Summary

The question was how costs should fall after a section 67 challenge that succeeded for two claimants out of three, but which was fought largely on a point of foreign law that one of them was never entitled to raise, that another abandoned days before the hearing, and that both supported with misleading evidence.

The claimants said they were the winners and asked to be paid. The defendant said the abandoned argument was where the money had gone, and that it had been let through on evidence which hid the answer.

The court made an issue based order. A1 left with the award against it set aside and a bill on the indemnity basis. A2 lost outright.

Background and facts

The defendant supplies intelligence gathering and analysis to support legal proceedings. It was engaged by a firm of United States lawyers, and whether that firm contracted as principal or as agent for the claimants was fought in the arbitration and again in court. A tribunal of three sitting under London Court of International Arbitration rules awarded the fee against A1, A2 and A3 on 10 April 2024.

Ground 2 of the claim form asserted that under article 702 of the civil code of the state where A1 and A2 were incorporated, a company can bind itself to arbitration only where its constitution expressly empowers someone to do so. An officer of each company gave a witness statement saying no such provision existed.

Butcher J refused to determine the point summarily, holding the prospects of getting past the waiver bar in section 73 of the Arbitration Act 1996 to be more than fanciful. Days before the hearing A1 and A2 dropped the capacity case and ran the article as a question of authority alone. That took A1 nowhere: the defendant had always accepted that its agent lacked actual authority to bind it.

Cross examination produced what the statements had left out. A2's articles had been amended in 2014 to give the board express power to engage in arbitration, and A1's to the same effect on 2 February 2015.

The issue

Whether a claimant who succeeds in setting aside an award can be ordered to pay the respondent's costs of an issue it lost, and whether its conduct merited the indemnity basis.

How to measure legal costs incurred in an arbitration when varying the costs in the award.

The decision

A1 and A2 were ordered to pay the defendant's costs of the article 702 issue and of the section 73 issue, and to recover none of their own. Those issues produced a very large part of the costs. A2 was never entitled to raise the article, and A1 abandoned it in the only form that could have altered the outcome.

I felt unable to place any confidence in his evidence.Mr Justice Henshaw, paragraph 22

The argument built on Medway Oil failed. It predates the Civil Procedure Rules and describes the effect of a particular form of order. The rules are those in CPR 44.2, which do not confine the court to the extra costs an issue caused.

Medway does not lay down any rule of law.Mr Justice Henshaw, paragraph 28

Costs of the section 67 application were split into three phases. Up to service of the claim form, a third of the claimants' costs went to the two lost issues, leaving two thirds of a claimed £107,879 on their side of the line. In the middle phase the defendant recovered ninety five per cent, and sixty per cent of the two day hearing was assessed as spent on the lost issues. Those costs went on the indemnity basis.

In addition to relying on misleading evidence, both A1 and A2's cases on this issue were in my view speculative, weak, opportunistic and/or thin.Mr Justice Henshaw, paragraph 34

The claimants had won the summary determination application, but won it on the same evidence, so they paid its costs too on the indemnity basis. They also paid the costs of an abandoned application for security.

Had the true position been made known to the judge, it would have cast the applications in a very different light.Mr Justice Henshaw, paragraph 35

The costs in the award were varied rather than remitted. The defendant recovers ninety per cent of its common costs from A2 and pays A1 and A3 ten per cent of theirs. The claimants' recoverable costs were then cut by forty per cent: £778 an hour for the partner against a London 1 guideline of £512, and 1,402 hours of solicitor, trainee and paralegal time against 316 hours including counsel.

it was not particularly complex or particularly largeMr Justice Henshaw, paragraph 49

Practical implications

Success on the outcome does not buy the costs. A1 set aside the award against it and still left court owing money, because costs were measured issue by issue and the costliest issue was one it lost.

The danger sits in the witness statement, not in the legal argument. Both statements said the constitutions contained no arbitration provision, and both companies had amended their constitutions to insert one. That took the costs to the indemnity basis, and it infected an application the claimants had won.

Abandoning a bad point on the eve of the hearing does not undo it. The costs were already spent, and the change of tack counted as conduct justifying the order.

The observation at paragraph 25, that A1's argument would very likely have failed on section 73 anyway, was not the ground of decision. A1 had already abandoned the point.

A1 & Ors v P [2026] EWHC 2030 (Comm). In the High Court of Justice, Business and Property Courts of England and Wales, King's Bench Division, Commercial Court, in the matter of an arbitration claim. Before the Honourable Mr Justice Henshaw. Heard 11 May 2026; draft judgment circulated to the parties 28 July 2026; judgment 31 July 2026. Claim number CL-2024-000260. The substantive judgment on the section 67 challenge is at [2025] EWHC 3372 (Comm), 19 December 2025. Statutory provisions considered: sections 67 and 73 of the Arbitration Act 1996; CPR rule 44.2. Authority considered: Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88. The parties and the two states are anonymised in the judgment as handed down.