English High Court Orders Indemnity Costs In Discontinued S.68 Proceedings To Challenge Awards

In Koshigi Ltd and another company v Donna Union Foundation and another [2019] EWHC 122 (Comm) the English High Court considered an application for costs arising from discontinued proceedings under s.68 Arbitration Act 1996 to challenge two arbitral awards. The claimant in the underlying arbitration had successfully obtained two awards in its favour from the tribunal, which the respondents then sought to challenge in the English courts through two related sets of proceedings for serious irregularity under s.68, alleging bias on the part of the chairman of the tribunal. The respondents then discontinued the s.68 proceedings before they reached a hearing, asserting that the awards which they were seeking to challenge had become unenforceable.

In considering the claimant's application for costs in relation to the discontinued proceedings, the Court decided that the liability for the costs rested with the applicants (the respondents in the arbitration) and that the costs should be assessed on an indemnity basis rather than the usual - and typically lower - standard basis. The Court's approach, which disincentivizes the pursuit of s.68 applications without a strong substantive basis, is consistent with other attempts by the English courts to block applicants who bring weak s.68 appeals.

Background

The underlying arbitration concerned a dispute between the shareholders of a Maltese company concerning a provision of the Maltese Companies Act requiring the compulsory purchase of the claimant's minority shareholding in certain circumstances.

Following the issue of the first award, the respondents commenced s.68 proceedings, alleging that the chairman of the tribunal breached his duty to act fairly and impartially and was biased. The claimant issued an application for security for costs in relation to this application. Shortly thereafter, the tribunal issued its second award. The respondents then issued a further s.68 challenge in relation to this award, relying on the same allegations of bias regarding the chairman.

However, within a month of issuing the second set of s.68 proceedings, the respondents discontinued both sets of s.68 proceedings, alleging that the underlying awards which they had been seeking to challenge had become unenforceable. The tribunal had ordered the purchase of the shareholding by way of a mechanism that involved the claimant transferring its shares to be held in escrow and the respondents paying the purchase price to be...