Saturday, November 16, 2013

The Singapore Court of Appeal's Important Judgment in Astro

Occasionally, it is evident the moment one encounters a judgment that it is likely to become a classic in its field. The recent decision of the Singapore Court of Appeal in PT First Media TBK v Astro (“Astro”) undoubtedly belongs in this category. The judgment of Sundaresh Menon CJ is rich in scholarship and likely to become the first port of call for a common law court seeking guidance on the legislative history of the UNCITRAL Model Law on International Commercial Arbitration. Of the many issues that arose, perhaps two are of central importance in India as well: the relationship between active and passive remedies against decisions made by an arbitral Tribunal at various stages in the life of a domestic arbitration; and the underlying philosophy of the Model Law on this subject. I do no more than offer a brief summary of the case in this post; inevitably, it does not do justice to the complexity of the issues involved or the court’s reasoning. For simplicity, I have omitted references to the individual members of the groups in question but these can be found in the judgment.

This was a dispute that arose out of a joint venture that went wrong. The joint venture was created in 2004 between a Malaysian company (“the Astro Group”) and an Indonesian company (“the Lippo Group”) with the object of providing television and multimedia services in Indonesia. The Shareholders Agreement contained several conditions precedent which the parties agreed had to be fulfilled by July 2006. As it turned out, these conditions were not fulfilled but the Astro Group continued funding the JV. Disputes arose in 2008 when Astro indicated it would no longer do so; proceedings were initiated by the Lippo Group in the Indonesian courts not only against those members of the Astro Group which were parties to the SSA but also against members which were not. The Astro Group invoked the arbitration clause in the SSA which provided for SIAC arbitration and made an application under Rule 24(b) of the SIAC Rules to join the other members of the Astro Group to the arbitration. The Tribunal acceded to this application, once those members (the 6th to 8th Respondents in the appeal) consented, taking the view that it was empowered to do so by virtue of R 24(b) even though those Astro members were not parties to the SSA. Lippo did not challenge this under the equivalent of article 16(3) of the Model Law. The Tribunal eventually passed a Final Award against Lippo, which Astro sought to enforce in Singapore. Lippo sought to resist enforcement on the basis that the Tribunal had no jurisdiction to add the Astro parties under R 24(b).

The first issue that arose, therefore, was whether Lippo was entitled to challenge jurisdiction having not availed itself of the opportunity to do so under article 16(3). The second issue—which arose only if Lippo succeeded on the first—was whether the Tribunal had erred in its construction of R 24(b) and therefore lacked jurisdiction. At first instance, the judge ruled against Lippo. In the Court of Appeal, Sundaresh Menon CJ rejected this view and distinguished between active and passive remedies. Once again, at the risk of doing injustice to the depth of the Court’s reasoning, it is in summary this: (i) there are generally two avenues of challenge open to a party who receives an adverse ruling from a Tribunal during the arbitration; in the case of jurisdiction, it may challenge the finding immediately (if it does so, the question whether it can again do so at the stage of enforcement may arise, but did not on the facts of Astro) or it may choose to proceed with the arbitration, reserving its rights with respect to its jurisdictional challenge, and raise it as a ‘defence’ at the stage of enforcement; (ii) before the reception into Singapore of the Model Law, it was clear that the award debtor had what Sundaresh Menon CJ calls a ‘choice of remedies’ in this respect: not ‘actively’ challenging the award did not preclude the award debtor from ‘defending’ an enforcement on the same grounds; (iii) the introduction of the UNCITRAL Model Law did not alter this—on the contrary, it strengthened it. On point (ii), Sundaresh Menon CJ demonstrates that the case law under the equivalent provision of the English Arbitration Act recognised this choice of remedies and although it is not easy to extract a clear principle from them, they are consistent with the view widely held by the textbook writers of the time that this choice did exist. On (iii), Sundaresh Menon CJ conducts an instructive review of the legislative history of the Model Law and demonstrates that a proposal made in the Seventh Session of the Working Group to take away this choice for domestic international arbitrations (ie an international commercial arbitration with a domestic seat) failed (paragraph 69-71). This is consistent, held the Court, with the underlying philosophy of the Model Law to ‘de-emphasise’ the seat of arbitration. The Court’s conclusion was:

71…Thus, in our view, the travaux make it clear beyond argument that the Model Law provides for the system of ‘choice of remedies’, and that this system applies equally to both foreign and domestic awards which are treated uniformly under the Model Law. It follows that under the Model Law, parties that do not actively attack a domestic international award remain able to passively rely on defences to enforcement absent any issues of waiver.

Sundaresh Menon CJ also noticed—but did not express a concluded view on—the controversy about the enforceability of an award that is set aside by the competent court of the country of the seat of arbitration and tentatively doubted the French view that such awards are nevertheless enforceable (para 77). The Court agreed with the conclusion of the judge below that Germany had rejected the choice of remedies but pointed out that this was because it has an enforcement regime ‘that is distinctly different from that of the Model Law’.

It was also suggested that since section 19B of the Singapore International Arbitration Act provides that an arbitral award is ‘final and binding’ on the parties, the award debtor may not resist enforcement (obviously, in that country) unless it has sought to have the award set aside. This argument is naturally unavailable for a ‘foreign’ award because, ex hypothesi, it is not made under the law of the country of enforcement. The equivalent provision in the Indian Arbitration Act is section 35. But Sundaresh Menon CJ held, endorsing the view of Gloster J in Shell v Dana Gas that all this provision does is make the award res judicata as between the parties: it does not prevent a defence to its enforcement on grounds available under the law governing the enforcement action:

The point of s 19B(4) is a negative one. As Gloster J pointed out, although issues determined under the award are res judicata, it was important to dispel the misconception that the award then becomes unimpeachable. On the contrary, it may still be challenged in accordance with the available processes of appeal or review of the award permitted by the law governing the arbitration. In short, s 19B(4) in fact clarifies what “final and binding” does not amount to.

This led the Court to the conclusion that a jurisdiction challenge was available to the Lippo Group. It was still necessary to ‘characterise’ Lippo’s jurisdictional objection for the purposes of section 19 of the Singapore Act, and here the Court makes some interesting observations on the distinction between denying the existence of an arbitration agreement and denying its validity, notes the authorities to which this question has given rise in the parallel field of conflict of laws and considers the relationship between Article 36(1)(a)(i) and Article 36(1)(a)(iii) (para 152). In considering the jurisdictional challenge, the Court agreed with Lord Mance’s view in Dallah, followed by Andrew Smith J in Arsanovia, that it must conduct a de novo review of jurisdiction: the arbitral Tribunal’s view “of its own jurisdiction has no legal or evidential value before a court that has to determine that question”. On the merits of the challenge, the Court agreed with the Lippo Group that Rule 24(b) was a procedural power and not a jurisdictional provision: it followed that the Tribunal had erred in acceding to the application to add the other Astro members to the arbitration but the award was still enforceable with respect to those companies that were actually parties to the SSA.

In sum, Astro will undoubtedly generate much commentary and close analysis in the common law world in the months ahead. This post is no more than an initial reaction to the judgment and readers’ views are welcome.

1 comment:

vswami said...

Some Thoughts to Share:
What appears to have been covered at some length is the view the domestic court has taken.In doing so, the impression given is that some of the rules on international arbitration; which , to one's understanding are to be found in what is referred to as the Model Law. Even so, one is not clear, hence requires to be elaborated, as to how far / to what extent any such view of a domestic court could be effectively and finally enforced against a disputing party who is an alien to the country over which the domestic court has jurisdiction. In other words, the grave doubt is centered on the more serious issue often faced with; that is, to be precise, the concept , replete with complicity- comprehensively referred to as "extra territorial jurisdiction".
May be, any law expert well /reasonably versed and exposed to principles governing international arbitration, more particularly with personal experience of practice in international court (s) should could offhand throw some light, even though not any firm opinion.
Believe to have made self clear on the point of genuine doubt likely to arise in the mind of anyone else similarly placed.