Astro and Lippo – the Hong Kong leg: important lessons and potential risks for award-debtors

First Media, part of the Lippo Group and the unsuccessful defendant in a Singapore-seated arbitration, has failed to resist enforcement in Hong Kong of Awards that the Singapore Court of Appeal had previously refused to enforce because they were made without jurisdiction (Astro Nusantara International B.V. v PT First Media TBK HCCT 45/2010). First Media lost on two grounds, each of which is explained in more detail below.

In brief – first, the 14 day period allowed for resisting enforcement had expired; First Media was fourteen months too late. The court did not extend the time limit. Second, even if the time limit had been extended, the Awards would be enforced notwithstanding the Tribunal’s lack of jurisdiction over the claimant companies, because of First Media’s breach of the good faith principle.

Two important lessons follow from the court’s reasoning:

First, award-debtors reach a fork in the road once enforcement proceedings are started. The award-debtor must resist enforcement in that jurisdiction within the time allowed, or risk losing the right to resist enforcement in that jurisdiction altogether. The hard edge of such deadlines is familiar to practitioners; however the choice between alternative courses of action may not be straightforward – for example, Lippo believed that they had no assets in Hong Kong, but that later turned out to be incorrect.

Second, parties must be diligent to act in good faith in relation to possible challenges to an award that arise during the pendency of an arbitration. Unfortunately, it is difficult to clearly identify the requirements of good faith from the Astro v First Media judgment, as described in more detail below. Arbitrating parties have a statutory right to challenge an award on enforcement rather than immediately seek set-aside, subject to the requirements of good faith. Often, the requirements of good faith will be satisfied by taking all points in front of the Tribunal, and making a clear reservation of rights. However, Astro v First Media shows that these steps will not always be enough, or might be negated by other conduct.

The judgment does not clearly identify where the lack of good faith lies in circumstances where the tribunal has ruled on the issue that forms the basis of the attempt to resist enforcement. Whilst this enquiry will to some extent be dependent on the facts of the underlying case, there is perhaps scope for the principle to be clarified by later judgments of the Hong Kong courts or elsewhere. In the meantime, parties who unsuccessfully challenge the jurisdiction of a tribunal face some uncertainty as to what, in addition to reserving their rights, is required to ensure that they will be able to resist enforcement in Hong Kong (assuming that they also decide not to pursue the “active” remedy of set-aside at the seat of arbitration).

Background

The history of the Astro and Lippo dispute is well known to the arbitration community. In 2005, Astro companies ("Astro"), part of a Malaysian media group, entered a joint venture with several Lippo companies, including First Media ("Lippo"), for the provision of multimedia and television services in Indonesia. The joint venture failed. Once constituted, the 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. The Tribunal, by later awards, found that the Additional Parties were entitled to sums in excess of US$ 130 million from Lippo (together, the "Awards").

Lippo did not attempt to use its jurisdiction arguments to set aside the Awards in Singapore. Astro 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 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 (a company listed in Hong Kong and First Media’s parent company) to First Media. In early 2012, Lippo took out summons to set aside the Hong Kong judgment, and those proceedings were later stayed pending resolution of the Singapore enforcement dispute.

In October 2013, the Singapore Court of Appeal ruled that the Awards were not enforceable in Singapore (see our blog post here). The Court of Appeal found that the Tribunal did not have jurisdiction over the Additional Parties. Thereafter, it fell to the Hong Kong court to decide whether the Awards could be enforced in Hong Kong. The Court of First Instance rendered its decision on 17 February 2015.

First Media was not entitled to an extension of time to resist enforcement

It was common ground before the judge that First Media had 14 days from the service of the enforcement orders ("Enforcement Orders") to apply to set them aside, ending on 1 November 2010. No application was made within the time limit. Accordingly, on 9 December 2010, judgment was entered against First Media in terms of the Awards. First Media’s summons to set aside the Enforcement Orders was issued on 18 January 2012, around 14 months out of time. First Media therefore sought an extension of time for making the orders.

The judge considered that in deciding whether to grant an extension of time, he must look at all relevant matters and consider the overall justice of the case. In refusing to allow an extension of time, the judge took account of (i) the “substantial” delay of 14 months, (ii) that the delay was the result of a deliberate and calculated decision not to take action in Hong Kong, (iii) that the Awards were still valid and created legally binding obligations on First Media, because they had not been set aside. The judge considered that these factors outweighed the fact that Astro had not suffered any prejudice, other than costs that could be compensated, as a result of First Media’s delay.

Astro was entitled to enforce the Awards notwithstanding the Tribunal’s lack of jurisdiction, because of First Media’s breach of the good faith principle

Enforcement of a New York Convention award is mandatory in Hong Kong, unless a case under section 44 of the AO (which gives effect to Article V of the New York Convention) is made out. If one of the section 44 grounds is established, then the court has a discretion under the AO and the New York Convention, to permit or refuse enforcement.

The judge accepted that the Tribunal did not have jurisdiction, holding that this issue was res judicata as a result of the Singapore Court of Appeal decision. A section 44(2) ground for resisting enforcement was thereby made out. However, at the second stage, the judge exercised his discretion to permit enforcement.

The judge noted the well-established principle of Hong Kong law that the an award-debtor can only rely on a section 44(2) ground to resist enforcement if they have acted in good faith; otherwise, the court will permit enforcement. The judge considered that his discretion as to whether permit or deny enforcement was governed by Hong Kong law, and that the manner in which that discretion should be exercised was not an issue that had been decided in Singapore. Applying the authorities, the judge concluded:

"It seems clear that what First Media decided to do was to defend the claim on the merits in the hope that it would succeed before the Tribunal, and keep the jurisdictional point in reserve to be deployed in the enforcement court only when it suited its interests to do so. The fact that First Media did raise the objection with the Tribunal should not, in my view, make any difference having regard to its subsequent conduct [during the arbitration]…. First Media should not be permitted to rely on s 44(2) of the Ordinance to resist enforcement of the Awards because it has acted in breach of the good faith, or bona fide, principle."

Analysis of the judge’s decision on good faith

The judge appeared to rely principally on First Media’s choice to resist enforcement rather than seek to set aside the jurisdiction Award in Singapore. But the Singapore Court of Appeal had already decided that this choice was First Media’s statutory right in relation to a Singapore seated arbitration; Lippo was free to choose between setting aside the Awards at the seat within the proscribed time limits (the “active” remedy), and waiting to resist enforcement when the time comes (the “passive” remedy). Given this free choice, something more than waiting to deploy the passive remedy as a shield must be required to establish a lack of good faith.

The judge also relied on First Media’s conduct during the arbitration. The judge noted that the Tribunal had ruled on its own jurisdiction following submissions from the parties. Astro accepted that First Media did on occasions, although not at every step, reserve its position regarding the Tribunal’s jurisdiction. However, Astro argued that First Media’s defence of the claim on the merits, and other conduct in the arbitration, means that First Media can no longer resist enforcement of the Awards on the grounds that the Tribunal had no jurisdiction. The judge accepted those submissions.

There are two potential difficulties with the judge’s approach. First, the judgment appears to go further than the Hong Kong authorities relied on by the judge. In China Nanhai Oil [1994] 3 HKC 375 and Hebei Import & Export Corp [1999] 2 HCK 205 the lack of good faith lay in not providing the tribunal with an opportunity to consider the grounds for potential challenge. The rationale is that the tribunal may agree with the complaint and take steps to rectify their error. However the judge concluded that it did not make any difference that First Media raised its objection with the Tribunal, in light of First Media’s other conduct in the arbitration.

Second, with respect to First Media’s conduct in the arbitration, the judge’s finding of lack of good faith causes potentially significant uncertainty for parties who unsuccessfully challenge a tribunal’s jurisdiction. In Singapore, one clear reservation of rights is probably sufficient to protect the right to revive the jurisdiction challenge on enforcement (subject to waiver). The disappointed party is then expected to fully engage in presenting its case on the merits (indeed, it cannot be consistent with good faith to refuse to participate). However, following Astro v First Media, a simple reservation of rights may not be enough. Unfortunately, the judge did not specifically identify where the lack of good faith lay in First Media’s conduct, or identify what First Media should have done to protect its position on good faith. Further guidance on this point would be welcome.

For further information, please contact Simon Chapman, Partner, Tomas Furlong, Associate, Briana Young, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.