Situation prior to 2018 Amendment Act
Changes introduced by 2018 Amendment Act
Security for costs
Section 19(1) of the Arbitration Act 2005 (the 2005 Act)(1) confers the arbitral tribunal power to grant interim measures at the request of a party. This article is part of a series on conducting arbitration in Malaysia.(2)
Situation prior to 2018 Amendment Act
Arbitration Act 1952
Under the Arbitration Act 1952, a party seeking interim orders from the arbitral tribunal must look for the necessary powers either in the arbitration agreement itself or in the institutional rules that have been adopted as part of the arbitration agreement.
2005 Act
Prior to the Arbitration (Amendment) Act 2018 (No. 2) (the 2018 Amendment Act), the arbitrator, in the course of the arbitral proceedings, was given the power to order interim measures under section 19 of the 2005 Act. Arbitrators had the power to order discovery of documents within the possession and control of the parties. The arbitral tribunal also had various powers to ensure the proper conduct and regulation of the arbitral process. The tribunal was often expressly conferred with powers to make orders or give directions regarding security for costs, the taking of evidence by affidavit, and preservation and interim measures to ensure that any award eventually handed down by the arbitral tribunal was not rendered ineffectual by the dissipation of assets. The arbitral tribunal had the power to order interim injunctions and other interim measures of relief. Moreover, the powers listed under section 19(1)(a),(b),(c) and (d) of the 2005 Act corresponded with the parallel powers granted to the High Court under section 11(1)(a), (b), (c) and (f) of the 2005 Act, which were drafted in identical terms.
By contrast, the powers of the High Court, which were formerly listed under section 11(1)(d), (e), (g) and (h) of the 2005 Act, were excluded from the arbitral tribunal, unless expressly confirmed by the arbitration agreement, the rules of the relevant institutional body (if any) or the parties' subsequent agreement. Except in these circumstances, the arbitral tribunal therefore had no power to make orders relating to:
- the appointment of a receiver;
- securing the amount in dispute;
- ensuring against dissipation of assets (ie, Mareva type remedies); and
- interim injunctions.
Changes introduced by 2018 Amendment Act
The coming into force of the 2018 Amendment Act had major implications on the powers of the High Court and the arbitral tribunal to order interim measures, as sections 6, 7 and 8 of the 2018 Amendment Act are specifically legislated to introduce a new statutory scheme in relation to the ordering of interim measures by the High Court and the arbitral tribunal under sections 11 and 19 of the 2005 Act.
Sections 19(1) and 19(2) of 2005 Act
Section 7 of the 2018 Amendment Act was passed to confer the arbitral tribunal powers to grant interim measures that were previously vested only in the High Court. It amended section 19(1) of the 2005 Act to remove all references to the tribunal's powers to make orders or give directions regarding security for costs, the taking of evidence by affidavit, and preservation and interim measures in relation to properties that are the subject matter of the dispute. It further removed the prerequisite for a party to provide appropriate security in connection with such measures at the discretion of the arbitral tribunal under section 19(2). In its place, section 19(1) now contains a general provision that authorises the arbitral tribunal to "grant interim measures" at the request of a party. Section 19(2) now contains a different provision that defines "interim measures" for the purposes of the 2005 Act as "any temporary measure, whether in the form of an award or another form" ordered by the arbitral tribunal which "at any time prior to the issuance of the award by which the dispute is finally decided" to:
- maintain or restore the status quo pending the determination of the dispute;
- take action that would prevent, or refrain from taking action that is likely to cause, current or imminent harm or prejudice to the arbitral process itself;
- provide a means of preserving assets out of which a subsequent award may be satisfied;
- preserve evidence that may be relevant and material to the resolution of the dispute; or
- provide security for the costs of the dispute.
Section 19(3), which refers to sections 38 and 39 of the 2005 Act, has been deleted altogether pursuant to section 7(c) of the 2018 Amendment Act.
Sections 19A–19J of 2005 Act
The tribunal's powers to grant interim measures are now contained in sections 19A–19J of the 2005 Act.
Section 19A
The new section 19A lists the conditions to be satisfied for the arbitral tribunal to order interim measures. First, the party requesting measures under sections 19(2)(a), (b) and/or (c) must establish that there is the possibility of a harm which cannot be adequately repaired by an award of damages if the measure is not awarded, and that such harm substantially outweighs the harm that is likely to result to the party against which the measure is directed if the measure is granted. Second, it must be shown that there is a reasonable possibility that the requesting party will succeed on the merits of the claim, without prejudice to the arbitral tribunal's discretion to make any subsequent determination on the dispute. Section 19A therefore introduces the balance of convenience test in awarding interim measures laid down in American Cyanamid Co v Ethicon Ltd(3) into arbitral proceedings.
In relation to an interim measure order under section 19(2)(d), section 19A(3) further provides that it is for the arbitral tribunal to apply the conditions in the amended sections 19(1) and (2) of the 2005 Act as it considers appropriate.
Section 19B
The new section 19B provides for the application for preliminary orders and the conditions to be met for such orders to be granted. Accordingly, a party may request an interim measure together with an application for a preliminary order directing a party not to frustrate the purpose of the interim measure requested without having to give notice to any other party. This is the case unless the parties have agreed otherwise, and may be ordered only if the arbitral tribunal considers that prior disclosure of the request for interim measure to the party against which the measure is directed risks frustrating the purpose of the interim measure. Section 19B(3) extends the conditions specified in section 19A to any preliminary order, provided that the harm to be assessed under section 19A(1)(a) is the harm that is likely to result from the order being granted or otherwise.
Section 19C
The new section 19C contains a specific regime in relation to preliminary orders and sets out the safeguards for the party against which the preliminary order is directed. Upon the determination of an application for a preliminary order, the arbitral tribunal is now obliged to immediately give notice to all parties of the request for the interim measure, the application for the preliminary order or the preliminary order and all other communications, including by indicating the content of any oral communication, between any party and the arbitral tribunal in relation thereto. The tribunal must also provide an opportunity to the party against which the preliminary order is directed to present its case at the earliest practicable time. Section 19C(2) further obliges the arbitral tribunal to immediately decide upon any objection to the preliminary order. Section 19C(3) provides that a preliminary order shall expire after 20 days from the date of issuance, without prejudice to the arbitral tribunal's power to issue an interim measure that adopts or modifies the preliminary order, after the party against which the preliminary order is directed has been given notice and an opportunity to present its case.(4)
Section 19C(5) confirms that any preliminary order referred to above shall be binding on the parties but not subject to enforcement by the High Court, and that such an order does not constitute an award.
Section 19D
The new section 19D empowers the arbitral tribunal to modify, suspend or terminate an interim measure that it has granted upon an application of any party or on its own motion in exceptional circumstances (provided that prior notice is given to the parties). However, the extent of this power exercisable by the arbitral tribunal remains uncertain as it has not been adjudicated upon by the courts.
Section 19E
Section 19E replaces the old regime governing the provision of security under section 19(2) of the 2005 Act with a broader statutory scheme that now obliges the arbitral tribunal to compel the party applying for a preliminary order to provide security in connection with the order unless it considers it inappropriate or unnecessary to do so.(5) This is in addition to the arbitral tribunal's previous powers to require the party requesting an interim measure to provide appropriate security in connection with the measure.(6)
Section 19F
Section 19F now imposes a duty of disclosure on any party (subject to the discretion of the arbitral tribunal) where there has been a material change in certain circumstances for the purposes of ensuring a just and fair decision in granting an interim measure. Section 19F(1) provides that the arbitral tribunal may require any party to immediately disclose any material changes in circumstances on the basis of which the interim measure or preliminary order was requested, applied or granted. Section 19F(2) places a continuing obligation on the party applying for a preliminary order to disclose to the arbitral tribunal all circumstances that are likely to be relevant to the arbitral tribunal's determination on whether to grant or maintain the order until the party against which the order has been requested has had an opportunity to present its case. Similarly, the extent of the circumstances that should be disclosed and the scope of powers exercisable by the arbitral tribunal under this new provision remain subject to interpretation by the courts.
Section 19G
Section 19G now provides that the party that requests an interim measure or preliminary order is liable to pay costs and damages if the party fails in such request or application, and the arbitral tribunal may award such costs and damages at any point during the proceedings.
Section 19H
Section 19H now provides for the recognition and enforcement of an interim measure issued by an arbitral tribunal. Section 19H(1) provides that an interim measure issued by an arbitral tribunal is binding and enforceable upon an application to a court of competent jurisdiction irrespective of the country in which the measure was issued, unless the arbitral tribunal declares otherwise. The party that is seeking or has obtained recognition or enforcement of an interim measure must immediately inform the court of any termination, suspension or modification of that interim measure.(7) Additionally, if it considers proper to order as such, the court may order the requesting party to provide appropriate security if the arbitral tribunal has not made a determination on the provision of security or where such a decision is necessary to protect the rights of third parties.(8)
Section 19I
Section 19I provides the grounds for the refusal to recognise or enforce an interim measure under section 19H. At the request of the party against which the measure is invoked, section 19I(1)(a) provides three grounds for the High Court to refuse to recognise or enforce an interim measure – namely:
- (i) A refusal by default under Sections 39(1)(a)(i), (ii), (iii), (iv), (v) or (vi) of the 2005 Act;
(ii) Non-compliance with the arbitral tribunal decision on the provision of security in connection with the interim measure; or
(iii) Termination or suspension of the said interim measure by the arbitral tribunal or a court of the State in which the arbitration had taken place or under the law of which that interim measure was granted.
Section 19I(b) further provides two (2) other grounds for the High Court to refuse or enforce an interim measure if the High Court finds that:
- (i) The interim measure is incompatible with the powers conferred upon the Court, but the Court may decide to reformulate the interim measure to the extent necessary, without modifying its substance, to adapt it to the Court's powers and procedures for the purposes of enforcing that interim measure; or
(ii) The grounds set forth under Section 39(1)(b)(i) or (ii) of the 2005 Act is applicable to the recognition and enforcement of the interim measure in the present case.
Section 19I(2) provides that any determination made by the High Court on any of the grounds as detailed above is only effective to the extent that it concerns the application to recognise or enforce the interim measure. Where such a recognition or enforcement is sought, the High Court is barred from undertaking a review of the substance of the interim measure under section 19I(3) when making a determination on any of the grounds as detailed above.
Section 19J
Section 19J further clarifies that the High Court has the power to issue interim measures in relation to arbitration proceedings, regardless of whether the seat of arbitration is in Malaysia. This power must be exercised in accordance with the procedures of the High Court, taking into consideration the specific features of international arbitration.(9) Where a party applies to the High Court for any interim measure and the arbitral tribunal has already ruled on any matter relevant to the application, section 19J(3) provides that the High Court is to treat any findings of fact made in the course of such ruling by the arbitral tribunal as conclusive for the purposes of the application.
Section 11 of 2005 Act
Section 6 of the 2018 Amendment Act made several changes to the powers of the High Court listed to order interim measures. Similar to the changes made to the arbitral tribunal's powers in granting interim measures under section 11, section 6(b) removes all references to the High Court's powers to order the following (under sections 11(1)(a)–(h) of the 2005 Act):
- security for costs;
- discovery of documents and interrogatories;
- the giving of evidence by affidavit;
- the appointment of a receiver;
- the amount in dispute to be secured, whether by way of arrest of property, bail or other security pursuant to the admiralty jurisdiction of the High Court;
- the preservation, interim custody or sale of any property that is the subject matter of the dispute to ensure that any award that may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party; and
- an interim injunction or any other interim measure.
In its place, the new section 11(1) of the 2005 Act provides that where a party applies to the High Court for any interim measure, whether before or during arbitral proceedings, the High Court has the power to:
- maintain or restore the status quo pending the determination of the dispute;
- take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process;
- provide a means of preserving assets out of which a subsequent award may be satisfied, whether by way of an arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court;
- preserve evidence that may be relevant and material to the resolution of the dispute; or
- provide security for the costs of the dispute.
In determining whether an interim relief ought to be granted, the court should be mindful not to determine the dispute in a definitive manner as this is a matter for the arbitral tribunal to decide on.(10) In line with the policy of minimal court intervention in arbitral proceedings, the courts have interpreted the powers conferred to it under section 11 of 2005 Act as a means to provide assistance to the arbitral proceedings as opposed to the court exercising a supervisory role to the arbitration.(11)
Previously, a party could – under section 19(1)(c) – request the arbitral tribunal to make an order with regards to security for costs. The arbitral tribunal could also require any party to provide appropriate security in connection with the ordered interim measure. It follows from the arbitration agreement that the interim measure must relate to the subject matter of the dispute and the order may only be addressed to the parties to the agreement.
The arbitral tribunal retains such powers following the coming into force of sections 7 and 8 of the 2018 Amendment Act, now provided for under the new sections 19(2)(e) and 19E of the 2005 Act.
In the absence of any case law following the changes of the law, the extent of the powers exercisable by the arbitral tribunal to make such an order either remains unchanged, or even possibly widened in light of the overarching purpose of the 2018 Amendment Act to confer wider powers to the arbitral tribunal to order interim measures as a whole.
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 details of the current arbitration legislation in Malaysia, see "Introduction to arbitration in Malaysia: history and current legislation".
(2) For earlier articles in the series, see:
- "Conducting arbitration in Malaysia: doctrine of separability, jurisdiction and arbitrability";
- "Conducting arbitration in Malaysia: arbitral tribunals";
- "Conducting arbitration in Malaysia: law governing conduct";
- "Conducting arbitration in Malaysia: procedure"; and
- "Conducting arbitration in Malaysia: taking of evidence".
(4) 2018 Amendment Act, section 8 (reference to a new section 19C(4) of the 2005 Act).
(5) Ibid (reference to a new section 19E(2) of the 2005 Act).
(6) Ibid (reference to a new section 19E(1) of the 2005 Act).
(7) Ibid (reference to a new section 19H(2) of the 2005 Act).
(8) Ibid (reference to a new section 19H(3) of the 2005 Act).
(9) Ibid (reference to a new section 19J(2) of the 2005 Act).
(10) See KNM Process Systems Sdn Bhd v Lukoil Uzbekistan Operating Company LLC [2020] MLJU 85.