Plaintiff v Defendants

2 The proceeding in which these orders were made was an application brought by Writ dated 22 April 2024 for declaratory relief that the Parties' issues were not capable of being arbitrated under the Amended Settlement Agreement and injunctive relief restraining the Applicants from progressing the arbitration of those issues. In response, the Applicants sought an order under s 7 of the International Arbitration Act 1974 (Cth) (IAA) to stay the whole of the proceeding.

3 The Applicants' stay application was heard on 26, 28 and 29 November 2024 and on 13 February 2025 I delivered judgement in Oil Basins Limited v Esso Australia Resources Pty Ltd [2025] VSC 34.[1] I concluded that the Applicants had established the basis for an order under s 7 of the IAA and, accordingly, I delivered judgement in favour of the Applicants.

4 The Applicants now seek an order for the Respondent to pay their costs of and incidental to:

(a) the application for leave to appeal and the application for a stay in the Victorian Court of Appeal;

(b) the Stay Application; and

(c) otherwise of the proceeding

on an indemnity basis, and to have such costs, in default of an agreement, be taxed immediately.

5 The Applicants made two submissions on 11 and 17 March 2025 in support of their application for indemnity costs. Put broadly, the Applicants advanced two arguments: first, that a successful stay application under s 7 of the IAA constitutes a special circumstance which warrants a departure from the ordinary position on costs; and second, in the alternative, that the Respondent instituted the proceeding for an ulterior motive or wilful disregard of known facts or clearly established law, and which had no proper chances of success. The Applicants submitted that, on either of these grounds, indemnity costs should follow.

6 In support of its first ground, the Applicants referred to the English decision in A v B (No 2),[2] where Colman J stated:

In my judgment, provided that it can be established by a successful application for a stay or an anti‑suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach has caused the innocent party reasonably to incur legal costs, those costs should normally be recoverable on an indemnity basis.[3]

The conduct of a party who deliberately ignores an arbitration or a jurisdiction clause so as to derive from its own breach of contract an unjustifiable procedural advantage is in substance acting in a manner which not only constitutes a breach of contract but which misuses the judicial facilities offered by the English courts or a foreign court. In the ordinary way it can therefore normally be characterised as so serious a departure from 'the norm' as to require judicial discouragement by more stringent means than an order for costs on the standard basis.[4]

7 The Applicants accepted that, save for the Western Australian Supreme Court decision in Pipeline Services WA Pty Ltd v Atco Gas Australia Pty Ltd,[5] Australian courts have declined to follow A v B (No 2).[6] They submitted that this Court should find that where a party is successful in its application for a stay under s 7 of the IAA, and the opposition to such application had no reasonable prospects of success, indemnity costs should follow.

8 The Applicants referred to the decision of Beach J in Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) (Sino Dragon),[7] where his Honour said:

In my view, a category of circumstances justifying an order for indemnity costs is where an unsuccessful Art 34 challenge is made which has been found not to have reasonable prospects of success, whether or not the unsuccessful party knew or ought to have known this at the inception of the challenge; what I mean by 'reasonable prospects' is more than 'real prospects' and resonates with the analogous concept in s 31A of the Federal Court of Australia Act 1976 (Cth).[8]

9 However, in Winslow Constructors Pty Ltd v Head Transport for Victoria (Winslow),[9] Riordan J declined to follow Sino Dragon, finding no basis to depart from the usual rule that discretion to award indemnity costs will not be enlivened unless the party knew or ought to have known, on proper consideration, that its case was hopeless. His Honour gave three reasons in arriving at his findings:

(a) A modification to the conventional principles is not supported by the authorities.

(b) There is no utility in equating the test for summary judgment with the test for indemnity costs.

(c) The no reasonable prospects test is unlikely to discourage challenges to arbitral awards.[10]

10 It is the Applicants' position that his Honour's decision in Winslow was incorrect and should not be followed and, in any case, is not binding. Instead, the Applicants maintained that the decision in Sino Dragon is good law and should be adopted by this Court.

11 In support of their second ground, the Applicants submitted that whilst the standard position requires the Court to find the existence of an ulterior motive or a wilful disregard of known facts or clearly established law, the Court's discretion is to be extended to cases where 'a party persists in what should on proper consideration be seen to be a hopeless case'.[11]

12 In J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (J‑Corp),[12] French J said:

Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.[13]

The Applicants contended that his Honour's statement of principle is to allow the Court to draw an inference as to an ulterior motive or wilful disregard of the Respondent drawn from the objective consideration of the facts and law.

13 The Applicants advanced seven reasons in support of either grounds for an order of indemnity costs. In general terms, the Applicants submitted that various contentions advanced by the Respondent during the stay application not only had 'no reasonable prospect of success', but also no 'real prospect' of success and that the proceeding originally commenced by the Respondent were instituted to impermissibly delay the hearing of claims raised in the Parties' Arbitration.

14 The Applicants further submitted that they are entitled to indemnity costs not only in relation to the stay application, but to the whole of the proceeding, including in respect of its unsuccessful appeal of my directions made on 14 June 2024. The Applicants contended that all of their costs incurred in the proceeding was for, or incidental to, the purpose of securing the stay order as the Respondent's Amended Statement of Claim did not advance any substantive claims outside the injunctive relief that, absent the arbitration agreement, was justiciable.

15 The Respondent resisted each of the orders sought by the Applicants and filed two submissions on the 12 and 13 March 2025 in response. Whilst the Respondent accepted that they must pay the Applicants' costs for the stay application, the Respondent submitted that those costs should be ordered on the standard basis.

16 In support of its submissions, the Respondent referred to the 'high threshold' of 'special circumstances' required to depart from the ordinary rule that costs be awarded on a standard basis,[14] and contended that their application and opposition to the stay application was '[not] out of the ordinary'. The Respondent also opposed the Applicants' claim that the Respondent's objective in pursuing the litigation was for an ulterior purpose.

17 The Respondent further submitted that this Court should not follow the decision in Sino Dragon, and contended that Beach J's ruling was inconsistent with and precluded by the Court of Appeal's decision in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (IMC).[15] In particular, the Respondent referred to the statement made by Hansen and Kyrou JJA:

In proceedings under the [IAA], as in other civil proceedings, costs will ordinarily be awarded against the unsuccessful party on a party and party basis unless the successful party can establish special circumstances. The principles for determining the existence of special circumstances are well established. Special circumstances, if they exist, are found in the facts of the case at hand, and the exercise of the judicial discretion is not otherwise conditioned on whether those facts are comprehended by a category of case or cases in which a special order has been made. The fact that an award debtor fails to establish a ground for resisting enforcement of a foreign arbitral award cannot, of itself, constitute special circumstances. Nor can a finding that the award debtor's case was 'unmeritorious' if all that is meant by that expression is that the award debtor failed to persuade the court to accept his or her evidence and submissions.[16]

18 In any case, the Respondent contended that even if this Court accepted the Applicants' submissions and adopted the view in Sino Dragon, the Respondent's position cannot be characterised as having no reasonable prospects of success, as the appropriate consideration cannot be made with hindsight.[17]

19 The Respondent further resisted the application for costs of the whole proceeding and submitted that the appropriate course is to have those costs determined at the conclusion of the arbitral proceeding.

20 Section 24(1) of the Supreme Court Act 1986, in conjunction with Part 4.5 of the Civil Procedure Act 2010 and Order 63 of the Supreme Court (General Civil Procedure) Rules 2015 (Rules) provide the Court with a broad discretion in determining the question of costs. Section 24(1) relevantly states that the determination of costs 'is in the discretion of the Court and the Court has full power to determine by whom and to what extent the costs are to be paid'. The Court's power to order costs is to be exercised judicially and in accordance with established principles.[18]

21 Ordinarily, where a party is successful, costs should follow the event and the successful party will obtain costs of the action on a standard basis.[19] The Court has jurisdiction to depart from the ordinary position and award costs on an indemnity basis.[20] The general rule is that the Court will only depart from the ordinary position if the case is exceptional or there is some special or unusual feature which justifies the exercise of the Court's discretion to order costs on an indemnity basis.[21] The threshold for departing from the ordinary rule is high and the Court must exercise appropriate caution in reaching the required degree of satisfaction. Indeed, in Han v Australian Kung Fu (Wu Shu) Federation Inc,[22] Mukhtar AsJ stated:

[g]reat care must be taken in reaching a conclusion at the urging of a victorious litigant that the losing litigant somehow conducted itself delinquently as litigant so as to attract an indemnity order, as if it were an expression of the court's admonition.[23]

22 The recognised categories where discretion has been exercised to award indemnity costs include where:

(a) the proceedings were commenced in wilful disregard of known facts or clearly stated law;[24]

(b) an action has commenced or continued in circumstances where the applicant, properly advised, should have known that he has no chance of success;[25] or

(c) there is unreasonable conduct.[26]

23 The categories of special circumstances are not closed and discretion is to be exercised in the circumstances of each case.[27]

24 The Applicants contended that this Court should make an order to dismiss the proceeding which would allow for the immediate taxation of costs, or in the alternative, immediate taxation be ordered under the Court's discretion pursuant to r 63.20.1 of the Rules.

25 The Applicants' primary position is that the proceeding should be dismissed on the basis that, although the stay order is interlocutory in nature, 'as a matter of reality' it has disposed of the rights of the parties on a final basis.[28]

26 The Applicants' alternative submission is that the Court should exercise its discretion to allow for immediate taxation of costs following an interlocutory application. The starting point is found under r 63.20 of the Rules, which states that unless the Court otherwise orders, the costs of an interlocutory application are the parties' costs in the proceeding. Rule 63.20.1 of the Rules further states that unless the Court orders that costs be taxed immediately, an order for costs made in an interlocutory hearing shall not be taxed until the proceeding in which the order is made is completed.

27 Notwithstanding that a stay application is interlocutory, authorities indicate that immediate taxation of costs may follow the event.[29] The Court's discretionary power to order immediate taxation is unfettered, but must be exercised judicially.[30]

28 The position put by the Applicants is that I should depart from the ordinary position and allow an order for indemnity costs against the Respondent for costs incurred in relation to the stay application. The Respondent advanced the position that the depreciation and decommissioning (D&D) issue was not capable of arbitration as it was outside the Kompetenz‑Kompetenz principle and, when that issue was not determined in its favour, there was nothing left for this Court to resolve. I reject the Respondent's submission that the proceeding was 'hard fought' and therefore could not be characterised as 'having no reasonable prospects of success'. As I held:

The Respondent's submissions, on the other hand, put a position which is, in my view, at odds with the current state of the authorities in the present context and would see the courts significantly usurping party autonomy so intrinsic in the arbitral process and, significantly, negating the application of the Kompetenz‑Kompetenz principle enshrined in the IAA and the Model Law.[31]

29 On the basis of the matters put forward by the Applicants, I find that indemnity costs should follow. It is not, however, necessary for present purposes to enter into the ongoing international debate on whether a special costs rule which carries a reverse onus should apply to challenges to arbitral awards or, in the context of this case, stay applications. Although writing some years ago, Allsop CJ (as he then was) helpfully, and presently relevantly, encapsulates the debate in 'Public Policy in the New York Convention and the Model Law':[32]

Like the United Kingdom, Hong Kong's arbitration judges take a dim view of proceedings brought to resist enforcement of an arbitral award.

This statement was made most clearly in A v R [2009] HKCFI 342, where Reyes J held that:

'in the absence of special circumstances, when an award is unsuccessfully challenged, the Court will henceforth normally consider awarding costs against a losing party on an indemnity basis.'[33]

The public policy justification is set out eloquently from paragraph [68] and is worth quoting in full:

'Parties should comply with arbitration awards. A person who obtains an award in his favour pursuant to an arbitration agreement should be entitled to expect that the Court will enforce the award as a matter of course ...

Applications by a party to appeal against or set aside an award or for an Order refusing enforcement should be exceptional events. Where a party unsuccessfully makes such application, he should in principle expect to have to pay costs on a higher basis. This is because a party seeking to enforce an award should not have had to contend with such type of challenge.

If the losing party is made to pay costs on a conventional party‑and‑party basis, the winning party would in effect be subsidising the losing party's abortive attempt to frustrate enforcement of a valid award. The winning party would only be able to recover about two‑thirds of its costs of the challenge and would be out of pocket as to one‑third. This is despite the winning party already having successfully gone through an arbitration and obtained an award in its favour. The losing party, in contrast, would not be bearing the full consequences of its abortive application.

Such a state of affairs would only encourage the bringing of unmeritorious challenges to an award. It would turn what should be an exceptional and high‑risk strategy into something which was potentially "worth a go". That cannot be conducive to CJR and its underlying objectives.'[34]

Subsequent cases in the Hong Kong Court of First Instance and Court of Appeal have overwhelmingly adopted this approach, with clear statements endorsing the public policy philosophy that underlies it. In Pacific China Holdings Ltd (in Liquidation) v Grand Pacific Holdings Ltd [2012] HKCA 332, the court agreed that ordering costs on a standard basis in such situations would in effect be 'to subsidise the losing party's abortive attempt to frustrate enforcement of a valid award'.[35] The settled position in Hong Kong is captured in Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor (No 2) [2012] 1 HKC 491, where Tang VP (with the rest of the Court agreeing) observes:

'Experienced judges in charge of the Construction and Arbitration List have adopted the approach that, in proceedings arising out of or in connection with arbitral proceedings, in the absence of special circumstances, the court will normally consider it appropriate to order costs on an indemnity basis.'[36]

The jurisprudence outlined above demonstrates clearly that the Hong Kong approach, like that of the UK, seeks to guard against abuse of process.

In Australia, the settled position on costs is that expressed in IMC Aviation Solutions Pty Limited v Altain Khuder [2011] VSCA 248, a decision overturning the trial judge's application of the Hong Kong approach outlined above. In that case, the Victorian Court of Appeal stated:

'A decision to award indemnity costs against an unsuccessful party is dependant upon there being 'circumstances of the case ... such as to warrant the Court ... departing from the usual course' of awarding costs on a party and party basis. Such a departure will only be countenanced in the presence of special circumstances. Unsuccessfully resisting enforcement of a foreign arbitral award is not an established category of special circumstances in Australia.'[37]

This remains the position, and reflects the general approach to costs in Australia, which will generally award party/party costs unless there are circumstances that provide a clear indication that a higher rate of costs in the form of indemnity or solicitor/client costs is warranted. This approach operates on the assumption that enforcement proceedings are substantially the same as other proceedings brought before Australian courts. Under this system, the innocent party receiving costs orders in their favour on a party/party basis can expect to recover between 50‑70 per cent of the actual legal costs incurred.[38]

However, there have been some proceedings in which Australian judges have deemed indemnity costs appropriate. For example, Chief Justice Martin of the Supreme Court of Western Australia ordered Pipeline Services WA Pty Ltd to pay, on an indemnity basis, the costs incurred by ATCO Gas Australia Pty Ltd in applying for a stay of proceedings under section 8 of the Commercial Arbitration Act 2012 (WA).[39]

The real question for Australian courts is whether the approach to enforcement proceedings adequately reflects the public policy considerations that should properly attend them. The shortcoming of Australia's position may be that while the presumption of party/party costs arguably delivers a just outcome in ordinary proceedings, enforcement proceedings in the context of arbitral awards are different in character.

The Hong Kong position discussed in the paper remains, having been consistently applied by those Courts.[40]

30 The debate on whether a special costs rule should be applied in arbitration proceedings has focused on challenges to arbitral awards and their enforcement. I do, however, not necessarily accept that the same considerations should not apply to stay applications and, possibly, any other applications which impinge on the arbitral process at odds with the public policy considerations favouring support for and facilitation of international and domestic commercial arbitration.[41] The work and consensus of Australian legislatures in more recent years, building on the work of the United Nations Commission on International Trade Law (UNCITRAL), and the consensus of the international commercial community, is very strong testament to the critical importance of these public policy considerations.[42]

31 In this context it is appropriate, in my view, to have regard to the nature of applications to the courts by way of enforcement of or challenges to awards as distinct from stay applications. Particular aspects of the Australian Commonwealth and State legislative context, and the international legal environment which this legislation now reflects and the UNCITRAL Model Law from which it is derived, are significant. Thus, s 16 of the IAA provides that the Model Law has the force of law in Australia, and s 7 of the IAA makes provision for the enforcement of foreign arbitration agreements and for the stay of court proceedings on the conditions specified in the latter provisions.[43] Consistently with these provisions, the Model Law restricts court intervention in the arbitral process:

In the matters governed by this Law, no court shall intervene except where so provided in this Law.

32 Against this general restraint on court intervention, article 16 of the Model Law provides for the competence of an arbitral tribunal to rule on its jurisdiction. It follows, in my view, that the public policy position of the legislation is clearly directed to the facilitation and enforcement of arbitration agreements, and to discourage parties from seeking to obstruct the operation of such agreements.[44] Whether this situation as it may arise in stay applications, as distinct from applications by way of enforcement of an award or a challenge to an award, may be thought to have different consequences in terms of costs appears to be an open question. In this respect, the former goes to allowing the arbitration to proceed unobstructed by court proceedings whereas the latter goes to the manner in which the arbitral proceedings are conducted and outcomes.

33 On this basis, a distinction might be drawn between the Australian cases on special costs rules with respect to challenges to or enforcement of arbitration awards and special costs rules with respect to stay applications. Whilst the Hong Kong and English cases to which reference is made in these reasons support the application of a special costs rule in favour of indemnity costs, they do not, in my view, support the drawing of such a distinction. In light of this, I am of the view that, although stay and other applications do have a different quality and raise different considerations, the Australian cases could not be said to support the application of a special costs rule applicable to stay applications, but not other applications, such as enforcement.[45]

34 It may be thought to be undesirable that the Australian position is not consistent with that pertaining among some of the most significant arbitration jurisdictions in the world,[46] and a position which appears to be at odds with the major revisions to the IAA and State and Territory legislation adopting and applying the Model Law to international and domestic commercial arbitration in Australia in line with current international norms. Nevertheless, final resolution of the Australian position is now a matter for appeal courts and, possibly, legislatures.

35 For reasons put forward by the Applicants, I find that indemnity costs should follow, but not, for the preceding reasons, on the basis of a special costs rule which carries a reverse onus. I accept the Applicants' submissions that this Court should adopt the reasoning of Beach J in Sino Dragon on the general costs principles, and reject the Respondent's submissions that Winslow and IMC preclude this Court from following Sino Dragon on this issue. With great respect to Riordan J, to the extent that his Honour is not addressing the question whether the authorities support a special costs rule, I do not follow the basis on which his Honour refused to apply Sino Dragon. In my view, the authorities do not indicate that the position of Beach J in Sino Dragon is unsupported.[47] Moreover, the view expressed by Riordan J that there is 'no utility in equating the test for summary judgment with the test for indemnity costs' does not, with the greatest respect, have regard to the policy considerations rehearsed by Beach J.[48] Additionally, I do not share his Honour's views that the imposition of the test proposed by Beach J 'is unlikely to discourage challenges to arbitral awards' and in any case, is not, with respect, a proper basis to decline to follow Sino Dragon. In my opinion, Riordan J's view does not engage with Beach J's position that the challenging party should bear the risks of a failed challenge and 'take positive steps to ensure that at inception it does have reasonable prospects of success taking into account both the law and the evidentiary foundation available to it'.[49]

36 Accordingly, I find, for the reasons which follow, that applying usual costs principles, where a party which has failed to resist an application under s 7 of the IAA to stay court proceedings in circumstances where the grounds of opposition had no reasonable prospects of success, it should be ordered to pay costs on an indemnity basis.

37 In my view, the Respondent has incorrectly characterised the decision in IMC as precluding the findings in Sino Dragon on this general basis. The passage in IMC referred to by the Respondent[50] only precludes the finding of special circumstances where it can only be said that 'the award debtor failed to persuade the Court to accept his or her evidence and submissions'.[51] Thus, a failed attempt to resist enforcement, without more, cannot by itself constitute special circumstances. However, this decision does not exclude the Court's ability to exercise the costs discretion in favour of indemnity costs where the grounds of opposition to a stay application had no reasonable prospects of success, as his Honour held in Sino Dragon.

38 Finally, whilst the Respondent contended that Sino Dragon is limited to challenges to enforcement and recognition,[52] Beach J clearly contemplated that this category of special circumstances might be extended to a party resisting a stay order. In rejecting the finding that a special circumstance arises merely from an unsuccessful challenge of an arbitral award under article 34 of the UNCITRAL Model Law, his Honour contemplated the importance of maintaining the same principle to applications brought under different provisions of the IAA:

Fifth, if there is to be such a special rule, when is it to be applied? The stay context (s 7) is quite different to proceedings resisting enforcement (s 8) or the mirror image article 34 challenge. Different again is the article 13(3) challenge discussed by Edelman J. Is it suggested that the special rule is to apply to all such diverse contexts? And how is this justified? But if it is not justified so that any special rule only applies to some of these contexts, that makes any such rule even less attractive. To posit a special rule for only some of these contexts lacks conceptual coherence or harmony. It is better to use the present principles with no reverse onus, and to deal with the different contexts through different applications of those same principles.[53]

The policy issues raised in the enforcement context are, in my view, equally applicable with respect to the Court's powers to grant a stay under s 7 of the IAA. These policy considerations are clearly of general application with respect to matters the subject of the IAA.

What is clear, however, is that the terms and objects of the [International Arbitration] Act will be a relevant factor to be considered when exercising the discretion to award costs.[54]

Similarly, Allsop CJ in TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd[55] stated:

Parties in international commerce may choose arbitral dispute resolution for many reasons ... that chosen international legal order depends crucially upon reliable curial enforcement and a respect by the courts for the choice and autonomy of the parties and for the delicate balance of the system.[56]

40 Accordingly, I find that the approach to circumstances relevant to the exercise of the costs discretion on usual principles adopted by Beach J in Sino Dragon applies to a failed resistance of a s 7 of the IAA stay application where the grounds of opposition had no reasonable prospects of success.

41 Having addressed issues raised as to the application of Sino Dragon, I now turn to the Respondent's conduct. In so doing, I find that in opposing the Applicants' stay application, the Respondent advanced submissions which had 'no reasonable prospects of success' for the following reasons.

42 First, as I said and discussed previously, the Respondent's submissions are 'at odds with the current state of authorities'.[57] Whilst it is not necessary to restate the conclusions I reached in relation to the stay application, it is sufficient to say that the Respondent's position was inconsistent with the application of the Kompetenz‑Kompetenz doctrine as applied under the IAA and the Model Law. In particular, the Respondent's reliance on Robounits and Recyclers did not support its position as neither case applied the Kompetenz‑Kompetenz doctrine as considered in Hancock.

43 Secondly, the Respondent's submissions as to the application of the laws of New York was inconsistent with the proper law of the Parties' arbitration agreement being the law of Victoria. It therefore follows that, and in accordance with my decision, the Respondent's attempt to introduce evidence in respect of New York law was 'entirely irrelevant' to the stay application.[58]

44 Thirdly, the Respondent's submissions as to the applicability of the Dell exception to its circumstances were plainly incorrect. As I said, 'I do not, however, take the Dell decision to be an authority supporting a broad based "merits" consideration or review approach on the part of the courts'.[59] It therefore followed that the Parties' arbitration agreement, which involved complex provisions with a long history of amendments, did not fall within the Dell exception:

Having regard to these matters it would, in my view, be absurd to suggest the possibility of, in effect, a summary determination of a discrete and narrow question of law devoid of consideration of any factual matters or context which might be approached within a possible Dell 'exception'.[60]

45 Finally, the Respondent sought to introduce copious material which was not relevant to the determination of the stay application. The 930 pages of material adduced by the Respondent was contested by the Applicants and ultimately did not have any bearing on the decision of this Court.

The narrower the particular ground of challenge under article 34 and the higher the bar set to succeed on such a challenge, the higher the probability of failure and accordingly the higher the likelihood of establishing that the particular ground had no reasonable prospects of success. Another way to express the point is to take the protean concept of 'reasonable' in the phrase 'reasonable prospects of success' and to say that the narrower the ground and the higher the bar, the greater the strength of the argument needed to support the particular ground of challenge to be then characterised as having 'reasonable prospects of success'.[61]

47 For the preceding reasons and having regard to his Honour's views in Sino Dragon, which I am of the opinion should also apply to the opposition to a stay application, I am satisfied that the Respondent's failed resistance had no reasonable prospects of success. Moreover, this is not a position that the Respondent could and should not have anticipated. This is not a position which could be said to have only become apparent to the Respondent in hindsight.[62]

48 Having found on the basis discussed in the preceding reasons that the claim for an award of indemnity costs is established, I do not need to address the claim that the proceeding instituted by the Respondent was done to impermissibly delay the hearing of the D&D claims raised in Arbitration. In my opinion, the Applicants' submission that the Respondent commenced litigation for the purpose of bifurcating the Parties' arbitration cannot be readily inferred from the facts presented to this Court, and indeed is inconsistent with the Applicants' own claims in relation to the GST claim component of the arbitration. However, as the Applicants correctly contend, this Court need not find the existence of an ulterior purpose in order to award indemnity costs against the Respondent. It follows that my rejection of the Applicants' submissions as to an ulterior purpose does not detract from my finding relating to the Respondent's failed resistance of the stay application in circumstances that its resistance had no reasonable prospects of success. Accordingly, indemnity costs are to follow.

49 Having found that the Applicants are entitled to indemnity costs for costs incurred in relation to its stay application, I do not find on the basis of the submissions made that this entitlement should necessarily extend to the whole of the proceeding. Nor do I find it appropriate at this stage to determine the issue of costs in relation to the whole of the proceeding. In my view, and in accordance with the authorities, costs of the whole of the proceeding apart from the costs now determined in respect of the stay application should be reserved until the Parties' arbitration has been resolved.

50 In its submissions, the Respondent referred to Ansett Australia Ltd v Malaysian Airline System Berhad (No 2) (Ansett),[63] where Hollingworth J refused to order costs relating to the whole of the proceeding following a successful application for a stay order under s 7 of the IAA. Her Honour stated:

Insofar as the parties have otherwise incurred costs in relation to the proceeding, such as costs of drawing or considering the statement of claim, I propose to reserve those costs for later determination by this court, depending on the outcome of the arbitration.[64]

The Respondent contended that this is the conventional position and should be adopted by this Court.

51 The Applicants argued that Ansett should be distinguished on its facts on two grounds. First, the Court in Ansett found that the applicant had caused significant delays in pursuing its application for a stay, including failing to appear at a directions hearing and delaying its application for a stay order.[65] As a result, Hollingworth J imposed costs on the standard basis against the applicant for these directions hearings notwithstanding the applicant's overall success in obtaining the stay.[66] The Applicants correctly, in my view, contended that their conduct is dissimilar to that in Ansett. Its first substantive step was to issue the stay application, and its objection to the Respondent's position was well ventilated from the commencement of this proceeding. No such delay therefore existed in this proceeding. Secondly, the stay order in Ansett was subject to conditions,[67] whereas the stay order in this proceeding is unconditional. The Applicants contend that the totality of differences between the current proceeding and Ansett and the Respondent's late issue of proceeding after the arbitration had commenced is reason to depart from the position in Ansett.

52 Notwithstanding the noted differences between Ansett and the present proceeding, I am not satisfied that these differences warrant a departure from the views expressed by Hollingworth J. In my view, the absence of delay and the unconditional stay order does not support costs for the whole of the proceeding being ordered prior to the resolution of the Parties' arbitral proceeding. In Ansett, Hollingworth J awarded costs against the applicant for parts of the proceeding in light of its conduct, but did not make a costs order for the balance of the parties' costs associated with the proceeding. It is incorrect, in my view, to characterise her Honour's decision to reserve costs as being a result of the delay or conditional stay order. Had Hollingworth J formed such a view, it would have been appropriate for her Honour to resolve the question of costs then and there. Rather, implicit in her Honour's decision to reserve the decision on costs is, in my view, an understanding that the Court would be benefitted by the arbitral tribunal's decision and findings.

53 Whilst this Court is not bound by the findings of the arbitral tribunal, its decisions and findings may inform the cost implications of this proceeding. For completeness, I make no observation on how the findings of the arbitral tribunal may affect my decision on the reserved costs determination, save to say, in accordance with settled authority, that this Court is not beholden to the tribunal's findings on the determination of costs in this proceeding.[68]

54 Finally, I am not persuaded by the Applicants' submission that Manningham City Council v Dura (Australia) Constructions Pty Ltd[69] supports its position, that decision being about the parties' intention to arbitrate and whether there was an arbitration agreement, and in any case leaves no determination for the arbitral tribunal to decide on its jurisdiction to hear the parties' dispute. Moreover, it was a decision made in the context of a significantly different statutory environment, namely s 53(1) of the Commercial Arbitration Act 1994 (Vic).

55 I therefore reserve the question of costs of the whole of the proceeding to the conclusion of the arbitral tribunal's decision on its jurisdiction. Accordingly, it is not presently incumbent on this Court to determine whether indemnity costs should be ordered for the whole of the proceeding.

56 Finally, I would refuse to grant an order dismissing the whole of the proceeding, but order that the Applicants' costs in relation to the stay application are to be taxed immediately.

57 In relation to the Applicants' submissions on dismissal, I am not convinced that the American authority of Alford v Dean Witter Reynolds Inc[70] which the Applicants have sought to rely on should have any force in this jurisdiction. In that case, the Fifth Circuit Court of Appeal held that 'the weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration'.[71]

58 Rather, as the Respondent correctly contended, the Australian position as decided in Hi‑Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 3) (Hi‑Fert)[72] is that a s 7 stay order is interlocutory and therefore may be lifted in certain circumstances.[73]

59 Notwithstanding the factual differences between Hi‑Fert and this proceeding, I find that there is continuing utility for this proceeding not to be dismissed. Although the Applicants correctly contended that the Respondent's rights to have this Court revisit any subsequent arbitral determination is a future and contingent right which vests only if the conditions prescribed by the IAA occur, I am not persuaded that, on this basis, I should dismiss the proceeding. If the arbitral tribunal declines to determine its jurisdiction to hear the D&D Claims, this Court would be best placed to determine any subsequent applications by the Parties to have the stay lifted. The consequence of a dismissal of the proceeding would be to require the Respondent to institute a new proceeding to resolve matters in which this Court already has knowledge of their substantive and procedural history. A dismissal of the proceeding would therefore be inconsistent with the efficient use of the Court's resources.

60 As I would decline to dismiss the proceeding, the question then turns to whether costs should be taxed immediately or after the proceeding is finally resolved. In my view, it is appropriate to grant an order for the Applicants' costs to be taxed immediately. The Applicants submitted, and I accept, that the present circumstances warrant a departure from the ordinary position under r 63.20.1. The Respondent did not advance any basis in its reply submissions opposing or challenging the authorities which the Applicants raised to substantiate a departure from the ordinary position. Accordingly, I find that, on the following basis, the Applicants' costs should be taxed immediately:

(a) the absence of the risk that the costs order would be used to exhaust the Respondent's funds to contest the merits of the claim in the proceeding;[74]

(b) the order would not delay the further conduct of the proceeding;[75]

(c) the costs incurred in the stay application were beyond those that should have been incurred because of the opposition to the application;[76]

(d) the stay application shortened at least at this stage what would otherwise have been the length of the proceeding;[77] and

(e) the relief obtained by the application is of a discrete nature wholly unrelated to the substantive dispute between the parties.[78]

61 Moreover, it would be unfair, in my view, to have the Applicants wait until the proceeding is finally disposed of to recover the costs it has incurred in prosecuting its stay proceeding, especially in circumstances where any potential future date for disposal is presently indeterminate.

62 Accordingly, I would depart from the ordinary position and order immediate taxation of the Applicants' costs with respect to the stay application on an indemnity basis.

63 For the preceding reasons, I will make an order for indemnity costs in the Applicants' favour for the costs incurred in the stay proceeding, to be taxed immediately. I otherwise reserve judgment for the costs incurred in relation to the balance of the proceeding.

[1] These reasons for judgment are now referred to as the 'Principal Reasons'. Abbreviations in these reasons are those appearing in the Principal Reasons unless otherwise indicated.

[3] A v B (No 2) [2007] 1 Lloyd's Rep 358, 361 [11].

[4] A v B (No 2) [2007] 1 Lloyd's Rep 358, 362 [15].

[5] [2014] WASC 10 (S).

[6] Ansett v Malaysian Airline System (No 2) [2008] VSC 156, [22]; Re Ikon Group Ltd (No 3) [2015] NSWSC 982, [4]-[7]; Australian Maritime Systems Ltd v McConnell Dowell Constructors (Aust) Pty Ltd [2016] WASC 52 (S), [19]-[26]; John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 564, [23]-‍[40]; Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2016] WASC 458 (S), [8]-[13].

[7] [2016] FCA 1169.

[8] Sino Dragon, [26] (emphasis added).

[9] [2021] VSC 74; (2021) 64 VR 200.

[11] J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) [1993] FCA 70; (1993) 46 IR 301, 303.

[12] [1993] FCA 70; (1993) 46 IR 301.

[14] Almond Investors Ltd v Emanouel [2012] VSC 479, [13]-[14] citing PCRZ Investments Pty Ltd v National Golf Holdings Ltd [2002] VSCA 24.

[15] [2011] VSCA 248; (2011) 38 VR 303.

[16] IMC, 392 [336] (emphasis added).

[17] Roy Hill Holdings Pty Ltd v Samsung C&T Corporation [2016] WASC 458 (S), [11] citing Civil Properties Pty Ltd v Miluc Pty Ltd [2011] WASCA 195, [85].

[18] Gray v Richards (No 2) (2014) 315 ALR 1, 2 [2]; Sandoz Pty Ltd v H. Lundbeck A/S (No 2) [2021] FCAFC 47, [30].

[21] Colgate Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225, 232-234.

[22] [2011] VSC 498.

[23] Han v Australian Kung Fu (Wu Shu) Federation Inc [2011] VSC 498, [31].

[24] Colgate Palmolive Co & Anor v Cussons Pty Ltd (1993) 46 FCR 225, 233.

[25] Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401.

[26] Rosniak v GIO (1997) 41 NSWLR 608, 616; Rouse v Shepherd (No 2) (1994) 35 NSWLR 277; Stuart v Mordialloc Sporting Club [2019] VSC 555, [36].

[27] Sino Dragon, [23]; Ugly Tribe v Sikola [2001] VSC 189, [8]; Denlay v Commissioner of Taxation (No 2) [2013] FCA 358; (2013) 302 ALR 237, [10].

[28] Port of Melbourne Authority v Anshun Pty Ltd (No 1) [1980] HCA 41; (1980) 147 CLR 35, 38.

[29] See, eg, Ansett Australia Ltd v Malaysian Airline System Berhad (No 2) [2008] VSC 156, [20]; AED Oil Ltd v Puffin FPSO Ltd (No 2) [2010] VSCA 109, [12]; Novawest Contracting Pty Ltd v Brimbank City Council [2015] VSC 679, [34]; Amcor Packaging (Aust) Pty Ltd v Baulderstone Pty Ltd [2013] FCA 253, [49]; Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208, [5].

[30] Dale v Clayton Utz (No 3) [2013] VSC 593, [60]; Setka v Honourable Tony Abbott MP (No 2) [2013] VSCA 376, [27].

[32] The Enforcement of International Arbitration, Awards and Public Policy (An AMTAC and Holding Redlich Seminar, 10 November 2014), [65]-[73].

[33] A v R [2009] HKCFI 342, [72].

[34] A v R [2009] HKCFI 342, [68]-[71].

[35] Pacific China Holdings Ltd (in Liquidation) v Grand Pacific Holdings Ltd [2012] HKCA 332.

[36] Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor (No 2) [2012] 1 HKC 491, [12].

[37] IMC Aviation Solutions Pty Limited v Altain Khuder LLC [2011] VSCA 248, [55].

[38] Andrew Stephenson, 'Creating efficient dispute resolution processes: lessons learnt from international arbitration' (2004) 20 Building and Construction Law Journal 151, 155.

[39] Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10.

[40] A v R [2009] HKCFI 342; Gao Haiyan v Keeneye Holdings Ltd (No 2) [2012] 1 HKC 491; Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No 2) [2012] 4 HKLRD 569, [11] ('Grand Pacific Holdings Ltd'); Peter Cheung & Co, Solicitors v Perfect Direct Ltd [2017] HKEC 494; Chun Wo Construction & Engineering Co Ltd v Hong Kong Housing Authority [2019] HKCA 541. In Grand Pacific Holdings Ltd, the Hong Kong Court of Appeal unanimously supported the decision of Croft J in Altain Khuder LLC v IMC Mining Inc & Anor (No 2) [2011] VSC 12, which was later overturned on appeal in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] VSCA 248; (2011) 38 VR 303. Tang VP said (Kwan and Fok JJA agreeing): "After careful consideration and with respectful recognition of the powerful reasons which supported the Victorian Court of Appeal decision, I remain of the view that this Court should nevertheless give effect to and recognise the practice of specialist judges in charge of the Construction and Arbitration List and order indemnity costs".

[42] See Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142; (2014) 46 VR 49; Sino Dragon, [25].

[43] See Principal Reasons, [4], [5].

[44] As discussed in A v B (No 2) [2007] 1 Lloyd's Rep 358; John Holland Pty Ltd v Kellogg Brown and Root Pty Ltd [2015] NSWSC 564; Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 829; Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2) [2015] FCA 1046; (2016) 246 FCR 498 (Edelman J).

[45] See Croft, Stamboulakis and Warren, International and Australian Commercial Arbitration (LexisNexis, 2022), 629-32, [11.47], [11.48].

[46] See A v B (No 2) [2007] 1 Lloyd's Rep 358; A v R [2009] HKCFI 342; Gao Haiyan v Keeneye Holdings Ltd (No 2) [2012] 1 HKC 491; Grand Pacific Holdings Ltd, [11].

[52] Respondent's Reply Submission, [10.2].

[53] Sino Dragon, [16] (emphasis added).

[55] [2014] FCAFC 83; (2014) 232 FCR 361.

[56] TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd [2014] FCAFC 83; (2014) 232 FCR 361, 393-‍4 [110] (Allsop CJ, Middleton and Foster JJ agreeing) (citations omitted).

[61] Sino Dragon, [27] (citations omitted).

[63] [2008] VSC 156.

[67] Ansett Australia Ltd v Malaysian Airline System Berhad [2008] VSC 109; (2008) 217 FLR 376, [25], [33]-[34].

[68] Hi‑Fert Pty Ltd v Kiukiang Maritime Carriers Inc (1997) 150 ALR 345, 347-8; Ansett Australia Ltd v Malaysian Airline System Berhad (No 2) [2008] VSC 156, [29].

[69] [1999] VSC 63.

[70] [1992] USCA5 2201; 975 F.2d 1161 (5th Cir, 1992).

[71] Alford v Dean Witter Reynolds Inc [1992] USCA5 2201; 975 F.2d 1161 (5th Cir, 1992), [5].

[72] (1998) 86 FCR 374.

[73] Hi‑Fert, 385-7 (Branson J), 395-7 (Emmett J), Beaumont J dissenting but accepting that a stay can be lifted (381-‍2).

[74] Hancock Prospecting Pty Ltd v Rinehart (No 2) [2017] FCAFC 208, [6].

[75] Setka v Honourable Tony Abbott MP [2013] VSCA 376, [27].

[76] Setka v Honourable Tony Abbott MP [2013] VSCA 376, [27].

[77] Mitanis v Pioneer Concrete (Vic) Pty Ltd (1998) ATPR 41‑623.

[78] Dale v Clayton Utz (No 3) [2013] VSC 593, [80]-[85].