This is the final part of the trilogy on top 5 company law cases, restructuring and insolvency cases, and arbitration cases in Malaysia for 2019.
This feature covers the range from an anti-arbitration injunction, stay of winding up proceedings pending arbitration to a setting aside of an interim measure in aid of arbitration. The cases below will refer to the Arbitration Act 2005 (AA 2005).
#1: Nautical Supreme – Anti-Arbitration Injunction
(Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd & Ors [2019] 5 MLJ 1, FC)
Judges: Idrus Harun FCJ (delivering the judgment of the court), Ramly Ali FCJ, Azahar Mohamed FCJ, Abang Iskandar FCJ, and Vernon Ong JCA (grounds of judgment)
Why is the case important?
This apex Court decision allowed a non-party to an arbitration to obtain an anti-arbitration injunction to restrain arbitration proceedings. The Court gave primacy to court proceedings between the non-party and the arbitrating parties, instead of allowing the arbitration itself to continue. Some key points from this decision:
First, the Federal Court appeared to recognise the ability for parties to an arbitration to apply for an anti-arbitration injunction i.e. a Court-granted injunction to restrain arbitration proceedings. This is despite the AA 2005 not having any provision that allows for this and despite the application of section 8 of the AA 2005 (i.e. the court shall not intervene in matters governed by the AA 2005).
Second, this decision is clear that a non-party to an arbitration can apply for an anti-arbitration injunction to restrain the arbitration between the arbitrating parties. The test is the serious issue to be tried and other elements under American Cyanamid / Keet Gerald Francis.
Third, the Court favoured court proceedings (involving non-parties and parties to an arbitration) taking precedence over the arbitration between arbitrating parties. Concurrent court and arbitration proceedings would also appear to be not allowed once there is the risk of inconsistent findings.
Fourth, this decision now brings the risk of tactical filing of Court claims by non-parties against arbitrating parties. The risk is that anti-arbitration injunctions can be obtained to stifle or delay arbitration proceedings. Even if the seat of arbitration is outside of Malaysia, that may not prevent the Malaysian Courts from granting such anti-arbitration injunctions.
Finally, the position in Malaysian law is that it is now easier for a non-party to arbitration proceedings to obtain an anti-arbitration injunction than a party to arbitration proceedings would.
I have written about the decision here.
#2: Awangsa Bina – Stay of a Winding Up Pending Arbitration
(Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd [2019] 1 LNS 590, HC)
Judge: Wong Chee Lin J (grounds of judgment)
Why is the case important?
The case held that a stay of court proceedings under section 10 of the AA 2005 cannot apply to staying a winding up petition.
The High Court in this case adopted the earlier High Court decision in NFC Labuan and also the UK Court of Appeal approach in Salford Estates (No 2) Ltd. However, that was not the end of the matter.
The winding up Court was now faced with a statutory demand based on a debt, and where that debt is subject to an arbitration clause. The test to be applied by the winding up Court is then as follows. Where there is such an arbitration clause, whether there is the low threshold of a prima facie dispute of the debt claimed by the petitioning creditor. Once there was a prima facie dispute, the merits or otherwise of the dispute are to be decided before the arbitral tribunal and not before the winding up Court.
The winding up Court can exercise its discretion under the winding up powers to dismiss the winding up petition and to allow the prima facie dispute to be referred to arbitration.
I have written about this decision here.
#3: Nautilus Tug – Arbitration Confidentiality
(Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd [2019] 10 MLJ 693, HC)
Judge: Darryl Goon J (grounds of judgment)
Why is the case important?
This case is the first decision to interpret the confidentiality provision under the AA 2005. This is contained in the new section 41A of the AA 2005 which came into force in May 2018. This provision essentially provides that no party may publish or disclose information relating to the arbitral proceedings and the arbitral award. There are then certain exemptions that allow for publication e.g. to pursue a legal right or interest, to enforce or challenge the award, or disclosure is obliged by law.
In this case, the plaintiff was a director of the defendant company. The defendant company was a party to ongoing arbitration proceedings. The plaintiff filed an application for leave to initiate a statutory derivative action on behalf of the defendant company. The plaintiff exhibited two reports. The defendant objected to the reports on the basis that the reports were prepared for the purposes of those arbitration proceedings.
First, the Court explained the application the section 41A mechanism. It is a statutory provision that supersedes the common law position. The common law position is generally accepted as the arbitration proceedings are confidential. Disclosure of the information is then only permitted by consent of parties, or by leave of the court. Section 41A thus allows disclosure of information if it is within the exceptions set out in section 41A(2)(a)-(c) of the AA 2005, without the need of leave of the court.
Second, the Court held that it would be strange if parties to an arbitration can rely on those exceptions in section 41A(2)(a)-(c) but non-parties to an arbitration may not rely on any exceptions and is bound by a general prohibition to not disclose information.
Third, it is therefore clear that the prohibition of section 41A(1) does not extend to non-parties to an arbitration.
Fourth, even under common law, the duty of non-disclosure is an obligation between the parties to an arbitration. It cannot extend to non-parties to an arbitration.
#4: WRP – Setting Aside of Interim Measure
(WRP Asia Pacific Sdn Bhd & Anor v TAEL Tijari Partners Ltd & Ors [2019] MLJU 1244, HC)
Judge: Ong Chee Kwan JC (grounds of judgment)
Why is the case important?
Under section 11 of the AA 2005, the Court can grant an interim measure in aid of arbitration. The Court decided that it would still have the power to vary or set aside the interim measure, for instance an interim injunction, under certain circumstances. This is despite the interim measure having already been earlier granted in an inter partes hearing. This is a rare case where the Court then did indeed set aside the earlier granted interim measure.
Here, an interim prohibitory and restraining injunction had been granted by the High Court in aid of arbitration. Subsequently, there was a material change in circumstances as well as the discovery of the suppression of material facts at the time of the original inter partes hearing.
The Court referred to case law from Malaysia, Singapore and the UK. The authorities supported the reasoning that where there has been a material change in circumstances, the Court can vary or set aside the earlier granted injunction. Further, there had been a suppression of material facts or an intentional action to mislead the Court. This also justified the setting aside of the earlier granted interim measure.
#5: Prestij – Stay with Conditions
(Prestij Mega Construction Sdn Bhd v Keller (M) Sdn Bhd and another appeal [2019] MLJU 1231, HC)
Judge: Aliza Sulaiman JC (grounds of judgment)
Why is the case important?
This case decided that if there is a stay of court proceedings under section 10 of the AA 2005, there can be conditions imposed for a party to then initiate the arbitration. The failure to initiate the arbitration can result in the Court exercising an inherent or residual jurisdiction to set aside the stay order.
The matter originated in the Sessions Court where the Sessions Court granted the order that Defendant to stay the court proceedings and ordered that the Defendant refer the matter to arbitration. The Sessions Court continue to fix case management dates thereafter to monitor the progress of the suit or any referral to arbitration.
After more than 3 months, and the case management dates, the Defendant had still yet to issue a notice of arbitration. The Plaintiff filed an application to set aside the earlier stay order and the Sessions Court allowed the setting aside.
On appeal to the High Court, the Court maintained the decision. The Court decided that it was valid for the Sessions Court to have made the stay order and to have directed the Defendant to refer the matter to arbitration. It was also proper for the Sessions Court to continue to fix the case management dates to monitor and to be updated on any referral to arbitration.