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Court of Final Appeal extends time for First Media to challenge enforcement orders and judgment

In Astro Nusantara International B.V. and Others v. PT First Media TBK [2018] HKCFA 12; FACV 14/2017 (11 April 2018), Hong Kong’s highest court the Court of Final Appeal (“CFA“) handed down its decision on 11 April 2018 in a long-running dispute between members of a Malaysian media group (“Astro”) and First Media, a company that is a part of an Indonesian conglomerate referred to as Lippo.  The issue before the CFA concerns the refusal of the time extension to set aside the Hong Kong enforcement orders and judgment.

The saga began in 2008 when Astro commenced an arbitration against Lippo and First Media seeking monetary claims for the breakdown of their joint venture.  During the arbitration, Astro applied to join additional parties who had the main monetary claims, which was contested unsuccessfully by Lippo before the arbitral tribunal (“Joinder Decision”).  The arbitration then proceeded and awards in favour of Astro in a sum exceeding US$130 million were made.

Astro subsequently sought enforcement of the awards against First Media in Singapore and Hong Kong.  The Singapore Court of Appeal held that the Joinder Decision was made erroneously as the arbitral tribunal was not entitled to join entities that were not parties to the agreement.   Accordingly, it was found that the arbitral tribunal lacked the jurisdiction to make the awards in favour of the additional parties, and that the Singapore enforcement orders in favour of these additional parties should be set aside (“Singapore Decision”).

Around the same time, enforcement of the awards was being sought in parallel in Hong Kong.  The CFI initially granted leave for Astro to enforce the awards against the Lippo entities.  Under Hong Kong law, they had 14 days to set aside the enforcement orders.  However, no such application was made and the CFI entered judgment against them in terms of the awards.  It was only about 14 months later that First Media took out summons applying for an extension of time to apply to set aside the Hong Kong enforcement orders and judgment (“EOT Application”).

The CFI refused to exercise its discretion to grant leave for the EOT Application, on the basis that there was a very substantial delay in the EOT Application (14 months late), that First Media had made a deliberate choice to exercise a “passive remedy” and that the awards had not been set aside in Singapore (being the seat of the arbitration).  Importantly, the CFI ruled that First Media was precluded from challenging the enforcement of the award on the basis that it was in breach of its duty of good faith – by participating in the arbitration and then raising objections to jurisdiction at the enforcement stage.

First Media then appealed this decision to the Hong Kong Court of Appeal (“CA”).  The CA overturned the CFI’s findings that there was a breach of good faith, on the basis that the CFI failed to take sufficient account of the fundamental defect that the awards sought to be enforced against the additional parties who were wrongly joined by the arbitral tribunal were made without jurisdiction.  It was also appropriate for First Media to exercise its “choice of remedies” – i.e. it was open to either set aside the award or to resist enforcement once sought.  The CFI was in error in not giving proper recognition to the findings in the Singapore Decision.  The Singapore decision was of central importance because it conclusively determined there was no valid arbitration agreement between First Media and the additional parties, and raised an issue estoppel to that effect.  The CA, however, dismissed the appeal due to the reasons relied upon by the CFI, i.e. the substantial delay, the fact that a deliberate decision was taken not to apply to set aside within the prescribed time and that the awards had not been set aside at the seat of the arbitration.  The CA found that there was no improper exercise of discretion by the CFI judge in considering irrelevant matters, nor had he reached a “plainly wrong” decision.  You can revisit the CA decision in our December 2016 note “Consistency restored as Astro v Lippo appeal dismissedhere.

First Media then further appealed to the CFA which granted the appeal and set aside the decisions of the lower courts.  The CFA first found that the lower courts had erred in principle by failing to accord proper weight to the fundamentally important absence of a valid arbitration agreement, which justified the CFA’s interference with their exercise of discretion.  It then found that the lower courts had miscarried their discretionary exercise by considering the fact that the awards had not been set aside, as doing so would conflict with the “choice of remedies” principle.  Furthermore, while recognizing that a delay of 14 months is indeed substantial, it must be balanced against the fundamentally important absence of a valid arbitration agreement.  To refuse an extension would be to deny First Media a hearing where its application has “decisively strong merits”, and would involve 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 doing so would be wholly disproportionate, the CFA accordingly allowed the appeal and granted the EOT Application to set aside the Hong Kong enforcement orders and judgment.