In a recent decision of the Federal Court of Australia, Allsop CJ (sitting at first instance) has left the door open as to whether the Federal Court of Australia will depart from the (obiter) views of the Victorian Court of Appeal and instead adopt a default indemnity costs rule in arbitration related court proceedings, as is the case in Hong Kong.
Whether there should be a default rule in Australia that an award debtor who unsuccessfully seeks to set aside, or resist enforcement of, an arbitration award should pay costs of the court proceedings on an indemnity basis, is a vexed question
This is the position in Hong Kong.1 In Altain Khuder LLC v IMC Mining Inc (No 2) Croft J awarded indemnity costs against an award debtor who unsuccessfully sought to resist enforcement of a foreign award.2 His Honour’s decision enforcing the foreign award was reversed on appeal.3 Whilst it was not necessary for the Court of Appeal to do so, it disagreed with Croft J on the indemnity costs issue. The Victorian Court of Appeal found that his Honour acted on a wrong principle in embracing the Hong Kong approach.4
In a recent decision, Allsop CJ (sitting at first instance) has left the door open as to whether the Federal Court of Australia will depart from the (obiter) views of the Victorian Court of Appeal and instead follow the Hong Kong approach.5
Facts
The Applicant lent money to the First Respondent. The loan was guaranteed by the other Respondents. All of the Respondents were domiciled, or carried on business, in the People’s Republic of China (PRC). The loan/guarantee agreement contained a dispute resolution clause referring disputes to arbitration before the Xiamen Arbitration Commission in the PRC.6 The Respondents failed to repay the loan. The dispute was referred to arbitration. The Commission handed down an award in the sum of RMB 37 million (about $A 11 million) in favour of the Applicant, representing outstanding principal and accrued interest.
The Applicant sought to enforce the foreign award in the Federal Court of Australia, pursuant to s 8 of the International Arbitration Act 1974 (Cth) (‘IAA’). Meanwhile, the Respondents applied to the Xiamen Intermediate People’s Court to set aside the award, principally on the ground of lack of procedural fairness in the arbitration.
In earlier related judgments, the Federal Court stayed the enforcement application pending the hearing and determination of the setting aside application. It also made freezing orders in respect of several properties in Australia registered in the names of the Respondents.7
Decision
Following the dismissal of the setting aside application by the PRC Court, the Federal Court proceeded to enforce the award.
Allsop CJ then turned his attention to the question of costs and, in particular, whether they should be awarded against the Respondents on an indemnity basis.