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A 'hopeless' case? When indemnity costs can be awarded for unsuccessful challenges to enforcement orders

Winslow Constructors v Head, Transport for Victoria (Costs) [2021] VSC 74

A recent Victorian Supreme Court case has confirmed the high bar for awarding indemnity costs for unsuccessful challenges to enforcement orders for arbitral awards.

At the conclusion of an arbitration, parties expect a degree of finality in the outcome. Parties have — albeit limited — rights to challenge arbitral awards and orders subsequently made to enforce them. In this context, courts usually impose adverse costs orders against parties who unsuccessfully challenge such arbitral awards and enforcement orders.

A recent decision in the Victorian Supreme Court, Winslow Constructors v Head, Transport for Victoria (Costs) [2021] VSC 74, grappled with the type of costs order that was most appropriate to be imposed against an unsuccessful challenger to an arbitral award enforcement order.

The arbitration award and enforcement order

Winslow Constructors (Winslow) were successful in an arbitration against The Department of Transport for Victoria (the Department). The Supreme Court of Victoria later made an order enforcing the arbitral award under the Commercial Arbitration Act 2011 (Vic). The Department unsuccessfully challenged the enforcement order, and Winslow sought indemnity costs for those proceedings.

How are costs normally ordered?

Typically, costs are awarded on a 'standard' or 'ordinary' basis (the name varies between courts). This means that generally, the unsuccessful party pays the reasonable costs of the successful party. This commonly amounts to between 60% and 75% of total costs. However, in rare circumstances, the court may award costs on an 'indemnity' basis, meaning that all costs can be recovered, except those found to be unreasonably incurred.

Question for the court

In this case, the Victorian Supreme Court had to decide whether the Department should have to pay indemnity costs to Winslow as a consequence of initiating the unsuccessful challenge to the enforcement order. In short, Winslow argued that the Department had acted inappropriately in using the Court's processes to challenge the enforcement order and that the Department's challenge had no reasonable prospects of success. Winslow claimed, therefore, that it should not have been subjected to the proceeding or to any related costs, so its costs should be awarded by the Court on an indemnity basis.

Knowledge of a ‘hopeless’ case required

The Court decided that indemnity costs should not be ordered against the Department. In doing so, it confirmed the principles that should guide such decisions.

The reasoning for the Court’s decision included a consideration of the traditional principle in Australia that indemnity costs may only be awarded in exceptional cases, where the circumstances justify a departure from the ‘usual course’. The Court also considered the different position in Hong Kong, where the growing authority is that the default position is for indemnity costs to be ordered against parties who unsuccessfully challenge arbitral award enforcement orders. This stems from the reasoning that the party who is successful in the arbitration deserves finality in the decision. This emerging authority is being considered by Australian courts and, in some cases, is having an impact on the Court’s assessment of the appropriateness of imposing indemnity costs orders.

After considering past cases and the overall objectives of the arbitration legislation, the Victorian Supreme Court reconfirmed that it was only empowered to order indemnity costs in a situation where ‘the [unsuccessful] party knew or should have known, on proper consideration, that the case was hopeless’. The Court held that the Department’s challenge was not ‘hopeless’, and therefore ordered that costs were only to be paid on an ordinary basis.

Implications

The case of Winslow confirms that the bar for awarding indemnity costs remains high: unless the party knows, or should know, that their case is hopeless, they can expect costs to be ordered on an ordinary basis.[1]


[1] [Note: The above material provides a summary only of the subject matter covered, without an assumption of a duty of care by Resolution Institute or Clayton Utz. The material is not intended to be nor should it be relied upon as a substitute for legal or other professional advice. Copyright in the material is owned by Clayton Utz.]