Most Read Contributor in Hong Kong, September 2016
It is now the established practice of the Hong Kong Courts to
order indemnity costs to be paid by an unsuccessful party who (i)
appeals against an arbitration award; (ii) applies to set aside or;
(iii) resists enforcement of such an award, unless special
circumstances can be shown.
In A v. R (Arbitration: Enforcement) (2009) 3 HKLRD
389, Reyes J. explained that a party who obtains an arbitration
award in his favour should be entitled to expect that the Court
will enforce the award as a matter of course. An unsuccessful
challenge to an award should result in an order for indemnity
costs. The successful party should not have to subsidise about
one-third of the costs of the unsuccessful application which would
result from a party and party costs order being made. Furthermore,
the making of such an unsuccessful application is incompatible with
a party's obligation to assist the Court in the just, cost
effective and efficient resolution of a dispute under Order 1A Rule
3 of the Rules of the High Court. This approach (absent special
circumstances) has been approved by the Hong Kong Court of Appeal
(e.g., Gao Haiyan v. Keeneye Holdings Ltd. (No.2) (2012) 1
Mimmie Chan J. adopted a similar practice in Chimbusco
International Petroleum (Singapore) Pte. Ltd. v. Fully Best Trading
Ltd., reported at (2015) HKEC 2573, in circumstances where (i)
the Plaintiff in the case initially failed to agree to a stay of
Hong Kong proceedings by reason of an agreement to arbitrate in
Singapore the disputes the subject of the proceedings and (ii)
disputed the Defendant's application for indemnity costs.
Mimmie Chan J. held that the fact that challenges to an arbitration
agreement, or to the arbitral award, are not unarguable does not
constitute special circumstances. The arbitration agreement in that
case was not null and void, inoperative or incapable of being
performed; hence the Court was obliged to stay the Hong Kong
proceedings pursuant to Hong Kong's obligations as a party to
the New York Convention, Article II and Section 20 of the
Arbitration Ordinance Cap.609. By issuing Hong Kong proceedings,
delaying an agreement to a stay and arguing the question of costs,
the Plaintiff took the risk of having to pay indemnity costs
– which was so ordered.
So far the Hong Kong Courts have not provided guidance as to
what "special circumstances" would result in a less
stringent order for costs being made. What is clear is that it will
be difficult to establish such circumstances.
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This article provides information and comments on legal
issues and developments of interest. The foregoing is not a
comprehensive treatment of the subject matter covered and is not
intended to provide legal advice. Readers should seek specific
legal advice before taking any action with respect to the matters
discussed herein. Please also read the JSM legal publications
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