Hong Kong's Court of Appeal (CA) has given judgment in the latest instalment of the dispute between Malaysia's Astro media group and Indonesia's Lippo.

On 5 December 2016, the CA dismissed an appeal by First Media, a Lippo Group entity, against an order granting leave to enforce in Hong Kong various arbitral awards made in Singapore in favour of Astro. First Media succeeded in overturning one limb of the first instance decision, in which Chow J held it had breached the principle of good faith by participating in the arbitration (albeit under protest) and then raising objections to jurisdiction at the enforcement stage. However, First Media failed to persuade the CA that its application to set aside the enforcement order should succeed despite having been made fourteen months out of time.

The decision brings Hong Kong law into line with Singapore on parties' right to elect "active" or "passive" remedies in arbitral proceedings. However, the principle that arbitrations should be resolved with "speedy finality" prevailed, and the CA declined to interfere with the judge's refusal to extend time for the application to set aside the enforcement order in Hong Kong.

Background

In 2005, various Astro companies entered a joint venture with several Lippo companies, including First Media, for the provision of multimedia and television services in Indonesia. The joint venture failed. Once constituted, the arbitral tribunal made a preliminary ruling on jurisdiction. It concluded that three of the Astro companies (the Additional Parties) were entitled to bring claims in the arbitration, despite not being party to the arbitration agreement. Lippo objected, and reserved its rights, but participated in the merits phase of the arbitration. Lippo did not exercise its right under Article 16(3) UNCITRAL Model Law to challenge in the Singapore courts the tribunal's ruling on jurisdiction. The tribunal went on to find that the Additional Parties were entitled to sums in excess of US$ 130 million from Lippo (Awards).

Lippo did not attempt to use its jurisdiction arguments to set aside the Awards in Singapore. Astro then sought enforcement of the Awards in Singapore, Hong Kong, England, Malaysia and Indonesia. Lippo did not resist enforcement in England, Malaysia or (initially) Hong Kong because it did not have assets in those jurisdictions, but it did resist enforcement in Singapore.

The time limit to resist enforcement in Hong Kong expired in November 2010 and judgment was entered on the award (Hong Kong Judgment). In July 2011, Astro obtained a Garnishee Order to attach a debt of USD 44 million due from Across Asia Limited (First Media’s parent company, listed in Hong Kong) to First Media. In early 2012, Lippo took out a summons to set aside the Hong Kong Judgment. Those proceedings were later stayed pending resolution of the Singapore enforcement proceedings.

In October 2013, the Singapore Court of Appeal ruled that the Awards were not enforceable in Singapore, because the Tribunal did not have jurisdiction over the Additional Parties (see our blog post here. Thereafter, it fell to the Hong Kong Court of First Instance to decide whether the Awards could be enforced in Hong Kong. On 17 February 2015, the Court granted leave to enforce the Awards. Click here for more detail on that decision.

First Media appealed. It sought an extension of time to apply to set aside the orders giving leave to enforce the Awards, and to set aside the orders and Hong Kong Judgment. First Media also sought discharge of the Garnishee Order. That appeal has now been dismissed.

Good faith principle clarified

The CA overturned the first instance decision that First Media was precluded by the principle of good faith from relying on s.44(2) Arbitration Ordinance (Cap. 341) from resisting enforcement. Chow J had misdirected himself in exercising his discretion under s.44(2) to refuse enforcement, by failing to take into account the "fundamental defect" that the Awards were sought to be enforced against parties who were "wrongly joined" to the arbitration.

Toby Landau QC, for First Media, took the court through each aspect of First Media's conduct that Chow J had criticised, and identified the relevant parts in the Singapore Court of Appeal Judgment in which it was conclusively determined, as a matter of Singapore law, that First Media was entitled to act in the way it did. Mr Landau also attempted to demonstrate that First Media had "persistently raised its objections to jurisdiction and had expressly reserved its rights in the course of the Arbitration".

The CA held that the first instance judge had "fallen into error", in not giving proper recognition to the findings in the Singapore Court of Appeal judgment. "In considering the conduct of the arbitration for the purpose of the "good faith" principle, it is particularly relevant to take account of the law of the seat of arbitration and the ruling of the supervisory court of the seat of arbitration", the CA noted.

The judge was wrong in his finding that the fact the awards were made without jurisdiction was not to be taken into account when exercising discretion as to whether a ground for refusal of enforcement under s.44(2) was made out, but only when exercising discretion to permit enforcement where such a ground for resisting had been made out. The CA commented: "In considering whether the 'good faith' principle may be successfully invoked to resist enforcement, there is only one discretion to exercise…and that discretion is found in the word 'may' in the opening part of s,44(2)…It is the use of the word 'may' that 'enables the enforcing court to enforce an award, notwithstanding that a s.44 ground might otherwise be established'".

The CA held that it was "quite clear" that "fundamental jurisdictional objections" should be taken into account when considering the exercise of discretion under section 44(2) The CA cited the English case Dallah, in which it was held that the discretion is a narrow one, and is "unlikely to be exercised where the award in question was subject to a fundamental or structural defect. There can hardly be a more fundamental defect than an award against someone who was never party to the relevant contract or agreement to arbitrate (CA's emphasis)". The judge had misdirected himself and failed to take account the "fundamental defect" that enforcement was sought against the Additional Parties, who had been wrongly joined to the arbitration. Had he taken this into account, he could only have exercised his discretion to refuse enforcement.

In obiter comments, the CA also accepted First Media's argument that the cases cited by Chow J, China Nanhai Oil [1994] 3 HKC 375 and Hebei Import & Export Corp [1999] 2 HCK 205, should be distinguished. In those cases, the parties resisting enforcement had remained silent about their objections to the tribunal's jurisdiction, keeping them "up their sleeve", and deploying them for the first time to resist enforcement. Here, although First Media did not challenge the tribunal's preliminary award on jurisdiction, it did raise its objection before the tribunal, and (importantly) expressly reserved its rights. Moreover, the Singapore Court of Appeal subsequently confirmed that such reservation was effective, not least because Astro had not been misled. However, the CA did recognise that there might be circumstances in which a party's failure to challenge jurisdiction before the supervisory court under Article 16(3) of the UNCITRAL Model Law could be construed as a breach of the good faith principle.

The CA found that the good faith principle is complementary with the "choice of remedies" principle, under which parties are entitled to pursue both "active remedies" in the supervisory court (e.g. an Article 16(3) application to contest jurisdiction) and "passive remedies" (resisting enforcement). If the good faith principle is applied too rigorously where there is a failure to pursue active remedies, it might come into conflict with the choice of remedies principle. In order to avoid this, the court must have regard to "the full circumstances why an active remedy is not pursued or other relevant considerations (such as whether there was a clear reservation of rights so the opposite party was not misled)".

Extension of time denied

The first instance judge cited a number of reasons for his decision not to extend time for the application to set aside the enforcement orders.

  1. The delay was a "very substantial one";
  2. The delay was a result of a "deliberate and calculated decision not to take action in Hong Kong";
  3. The Awards had not been set aside at the seat. They were still valid and binding on First Media, despite the Singapore courts having refused enforcement in Singapore.

Chow J accepted that Astro had not suffered substantial prejudice as a result of the delay (other than costs, for which it could be compensated). However, he did not consider this, nor the size of the Awards, sufficient to override the three reasons above. Consequently, he was not prepared to exercise his discretion to extend time.

First Media appealed against the judge's exercise of his discretion. In order to succeed, it had to demonstrate that:

  1. the discretion was exercised under a mistake of law or in disregard of principle; or
  2. the judge took into account irrelevant matters; or
  3. the judge failed to exercise his discretion; or
  4. the conclusion he reached in the exercise of his discretion was "outside the generous ambit within which a reasonable disagreement is possible", such that it was "plainly wrong".

First Media claimed the fact the Awards were not set aside was an "irrelevant factor", and that the refusal to extend time was "plainly wrong". Citing The Decurion [2012] 1 HKLRD 1063, it submitted that the court should look at “all relevant matters” and consider the “overall justice of the case”, and that “[a] rigid mechanistic approach is not appropriate".

The CA disagreed, preferring the approach in Terna Bahrain Holding Company WLL v Al Shamsi & Ors [2013] 1 Lloyd's Rep. 86. That case emphasises the need for "speedy finality" of arbitral proceedings, which is the policy underpinning both the English Arbitration Act and the Arbitration Ordinance. Astro successfully argued that arbitration is "entirely different territory" from court proceedings, and calls for a "more disciplined approach" to time limits. Moreover, the CA did not agree that Chow J had either failed to consider all relevant matters or exercised his discretion in a "rigid mechanistic fashion".

The CA further rejected First Media's submission that Chow J had given insufficient weight to its "incontrovertible and fundamental" jurisdictional objection, which had been upheld in the Singapore Court of Appeal. The CA was not persuaded that the judge's assessment of the factors for and against extending time was "plainly wrong". To allow a delay of 14 months, against a time limit of 14 days, "would make nonsense of the policy of speedy finality, which underpins Hong Kong's Arbitration Ordinance.

The appeal was dismissed. However the CA awarded Astro only 60% of the costs of the appeal, on the basis that it had lost on the principle of good faith, and that argument on that issue had taken considerable time and effort.

Comment

The CA's decision brings welcome clarity to Hong Kong law on the issues under appeal, particularly the good faith principle, removing the uncertainty created by the first instance decision. Moreover, it is desirable that the laws of Singapore and Hong Kong, Asia's two main arbitral centres, be brought into line on this question. Had Hong Kong maintained its original stance on parties' ability to exercise their statutory right to choice of remedies, it risked being perceived as a less desirable seat than its Asian neighbour and close rival. As is so often the case, the Hong Kong courts have set the record straight, while demonstrating their support for arbitration and the policy underpinning the Arbitration Ordinance.