The Hong Kong Court of Final Appeal Delivers a US$130 Million Sanity Check

Asia Dispute Resolution Alert | April.23.2018

In Astro Nusantara International B.V. v. PT Ayunda Prima Mitra [2018] HKCFA 12, a Singapore-seated arbitral tribunal, operating under SIAC rules, rendered a US$130 million award in favour of several parties who were not parties to the arbitration agreement.

Arbitration requires consensus, and one could therefore be forgiven for thinking it obvious that the tribunal should have known better, and that the award should not be enforced.

Several senior judges disagreed, however, and it was eventually left to Hong Kong's Court of Final Appeal to put it right, demonstrating that while Hong Kong is, as the too-often repeated saying goes, an enforcement-friendly jurisdiction, it is not a jurisdiction where sloganising gets in the way of doing the right thing.

The background is that, in the late summer of 2010, Astro obtained an order from a judge permitting enforcement of the award in Hong Kong. The order was served, but no application was made by the relevant Respondent to discharge it within the permitted 14-day period. Whatever the wisdom of the decision not to apply, it was at least a rational one because the Respondent had no assets in Hong Kong at the time. That changed six months later, however, and Astro attempted to execute. Only then was an application made to the court to set aside the enforcement order, and obtain permission to do so out of time.

The Court of First Instance was unsympathetic, however. The judge upheld the order, and – as 'belt and braces' – refused to allow the application to be made out of time. This despite the fact that the Singapore Court of Appeal had in the meantime held that the awards could not be enforced there because of the lack of an underlying agreement to arbitrate.

The judge's apparently surprising decision was based on the principle that the court has a residual discretion to enforce awards even where a ground for resisting enforcement has been established. His discretion was exercised in favour of enforcement because he concluded that the Respondent had not acted in good faith. This was because the Respondent could have applied to set aside the award in Singapore but chose instead to keep the jurisdictional argument up its sleeve as a hedge against enforcement in case the arbitration was lost on the merits.

The Court of Appeal disagreed with the judge, concluding that he had taken insufficient account of the fact that the awards were made without jurisdiction. In a cruel twist, however, it also refused to allow the Respondent to apply out of time. This was because of the lengthy delay and the deliberate decision not to apply within time, and because the awards remained effective in Singapore, even if enforcement had been refused there.

The Court of Final Appeal, in its 11 April judgment, was evidently surprised by the decisions of the courts below. It concluded unanimously that the Court of Appeal, when refusing to extend time, had failed to take proper account of what it described as the "fundamentally important absence of a valid arbitration agreement." In other words, the tribunal's lack of jurisdiction was critically important not merely to the court's discretion to allow enforcement but also to extend time.

The Astro case is now all over, bar the shouting. Years of litigation over whether the US$130 million award is enforceable in Hong Kong came down to a debate about the court's power to extend time limits, and the relevance of the underlying merits. As the court said: "To refuse an extension would be to deny [the Respondent] a hearing where its application has decisively strong merits and would involve penalizing it for a delay which caused Astro no uncompensable prejudice to the extent of permitting enforcement of an award for US$130 million."