No Reservations, Hong Kong: A ‘Choice of Remedies’ If the Tribunal Makes a Preliminary Ruling on Its Jurisdiction?

I. Introduction

The ‘choice of remedies’ in international commercial arbitration refers to an award-contesting party’s freedom to opt, without prejudice, between challenging an award via (1) the passive remedy at the enforcement courts, or (2) the active remedy at the seat of arbitration (hereinafter referred to as the “seat”).[1] The former refers to raising objections to the enforcement of an award,[2] while the latter typically refers to an application to set aside an award, but also includes a challenge to a tribunal’s preliminary ruling affirming its own jurisdiction.[3] This ‘choice of remedies’ has been stated to be consistent with the regime under the New York Convention,[4] and to rest at “the heart of [the Model Law’s] entire design”.[5]

Until early 2015, the courts of Hong Kong, a Model Law jurisdiction, had affirmed the ‘choice of remedies’ available to parties contesting a claim made in arbitration.[6] However, the Hong Kong position is imperilled by the Hong Kong Court of First Instance’s (“HKCFI”) decision in Astro,[7] where it held that a party who did not challenge a tribunal’s preliminary ruling affirming its jurisdiction and only reserved its right to do so is not later entitled to raise jurisdictional objections during enforcement proceedings. Astro runs counter to a decision by a court in another Model Law jurisdiction, PT First Media, where the Singapore Court of Appeal (“SGCA”) addressed the same awards that Astro was concerned with, in the course of parallel enforcement proceedings.

This note examines: (1) Astro’s holding, and (2) the broader question of whether the ‘choice of remedies’ exists if a tribunal has made a preliminary ruling affirming its jurisdiction. Ultimately, this note concludes that there is and should be a ‘choice of remedies’ even when a tribunal has rendered a preliminary ruling on its jurisdiction.

II. Parallel Enforcement Proceedings in Astro and PT First Media

Astro and PT First Media concerned awards (the “Awards”) made against an award debtor (“First Media”) in favour of non-parties to an arbitration agreement. These non-parties had been joined to the arbitration pursuant to Rule 24(b) of the 2007 Singapore International Arbitration Centre Rules (“SIAC Rules”). Although First Media had objected to the joining of the non-parties, it did not invoke Article 16(3) of the Model Law to challenge the tribunal’s preliminary ruling affirming its jurisdiction over the dispute concerning the non-parties (the “Preliminary Ruling”). Instead, First Media continued to participate in the arbitration on the merits, reserving its position on the Preliminary Ruling. First Media also did not subsequently apply to set aside the Awards in Singapore, the seat, within the applicable time limit.

In enforcement proceedings in Singapore, the SGCA held that the Awards had been made in excess of jurisdiction because Rule 24(b) of the SIAC Rules did not grant the tribunal the power to join non-parties to the arbitration.[8] The SGCA thus denied enforcement of the Awards. Importantly, the SGCA held that Singapore’s arbitral framework adopts the Model Law, including the principle of the ‘choice of remedies’.[9] Pursuant to the ‘choice of remedies’, First Media was able to raise its jurisdictional objection at the enforcement proceedings even though First Media had chosen not to challenge the Awards at the seat and instead reserved its position on the tribunal’s jurisdiction. Additionally, the SGCA held that First Media’s conduct did not give rise to a waiver or estoppel, which would otherwise have precluded it from raising jurisdictional objections at the enforcement stage.[10]

The situation in Hong Kong was different. First Media failed to challenge the enforcement of the Awards in a timely manner because it initially thought that it had no assets in Hong Kong.[11] However, First Media subsequently changed its position when the award creditors obtained a garnishee order in respect of a third-party’s debt to First Media. Thereafter, First Media applied for an extension of the applicable time limits and for the enforcement orders to be set aside on the basis of the tribunal’s lack of jurisdiction.[12]

The HKCFI dismissed First Media’s application on two alternative grounds.[13] The first relatively uncontentious ground was that there were no “good reasons” for extending the time limits. This was because First Media’s initial choice to not challenge enforcement was deliberate and had caused a considerable 14-month delay.

The second ground, on the other hand, jeopardises the principle of the ‘choice of remedies’ that the Hong Kong courts themselves had earlier endorsed.[14] Notwithstanding First Media’s reservation on jurisdiction, the HKCFI held that First Media’s conduct breached the principle of good faith under the New York Convention. First Media was thereby precluded from resisting enforcement of the Awards in Hong Kong under Section 44(2) of the Hong Kong Arbitration Ordinance (which gives effect to the New York Convention grounds for non-enforcement).[15]

III. The ‘Choice of Remedies’ and Article 16(3) of the Model Law

The Hong Kong court’s decision effectively abrogates a party’s ‘choice of remedies’ if a tribunal renders a preliminary ruling as to its jurisdiction. The upshot of Astro is that a party’s reservation of its position on the tribunal’s jurisdiction will not preserve its right to raise such objections at the enforcement stage. If Astro is to be followed, a party who objects to the tribunal’s jurisdiction but wishes to continue with the arbitration must challenge the tribunal’s preliminary ruling on jurisdiction at the seat of arbitration under Article 16(3) of the Model Law, or risk being later found lacking in good faith and thereby forfeiting its right to raise its jurisdictional objections during enforcement proceedings. In such a situation, the ‘choice of remedies’ is illusory for a party who wishes to challenge an award both on its merits and on the lack of jurisdiction.

Accordingly, it is difficult to reconcile Astro with the Hong Kong court’s previous position affirming the ‘choice of remedies’.[16] As one commentary notes, “[e]ither [First Media] did have a right to choose its remedies, or it did not”.[17] An application of a ‘good-faith principle’ to restrict the exercise of the right to a ‘choice of remedies’ effectively renders such a right non-existent.

One way to cut the Gordian knot is to argue that the ‘choice of remedies’ becomes unavailable if a tribunal renders a preliminary ruling affirming its jurisdiction.[18] In other words, that a party cannot choose remedies because the failure to invoke Article 16(3) of the Model Law (or its equivalent) to challenge a tribunal’s preliminary ruling on jurisdiction precludes that party from subsequently raising jurisdictional objections, whether at the seat or before an enforcement court. Ghilbrazade, a proponent of this view, argues that the final text of Article 16(3) drew “a clear line between the challenge mechanism under Article 16(3) being the sole recourse” and the availability of the ‘choice of remedies’ where there was no preliminary ruling on jurisdiction.[19] In support of her view, Ghilbrazade cites case law from Canada,[20] Australia,[21] Hong Kong,[22] and particularly, Germany.[23] However, as will be shown in the following paragraphs, there are several flaws in Ghilbrazade’s arguments that undermine her position.

First, the Model Law drafters did not intend a party’s failure to engage Article 16(3) to preclude it from raising jurisdictional challenges before an enforcement court. The discussions on the text of Article 16(3) were only considered in the context of challenges that a dissatisfied party could raise at the seat, and not in the broader context of challenges that could be raised in enforcement courts.[24] This is reflected in the travaux préparatoires on earlier drafts of Article 16(3), where the seat’s intervention under Article 16(3) was regarded as an alternative to setting aside proceedings under Article 34, but was silent as to the position vis-à-vis enforcement proceedings.[25] Thus, it is unsurprising that the Analytical Commentary on an earlier draft of Article 16(3) recognised a party’s right to object to the tribunal’s preliminary ruling on its jurisdiction during enforcement proceedings, even though this was not explicitly mentioned in text of the said earlier drafts.[26] While the Secretariat Note on the final draft of Article 16(3) is silent as to whether this choice remained possible,[27] nothing in the travaux préparatoires indicates that the position expressed in the Analytical Commentary was to be changed. Therefore, it would be disingenuous to suggest that the adopted version of Article 16(3) was intended to be the sole recourse to challenge a tribunal’s preliminary ruling on its jurisdiction.

Second, the cases cited by Ghilbrazade do not corroborate her position:[28] these cases only considered Article 16(3) in the context of (a) setting aside proceedings at the seat;[29] or (b) finding an estoppel at the enforcement stage.[30] These cases are thus consistent with two aspects of PT First Media, namely, the SGCA’s (1) finding that waiver or estoppel could effectively annul the ‘choice of remedies’; and (2) obiter dicta that failure to challenge a tribunal’s preliminary ruling on jurisdiction will likely preclude a party from raising further jurisdictional challenges at the seat but not before enforcement courts.[31]

Lastly, despite Ghilbrazade’s heavy reliance on German case law,[32] German courts appear open to allowing a party to raise jurisdictional challenges at enforcement proceedings even though it failed to challenge the tribunal’s preliminary ruling on jurisdiction. The Oberlandesgericht Hamm (“OLG Hamm”) has previously held that an award debtor could not raise jurisdictional objections at the enforcement stage because it had continued participating in the arbitration on the merits without reserving its position on the tribunal’s preliminary ruling affirming its jurisdiction, and thereby violated the principle of fair conduct of proceedings.[33] Thus, the converse consequence of the OLG Hamm’s holding is that an award debtor who reserves its position on the tribunal’s jurisdiction can raise jurisdictional objections at enforcement proceedings even though it had failed to challenge the preliminary ruling. In fact, the OLG Hamm went further to suggest that if the abovementioned award debtor had made a reservation, the award creditor would have had the burden of applying to the court at the seat to conclusively determine the tribunal’s jurisdiction.[34]

Accordingly, neither the travaux préparatoires of Article 16(3) itself nor case law supports the view that the Model Law’s ‘choice of remedies’ becomes unavailable if a tribunal renders a preliminary ruling affirming its jurisdiction. Therefore, consistent with PT First Media, the notion of a ‘choice of remedies’ remains even if a tribunal renders a preliminary ruling on its jurisdiction, with the consequence that a party in such a situation can raise jurisdictional objections either at the seat or at the enforcement stage.

IV. Policy Reasons for a ‘Choice of Remedies’ Where the Tribunal Makes a Preliminary Ruling on Its Jurisdiction

There are compelling policy reasons for the position taken by the SGCA in PT First Media. If an award-challenging party’s failure to invoke Article 16(3) has a preclusive effect, this would constrain the party to only being able to seek recourse at the seat. Such constraints make little sense if a party objects to the tribunal’s jurisdiction on the ground that there is no valid arbitration agreement; such an objection is tantamount to denying the supervisory jurisdiction of the seat stipulated in the arbitration agreement being challenged.[35]

Moreover, there are legitimate reasons for an award debtor’s reluctance to pursue remedies at a seat he denies agreeing to. For example, the award debtor may have valid concerns as to whether the decisions of the seat would be objective, fair and impartial.[36] If so, the award debtor may want to avoid challenging the tribunal’s jurisdiction at the seat if this could later give rise to an issue estoppel in enforcement proceedings.[37] Alternatively, if the award debtor’s assets are located in a jurisdiction which gives little weight to decisions by the seat, it could consider that setting aside the award at the seat would be costly yet unconstructive.[38] This is because the enforcement courts in such jurisdictions might enforce the award regardless of the decision of the court at the seat of the arbitration.

Thus, the choice between raising jurisdictional challenges before the enforcement courts or at the seat ensures that a party objecting to the existence of a valid arbitration agreement is not prejudiced by limited recourse at a seat that he denies agreeing to. This would also correspond with the Model Law’s intention to be aligned with the New York Convention[39] – which does not regard enforcement courts as unequivocally bound by decisions at the seat.[40]

V. Conclusion

Consistent with the SGCA’s approach in PT First Media, there is and should be a ‘choice of remedies’ even if a tribunal has rendered a preliminary ruling on its jurisdiction, such that a party retains the choice of challenging the tribunal’s jurisdiction at the seat or before the enforcement courts. Although a party’s ‘choice of remedies’ is still subject to the principles of waiver, estoppel or fair conduct, following the position in Singapore and Germany, none will be made out if a party had expressly reserved its position on the tribunal’s jurisdiction. In contrast, until Astro’s appellate ruling, such reservations will have no effect in Hong Kong.[41]

 

David Isidore Tan

David is a candidate for the LL.M. in International Business Regulation, Litigation & Arbitration at the NYU School of Law. He is also a concurrent candidate for the LL.B. (Honours) degree at the National University of Singapore, under the NYU-NUS LLB/LLM Dual Degree Program.

 

[1] PT First Media TBK (formerly known as PT Broadband Multimedia TBK) v Astro Nusantara International BV and others and another appeal [2014] 1 SLR 374 [PT First Media], para. 22; Sir Michael Mustill & Stewart Boyd, The Law and Practice of Commercial Arbitration in England (London: Butterworths, 1982), p. 489.

[2] Based on the grounds in Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 330 UNTS 38 (entered into force 7 June 1959) [New York Convention], replicated in UNCITRAL, UNCITRAL Model Law on International Commercial Arbitration, UNGAOR, 40th Sess, Supp No 17, UN Doc A/40/17, (1985) [Model Law] under Article 36.

[3] The tribunal’s preliminary ruling affirming its jurisdiction can be challenged under Article 16(3) of the Model Law. See also PT First Media, supra note 1, para. 22.

[4] Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46 [Dallah], para. 76.

[5] PT First Media, supra note 1, para. 65.

[6] Paklito Investment Ltd v Klockner (East Asia) Ltd [1993] 2 HKLR 39 [Paklito], p. 48, 49.

[7] Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others and AcrossAsia Limited, HCCT 45/2010 [Astro].

[8] PT First Media, supra note 1, paras. 178-185, 191-193, 197 and 198.

[9] PT First Media, supra note 1, para. 143. See also Section 3(1) of Singapore’s International Arbitration Act (Cap 143A, 2002 Rev Ed Sing) (“the Model Law… shall have the force of law in Singapore.”).

[10] PT First Media, supra note 1, para. 224(d).

[11] Astro, supra note 7, para. 37.

[12] Astro, supra note 7, paras. 1, 95.

[13] Astro, supra note 7, paras. 125, 129.

[14] Paklito, supra note 6, p. 48, 49. See also Astro, supra note 7, para. 83.

[15]Astro, supra note 7, paras. 77, 91.

[16] See Tomas Furlong, “Astro v Lippo in Hong Kong: Award Enforced Despite Singapore Court of Appeal’s Finding that the Tribunal Lacked Jurisdiction”, online: Kluwer Arbitration Blog <http://kluwerarbitrationblog.com/2015/03/07/astro-v-lippo-in-hong-kong-award-enforced-despite-singapore-court-of-appeals-finding-that-the-tribunal-lacked-jurisdiction/> (“the judgment appears to go further than the Hong Kong authorities relied on”).

[17] Nicholas Poon, “Issues and Problems in Enforcing Arbitral Awards Across Multiple Jurisdictions: Astro v Lippo, the Hong Kong Edition”, online: Singapore Law Blog <http://www.singaporelawblog.sg/blog/article/102> [Poon].

[18] This is diametrically opposed to the decision in PT First Media, supra note 1. See Nata Ghilbrazade, “Preclusion of Remedies under Article 16(3) of the UNCITRAL Model Law” (2015) 27 Pace Int’l L. Rev. 345 [Ghilbrazade].

[19] Ghilbrazade, supra note 18, p. 384. See also “UNCITRAL Model Law on International Commercial Arbitration: note by the Secretariat” (UN Doc A/CN.9/309) in UNCITRAL Yearbook 1988, vol XIX (New York: UN, 1988) at 117 (UNDOC.A/CN.9/SER.A/1988) [Secretariat Note], para. 25.

[20] Compagnie Nationale Air France v Libyan Arab Airlines [2000] RJQ 717 [Air France]; ARL Regional Print Ltd. and Rene Laporte v George Ghanotakis and Jean M. Won, 2004 CanLII 23270 [Ghanotakis].

[21] teleMates (previously Better Telecom) Pty Ltd v Standard SoftTel Solutions Pvt Ltd [2011] NSWSC 1365 [teleMates].

[22] China Nanhai Oil Joint Service Corporation Shenzhen Branch v Gee Tai Holdings Co Ltd.[1994] 3 HKC 375 [Nanhai].

[23] Bundesgerichtshof (Germany), 27 March 2003, Neue Juristische Wochenschrift, 133, 2003, English summary available online: Deutsche Institution für Schiedsgerichtsbarkeit e.V. < http://www.dis-arb.de/en/47/datenbanken/rspr/bgh-case-no-iii-zb-83-02-date-2003-03-27-id212> [Bundesgerichtshof, 27 March 2003]; Oberlandesgericht (Germany), 4 September 2003 in 15 Y.B. Comm. Arb. 528 (2005) [Oberlandesgericht, 4 September 2003].

[24] “Analytical compilation of comments by Governments and international organizations on the draft text of a model law on international commercial arbitration” (UN Doc A/CN.9/263) in UNCITRAL Yearbook 1985, vol XVI (New York: UN, 1985) at 53 (UNDOC.A/CN.9/SER.A/1985) [Analytical Compilation], Article 16, paragraph (3), paras. 7, 8. See PT First Media, supra note 1, paras. 113, 115.

[25] Analytical Compilation, supra note 24, Article 16, paragraph (3), paras. 7, 8; “Summary records of the United Nations Commission on International Trade Law for meetings devoted to the preparation of the UNCITRAL Model Law in International Commercial Arbitration (UN Doc A/CN.9/SR.330-333) in UNCITRAL Yearbook 1985, vol XVI (New York: UN, 1985) at 458 (UNDOC.A/CN.9/SER.A/1985), 320th Meeting at paras. 16, 17. See also PT First Media, supra note 1, paras. 113, 115, 117. Contra Ghilbradze, supra note 18, p. 383.

[26] “Analytical commentary on draft text of a model law on international commercial arbitration” (UN Doc A/CN.9/264) in UNCITRAL Yearbook 1985, vol XVI (New York: UN, 1985) at 104 (UNDOC.A/CN.9/SER.A/1985), Article 16, para. 12.

[27] Secretariat Note, supra note 19, para. 25.

[28] One qualification bears mention here: this analysis is based in part on English interpretations or summaries of the cases which were originally published in languages other than English.

[29] Air France, supra note 20; Ghanotakis, supra note 20; teleMates, supra note 21; Bundesgerichtshof, 27 March 2003, supra note 23; Oberlandesgericht, 4 September 2003, supra note 23.

[30] Nanhai, supra note 22, p. 387. See also Poon, supra note 17 (“that case had considered the principle of good faith as an aspect of the doctrine of estoppel.”).

[31] PT First Media, supra note 1, paras. 224(d) and 130 respectively.

[32] Ghilbradze, supra note 18, p. 385-387.

[33] Judgment of Oberlandesgericht, 7 September 2005 in 31 Y.B. Comm. Arb. 685 (2006), paras. 5-7.

[34] Ibid, para. 5.

[35] See Dallah, supra note 4, para. 23 (“A person who denies [consenting to an] arbitration agreement has no obligation to… take any steps in the country of the seat of what he maintains to be an invalid arbitration…”). See generally Gary B. Born, International Commercial Arbitration, 2d ed (Kluwer Law International, 2014) [Born], Chapter 11.

[36] A well-known example is the decision by the Russian Arbitrazh Courts to set aside an arbitration award of 13 billion roubles made in 2005 in the favour of Yukos Capital S.a.r.L that has been criticized by numerous courts. See e.g. Yukos Capital S.a.r.L. v OJSC Oil Company Rosneft [2014] EWHC 2188, para. 20 (“both unsatisfactory and contrary to principle [to recognize the Russian court’s decision] which offended… principles of honesty, natural justice and [domestic]  public policy.”). See also Court of Appeal of Amsterdam (Enterprise Division), April 28, 2009, LJN BI2451 s 3.10; Albert Jan van den Berg, “Enforcement of Awards Annulled in Russia (Case Comment on Court of Appeal of Amsterdam, April 28, 2009) (2010) J.Int’l Arb. 179, p. 180.

[37] See e.g. Diag Human SE v The Czech Republic [2014] EWHC 1639 (Comm).

[38] For example, France, where some French decisions have enforced awards even after the awards had been set aside by the seat of arbitration. See e.g. Pablak Ticaret Ltd. Sirketi v Norsolor SA, Cour de Cassation (1st Civ. Ch.), 9 October 1984 (court enforced arbitration award even though seat of arbitration had set aside the award for lack of jurisdiction).

[39] Howard M Holtzmann & Joseph E Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Kluwer Law and Taxation, 1989), p. 1055, 1056.

[40] Born, supra note 35, p. 3427 (“[The New York Convention does not require] Contracting State[s] to deny recognition to an arbitral award.”).

[41] On 8 December 2015, First Media was granted leave to appeal the HKCFI’s decision in Astro. See Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others and AcrossAsia Limited, HCCT 45/2010 (8 December 2015), available online: http://legalref.judiciary.gov.hk/lrs/common/ju/judgment.jsp.

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