Enforcement of awards under the New York Convention: choice of remedies and the significance of time limits

© Michael Coghlan

It is a truism that, although the ultimate purpose of an arbitration is the rendering of an award which definitively determines the disputes that were referred by the parties to arbitration, in practice, the making of the final award may well not be the end of the road. This truism is graphically illustrated by the events following an arbitration conducted around ten years ago under the auspices of the Singapore International Arbitration Centre (SIAC); the dispute had arisen out of a failed joint venture between two groups of companies, a Malaysian media group (Astro), and various companies, including First Media (FM), which were part of an Indonesian conglomerate known as Lippo. During the arbitration, in which the Astro companies were the claimants, the tribunal made a number of awards; in 2010, the arbitration culminated in a final award of US$250 million in the claimants’ favour. Since then, the Astro companies have been trying to enforce the awards through the courts against FM (and others), most notably in Singapore and Hong Kong. Following decisions by the Singapore Court of Appeal (PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57) and, more recently, by Hong Kong’s Court of Final Appeal (Astro Nusantara International BV v PT Ayunda Prima Mitra [2018] HKCFA 12), those attempts now appear to have failed.

In terms of the substance, the case seems, at first glance, to be a relatively simple one. The problems were, to a large extent, procedural and those problems were exacerbated by the fact that the courts of two jurisdictions were required to address the same – or very similar – questions. In total, there were five judicial decisions – two in Singapore – High Court (SGHC) and Court of Appeal (SGCA) – and three in Hong Kong – Court of First Instance (HKCFI), Court of Appeal (HKCA) and Court of Final Appeal (HKCFA). In both jurisdictions, Astro’s application to enforce the awards succeeded at first instance; it was only at the highest level in each jurisdiction that FM prevailed. This blog is divided into six substantive sections; after a brief consideration of the arbitration (I), the most significant features of each of the five court decisions are analysed (II-VI). Some of the lessons that can be learned from the whole saga are summarised in the Conclusion. 

I The arbitration

In the context of the subsequent court proceedings, a key question was the significance of the arbitral tribunal’s decision to allow the joinder of the so-called ‘Additional Parties’ (APs) as claimants. During the arbitration, FM had argued that part of the dispute (involving certain ‘Services’) could not be arbitrated because the three Astro companies involved in the provision of those Services (P6 to P8) were not parties to the contract which included the arbitration clause. In an award rendered in May 2009, the tribunal found that it had jurisdiction in relation to the dispute over the Services and decided to join P6 to P8 to the arbitration. In reaching this decision, the tribunal relied on rule 24.b of the 2007 version of the SIAC Arbitration Rules under which an arbitral tribunal had the power to ‘allow other parties to be joined in the arbitration with their express consent’. Although FM participated in the arbitration, albeit under protest, it chose not to take legal action before the Singapore courts to challenge the tribunal’s jurisdictional decision. Accordingly, at no point was the award of May 2009 set aside by the supervisory courts.

II High Court, Singapore: Astro Nusantara International BV v PT Ayunda Prima Mitra [2012] SGHC 212

When Astro applied to the Singapore courts to have the tribunal’s awards on the merits enforced, FM challenged them on the basis that the tribunal had been wrong to join the APs and that the awards were made without jurisdiction. The SGHC held, however, that, by having failed to challenge the award of May 2009, as permitted under art 16.3 of the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’ or ‘ML’), FM had effectively waived its jurisdictional objection. As a consequence, FM was precluded from reviving the jurisdiction issue in the context of Astro’s enforcement application and the awards were declared enforceable in Singapore.

III Court of Appeal, Singapore: PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57

The SGCA did not agree with the judge’s view of the significance of article 16.3 ML. The judge had accepted the argument that art 16.3 ML is a ‘one-shot remedy’: according to this view, if the tribunal makes a jurisdictional decision as a preliminary ruling, the aggrieved party has one chance (under art 16.3 ML) to challenge that decision and, if that opportunity is not taken, the aggrieved party has, in jurisdictional terms, no further means of recourse. The SGCA, however, decided that, when considered in the round, the Model Law endorses a ‘choice of remedies’ scheme which accords to an aggrieved party both active and passive remedies. Such a ‘choice of remedies’ scheme does not necessarily mean that an aggrieved party has more than one bite at the cherry; but, it does mean that the aggrieved party effectively has a free choice as to the moment at which it pursues its jurisdictional challenge.

Within this ‘choice of remedies’ model, a party which opts not to pursue the active remedy provided by art 16.3 ML is, nevertheless, free to take advantage of the passive remedy afforded by art 36 ML by raising the jurisdictional issue at the enforcement stage. In principle, therefore, FM was not precluded from seeking to resist enforcement in Singapore of the awards in Astro’s favour.

That conclusion still left two questions for the SGCA to determine:

First, in a case such as Astro Nusatara, in which the respondent’s complaint was that, because the claimant was not a party to the arbitration agreement in question, there was no binding arbitration agreement between the parties and, as a result, the tribunal lacked jurisdiction, which (if any) of the grounds for non-enforcement is engaged? The SGCA accepted that such a case falls within the scope of art 36.1.a.i ML, which mirrors art V.1.a of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC). Although the wording of the provision refers to the validity of an arbitration agreement, rather than its existence (‘the [arbitration] agreement … is not valid under the law to which the parties have subjected it …’) and, therefore, does not literally cover the situation in Astro Nusatara, the SGCA followed authorities such as the UK Supreme Court’s decision in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46 and held that art 36.1.a.i ML deals with the inexistence of an arbitration agreements as well as its invalidity.

Secondly, on the facts of the case, had the tribunal been entitled to exercise the power conferred by rule 24.b of the SIAC Arbitration Rules to join the APs? Again, the SGCA sided with FM: the fact that the APs had not been parties to the relevant arbitration agreement meant that the necessary conditions for the operation of rule 24.b had not been satisfied.[1]

It should be noted that the SGCA’s conclusion did not mean that the awards in question could not be enforced at all. Assuming that the operative parts of the awards in favour of those claimants who had been parties to the arbitration clause could be segregated from the parts in favour of the APs, the former were not affected by the tribunal’s jurisdictional error and were, therefore, enforceable. Having said that, the SGCA’s decision rendered the awards largely worthless in Singapore as the principal monetary relief (in fact, more than 99% of the total sum awarded) had been ordered in favour of the APs, rather than the other Astro claimants.

IV Court of First Instance, Hong Kong: Astro Nusantara International BV v PT Ayunda Prima Mitra [2015] HKCFI 274

Astro also applied to the courts in Hong Kong to enforce the awards under the NYC (as implemented into Hong Kong law). This application did not initially appear very auspicious; as Chow J noted (at [6]): ‘At first sight, it may be thought that, given the [SGCA’s judgment] that the Tribunal had no jurisdiction to make the Awards as between the Additional Parties and First Media, enforcement of the Awards should be refused in Hong Kong virtually as a matter of course.’

But, instead of resisting enforcement, FM chose to ignore Astro’s application. Its reason for doing so was that it believed that it had no assets in Hong Kong against which the awards could be enforced. Subsequently, however, the position changed when Astro obtained a garnishee order (ie, a third party debt order) in respect of a debt of US$44 million owed to FM by a Cayman Islands company. Now that, contrary to its earlier assumption, FM had something substantial to lose, it made an application for an extension of time in which to challenge enforcement (more than a year after the expiry of the usual 14-day limit). The main question in the Hong Kong proceedings was not whether the awards in favour of the APs had been made without jurisdiction, but whether FM should be allowed to rely on the tribunal’s lack of jurisdiction.

The HKCFI rejected FM’s application and upheld the order for enforcement. Chow J’s decision was based on two grounds.

First, the judge noted that the NYC’s regime allows for enforcement on a discretionary basis even if one of the grounds for non-enforcement (in art V NYC) is established by the award-debtor. Chow J was persuaded that it would be a breach of good faith for FM, having failed to challenge the tribunal’s jurisdictional decision before the Singapore courts, to apply to resist enforcement of the awards on jurisdictional grounds.

Secondly, Chow J thought that it was not a case in which the court should exercise its discretion to allow FM to challenge enforcement of the awards out of time. In reaching this decision, the judge relied on three factors: (i) the very great difference between the legally prescribed time (14 days) and the length of the delay (14 months); (ii) the fact that the delay resulted from a deliberate decision by FM not to take action within the time limit because it thought that it had no assets in Hong Kong, thus taking a ‘calculated risk’; (iii) the fact that the awards had not been set aside by the Singapore courts.

V Court of Appeal, Hong Kong: Astro Nusantara International BV v PT Ayunda Prima Mitra [2016] HKCA 595

FM appealed to the HKCA. In terms of the two bases of Chow J’s decision, the HKCA took the opposite view on the first ground, but, like Chow J, refused to give FM permission to challenge enforcement out of time.

As regards the first ground, the judge’s decision was clearly unorthodox. In view of the SGCA’s ruling that the tribunal had lacked jurisdiction in respect of the APs, it was difficult to see how the discretion allowed by art V NYC could properly be exercised in the award-creditors’ favour. According to the HKCA, the first instance judge had failed to take into account the fundamentally defective nature of the awards in question – namely, that there had been no arbitration agreement between the parties.

As for the second ground, the HKCA declined to interfere with Chow J’s exercise of discretion and endorsed his reliance on the three factors already mentioned: (i) the length of the delay; (ii) the fact that a deliberate decision had been taken by FM not to challenge the awards within the time prescribed; and (iii) the fact that the awards had not been set aside at the seat of the arbitration.

VI Court of Final Appeal, Hong Kong: Astro Nusantara International BV v PT Ayunda Prima Mitra [2018] HKCFA 12

Unsurprisingly, FM appealed again – to the HKCFA – in the hope of obtaining permission to challenge enforcement out of time. The HKFCA was asked, first, to formulate the proper test for determining whether an extension of time should be granted for the purposes of an application to resist enforcement of an arbitral award under the NYC and, second, to decide whether, for the purposes of that test, the fact that the award had not been set aside by the courts of the seat of arbitration was a relevant factor.

On the first question, the HKFCA decided (at [62]) that the appropriate approach is to ‘look […] at all relevant matters and consider […] the overall justice of the case, eschewing a rigid, mechanistic methodology.’ By failing to give due weight to the merits of FM’s application to resist enforcement of the awards, the lower courts had not applied the proper test.

Secondly, it was held that the fact that the awards had not been set aside at the seat of arbitration was not a relevant factor. Earlier authorities in Hong Kong (see, eg, Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKCFI 147; Hebei Import & Export Corp v Polyteck Engineering Co Ltd [1999] HKCFA 40) clearly establish that an award-debtor is not estopped from resisting enforcement of an award under the NYC by virtue of having chosen not to seek annulment of the award at the seat of arbitration. Active remedies (at the seat of arbitration) and passive remedies (at the place of enforcement) are genuine alternatives. As Lord Collins had pointed out in Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 48 at [103]: ‘There is nothing in the Convention which imposes an obligation on a party seeking to resist an award on the ground of the non-existence of an arbitration agreement to challenge the award before the courts of the seat.’

Accordingly, the HKCFA allowed FM’s appeal, thereby permitting FM to resist enforcement in Honk Kong of the Singapore awards on the basis of art V.1.a NYC. Given that the SGCA had already decided that there had been no binding arbitration agreement between FM and the APs, FM’s challenge to the enforcement order in Astro’s favour was bound to succeed.

Conclusion

The sequence of cases outlined in the previous sections may be approached in one of two ways. First, in doctrinal terms, three important points emerge:

1. The UNCITRAL 2012 Digest of Case Law on the Model Law on International Commercial Arbitration notes that: ‘The Model Law does not indicate whether a party’s failure to seek, pursuant to article 16(3), the judicial review of an interim decision of the arbitral tribunal dismissing an objection to its jurisdiction precludes that party from subsequently raising that same objection either in support of an application to set aside the award (article 34) or to resist an application seeking the recognition and enforcement of the award (articles 35 and 36).[2] Courts of different ML jurisdictions have adopted different interpretations, some deciding that art 16.3 is a ‘one-shot remedy’, others, like the SGCA in the Astro Nusantara case, that art 16.3 ML is to be seen as part of the Model Law’s ‘choice of remedies’ framework. The SGCA’s decision is not without its critics and it is unlikely to be the last word on the proper interpretation of art 16.3 ML.

2. The HKCA and HKCFA confirmed that, while the NYC allows for the discretionary enforcement of an award even though the award-debtor establishes one of the grounds for non-enforcement under art V NYC, such discretion is narrow and cannot be used to override a defect which fundamentally undermines the consensual nature of arbitration as a method of dispute-resolution. See Hill, ‘The exercise of judicial discretion in relation to applications to enforce arbitral awards under the New York Convention 1958’ (2016) 36 OJLS 304.)

3. The decision of the HKCFA emphasises that, in in the context of enforcement under the NYC, the integrity of the arbitral process and the validity of the award are more important than the procedural niceties of the law of the place of enforcement. In the end, fundamental principle dictated that, if there had been no arbitration agreement, the awards should not be enforced – even though this meant giving FM permission to apply to resist enforcement long after the normal time limit had expired. The procedural norms of the enforcement forum could not be allowed to undermine fundamental principles of arbitration law.

Of course, by allowing FM to apply out of time, the HKCFA was acting contrary to one of the important aims of modern arbitration law – namely, to provide for the swift resolution of the parties’ disputes. But, as Ribeiro PJ pointed out (at [65]): ‘The policy favouring speedy finality in resolving an arbitration is necessarily premised on a valid arbitration agreement between the parties which [was] absent in the present case.

Secondly, in practical terms, one might reasonably imagine that, with the benefit of hindsight, FM rued its decision not to apply to the Singapore courts under art 16.3 ML to overturn the tribunal’s jurisdictional award of May 2009. Although it was (ultimately) decided that FM (i) should not be prejudiced by not having applied for an active remedy against the contested awards and (ii) was permitted to challenge their enforcement both in Singapore and in Hong Kong, the process whereby this result was arrived at was tortuous and involved FM in pursuing appeals to the highest courts in both jurisdictions. If, following the rendering of the jurisdictional award in May 2009, FM had invoked art 16.3 ML and the Singapore courts had decided at the outset that the APs could not be joined to the arbitration, the ensuing problems would have been largely avoided. As this series of cases shows, in practice, it may well be better for an award-debtor to take the initiative (by applying for disputed awards to be overturned or set aside), rather than waiting for the judgment-creditor to apply to enforce the awards and, only then, seeking to resist enforcement.
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[1] The ruling by the SGCA in the Astro Nusantara case tallies with the express wording of the 2013 version of rule 24.b of the SIAC rules, which provides that the tribunal may ‘allow one or more third parties to be joined in the arbitration, provided that such person is a party to the arbitration agreement, with the written consent of such third party…’.

[2] p 82, para 27. Available at: http://www.uncitral.org/pdf/english/clout/MAL-digest-2012-e.pdf.

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