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It is the practice of the Hong Kong court that any unsuccessful application to challenge an arbitral award or an arbitration agreement will be met with an indemnity costs order.  However, in L v. M [2021] HKCFI 3206 and [2021] HKCFI 2829, the Hong Kong court only awarded 50 per cent costs on a party and party basis to the successful applicant of a stay application in favour of arbitration. This article examines why there was a departure from the normal rule.


The plaintiff (P) commenced an action against the first defendant (D1) and second defendant (D2) for breaches of a surety bond (the Bond) and against D2 for damages for breach of a construction contract (the Contract). D2 applied for a stay of the action in favour of arbitration (the Stay Application) under an arbitration agreement (the Arbitration Agreement) contained in the Contract. D2 also sought a case management stay of the action against D1 in the event that a stay is granted in respect of the action against D2.

Decision on stay and order nisi on costs

Upon hearing the parties, the Honourable Mimmie Chan J (the Judge) granted a stay in respect of the claims against both D1 and D2 on the basis that the Arbitration Agreement clearly extended to P’s action against D2 and it would also be just to grant a case management stay for the action against D1 on the ground that the Bond was a guarantee of D2’s liability under the Contract. The Judge made an order nisi that the costs of the Stay Application be paid by P to D2 on a party and party basis