Costs Exceptionally Reserved On Preliminary Issue Due To Potential Set-Off Against Arbitration Awards

CC/DEVAS (MAURITIUS) LTD & ORS V REPUBLIC OF INDIA [2025] EWHC 1189 (Comm)

In CC/Devas (Mauritius) Ltd v Republic of India [2025] EWHC 1189 (Comm), the court addressed the preliminary issue of whether India had submitted to the jurisdiction of the English courts under s.2(2) of the State Immunity Act 1978 by ratifying the New York Convention 1958, thereby consenting to the enforcement of arbitration awards under Article III. The 4th to 6th Claimants argued that ratification alone constituted prior written agreement, while India contested this. Sir William Blair found in India’s favour, holding that ratification of the New York Convention did not amount to a submission to jurisdiction under s.2(2). The court considered India’s application for costs of the preliminary issue, totaling £582,900.33, with a request for £365,000 as a payment on account. The Claimants sought to reserve or stay costs pending the outcome of enforcement proceedings, citing potential set-off under CPR 44.12 and the awards’ validity in other jurisdictions. Despite India’s reliance on Redstone Mortgages v B Legal [2015] EWHC 745 (Ch) for immediate costs determination, the court reserved costs, deeming it exceptional to defer the decision until the enforcement proceedings’ conclusion. The court noted the disparity in costs but declined to order immediate payment, leaving quantification for future determination.

The matter is not altogether easy, but this is an exceptional case. Exercising my discretion, I have come to the conclusion that, no doubt exceptionally, on the facts of this case, costs should be reserved. It would be unjust to decide the incidence of costs now, because India may be held in the English courts, as in the courts of the seat, to owe much more under the awards, and in these circumstances, costs are better dealt with against the background of the proceedings as a whole.

Citations

Infrastructure Services Luxembourg SARL v Kingdom of Spain [2025] 1 Lloyd’s Rep 66 A State submitted to the jurisdiction of the UK courts by prior written agreement through Article 54(1) of the ICSID Convention, thereby waiving immunity under the State Immunity Act 1978 for enforcement proceedings. Redstone Mortgages Ltd v B Legal Ltd [2015] EWHC 745 (Ch) Costs of a preliminary issue should ordinarily be determined at the conclusion of that issue to avoid the inefficiency of deferring a decision to the trial judge unfamiliar with the earlier dispute. Unwired Planet International Ltd v Huawei Technologies Co., Ltd [2015] EWHC 3837 (Ch) The general rule is that costs resulting from a preliminary issue should be determined immediately by the judge hearing that issue, not deferred to final judgment.

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Key Points

The ordinary rule that costs follow the event applies equally to interlocutory determinations, including preliminary issues raised at a party’s election; a strategic decision to test an issue separately does not, of itself, displace that presumption. [10]
The court retains discretion to reserve costs in exceptional cases where the broader context of the litigation, including overlapping enforcement proceedings and potential set-off against substantial arbitral awards, makes it unjust to resolve costs at an interlocutory stage. [17]
Even when the successful party is entitled to costs in principle, the court may defer ordering payment where doing so risks prejudging or interfering with unresolved matters in parallel or related proceedings. [16–17]
In proceedings involving state immunity and arbitration award enforcement, the court may have regard to decisions from the courts of the seat and other jurisdictions when considering whether to reserve costs pending wider determinations. [14, 17]
A party seeking costs must substantiate claimed amounts with sufficient clarity; however, any differential with the opposing party’s costs, without a detailed cross-application or justification, will not alone justify a reduction in the sum payable on account. [18–20]

“In most instances, the decision as to the incidence of the costs of preliminary issues like the present one is made when the application is decided. It does not wait the outcome of the litigation. Also, from a practical point of view, it is the judge who decided the application who is in the best position to decide the incidence of costs. But this case is rather different, because it concerns a dispute as to arbitration awards which have been the subject of a considerable number of rulings in favour of the 4th to 6th Claimants in various courts. If at the end of the day, the 4th to 6th Claimants are successful in these proceedings as well, and the awards are upheld, the question could reduce simply to a calculation of the amount of costs due to India on this application, for set off against India's overall liability. I say "could" because that reflects my view at this time, but if costs are reserved then at the conclusion of the proceedings, it would be for the judge hearing the matter to decide at that stage, including any issues relating to assignment which were not explored in this hearing. If on the other hand the awards are not upheld, the 4th to 6th Claimants' contention that the costs of the present application should not follow the event is likely to lapse, with the same caveat that it would be for the judge hearing the matter to decide.”

Key Findings In The Case

The court found that India had not, merely by ratifying the New York Convention, submitted to the adjudicative jurisdiction of the English courts within the meaning of section 2(2) of the State Immunity Act 1978; accordingly, the claim under that provision failed. [3]
The court granted the 4th to 6th Claimants permission to appeal on the section 2 issue, not because the appeal had a clear prospect of success, but because the case raised a compelling issue of public importance regarding the intersection of state immunity and treaty obligations, justifying appellate consideration. [6]
Although India was the successful party on the section 2 issue, the court exercised its discretion to reserve the question of costs exceptionally, due to the substantial arbitral awards in play and the potential for set-off should those awards ultimately be enforced. [17]
The court considered that delaying a decision on costs was justified by the unique procedural context, including prior decisions by the Netherlands courts upholding the awards and the likelihood that future determinations in the enforcement proceedings would significantly inform any final costs allocation. [14, 17]
The court was satisfied that India’s costs claim of £582,900.33 had not been adequately challenged by the 4th to 6th Claimants, and while it accepted that a reduction might be warranted on assessment due to the concise nature of the hearing, it would not have been justified in reducing the amount solely based on relative disparity without further substantiation. [20]

“I should say something about the quantum of India's costs, since I am in the best position to express a view on this. The 4th to 6th Claimants object that there is no justification for India's costs being (it appears) 30% greater than their costs. They say that this cannot be explained by reference to legal research. Both parties engaged in heavy research, and this cannot justify the disparity in legal fees. They submit that India's costs totalling £582,900.33 "appear to exceed [the 4th to 6th Claimants'] costs by around 30%".”

Background

The case of CC/Devas (Mauritius) Ltd & Ors v Republic of India arose from proceedings to enforce arbitration awards against the Republic of India under s.101 of the Arbitration Act 1996. The claim was brought by six claimants, though only the 4th to 6th claimants participated in the costs-related issues following the judgment handed down on 17 April 2025. The key preliminary issue, identified by Sir Nigel Teare in an order dated 23 October 2024, concerned whether India had submitted to the jurisdiction of the English courts by prior written agreement under s.2(2) of the State Immunity Act 1978 (SIA) through its ratification of the New York Convention 1958 (NYC). The court determined this issue in favour of India, holding that ratification of the NYC alone did not constitute a submission to jurisdiction.

Costs Issues Before the Court

The consequential matters before the court included: (1) the claimants’ application for permission to appeal; (2) the determination of costs following the judgment on the preliminary issue; and (3) the form of the final order. The focus of this analysis is on the costs dispute. India, as the successful party, sought its costs of the preliminary issue hearing, including a payment on account of £365,000. The claimants argued that costs should be reserved or stayed pending the outcome of the enforcement proceedings, given the potential for set-off against the arbitration awards.

The Parties’ Positions

India’s submissions: India contended that it was entitled to its costs as the successful party on the preliminary issue. It argued that the claimants had chosen to pursue the s.2 SIA question and should bear the costs consequences. India sought a detailed assessment of its costs, totalling £582,900.33 as of 18 March 2025, with a payment on account of £365,000. It rejected the claimants’ reliance on the illegality allegations, which it argued were irrelevant to the s.2 question.

The claimants’ submissions: The 4th to 6th claimants argued that costs should be reserved or stayed, as they were award creditors with substantial sums due under the arbitration awards. They contended that any costs order in India’s favour could be set off against these sums under CPR 44.12. They also highlighted that the awards had been upheld in the Netherlands (the seat of arbitration) and other jurisdictions, suggesting a strong likelihood of ultimate success in enforcement. They further disputed the quantum of India’s costs, arguing that the disparity (approximately 30% higher than their own) was unjustified.

The Court’s Decision

The court granted permission to appeal, recognising the broader implications of the s.2 SIA issue for state immunity and the relevance of ongoing appellate proceedings in related cases. On costs, the court acknowledged India’s prima facie entitlement as the successful party but concluded that, exceptionally, costs should be reserved. This decision was influenced by the unique circumstances, including the claimants’ potential entitlement to enforce the arbitration awards and the likelihood of set-off. The court noted that if the claimants succeeded in enforcement, the costs of the preliminary issue could be set off against India’s liability. Conversely, if enforcement failed, the claimants’ arguments on costs would likely lapse.

The court also addressed the quantum of India’s costs, observing that while the claimants had not provided their own costs statement, India’s costs appeared high for a 1.5-day hearing. The court indicated that, had it been determining the issue, it would likely have ordered a payment on account of £330,000 (approximately two-thirds of £500,000), reflecting a reduction for proportionality. The final order was agreed between the parties following the judgment.

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