KLRCA’s TURF – Intrusion or Assistance?

Thye Hin Enterprises Sdn Bhd v. Daimlerchrysler Malaysia Sdn Bhd [2004] 3 CLJ 591

 


This recent Court of Appeal decision has potentially important implications for arbitrations held under the UNCITRAL Rules and the auspices of the Regional Centre for Arbitration, Kuala Lumpur (“KLRCA”) in connection with the questions of whether or not such arbitrations are removed from the jurisdiction of the Courts by operation of sec 34 of the Arbitration Act 1952.

 

 

Background to the KLRCA and Section 34 of the Arbitration Act 1952

The Regional Centre for Arbitration, Kuala Lumpur (“KLRCA”) was set up in 1978 by the Asian-African Legal Consultative Committee, a United Nations body, together with two other regional centres for arbitration at Cairo and Lagos. The Malaysian Government gave an assurance that it would fully support the independent functioning of the KLRCA as an international arbitral institution. This promise of independence  has  been  given statutory effect in sec. 34 of the Arbitration Act 1952 (“the Act”) which was added to the Act by a 1985 amendment.

 

Section 34 -  Act not to apply to certain arbitrations.

 

1. Notwithstanding anything to the contrary in this Act or in any other written law but subject to subsection (2) in so far as it relates to the enforcement of an award, the provisions of this Act or other written law shall not apply to any arbitration held under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States 1965 or under the United Nations Commission on International Trade Law Arbitration Rules 1976 and the Rules of the Regional Centre for Arbitration at Kuala Lumpur.

 

2. Where an award made in an arbitration held in conformity with the Convention or the Rules specified in subsection (1) is sought to be enforced in Malaysia, the enforcement proceedings in respect thereof shall be taken in accordance with the provisions of the convention specified in subsection (1) or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, as may be appropriate.

 

3. The competent court for the purpose of such enforcement shall be the High Court.

 

 

The effect of this amendment was to exclude the supervisory jurisdiction of the High Court (“HC”) over arbitrators and arbitrations from the institutionalised arbitrations referred to therein which included KLRCA arbitrations.

 

The case-law on sec. 34 have essentially decided that the statute means what it  says. The first decided case on sec. 34 was the HC decision of Klockner Industries-Anlagen Gmbh v  Kien Tat Sdn Bhd & Anor [1990] 3 MLJ 183 where the claimants in  the  arbitration went into liquidation whilst the arbitration was in progress.  The respondents applied for an injunction  to restrain  the arbitration from proceeding because of the claimant’s liquidation. The Learned Judge, Dr. Zakaria  Yatim J (as he then was),  declined to  go  into the merits of the application which raised the issue whether Kien Tat had the capacity to continue with the action because of the provisions of the Companies Act 1965. He took the view that the plain, clear and precise words in sec. 34 excluded the court from exercising its supervisory function under the Act or under any other written law in respect of KLRCA arbitrations. He said, at pg. 185:

 

In my opinion the crucial words in sec. 34 are “... the  provisions of this Act and other written law shall not apply to any arbitration held under ... the Rules of the Regional Centre for Arbitration at Kuala Lumpur”. It is clear that under the section, the court cannot exercise its supervisory function as provided in the Arbitration Act 1952, in respect of such arbitration. Neither can the court exercise its supervisory function over such arbitration under any other written law. The words “written law” has been defined in sec. 3 of the Interpretation Act 1967, to mean the Federal Constitution and State Constitutions, Acts of Parliament and subsidiary legislation made thereunder; ordinances and enactments and subsidiary legislation made thereunder, and any other legislative enactmentsor legislative instruments. “Written Law”, therefore, includes the Companies Act 1965.

 

The second HC decision on sec. 34 was Soilchem  Sdn  Bhd v Standard Elektrik  Lorenz  AG [1993] 3 MLJ 68 which came before the Courts  after Soilchem’s  claim in the arbitration was dismissed by the arbitrator.  Soilchem attempted to set aside the award made by the arbitrator by invoking the inherent jurisdiction of  the Court and sought certiorari relief, arguing that as sec. 34 did not expressly exclude the  remedy of certiorari, it was available. This argument was given short shrift by the Judge who applied Klockner and held that sec. 34 excluded the jurisdiction of the Court in respect of KLRCA arbitrations.

 

The above decisions were referred to by the Court of Appeal (‘CA’) in Sarawak Shell Bhd. v. PPES Oil & Gas Sdn Bhd & Ors [1998] 3 CLJ 275 where, in a KLRCA arbitration, there had been an attempt to invoke sec. 25(2) of the Act to revoke the authority of the arbitrator or restrain arbitral proceedings based on an allegation of fraud. Stressing the independence and inviolability of KLRCA arbitrations, Mahadev Shankar JCA (as he then was) stated that Klockner and Soilchem should not be understood to have left open the possibility that the court had some other power to intermeddle in KLRCA arbitrations whether by way of inherent jurisdiction or at common law or otherwise.   Sarawak Shell was applied by the HC in Jati Erat Sdn Bhd v. City Land Sdn Bhd [2002] 1 CLJ 346 in dismissing the application of one party to a KLRCA arbitration for a Mareva injunction.

 

 

THYE HIN ENTERPRISES SDN BHD

In the latest decision on sec.34, the CA was faced with an appeal from the decision of the HC at Alor Star upholding the defendant’s preliminary objection and dismissing the plaintiff’s application for an interim injunction to maintain the status quo of the parties pending the resolution by a KLRCA arbitration of the disputes that had arisen from a contract of distributorship of Mercedez Benz vehicles in Kedah and Perlis.  The KLRCA arbitration had not yet been commenced.   The defendant’s preliminary objection was that, pursuant to sec. 34, interim relief was not available to the plaintiff as the law under which the relief was sought did not apply to an arbitration held under KLRCA Rules.

 

The central issue was whether the grant of injunction sought was proscribed by sec. 34. Allowing the plaintiff’s appeal, the CA found that the HC Judge had not followed the steps set out in the landmark CA decision of Keet Gerald Francis Noel John v. Mohd Noor [1995] 1 CLJ 293, namely (i) whether the facts presented disclosed a bona fide serious issue to be tried; (ii) whether the justice of the case lay in the plaintiff’s favour; and (iii) whether there were any ‘discretionary considerations’ against the grant of the interim injunction sought. This was an omission on the part of the Judge as even the very issue of whether sec. 34 is an absolute bar to all injunctive relief in a KLRCA arbitration was in itself a serious issue to be tried.

 

Relying on dicta from the Federal Court decision of Si Rusa Beach Resort Sdn Bhd v. Asia Pacific Hotels Management Pte Ltd [1985] 1 MLJ 132 on the consideration of statutory provisions at an interlocutory stage, the CA held that it was not open to the Judge to finally and conclusively conclude, as a preliminary issue, that sec. 34 precluded the grant of the interim injunction sought. The CA took the view that sec. 34 only excludes interference with the arbitration itself and has no application to cases where interim relief is urgently required.

 

The Court agreed entirely with the views expressed in an article entitled “Issues Related to Arbitrations Conducted under the KLRCA Arbitration Rules” by Mr. Sundra Rajoo, a leading arbitrator, that court intervention, by way of ordering interim measures of protection, is essential in urgent situations particularly when granting relief is beyond the jurisdiction of the arbitral tribunal or where the arbitral tribunal has not been constituted. Mr. Rajoo was of the view that the decision in Jati Erat was unfortunate as it extended the principle of non-interference by the courts in KLRCA arbitrations to situations where the relief sought from the court was not supervisory in nature but merely for interim preservation.  This was especially so when art. 26.3 of the KLRCA Rules specifically provided that a request for interim measures to a judicial authority shall not be deemed incompatible with an agreement to arbitrate. He further stated as follows :

 

The object of interim measures of protection is to support the arbitration by making it effective. That is to say, the court may intervene in support of arbitration by granting interlocutory injunctions. In this connection, in Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993] 1 All ER 664, speaking for the House of Lords, Lord Mustill …authoritatively stated the law: the purpose of interim measures of protection… is not to encroach on the procedural powers of the arbitrators but to reinforce them, and to render more effective the decision at which the arbitrators will ultimately arrive on the substance of the dispute. Provided that this and no more is what the such measures aim to do, there is nothing in them contrary to the spirit of international arbitration.

 

Accordingly, the CA held that the grant of interim relief pending the outcome of an arbitration held under the KLRCA Rules was not prohibited by sec. 34. The earlier CA decision in Sarawak Shell was distinguished on the facts as the appellant’s application in Sarawak Shell to invoke sec. 25(2) of the Act was clearly prohibited by sec. 34. Thus, the CA allowed the appeal with costs and remitted the matter to the HC at Alor Star to be heard on the merits.

 

 

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

 

 
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