Supreme Court New South Wales Medium Neutral Citation: Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 829 Hearing dates: By written submission Decision date: 26 June 2015 Before: Hammerschlag J Decision: Plaintiff/cross-defendant to pay the costs of the defendant/cross-claimant on the indemnity basis. No orders for pre-judgment interest or interest on costs Catchwords: COMMERCIAL ARBITRATION – COSTS – indemnity costs – failed challenge to an arbitral award under Commercial Arbitration Act 2010 (Cth), s 34(2)(b)(ii) – whether there is a presumption in favour of indemnity costs absent exceptional circumstances - HELD – there is no such presumption – indemnity costs warranted anyway. Legislation Cited: Commercial Arbitration Act 2010 (Cth) Civil Procedure Act 2005 (NSW) Cases Cited: Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735 A v R [2009] 3 HKLRD 389 A v B [2007] EWHC 54 (Comm) John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564 IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303 TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387 Profilati Italia SrL v PaineWebber Inc and another [2001] 1 Lloyds Rep 715 Category: Procedural and other rulings Parties: Colin Joss & Co Pty Ltd - Plaintiff Cube Furniture Pty Ltd - Defendant Representation: Counsel: J. Twigg QC with S. Ipp - Plaintiff S. Duggan - Defendant Solicitors: Macpherson & Kelley Lawyers Pty Ltd - Plaintiff Goodman Law - Defendant File Number(s): 2014/370641 Judgment 1. HIS HONOUR: On 12 June 2015 I dismissed the challenge by the plaintiff (Joss) under the public policy exception in s 34(2)(b)(ii) of the Commercial Arbitration Act 2010 (Cth) (the Act) to an arbitral award comprising an Interim Award and Final Award. I determined that the defendant (Cube) is entitled to orders recognising and enforcing the award as a judgment of this Court; Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd [2015] NSWSC 735. The Arbitrator had also made an award for security for costs on 16 October 2013. There is no issue that that award should be recognised and enforced. 2. Initially Cube had sought an order under s 36(2) of the Act that, pending determination of these proceedings, Joss provide security for the award. The necessity to determine that application dissipated because the proceedings for recognition and enforcement were brought on swiftly. 3. The question of costs and some ancillary matters require determination. 4. Cube seeks the costs of these proceedings on an indemnity basis. Amongst other things, it cites in support of its position the Hong Kong decision in A v R [2009] 3 HKLRD 389 in which Reyes J said: 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. 1. The presumption applied by Reyes J in favour of the award of indemnity costs against an unsuccessful challenger to an award resembles the presumption applied in A v B [2007] EWHC 54 (Comm) by Colman J with respect to unsuccessful resistance to a referral of a dispute to arbitration. I considered A v B in John Holland Pty Limited v Kellogg Brown & Root Pty Ltd [No 2] [2015] NSWSC 564, and concluded that it does not represent the law in this State. 2. A v R was not followed by the Victorian Court of Appeal in IMC Aviation Solutions Pty Ltd v Altain Khuder LLC (2011) 38 VR 303. I also do not propose to follow it. It too does not represent the law in this State. Indemnity costs is and remains subject to the discretion, at large, of the Court. No presumption as to their award is required or warranted. 3. However, that having been said, it is important to bear in mind that there is an important difference between a challenge to a referral to arbitration which turns on contractual construction or characterisation of a particular dispute, and a challenge to an arbitral award based on the public policy exception. The public policy exception in s 34(2)(b)(ii) is narrow. A party seeking to invoke it bears the heavy burden of demonstrating real unfairness or real practical injustice; TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd (2014) 311 ALR 387. 4. In Profilati Italia SrL v PaineWebber Inc and another [2001] 1 Lloyds Rep 715 (cited by Reyes J in A v R), Moore-Bick J said that it was reserved for only the most serious cases. His Honour made reference to the Report of the Departmental Advisory Committee on Arbitration Law on what was then the Arbitration Bill in which the Committee referred to the relevant provision as being designed as a "…long stop available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected". 5. The public policy exception corresponds to the public policy in favour of making arbitral awards, both domestic and international, binding. 6. Indemnity costs are warranted where a party maintains proceedings that it should know have no real prospects of success. When considering whether a party is in that position, it is necessary to have regard to what that party had to establish to win. 7. The high threshold that the public policy exception demands brings with it the enhanced risk of an indemnity costs award because a failed challenge will be more easily identified as one which should not have been brought because it was throughout destined to fail. This enhanced risk is sufficient disincentive for the making of challenges lacking true substance, without the necessity for a presumption. 8. In my view it ought to have been obvious to Joss that its challenge would not meet the threshold required and that it had no realistic prospect of success. None of its complaints came close to reaching that threshold. On no fair view could what the Arbitrator did have been characterised as being contrary to the public policy of this State. Added to this, Joss abandoned a number of manifestly insupportable contentions. 9. For these reasons, I consider that this is an appropriate case for an award of costs on the indemnity basis. 10. These costs should include those in respect of the application for security under s 36(2) of the Act. Joss made it clear that it opposed the application for security. Cube determined not to press it when offered an early hearing date on the merits of the whole matter. Had Joss not first, without proper foundation, commenced and maintained proceedings to impeach the award, no such application would have been necessary. In any event, it is not appropriate to separate out the costs relating to that issue. 11. Cube submits that Joss should be ordered to pay interest on the amount of the award, notwithstanding that the Arbitrator determined that no interest was payable by either party. Cube submits that this was only intended to cover pre-award interest and not post-award interest. I see no basis for awarding interest where the Arbitrator did not do so and Cube did not raise this with the Arbitrator. Interest will of course be payable on the judgment in accordance with s 101 of the Civil Procedure Act 2005 (NSW). 12. Cube also claims an order for interest on the costs which it has paid in relation to the arbitration and the award. In relation to these proceedings, they have come on swiftly and there is no warrant to order interest on costs. In relation to interest on the costs of the arbitration, that was a matter to be raised before the Arbitrator. 13. The orders of the Court are as follows: 1. The Amended Summons is dismissed. 2. The following determinations and awards of Mr Tony Makin will be enforced as if judgments of this Court: 1. the Security for Costs Determination, dated 16 October 2013; 2. the Interim Award, dated 27 August 2014; and 3. the Final Award, dated 12 January 2015. 1. The plaintiff/cross-defendant is to pay the costs of the defendant/cross-claimant of the arbitration on the ordinary basis, except for the costs of the security for costs application, which are to be paid on the indemnity basis. 2. Judgment for the cross-claimant against the cross-defendant for $149,157.98. 3. The plaintiff/cross-defendant is to pay the costs of the defendant/cross-claimant of these proceedings on the indemnity basis. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 June 2015