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In Commissioner of Inland Revenue v Poon,(1) the Court of Final Appeal reaffirmed the principles applicable when the courts consider making an enhanced award of costs in favour of the successful party (ie, 'indemnity costs'). The judgment makes it clear that the courts' discretion to award indemnity costs is unrestricted – although, as a basic requirement, such costs should be ordered only when it is appropriate to do so and the receiving party must be able to show that the case has some special or unusual feature. In this case, a taxpayer successfully appealed against his salaries tax assessment some 10 years ago, but the passage of time, and his having been out of pocket for the tax paid, did not constitute special or unusual features justifying indemnity costs.


In civil proceedings in Hong Kong, costs are a matter for the courts' discretion. Usually, however, costs follow the event, and the unsuccessful party at trial is ordered to pay the successful party's costs. If the costs cannot be agreed, they will be assessed by the court. Costs are normally ordered to be paid on a standard ('party and party') basis. An order for indemnity costs would normally result in a bigger recovery (for further details please see "Costs orders are not an 'indemnity'" and "Courts confirm basis for indemnity costs").

In this case, although the taxpayer lost before the Board of Review and in the Court of First Instance, he was successful in both the Court of Appeal and the Court of Final Appeal.(2)

The Court of Final Appeal made a provisional costs order that the taxpayer be allowed his costs of the entire proceedings, but that they should be assessed on the standard basis. The taxpayer applied to vary that costs order by seeking indemnity costs, or some other higher costs recovery, with respect to costs of the final appeal.

The taxpayer argued that an award of indemnity costs was justified for several reasons, including that:

  • the Inland Revenue had failed to apply established legal principles regarding his tax assessment;
  • even allowing for a refund of tax overpaid in 2010, he was still significantly out of pocket given the irrecoverable costs in litigating against a well-resourced party (ie, the government);
  • the Inland Revenue had allegedly sought to 'dress up' some of its arguments before the Court of Final Appeal in the guise of important points of law; and
  • the Inland Revenue's final appeal was unmeritorious, and a fairer costs result would be to order a higher costs recovery considering the inconvenience and stress that the taxpayer had suffered.


The taxpayer's application for indemnity costs was rejected, and costs were ordered to be paid by the Inland Revenue to the taxpayer on the standard basis.

The Court of Final Appeal's judgment on costs gives detailed reasons. It restates the general principles relating to indemnity costs and makes it clear that, while these principles should be applied consistently, it is necessary to avoid anything that might compromise the courts' discretion in such matters.(3)

In this case, the taxpayer failed to establish a special or unusual feature of the case that justified indemnity costs. While some of the matters referred to by the taxpayer (eg, the inconvenience and stress) might be deserving of some sympathy, they did not, of themselves, constitute a 'special feature' in the case. Neither did the fact that the taxpayer had been out of pocket for so long with respect to the money that he had paid.(4)

Further, the Inland Revenue's conduct of the case was not so unreasonable or without merit as to justify an award of costs on a more generous basis of taxation – in particular, the Inland Revenue had not 'dressed up' points in the guise of important points of law.(5)


The judgment is a useful reminder of the general principles relating to the courts' exercise of discretion to order indemnity costs. Hopefully, more parties will take note and remember that indemnity costs are not the norm.

An award of indemnity costs must be justified by reference to some special or unusual feature connected to the case. In the normal course of events, the everyday stress of litigation or being out of pocket during it does not constitute a special or unusual feature. In practice, an award of indemnity costs is usually reserved for those cases in which a party's conduct of litigation has been improper or inappropriate.(6)


(1) [2020] HKCFA 2.

(2) [2019] HKCFA 38.

(3) Supra note 1, at paragraph 7.

(4) See also Leung v Secretary for the Civil Service [2019] HKCFA 34.

(5) Supra note 1, at paragraph 11.

(6) Supra note 4, and Town Planning Board v Society for Protection of the Harbour (No 2) (2004) 7 HKCFAR 114.