In May 2012, the Hong Kong Court of Appeal upheld Grand Pacific Holdings' appeal against a decision of the Court of First Instance to set aside an ICC award (see Legal update, Hong Kong Court of Appeal declines to set aside ICC award).

Grand Pacific Holdings Ltd (Grand Pacific) applied to the Court of Appeal for costs to be taxed on an indemnity basis, as has been the practice in Hong Kong in recent cases, for arbitration-related court proceedings.

The Court of Appeal unanimously decided that it was bound by the decision in Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor (No2) [2012] 1 HKC 491, in which the Court of Appeal stated that, in "proceedings that arise out of or in connection with arbitral proceedings, in the absence of special circumstances, the court will normally consider it appropriate to order costs on an indemnity basis".

Pacific China Holdings Ltd argued that the fact that the application to set aside was arguable, and in fact had succeeded at first instance, indicated that there were special circumstances which would allow the court to exercise its discretion differently in ordering costs.

The Court of Appeal held that, even if the court was not bound by the decision in Gao Haiyan v Keeneye, it would find that indemnity costs were appropriate where a party unsuccessfully argues to set aside an arbitral award. It further noted that parties opt for arbitration in order to avoid the uncertainty of litigation. Because the parties had agreed to arbitration, an unmeritorious application to set aside the award must, in the absence of special circumstances, be met with an order for costs on an indemnity basis. That an application is arguable is not in itself a special circumstance. Furthermore, the court noted that the fact that an appeal was required in order to put matters right does not detract from the reason for ordering indemnity costs.

Case: Pacific China Holdings Ltd (In Liquidation) and Grand Pacific Holdings Ltd, CACV 136/2011.