Genel Energy v Kurdistan Regional Government: when LCIA rules displace the Arbitration Act on costs

The High Court has dismissed a serious irregularity challenge under section 68(2)(b) of the Arbitration Act 1996 arising from a costs award of over US$26 million issued following a two-week oil and gas arbitration. In Genel Energy Miran Bina Bawi Limited v The Kurdistan Regional Government of Iraq [2026] EWHC 1003 (Comm), Mrs Justice Dias addressed whether an arbitral tribunal exceeds its powers by failing to itemise recoverable costs in accordance with section 63(3) of the Act — and found that it does not.

The background

The arbitration concerned the termination of two Production Sharing Contracts relating to oil and gas exploitation in the Kurdistan Region of Iraq. A partial final award issued in December 2024 upheld the KRG's termination and dismissed GEMBBL's counterclaim for repudiation damages. In subsequent costs proceedings, the KRG claimed over US$35.5 million in legal and expert fees — a sum the judge described as "truly eye-watering" for proceedings lasting approximately two and a half years — supported by little more than aggregate figures per category of fee earner and monthly totals. The tribunal applied a blanket 20% reduction to legal fees and 50% to one expert's fees, awarding roughly US$26 million in total.

GEMBBL challenged the costs award on the basis that the tribunal had exceeded its powers by failing to comply with the so-called "Specificity Provisions" in section 63(3)(a) and (b), which require a tribunal determining recoverable costs to specify the basis on which it has acted and the items of recoverable costs with the amount referable to each.

Section 63 and Article 28.3: a complete displacement

The first and ultimately decisive question was whether section 63 of the Act had been displaced by Article 28.3 of the LCIA Rules 2020, to which the parties had agreed. The court rejected GEMBBL's argument that only an agreement positively inconsistent with the statutory default rules could oust them. There is no conceptual limit, Dias J held, on the type of agreement capable of doing so. Party autonomy — enshrined in sections 1 and 4 of the Act — does not permit such a constraint to be implied.

Article 28.3, which confers on the tribunal a discretion to decide Legal Costs "on such reasonable basis as it thinks appropriate" without requiring it to apply any court's assessment procedures, was held to constitute a complete, free-standing regime. To bolt on the Specificity Provisions would itself be inconsistent with that regime, and would produce the anomalous result that the effect of identical institutional rules might differ depending on the seat of the arbitration.

Excess versus erroneous exercise of power

Even had the Specificity Provisions applied, the court held that non-compliance would not have constituted an excess of power within the meaning of section 68(2)(b). Applying Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43, the tribunal undoubtedly possessed the power to determine costs. How it exercised that power — including what it specified in the award — was a matter of exercise, not jurisdiction. Requirements essentially adjectival in character cannot properly be said to delimit the existence of a power, particularly where Parliament chose not to make section 63 a mandatory provision.

The court also addressed the meaning of "items of recoverable costs" in section 63(3)(b), finding that this refers to the headline categories in section 59 of the Act rather than individual workstreams or fee-earner entries. Any other interpretation, the judge observed, would make the ambit of a tribunal's power dependent on the vagaries of how parties happen to present and incur their costs — an outcome inconsistent with the conferral of a general power applicable uniformly across all cases.

The section 68 challenge was accordingly dismissed on each of the three substantive grounds. Although the court found that substantial injustice would have been established had an excess of power been made out, that conclusion offered GEMBBL little practical comfort.