may replicate, modify or replace the statutory regime. The court must construe the agreement to identify whether it covers the relevant matters and whether any statutory gap remains.

Failure to comply with statutory requirements concerning the specification of costs ordinarily concerns the exercise of an available power, rather than the existence of that power. It therefore does not, without more, constitute an excess of power under section 68(2)(b). Where section 63(3) applies, “items of recoverable costs” refers to the statutory headline categories, rather than every item of work undertaken by lawyers or experts.

The claimant challenged an arbitral costs award under section 68(2)(b) of the Arbitration Act 1996. The arbitration had been conducted under the LCIA Rules 2020. The tribunal awarded the successful party substantial legal and expert costs, applying reductions but providing only aggregate figures and limited supporting detail.

The claimant argued that the tribunal had exceeded its powers by failing to comply with section 63(3)(a) and (b), which concern the basis of assessment and the items of recoverable costs and amount referable to each. The defendant sought summary dismissal. A previous application before Robin Knowles J had been dismissed because the issue required a full hearing. The central questions concerned the relationship between section 63 and Article 28.3 of the LCIA Rules, the legal effect of any failure to itemise costs, compliance with the statutory provisions, and substantial injustice.

1. The application was dismissed. The claimant’s challenge under section 68(2)(b) of the Arbitration Act 1996 failed on several grounds.
2. Section 63(1) permits the parties to agree what arbitration costs are recoverable. The agreement may be inconsistent with, partially replicate, or entirely replicate the statutory default rules. The court must construe the parties’ agreement to determine whether it covers the relevant matters and whether any lacuna remains to be filled by section 63(2) ([20]–[25]).
3. Article 28.3 of the LCIA Rules 2020 provided, in the judge’s view, a complete and free-standing regime for determining Legal Costs. It therefore excluded the default rules in section 63. This conclusion was stated as a conclusion that would have been reached had it been necessary to decide the point, because the challenge failed independently on the excess-of-power issue ([32]–[39]).
4. Following [2005] UKHL 43; [2006] 1 AC 221 and [2016] EWHC 2361 (Comm); [2017] Bus LR 227, the distinction was between purporting to exercise a power which the tribunal did not possess and erroneously exercising a power which it did possess. The tribunal plainly had power to determine legal and expert costs. Any failure to provide greater particularisation would concern the exercise of that power and, at most, amount to an error of law. It would not constitute an excess of power under section 68(2)(b) ([40]–[53]).
5. Alternatively, assuming that the Specificity Provisions applied, the tribunal had complied with them. “Items of recoverable costs” referred to the headline categories in section 59, not to every item of work, fee earner, hour or rate. A more detailed requirement would be impracticable and would make the ambit of the statutory power vary between arbitrations ([54]–[61]).
6. Applying the test in [2021] UKPC 8; [2021] AC 907, substantial injustice would have been established had there been an excess of power, because proper particularisation might have produced a more favourable costs outcome. That conclusion was unnecessary to the dismissal of the application ([62]–[64]).

High Court (King's Bench Division), Commercial Court: Robin Knowles J dismissed an earlier paper application for summary dismissal because the challenge was unsuitable for summary determination. Mrs Justice Dias subsequently dismissed the section 68(2)(b) challenge after a full hearing.