Will the Genel Energy v KRG decision trigger reform of arbitration costs rules?
Matthew Kain writes in PLC Magazine about the potential implications of the High Court’s decision in Genel Energy Miran Bina Bawi Ltd v The Kurdistan Regional Government of Iraq for LCIA arbitration costs awards. He examines how the judgment may affect arbitration users, litigation funders and advisers, whether it could influence parties’ choice of arbitral forum, and the potential for future reform.
Matthew’s article was published in the July 2026 edition of PLC Magazine. Subscribers can access the online version here.
Will the Genel Energy v KRG decision trigger reform of arbitration costs rules?
Written by Matthew Kain, CEO of Kain Knight
A recent High Court ruling on the London Court of International Arbitration (LCIA) costs awards could have significant consequences for arbitration users, litigation funders and advisers.
The decision in Genel Energy Miran Bina Bawi Ltd (GEMBBL) v The Kurdistan Regional Government of Iraq (KRG) resulted in a $26.8 million arbitration costs award being upheld after it was concluded that the tribunal did not exceed its powers in awarding costs to the KRG, despite an absence of detail in the underlying claim.
This could force commercial parties to think twice before they sign up to LCIA arbitration. Comprehensive reform, as envisaged by the recent consultation on revision of the LCIA’s Arbitration and Mediation Rules, may not provide a solution to the problem.
Background
The decision by Mrs Justice Dias in GEMBBL v KRG concerned the costs of a two-week arbitration which took place in February 2024. It arose from the termination of two Production Sharing Contracts (PSCs) relating to the exploitation of oil and gas reserves for both the Bina Bawi and Miran gas fields in the Kurdistan Region of Iraq.
In December 2024, the arbitral tribunal issued a Partial Final Award holding that the claimant, KRG, had validly terminated the PSCs and dismissed GEMBBL’s counterclaim for damages of more than $1.75 billion.
At subsequent costs tribunal proceedings in April 2025, KRG presented a claim of more than $35.5 million in respect of legal and expert fees over the roughly two-and-a-half-year period of the arbitration.
The tribunal determined that the costs claimed were not reasonable and applied a blanket reduction of 20% to the legal fees and 50% to the fees of one of the experts, as well as other smaller reductions. This resulted in a reduction in the total costs award from the $35.5 million sum claimed to $26.8 million including post-award interest, which GEMBBL was then ordered to pay to KRG for the recoverable legal and expert fees.
In May 2026, GEMBBL appealed the tribunal costs award of $26.8 million relating to legal and expert fees in the High Court. The primary basis of the appeal was serious irregularity under s.68(2)(b) of the Arbitration Act 1996 (the Act) on the grounds that the tribunal exceeded its powers by issuing an award which failed to comply with the requirement in s.63(3) of the Act to “specify the items of recoverable costs and the amount referable to each.” In short, costs were awarded without a sufficiently detailed breakdown of the specific items of work being provided in accordance with the Act.
In the High Court hearing, Mrs Justice Dias offered the following critique in relation to the summary of work done and the associated costs:
“KRG as the successful party presented a claim which included the truly eye-watering sum of over US$35.5 million in respect of legal and expert fees over the roughly 2½ year period of the arbitration. It might have been expected that a claim for costs of this magnitude would be supported by lengthy schedules breaking down those costs by reference to particular workstreams, fee earners, rates and hours allocated to each workstream. Far from it. The only information that KRG condescended to provide in support of its claim consisted of:
(a) A total aggregate figure for each category of fee earner (not even each individual fee
earner) over the entire life of the proceedings, with the total hours spent by each such
category and the range of hourly rates applied within each category;
(b) The total aggregate figure charged in each month by all fee earners;
(c) The total aggregate fees and expenses charged in each month by each expert.”
Mrs Justice Dias added: “There was no attempt to allocate costs to particular workstreams and no information to show how much time was spent on any particular item of work by any individual fee earner. This meagre information was supplemented to a limited extent in reply costs submissions by a very high-level summary of the work carried out in each month, although this consisted of little more than bald headline descriptions such as “Legal advice regarding issues in dispute”, “correspondence with GEMBBL regarding issues in dispute”, “procedural issues”.”
Notwithstanding this extensive criticism and the Judge stating in her judgment “I have considerable sympathy for GEMBBL,” the High Court still dismissed the appellant’s challenge: the costs award stood, alongside post-award interest. The tribunal, noted Mrs Justice Dias, clearly had authority to award costs and any deficiency lay in how that power was exercised.
Critically, Mrs Justice Dias ruled that the parties’ agreement to arbitrate under the LCIA Rules 2020 functions as a self-contained costs regime which displaces the default provisions of the Act. Under Article 28 of the LCIA Rules, tribunals have absolute discretion to assess legal costs on any reasonable basis and are not bound by domestic court assessment procedures.
Article 28.3 states: “The Arbitral Tribunal shall also have the power to decide by an order or award that all or part of the legal or other expenses incurred by a party (the “Legal Costs”) be paid by another party. The Arbitral Tribunal shall decide the amount of such Legal Costs on such reasonable basis as it thinks appropriate. The Arbitral Tribunal shall not be required to apply the rates or procedures for assessing such costs practised by any state court or other legal authority.”
This High Court decision, known informally as the “Kurdistan” Precedent, presents a potentially significant problem for parties that may consider LCIA arbitration in future: where institutional rules give tribunals such broad discretion on costs, the scope for court intervention may be far narrower than many would have previously anticipated.
In addition to litigants who might opt for LCIA arbitration, the ruling also creates uncertainty for litigation funders and advisers. The decision may prompt parties to reconsider whether, despite its reputation for being highly cost-effective, the choice of LCIA arbitration affords them sufficient protection on costs recovery and assessment.
There are, of course, alternative options.
For some parties, the International Chamber of Commerce (ICC) may be seen as an alternative. The ICC uses an ad valorem system for administrative expenses and arbitrators’ fees, calculated by reference to the amount in dispute. This can give parties greater visibility at the outset in relation to institutional and tribunal costs, although legal and expert fees will still depend on the conduct and complexity of the case. ICC tribunals also retain discretion to decide which party should bear the costs of the arbitration, including reasonable legal and other costs, and in what proportion.
Until the LCIA position is further clarified, some parties might instead prefer mediation, expert determination or other dispute resolution mechanisms which provide greater certainty. Although these alternative options vary in terms of cost and speed, they could provide a more certain level of costs at the outset in relation to legal fees and expert witness costs, which typically account for the vast majority of the total expenditure in arbitration proceedings.
A key question arising from the GEMBBL v KRG ruling on costs is whether it could accelerate calls for amendments, both to the Arbitration Act and to LCIA Rules, and whether changes could potentially go beyond costs recovery alone.
A recent comment piece in the legal media was headlined: ‘The LCIA’s future lies in careful renewal, not wholesale reinvention.’ The geographic breadth of data supporting this argument is impressive: since 2020, when the current rules were first implemented, the LCIA has administered cases involving parties from 161 jurisdictions, across 70 seats and applying 99 substantive laws. In a typical year, 85% of parties in LCIA arbitrations are from jurisdictions outside the UK. International arbitration is a competitive business and such data matters.
But change is inevitable.
The LCIA Rules Revision Consultation, which opened in March and closed on 11 May, invited comments on any provision of the LCIA Arbitration Rules or LCIA Mediation Rules. A long list of potential topics is provided by the public consultation – from expedited procedures, emergency arbitrator provisions, and early determination to coordination of related disputes, third-party funding disclosure and the possible anonymised publication of awards.
Although “Costs reform, including optional ad valorem schedules and cost-control tools” was listed as one of the areas of interest, it is not yet clear whether any substantive changes will be proposed or made to agreements to arbitrate under the LCIA Rules, which functions as a self-contained costs regime, according to the High Court judgment.
The LCIA Rules Revision Committees will review all submissions received over the coming months before canvassing a second round of community feedback later in the year. Publication of new rules is anticipated at some point next year. Hopefully, they will reflect the real-life experience of disputes from users, tribunals and institutions, including the thorny issue of costs.
The outcome is important for the LCIA’s competitive position, the future popularity of London as an international seat of arbitration, and, at a practical level, ensuring alignment of the LCIA Rules with the Arbitration Act 2025. But whatever recommendations are implemented following the consultation, there are potential downsides to reform. These include the risk that the addition of new rules could potentially create more satellite disputes over costs rather than fewer.
For lawyers advising clients who are in current arbitration proceedings, or who are contemplating LCIA arbitration as a means of deciding their dispute, the judgment may impact their advice. No doubt, they are generally cautious. But some may advise that the decision be used strategically – either to resist detailed costs scrutiny or to push for greater transparency.
Ultimately, the long-term impact of the judgment could be the evolution of a more sophisticated approach to costs recovery, improving outcomes for clients and funders. Let’s hope that is not merely wishful thinking.
