Resisting enforcement of arbitral awards out of time

In Astro Nusantara International BV and others v PT First Media TBK [2018] HKCFA 12, the Court of Final Appeal (CFA) laid down the proper test for determining whether to grant an extension of time in an application to resist the enforcement of an arbitral award, and whether the fact that the award has not been set aside at the seat of arbitration should be a factor to be considered.

Under the Arbitration Ordinance (sections 44(2) and 44(3) of the repealed version, Cap 341 which was considered in the Astro case and sections 89(2) and 89(3) of the current version, Cap 609), the Court may refuse to enforce an arbitral award made in a state or territory (other than Mainland China or any part of Mainland China) which is a party to the 1958 New York Convention if the award is made pursuant to an invalid arbitration agreement, or the award goes beyond the scope of the parties’ submission to arbitration, or the enforcement of the Convention award would be contrary to public policy. 

It is worth noting that use of the word “may” in the Ordinance denotes the existence of the court’s discretion to enforce the award, even if a ground resisting enforcement under the Ordinance has been made out.  One of the situations where the court may exercise its discretion is where a party has breached the good faith principle – in the Court of Final Appeal’s decision in Hebei Import & Export Corp v Polyteck Engineering Co Ltd [1999] 2 HKCFAR 111, the court found a party failing to act in good faith when it did not make a prompt objection during the arbitration to irregularities of the process which it subsequently raised when resisting enforcement.

The respondent companies in the Astro case, being members of a Malaysian media group, were the claimants in the arbitration (Astro).  The appellant, First Media, is a company listed in Indonesia and part of an Indonesian conglomerate called Lippo.  First Media was the major respondent in the arbitration.

Astro commenced arbitration against Lippo pursuant to an agreement for arbitration in Singapore under Singaporean law.   Despite Lippo’s objections, the arbitral tribunal joined three of the Astro claimants (additional claimants) even though they were not parties to the arbitration agreement.  The tribunal eventually made awards in Astro’s favour, including an award in a sum exceeding US$130 million.

When Astro sought to enforce the awards in Singapore, the Singapore Court of Appeal (SCA) held that the tribunal lacked jurisdiction to make awards in favour of the additional claimants because they were not parties to the arbitration agreement.  As a result, the SCA set aside the enforcement orders in favour of the additional claimants.

First Media, relying upon SCA’s judgment, applied to the Hong Kong court for an extension of time to set aside the orders, which were made some 14 months earlier, for Astro to enforce the awards in Hong Kong (enforcement orders).   

The Court of First Instance (CFI) refused to set aside the enforcement orders basically for two reasons.  Firstly, it found that First Media had failed to act in good faith by keeping the challenge to the tribunal’s lack of jurisdiction during the arbitration.  Thus, the court exercised its discretion to allow Astro to enforce the awards, even though First Media had made out a ground to resist enforcement under the Ordinance.   Secondly, the court refused to grant the extension of time sought because (a) the 14 months’ delay on the part of First Media was substantial, (b) it was First Media’s deliberate decision not to apply to set aside the enforcement orders within the prescribed time, and (c) First Media had not set aside the awards in Singapore being the seat of arbitration.  

The Court of Appeal (CA) overturned the CFI’s decision on the good faith principle because the CFI had failed to take sufficient account of the fundamental defect that (a) the awards were sought to be enforced for the benefit of the additional claimants who were not parties to the arbitration agreement and that (b) such awards were made without jurisdiction. Nevertheless, the CA accepted the CFI’s three factors for not acceding to First Media’s application for an extension of time and dismissed First Media’s appeal.

The CFA allowed First Media’s appeal and extended the time sought to apply for leave to set aside the enforcement orders.   In allowing the appeal, the CFA held that the proper test for considering an extension of time involves looking at all relevant matters and considering the overall justice of the case, eschewing a rigid mechanistic approach.  It also held that the fact that the award has not been set aside by the court of the seat of arbitration is not a relevant factor in considering whether an extension of time should be granted.

The CFA considered that if the extension of time was not granted, it would have denied First Media a hearing where its application had “decisively strong merits” and would have “involved penalising it for a delay which caused Astro no uncompensable prejudice to the extent of permitting enforcement of an award for US$130 million”. 

As can be seen from the CFA’s decision in this case, the absence of a valid arbitration agreement is a fundamentally important ground for resisting enforcement of awards in Hong Kong.  Moreover, if a party has unsuccessfully raised a jurisdictional challenge at the arbitration and reserved its rights, it is entitled to raise the challenge again when resisting enforcement.