The recent decision of Ravfox Ltd v Bexmoor Ltd [2025] EWHC 1313 (Ch) explored whether an arbitrator had jurisdiction to make a costs award when it had been found that they lacked jurisdiction to deal with the matter.
Background
By way of background, the parties were in dispute as to the amount of service charge the defendant (Bexmoor Ltd) was required to pay the claimant (Ravfox Ltd) in respect of individual units which the defendant sublet from the claimant on an industrial estate. The defendant referred the matter to arbitration and alleged that the claimant (the respondent in the arbitration) failed to comply with its obligations under the sublease.
Within the arbitration, the respondent, Ravfox Ltd, filed a statement in reply to Bexmoor Ltd’s statement of claim, challenging the arbitrator’s jurisdiction on the basis there was no binding sublease between the parties. Ravfox Ltd sought their full costs and expenses of the arbitration from the applicant.
Arbitral Decision
The arbitrator found that there was no binding contract containing an arbitration clause and that he did not, therefore, have jurisdiction to hear the dispute. Further, he found that, in light of his lack of jurisdiction in the dispute, he lacked jurisdiction to make any determination as to costs. He added, however, that having read the submissions filed by the parties, he would have found in favour of the claimant (Ravfox Ltd), and he would have ordered that no costs were payable. As a result of this finding, he recommended that the matter be put before the Court to determine the costs of the jurisdictional challenge.
Court Decision
His Honour Judge Keyser KC reviewed the relevant provisions of the Arbitration Act 1996 and determined that the arbitrator was wrong to determine he had no jurisdiction to deal with costs. He went on to explain that:
“It would mean that a respondent making a jurisdictional challenge would be at risk of an adverse costs order if the jurisdictional challenge failed and would necessarily bear its own costs if the jurisdictional challenge succeeded, whereas the referring party would be able to recover the costs of successfully defending a jurisdictional challenge but would be at no risk of an adverse costs order if the jurisdictional challenge succeeded.”
Clarification to section 61 of the Arbitration Act 1996
The Law Commission’s Consultation Paper 257, Review of the Arbitration Act 1996, considered this point further and recommendations were made to insert a new subsection (1A) to section 61 of the 1996 Act. Effective from 1 August 2025, section 61 of the Arbitration Act 1996 now reads:
“61. Award of costs
(1) the tribunal may make an award allocating the costs of the arbitration as between the parties, subject to any agreement of the parties.
(1A) it is irrelevant for the purposes of subsection (1) whether the tribunal has ruled, or a court has held, that the tribunal has no substantive jurisdiction or has exceeded its substantive jurisdiction.”
The Law Commission considered that the inclusion of this new subsection simply “put the matter beyond doubt” rather than changing the law, to which HHJ Keyser KC agreed.
This decision makes the position clear; that where an arbitrator accepts a challenge that they do not have jurisdiction to hear a dispute, they are still able to deal with the costs arising out of such a challenge.
Joanne Chase is a Legal Director in Clarion’s Costs and Litigation Funding Team and can be contacted on 07826 166300 or Joanne.Chase@clarionsolicitors.com