The Kuala Lumpur High Court recently ruled on the enforcement of a foreign arbitral award in Open Type Joint Stock Company Efirnoye (EFKO) v Alfa Trading Ltd.(1)
The plaintiff, a Russian company, entered into a contract with the defendant, a Malaysian company. The arbitration clause in the contract provided that if the defendant was the complainant in the dispute, the dispute was to be referred for final resolution to the International Commercial Arbitration Court (ICAC) at the Ukrainian Chamber of Commerce and Industry (CCI). However, if the plaintiff was the complainant, the dispute was to be referred for final resolution to the ICAC at the Russian CCI in Moscow. Disputes arose and the defendant filed an arbitration claim before the Ukrainian tribunal. The plaintiff subsequently filed its arbitration claim before the Russian tribunal.
The case considered by the Kuala Lumpur High Court concerned the enforcement in Malaysia of an award obtained by the plaintiff from the Russian tribunal, pursuant to Section 38 of the Arbitration Act 2005. The defendant furnished two grounds in opposition to the enforcement motion:
- the arbitral procedure did not accord with the agreement between the parties, as stipulated in Section 39(1)(a)(vi) of the act; and
- the award conflicted with the Malaysian public policy, as envisaged by Section 39(1)(b)(ii) of the act.
In relation to the first point, the defendant took the position that as it had been the first to commerce arbitration, and as the opposing claims of the parties related to the same contract, the plaintiff should have referred its dispute to the Ukrainian tribunal, instead of filing separate proceedings with the Russian tribunal.
In relation to the second point, the defendant contended that as there were two conflicting awards - one by the Ukrainian tribunal in the defendant's favour and one by the Russian tribunal in the plaintiff's favour - in respect of the same contract, it would be against public policy to enforce the award without considering the Ukrainian tribunal's award.
The court first found that the defendant had failed to show that there had been a failure to adhere to arbitral procedure as envisaged by Section 39(1)(a)(vi) of the act. The parties had exercised their rights as expressly set out in the arbitration clause to have their respective, but different issues under the contract determined by the respective arbitral tribunals. The court held that the alternative construction put forward by the defendant was untenable, as it effectively allowed the party that first initiated the arbitral process to impose on the other party both its choice of jurisdiction and its choice of law.
The court further found that the contention that the enforcement of the award was contrary to public policy was incorrect. There was no lack of fairness of procedure, breach of natural justice or illegality of a fundamental nature, as at all times both parties were accorded every opportunity to raise the same arguments that were now being considered by the enforcement forum. The court argued that res judicata (which precludes a claimant from bringing proceedings when a matter has been decided) did not apply because at no point was it raised by the defendant that precisely the same issues were being determined by two different tribunals, resulting in two conflicting or inconsistent decisions.
In addition, no question of moral and ethical policy arose from the facts of the case. The court adopted the reasoning in Infineon Technologies (M) Sdn Bhd v Orisoft Technology Sdn Bhd,(2) where Judge Mohamad Ariff bin Md Yusoff held that "the approach is not to refuse to register on the ground of conflict of public policy unless the most basic notions of morality would be offended".
For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 3 2070 0644), fax (+60 30 2078 5625) or email ([email protected]).
(1) D–24 NCC–221–2010,  1 CLJ 323, Nalini Pathmanathan, J.