On 4 July 2025 Mr Justice Calver handed down his judgment on consequential matters after he had dismissed a challenge of an arbitral award under Section 67 and 68 of the English Arbitration Act 1996 in V and Anor v K [see V & Anor v K [2025 EWHC 1523 (Comm)]. The decision contains a warning to parties who are seeking to challenge an arbitral award to consider carefully whether to bring a "hopeless" challenge as the cost consequences might be substantial.
Background
The dispute arose out of a memorandum of agreement ("MoA") for the sale of a vessel from K, the claimant in the arbitration, to V, the respondent in the arbitration, for US$13.1 million. K terminated the MoA in September 2022 following sanctions being placed on V and sought the release of a US$ 1.965 deposit held in escrow by K's solicitors.
V and Anor counterclaimed on the basis that the MoA had been novated to Anor, which was not subject to sanctions, thus, K's termination constituted a repudiatory breach.
The arbitral tribunal appointed under the rules of the London Maritime Arbitration Association ("LMAA") rendered a partial award in August 2024 in favour of K, awarding it the deposit and dismissing the counterclaims.
Challenge of the Award
V and Anor challenged the award under section 67, for lack of jurisdiction, and section 68, on the grounds of serious procedural irregularities. The Court dismissed the challenge and reaffirmed that challenges of arbitral awards would only succeed in exceptional circumstances, and that "tactical" or "opportunistic" claims of bias would fail. The judgment was handed down by Justice Calver on 19 June 2025.
The Claimant did not request permission to appeal when the judgment was handed down.
The decision on consequential matters
In the consequential decision the Court had to address (among other issues) the permission to appeal and whether costs should be awarded on an indemnity basis.
As to the permission to appeal, the court clarified that the Claimant did not make an application for permission to appeal at the time of the hand-down of the judgment and no adjournment of that hand-down hearing was sought. It was therefore too late to seek permission now (based on CPR 52.3(2) and paragraph 4.1 of PD 52A).
With respect to the indemnity costs, the court considered that the section 67 challenge was "hopeless", and that the section 68 grounds were "effectively abandoned at hearing". In consequence of the "meritless" claim, the Court ordered not only for V and Anor to pay 100% of K's costs, but they were to pay 70% of these on the indemnity basis.
The "harsh" cost consequences are in line with an update to the Commercial Court Guide in 2022 which is aimed to deter parties from pursuing weak claims by allowing the Court to order indemnity costs if a challenge under either section 67 or 68 fails at a hearing.
Impact
The power to order indemnity costs in accordance with provision O8.7 of the Commercial Court Guide 2022, has been rarely utilised by the Court. It might be used more often in the future as many challenges brought under Section 67 and 69 end up being dismissed. As an example, in 2023-24 only one in eight section 67 challenges was successful and all twelve of the section 68 challenges were dismissed. Interestingly, despite the high failure rate, the number of Section 67 challenges increased from seven in 2022-23 to 24 2023-24 and the section 68 challenges from 27 to 37. It is therefore unsurprising that courts consider it necessary to impose costs sanctions to stop parties from filing hopeless and speculative challenges.
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