|MATTER||Winslow Constructors v Head, Transport for Victoria (Costs)  VSC 74|
WINSLOW CONSTRUCTORS PTY LTD (ACN 006 581 764)
HEAD, TRANSPORT FOR VICTORIA (ABN 97 481 088 949)
|MATTER NUMBER||S ECI 2020 02720|
|COURT||IN THE SUPREME COURT OF VICTORIA|
|DATES OF HEARING:||3 December 2020 and written submissions filed 8, 10 and 14 December 2020|
|DATE OF JUDGMENT:||26 February 2021|
|CASE MAY BE CITED AS:||Winslow Constructors v Head, Transport for Victoria (Costs)|
|MEDIUM NEUTRAL CITATION:|| VSC 74|
|CATCHWORDS||ARBITRATION – Whether indemnity costs should be the default order in unsuccessful challenges to arbitral awards – Consideration of the appropriate test to be applied for unmeritorious challenges to arbitral awards – Whether a different approach should be adopted by reason of the objects of the Commercial Arbitration Act 2011 (Vic) or the International Arbitration Act 1974 (Cth).
COSTS – Jurisdiction to award indemnity costs – Principles to be applied with respect to unmeritorious claims considered – Application for indemnity costs refused.
|REPRESENTATION||For the Applicant
Solicitors – Giannakopoulos Solicitors
Council – Mr H Foxcroft QC with
For the Respondent
Solicitors – Maddocks
Council – Mr M R Scott QC with
- On 3 December 2020, judgment was entered for the applicant (‘Winslow’) pursuant to s 35 of the Commercial Arbitration Act 2011(Vic) (‘the Act’) and I ordered the respondent (‘the Department’) to pay Winslow the sum of $3,527,226.29 for the reasons published on that day. As it had foreshadowed in its submissions filed 26 August 2020, Winslow applied for indemnity costs.
 Winslow Constructors v Head, Transport for Victoria  VSC 790 (‘Principal Reasons’).
- In accordance with directions made on 3 December 2020, the following submissions were filed:
(a) the Department’s reply submissions opposing indemnity costs filed on 8 December 2020;
(b) Winslow’s reply submissions in support of indemnity costs filed on 10 December 2020; and
(c) the Department’s response to new matters raised by Winslow in reply submissions filed, without leave, on 14 December 2020.
Relevant statutory provisions
- In the analysis set out below, reference is made to the following statutory provisions:
(a) Section 1AA of the Act, which states that one of the purposes of the Act is ‘to improve commercial arbitration processes to facilitate the fair and final resolution of commercial disputes by arbitration without unnecessary delay or expense’.
(b) Section 1AC of the Act, which sets out the paramount object of the Act as follows:
(1) The paramount object of this Act is to facilitate the fair and final resolution of commercial disputes by impartial arbitral tribunals without unnecessary delay or expense.
(2) This Act aims to achieve its paramount object by—
(a) enabling parties to agree about how their commercial disputes are to be resolved (subject to subsection (3) and such safeguards as are necessary in the public interest); and
(b) providing arbitration procedures that enable commercial disputes to be resolved in a cost effective manner, informally and quickly.
(3) This Act must be interpreted, and the functions of an arbitral tribunal must be exercised, so that (as far as practicable) the paramount object of this Act is achieved.
(4) Subsection (3) does not affect the application of section 35 of the Interpretation of Legislation Act 1984 for the purposes of interpreting this Act.
(c) Section 2D of the International Arbitration Act 1974 (Cth) (‘the International Arbitration Act’), which sets out the objects of that Act as follows:
(a) to facilitate international trade and commerce by encouraging the use of arbitration as a method of resolving disputes; and
(b) to facilitate the use of arbitration agreements made in relation to international trade and commerce; and
(c) to facilitate the recognition and enforcement of arbitral awards made in relation to international trade and commerce; and
(d) to give effect to Australia’s obligations under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting; and
(e) to give effect to the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006; and
(f) to give effect to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States signed by Australia on 24 March 1975.
(d) Section 39(2) of the International Arbitration Act, which states that where a court is considering exercising powers, including to enforce or to refuse to enforce a foreign award, it must have regard to:
(a) the objects of the Act; and
(b) the fact that:
(i) arbitration is an efficient, impartial, enforceable and timely method by which to resolve commercial disputes; and
(ii) awards are intended to provide certainty and finality.
(e) Pursuant to s 16 of the International Arbitration Act, the UNCITRAL Model Law on International Commercial Arbitration (‘the Model Law’) has the force of law in Australia. Article 34(2) of the Model Law provides for applications for setting aside arbitral awards as follows:
 Adopted by the United Nations Commission on International Trade Law on 21 June 1985 and amended by the United Nations Commission on International Trade Law on 7 July 2006.
An arbitral award may be set aside by the court specified in article 6 only if:
(a) the party making the application furnishes proof that:
(i) a party to the arbitration agreement referred to in article 7 was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of this State; or
(ii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iii) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration, provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside; or
(iv) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law; or
(b) the court finds that:
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State; or
(ii) the award is in conflict with the public policy of this State.
(f) Article 34(2) of the Model Law is adopted in s 34 of the Act.
Principles relating to indemnity costs
- In Ugly Tribe Co Pty Ltd v Sikola, Harper J stated that an order for indemnity costs requires special circumstances.He identified that special circumstances may include:
  VSC 189,  (‘Ugly Tribe’) (citations omitted).
(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud.
(ii) The making of an irrelevant allegation of fraud.
(iii) Conduct which causes loss of time to the Court and to other parties.
(iv) The commencement or continuation of proceedings for an ulterior motive.
(v) Conduct which amounts to a contempt of court.
(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.
(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.
 Ibid, quoted with approval in 24 Hour Fitness Pty Ltd v W & B Investment Group Pty Ltd  VSCA 216,  (Hansen, Ferguson and McLeish JJA).
- Recently, in Banksia Securities Ltd v Insurance House Pty Ltd (Costs), John Dixon J restated the principles applicable to an award of indemnity costs as follows:
(a) Costs are to be assessed on a standard basis unless the circumstances of the case justify a departure from the usual course.
(b) The making of an indemnity costs order is in the unlimited discretion of the court, with such discretion to be exercised judicially and not unreasonably.
(c) The court may order indemnity costs where the circumstances warrant departing from the usual rule that costs be payable on a standard basis, including conduct that bears a ‘sufficient or unusual feature’ or some ‘relevant delinquency’.
- His Honour proceeded to say that ‘[t]he court may order indemnity costs in cases where a party, properly advised, knew or should have known that it had no chance of success and has persisted with its claim’.I will hereafter refer to such cases as ‘unmeritorious claims’.
- With respect to the category of unmeritorious claims, in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd,Woodward J considered that the jurisdiction to award indemnity costs was enlivened if the litigant had an ulterior motive for the litigation, and that an ulterior motive would be presumed if the litigant should have known there was no chance of success. He explained:
I believe that it is appropriate to consider awarding … ‘indemnity costs’, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.
- In Johnston v Herrod,Muir JA considered the jurisdiction for an indemnity costs order on the basis of an unmeritorious claim, and quoted with approval the following comments of Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm):
The authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction. There must be something more namely, carrying on that conduct unreasonably.
  QCA 361,  (with whom Gotterson JA and Applegarth J agreed).
 (1998) 156 ALR 169, 236. The application was for a personal costs order against solicitors. The passage has also been quoted with approval in the context of an application for indemnity costs. See, eg, Legal Services Commissioner v Bone  QCA 179,  (Morrison JA with whom Fraser and Gotterson JJA agreed); Makoochieng v Kirk (No 2)  VSC 747,  (McDonald J).
- In J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2),French J did not consider it necessary to find that the proceeding had been commenced or continued for an ulterior motive or that there was wilful disregard of the known facts or the clearly established laws. He said that the discretion to award indemnity costs could be enlivened if, ‘for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case’.
 Ibid 303 (emphasis added).
- French J’s statement of principle was cited with approval by the Court of Appeal in Macedon Ranges Shire Council v Thompson.There, the Court of Appeal confirmed that the discretion to make a special costs order may be enlivened if a litigant presses a case that, on proper consideration, should have been seenas hopeless, but that the Court may not be inclined to make such an order if the litigant did not recognise that its case was without merit. In each case, the Court must have regard to ‘the litigant’s conduct against the facts then known or which ought to have been known, the inquiries that the litigant ought reasonably to have made and the legal advice which the litigant ought reasonably to have obtained’.
 (2009) 170 LGERA 41, 49  (Redlich JA and Beach AJA).
- I would summarise the principles to be applied in considering an application for indemnity costs on the basis of an unmeritorious claim as follows:
(a) The fact that a litigant filed or maintained a proceeding which has no, or substantially no prospect of success, does not of itself enliven the jurisdiction to award indemnity costs.
(b) The jurisdiction is enlivened if the litigant knew or should have known, on proper consideration, that the case was hopeless.
(c) The Court may decline to exercise its discretion if the litigant did not in fact recognise that the case was hopeless.
Do special rules apply to challenges to arbitral awards
- International authorities have considered whether a special rule should apply with respect to unsuccessful challenges to arbitral awards, such that indemnity costs would be the starting point and only ‘special circumstances’ would justify a different costs order (‘the A v R principle’). The A v R principle reverses the usual onus by requiring an unsuccessful party to establish special circumstances as to why an indemnity costs order should not be made.
- In Hong Kong, it appears to be settled law that indemnity costs will ‘generally’ be awarded against ‘an unsuccessful party in an application to challenge or resist enforcement of an arbitral award’.
 Altain Khuder LLC v IMC Mining Inc (No 2)  VSC 12,  (Croft J).
- In A v R, Reyes J of the Hong Kong Court of First Instance stated as follows:
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.
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.
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 O 1A r 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.
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.
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.
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.
  3 HKLRD 389, 400-1 -. See also the decisions to similar effect of A v B (No 2)  1 All ER (Comm) 633 (Colman J); Wing Hong Construction Ltd v Tin Wo Engineering Co Ltd  HKCFI 1994, – (Saunders J); Taigo Ltd v China Master Shipping Ltd  HKFCI 530, – (Saunders J).
- In Altain Khuder LLC vIMC Mining Inc, Croft J dismissed an application under s 8(5)(b) of the International Arbitration Act to set aside an ex parte order enforcing an arbitration agreement.In a separate judgment, Croft J ordered the applicant to pay the costs of that application on an indemnity basis, on the basis of the A v R He said:
In my view, the considerations which moved Reyes J and Saunders J in the Hong Kong cases … apply with equal force in Victoria, both from an arbitration perspective and also from the perspective of legislation such as that contained in the Civil Procedure Act and in the Hong Kong CJR.
 Altain Khuder LLC v IMC Mining Inc (No 2)  VSC 12, .
- In IMC Aviation Solutions Pty Ltd v Altain Khuder LLC, the Court of Appeal upheld an appeal against Croft J’s order for indemnity costs and rejected the A v R Hansen JA and Kyrou AJA stated:
With great respect to his Honour, we can find nothing in the 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. Accordingly, his Honour acted on a wrong principle in embracing the approach that has been adopted by the Hong Kong Court of First Instance. We note also that the Civil Procedure Act 2010 was not in force when his Honour heard this proceeding. Even if it were in force, it would not have warranted the order he made.
In proceedings under the Act, as in other civil proceedings, costs will ordinarily be awarded against the unsuccessful party on a party and party basis unless the successful party can establish special circumstances. The principles for determining the existence of special circumstances are well established. Special circumstances, if they exist, are found in the facts of the case at hand, and the exercise of the judicial discretion is not otherwise conditioned on whether those facts are comprehended by a category of case or cases in which a special order has been made. The fact that an award debtor fails to establish a ground for resisting enforcement of a foreign arbitral award cannot, of itself, constitute special circumstances. Nor can a finding that the award debtor’s case was ‘unmeritorious’ if all that is meant by that expression is that the award debtor failed to persuade the court to accept his or her evidence and submissions.
 (2011) 38 VR 303, 391-2 - (‘Altain Khuder’) (citations omitted). Warren CJ considered it unnecessary for her to express a view on whether the approach of Reyes J in A v R should be followed in Victoria: see 319-20 .
- In Colin Joss & Co Pty Ltd v Cube Furniture Pty Ltd, Hammerschlag J also refused to follow the A v R principle, stating that ‘[n]o presumption as to [the award of indemnity costs] is required or warranted’.He applied conventional principles and stated:
(a) indemnity costs were warranted ‘where a party maintains proceedings that it should know have no real prospects of success’; and
(b) the high threshold required for an application to set aside an award under the public policy exception made it easier to identify that a failed application was one that should not have been brought and so created an ‘enhanced risk’ of an order for indemnity costs.
  NSWSC 829,  (‘Colin Joss’).
 Ibid . See also the eight reasons given by Hammerschlag J in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd (No 2)  NSWSC 564, - for refusing to adopt the similar principle in A v B (No 2)  1 All ER (Comm) 633 (Colman J).
- In Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2), Beach J rejected the A v Rprinciple where a party unsuccessfully challenged an arbitral award under art 34 of the Model Law.He considered that indemnity costs questions should be determined in accordance with the public policy of the forum, stating:
Accordingly, as the law of the forum dictates the principles to be applied in assessing the indemnity costs question, with public policy underpinning such principles, it is not inconsistent with any international instrument or precedent that the public policy of the forum, ie Australia, be considered and applied.
  FCA 1169, - (‘Sino Dragon’).
- Although he rejected the A v R principle, Beach J stated that if an unsuccessful art 34 challenge was found not to have had reasonable prospects of success, that would constitute a ‘category of circumstances justifying an order for indemnity costs’ (‘the no reasonable prospects test’).In summary, he reasoned as follows:
(a) Exercise of the discretion to award indemnity costs may be informed by the category of the case. In the context of art 34 proceedings, that discretion should be informed by:
 Ibid . Examples cited included where payment of the costs of litigation may come out of a fund or assets controlled by a trustee, liquidator or receiver, and contempt proceedings.
(a) the objects set out in s 2D and the considerations set out in s 39(2) of the [International Arbitration Act];
(b) the limited grounds for challenge under Art 34;
(c) the fact that the parties’ dispute has been resolved under contract with the arbitral award being the contractually provided for outcome; and
(d) in the context of (a) to (c), the public policy of discouraging Art 34 challenges (and the mirror s 8 proceedings opposing enforcement) that have no reasonable prospects of success, particularly where it may be said that such challenges that do not have such prospects are discordant with the agreed contractual setting for the relevant dispute resolution mechanism.
 Ibid  (citations omitted).
(b) The adoption of the no reasonable prospects test would discourage the bringing of unmeritorious art 34 challenges.
(c) Public policy considerations mean that art 34 challenges are not ordinary litigation. His Honour referred to the paper presented by Allsop CJ entitled ‘Public Policy in the New York Convention and the Model Law’, which concluded with the following quote from TCL Air Conditioner (Zhongshan) Co Ltd v Castel Electronics Pty Ltd:
Parties in international commerce may choose arbitral dispute resolution for many reasons … that chosen international legal order depends crucially upon reliable curial enforcement and a respect by the courts for the choice and autonomy of the parties and for the delicate balance of the system.
 The Enforcement of International Arbitration Awards and Public Policy (Seminar Paper, Australian Maritime and Transport Arbitration Commission, 10 November 2014) 30-9 -.
 (2014) 232 FCR 361, 393-4  (Allsop CJ, Middleton and Foster JJ).
- He further considered that the no reasonable prospects test was analogous to the test for summary judgment under s 31A of the Federal Court of Australia Act 1976(Cth), which empowers a Court to give summary judgment against a party who had no reasonable prospects of successfully defending or prosecuting (as applicable) a proceeding.He opined that ‘reasonable prospects’ was more than ‘real prospects’.
 Sino Dragon  FCA 1169, .
 Ibid. ‘No real prospect’ is the test under s 63 of the Civil Procedure Act 2010 (Vic).
- Winslow submitted that the Court should accept the approach of Beach J in Sino Dragon, for the following reasons:
(a) In Altain Khuder, the Court of Appeal rejected the A v R principle but not the ‘careful analysis’ of Beach J in Sino Dragon or Hammerschlag J in Colin Joss as to the proper application of the principles.
(b) The objects in ss 1AA and 1AC of the Act are more supportive of Beach J’s approach than the relatively benign objects in s 2D of the International Arbitration Act.
(c) The lack of any real difference between the costs rules in Victoria, New South Wales and the Federal Court, and the desirability of uniformity in the approach to the Act and the International Arbitration Act, means that the Court ‘should follow carefully considered on point decisions from other superior Courts like Sino Dragon and Colin Joss’.
- On the basis that the jurisdiction had been enlivened, Winslow submitted that the Court should exercise its discretion to award indemnity costs because of the following factors:
(a) The Department’s defence was ‘a barely disguised impermissible attack on the merits of the award’.
(b) The Department’s tactical decision to wait and raise these matters in response to Winslow’s application for enforcement, at which time any inadequacies in the arbitrator’s reasons could no longer be cured by the Court or Tribunal.
(c) The inconsistency of the Department’s arguments with respect to the purpose and object of the Act and the policy ramifications for arbitration if enforcement was refused.
(d) The inconsistency of the resistance with the overarching purpose of the Civil Procedure Act 2010 (Vic), and the Department’s obligations under model litigant guidelines and its positive duties under the Act.
(e) The fact that any breaches of any obligation to provide reasons were not serious, material or fundamental breaches of the arbitration agreement.
(f) The Department’s conduct already referred to in Winslow’s submissions as to waiver.
The Department’s submissions
- The Department submitted that this Court should not follow the approach of Beach J in Sino Dragon, which declined to follow the Court of Appeal in Altain Khuderand is inconsistent with Victorian law.
 The Department referred to the following cases: Jeffrey v Giles  VSC 78,  (McDonald J); Makoochieng v Kirk (No 2)  VSC 747,  (McDonald J); Masters Home Improvement Pty Ltd v North East Solution Pty Ltd  VSCA 113, .
- The Department further submitted that the discretion to award indemnity costs was not enlivened simply by instituting or maintaining a proceeding on behalf of a client who has no, or substantially no prospects of success. What is relevantly required is that the prospects must be ‘hopeless’.
- In any event, the Department submitted that its conduct in resisting enforcement was neither ‘unreasonable in all the circumstances’ nor ‘hopeless’, for the following reasons:
(a) Winslow moved for enforcement before the Department’s time to apply to set aside the award under s 34 of the Act had expired, and the Department was entitled to take steps to defend itself by invoking grounds under s 36 of the Act.
(b) Despite the Court’s finding on waiver, applying to set aside the award would have had no effect on the costs of the central issue decided by this Court, being the sufficiency of the arbitrator’s reasons.
(c) There is no reason for the Court to take a stricter approach to costs in resisting enforcement of an award under s 36 of the Act, than an application to set aside an award under s 34 of the Act.
(d) The Department’s opposition to enforcement was based on reasonably arguable grounds, being:
(i) defects in the arbitrator’s reasons as the Department saw them; and
(ii) the identification of the correct standard of reasons applicable to an award under the Act.
(e) The Department’s core contention was that the arbitrator had failed to explain why extensions of time should be granted where he had expressly found that the relevant events were not caused by the Department. The Court concluded that it was not necessary for the arbitrator to do so because it was implicit in the arbitrator’s express conclusions. This was an issue properly capable of argument.
- Winslow’s conduct of the proceeding substantially enlarged the issues, including by its 86 page submission which raised a plethora of arguments. It would be unjust for the Department to pay indemnity costs on Winslow’s lengthy submissions, which included issues on which Winslow did not succeed and which were not decisive as to the outcome of the proceeding.
- I hesitate to disagree with the reasoning of Beach J in Sino Dragon, but I do not consider that there is any basis for departing from the usual rule with respect to unmeritorious claims, that the discretion to award indemnity costs will not be enlivened unless the party knew or should have known, on proper consideration, that the case was hopeless. While unsuccessful challenges to arbitral awards may give rise to contextual factors capable of supporting an order for indemnity costs under the usual principles, I am unable to accept the no reasonable prospects test as informing the jurisdiction for indemnity costs orders in such challenges.
- My reasons for this conclusion are as follows:
(a) A modification to the conventional principles is not supported by the authorities.
(b) There is no utility in equating the test for summary judgment with the test for indemnity costs.
(c) The no reasonable prospects test is unlikely to discourage challenges to arbitral awards.
A modification to the conventional principles is not supported by the authorities
- The Court of Appeal in Altain Khuder specifically dealt with a failed attempt to resist the enforcement of an award and stated that such a fact ‘cannot, of itself, constitute special circumstances’.
 (2011) 38 VR 303, 392  (Hansen JA and Kyrou AJA).
- The majority had regard to the International Arbitration Act, including ss 2D and 39(2),but said:
[W]e can find nothing in the 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.
- In Sino Dragon Trading Ltd v Noble Resources International Pte Ltd (No 2), Edelman J agreed with the majority in Altain Khuder, stating:
[T]he A v B (No 2) approach—creating a different principle rather than merely being a context within which the usual principles are applied—does not find any support in the International Arbitration Act or in the Model Law.
 (2015) 246 FCR 498, 502 . At  Edelman notes that the principle in A v B (No 2)  1 All ER (Comm) 633 (Colman J) is similar to the A v R principle. For a discussion of the reasons for rejecting the creation of a different principle and the various relevant authorities, see also -.
- It is true that the Court of Appeal was not dealing with the no reasonable prospects test but the majority confirmed that special circumstances were required, and stated:
Special circumstances, if they exist, are found in the facts of the case at hand, and the exercise of the judicial discretion is not otherwise conditioned on whether those facts are comprehended by a category of case or cases in which a special order has been made.
 Altain Khuder (2011) 38 VR 303, 392 .
- In my opinion, there is nothing in the reasons of the majority supporting the rejection of the well-established proposition that the jurisdiction to award indemnity costs for unmeritorious claims is not enlivened by the mere fact that the proceeding had no or substantially no prospect of success.Rather, it is enlivened by the fact that the litigant knew or should have known, on proper consideration, that the case was hopeless.
 See paragraphs 4 to 10 and 29 above. See also Jeffrey v Giles  VSC 78,  (McDonald J); Makoochieng v Kirk (No 2)  VSC 747,  (McDonald J).
 See paragraph 11(b) above.
There is no utility in equating the test for summary judgment with the test for indemnity costs
- I do not consider that there is any utility served by equating the test for summary judgment under s 31A of the Federal Court of Australia Act 1976(Cth) with the test for indemnity costs orders, as suggested by Beach J.The exercise of a power to summarily dispose of a proceeding and the power to order indemnity costs have different underlying purposes.
 See Sino Dragon  FCA 1169, , (c). I am mindful that the test for summary disposition under s 31A of the Federal Court of Australia Act 1976 (Cth) is ‘no reasonable prospect’ of success and the test under s 63 of the Civil Procedure Act 2010 (Vic) is ‘no real prospect’ of success. However, I do not consider that the differences, if any, between those tests or the ‘hopeless’ test are material to this discussion. With respect to any differences in these tests, see Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, 30-40 - (Warren CJ, Nettle and Neave JJA).
- The purpose of summary judgment is to terminate a proceeding and avoid subjecting the parties to inconvenience, expensive litigation and the diversion of public funds in the administration of justice. As was stated in the Explanatory Memorandum to the Civil Procedure Bill 2010 (Vic):
The Commission stated that claims or defences that are without merit create problems for the parties and the administration of justice, subjecting plaintiffs and defendants to the inconvenience and expense of litigation. The pursuit of unmeritorious claims or defences also has adverse consequences for the administration of justice. Judicial and other publicly funded resources are expended and diverted from dealing with other cases.
 Explanatory Memorandum, Civil Procedure Bill 2010 (Vic) 24.
- Given the purpose of summary judgment, as set out in the preceding paragraph, it is irrelevant whether or not a party knows that its case is hopeless, or has no real prospect or no reasonable prospect of success.
- The purpose of an indemnity costs order against a party bringing an unmeritorious claim is to fully compensate the other party, who has been subjected to a proceeding that should not have been brought because it was known, or should have been known, by the party bringing the claim that it was hopeless. As Gray J said in Hamod v New South Wales:
Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.
 (2002) 188 ALR 659, 665  (with whom Carr and Goldberg JJ agreed).
- The test for indemnity costs reflects the tension between the interests of successful and unsuccessful litigants. The courts should be careful not to deter bona fide litigants from bringing claims that might be attended by uncertainty.
 Ugly Tribe  VSC 189, , discussing Spencer v Dowling  2 VR 127, 147 (Winneke P). See also Dean v Stockland Property Management Pty Ltd (No 2)  NSWCA 141,  (Giles JA, Handley AJA and Whealy J).
- The Act and the International Arbitration Act both provide for grounds upon which arbitral awards may be challenged. A party in good faith should be able to attempt to prosecute such statutory rights in the courts, without being subjected to a different test governing whether indemnity costs should be payable.
The no reasonable prospects test is unlikely to discourage challenges to arbitral awards
- In my opinion, the risk of an indemnity costs order is unlikely to provide a significant disincentive to doubtful challenges to enforcement of awards. The nuanced difference between a test which:
(a) requires that the lack of merit ought to have been known by the party; and
(b) does not demand such a requirement,
is unlikely to discourage prospective litigants.
- The enforcement of awards is more effectively facilitated by:
(a) the ordering of penalty interest; and/or
(b) courts being prepared to manage and determine challenges to enforcement on an expedited basis.
- Additionally, I reject Winslow’s submissions that the no reasonable prospects test is more strongly supported by the paramount object of the Act, as set out in s 1AC(1),when compared to ss 2D(c)or 39 of the International Arbitration Act. In my opinion they are substantially to the same effect.
 See paragraph 2(b) above.
 See paragraph 2(c) above.
 See paragraph 2(d) above.
- As stated in paragraph 27 above, mindful of the objects set out in s 2D of the International Arbitration Act and s 1AC of the Act, the context surrounding a challenge to an arbitral award may be relevant in determining whether indemnity costs should be ordered on the conventional principles. For example:
(a) Courts should be vigilant to ensure that applications to resist enforcement are not made for an ulterior purpose, such as delay. As Allsop CJ said in Ye v Zeng (No 5):
It is not merely a debt, it is the resolution of a dispute by a chosen contractual mechanism. Courts should be astute to distinguish between conduct that reflects no more than an attempt to delay or impede payment and the reasonable invocation of the proper protections built into the [New York Convention 1958] and the Act.
Of course, if a court is satisfied that the proceeding is no more than an attempt to delay or impede payment, that would constitute an ulterior motive which would enliven the discretion for indemnity costs.
(b) Imposing a higher threshold for a challenge to an arbitral award under the Act and the International Arbitration Act may facilitate a finding that the applicant knew, or should have known, that the application was hopeless.
 As was observed in Colin Joss  NSWSC 829,  (Hammerschlag J).
Should indemnity costs be awarded in this case based on the usual principles?
- In my opinion, this is not an appropriate case to award costs on an indemnity basis. In particular, I do not consider that the Department’s opposition was hopeless, or that it should have been known to be hopeless, for the following reasons:
(a) A significant part of the hearing was devoted to the appropriate test to be applied in determining the adequacy of the arbitrator’s reasons under s 31(3) of the Act. I accepted the Department’s submissions and applied the test as stated by Donaldson LJ in Bremer Handelsgesellschaft mbH v Westzucker GmbH [No 2], being:
All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, they have reached their decision and what that decision is. That is all that is meant by a ‘reasoned award’.
  2 Lloyd’s Rep 130, 132-3 (‘Bremer’). Referred to in the Principal Reasons as ‘the Bremer formulation’.
The fact that Winslow so extensively submitted that the Court should accept a lower standard of reasons than the Bremer formulation does not sit comfortably with its contention that the Department’s case, applying that formulation, was hopeless.
(b) The Bremer formulation does not provide a precise prescription. Minds may well differ as to whether reasons have been sufficiently expressed, and the reasons cannot be viewed in a vacuum. As Lyons J stated in Tayar v Feldman, in determining whether the reasons and award were adequate, the Court may take into account:
(1) the weight of the particular issue proportionate to the other issues in dispute; and
(2) the position of the parties and what they may understand the reasons to mean.
(c) As noted in the Principal Reasons, the Second Award consisted of 1,167 paragraphs in 224 pages. Winslow submits that such detailed reasons could hardly be said not to satisfy the requirements of s 31(3) of the Act. However, the Department did not allege that there were inadequate reasons for the determination of all of the claims in the Second Award. As a matter of principle, a detailed consideration of one claim in an award cannot satisfy the obligation under s 31(3) of the Act for an award to include reasons with respect to another claim. Accordingly, the comprehensive and detailed reasons provided generally in the Second Award did not render the Department’s submissions as to the adequacy of the reasons with respect to particular claims hopeless.
(d) The Department contended that its ‘key point’ was that the arbitrator had failed to ‘state reasons for his conclusions with respect to EOTs during winter suspensions, Christmas shutdowns, periods when Winslow ran into inclement weather and site recovery after the 2016 winter shutdown’. I rejected this contention but found that the arbitrator had not expressly stated that it was irrelevant whether a neutral event was only encountered by reason of Winslow’s prior default. However, I do not consider that the Department’s contention was unarguable or that it must have known it to be hopeless.
  VSC 66, , discussing R v F  5 HKLRD 278, 286-7  (Thomas Au J).
 Principal Reasons . See n 3 for the definition of Second Award.
 See generally Principal Reasons -.
- In the circumstances, I propose to order that the Department pay Winslow’s costs, to be assessed on a standard basis.
Costs of Winslow’s application for indemnity costs
- The Department contended that, if Winslow’s application for indemnity costs was unsuccessful, it should be ordered to pay the Department’s costs of the application. Winslow argued that, even in that event, there should be no order as to costs because the Department should have been prepared to deal with Winslow’s previously foreshadowed application orally at the hearing on 3 December 2020. Winslow relied upon the following statement of the Court of Appeal:
Yet as we have observed, sanctions imposed for a breach of any overarching provisions have been a rarity at first instance. When no party invites the court to determine whether there has been a breach of the Act, there may a judicial disinclination to embark upon such an own-motion inquiry for fear that inquiry as to a potential breach may be time consuming and may require the introduction of material that was not before the court as part of the proceeding. Such fears cannot relieve judges of their responsibilities. But we would not wish it to be thought that a judicial officer at first instance must undertake a substantial inquiry when considering whether there has been a contravention of the Act. As the sanction for a breach will usually lie in an appropriate costs order, a judge may at the conclusion of the reasons for judgment immediately invite oral submissions as to why there should not be a finding that the Act was contravened. The judge may in a relatively brief way deal with that issue in providing succinct reasons for a finding that there has been a breach of the Act and how that finding affects the orders for costs that are to be pronounced.
 Yara Australia Pty Ltd v Oswal (2013) 41 VR 302, 311-2  (Redlich and Priest JJA and Macaulay AJA).
- With respect, I do not consider that the Court of Appeal was suggesting that parties must, in all the circumstances or even generally, be prepared to argue all questions with respect to special costs orders or contraventions of the Civil Procedure Act 2010(Vic) at the time that reasons for judgment are published.
- In my opinion, at the time of the publication of the Principal Reasons, it was reasonable for the Department to not be in a position to make submissions in opposition to Winslow’s application for indemnity costs, for the following reasons:
(a) Preparation of submissions with respect to indemnity costs would require consideration of the reasons as published.
(b) The application for indemnity costs raised real issues as to the test to be applied following an unsuccessful challenge to an arbitral award and the application of such test to the facts of this case.
(c) Preparation of submissions properly dealing with these issues prior to the publication of the Principal Reasons could lead to significant wasted costs depending on the ultimate result and on whether the successful party would press their stated intention of applying for a special costs order.
- In the circumstances, Winslow has unsuccessfully applied for indemnity costs and costs should follow the event.
- I order that Winslow pay the Department’s costs of and incidental to the application for indemnity costs on a standard basis.