NSW Supreme Court refuses indemnity costs on successful application for referral to arbitration

Justice Hammerschlag of the New South Wales Supreme Court (the Court) has refused to award indemnity costs to parties which successfully obtained a stay of proceedings in favour of arbitration: John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd (No 2) [2015] NSWSC 565. 

The decision was made in the context of a domestic arbitration regulated by the Commercial Arbitration Act 2010 (NSW), although, as his Honour noted in the course of the judgment [t]he International Arbitration Act and the suite of State and Territory Commercial Arbitration Acts enacted since 2010 are generally intended to give effect to the UNCITRAL Model Law on International Commercial Arbitration.  Good policy suggests that absent clear legislative intent to the contrary, construing them so as to result in incongruent outcomes should be avoided. 

In rejecting the application for indemnity costs, the Court declined to follow the approach taken in other regional jurisdictions.

The stay was largely uncontroversial on the facts, the referral having been decided in a previous judgment and the issue limited to whether the current proceeding should be stayed or dismissed.  Unlike the IAA, the CCA was silent on this point. 

The application for indemnity costs attracted more robust submissions.  The successful parties sought costs on an indemnity basis, relying on the English decision of A v B [2007] EWHC 54 (Comm), the approach in that case being summarised by his Honour as:

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

Hammerschlag J examined a number of Australian cases where this approach had been considered, noting that the approach has apparently found favour only in Western Australia.  His Honour also considered recent authorities of the courts of Hong Kong and Singapore, but was unpersuaded by the international jurisprudence and instead followed the majority of the Victorian Court of Appeal in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) citing from that judgment:

… we can find nothing in the [International Arbitration Act] or in the nature of the proceedings that are available under the Act which of itself warrants costs being awarded against an unsuccessful award debtor on a basis different from that on which they would be awarded against unsuccessful parties to other civil proceedings.

His Honour set out in the judgment a number of reasons why what his Honour described as the ‘A v B approach’ was unsound and unsupportable in principle in New South Wales, including the fact that there is sufficient power in the court to award the indemnity costs in any circumstances where it is warranted and the observation that [t]rue support for commercial arbitration neither necessitates nor justifies abandonment of principle.

For further information, please contact Bronwyn Lincoln, Partner, or your usual Herbert Smith Freehills contact.