20 May, 2015
In the recent decision of Astro Nusantara International BV & Ors v PT Ayunda Prima Mitra & Ors [2015] HCCT 45/2010, the Hong Kong High Court departed from the decision of the Singapore Court of Appeal in PT First Media TBK v Astro Nusantara International BV & Ors (2014) (“SCA Judgment”), deciding instead to affirm enforcement of five SIAC Awards obtained by the Astro group claimants (“Astro”). The Singapore Court of Appeal had refused enforcement of the same SIAC Awards in Singapore.
Facts
The long-running dispute between the parties arose out of a failed joint venture agreement between PT First Media TBK (“FM”) and its subsidiaries and Astro for an intended pay TV business in Indonesia through FM’s subsidiary. Astro commenced arbitration in 2008 for, among other things, restitution of the monies and services provided to the failed joint venture. Three of the eight Astro claimants were not party to the arbitration agreement but were joined into the arbitration by the tribunal under rule 24(b) of the SIAC Rules 2007.
FM recorded its objection to the tribunal’s joinder order but chose not to apply to the Singapore courts (Singapore being the seat of the arbitration) under article 16(3) of the Model Law. Instead, FM continued to participate in the arbitration and defended its position on the merits. Ultimately, and after hearings on the merits, the tribunal issued the five SIAC Awards in favour of Astro in the course of 2009 and 2010.
FM did not apply to the Singapore courts to set aside (or invalidate) the SIAC Awards within the time limit prescribed under article 34 of the Model Law (three months) and the SIAC Awards thus remained valid and binding. However, later in 2011 FM applied to challenge Astro’s enforcement of the SIAC Awards in Singapore; the application failed before the Singapore High Court, but succeeded in part on appeal to the Singapore Court of Appeal, resulting in the SCA Judgment.
Astro also sought to enforce the SIAC Awards in Hong Kong. FM initially took no step to challenge enforcement of the SIAC Awards within the prescribed time limit under the Hong Kong procedural rules (14 days), and thus judgment was entered in Hong Kong against FM in terms of the SIAC Awards in September 2010. Astro then successfully obtained a garnishee order nisi over a USD 44m debt owed by FM’s parent company in Hong Kong, Across Asia Limited (“AAL”), to FM.
FM then applied in January 2012 to challenge enforcement of the SIAC Awards in Hong Kong. However, as this was some 14 months after the prescribed time limit under the Hong Kong procedural rules for challenges to enforcement of New York Convention awards, FM also had to apply for an extension of time to make such challenge. These proceedings were held in abeyance until after the issue of the SCA Judgment.
Decision
The Hong Kong High Court declined to exercise its discretion to grant FM an extension of time to challenge enforcement of the SIAC Awards. In doing so the Court considered various factors but highlighted in particular:
- The length of delay of 14 months is a very substantial one having regard to the prescribed time limit of 14 days and having regard to the context of the application, i.e., to resist enforcement of New York Convention awards.
- The fact that FM took a deliberate decision not to apply to challenge enforcement within the prescribed time limit as FM considered that it had no assets in Hong Kong upon which execution could be levied to satisfy any judgment entered in terms of the SIAC Awards.
- Although FM was successful in resisting enforcement in Singapore, the SIAC Awards have not been set aside; the SIAC Awards are still valid and create legally binding obligations on FM.
Of particular note is the Hong Kong High Court’s consideration of the merits of the FM’s anticipated application to challenge enforcement, in light of the findings in the SCA Judgment.
In the SCA Judgment, the Singapore Court of Appeal had held, among other things, that:
- Under the principle of “choice of remedies”, an award debtor is entitled to resist the enforcement of an award (“passive remedy”), even though it has not taken any step to invalidate or set aside the award (“active remedy”).
- Thus, as a matter of Singapore law it was open to FM to challenge enforcement of the SIAC Awards as a passive remedy even though FMdid not apply to set aside the joinder order under article 16(3) of the Model Law, or set aside the SIAC Awards under article 34 of the Model Law.
- The tribunal did not have the power to join third parties to the arbitration under rule 24(b) of the SIAC Rules 2007 and thus the tribunal did not have jurisdiction over the claims of the three Astro claimants who were joined into the arbitration.
- The SIAC Awards are therefore permitted enforcement in Singapore only to the extent of those parts of the awards which are exclusively directed to the other Astro claimants.
Strong reliance was placed on the SCA Judgment by FM to persuade the Hong Kong High Court of the merits of its application to resist enforcement of the SIAC Awards in Hong Kong. Indeed, in a prior and related proceeding the Hong Kong Court of Appeal remarked that “it will indeed be remarkable if, despite the Singapore Court of Appeal judgment on the invalidity of arbitration awards, Astro will still be able to enforce a judgment here based on the same arbitration awards that were made without jurisdiction.” The Hong Kong High Court recognised “the force of the statement of the Court of Appeal” but ultimately was persuaded that FM was, on the merits of the case, precluded from resisting enforcement of the SIAC Awards in Hong Kong.
Enforcement of New York Convention awards, such as the SIAC Awards, in Hong Kong is governed by section 44 of the Hong Kong Arbitration Ordinance (which gives effect to Article V of the New York Convention). As regards the applicable principles, the Hong Kong High Court held:
- The Hong Kong courts approach Convention awards with a proenforcement bias. Enforcement of such awards is mandatory unless a case under section 44(2) or (3) of the Ordinance is made out, in which case the court has a discretion to permit or refuse enforcement.
- The fact that an award has been refused enforcement by a court in another jurisdiction, even one whose law governs the arbitration agreement or the procedures of the arbitration, is not a ground for resisting enforcement of the arbitral award in Hong Kong under the New York Convention because each jurisdiction has its own rules governing enforcement of arbitral awards.
- This is the position even where the other jurisdiction denying enforcement also applied the New York Convention, because the Hong Kong court applies section 44 of the Arbitration Ordinance as a piece of domestic legislation.
- Whether a ground has been made out for refusing to enforce a Convention award under section 44(2) and (3) of the Ordinance is a matter governed by Hong Kong law and to be determined by the Hong Kong court.
- The Hong Kong court has a discretion under section 44(2) of the Ordinance to decline to refuse enforcement, even if a ground for refusal might otherwise be made out, in circumstances where there has been a breach of the good faith principle on the part of the award debtor.
The Hong Kong High Court considered that whilst it appears that Hong Kong law also recognises the principle of “choice of remedies”, nevertheless the court has a discretion under section 44 of the Arbitration Ordinance to decline to refuse enforcement, even if a ground for refusal might otherwise be made out, in circumstances where there has been a breach of the good faith principle on the part of the award debtor.
Having considered the above, and on the merits of the case, the Court then held that even where an extension of time were to be granted, FM should not be permitted to resist enforcement of the SIAC Awards under section 44 of the Arbitration Ordinance because it has acted in breach of the good faith principle under Hong Kong law, and even though the SCA Judgment has found that such action is permissible under Singapore law.
In particular, the Court considered that a party to an arbitration, while being fully aware of an objection (whether in relation to the jurisdiction of the tribunal or the procedure or conduct in the course of the arbitration), should not be permitted to keep the objection in reserve, participate fully in the arbitration and raise the objection in the enforcing court only after an award had been made against him by the tribunal.
For further information, please contact:
Sean Yu Chou, Partner, WongPartnership
seanyu.chou@wongpartnership.com
Wei Lee Lim, Partner, WongPartnership
weilee.lim@wongpartnership.com
Alvin Yeo, WongPartnership
alvin.yeo@wongpartnership.com
