At its final attempt, First Media has overturned the Hong Kong courts' earlier decisions to enforce five arbitral awards against it.
In a judgment dated 11 April, the Hong Kong Court of Final Appeal (CFA) unanimously allowed First Media's appeal, set aside the orders of the courts below, and extended time for First Media to apply for leave to set aside the orders granting Astro leave to enforce the awards in Hong Kong.
This is a long-awaited victory for First Media, which has always maintained that the awards were made without jurisdiction, despite its decision not to apply to set aside the tribunal's award on jurisdiction. However, it is not the final hurdle. First Media must now convince the Court of First Instance, as the enforcing court, to accept its jurisdictional objection and set aside the enforcement orders, while Astro will certainly resist.
Background
This is a long-running and well documented case. The factual background is fully explained in our earlier blog posts.
In summary, First Media contested the Singapore arbitration tribunal's jurisdiction, on grounds that certain Astro entities (Additional Parties) had been improperly joined to the arbitration. Instead of applying to set aside the tribunal's award on jurisdiction, First Media chose to participate in the arbitration. When the tribunal issued awards in Astro's favour, First Media resisted enforcement in the Singapore courts, relying on the jurisdictional objection. It succeeded before the Singapore Court of Appeal, which found that it was entitled to choose between the "active" remedy of set aside, and the "passive" remedy of resisting enforcement.
Having failed to enforce the awards in Singapore, Astro commenced enforcement proceedings in Hong Kong. First Media did not initially resist, believing (erroneously) that it had no assets in the jurisdiction. By the time it discovered its mistake and applied to set aside the enforcement orders, its application was significantly out of time. The Hong Kong Court of Appeal rejected the application, despite agreeing that First Media had not acted in bad faith by choosing to exercise its passive, rather than active, remedy. The Court of Appeal held that First Media had applied out of time to resist the Hong Kong enforcement, and refused to exercise its discretion to extend the time limit. In making its decision, the Court relied on three factors:
- The length of the delay;
- The fact that a deliberate decision was taken not to apply to set aside the enforcement orders within the prescribed time limit; and
- The fact that the awards had not been set aside at the seat of the arbitration.
First Media initially failed to obtain leave to appeal the Court of Appeal judgment. Only when it applied directly to the CFA was leave granted. The CFA heard the appeal on 12 March 2018, and delivered its judgment earlier this week.
The CFA appeal
There were two questions before the CFA:
- What is 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 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Question 1); and
- In determining whether to extend time for the purposes of an application to resist enforcement on an arbitral award under the New York Convention, is the fact that the award has not been set aside by the courts of the seat of arbitration a relevant factor? (Question 2).
Astro did not pursue its argument that First Media had acted in bad faith.
First Media submitted that:
- The Court of First Instance and the Court of Appeal erred in principle in applying the wrong test when exercising their discretion not to extend the time limit;
- Those courts erroneously took into account an irrelevant factor, namely, the fact that the award was not set aside at the seat; and
- Looked at overall, the refusal to extend time was "plainly wrong", being "perverse and disproportionate in its consequences".
Astro argued that the Court of Appeal had properly exercised its discretion, such that its decision should be upheld. In doing so, the Court of Appeal had relied on the decision of Popplewell J in Terna Bahrain Holding Company WLL v Al Shamsi [2013] 1 Lloyd's Rep. 86. The CFA described Terna Bahrain's approach to the court's discretion as "elaborately structured", noting that it treats the grant of an extension as "exceptional".
The CFA judgment
Lower courts' exercise of discretion to extend time was wrongly exercised
The CFA preferred a broader approach to discretionary extensions of time, as set out in The Decurion [2012] HKCA 39, in which the court "look[s] at all relevant matters and consider[s] the overall justice of the case", and a "rigid mechanistic approach is not appropriate". The court should not "downgrade the merits as a factor" in determining whether to exercise its discretion. The CFA held that the Terna Bahrain approach was inappropriately applied in this case, and "led to a failure to accord proper weight to the lack of a valid arbitration agreement which, if recognised, would have wholly undermined the central arguments made on Astro's behalf".
The CFA also accepted First Media's submission that Terna Bahrain can be distinguished from the present application before an enforcing court not at the seat, because it involved an application to set aside an award at the seat, before the supervising court and under the procedural rules contractually agreed by the parties, which "may justify a stricter approach to procedural time limits".
The CFA concluded that, in relying on the Terna Bahrain approach, the Courts below had erred in principle, leading them to "downgrade the fundamentally important absence of a valid arbitration agreement between First Media and the Additional Parties". This amounted to a failure to take proper account of a relevant matter, and justified the CFA in interfering with the lower courts' exercise of discretion.
Lower courts should not have taken into account First Media's decision not to set aside the awards at the seat
Both lower courts relied on the fact that the awards had not been set aside in Singapore and were thus "still valid and create legally binding obligations on First Media to satisfy them". In addition, the Court of First Instance held that First Media's delay was a deliberate decision not to set aside the orders and judgment within time.
First Media submitted that, in giving weight to these two factors, the courts below had erred in principle and taken account of irrelevant factors. The "choice of remedies" doctrine entitled First Media to choose between the "active" remedy of setting aside the award at the seat, and the "passive" remedy of resisting enforcement.
The CFA agreed, noting that the doctrine is mirrored in Hong Kong law, which gives parties the option to choose set aside at the seat, and resisting enforcement at the seat or elsewhere. Successful set aside proceedings provide a defence against enforcement, but parties can also choose to resist enforcement on other grounds, without having applied to set the award aside (or having applied and failed to do so). In the CFA's view, "they are options which are independently available".
It follows that the lower courts' decisions to "treat the fact that the awards have not been set aside in Singapore as a major factor in refusing a time extension come into conflict with the choice of remedies principle". Respecting that principle, the Court of First Instance should not have taken into account either (i) First Media's deliberate decision not to apply to set aside the enforcement orders within the prescribed time limit; or (ii) The fact that the awards had not been set aside at the seat of the arbitration.
The CFA held that First Media's decision not to embark upon a setting aside application within the 14 day time limit when there were no assets in Hong Kong at that point was entirely reasonable, particularly where the tribunal's jurisdiction had been challenged and the right to bring further challenges was expressly reserved.
First Media's delay in resisting enforcement did not prejudice Astro and must be balanced against the absence of a valid arbitration agreement
Having thus disposed of two of the three factors on which the lower courts relied, the CFA was left to consider First Media's delay in resisting enforcement in Hong Kong. While accepting that the delay was substantial, the CFA held that Astro had not suffered substantial prejudice as a result, other than costs which can be compensated. The CFA considered that there must be balanced against the 14 month delay the "fundamentally important" absence of a valid arbitration agreement, which "clearly" gives rise to a defence to enforcement. In the CFA's view, refusing an extension would deny First Media a hearing where its application has "decisively strong merits" and would penalise it to the extent of permitting enforcement of a US$130 million award. The CFA held that that would "self-evidently be wholly disproportionate".
Appeal allowed
The CFA allowed the appeal, and extended the time for First Media to apply to set aside the orders granting leave to enforce the award and the judgment entered on the awards for three months from the date of the judgment.
For further information, please contact Simon Chapman, Partner, May Tai, Partner, Kathryn Sanger, Partner, Dominic Geiser, Partner, Briana Young, Professional Support Consultant, or your usual Herbert Smith Freehills contact.
