Reed Smith Client Alerts

The Singapore Court of Appeal recently considered in CDM v CDP  [2021] SGCA 45 (CDM) whether costs should be awarded by default on an indemnity basis in cases where an application to set aside an arbitral award has been unsuccessful. The Court held that indemnity costs would not be the default position and that the usual rules of cost recovery would apply.

Cost recovery

In common law courts, costs are usually assessed on either a ‘standard’ or ‘indemnity’ basis. On the standard basis, the onus is on the receiving party to prove that the costs claimed are reasonable. Where costs are assessed on an indemnity basis, the costs claimed are presumed to be reasonable, unless the paying party proves otherwise. Some common law courts have departed from the usual rules on standard and indemnity costs when it comes to assessing costs arising out of failed applications to set aside arbitral awards. In CDM, the Court of Appeal has rejected the arguments for such a departure.

Default position in Hong Kong to grant indemnity costs

The established practice of the Hong Kong courts is that “it is fair that if a party was unsuccessful in setting aside or resisting enforcement of the arbitral award, in the absence of special circumstances, he should pay costs on an indemnity basis” (Pacific China Holdings Ltd (in Liquidation) v Grand Pacific Holdings Ltd [2012] 6 HKC 40, Hong Kong Court of Appeal). The rationale for this approach is set out in the earlier decision of A v R [2010] 3 HKC 67:

  1. A party which obtains a favourable award pursuant to an arbitration agreement is entitled to enforce the award as a matter of course. Applications to appeal or set aside an arbitral award should be regarded as exceptional. Absent special circumstances, the court will award indemnity costs where such applications are unsuccessful.
  2. Under the Hong Kong Civil Justice Reform, an unmeritorious challenge against an award is incompatible with the award-debtor’s duty to assist the court in “the just, cost-effective and efficient resolution of a dispute.”
  3. An order of standard costs would have the unfortunate effect of the winning party “subsidising the losing party’s abortive attempt to frustrate enforcement of a valid award” because the losing party would “not be bearing the full consequences of its abortive application.”

Singapore’s principles-based approach

In CDM, the Court of Appeal has affirmed that the principles-based approach to indemnity costs, which applies to civil litigation generally, applies equally to setting aside proceedings. The Court expressed reluctance to treat arbitration separate from other claims or to consider setting aside applications as exceptional circumstances warranting indemnity costs.

In CDM, the respondent (award-creditor) sought to persuade the Singapore Court of Appeal to adopt the Hong Kong position and make an order of indemnity costs against the appellant (award-debtor), who had failed to set aside an arbitral award. In its judgment on 5 May 2021, the court declined to award costs on an indemnity basis. This clarification comes on the heels of a similar decision of the Singapore High Court in BTN v BTP [2021] SGHC 38 (BTN).