Plaintiff v Firstnamed Defendant Secondnamed Defendant

Plaintiff v Firstnamed Defendant Secondnamed Defendant - [2011] VSC 12 - VSC 2011 case summary — Zoe

[10]

"7. In seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course: Spencer v Dowling[5]. Special circumstances must be present to justify such a departure: Australian Electoral Commission v Towney (No. 2)[6]. These include:

(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud: Fountain Selected Meats (Sales) Pty. Ltd v International Produce Merchants Pty Ltd [1988] FCA 202; (1988) 81 ALR 397.

(ii) The making of an irrelevant allegation of fraud: Thors v Weekes (1989) 92 ALR 131.

(iii) Conduct which causes loss of time to the Court and to other parties: Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd (unreported, Federal Court, French J, 3 May 1991).

(iv) The commencement or continuation of proceedings for an ulterior motive: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Federal Court, Davies J, 5 March 1993).

(v) Conduct which amounts to a contempt of court: EMI Records Ltd v Ian Cameron Wallace Ltd [1983] Ch 59.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law: J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA) Branch (No 2) [1993] FCA 42; (1993) 46 IR 301.

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial: National Australia Bank v Petit-Breuilh (No 2) (unreported, [1990] VSC 395, 18 October 1999).

8. The categories of special circumstances are not closed: Tetijo Holdings, supra. The cases must not, therefore, be read 'in an endeavour to establish a set of inflexible guidelines which should thereafter be determinative of the manner in which the Court's discretion is to be exercised [for this] would be to fetter the Court's discretion': National Australia Bank v Petit-Breuilh, supra.

9. At the same time, the courts should, I think, be astute to avoid a wilderness of single instances. Even worse would be the creation of different regimes in different courts, especially as between the Federal Court and a State Supreme Court. This would encourage the undesirable practice of forum shopping, as well as the almost equally undesirable spectre of frequent post-trial applications for costs to be awarded on some special basis (i.e. on other than the usual party and party basis).

10. According to Winneke P in Spencer's case (at 147):

'It is well recognised that there is occurring an ever increasing gap between party/party costs and those actually incurred ... This ... has continued ... notwithstanding expressions of view by individual Judges that it is capable, in today's circumstances, of working injustice: see, for example, per Rogers J (as he then was) in Qantas Airways Ltd v Billingham Corp.[7] The practice is designed to reflect a compromise between the interests of successful and unsuccessful litigants. As Handley JA observed in Cachia v Hanes[8] the practice is also adopted to provide an "important spur to settlement". Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233 restated the practice and pointed out:

[16]

"67. 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.

68. 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.

69. Further, given the recent introduction of Civil Justice Reform (CJR), the Court ought not normally to be troubled by such type of application. A party unmeritoriously seeking to challenge an award would not be complying with its obligation to the Court under Order 1A Rule 3 to further the underlying objectives of CJR, in particular the duty to assist the Court in the just, cost-effective and efficient resolution of a dispute.

70. If the losing party is only 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.

71. 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.

72. Accordingly, 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. The Respondent will here pay the Applicant's costs on an indemnity basis."

[19]

"8. As I have said, I agree entirely with the sentiments of Reyes J [in A v R].

...

11. They [ie applications for leave to appeal against an award, or to set aside an award, or for an order refusing enforcement] ... are exceptional events. The whole principle of arbitration is that a person who obtains an award in his favour is entitled to expect that the Court will enforce the award as a matter of course. It is not necessary for a party successfully resisting an application seeking to challenge the award, to establish the application itself as an abuse of process to justify indemnity costs. The nature of arbitration is such that, having regard to the underlying objectives in the RHC, an unsuccessful application to challenge an arbitrators award will normally attract indemnity costs against the applicant.

12. Counsel for the applicant had been obliged to accept that the clauses, the interpretation of which was sought to be challenged, were not standard clauses but were 'one-off' clauses, peculiar to this particular arbitration agreement. The burden faced by an applicant in challenging a one-off clause is high: the arbitral tribunal's construction must be shown to be 'obviously wrong'. Mr Tsang pointed to the fact that I thought that on first impression the argument for the applicant might be right. That, he said, the application being brought before the court.

13. But when regard is had to the hurdle to be mounted by the applicant, it is immediately seen that a mere first impression will fall a long way short of being able, even arguably, to meet the standard of showing that the interpretation is 'obviously wrong'. I accept that the challenge was not of itself an abuse of process, but it was a challenge made in circumstances where the prospect of establishing that the interpretation was 'obviously wrong' was at best remote. In those circumstances there is no reason to depart from what is now the usual rule, that costs on a failed challenge to an arbitrators award should be on an indemnity basis.

14. Where the prospect of success is at best remote, an application to challenge an award may properly be characterised as unmeritorious."

[30]

18 In the present case, the plaintiff submitted that the second defendant's application to resist enforcement of the Award was a similarly unmeritorious one. In particular, it was submitted that the second defendant's application was made against the backdrop of provisions in the International Arbitration Act 1974 (Cth) and the jurisprudence in the international arbitration field which makes it clear to parties and arbitration practitioners that the grounds for resisting enforcement of an award are very limited, and the relevant burden for establishing those grounds is onerous. In this respect, reference should be made to my earlier judgment in this case, and the references to the critical provisions of both the International Arbitration Act and the New York Convention.[23] The plaintiff submitted that the second defendant knew, or at least should have known, that its prospects of success in resisting enforcement of the arbitral award were limited by these factors. Nevertheless, in spite of this, the plaintiff submitted that the second defendant persisted with its attempts to resist enforcement of the Award. For instance, during the proceedings, the second defendant made allegations that the plaintiff lacked candour during the ex parte enforcement application and that the plaintiff was required to establish a "threshold issue" before it was entitled to have the award enforced. Again, my earlier judgment and the submissions of the second defendant indicate the extent to which the second defendant pressed these issues, repeatedly. Putting matters in the most general terms, my earlier judgment indicates that I formed the view that there was no issue in relation to candour, both on a general procedural and on a more substantive jurisprudential basis, and that, further, there was no lack of candour in the particular circumstances. In relation to the "threshold issue", I found that the provisions of the International Arbitration Act and the New York Convention, together with the pro-enforcement policy underlying both legislative instruments, and the case law did not support the existence of any threshold issue. Further, echoing but not relying upon the statement of Reyes J in A v R,[24] I am of the view, as appears from my earlier judgment, that the second defendant found itself in its predicament with respect to the Mongolian arbitration proceedings as a result of its own decisions as to its participation, or otherwise, in those proceedings.

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