Applications to compel or stay arbitration
Anti-suit and other injunctions
This article is part of a series on arbitration agreements in Malaysia.(1)
Applications to compel or stay arbitration
1952 Act
Section 6 of the Arbitration Act 1952 (the 1952 Act)(2) gives the court power to stay proceedings where there is submission to arbitration. This power is discretionary. There has been some controversy over whether a conditional appearance or an unconditional appearance is required for stay.
In the case of Interscope Versicherung Sdn Bhd v Sime Axa Assurance Sdn Bhd,(3) the Court of Appeal decided that section 6 of the 1952 Act differed fundamentally from its equivalent in the English Arbitration Act 1956 – namely, section 4(2) – in the sense that the language contained in the English provision expressly excludes the entry of an appearance as constituting a step in the proceedings. It must be noted that under section 6 of the 1952 Act, it is a requirement that the party applying for a stay has not taken a step in the proceedings. The Court of Appeal further decided that section 6 of the 1952 Act makes no such qualification. In September 2000, the Federal Court, without giving written reasons, reversed the decision of the Court of Appeal.
The Court of Appeal in Trans Resources Corp Sdn Bhd v Sanwell Corp,(4) presumably unaware of the decision by the Federal Court, affirmed and followed its own decision in the Interscope Versiacherung case. This decision must be considered as per incuriam. The Federal Court in Sanwell Corporation v Trans Resources Corporation Sdn Bhd(5) finally resolved the controversy with regard to the status of an unconditional appearance by determining that the filing of an unconditional appearance did not amount to a step in the proceedings.
If the requirements of section 6 of the 1952 Act are satisfied, the burden would shift to the party that filed the action in court to convince the court with reasons why the actions should be allowed to remain in court. In Seloga Jaya Sdn Bhd v Pembinaan Keng Ting (Sabah) Sdn Bhd,(6) the Federal Court stated as follows:
It is well known that if a party can satisfy the court that the conditions for the grant of stay under section 6 of the Act are satisfied, it does not ipso facto follow that he will be entitled, as of right to a stay, for the court still retains a discretion to refuse it. But generally, as the judge rightly recognized, the approach of the court will be that those who make a contract to arbitrate their disputes, should be held to their bargain for, in the oft-quoted words of Martin B in Wickham v Hending, 'A bargain is a bargain; and the parties ought to abide by it, unless a clear reason applies for their not doing so.'
The current approach by the Malaysian courts is basically to give effect to the pre-agreed consensual dispute resolution procedure unless there exists strong reasons to the contrary. Examples of what would amount to strong reasons have been identified in Tan Kok Cheng & Sons Realty Co Sdn Bhd v Lim Ah Pat(7) – namely:
those involving fraud or where there is, on a proper construction of the arbitration clause, no dispute that falls within its purview or where third party procedure under the rules of court will most probably be resorted to.
2005 Act
Under the Arbitration Act 2005 (the 2005 Act), there are two principal methods by which the Malaysian court may give effect to an agreement to arbitrate – namely, to stay an action or to refer the dispute to arbitration pursuant to section 10 of the Act. The Act provides that an application must be made before taking any steps in the action to stay the action. The courts must give effect to the mandatory requirements of section 10 – namely, that they have no discretion in the matter when it is an application for stay involving an international element. However, if the agreement is null and void, inoperative or incapable of being performed, then a stay may be obtained. The court may impose conditions when it grants a stay, such as providing security.(8)
There have been many cases where it has been held to be mandatory for a stay of court proceedings when there is an arbitration agreement under the 2005 Act.(9) In TNB Fuel Services Sdn Bhd v China National Coal Group Corp,(10) the Court of Appeal allowed an application for a stay of proceedings, even in circumstances where there was doubt as to the existence of an arbitration agreement. The Court opined that any jurisdictional issue was to be determined by the arbitral tribunal itself, and any recourse against the arbitral tribunal's decision on jurisdiction could then be referred to the courts.
In PLB-KH Bina Sdn Bhd v Hunza Trading Sdn Bhd,(11) the Court of Appeal clarified that for a stay under section 10 of the 2005 Act to be considered by the court, the party applying had to file for a stay before taking any other step in the subject proceedings itself.
In Uba Urus Bina Asia Sdn Bhd v Quirk & Associates Sdn Bhd & Anor,(12) the High Court further asserted the importance of the court to order a stay under section 10 where an arbitration agreement exists and decline to hear the dispute because the basic concept behind party autonomy requires the parties' agreement to arbitrate their disputes to be honoured and given effect.
However, the specific wording employed in the arbitration award may be vital, at least on one instance, for the court to decide whether a stay should be ordered under section 10 of the 2005 Act. In the context of whether it is mandatory for parties to refer a dispute to arbitration, precatory words such as "may" instead of imperative words such as "shall" connote a discretion to any party to not refer the dispute to arbitration. Such an interpretation of an arbitration agreement was confirmed by the High Court in Stellar Focus Sdn Bhd v Edgenta Mediserve Sdn Bhd,(13) which held that an arbitration agreement does indeed confer a discretion to the parties as to the method of dispute resolution if it uses the word "may" and it follows that the court is not required to stay proceedings under section 10 of the 2005 Act in such disputes.(14)
One further requirement of section 10(1) of the 2005 Act is that the party seeking stay shall apply "before taking any other steps in the proceedings", and this provision is similar to section 6 of the 1952 Act discussed above. The question of "taking any other steps in the proceedings" was considered by the High Court in ZAQ Construction Sdn Bhd & Anor v Putrajaya Holdings Sdn Bhd.(15) In this case, the plaintiff's claim was for an agreed amount under a contract. Since the amount had been agreed and accepted by the parties, the plaintiff argued that there was no dispute to refer to arbitration and commenced court proceedings. The defendant then applied for a stay of proceedings under section 10 of the 2005 Act on the ground that the defendant had a set-off under another contract, which was to be resolved in arbitration proceedings. In granting the stay, the High Court held that a claim which is premised on a failure to pay according to a final account is a matter which fell within the terms of the arbitration agreement. The High Court also held that an admission of liability did not necessarily mean that there was no dispute to refer to arbitration, except perhaps in clear and unequivocal cases and only definitive, conscious and deliberate steps could be considered to be "taking any other step in the proceedings".
In Press Metal Sarawak v Etiqa Takaful Bhd,(16) the Federal Court undertook an extensive interpretation of section 10 of the 2005 Act by taking into consideration the position of the courts in England, Singapore and Hong Kong on the similar (but unidentical) provisions, and held that the court should lean more towards granting a stay pending arbitration under even in cases where the court could be in some doubt about the validity of the arbitration clause or where it is arguable whether the subject matter of the claim falls within the ambit of the arbitration clause. The threshold for a party to stay proceedings under section 10 of the 2005 Act is therefore not a high one.
The Federal Court also had the opportunity to elaborate on the stage at which an applicant may make an application to stay proceedings under section 10(1) of the 2005 Act. Accordingly, a "stay of proceedings" means a stay of proceedings that have already been filed in court and is hence applicable only to proceedings that are already filed in court.(17) An application for a stay of proceedings can only be filed by the defendant after the plaintiff has commenced proceedings in court, but before the defendant takes any other steps in the proceedings.(18)
In Prestij Mega Construction Sdn Bhd v Keller (M) Sdn Bhd and another appeal,(19) the High Court recently held that a court has the inherent and residual jurisdiction to set aside an order granting a stay of proceedings pending arbitration when a party fails to comply with the order to initiate arbitration.
Anti-suit and other injunctions
Innotec Asia Pacific Sdn Bhd v Innotec GmBH(20) involved a dispute between a Malaysian company and a German company in relation to a partnership contract and resellers agreement that contained a clause referring to arbitration in Germany, which the German company had commenced. The plaintiff filed an application for an injunction against the defendant to restrain it from commencing and/or further proceeding with arbitration in Germany, while the defendant filed an application for stay of proceedings pursuant to section 10 of the 2005 Act. The plaintiff contended that the defendant's application for a stay was misconceived as the 2005 Act does not apply to arbitration held outside Malaysia.
The High Court dismissed the injunction and allowed the stay application. The judge held that it was incorrect to suggest that the 2005 Act only applies to arbitration (domestic or otherwise) where the seat is in Malaysia. The judge, Ramly Ali J, held at 323 as follows:
No Express Exclusion in s. 10
The defendant submits that the jurisdiction to grant a stay is vested under s. 23, Court of Judicature Act ("CJA"). Any analysis must start on the footing that the courts do have a general jurisdiction to grant a stay of proceedings on whatever justifiable grounds. The question must then be whether s. 10 of the Arbitration Act 2005 excludes this general jurisdiction. The court is of the view that this is not the case. For there to be an exclusion of jurisdiction, express legislative provision to that effect must be enacted. An exclusion of jurisdiction necessarily compromises the right of access to justice and as such must be categorically provided for. (see: Danaharta Urus Sdn. Bhd. V. Kekatong Sdn. Bhd. [2004] 1 CLJ 701).
The language of s. 10 of the Arbitration Act 2005 does not exclude jurisdiction of the court to stay proceedings for the purpose of referring the matter to arbitration based on their agreement. Instead, the requirement to stay is generally mandatory.
Section 3 of the Arbitration Act 2005 merely dictates the application of certain Parts in the Act to both domestic and international arbitrations, where the seat of arbitration is in Malaysia. The language of the section is clear to this effect. However, s. 3 of the Act does not expressly exclude the power of the court to stay proceeding for the purpose of referring the dispute to international arbitration. It is therefore incorrect and erroneous on the part of the plaintiff to suggest that the Arbitration Act 2005, following s. 3, only applies to arbitration (domestic or otherwise) where the seat is in Malaysia and excludes international arbitration. The language of the section does not lend support to such interpretation.
The authors in The Arbitration Act 2005, UNCITRAL Model Law as applied in Malaysia have expressed the view that s. 10 of the Act should be construed widely so as to include the obligation to grant a stay of court proceedings in aid of a foreign arbitration so as to comply with Malaysia's treaty obligations under the New York Convention 1958 (Convention on the Recognition and Enforcement of Foreign Arbitral Awards). In this regard, the New York Convention 1958 requires a mandatory stay to be provided for where the arbitration is to be held in a Convention country. Both Malaysia and Germany are convention countries to the New York Convention 1958.
Even assuming s. 10 of the Arbitration Act 2005 is not applicable to international arbitration (where the seat is outside Malaysia), the court is of the view that there is nothing in the said Act to exclude the general power of the court (in Malaysia) to stay civil proceedings for any appropriate grounds including the ground to refer the dispute to an international arbitration (outside Malaysia) based on an agreement which had been agreed by the parties. The position is made clear if one is to take into consideration Malaysia's treaty obligations under the New York Convention 1958 (Convention on the Recognition and Enforcement of Foreign Arbitral Awards) which requires a mandatory stay in aid of a foreign arbitration. Being the court of the country, it is the duty of this court to interpret our laws so as to comply with such Convention where Malaysia is a party, unless expressly prohibited by law.
Be it under s. 10 of the Arbitration Act 2005 or under the New York Convention 1958, a stay of proceeding is mandatory in order to refer the parties or the dispute to arbitration. This is also in line with the judiciary's efforts to refer disputes to arbitration or other mediation process before the matter is dealt with by the court.
Contrastingly, in Aras Jalinan Sdn Bhd v Tipco Asphalt Public Company Ltd & Ors,(21) the plaintiff, a Malaysian company, filed an injunction application against two defendants, both Thai-related companies, to restrain the defendants from preventing the plaintiff from obtaining shares in the third defendant, a Malaysian company, pending arbitration pursuant to the settlement agreement between the plaintiff and the defendants in Singapore. The issue requiring determination was whether the court had jurisdiction, either statutory or inherent, to grant injunctive relief in respect of matters where the seat of arbitration was outside Malaysia. The court held that it had no jurisdiction, statutory or inherent, to grant injunctive relief in matters where the seat of arbitration is outside Malaysia.(22) The judicial commissioner was of the view that the jurisdiction of the High Court in the matter had to be expressly provided by statute and did not agree with the approach taken by Ramly Ali J in Innotec Asia Pacific Sdn Bhd v Innotec GmBH. The High Court has therefore provided two conflicting answers as to whether Malaysian courts have the power to grant injunctive relief in this regard under section 10 of the 2005 Act, which has yet to be resolved by the apex courts.
However, the amendment to the 2005 Act by the 2011 Act now expressly provides under the new section 10(4) that the High Court has jurisdiction to stay proceedings for an arbitration where the seat of arbitration is outside of Malaysia.
This can be observed in the recent decision in Government of Malaysia v Nurhima Kiram Fornan & Ors(23) wherein the High Court issued an anti-arbitration injunction to restrain an ad hoc arbitration in Spain on the basis that there was no waiver of the sovereign immunity of Malaysia to confer jurisdiction in proceedings before the Superior Court of Justice of Madrid or elsewhere. Further, in MISC Berhad v Cockett Marine Oil (Asia) Pte Ltd,(24) the High Court allowed an application for an anti-arbitration injunction to restrain the party therein from taking further steps in a London-seated arbitration.
The recent Federal Court decision of Jaya Sudhir A/L Jayaram v Nautical Supreme Sdn Bhd & Ors(25) has brought the issue of anti-arbitration injunctions to the fore. The appellant, a non-party to an arbitration proceeding, sought an injunction to restrain the respondents from proceeding and continuing with an ongoing and parallel arbitration commenced by the first respondent against the second and third respondents and the originating summons suit.
The Federal Court, at the outset, held that both sections 8 and 10 of the 2005 Act do not apply to non-parties of arbitration proceedings. The Federal Court further found that the Court of Appeal had erred in applying the test set out in J Jarvis & Sons Limited v Blue Circle Dartfort Estates Limited(26) in setting aside the injunction order. The test in J Jarvis was inapplicable as the appellant was a non-party. Instead, the proper test to be applied was the one in Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors,(27) which the appellant had satisfied. The anti-arbitration injunction was therefore reinstated.
There is now a clear recognition of a non-party's ability to apply for an anti-arbitration injunction to restrain arbitration proceedings between parties. A further implication of the decision is that the court appears to recognise that even parties to an arbitration can apply for an anti-arbitration injunction. This is notwithstanding the self-restraint courts ought to exercise when intervening in the arbitral process.
For further information on this topic please contact Tan Sri Dato' Cecil Abraham, Dato' Sunil Abraham, Aniz Ahmad Amirudin or Syukran Syafiq at Cecil Abraham & Partners by telephone (+60 3 2726 3700) or email ([email protected], [email protected], [email protected] or [email protected]). The Cecil Abraham & Partners website can be accessed at cecilabraham.com.
Endnotes
(1) For the first article in the series, see "Arbitration agreements in Malaysia: types and validity".
(2) For details of the current arbitration legislation in Malaysia, see "Introduction to arbitration in Malaysia: history and current legislation".
(8) See, for example, Majlis Ugama Islam dan Adat Resam Melayu Pahang v Far East Holdings Bhd & Anor [2007] 10 CLJ 318, where, after the court had granted a stay, a condition was imposed pursuant to section 10(2) – namely, that the dispute be referred to the director of the Kuala Lumpur Regional Centre for Arbitration for an appointment of an arbitrator as provided for under section 13(5) of the 2005 Act.
- Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor [2008] 1 MLJ 233;
- Majlis Ugama Islam dan Adat Resam Melayu Pahang v Far East Holdings Bhd & Anor [2007] 10 CLJ 318;
- Innotec Asia Pacific Sdn Bhd v Innotec GmBH [2007] 8 CLJ 304;
- Sunway Damansara Sdn Bhd v Malaysia National Insurance Bhd & Anor [2008] 3 MLJ 872;
- Borneo Samudera Sdn Bhd v Siti Rahfizah Mihaldin & Ors [2008] 5 CLJ 435; and
- CMS Energy Sdn Bhd v Poson Corporation [2008] 6 MLJ 561.
(11) [2014] MLJU 1427 at [47] (Varghese a/l George Varughese JCA).
(12) [2016] 4 CLJ 468 at [22] (Mary Lim J).
(14) Ibid, at [22], [31] – [32] (Yeoh Wee Siam J).
(16) [2016] 5 MLJ 417 at [88] (Ramly Ali FCJ).