The Court of Appeal has confirmed the position in Hong Kong that costs may be awarded on an indemnity basis against an unsuccessful party in proceedings to set aside or resist enforcement of an arbitral award.  

In June, we reported on the Court of Appeal's decision in Pacific China Holdings Ltd v. Grand Pacific Holdings Ltd1, which reversed the first instance decision to set aside an arbitral award on grounds of procedural unfairness. The Court of Appeal concluded that there was no violation of due process, and set a very high threshold for the court to set aside an arbitral award. Click here for our June report.

Following that decision to uphold the arbitral award, the successful defendant, Grand Pacific Holdings, applied to have costs taxed on an indemnity basis. On 23 July 2012, the Court of Appeal handed down its decision on costs:  

The Court of Appeal upheld and confirmed the decision of Reyes J in A v R2, that the Court will normally consider awarding costs against a losing party on an indemnity basis in an unsuccessful challenge to enforce an arbitration award. Tang V-P further clarified that it would not require an application to be abusive or not reasonably arguable for indemnity costs to be considered, and that the power to order indemnity costs was in line with the underlying objective to ensure fairness between the parties under the Civil Justice Reform. Where parties have agreed to arbitration, parties should comply with arbitration awards. Accordingly, unmeritorious applications to challenge such an award should expect to have to pay costs on a higher basis.  

In a separate decision, the Court of Appeal rejected the plaintiff's application for leave to appeal to the Court of Final Appeal. The Court of Appeal held that the plaintiff did not meet the immediacy requirement to appeal as of right, nor did it meet the ground that the decision involved questions of great general or public importance.  

Takeaway Point

The Court's decision on indemnity costs has further cemented Hong Kong's position as an arbitrationfriendly jurisdiction. The Courts will uphold arbitral awards and parties should consider the consequences of bringing unmeritorious challenges.