COSTS: UNSUCCESSFUL APPLICATION FOR SETTING ASIDE AN ARBITRAL AWARD
In the recent decision of CDM v CDP [2021] SGCA 45, the Court of Appeal took the opportunity to set out its brief views that, unlike the position in Hong Kong, there is no presumption of indemnity costs for an unsuccessful application for setting aside an arbitral award. The position in Singapore remains that awarding costs on a standard basis is the default position, unless exceptional circumstances warrant a departure and hence the imposition of costs on an indemnity basis.
Brief facts. In summary, the decision of CDM v CDP [2021] SGCA 45 concerned the appellants’ application to set aside an arbitral award on the basis (a) that the Tribunal had acted in excess of its jurisdiction and (b) that the Tribunal had acted in breach of natural justice (at [15]).
Although framed on two grounds, the Court of Appeal observed that “the factual matrix for both grounds was in fact identical” (at [16]; emphasis in original) so that failing to establish (a) would necessarily be fatal to (b).
The appellants argued that the Tribunal had acted in excess of its jurisdiction when it ruled on the issue of the “second launch” in favour of the respondent which was beyond the matters referred to in the Notice of Arbitration and the Statement of Claim (at [2]-[3]).
However, the Court of Appeal stated that this was a “flawed premise” (at [3]) because the jurisdiction of the Tribunal was defined not only by the two documents; the scope of what matters were within the parties’ submission to arbitration was answerable by reference to five sources: the parties’ pleadings, the agreed list of issues, opening statements, evidence adduced, and closing submissions at the arbitration (at [18]).
On the facts of the case, the Court of Appeal found that it was the appellants’ own pleadings which vested jurisdiction on the Tribunal to rule on that issue (at [3]). Therefore, the Tribunal did not act in excess of its jurisdiction (at [41]-[46]), and consequently, the Tribunal did not act in breach of natural justice (at [47]).
Costs. Given that the appellants’ attempt to set aside the Award had failed, the issue of costs to be awarded to the respondent arose. The respondent contended at first instance that it should be entitled to costs on an indemnity basis, though the respondent abandoned this position at the hearing following the recent decision in BTN v BTP [2021] SGHC 38 (“BTN”) (at [48]).
The Court of Appeal nonetheless took the opportunity to set out its brief views.
The Hong Kong approach. In support of its position, the respondent had placed reliance on two Hong Kong decisions (at [49]). The Hong Kong courts adopt a default rule that indemnity costs will be granted when an award is unsuccessfully challenged in court, unless special circumstances can be shown (at [50]). There were three considerations animating this approach, as explained in A v R [2010] 3 HKC 67:
A person who obtains an award in his favour pursuant to an arbitration agreement should be entitled to expect that a court will enforce the award as a matter of course;
An unmeritorious challenge against an award was incompatible with the award debtor’s duty to assist the court in the just, cost-effective, and efficient resolution of a dispute; and
The winning party should not be subsidising the losing party’s abortive attempt to frustrate enforcement of a valid award to which the award creditor had already won at arbitration.
Singapore’s position. However, the Court of Appeal was not persuaded of such a default position (at [52]). Instead, the Court of Appeal agreed with the recent decision of BTN that in Singapore, the usual course of awarding costs is on a standard basis; to depart and award on an indemnity basis would require exceptional circumstances (at [52]-[53]).
According to the Court of Appeal, “it would do violence to the notion of such circumstances having to be “exceptional” if every instance of an award being challenged unsuccessfully could be said to, at least presumptively, be an “exceptional” circumstance warranting indemnity costs.” (at [53]; emphasis in original) The Court of Appeal also stated that “… such an approach is not reflective of Singapore’s approach to indemnity costs… the assessment of whether indemnity costs are warranted turns on a highly fact-specific assessment of the totality of the facts and circumstances… the setting-aside context should be merely one of the factors the Court takes into consideration … when deciding whether or not to order indemnity costs.” (at [53]; emphasis in original)
The Court of Appeal saw no justification for treating arbitration cases differently from other cases before the courts in terms of costs, when all applications for setting aside, enforcement, or other relief would similarly engage the courts’ jurisdiction (at [54]), stating that “… A party seeking relief from the Court, even if in the context of an application to set aside an arbitral award, was, like any other litigant, a party before the Court, and bound by the Court’s rules.”
The Court of Appeal therefore disagreed with Hong Kong’s position, stating that such a position “fails to recognise that the limited avenues available to challenge an arbitral award are statutorily provided for in the same way as a right of appeal against a decision of the court below. There is no principled reason to draw any distinction between the two in assessing whether exceptional circumstances exist for the purpose of awarding indemnity costs.” (at [55]; emphasis in original) In deciding whether to order indemnity costs, the Court should have regard to all the circumstances of the case, including whether a party has behaved unreasonably (at [56]).
When exceptional circumstances may be met. The Court of Appeal referred to the decision of Tecnomar & Associates Pte Ltd v SBM Offshore NV [2021] SGCA 36 (“Tecnomar”) as a case where exceptional circumstances exist (at [57]). In Tecnomar, the Court of Appeal had found “deliberate material non-disclosure” contrary to the duty of full and frank disclosure in an ex parte application. The non-disclosing party had completely failed to provide any explanation for the non-disclosure and had not been forthcoming in conceding that there had been material non-disclosure until at the end of the hearing before the High Court. Therefore, the Court of Appeal had found that the non-disclosing party’s “conduct was incontrovertibly beyond the pale”.
Turning to the facts of the present case, the Court of Appeal stated that even if the respondent had maintained its submission for indemnity costs, the facts of the case were far less egregious than that in Tecnomar and the threshold for awarding costs on an indemnity basis would not been crossed.
Conclusion. The decision makes clear that an appellant’s statutory right to appeal should not be curtailed by any presumption of indemnity cost, unless exceptional circumstances warrant a departure from the default position of awarding costs on a standard basis. This position would apply to appellants seeking to appeal against arbitral awards as there is no reason to differentiate appellants in litigation and in arbitration when both are seeking the Court’s jurisdiction in the same way to set aside a judgment or award.
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