Court Shuts door to Relief for Foreign arbitrations

Shannon Rajan reports on a recent ground-breaking High Court decision on the Arbitration Act 2005

 

 

The High Court recently had the opportunity to consider whether it has jurisdiction to grant interim relief in respect of the subject matter of foreign arbitrations in light of the new arbitral regime under the Arbitration Act 2005 (“the Act”) in Aras Jalinan Sdn Bhd v Tipco Asphalt Public Company Ltd, Thai Bitumen Company Ltd and Kemaman Oil Corporation Sdn Bhd.

 

FACTS

 

The Plaintiff and the 1st and 2nd Defendants entered in a Settlement Agreement relating to their shareholdings in the 3rd Defendant. The Settlement Agreement provided that any dispute arising out of the agreement is to be referred to arbitration in Singapore under the Rules of the International Chamber of Commerce.

 

On 29 February 2008, the 1st Defendant, alleging a breach by the Plaintiff of a term of the Settlement Agreement, asserted rights in respect of the control and management of the 3rd Defendant. The 1st and 2nd Defendants then issued a notice to convene an Extraordinary General Meeting (“EGM”) of the 3rd Defendant to be held on 14 March 2008 to appoint additional directors in the 3rd Defendant. The Plaintiff filed an application before the High Court to restrain the holding of the EGM.

 

 

THE HIGH COURT’S DECISION

 

On 9 May 2008, the High Court held that the Malaysian courts have no jurisdiction, statutory or inherent or by the exercise of residual powers, to grant injunctive relief in matters where the seat of arbitration is outside Malaysia.

 

The reasons for the Court's decision are as follows:-

 

(1) The jurisdiction of the High Court to grant injunctive relief in the instant matter must be expressly provided for by Federal Law or an Act of Parliament pursuant to Article 121(1) of the Federal Constitution;

(2) The Act provides that it applies to domestic and international arbitration where the seat of arbitration is in Malaysia but is silent in respect of an international arbitration with foreign seat. Specific reference to arbitrations where the seat is in Malaysia suggests that the Act does not apply in other circumstances;

(3) Section 8 of the Act stipulates that any intervention by the courts must be pursuant to express statutory provision. Such power of intervention may not be inferred, either from the invocation of inherent or residual common law powers or by an inference that what is not expressly forbidden is permissible;

(4) Although the Act is based on the UNCITRAL Model Law (“Model Law”), Parliament expressly omitted Article 1(2) of the Model Law which extends the Courts' jurisdiction in certain matters, including the power to grant injunctive relief, to foreign arbitrations. The Court found that the deliberate omission of Article 1(2) leads to the inescapable conclusion that Parliament did not intend to confer such jurisdiction on the Courts in respect of foreign arbitrations;

(5) Order 92 rule 4 of the Rules of the High Court 1980 is merely a declaration of the High Court’s inherent power and does not vest inherent jurisdiction in the High Court to grant injunctive relief. The Court found that the said rule does not confer blanket jurisdiction in procedural and substantive matters;

(6) The Court held that jurisdiction of the courts cannot be conferred by agreement of parties, whether as a specific clause in arbitration agreement or as an article under the Model Law incorporated into a contract.

 

The Court distinguished the House of Lords case of Channel Tunnel Group Ltd and Anor v Balfour Beatty Construction Ltd and Others [1993] AC 335 on the following grounds:-

 

There is no written constitution in England whereas Malaysia subscribes to the concept of supremacy of the Constitution over other statutes;

Section 37(1) of the English Supreme Court Act 1981 differs from sections 23(2) and 25 of the Court of Judicature Act 1964. The latter do not confer jurisdiction on the courts to grant injunctive relief in respect of any arbitration proceedings whether the seat of arbitration is within or outside Malaysia.

 

The Court distinguished the High Court case of Innotech Asia Pacific Sdn Bhd v Innotech GmbH [2007] 8 CLJ 304 as the provision under consideration in that case was section 10 of the Act which provides for the power of the court to grant a stay of proceedings pending arbitration.

 

The learned judicial commissioner disagreed with the Indian Supreme Court case of Bhatia International v Bulk Trading AIR 2002 SC 1432, which held that although Part I of the Indian 1996 Act states, “This part shall apply where the place of arbitration is in India,” it does not expressly provide the contrary and felt that the construction of the Indian Act went further than what the Indian legislature had intended.

 

 

CONCLUSION

 

The ramifications of the decision (which is pending appeal) remain to be fully explored. There are clear difficulties attendant upon obtaining and enforcing injunctive relief in relation to Malaysian assets from foreign courts.

 

As observed by the learned judicial commissioner, "at some point Parliament may in its wisdom, adopt the equivalent of Article 1(2) of the Model Law to expressly provide for the jurisdiction of the Courts in matters where the seat of jurisdiction is outside Malaysia." Until such time, parties contemplating arbitration outside Malaysia in respect of assets within Malaysia must be fully cognisant of the fact that by doing so, they will shut the door to interlocutory relief from the Malaysian Courts.

 

 

SHANNON RAJAN ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 
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