Koshigi Ltd & Anor v Donna Union Foundation & Anor

On discontinuance, the claimant normally pays the defendant’s costs. Departure from that rule requires a good reason, usually involving an un contributed change of circumstances caused by unreasonable conduct of the defendant. A costs application is not the occasion for a de novo trial of heavily disputed facts or for deciding issues reserved for another court.

Indemnity costs require conduct or circumstances taking the case out of the norm, although exceptional conduct is unnecessary. In assessing allegations of arbitral bias, the court applies the objective fair-minded and informed observer test. The IBA Guidelines may assist, but do not replace the applicable legal principles.

The claimants brought two claims under section 68 of the Arbitration Act 1996, challenging arbitral awards on grounds including alleged bias, procedural irregularity and failure to deal with issues. They discontinued both claims after disputing the enforceability of the awards and entered into a consent order preventing reliance on the same matters elsewhere.

The parties disputed liability for the costs of the discontinued claims, whether costs should be assessed on the standard or indemnity basis, and the appropriate interim payment. The central issues were whether the alleged unenforceability of the awards justified departure from the usual costs rule and whether the conduct of the claims warranted indemnity costs.

1. Costs on discontinuance. The usual rule under CPR 38.6 is that a claimant discontinuing proceedings pays the defendant’s costs. The burden of showing a good reason for departure is high. The court applied Brookes v HSBC Bank plc [2011] EWCA Civ 354 and Nelson’s Yard Management Co v Eziefula [2013] C.P. Rep 29.
2. The alleged failure to deliver share-transfer documents, and the resulting alleged unenforceability of the awards, involved highly contentious facts and Maltese law. Determining those matters would require a hearing on the merits and could usurp the function of the court ultimately deciding enforcement. The claimants’ assertion of a reasonable belief did not avoid that conclusion. The claimants therefore had to pay the costs of both section 68 claims, including the security-for-costs hearing and the present hearing.
3. Indemnity costs. The normal order on discontinuance is standard-basis costs, but indemnity costs are available where conduct or circumstances take the case out of the norm. Exceptional conduct is not required. The court applied Simms v The Law Society [2005] EWCA Civ 849, Jarvis v PriceWaterhouseCooper [2001] BCC 670, Excelsior Commercial & Industrial Holdings Limited v Salisbury Hammer Aspden & Johnson (A Firm) [2002] EWCA Civ 879 and Whaleys (Bradford) Ltd v Bennett [2017] 6 Costs LR 1241.
4. The bias and non-disclosure case was very weak. The court considered that advancing it under section 68, combined with discontinuance shortly before the security-for-costs hearing, took the matter out of the norm.
5. For arbitral bias, the relevant question was whether known facts or circumstances would or might lead the fair-minded and informed observer to conclude that there was a real possibility of bias. The court applied Halliburton Co v Chubb Bermuda Insurance Ltd [2018] 1 W.L.R. 3361. The IBA Guidelines were useful practical guidance but were not legal provisions and did not override the legal test, as explained in H v L [2017] 1 W.L.R. 2280.
6. The court concluded that indemnity costs were justified. DUF was awarded an interim payment of 70% of US$527,000, payable within 14 days.

Not an appeal. The judgment determined costs issues arising from two discontinued section 68 arbitration claims.