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    11:34 PM Nicholas Poon (Assistant Registrar, Supreme Court of Singapore)

    Issues and Problems in Enforcing Arbitral Awards Across Multiple Jurisdictions: Astro v Lippo, the Hong Kong Edition

        

    Introduction

    The effects of a successful attempt at resisting enforcement of an award in one jurisdiction on enforcement proceedings in another jurisdiction are generally notoriously difficult to predict. In late 2013, the high profile dispute in PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 372 (“Astro (SG)”) saw the Singapore Court of Appeal refuse to enforce certain orders under various awards against the award debtor on the ground that the tribunal lacked jurisdiction. The reprieve for the award debtor, however, was only temporary, as the Hong Kong High Court recently allowed enforcement of the same awards against the award debtor (see Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others and AcrossAsia Limited, HCCT 45/2010 (“Astro (HK)”). 

    Background to the Hong Kong action

    On 17 February 2015, the Hong Kong High Court dismissed two applications by the award debtor, PT First Media TBK (“FM”): 

    • one for an extension of time to set aside two earlier court orders (and judgments upon those orders) granting leave to the award creditors (which shall be conveniently referred to as “the Astro Group”) to enforce five arbitration awards against FM (“the Hong Kong Orders”); and
    • the other to set aside the Hong Kong Orders. 

    The applications were in fact made much earlier on 18 January 2012, even though that was still some 14 months after the 14-day time limit for challenging the Hong Kong Orders had expired. The Hong Kong Orders were made in August and September 2010. FM had refrained from challenging the orders, then, primarily because it had taken the position that it had no assets in Hong Kong against which the awards could be enforced. It was mistaken, and only found out that it was when the Astro Group obtained a garnishee order on 22 July 2011 to attach a debt due to FM from one of its shareholders. 

    However, the hearing did not take place anytime soon after 18 January 2012, or indeed, not anytime until 9 December 2014. The reason for the delay was an application by the Astro Group seeking a stay of FM’s applications pending the resolution of parallel proceedings in the Singapore court (Astro (HK) at [43]).Those proceedings involved an attempt by FM to resist enforcement of the same five awards by the Astro Group, on the ground that three of the companies in the Astro Group (“the Joined Parties”) were improperly joined to the arbitration, the result of which was that the tribunal did not have jurisdiction to make orders against FM in favour of the Joined Parties.  

    The Astro Group argued, in support its stay application, that the Hong Kong proceedings should be held in abeyance because the determination of FM’s applications equired the Hong Kong court to consider and determine issues of Singapore law which “are identical to those raised by [FM] in the pending Singapore proceedings” (Astro (HK) at [45]). Indeed, the Astro Group even identified three of those overlapping issues, one of which was whether the tribunal had misinterpreted its power in joining the Joined Parties to the arbitration (Astro (HK) at [45]). Unsurprisingly, the Astro Group’s stay application was granted. 

    Returning briefly to the Singapore proceedings, the Singapore Court of Appeal in its decision of 31 October 2013 in Astro (SG) held that the tribunal had no power under the applicable rules of the Singapore International Arbitration Centre to join the Joined Parties into the arbitration. Its purported joinder being improper, the tribunal therefore had no jurisdiction to make orders against FM in favour of the Joined Parties. Any such orders in the awards were accordingly unenforceable against FM. 

    Issues in the Hong Kong action

    Of the issues presented to the Hong Kong High Court for determination, the three key ones are: 

    • whether there were valid grounds to extend time for setting aside the Hong Kong orders; 
    • whether FM’s conduct in not challenging the tribunal’s preliminary ruling on jurisdiction and opting nstead to defend its claims on the merits in the arbitration amounted to a breach of the principle of good faith under Hong Kong law; and
    • whether a Hong Kong court is bound by the decision of another enforcing court, in this case, the Singapore Court of Appeal. 

    Hong Kong High Court’s decision

    On the first issue, the court held that the length of delay, at 14 months, was substantial, and was the “result of a deliberate and calculated decision [by FM] not to take action in Hong Kong” (Astro (HK) at [129]). This calculated risk, which materialised, was FM’s to bear. Further, the awards have not been set aside. They are therefore still valid and hence the obligations imposed thereunder on FM continue to bite. 

    On the second issue, the court found currency with the submission by the Astro Group that FM’s failure to challenge in the Singapore court the tribunal’s preliminary ruling that it had jurisdiction within 30 days as it was entitled to under Art 16(3) of the Model Law offended the principle of good faith that was central to the enforcement architecture under the New York Convention. In that connection, the court made the following observations:

    • Whether a ground for refusing enforcement has been made out under s 44 of the Arbitration Ordinance in Hong Kong is a matter governed by Hong Kong law, and is to be determined by the Hong Kong court. Enforcement is mandatory unless a case under s 44(2) or (3) of the Arbitration Ordinance is made out (Astro (HK) at [73(3)]).
    • The Hong Kong authorities of China Nanhai Oil Joint Service Corporation Shenzhen Branch v Gee Tai Holdings Co Ltd [1994] 3 HKC 375 (“China Nanhai”) and Hebei Import & Export Corp v Polyteck Engineering Co Ltd (1999) 2 HKCFAR 111 (“Hebei Import”) stand for the proposition that a court may decline to refuse enforcement if the award debtor’s conduct offended the principle of good faith (Astro (HK) at [81]). 
    • Thus, the question before the court was whether FM’s failure to challenge the tribunal’s preliminary ruling on jurisdiction under Art 16(3) amounted to a breach of the principle of good faith. This was an issue which was governed by Hong Kong law and to be determined by a Hong Kong court. The Singapore Court of Appeal’s decision that FM had not waived its objection to jurisdiction, and was also not otherwise estopped from so objecting at the enforcement stage, were separate matters of waiver and estoppel that were governed by Singapore law.  
    • Under Hong Kong law, FM’s conduct was in breach of the principle of good faith because FM was fully aware of its right under Art 16(3) but chose not to do so (Astro (HK) at [91]). 
    • The effect of a breach of the principle of good faith is that it precludes reliance on the grounds for refusing enforcement of awards. Accordingly, FM was precluded from even relying on s 44 of the Arbitration Ordinance to establish one of the grounds for refusing enforcement (Astro (HK) at [91] read with [74(1)]). 
    • If, however, FM was permitted to invoke one of the grounds in s 44(2) of the Arbitration Ordinance, the awards would be unenforceable as the tribunal did not have jurisdiction (Astro (HK) at [93]). 

    As for the third issue, the court held that the Singapore Court of Appeal’s decision was conclusive and final as to the question of whether the tribunal had jurisdiction to join the Joined Parties was a matter of Singapore law (Astro (HK) at [95]). The court found that as the elements for the formation of an issue estoppel were present on the facts, the Astro Group was bound by the Singapore Court of Appeal’s decision on this question (Astro (HK) at [96]). However, this was inconsequential because the court had already taken the view that FM was precluded, as a consequence of its bad faith conduct, to prove one of the grounds for refusing enforcement under s 44 of the Arbitration Ordinance. 

    Brief commentary

    As with all complex international disputes, the Hong Kong High Court has had to grapple with a number of difficult issues, some of which were addressed admirably, others leaving more questions than answers. The court’s reasoning in relation to FM’s 14-month delay in taking out the applications is understandable, even if a contrary position is not clearly unarguable. 

    Its views, however, in relation to the principle of good faith invite closer scrutiny. There are three points worth highlighting. 

    The first point concerns the ambit and juridical foundation of the principle of good faith imported into s 44 of the Arbitration Ordinance via the New York Convention. Contrary to the Hong Kong High Court’s interpretation of China Nanhai, there is little doubt that Neil Kaplan J in that case had considered the principle of good faith as an aspect of the doctrine of estoppel. He not only said so himself, but Dr van den Berg whose view on the principle of good faith Kaplan J had affirmed had understood the principle of good faith as being a manifestation of the doctrine of estoppel ([1994] 3 HKC 375 at 387). 

    Sir Anthony Mason NPJ in his leading judgment in Hebei Import was a little more ambivalent. To him, the failure to raise an issue before the tribunal could be justified on the grounds of estoppel, breach of the good faith principle, or simply a breach of the principle that a matter of non-compliance with the governing rules shall be raised promptly in the arbitration; whichever the case was “beside the point”. That said, Sir Mason NPJ did eventually situate the argument within the doctrine of estoppel.  

    This leads to the second point. If there is indeed such a doctrine of estoppel under the New York Convention which is an international legal instrument, its legal identity ought to be of a different nature to that found in the domestic laws of contract, equity or the like. Thus, although the Hong Kong High Court was right in saying that the question of whether the awards are enforceable is governed by Hong Kong law, to the extent that the doctrine of estoppel in s 44 of the Arbitration Ordinance is derived from the New York Convention, the legal system from which that doctrine derives must be external to Hong Kong. Consequently, the only suitable candidate is international law. 

    It would seem, therefore, necessary for the courts to address their minds to the doctrine of estoppel under international law, including the elements for establishing whether an estoppel arises. The articulation of fairness and justice as demanding a preclusionary response is simply insufficient. Neither can the test be articulated in the form of a generic principle of good faith, even if such a principle is fundamental under international law, for that would merely beg the question why acting in bad faith alone justifies the founding of an estoppel. For instance, if detrimental reliance is a necessary ingredient to establish an estoppel in international law – and this is an issue which appears unsettled (see, eg, Alexander Ovchar, “Estoppel in the Jurisprudence of the ICJ: A Principle Promoting Stability Threatens to Undermine It” (2009) 21(1) Bond Law Review, Article 5 at pp 30–33) – relying on bad faith conduct alone may not always be sufficient to establish an estoppel. In the context of the present case, the Joined Parties would have to positively aver that they had relied, to their detriment, on FM’s election not to invoke Art 16(3). It is unclear, on the facts, whether this is an easy argument to make. 

    This leads to the third and final point which starts as a practical one but shades very quickly into one on the philosophy of the Model Law and its relationship with the New York Convention. 

    As has been noted by at least one other commentator (see Tomas Furlong, “Astro v Lippo in Hong Kong: Award Enforced Despite Singapore Court of Appeal’s Findings that the Tribunal Lacked Jurisdiction” in Kluwer Arbitration Blog (7 March 2015)), the Hong Kong High Court’s decision extended the estoppel doctrine as applied in China Nanhai and Hebei Import. In both of those cases, the award debtor did not raise to the tribunal the objections which it eventually surfaced to the courts. That was not so in the present case. FM had objected to the tribunal’s joinder of the Joined Parties, and indeed the preliminary ruling was necessitated by that objection. Instead, the relevant “failure” relied upon by the Hong Kong High Court was FM’s failure to invoke Art 16(3). 

    However, if the concept of choice of remedies is part of the Model Law architecture, as was affirmed by the Singapore Court of Appeal, how can a choice to forgo an active remedy in favour of a passive remedy be one and the same time an exercise of a right under the Model Law and a breach of the principle of good faith under the New York Convention for which the sanction is an estoppel? Either FM did have a right to choose its remedies, or it did not, unless the argument is made that the conceptual underpinnings of the New York Convention and Model Law are so different in this one regard. 

    But there is nothing in the language of the provisions in the New York Convention that displaces the choice of remedies concept encapsulated, at least on the Singapore Court of Appeal’s view, in the Model Law. Moreover, choice of remedies was adopted by the Model Law drafters precisely to enable award debtors to avail themselves of the “alternative system of (passive) defence” under the New York Convention, that is, refusing enforcement of awards in addition to the separate (active) defence of setting aside of awards (see Report of the Working Group on the Work of its Seventh Session(A/CN.9/246, 6-17 February 1984) at paras 153–154, cited in Astro (SG) at [70]). 

    Hence, to say that FM’s conduct amounts to a breach of the principle of good faith under the New York Convention for which the appropriate response is estoppel would be to say that the Model Law drafters had implemented a course of action that was plainly impermissible under the New York Convention. That seems rather unlikely given that the drafters of the Model Law were recorded in the preparatory materials as having the enforcement regime of the New York Convention at the forefront of their contemplations. 

    Conclusion

    This latest instalment of this dispute has brought to a head some of the more philosophical challenges in the construction of international instruments on international commercial arbitration. Fortunately, this is not the end of the discussion. There will no doubt be further exposition of some of the above issues by the Hong Kong courts as the dispute meanders through the appellate system. In the meantime, however, parties contemplating the choice of remedies route that FM selected would do well to take note of the repercussions in Hong Kong. 

    * This blog entry may be cited as Nicholas Poon, "Issues and Problems in Enforcing Arbitral Awards Across Multiple Jurisdictions: Astro v Lippo, the Hong Kong Edition", Singapore Law Blog (9 April 2015) (http://www.singaporelawblog.sg/blog/article/102)

    ** The opinions contained in the commentary reflect the author’s own views and are not to be understood as reflecting the views of the author’s employer.

    *** A PDF version of this entry may be downloaded here

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