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On 29 June 2011, the Court of First Instance (“CFI”) granted an application of Pacific China Holdings Ltd (“Pacific China”) Holdings Ltd to set aside an International Chamber of Commerce (ICC) arbitral award (“the Award”) made against it in favour of Grand Pacific Holdings Ltd (“Grand Pacific”) for US$55 million. The Award was set aside under Article 34 (2) of the UNCITRAL Model Law (which is incorporated in Hong Kong’s Arbitration Ordinance) on the grounds that Pacific China had been unable to present its case and/or that the arbitral procedure had not been in accordance with the parties’ agreement.
By a unanimous decision, on 9 May 2012, the Court of Appeal reversed the CFI’s decision and reinstated the Award. On 19 February 2013, the Court of Final Appeal (“CFA”) refused to grant Pacific China leave to appeal to the CFA, the Court of Appeal having previously also refused leave.
The decisions of the Court of Appeal and CFA have further cemented and enhanced Hong Kong’s reputation as an attractive arbitration seat. More details on the decisions of the Court of First Instance, Court of Appeal and CFA can be found in Issue 1 of 2013 of our Construction and Arbitration Newsletter.
Decision on costs
On 23 July 2012, the Court of Appeal decided on the costs of the unsuccessful challenge. In its ruling, the Court of Appeal followed the principle that, in the absence of special circumstances, a party that is unsuccessful in setting aside an arbitral award in Hong Kong shall pay the successful party’s costs on an indemnity basis. The Court of Appeal left open, however, in what circumstances to allow the Court to depart from the indemnity costs principle in such cases.
The indemnity basis is the most generous basis and allows the successful party to recover all of its legal costs incurred, unless they are of an unreasonable amount or have been unreasonably incurred, with any doubt in this regard being resolved in favour of the successful party.
The Court of Appeal adopted the rationale for awarding costs on the most generous basis previously laid down by Reyes J in A v R  3 HKC, as follows:-
On 16 August 2013, the CFA refused to grant Pacific China leave to appeal to the CFA against the Court of Appeal’s decision on costs, thereby confirming that parties, who are unsuccessful in setting aside arbitral awards made in Hong Kong, will generally be ordered to pay costs on an indemnity basis.
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