This article discusses the decision of the Hong Kong Court of Final Appeal (“CFA“) in Astro v First Media. The CFA has allowed First Media to resist enforcement of awards under the New York Convention out of time. The CFA’s decision is important because it clarifies the applicable principles when considering whether time should be extended where an award debtor seeks to resist enforcement after the prescribed time limit has expired.
In this case, First Media sought leave to resist enforcement. The grounds invoked by First Media included in particular that there was no valid arbitration agreement. First Media’s application for leave was made around 14 months out of time. The CFA considered that to refuse an extension would be to deny First Media a hearing where its application has decisively strong merits and would involve penalising it for a delay which had not caused the award creditors any prejudice that could not be compensated.
The underlying dispute arose from a joint venture agreement between companies belonging to the Indonesian Lippo group and companies within the Malaysian Astro group. Astro commenced SIAC arbitration against First Media in Singapore. In the arbitration, the tribunal joined three parties as additional claimants to the arbitration (“Additional Parties“) although they were not parties to the arbitration agreement. First Media objected to the tribunal’s order and defended the arbitration. In 2009 and 2010, the Tribunal rendered awards in favour of the Additional Parties. First Media did not seek to set aside the awards in Singapore.
The Additional Parties sought to enforce the awards in Hong Kong and Singapore. First Media resisted enforcement in Singapore. However, First Media initially did not to resist enforcement in Hong Kong, as it believed it had no assets in there.
In December 2010, the Hong Kong courts entered judgment in terms of the awards. In July 2011, the Additional Parties obtained a provisional order for attaching a debt of USD 44 million owed to First Media by a Hong Kong debtor. In January 2012, First Media applied for an extension of time so as to seek to set aside the Hong Kong enforcement orders and judgment. First Media’s application was made 14 months after the 14 day time limit for resisting enforcement had expired.
Importantly, in October 2013, the Singapore Court of Appeal (“SCA“) refused to enforce the awards against First Media. The SCA had held that the tribunal lacked jurisdiction regarding the Additional Parties.
2. The lower courts’ decisions
Both the Hong Kong Court of First Instance (“CFI“), in February 2015, and the Court of Appeal (“CA“), in December 2016, refused to grant First Media an extension of time. In endorsing the CFI’s refusal to exercise its discretion to extend time, the CA relied on the following three factors:
- The 14 month delay was very substantial;
- First Media had deliberately decided not to apply to set aside the enforcement orders within the prescribed time limit; and
- The awards had not been set aside at the seat of the arbitration.
Notably, the CA disagreed with the CFI’s finding that First Media had not acted in good faith. The CFI held that First Media had not acted in good faith because it had failed to seek immediate court review of the tribunal’s decision to join the Additional Parties and instead proceeded with the arbitration. We have reported here on this aspect of the CA’s decision. To recap, the CA acknowledged the “choice of remedies” principle. This principle allows an objecting party to reserve its position during the arbitration and to either seek to set aside the award (active remedy) or to resist enforcement (passive remedy). The CA held that First Media had expressly reserved its position as to jurisdiction and it was thus not prevented from raising its objection at the enforcement stage.
3. The CFA’s decision
The CFA only dealt with the following two questions of law. These are relevant to the granting of an extension of time for an award debtor to resist enforcement of an award under the New York Convention:
- What is the proper test for determining whether an extension of time should be granted for the purpose of an application to resist enforcement of an award under the New York Convention (Question 1)?
- Whether the fact that the award has not been set aside by the courts at the seat of arbitration is a relevant factor in determining whether to extend time (Question 2)?
The CFA answered these questions as follows:
- The proper test involves looking at all relevant matters and considering the overall justice of the case, eschewing a rigid mechanistic approach.
- The fact that the award has not been set aside by the supervisory court is not a relevant factor.
Question 1: The proper test
The CFA mainly considered the approaches laid down in The Decurion and Terna Bahrain. The lower courts focused primary on the Terna Bahrain approach. This approach promotes the importance of factors such as (i) the length of delay, (ii) reasonableness of allowing the time limit to expire, and (iii) whether the other side or the arbitrator contributed to the delay. However, this approach treats merits as secondary. In contrast, The Decurion approach looks at all relevant matters and considers the overall justice of the case.
The CFA noted that the Terna Bahrain approach is plainly inconsistent with The Decurion approach and preferred the latter. The CFA found it inappropriate in the present case to downgrade “merits” as a factor, where the tribunal’s lack of jurisdiction had been conclusively established. The CFA held that, in adopting the Terna Bahrain approach, the lower courts had erred in principle. This led them to downgrade the fundamentally important absence of a valid arbitration agreement between First Media and the Additional Parties.
Question 2: Irrelevant factors
In considering whether the fact that the award has not been set aside is a relevant factor, the CFA turned to the grounds on which a Hong Kong court “may” refuse enforcement. Two grounds, which are in line with the New York Convention, are relevant here. These are where the award debtor proves that:
- the arbitration agreement was not valid; or
- the award has been set aside by a competent authority of the country in which, or under the law of which, it was made.
The CFA noted that these two grounds are separate grounds and independently available to an award debtor. Accordingly, it is always open for a Hong Kong court to refuse enforcement of an award even if the supervisory court has decided not to set aside the award. This is a consequence of the choice of remedies principle which also applies in Hong Kong. Considering the fact that the awards were not set aside as a major factor, as the lower courts did, would contradict this principle.
The CFA found that the lower courts should not have taken into account that First Media had deliberately chosen not to challenge the enforcement in Hong Kong. The CFA noted that First Media’s decision was entirely reasonable in circumstances where it had no assets in Hong Kong and it had expressly reserved its right to further challenge the tribunal’s jurisdiction.
Proper exercise of discretion by CFA
Since the CFA set aside the lower courts’ decision, it had to exercise its discretion afresh, looking at all relevant matters and considering the overall justice of the case. The only basis left for refusing to extend time was substantial delay. The CFA considered that the absence of a valid arbitration agreement had to be balanced against the 14 month delay. The CFA concluded that to refuse an extension would be to deny First Media a hearing where its application has decisively strong merits and would involve penalising it for a delay which had not caused the award creditors any prejudice that could not be compensated. Since this would be wholly disproportionate, the CFA granted the extension of time.
- Both the CA and CFA have confirmed that Hong Kong adheres to the choice of remedies principle. Accordingly, where a respondent reserves its right before a tribunal to challenge its jurisdiction, the respondent has a choice of raising lack of jurisdiction again either by challenging an award before the supervisory court at the seat or by resisting enforcement of the award.
- Claimants should be mindful that where respondent has unsuccessfully raised a jurisdictional challenge during the arbitration and reserved its rights, respondent may raise that challenge again when resisting enforcement of an award.
- If enforcement has been granted and an award debtor subsequently seeks to resist enforcement out of time, Hong Kong courts will consider all relevant circumstances and the overall justice of the case in deciding whether to extend time. The courts will in particular give appropriate weight to the merits of a debtor’s challenge.
- The absence of a valid arbitration agreement is a very strong ground for resisting enforcement of an award in Hong Kong. It will only be in the most exceptional circumstances that Hong Kong courts will exercise their residual discretion and refuse to set aside an enforcement order notwithstanding that an award debtor has proven that there is no valid arbitration agreement. Such exceptional circumstances may be held to exist where the award debtor is found guilty of very substantial delay and to have acted unreasonably in failing to act sooner, and the setting aside of an enforcement order would cause substantial prejudice to the award creditor that cannot be compensated.