IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 136 OF 2011
(ON APPEAL FROM HCCT NO. 15 OF 2010)
DECISION ON COSTS
Hon Tang VP:
1. On 9 May 2012, we allowed the Defendant’s appeal against the judgment of Saunders J setting aside the award for violation of Article34(2)(a)(ii) and (iv). We also made a cost order nisi in favour of the Defendant in respect of the costs before this Court and inthe Court of First Instance.
2. The Defendant applies to us for such costs to be taxed on an indemnity basis as well as for a certificate for two counsel.
3. This does not appear to be opposed by the Plaintiff, PCH. In any event, this is clearly a suitable case for two counsel, both hereand below. And I would certify accordingly.
4. In Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor (No 2)  1 HKC 491, this Court (differently constituted) said at page 494:
5. That decision is binding on us and not distinguishable. Therefore, I would order costs to be taxed on an indemnity basis.
6. PCH has drawn our attention to a decision of the Supreme Court of Victoria, Court of Appeal, IMC Aviation Solutions Pty Limited v Altain Khuder LLC, 2011 VSCA 248, where the question of indemnity costs orders in similar proceedings was in issue.
7. There, the judge of the Trial Division had ordered IMCS to pay Altain’s costs on an indemnity basis. The Victorian Court of Appealnoted at paragraph 328 that the judge had done so after referring to the decision of Reyes J in A v R  3 HKLRD 389 and subsequent decisions including the decisions of Saunders J, and because:
8. The Victorian Court of Appeal took a different view. Warren CJ in giving the judgment of the court said:
9. Altain Khuder predated Gao Haiyan (No 2) but it was not drawn to that court’s attention.
10. As I have said we are bound by our previous decision, but since I now have the benefit of the Victorian decision, I would go on toconsider, whether, if I were free to do so, I would decide this application differently.
11. After careful consideration and with respectful recognition of the powerful reasons which supported the Victorian Court of Appealdecision, I remain of the view that this Court should nevertheless give effect to and recognise the practice of specialist judgesin charge of the Construction and Arbitration List and order indemnity costs.
12. In Gao Haiyan (No 2), I mentioned it might be paradoxical if a party who had succeeded but failed to better a sanctioned offer or payment may be orderedto pay indemnity costs, but if he had completely failed, and the successful party had made no sanctioned offer or sanctioned paymentbecause the latter was rightly confident of success, the successful party could not be awarded indemnity costs unless there werespecial circumstances.
13. I believe the implication of Order 22 rule 23 deserves careful consideration. It is perhaps best explored on a case by case basisat first instance and in this court until a synthesized theme can be discerned.
14. For the present purpose I note that under Order 62 rule 5(1), the court in exercising its discretion as to costs, shall, to suchextent as may be appropriate in the circumstances, take into account:
15. Given that the parties had agreed to arbitration, I believe it is fair that if a party was unsuccessful in setting aside or resistingenforcement of the arbitral award, in the absence of special circumstances, he should pay costs on an indemnity basis. Reyes J saidin A v R, and I respectfully agree:
16. Nor do I believe that this practice is wrong in principle. It might be regarded as wrong in principle, if notwithstanding CivilJustice Reform and its implications, indemnity costs could only be awarded when special circumstances are established. However,I believe indemnity costs may be awarded under Order 62 rule (5)(1) in an unsuccessful application to set aside an arbitral awardor to resist enforcement to “ensure fairness between the parties”. Unless such practice is wrong in principle, we cannot interfere.
17. Nor can I agree that such practice amounts to an abrogation of discretion. The practice has left room for special circumstances;what are special circumstances in this context have to be worked out in due course. However, I cannot accept that the fact thatthe challenge was reasonably arguable is a special circumstance. That would neutralize the practice.
18. It was submitted on behalf of PCH that Reyes J had in mind unmeritorious challenges which are not reasonably arguable and abusive. That is what Reyes J said in A v R:
19. When these words are read in context (see para 15 above), it is clear Reyes J did not have in mind as suitable for indemnity costsonly those cases where the challenges were not reasonably arguable, or abusive.
20. It is also submitted that the fact that this application had succeeded before Saunders J, and other courts have held that PCH’s casewas not unarguable, is a special circumstance.
21. It is correct that Saunders J had decided in favour of PCH. But parties opt for arbitration because they would not accept the uncertaintyof litigation, so the fact that an appeal was necessary to put matters right does not detract from the reason for ordering indemnitycosts in the first place.
22. It is also true that other courts have decided that PCH’s complaints were arguable. We were not asked to decide whether PCH’s complaintswere arguable, we had to decide whether the complaints had been made out. In any event, this is just another way of saying thatif a complaint is reasonably arguable, indemnity costs should not be awarded. For reasons already stated, I am unable to agree.
Hon Kwan JA:
23. I agree with the decision of the Vice President.
Hon Fok JA:
24. I also agree.
Ms Teresa Cheng, SC & Mr Adrian Lai instructed by Herbert Smith for the Defendant
Mr Charles Manzoni, SC instructed by Sidley Austin for the Plaintiff