The Commercial Court’s decision in A1 & Ors v P (Costs) [2026] EWHC 2030 (Comm) provides important guidance on the allocation of costs in challenges under section 67 of the Arbitration Act 1996 (AA 1996). Although the case arose from a successful jurisdictional challenge in part, its principal significance lies in the court’s application of issue-based costs principles under CPR 44.2 (general rules about costs).
The case concerned a challenge under section 67, which allows a party to challenge an arbitral award on the basis that the tribunal lacked substantive jurisdiction. The High Court proceedings followed a London Court of International Arbitration case in which a three-member tribunal held that three claimant companies (A1, A2 and A3) were jointly and severally liable to pay fees owed to the defendant, P. After the court’s substantive judgment partly upheld the jurisdiction challenge, the court turned its attention to the allocation of both court and arbitration costs. P had been instructed by a US law firm (C) to provide intelligence-gathering services in connection with a dispute involving the claimants. The central issue was whether C had contracted with P solely on its own behalf or as agent for the claimants. The arbitral tribunal concluded that C had authority to bind all three claimants and awarded P its fees, interest and costs.
Section 67 challenge
The claimants challenged the award under section 67 of the AA 1996, arguing that the tribunal lacked jurisdiction because they were not parties to the agreement containing the arbitration clause. They contended that C lacked actual or apparent authority to bind them, A1 and A3 were not parties to the agreement as a matter of contractual construction or intention, and that A1 and A2 had relied upon a provision of the Civil Code of Country 1 (the ‘authorisation article’) to argue that any authority to enter an arbitration agreement required specific constitutional authorisation or shareholder approval.
Applying English law (the governing law of the agreement), the court held that C did not possess implied actual authority or ostensible authority merely because it was acting as solicitors. The ordinary authority of solicitors did not extend to binding the claimants to this contract. It also found that A3 had not ratified the arbitration agreement and therefore the tribunal lacked jurisdiction over A1 and A3. The award against A1 and A3 was set aside under section 67.
However, A2’s position differed significantly. Although A2 sought to rely upon the authorisation article, it had not raised this objection during the arbitration. The court held that the argument was barred by section 73 of the AA 1996, which prevents a party who knowingly participates in arbitration without objecting to jurisdiction from later raising that objection. The judge concluded that A2, with reasonable diligence, could have discovered the relevant legal argument during the arbitration. Consequently, A2 had lost the right to rely upon it.
Costs issues
The principal costs dispute centred upon the authorisation article. The claimants argued that companies incorporated in Country 1 required specific constitutional authority or shareholder approval before entering arbitration agreements. They asserted they only became aware of this legal restriction after receiving the arbitral award. P argued that these assertions were inaccurate and that the argument was a new jurisdictional point which was barred by section 73. During the hearing, serious problems emerged. A2’s chairman (Z) was shown constitutional amendments made in 2014 expressly authorising the board to engage in arbitration. These amendments directly contradicted his witness statement, which claimed no such provision existed. The judge found Z’s explanations inconsistent, evasive and ultimately unreliable. Similarly, A1 had amended its constitution in 2015 to include express authority for arbitration, yet its witness (Y) likewise failed to disclose this amendment while asserting that no such constitutional provision existed. The judge concluded that both witnesses had given misleading evidence.
Decision on costs
The court rejected the claimants’ submission that they were substantially successful overall. Although A1 and A3 succeeded in setting aside the award against them, the authorisation article issue occupied a significant proportion of the litigation and generated most of the costs. The judge emphasised that A2 had never been entitled to pursue the authorisation article because section 73 barred it; A1 abandoned the argument only after substantial costs had already been incurred; both A1 and A2 relied upon misleading witness evidence and their conduct justified issue-based costs orders. Consequently, neither A1 nor A2 recovered any costs relating to the authorisation article or section 73 issues. Instead, they were ordered to pay P’s costs of those issues.
The court also considered the conduct of A1 and A2 sufficiently serious to justify indemnity costs. The court described their approach as speculative, opportunistic, weak and supported by misleading evidence. The misleading witness statements took the case outside the norm and justified indemnity costs against both claimants.
The court also rejected the claimant’s reliance on the decision in Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88 in which the court held that, where a successful defendant succeeds only on one issue, recoverable costs should be limited to the additional costs caused by that issue. The court explained that Medway did not establish a binding rule of law and pre-dated the Civil Procedure Rules, and that CPR 44.2 grants the court a broad discretion in making issue-based costs orders.
The court divided the litigation into three phases when making its costs orders. For the period before the section 67 application was issued, the claimants recovered two-thirds of their costs because approximately one-third related to the unsuccessful authorisation article issues. For the period between commencement of the section 67 proceedings and the hearing, P recovered 95% of its costs, reflecting that almost all the work concerned the unsuccessful section 73 and authorisation article arguments. For the hearing itself, the court estimated that approximately 60% concerned those unsuccessful issues. Accordingly, P recovered 60% of its hearing costs; A1 and A3 recovered 40% of theirs; and P also recovered its costs of the summary determination application (on the indemnity basis) and the security for costs application.
Due to the fact the award had been set aside only against A1 and A3, the court also reconsidered the tribunal’s costs order and, rather than remitting costs back to the tribunal, the court varied the award itself as follows: P should recover approximately 90% of the common arbitration costs from A2; A1 and A3 should recover 10% of their common costs from P; and A1 and A3’s recoverable legal costs should be reduced by 40% to reflect disproportionate hourly rates and excessive hours worked.
The decision provides important guidance on sections 67 and 73 of the AA 1996 and the issue of costs. It confirms that, while section 67 allows a full rehearing of jurisdictional issues, section 73 will prevent parties from raising jurisdictional objections that could reasonably have been made during the arbitration itself. The decision also illustrates the court’s willingness to make detailed issue-based costs orders under CPR 44.2 to award indemnity costs where misleading evidence has been presented, and to vary arbitral costs orders following a successful jurisdiction challenge. It also demonstrates the serious costs consequences of advancing weak or misleading jurisdictional arguments in arbitration-related litigation.
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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