The underlying dispute between Airbus and a Russian company, Ilyushin, concerned an aircraft supply agreement. Following UK and Canadian sanctions against Ilyushin, Ilyushin sought to recover a part payment made to Airbus. Airbus refused to make the requested repayment on the basis that it was prohibited from doing so by sanctions. The contract had an LCIA clause with the seat in London. In breach of the arbitration clause, Ilyushin initiated proceedings before the Russian courts. In response, Airbus applied to the English courts to restrain Ilyushin from pursuing proceedings in Russia. Following a series of interim injunctions granted by both English and Russian courts, Airbus obtained the final injunctions from the English courts. 

Airbus then obtained an order that the court’s determination of costs be reserved until completion of the LCIA arbitration on the basis that Airbus would be better placed to recover the costs by bringing a claim for breach of the arbitration agreement in the LCIA proceedings instead. Airbus put forward two benefits for this: (1) an arbitration award would be more widely enforceable; and (2) there may be a “more generous element of recovery”. 

Costs or Contractual Damages?

The judgment handed down by HHJ Pelling KC held that Airbus would be entitled to recover such costs as damages on an indemnity basis. Under Civil Procedure Rule 44.3, recovery on an indemnity basis would mean costs have to be reasonably incurred and reasonable in amount but do not need to be proportionate. As such, costs claimed on an indemnity basis are closer to complete recovery. 

A claim for breach of an arbitration agreement is a claim for a breach of contract. This means that the damages awarded should aim to put Airbus in the position as if the contract had been properly performed. In this case, that would mean the position Airbus would have been in had Ilyushin not commenced proceedings in Russia. This would include compensation for, among other potential costs, the costs that Airbus incurred in obtaining the final injunctions before the English courts. 

Airbus suggested that pursuing these costs as a claim for breach of the arbitration agreement in the LCIA proceedings would result in a more generous recovery than it was entitled to on the indemnity basis.  The court viewed this with some scepticism and noted that this implies that Airbus could recover costs in “excess of those that were reasonably incurred or were reasonable in amount”. 

Commentary

This case illustrates the potential to claim costs of ancillary court proceedings in an arbitration as damages for breach of the arbitration agreement rather than through a costs order of the court in question.  The main advantage is likely to be the wider enforceability of an arbitral award for costs under the New York Convention, compared with a court order for costs.  This route may also be more efficient where the claiming party has become involved in litigation relating to the arbitration in more than one jurisdiction. Rather than obtaining a series of jurisdiction-specific costs orders, the claiming party can instead seek an award of damages for breach of the arbitration agreement encompassing litigation costs from a number of sets of proceedings. 

In this case the court was sceptical as to whether costs recovery in arbitration would be more generous. This could be different, though, if the ancillary proceedings concerned a jurisdiction where costs recovery was limited or non-existent (e.g. the U.S.).

It remains to be seen if this will become a popular approach in anti-suit and anti-enforcement claims. 

Case: Airbus Canada Limited Partnership v. Joint Stock Company Ilyushin Finance Co.