English Commercial Court Rules That There Is No Recourse Against “Eye-Watering” Costs Award Under S68 Of The Act

In Genel Energy Miran Bina Bawi Limited v The Kurdistan Regional Government of Iraq [2026] EWHC 1003 (Comm), Mrs Justice Dias dismissed a challenge to a costs award of over US$26 million in respect of an arbitration that lasted no more than 2½ years and culminated in a two-week hearing. The Court confirmed that parties who adopt the LCIA arbitration rules agree to a complete and free-standing costs regime that displaces the default costs provisions contained in s63 of the Arbitration Act 1996 (the Act). Even if s63 of the Act had applied, however, the Court found that the form and manner of the tribunal’s award would have been compliant with its requirements and in any event, non-compliance with s63 did not constitute an excess of power by the Tribunal. At most, it was an erroneous exercise of power that was subject to challenge by way of appeal under s69, which the parties had excluded by agreeing to adopt the LCIA rules.

Background

The dispute arose from LCIA arbitration proceedings seated in London. The tribunal issued an award in favour of the Kurdistan Regional Government of Iraq (KRG). KRG claimed over US$35.5 million in legal and expert fees but provided only aggregate figures, without itemising costs by workstream, individual fee earner, hours or rates. The tribunal applied blanket reductions — 20% to legal fees and 50% to one expert's fees — producing a costs award of over US$26 million. 

Its opponent, Genel Energy (Genel), challenged the award under s68(2)(b) of the Act, arguing that the tribunal had exceeded its powers by failing to comply with the requirements of s63(3) of the Act. This provision, which is not mandatory, states that the tribunal "may determine by award the recoverable costs of the arbitration on such basis as it thinks fit". If it does so, the tribunal "shall specify (a) the basis on which it has acted, and (b) the items of recoverable costs and the amount referable to each". The judge referred to these as the "Specificity Provisions".  

Decision

Were the LCIA rules a complete costs code?

The central question was whether the tribunal was obliged to comply with the Specificity Provisions in light of Article 28 of the LCIA rules. Article 28 empowers the tribunal to decide arbitration and legal costs. Significantly, Article 28.3 provides:

"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."

Genel argued that signing up to a set of institutional rules is not necessarily sufficient to oust the default rules under s63, and that the Specificity Provisions remained "essential and mandatory adjuncts". However, KRG argued that (i) the final sentence of Article 28.3 made clear that the tribunal is not constrained in assessing costs by any court practices or procedures and (ii) Article 28.3 provides for an entirely free-standing regime which depends on a different categorisation of costs to that in the Act. It argued that this 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 and legal Costs.   

Whilst the Court accepted that mere agreement to a set of institutional rules does not per se exclude all non-mandatory provisions of the Act, Article 28.3 of the LCIA rules did provide 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". It also rejected Genel's argument that this outcome would be uncommercial. On the contrary, Mrs Justice Dias observed that many parties would be surprised to learn that a "watertight package of institutional rules" was in fact a "leaky sieve" requiring ad hoc "patching by bringing in odd bits and pieces from the Act". Requiring institutional rules to satisfy a particular threshold of specificity before they could oust the statutory defaults would entail an unnecessarily cumbersome and complex exercise, with the logical consequence that the effect of international rules such as the LCIA Rules might differ depending on the seat of the arbitration — plainly not what commercial parties anticipate when they agree to institutional arbitration. 

The scope of s68(2)(b): excess of power, not erroneous exercise (obiter)

Because the Specificity Provisions did not apply, the s68(2)(b) challenge failed. However, Mrs Justice Dias went on to consider the position if she was wrong on this and the Specificity Provisions applied. In particular, the question was whether a failure to comply with them would have amounted to an excess of power under s68(2)(b) of the Act.

Drawing on Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43 and Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), the Court emphasised the fundamental distinction between a tribunal that exceeds its powers by doing something it has no authority to do, and a tribunal that erroneously exercises a power it plainly has. She held that the Specificity Provisions are "essentially adjectival": they relate to the manner of exercising the power to award costs and are not fundamental to its existence. The Court also noted that accepting Genel's argument would open the door to costs challenges under s68(2)(b) in virtually every case — a result wholly at odds with the Act's objective of one-stop adjudication.

Compliance with the Specificity Provisions (obiter)

Although obiter, the Court went on to consider whether the tribunal’s award in fact complied with the Specificity Provisions. It determined that as a matter of statutory interpretation, the words "recoverable costs" used in s63(3) of the Act refer to the headline categories of costs set out in s59 of the Act rather than "items of work" as submitted by Genel. "Item of work" was considered to be an "impossibly elastic concept which will differ in every case", which could not have been the intention of Parliament, as the general power to determine costs should not be circumscribed depending on the way in which the parties choose to present their cases and incur costs. 

Substantial Injustice (obiter)

Finally, the judge commented that had the tribunal exceeded its powers by failing sufficiently to itemise the recoverable costs, she would have had no difficulty in concluding that substantial injustice had been established. However, this was acknowledged to be "cold comfort" in the circumstances. 

Comment

This decision helpfully confirms that the costs regime under the LCIA rules operates as a self-contained package and displaces the default costs provisions of the Act, giving full weight to the principle of party autonomy enshrined in the Act. The Court's obiter analysis of s68(2)(b) also reinforces previous authority confirming that s68 is an exceptional remedy reserved for genuine excess of power. Attempts to dress up an appeal relating to errors or mistakes as a s68 challenge are unlikely to succeed, and the judgment makes clear that the bar for doing so remains very high.

The practical point is that the tribunal's approach to assessing costs — including the adequacy of the evidence supporting a claim — must be raised during the arbitration rather than by way of challenge to the award. The tribunal's costs discretion is broad, and it will rarely be possible to revisit its exercise after the award is made. The only potential post-award avenue for an error is a s69 appeal on a question of law, but that right will be unavailable where — as is common in institutional arbitration — it has been excluded by agreement. 

Finally, and although KRG succeeded, the court found its costs claim "wholly unimpressive" and commented on the failure of counsel to break down its costs by reference to workstream, fee earner, hours, and rates. The judgment indicated that best practice would require a detailed schedule breaking down the costs in detail.  Although fact specific and not binding precedent, the judgment is a practical reminder for parties presenting or resisting substantial costs claims in arbitration, regardless of the applicable institutional rules.

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