English Court Reserves Costs of an ASI Application for Arbitral Tribunal to Facilitate Enforcement

The recently published judgment in Airbus Canada Limited Partnership v Joint Stock Company Ilyushin Finance Co [2024] EWHC 789 (Comm) (Airbus and Ilyushin Finance) is a reminder that successful parties may ask the court to reserve costs decisions to enable the arbitral tribunal to make an award of damages in respect of those costs which would be enforceable under the New York Convention.

Background

The defendant Russian entity, Ilyushin Finance, sought recovery of a part payment made to Airbus. Airbus refused to make the payment, arguing that Ilyushin Finance was now a designated entity under Canadian sanction regulations. In alleged breach of the express contractual provision for resolution of the dispute by LCIA arbitration, the defendant commenced proceedings before the Russian Arbitrazh Court under Article 248 of the Russian Arbitration Procedural Code. This provision confers jurisdiction upon Russian courts over claims involving sanctioned parties, including when the arbitration agreement is "unenforceable due to restrictive measures applied to one of the persons participating in a dispute by a foreign state". Airbus sought various anti-suit injunctions, including a mandatory injunction requiring the defendant to discontinue the Arbitrazh Court proceedings and any anti-anti-suit relief obtained in Russia.

Having successfully applied for a final anti-suit injunction, Airbus sought an order from the English Commercial Court to reserve the costs of and occasioned by these various interlocutory applications, pending the conclusion of any future LCIA arbitration between the parties. Airbus argued that costs sought as part of damages awarded by the arbitral tribunal might be more generous than those they might obtain from the English courts, even on an indemnity basis. Additionally, Airbus contended that if the costs were awarded by the arbitral tribunal as part of damages for breach of the arbitration agreement, the entire sum could be enforced internationally under the New York Convention, with greater ease than enforcing an English costs order.

Decision

The judge, HHJ Pelling KC, granted the order. However, he was sceptical as to the first point, "since to permit any greater recovery would by definition be to permit the recovery of costs in excess of those that were reasonably incurred".  Nevertheless, he accepted that if costs were to be awarded as part of damages for breach of the arbitration agreement, the resulting award would be more easily and effectively enforced around the world than an English court judgment. For this reason alone, the order was granted.

Comment

This case is noteworthy because the judge was willing to reserve costs for the arbitral tribunal to determine as damages in order to facilitate the enforcement of a decision on costs. It serves as a useful reminder that it is possible to seek the costs of an ASI application in arbitration as part of damages for breach of an arbitration agreement, rather than from the court.

The authors would like to thank Kristy Chan for her contribution to this post.