ABC v DEF [2025] EWHC 711 (Comm)

[2025] EWHC 711 (Comm)Case No LM-2024-000323
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
LONDON CIRCUIT COMMERCIAL COURT (KBD)
IN THE MATTER OF THE ARBITRATION ACT 1996
AND IN AN ARBITRATION CLAIM
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 19 March 2025
Before
His Honour Judge Pelling KC(Sitting as a Judge of the High Court)
Between
ABCClaimantDEFDefendant
Mr B Tompkins (instructed by Goodwin Procter LLP) for ClaimantMr S Dhar KC (instructed by Stewarts Law) for DefendantHearing Hearing dates: 17-19 th March 2025
JUDGMENT

HHJ Pelling KC Wednesday, 19 March 2024

[1]This is an application by the claimant under s.72 of the Arbitration Act 1996 for an order declaring that there is no valid arbitration agreement between the claimant and defendant in either of two contracts, being:a. a contract entitled [1], dated 18 August 2020, made between [3] UK Ltd (“[3] UK”) and the defendant (the “[3] UK contract”) andb. a similarly-titled contract made between [3] SDN. BHD. (“[3] Malaysia”) and the defendant, also dated 18 August 2020, (the “[3] Malaysia contract”). In addition, the claimant seeks the declaration that it is not liable to be a party to arbitral proceedings with the defendant in relation to disputes arising out of or in connection with either of the contracts.

Background

[2]The contracts are concerned with the supply of different pharmaceutical products for which [3] UK and [3] Malaysia, respectively, held and hold the commercialisation rights. The [3] UK contract is concerned with the supply of a [4], and the [3] Malaysia contract is concerned with the supply of a drug for [5]. Both agreements are in materially similar terms.[3][3] UK and [3] Malaysia are part of a substantial corporate conglomerate, the ultimate parent of which is [3] Limited [7]. The claimant is a direct subsidiary of [3] Limited and controls part of the [3] pharmaceutical business. [3] UK is a UK registered company and a direct subsidiary of the claimant. [3] Malaysia is a Malaysian registered company and is a direct subsidiary of [3] UK. The defendant is [8].[4]The parties entered into the two contracts following or as part of a tendering process. The commercial terms of each contract do not matter for present purposes. The parties to the [3] UK contract were [3] UK and the defendant, who were expressly defined as each being a party and collectively as being the parties to the [3] UK contract. The parties to the [3] Malaysia contract were [3] Malaysia and the defendant, who were expressly defined as each being a party and collectively as being the parties to the [3] Malaysia contract. Each contract was expressed to be a contract between the parties to the contract concerned. The claimant was not a party to either of the contracts.[5]Two clauses in each of the contracts matter for present purposes. Clause 14 of each of the contracts was subtitled, “Governing law/dispute resolution” and provided as follows:
“This Agreement should be governed by and construed in accordance with the laws of England and Wales. All disputes arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the London Court of International Arbitration (LCIA)… (“the Rules”) from time to time in force, which rules are deemed to be incorporated by reference into this Agreement. The seat, or legal place, of the arbitration shall be London, UK. The arbitration shall be conducted in the English language. The award made by the arbitrator shall be final and binding on the parties and may be enforced in any court of competent jurisdiction.”
[6]The other clause that matters for present purposes is cl.17 of each of the contracts, which provides:
“17. Amendment: waiver “No amendment, modification, or discharge of this Agreement, and no waiver under this Agreement, shall be valid or binding unless set forth in writing and duly executed by the Party against whom enforcement of the amendment, modification, discharge or waiver is sought. Any such waiver shall constitute a waiver only in respect of the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver…”
[7]The effect of cl.14 is that the arbitration agreements in each contract is governed by English law - see Enka v Chubb [2020] UKSC 38; [2021] WLR 447. It follows from the terms of cl.14 that the true meaning and effect of cl.17 is to be determined applying English law principles. In consequence, cl.17 takes effect in accordance with its terms and precludes any party from asserting a variation, discharge or modification (and, by necessary implication, a novation) of the contracts unless such is contained in writing and signed on behalf of the party against whom the variation, discharge or modification is sought to be enforced - see MWB v Rock Advertising Limited [2018] UKSC 24; [2024] AC 119.[8]Returning to the chronology of events, the defendant became dissatisfied with the way in which the contracts were being performed and commenced arbitration, purportedly in accordance with the arbitration agreements in cl.14 of each of the contracts, using the methodology specified by the LCIA Rules, Art.1, which had been incorporated by reference into each contract by the terms of clause 14.[9]Article 1 of the LCIA Rules required that a party instituting an arbitration under the LCIA Rules was required to deliver a written request for arbitration to the registrar of the LCIA Court which, amongst other things, was required to contain “… the full terms of the arbitration agreement… invoked by the claimant to support its claim…”[10]A separate request for arbitration, which I refer to hereafter as a “RfA” or as “RfAs”, was submitted by the defendant in respect of its claim for alleged breach of each of the contracts. In each RfA, the defendant named the claimant as a respondent, in addition to, respectively, [3] UK and [3] Malaysia. The arbitration agreement was identified in Part 3 of each RfA as being cl.14 of the relevant contract. It was alleged by the defendant in para.3.3 that, by cl.14, “… the parties had agreed that… all disputes arising out of or in connection with this Agreement would be referred to… arbitration conducted in accordance with the LCIA Rules…” This was not an accurate summary of the effect of clause 14 in each contract. In the introduction to each RfA, the defendant had described the claimant as being, “[6] L”, or, “the second respondent”, but had defined both respondents together as being, “[3]”, and both the respondents and the defendant collectively as, “parties”. This nomenclature meant that the RfAs both identified either [3] UK or [3] Malaysia and the claimant together, in each case, with the defendant, as being the parties to the arbitration agreement. This was misleading since in neither case was the claimant a party either to the arbitration agreement or the commercial contract within which cl.14 was embedded.[11]Following the filing of the RfAs by the defendant, certain limited steps have taken place in relation to the arbitral references. These include the appointment of a sole arbitrator and the consolidation of both references into a single arbitration. It is common ground that the claimant has not taken part in either arbitration and thus, in principle at least, s.72 is engaged. It would appear that the defendant, [3] UK and [3] Malaysia have agreed some directions leading to a final hearing of the references. As I have said, the claimant has not participated in any of those putative arrangements.

The parties’ cases

[12]The claimant’s case is straightforward. It maintains (as is the case) that the claims made in the references are exclusively contractual and that the defendant’s only contractual counterparties are, respectively, [3] UK and [3] Malaysia, that the claimant is not a party to either of the contracts and, in consequence, is not a party to either of the arbitration agreements on which the defendant has relied. It maintains that, in those circumstances, it is entitled to apply as of right under s.72 of the Arbitration Act 1996 and, on such an application, is entitled to the declarations claimed.[13]The defendant’s case, on the other hand, has changed. The only basis of the claim against the claimant identified in the RfAs is set out in paras.1.2 and 4.4 of each RfA. In paragraph 1.2, it is alleged that the defendant always dealt with the claimant, that the same individuals at all material times represented both the claimant and, respectively, [3] UK and [3] Malaysia, and “… as such, for all intents and purposes [the claimant] shares or is responsible for the liabilities and obligations of the relevant subsidiary.” Clause 4.4 sets out the corporate structure I have summarised it above, and then states, “(t)he companies within the [3] Group appear to operate on an integrated basis, particularly given the overlap between the individuals managing the affairs of the companies…” No other attempt is made in either RfA to explain how it is alleged that the claimant is a party to the arbitration agreements relied on or what cause of action there is available to the defendant against the claimant. As things stand, however, the only arbitration agreement relied upon by the defendant within the RfAs, and therefore within the current references to arbitration, is that respectively contained in the [3] UK and [3] Malaysia contracts to which the claimant is not a party.[14]The defendant’s case in these proceedings is different. In the witness statement in answer to the application, its cases were summarised as being:a. the claimant performed, in part at least, the obligations of, respectively, [3] UK and [3] Malaysia under the two relevant contracts; in consequenceb. the claimant is properly a party to the arbitration agreements relied on;c. if that is disputed, then that can and should be resolved by the arbitrator exercising her powers to rule on her own jurisdiction under s.30 of the Arbitration Act 1996; andd. if and to the extent there is a case management discretion available, it should be exercised in favour of the arbitrator determining the jurisdictional issues pursuant to s.30 because deciding whether there is an arbitration agreement with the claimant on the basis the defendant was contending for in the evidence will involve a detailed examination of the relevant documents, witness evidence and legal submissions, there will a substantial overlap between the jurisdictional and substantive issues and therefore evidence and, in those circumstances, the court should exercise its case management discretion by leaving the issue to be determined by the arbitrator rather than attempting to resolve these issues either at this hearing or an adjournment of it.[15]By the time skeletons for this hearing came to be exchanged, the imprecisely formulated case set out in the evidence had crystallised into an allegation that, by a course of conduct consisting of what is alleged to be either the performance or part performance of the obligations respectively of [3] UK and [3] Malaysia by the claimant, there had come into existence an implied contract between the claimant and defendant, by which it was agreed that the claimant would perform the obligations of [3] UK and [3] Malaysia under the two contracts because the claimant had performed, either wholly or partly, the respective contracts, and as a result there was an arbitration agreement by implication between the claimant and the defendant in the same terms and to the same effect as that agreed expressly between the defendant and each of [3] UK and [3] Malaysia. The claimant submits that this new case is not one that is available to the defendant on this application.

Discussion

[16]Before turning to the alternative case it is necessary to be clear as to whether the defendant any longer relies on the case it had advanced in the arbitral proceedings, namely that the claimant was a party to the arbitration agreements between the defendant and, respectively, [3] UK and [3] Malaysia. As to that, it was submitted on behalf of the claimant, in opening the application, that the defendant had abandoned its original case. That was not disputed by Mr Dhar KC in the course of his oral submissions. In my judgment, the case advanced by the defendants in the RfAs has been abandoned because that was the effect of Mr Dhar’s oral submissions and, in addition, paras.27 and 45 of his written submissions.[17]In my judgment that concession was close to inevitable. One of the many difficulties faced by the defendant in respect of its case as set out in the RfAs is that it would be necessary for the defendant to show how the claimant became a party to the only arbitration agreements relied on in the RfAs, namely that between the defendant and, respectively, [3] UK and [3] Malaysia. As Mr Tompkins submitted, that could only occur, if the defendant was able to show that cl.17 of the relevant contracts had been complied with by the claimant. The defendant does not attempt to engage with that proposition other than to say, at para.54 of its skeleton, that cl.17 is not engaged because the defendant does not contend that the contracts have been modified, as it would have to do if reliance was to be placed on the arbitration agreements between the defendant and, respectively, [3] UK and [3] Malaysia, but instead relies on a separate allegedly implied agreement between the claimant and defendant in the same terms as the agreement between the defendant and, respectively, [3] UK and [3] Malaysia, including the arbitration agreement embedded within the commercial agreements.[18]Any attempt to avoid cl.17 by maintaining that the claimant was a party to the written agreements is an impossible one given the terms in which each of the contracts between the defendant and each of the claimant’s subsidiaries has been drafted and in particular the way the opening parts of each contract have been drafted. Those parts of the contracts were entirely unambiguous in identifying as the only parties to the contracts the defendant and each of the claimant’s subsidiaries. In a case of this sort that is not merely the starting point for ascertaining the parties to a contract – as to which see Homburg Houtimport BV v Agrosin Ltd [2003] UKHL 12; [2004] 1 AC 715 – but is also the endpoint too, because there is no uncertainty about the meaning and effect of the express terms of the contracts concerned. In those circumstances, the defendant’s case in the RfAs is bound to fail because it is not possible, as a matter of law, to treat the parent and a subsidiary company as the same unless such is necessary to prevent an abuse of the concept of corporate personality. As Lord Sumption said in Prest v Petrodel Resources Ltd [2013] UKSC 34; [2013] 2 AC 415 at para.34:
“It is not an abuse to cause a legal liability to be incurred by [a] company… [nor is it] an abuse to rely upon the fact… that a liability is [that of the company, not that of its controller].”
It certainly does not permit corporate personality to be ignored in order to make a company party to a commercial agreement when the clear intention was it was not to be a party, or was not intended to be a party, so as to force on a company the obligations of an arbitration agreement to which it was not a party and was not intended to be a party. To require otherwise would, or is likely to, lead to obvious injustice and to exclude a party against its will from access to the state courts to which it is otherwise amenable.[19]In my judgment the defendant’s new and only new case is fatal to its resistance to this application. That is so because, as I have said already but repeat, the only arbitral proceedings to which the claimant and defendant are parties are those initiated by the RfAs. It is those proceedings in respect of which s.72 is available. As I have also explained but again repeat, both RfAs are premised on the only arbitration agreement being that contained in the contracts between the defendants and, respectively, [3] UK and [3] Malaysia. However, for the reasons I have set out above, the claimant is not and never has been a party to either of those contracts or to the arbitration agreements contained in cl.14 of each of those contracts. The only basis identified in the RfAs as the basis for the claims against the claimant is that the Group functions on an integrated basis – see para.4.4 of the RfAs – and the claimant and its subsidiaries “…share and/or [are] responsible for the liabilities and obligations of the relevant subsidiaries.” - see para.1.2. Neither of these points lead to the conclusion that the claimant is a party to either of the contracts or the arbitration agreements contained within them for the reasons already given and in any event neither are now relied upon as a basis for maintaining that the arbitration agreements relied on in the RfAs apply to the claimant. The defendant’s only case now is that there is a separate implied agreement between the claimant and defendant in the same terms as the contracts between the defendant and each of the claimant’s subsidiaries, which included an arbitration agreement in like terms to cl.14 of each of the relevant contracts. However, that alleged implied agreement is not anywhere mentioned either expressly or otherwise in either RfA. That the defendant has available another case that it now exclusively relies on is nothing to the point. If it is to be relied on, it will have to be the subject, as I see it, of a new reference on the basis of the alleged implied arbitration agreement within the allegedly implied contract between the claimant and the defendant. True it is that, under the LCIA Rules, it is open to a party to amend or supplement a claim, but it is highly questionable whether a claimant in an LCIA arbitration could amend to add a new claim by reference to a new agreement between different parties – in this case, the claimant and defendant alone – whilst at the same time abandoning its existing jurisdictional case.[20]There is nothing in the application I am now considering that will prevent the defendant from commencing a new reference or applying, if it considers it appropriate to do so, to amend its current claim. The first part of the declaration sought by the claimant is that there is no valid arbitration agreement between the claimant and defendant in the agreements between the defendant and the claimant’s subsidiaries. That ought not to be a source of difficulty or even dispute because that is not now the basis of the defendant’s case. There is nothing objectionable about the remaining part of the order sought as long as the formulation makes clear the claimant is not liable to be a party to arbitral proceedings in relation to a dispute concerning an alleged breach of either the [3] UK or the [3] Malaysia agreements. That is unobjectionable because there is no arguable basis for maintaining that the claimant is a party to, and therefore can be liable for, the alleged breach of either of those agreements.[21]No tortious claim has been suggested. The only claim suggested now is for breach of an alleged implied agreement, which is a different agreement and, if subject to an arbitration agreement at all, is subject to a different arbitration agreement. To date, that has not been made the subject of a new RfA and, as I have said, it is difficult to see how the defendant could plead the case it now exclusively seeks to advance in the current arbitral proceedings given the terms of the RfAs, because there has been no reference to this arbitrator of any claim against the claimant under the only arbitration agreement the defendant now relies on, or as against the claimant, namely the arbitration agreement alleged to form part of the new implied agreement.[22]At this point, it is necessary to turn to the other central submission made by the defendant, which is that great caution is required before making an order under s.72, at least where there is a highly fact-sensitive issue that arises that cannot be resolved finally at a hearing such as this. The defendant placed significant reliance on Sodzawiczny v Smith [2024] EWHC 231 (Comm). That was an application for an anti-arbitration injunction to restrain the respondents from pursuing an LCIA arbitration. In his judgment in that case, Foxton J identified three categories of case where an anti-arbitration injunction might be sought. Category 2 was where the applicant contends that the tribunal would have no jurisdiction, but without contending that that was because there was a contractual right to have the dispute determined in some other forum. The defendant submits that that formulation encompasses this case. I agree. Mr Justice Foxton summarised the principles applicable to this category of case at para.72 of his judgment by reference to earlier – principally Court of Appeal – authority. His conclusion was that:(a) a court should not interfere by injunction where the dispute comes within the terms of a valid arbitration agreement; but(b) where the converse is the position, the court will act, but only if the circumstances require it. On analysis, Foxton J considered this approach to be appropriate to an application under s.72 as it was to an application for an anti-arbitration injunction - see paras.70(iv) and 73 of his judgment. I am satisfied that para.74 of the judgment would not apply to an application under s.72 because s.72 is one method by which there will be a prior determination of the jurisdiction dispute.[23]Returning to the facts of this case, in this case the dispute as between the claimant and defendant does not come within the terms of a valid arbitration agreement in any relevant sense because, in the arbitral proceedings to which this application relates, there is only one arbitration agreement relied on to which the claimant is not now even contended to be a party, and the claim now relied upon by the defendant exclusively is contractual and made by reference to a contract in respect to which no reference has yet been made. Whilst I accept, of course, that a court should not interfere with an arbitration other than as permitted by Part I of the Arbitration Act 1996 – see s.1(c) of the Arbitration Act 1996 – and that an arbitral tribunal has power to rule on its own substantive jurisdiction by operation of s.30 of the Act, it remains the case that the party has a right to resort to the court to determine whether there is a valid arbitration agreement under s.72 where it has not previously participated in the arbitral reference in respect of which the application is made. The requirement that a court should exercise great caution before “agreeing that its processes should be so utilised…” – as to which see Fiona Trust & Holding Corp v Privalov [2007] EWCA Civ 20 per Longmore LJ at 34 – draws attention to the discretionary nature of the primary remedies identified in s.72, that of declaration or injunction. In a case such as this where the remedy sought is narrowly focused on the references as they are currently structured, and where the defendant does not seek to uphold jurisdiction on the basis contended for in the reference and seeks instead to contend that there is jurisdiction by reference to a contract not yet invoked in the arbitral process, I consider it is clearly appropriate to grant the order sought.[24]The need for an enquiry for the purpose of deciding whether there is a contract to be implied simply does not arise in those circumstances, so that the concern relating to factual and legal complexity, the overlap between evidence relating to jurisdiction and that relevant to the substance of the dispute, and the case management disadvantages of a court resolving the issue as opposed to the arbitrator, simply do not arise. That means it is not necessary for me to decide how I would have proceeded in the event it was necessary to decide the jurisdiction issue by reference to the defendant’s new implied contract case. Given the situation might arise in the future, I further consider it highly undesirable that I should comment further on the possibilities that might arise if and when that situation has to be considered by a court.

Conclusion

[25]The claimant succeeds in principle in relation to its claim for a declaration in the terms sought in the first five lines of para.1 of the draft order. I will hear counsel further on the correct formulation of the final two and a half lines of para.1. Paragraph 2 may require reformulation so as to admit of the possibility that the defendant may apply to amend the current arbitral proceedings, although, as I have said, there are real difficulties in that approach. LATER - COSTS[26]There are two issues I have got to resolve at this stage: firstly, whether or not the claimant should recover its costs of and occasioned by the application; and, secondly, whether they should be assessed on the indemnity rather than the standard basis. So far as that is concerned, the response from the defendant in relation to costs issues is in essence that the claimant has succeeded on the application only in part and, in particular, has failed on what it characterised as the most important part of the application, which was for a declaration which would have excluded the claimant from having any liability in relation to the subject matter of the claim. In relation to indemnity, it is said that this is not, in essence, a claim which comes anywhere near passing the test for indemnity costs.[27]Turning to the first issue, the hallmark of whether or not a party should recover the costs of and occasioned by an application of this sort depends upon success. So far as that is concerned, on any view, the claimant has been successful because the application was opposed in full and it has recovered substantially the relief that was sought in relation, at any rate, to the first part of the application.[28]The second point made on behalf of the defendant, is that the costs which are recoverable should be reduced by a proportion to reflect the fact that the application has not succeeded in full. The way in which a submission of this sort is required to work involves, first of all, identifying an issue or issues on which the defendant has been successful and the claimant has not before then, because issue-based costs orders are frowned on, using a broad-brush approach for reducing by a percentage the costs recoverable by the otherwise successful party to reflect the degree of lack of success in relation to particular issues.[29]The big point made by Mr Dhar KC on behalf of the defendant is that the application, as it was formulated originally, sought to achieve not merely a direction that the arbitrators had no jurisdiction by reference to the contractual basis identified in the requests for arbitration but, in addition, sought an order that the claimant was not liable to be a party to arbitral proceedings with the defendant in relation to disputes arising out of or in connection with the two TSA agreements. Mr Dhar submits that self-evidently, on the basis of the judgment that I have given, that part of it could not possibly succeed and indeed, at any rate, the reply submissions made on behalf of the claimant made clear that that was not something which could be sought on the basis of the arguments deployed at the hearing.[30]There is, as it seems to me, one difficulty about this submission, so far as the defendant is concerned, and it is this: as I explained in the judgment, the point that was deployed at the hearing was markedly different from the points which had been identified in the requests for arbitration and which form the basis of the current references. When the RfAs came to be submitted, it appeared to be that the only arbitration agreements relied upon were those which appear in the two commercial agreements, the subject of the arbitral references. It appeared to be suggested, although the position is not very clear on the RfAs themselves, that the claimant was bound by the arbitration agreements to which it was not expressly a party by reason of the claimant being the parent of, or otherwise the controller of, the actual contractual counterparties.[31]Had the suggestion been made at an early stage that the position being adopted by the defendant was not to stand by the basis on which jurisdiction had been identified in the request for arbitration, but instead was being advanced on the basis that there was a freestanding implied agreement between the claimant and defendant, by which the claimant came under an obligation to perform the obligations of the two subsidiaries and became bound by an arbitration agreement in like terms to that which applied in the actual contracts which had been entered into, then it might have been said with some force that a failure to take account of that alternative argument, even to the extent of either removing or heavily modifying the second part of para.1 of the draft order, would justify a conclusion that the claimant had failed in relation to an issue, which ought to result in a reduction of costs.[32]However, that is not what happened. Before the application was issued, the position was that the defendant, by its solicitors, was maintaining in firm terms that there was jurisdiction for the defendant against the claimant on the basis identified in the RfAs and no other. The first time the concept of an implied contract came to be mentioned was in Mr Dhar’s skeleton, and certainly that concept had not been identified at any stage prior to the commencement of the proceedings, nor in any of the evidence was that point made, at any rate, at all clearly. It was not made in the correspondence either. The defendant has preserved the possibility of commencing a new arbitration or amending the existing arbitrations by reference to a new contract not previously mentioned exclusively on the basis of the formulation first made in Mr Dhar’s skeleton submissions where, critically for present purposes, the jurisdictional basis which had been relied upon by the defendant prior to that was altogether abandoned. In those circumstances, it is difficult to criticise the claimant for maintaining the position that, on the material which was made available to it by the defendant, the only basis for jurisdiction being asserted was what was contained in the RfAs. The position adopted in relation to jurisdiction under the RfAs was untenable, as was implicitly acknowledged by Mr Dhar in his skeleton submissions. In those circumstances, the claimants were plainly entitled both to seek the first part of the first declaration, but also the second, since no alternative jurisdictional basis had been identified by the defendants prior to the service of Mr Dhar’s skeleton submissions. It is unreal to suppose that there should be any modification of the costs outcome that would follow from applying the success principle by reference to a formulation coming as late as that. In those circumstances, I conclude that the claimant is plainly entitled to recover its costs of and occasioned by the application.[33]The second point that arises concerns an application by the claimant that the costs be assessed on the indemnity basis. The indemnity basis of assessment is very much the exception rather than the rule. It is reserved for cases where costs have been demonstrably incurred or increased by conduct which is either outside the norm Referred to usually as the Excelsior test) or, as it is sometimes put in cases, by conduct which is unreasonable to a high degree. Various examples of what might constitute conduct that was unreasonable to a high degree were identified in the Three Rivers District Council & Ors v Governor and Company of the Bank of England [2002] EWHC 2730 (Comm) by Tomlinson J, as he then was, as examples of when this jurisdiction might become appropriate.[34]The basis on which the indemnity costs application was advanced came to this: that the claimants had proposed in correspondence as long ago as 15 October 2024, that the defendant should effectively drop what was being asserted. There was a clear opportunity, so it was said, to take advantage of that, and not merely was it rejected, but it was rejected in terms which were described variously as improper or strident. Therefore, and in those circumstances, it is said that the costs of this process are costs which have been wasted. By way of a separate and freestanding point, a complaint is made about para.5 of one of the earlier letters in which it was being suggested by the defendant that, if an application under s.72 was brought, it would be an application without merit brought for improper and collateral purposes. This was said to be an allegation of professional misconduct which should of itself result in an order that the entire costs of this process should be met on the indemnity basis.[35]I came close to not calling on Mr Dhar in relation to this point as it seems to me this is a case which is clearly not one where it is appropriate for costs to be assessed on the indemnity basis. This is not a case where it can be said that to resist the application was conduct which is outside the norm. It is not outside the norm to oppose an application which fails even if it fails in emphatic terms. If that was not the case then there would be a vastly larger number of indemnity costs orders made than is the case at the moment. Indemnity costs have, as their effect, the removal of the concept of proportionality from the costs assessment process, for the purposes of enabling a receiving party to receive all the costs that it reasonably incurred in either bringing or opposing the relevant application because the court concludes that the receiving party was exposed to those costs as a result of the unreasonable conduct identified. There is no such conduct in the circumstances of this case. I do not read the correspondence as alleging professional misconduct. I read the correspondence as typically tough correspondence passing between very experienced specialist commercial solicitors in hard-fought commercial litigation, and to characterise it as anything more than that, in my judgment, would be wrong.[36]In those circumstances, there will be an order that the claimant recover its costs in the ordinary way to be assessed on the standard basis and, unless anyone has anything to say to the contrary, I propose that those costs be assessed summarily. LATER – SUMMARY ASSESSMENT OF COSTS[37]The issue I now have to determine involves the summary assessment of the costs to be paid to the claimant. The principles which apply in this area are well-known. Where a court has to assess costs on the standard basis, the court will only allow costs which are proportionate to the matters in issue. Work which it was disproportionate to carry out or costs which are disproportionate in amount will be disallowed or reduced, even if they are reasonably incurred, and any doubts are to be resolved in favour of the paying party – see CPR r.44.3(2). So far as proportionality is concerned, this being commercial litigation, it is appropriate to remind myself of the principle which has been applied for many years by the Commercial and the London Circuit Commercial Court in relation to how proportionality is to be approached in the context of an application for payment on account. What is a reasonable and proportionate amount is not the amount of costs which it was in a parties’ best interest to incur, but the lowest amount which could reasonably have been expected to be spent in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances, with expenditure over and above that level being for the receiving party’s own account – see Kazakhstan Kagazy PLC & Ors v Baglan Zhunus & Ors [2015] EWHC 404 (Comm), a judgment of Leggatt J, as he then was. Thus, it is necessary to decide, first of all, what work it was reasonable and proportionate to carry out, then to identify a sum which is reasonable and proportionate in amount for such work. In assessing proportionality, it is necessary to approach that question by asking what sum would have to be spent in order to have the receiving party’s case conducted and presented proficiently, having regard to all the relevant circumstances.[38]Against that background, I turn to the costs schedule for the main hearing. The sum which is claimed in the aggregate is £176,857.45, which is an eye wateringly substantial sum for a hearing listed in the London Circuit Commercial Court with a time estimate of one day. The starting point is to consider the vexed question of hourly rates. The guideline rates which are published on the direction of the Master of the Rolls, are not a fixed rate but are a starting point for the assessment of what may sensibly be recovered on a reasonable and proportionate basis in respect of solicitor time costs. The most recent iteration of the guideline rates was published only in January of this year. As is well-known and as is relevant for present purposes, there are two streams of guideline rates applicable to centrally based London law firms, London 1 and London 2, with London 1 being reserved for very heavy commercial work by central London law firms.[39]The first submission that arises is a submission that I should apply the London 2 rather than the London 1 rate. So far as that is concerned, I am satisfied that I should accede to the submission made on behalf of the claimant that the London 1 rate is the appropriate rate to be adopted. Although this is an application which was listed for one day, I fully accept that the issues which arise required careful thought and the consideration of a significant volume of law, which to the extent it did not make it into the submissions or judgment was nonetheless material which had to be considered, and the evidential material is very substantial as well. However, what the case law emphasises at Court of Appeal level is if a sum is to be recovered which is in excess of the guideline rates, then that must be clearly justified on reasonableness and proportionality grounds. No attempt has been made on the part of the claimant to justify the sums which have been claimed in this case on that basis. The Grade A fee earner claims payment at the rate of £1,252.50 per hour; the London 1 rate is £566. The Grade C fee earner seeks £603.40, whereas the guideline rate is £299. The Grade D fee earner seeks £247-odd an hour; the guideline rate is £205. The guideline rates have been carefully formulated to take account of the costs of practicing in particular areas, and the guideline rates for London 1 represent an adjustment upwards already, to reflect the particular complexity of the work concerned. Seeking to have the rates adjusted upwards still further by reference to complexity when that adjustment has already been factored in is, in my judgment, a difficult task, appropriate only in the most exceptional cases. In those circumstances, I direct that all the costs I otherwise conclude should be recoverable be recalculated applying the London 1 rate and that no sum in excess of the London 1 rate is appropriate in the circumstances of this case.[40]Various limited categories of work were in the end criticised, and I deal with them in no particular order. First of all, there were no less than three fee earners attending the hearing. This is in excess of what is reasonable and proportionate when it is remembered that the case on behalf of the defendant was conducted by counsel, it lasted only a day, did not involve the cross-examination of any witnesses, and involved exclusively the making of submissions by very experienced counsel. In those circumstances, the question is what should be done in order to reflect proportionality in this area. The conclusion I have come to is that it would be appropriate to allow attendance by the Grade C fee earner, on the basis that she has had everyday conduct of the case and is in a position to give the appropriate instructions, should any be required.[41]The next question that arises concerns the work on documents. So far as that is concerned, the work involved is very substantial and, in some respects, requires adjustment down to reflect proportionality. Looking at the schedule of work done on documents, the first item is issuing the proceedings. The proceedings that were issued was a Part 8 arbitration claim form and an application and draft order. The Grade C fee earner who had everyday conduct apparently spent 22.5 hours of time on that exercise, and the Grade A fee earner a further 3.6 hours. In my judgment, that is manifestly in excess of what is reasonable and proportionate for the work as described, and I reduce that to 12 hours for the Grade C fee earner and, accepting as I do that the Grade A fee earner would have a supervisory role to play in relation to that, I reduce the recoverable Grade A fees to 2 hours.[42]I am not prepared to further reduce the amendment of claims element, which appears as reasonable and proportionate.[43]So far as the consideration of skeleton arguments is concerned, four and a half hours by the Grade C fee earner is a very substantial amount of time in order to digest the two skeleton arguments. Nonetheless, I regard this as on the cusp of what is proportionate. There were two relatively lengthy skeletons to consider. The role of a solicitor when considering skeletons is an important one. The role of a solicitor when considering skeletons is to make sure that all relevant points have been taken, to make sure that there are no material inaccuracies of fact, and, to the extent that there are any principles of law deployed, to make sure that they are satisfactorily summarised in a way which is likely to be acceptable to a court. That is an independent professional responsibility owed to clients. There is a cost associated with it and, for my part, I am not prepared to conclude that four and a half hours is in excess of what is proportionate or that the further 0.9 hours spent by the Grade A fee earner is in excess of what is proportionate.[44]So far as hearing preparation and attendance is concerned, I am assuming that the Grade D fee earner is the person who has been primarily responsible for the preparation of the bundle and that the preparation of the bundle is what the 10 hours for the Grade D fee is about. I accept that that is reasonable and proportionate. What I do not accept as proportionate is that the Grade C fee earner should spend 21.8 hours preparing for a hearing which is due to last, at most, five hours. The suggestion that 21.8 hours would be spent preparing for the hearing must be viewed in the context of all the work that had previously been done in this case by that fee earner who, as I have said, had everyday responsibility for the claim and application. I accept there will be an element within that which involved providing supervision to the Grade D fee earner in relation to the preparation of the bundle, but that task cannot have taken proportionately more than 4 hours, having regard to the 10 hours spent by the Grade D fee earner. Some preparation for the hearing would be necessary but, having regard to the amount of time spent reading the skeleton arguments and considering the case in that context, not much more can be justified for preparing for a one-day hearing to be conducted by counsel exclusively by way of submission, and I come to the conclusion that the appropriate number of hours to be permitted for hearing preparation is seven hours.[45]So far as preparation of witness statements is concerned, again, 26.9 hours to prepare the witness statements concerned and to prepare, or at any rate examine, the relevant exhibits is in excess of what is reasonable and proportionate and for that reason I reduce the Grade C fee earner time to 12 hours. That, in combination with four hours of Grade D fee earner time to help prepare exhibits, is what is proportionate in the circumstances. So far as the Grade A fee earner is concerned, again, as I have already accepted, there is an important supervisory role to be played by the Grade A supervising partner. The Grade A supervising partner would have to read the material, satisfy himself that the exhibit accurately supports and is referred to in the evidence. Six hours is in excess of what is reasonable and proportionate, but I allow three hours for that.[46]The final issue which arises concerns attendances on others, where there is an unhappy difference between the 10-odd hours claimed by the defendant solicitors and the 35-odd hours claimed by the claimant solicitors. That breaks down to 24 hours of the Grade C fee earner and a further 10 hours of Grade A fee earner time. I fully accept Mr Tompkins’ point that the response to material received from opponents may be asymmetrical, at least to an extent, where it is necessary to consider very significant quantities of material and respond appropriately. Nonetheless, a total of 35-odd hours in responding to correspondence is in excess of what is reasonable and proportionate. The role of the Grade A fee earner should largely be to read correspondence before it goes out and satisfy himself that the letters or emails going out are appropriate in their context. I reduce the hours attributable to that phase of the case for the Grade A fee earner to six hours, which is what I regard as proportionate. So far as the Grade C fee earner is concerned, again, 24 hours is in excess of what is reasonable and proportionate for that task, and I reduce that to 14 hours.[47]Therefore, those hours that I have permitted as adjusted should then be multiplied by the London 1 guideline rates as I have indicated, and that will result in the sum recoverable on this assessment. LATER - PUBLICATION[48]So far as judgment is concerned, applying the necessity test applicable when giving effect to the open justice principle I consider it needs to be published because there is no need for it not to be published because any legitimate interest requiring confidentiality can be protected by anonymisation. LATER – PERMISSION TO APPEAL[49]This is an application for permission to appeal. The test is whether there is a realistic prospect of success. In my judgment, there is not for the following reasons. This is said to be a complex case but, in my judgment, by the time the case came to be determined, it was not. The para.74 point, in relation to Foxton J’s judgment, is a matter of mere detail which is unlikely to influence the outcome, having regard to the real issues which had to be determined.[50]So far as the suggestion that I have been unduly strict in relation to my construction of the RfAs, that in my judgment does not give rise to a realistic basis for argument in the Court of Appeal because the issues that matter in this case was a relatively straightforward. In the RfAs, the defendant had sought to rely solely upon a single arbitration agreement contained in a contract to which the claimant was not a party and which failed in any sensible way to articulate why it was that that was an agreement which applied to the claimant. There is nothing strict about that – it is simply the effect of what the defendant chose to put in its RfAs. No principle was identified that would give an arbitrator authority to consider a dispute by reference to an arbitration agreement that was not the basis of a RfA applying the LCIA Rules, which of course were incorporated by reference into the only contracts referred to in the RfAs. By the time of the hearing, all reliance upon the case as set out in the RfAs had been abandoned in favour of the freestanding implied contract, which had not been the subject of the RfAs and had not been the subject of a new RfA and either could not be, or in any event had not been, the subject of any amendment or variation application in the existing arbitral proceedings.[51]In those circumstances, the proposed appeal is unarguable and for that reason permission to appeal is refused. Any further application for permission must be made to the Court of Appeal.