Section 63(3) is a non-mandatory provision of the Arbitration Act 1996 (the act), which confers on the arbitral tribunal the power to determine the recoverable costs of the arbitration on such basis as it considers appropriate, unless the parties have agreed otherwise. Where it does so, the tribunal must specify the basis on which the costs have been assessed, the items of recoverable costs and the amount awarded for each item (s63(3)(a) and (b))).
The scope and application of s63(3) was recently considered by the Commercial Court in Genel Energy Miran Bina Bawi Limited v The Kurdistan Regional Government of Iraq [2026] EWHC 1003 (Comm). In this case, Mrs Justice Dias held that the parties’ adoption of the London Court of International Arbitration (LCIA) Arbitration Rules – in particular article 28 of the rules – constituted an agreement to a self-contained costs regime which displaced the default provisions of s63 of the act.
Article 28 (Arbitration Costs and Legal Costs) LCIA Rules
Article 28 of the LCIA Rules provides the tribunal with broad discretion to determine both the costs of the arbitration (such as the tribunal’s fees and LCIA administrative charges) and the parties’ legal costs. In particular, article 28.3 empowers the tribunal to order one party to pay all or part of another party’s legal costs. The tribunal has wide discretion to determine the amount of those costs on any reasonable basis it considers appropriate. It should be noted that the tribunal is not bound by the costs assessment rules or hourly rates used by national courts. This allows the tribunal to adopt a flexible, commercially oriented approach to cost allocation that reflects the circumstances of the arbitration, rather than applying domestic procedural rules.
Genel Energy v Kurdistan
The arbitration concerned a dispute between Genel Energy and the Kurdistan Regional Government seated in London under the LCIA Rules. Following a two-and-a-half-year arbitration and a two-week hearing, the tribunal awarded Kurdistan, as the successful party, costs of over US$26m. Although Kurdistan claimed more than US$35.5m in legal and expert fees without providing a detailed itemisation by workstream, fee-earner, hours or rates, the tribunal reduced the claim by applying percentage reductions to the legal and expert fees before making its costs award. Genel challenged the award under s 68(2)(b), contending that the tribunal had exceeded its powers by failing to comply with s63(3).
Genel argued that the parties’ agreement to use the LCIA Rules was insufficient, without more, to displace the default costs provisions in s63. Genel argued that s63 remained essential and mandatory supplements to the LCIA Rules. Kurdistan argued that the concluding sentence of article 28.3 expressly frees the tribunal from applying the costs assessment procedures or rates used by national courts. More importantly, Kurdistan argued that article 28.3 establishes a self-contained costs regime based on a distinct categorisation of recoverable costs. As such, the tribunal enjoys a broad discretion to determine legal costs on such reasonable basis as it considers appropriate, without having to identify the methodology adopted or to provide a detailed itemisation beyond specifying the amounts awarded for arbitration and legal costs.
Dias J rejected Genel’s challenge under s63. She accepted that the mere incorporation of institutional rules does not, in itself, exclude every non-mandatory provision of the act. Nevertheless, Dias J explained that article 28.3 constitutes a comprehensive and self-sufficient mechanism for the assessment of legal costs which excludes the operation of the default regime under s63 in its entirety. She also rejected Genel’s contention that such an interpretation was commercially unrealistic and observed that commercial parties would be surprised if a comprehensive set of institutional rules amounted to a ‘leaky sieve’ requiring supplementation by selective provisions of the act. Requiring institutional rules to satisfy an undefined threshold of specificity before displacing the statutory defaults would introduce unnecessary complexity and uncertainty. It would also create the undesirable possibility that internationally recognised institutional rules, such as the LCIA Rules, might operate differently depending on the arbitral seat, contrary to the expectations of commercial parties who choose institutional arbitration.
Although Dias J held that s63 did not apply, Dias J considered whether, if they had, non-compliance would have amounted to an excess of power under s68(2)(b) of the act. Relying 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), Dias J reaffirmed the distinction between exceeding jurisdiction and merely exercising an existing power incorrectly. The judge explained that s63 of the act was ‘essentially adjectival’, meaning that they regulate the exercise of the tribunal’s costs jurisdiction rather than its existence. To hold otherwise would expose routine costs awards to challenge under s68 which would be contrary to the act’s objective of finality. Dias J also rejected Genel’s argument that ‘recoverable costs’ in s 63(3) required itemisation of individual items of work. The term referred to the categories of costs identified in s59 of the act and the phrase ‘item of work’ was too uncertain to provide a workable statutory standard.
Genel Energy v Kurdistan provides welcome clarification on the interaction between the act and institutional arbitration rules. The decision confirms that, by adopting the LCIA Rules, the parties also adopt a comprehensive and autonomous costs regime which displaces the default provisions of s63 of the Act. By doing so, the decision reinforces the principle of party autonomy in arbitration, strengthens the finality of arbitral costs awards, promotes certainty for commercial parties choosing institutional arbitration, and reinforces the principle that institutional rules should operate consistently across jurisdictions.
Masood Ahmed is an associate professor of law at the University of Leicester and co-author of Arbitration of Commercial Disputes: English and International Law and Practice (Oxford University Press 2025)
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