Arbitration
“Bad faith” and “delay” were defeated by invalid arbitration agreement
Astro Nusantara International B V v PT Ayunda Prima Mitra [2018] HKCFA 12
This case concerns an application by the appellant for an extension of time to apply to set aside the enforcement order in Hong Kong. After a careful consideration of the factors involved, especially the absence of a valid arbitration agreement, the Court of Final Appeal reversed the decisions of the Courts below and granted the time extension.
Fact
The 8 respondents are companies in the same media group in Malaysia conveniently referred to as “Astro”. The appellant was a company belonging to a conglomerate conveniently referred to as “Lippo”.
Astro commenced arbitration against Lippo under the said agreement and obtained an award against Lippo. An enforcement order was initially granted by the Singapore court in Astro’s favor. However, the said enforcement order was subsequently set aside by the Singapore Court of Appeal on the ground that there was no valid arbitration agreement on which the arbitration award can be founded.
Astro also obtained enforcement order in Hong Kong. No application was taken by Lippo to set aside the enforcement order within the requisite 14-day period.
Judgment
The appellant’s application was dismissed by Chow J. at first instance. Even though Chow J. accepted that the judgment of the Singapore Court of Appeal conclusively showed that there was no existence of valid arbitration agreement, he held that the court should exercise its residual discretion to uphold the enforcement order. His decision was based on the ground that the appellant acted in breach of the duty of good faith in electing not to challenge the jurisdiction of the Tribunal before the Singapore High Court and to continue defending the claim while keeping the jurisdictional point in reserve to be deployed in the enforcement court only when it suited its interests to do so.
Moreover, Chow J. held that the application for time extension should be rejected on the grounds that: (1) the length of the delay was substantial, (ii) the appellant made a deliberate decision not to apply to set aside within the time prescribed and (iii) the awards had not been set aside at the seat of the arbitration (i.e. Singapore).
Chow J.’s decision on the good faith principle was rejected by the Court of Appeal. Notwithstanding, the Court of Appeal upheld Chow J.‘s refusal of time extension and endorsed His Lordship’s reliance on the 3 factors mentioned above, which formed the subject of the appeal to the Court of Final Appeal.
The Court of Final Appeal reversed the decision of the Court of First Instance and the Court of Appeal and allowed the time extension.
The Court of Final Appeal noted that the Courts below failed to make proper regards to the fact that the judgment of the Singapore Court of Appeal conclusively showed that there was no valid arbitration agreement, which was a substantial factor undermining Astro’s case.
Furthermore, under the choice of remedies doctrine, the appellant had a free choice between pursuing an active remedy (applying to set aside the arbitration award in Singapore) and a passive remedy (resisting enforcement of the arbitration award in Hong Kong). Thus, the Courts below erred in principle in holding the appellant’s decision not to apply to set aside the award in Singapore against the appellant. In addition, the fact that the arbitration award had not been set aside in Singapore did not mean that it was binding in Hong Kong, as the enforceability of the award in Hong Kong was the very question to be decided in this application.
The Court of Final Appeal did accept that the 14-month delay on the part of the appellant in making an application was substantial. However, it observed that the delay caused no uncompensable prejudice to Astro, who appeared to feel no need to press the proceedings on an urgent basis.
Therefore, after weighing all the factors involved, the Court of Final Appeal concluded that its discretion can only be exercised by reversing the decisions of the Courts below and grating the time extension.
Comments
This case unequivocally affirmed the well-established proposition that arbitration must be founded on consent of the parties.
It is likely that the court will exercise its discretion in favor of a party resisting enforcement of arbitration award when there is strong evidence that the same was not based on a valid arbitration agreement.
The decision of the Court of Final Appeal also confirms that the choice of remedies doctrine remains good law. A losing party in a Convention Award can either opt to set aside the award in the supervisory court or resist the enforcement by a Convention ground of opposition.