Legal Insights
 -------------------------------------
External Publications
Standing Independently

STANDING INDEPENDENTLY

 

Wai Loon explains a recent landmark decision of the Federal Court on jurisdiction

The Federal Court has made it clear in Petrodar Operating Co Ltd v Nam Fatt Corporation Bhd & Anor [2014] 1 CLJ 18 that the procedural provision in O. 11 r. 1 of the Rules of the High Court 1980 ("RHC 1980") confers extra-territorial jurisdiction over a foreign defendant, and that this procedural order operates independently from section 23 of the Courts of Judicature Act 1964 ("CJA 1964") which confers the Malaysian court jurisdiction over a claim.

Although the RHC 1980 has been replaced by the Rules of Court 2012 ("RC 2012"), the provisions of O. 11 r. 1 of the RHC 1980 are retained in O. 11 r. 1 of the RC 2012, save that the latter has an additional sub-paragraph (M). Therefore, this Federal Court decision remains relevant and applicable for the purposes of O. 11 r. 1 of the RC 2012.

BACKGROUND

The appeals in the Federal Court arose from the decision of the High Court based on the facts which follow. Petrodar Operating Co Ltd ("Petrodar") is the Appellant in this appeal. The First Respondent is Nam Fatt Corporation Bhd and the Second Respondent is NF Energy Sdn Bhd, a subsidiary of the First Respondent (collectively, "Respondents"). Petrodar is an offshore company whilst the Respondents are companies incorporated in Malaysia.

By a construction contract entered into between Petrodar and a joint venture company comprising the Respondents ("Contract"), the Respondents were appointed by Petrodar as the contractor to carry out construction works on a project in Sudan. Pursuant to the terms of the Contract, the Respondents procured CIMB Bank (L) Limited ("CIMB") to issue a bank guarantee in favour of Petrodar.

The project was substantially completed. However, there were some unresolved claims between Petrodar and the Respondents with regard to variation works and charges to the works under the Contract. While the parties were negotiating for a settlement, Petrodar made a call on the bank guarantee.

THE HIGH COURT ACTION

The Respondents commenced a writ action in the Shah Alam High Court, naming Petrodar as the First Defendant and CIMB as the Second Defendant. With regard to CIMB, it was only a nominal defendant and not a party relevant to the appeals subsequently filed by Petrodar.

At the High Court, the Respondents, as the Plaintiffs, applied and obtained, firstly, an ex parte ad interim order to restrain Petrodar from enforcing the guarantee or taking any proceeding whatsoever, or appointing receivers and managers under the security, except with leave of court; and secondly, an ex parte injunction to restrain the Petrodar from receiving the money under the guarantee or from making a call on and receiving any payment under the guarantee pending the inter partes hearing.

The Respondents subsequently obtained leave of court pursuant to O. 11 r.1 of the RHC 1980 to serve out of jurisdiction, the writ of summons as well as the injunction order and other related cause papers on Petrodar. In the meantime, the High Court also granted an ad interim order in respect of the ex parte injunctive reliefs granted pending the disposal of the inter partes hearing. In pursuing their claim in the High Court, the Respondents alleged, amongst others, that the demand made on the guarantee by Petrodar was fraudulent and/or unconscionable.

Petrodar entered a conditional appearance in this High Court action and filed two applications. In the first application, Petrodar sought to set aside the concurrent writ of summons, notice of concurrent writ to be served out of jurisdiction and the leave order granted to serve out of jurisdiction. The second application sought to set aside the ad interim injunction order.

In essence, one of the grounds in support of both applications was that the Malaysian court had no jurisdiction over the dispute, which is governed by Sudanese law, and that the parties had, by contract, agreed to submit the matters to the jurisdiction of the Sudanese court.

The High Court dismissed both applications. However, the High Court also made an order to stay part of the High Court suit pending reference to arbitration, but on terms, inter alia, that the application for the inter partes injunction be proceeded with and be heard and disposed of in the High Court.

In coming to its decision, the High Court held that:

  1. the Malaysian court has jurisdiction over a foreign defendant by virtue of O. 11 r.1 of the RHC 1980 which gives powers to the High Court to grant leave to serve a writ of summons out of jurisdiction. The jurisdiction over a foreign defendant is implicit in the power to grant leave for service out of jurisdiction under O. 11 r. 1 of the RHC 1980;
  2. the alleged fraudulent demand constituted a tort committed in Malaysia. As such, the Plaintiffs' (i.e. the Respondents) case was grounded on a tort committed within the Malaysian jurisdiction, which therefore falls under the circumstances specified in O. 11 r. 1(1)(iii)(h) of the RHC 1980. In this circumstance, the Malaysian court had jurisdiction;
  3. the Malaysian court was the appropriate forum to try the action and it would be unjust to compel the Plaintiffs to sue in Sudan. The Court held that the governing law of the Contract was the law of Sudan but the decision on jurisdiction was different from the question of the proper law of contract to be applied; and
  4. Petrodar did not adduce any material and valid ground to justify the reversal of the ad interim injunction order.

THE COURT OF APPEAL

Petrodar lodged separate appeals against the High Court decision in relation to the two applications filed. The Court of Appeal upheld the decision of the High Court and dismissed both appeals.

THE FEDERAL COURT

Petrodar obtained leave from the Federal Court to appeal on the following questions in respect of the two appeals.

With regard to the first appeal, the question posed was:

Whether O. 11 of the RHC 1980 confers jurisdiction or whether this is predicated on section 23 of the CJA 1964?

With regard the second appeal, there were two questions posed, viz:

(a) Whether the balance of convenience test is applicable to performance bond injunctions at an inter partes stage or at the earliest possible stage?

(b) Whether the High Court, upon staying the suit subject to an arbitration agreement and parties having pursued arbitration proceedings, retains jurisdiction to hear the injunction application on an inter partes basis?

The first appeal

The question of law posed in this appeal required the Federal Court to consider the perceived inconsistencies between two previous decisions of Malaysia's apex court concerning jurisdiction, namely American Express Bank Ltd v Mohamad Toufic Al-Ozeir & Anor [1995] 1 CLJ 273, and R Rama Chandran v Industrial Court of Malaysia & Anor [1997] 1 CLJ 147.

The Federal Court answered the question posed in the negative. In coming to its decision, the Federal Court held as follows:

  1. O. 11 r. 1 of the RHC 1980 confers jurisdiction over a foreign defendant. In addition, it stands independently on its own and is not predicated upon compliance with any of the requirements set out in section 23 of the CJA 1964;
  2. the difference between O. 11 r. 1 of the RHC 1980 and section 23 of the CJA 1964 is that the former confers extra-territorial jurisdiction on the Malaysian court over a foreign defendant, whereas the latter, over a claim. If any of the requirements set out in section 23 of the CJA 1964 applies, then O. 11 r. 1 of the RHC 1980 becomes merely a procedural formality to enable a plaintiff to effect service of the cause papers abroad. However, if section 23 of the CJA 1964 does not apply, then O. 11 r. 1 of the RHC 1980 assumes jurisdictional importance. The Supreme Court decision in American Express Bank Ltd v Mohamad Toufic Al-Ozeir & Anor was followed;
  3. there were no inconsistencies between the two previous apex court decisions cited. The case of R Rama Chandran dealt with different issues not akin to the issues pertaining to jurisdiction over a foreign defendant and therefore, was distinguished from the present case;
  4. the Respondents' reliance on O. 11 r. 1(1)(iii)(h) of the RHC 1980 was proper as that provision expressly permits the service of a writ out of jurisdiction if the action begun by the writ is founded on a tort committed within the jurisdiction;
  5. notwithstanding the jurisdictional clause in the guarantee, the Malaysian court could not be precluded simpliciter thereby from exercising the discretion according to the doctrine of forum non conveniens. In applying this doctrine, the court would consider factors such as the suitability or appropriateness of having the matter heard before the Malaysian court, and not convenience itself. In this regard, given the facts that the guarantee was issued in Kuala Lumpur by a Malaysian bank having a place of business in Kuala Lumpur, the guarantee money sought to be restrained was in Malaysia, the demand of the guarantee was made in Malaysia, and the issues pertaining to logistics, costs of proceedings, political climate and geographical constraints in having the matter litigated in Sudan, the Malaysian court is the appropriate forum to litigate this action. The Federal Court also stressed that it was an important factor in this case that the Respondents' agreement to submit to the jurisdiction of the courts in Sudan was non-exclusive.

The second appeal

With regard to the first question posed, the real issue was whether it was proper for the High Court to split the hearing of the interim injunction application by separating the balance of convenience argument to be argued and heard separately in both the application to set aside the ad interim injunction and the inter partes stage.

The Federal Court held that the argument on the balance of convenience in the granting of an injunction was not required to be fully ventilated and determined at the application to set aside the ad interim injunction order. Rather, the Federal Court took the view that it was more desirable and appropriate that the question of balance of convenience be argued and decided at the inter partes stage of the hearing of the injunction.

It was held that it was the standard practice of the courts that, after the grant of the ad interim injunction, the parties would move on to the hearing of the inter partes injunction whereupon the parties would ventilate all issues and their respective contentions in the inter partes hearing of the injunction itself. There is neither a necessity for arguments on, nor a decision to be made on the issue of balance of convenience before the inter partes stage as it would otherwise result in a multiplicity of proceedings.

The Federal Court found it unnecessary to answer the second question as Petrodar did not appeal against this part of the decision of the High Court. In any event, the Federal Court found that the facts did not support Petrodar's case. This was because the order for stay made by the High Court was on the terms, inter alia, that the application for the inter partes injunction be proceeded with and be heard and disposed of in the High Court. Petrodar never objected to this term and had in fact participated in the injunction hearings.

CONCLUSION

The decision of the Federal Court is important for at least three reasons. Firstly, it clarifies the differences between the application of O. 11 r. 1 of the RHC 1980 and section 23 of the CJA 1964 with regard to the issue of jurisdiction.

Secondly, it affirms the position that the jurisdiction of the Malaysian court cannot be precluded simpliciter by the parties' agreement to litigate any dispute under the contract in a foreign court and further, explains the application of the principles governing the doctrine of forum non conveniens.

Thirdly, the decision clarifies that in an application for an interim performance guarantee injunction, the High Court is only required to consider and decide on the balance of convenience at the inter partes stage.

Writer's e-mail: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 

SUBJECT MATTER : CASE COMMENTARY

WRITER'S NAME : LAM WAI LOON

WRITER'S PROFILE :

Wai Loon is a Partner in the Dispute Resolution Division of SKRINE. His main practice areas are construction and engineering litigation and arbitration.

 

 
ACCOLADES & AWARDS

Skrine Retains Who’s Who Legal Accolade for Malaysia

On 15th May 2017, the Who’s Who Global Awards was held in London, United Kingdom and Skrine was conferred the Award:

Malaysia Law Firm of the Year 2017

Skrine previously received this Award in 2013, 2014, 2015 and 2016.

>> READ MORE

SKRINE Clinches Top Honours at ALB Malaysia Law Awards 2017

On 6th April 2017, the Asian Legal Business Malaysia Law Awards was held and SKRINE was named

Malaysia Law Firm of the Year 2017

SKRINE also bagged 5 other awards

>> READ MORE

Asialaw Profiles 2017

The Asialaw Profiles has ranked Skrine as Outstanding Firm and particularly highlighting the following practice areas:

Outstanding Firm

  • Competition & Antitrust
  • Corporate/M&A
  • Dispute Resolution
  • Energy & Natural Resources
  • Intellectual Property
  • IT, Telco & Media
  • Project & Infrastructure

>> READ MORE

PDPA NOTICE

English | Bahasa Malaysia