Speaking at the Regional Insolvency Conference 2014 in Singapore

On 25 August 2014, I will be speaking at the Regional Insolvency Conference 2014 organised by the Law Society of Singapore. I will be a speaker at the first Plenary Session focusing on a regional update and trends in insolvency in India, Malaysia and Vietnam. I will be speaking on the Malaysian perspective.

insolvency

The main areas I will briefly touch on will be on an introduction to Malaysia’s insolvency laws, in particular, on any cross-border insolvency provisions. And then I will introduce the upcoming changes to insolvency with the new Companies Bill. Malaysia will be introducing the Corporate Voluntary Arrangement (borrowing it from the UK) and judicial management (borrowing it from Singapore).

The Uncertainty on the Law Governing the Arbitration Clause

The law governing the arbitration agreement (i.e. the arbitration clause in a contract) potentially covers matters such as the existence, legality, interpretation, termination, and the identities of the parties to the arbitration clause. It is very common to not see any express provision on the law governing the arbitration clause. Contracting parties commonly make the assumption that the governing law of the contract will be the same law governing the arbitration clause.

(1) Governing law of the contract could be a strong indication of the governing law of the arbitration clause

The English Court of Appeal decision in Sulamérica CIA Nacional de Suguros SA and others v Enesa Engenharia SA and others [2012] 1 Lloyd’s Rep 671. In essence, the English Court of Appeal set out a three-stage enquiry in determining the law governing an arbitration agreement. (1) The express choice; (2) The implied choice in the absence of such an express choice; and (3) Where the parties had not made any choice, the proper law would be the law which the arbitration agreement has its closest and most real connection with. In particular for stage (2), the English Court of Appeal held that an express choice of law governing the substantive contract is a “strong indication of the parties’ intention in relation to the agreement to arbitrate.” On the specific facts of SulAmerica, the Court of Appeal agreed that the arbitration clause should be governed by the law of the seat (English law) and not the governing law of the contract (Brazil law). Nonetheless, the SulAmerica approach creates a rebuttable presumption that an express choice of law to govern the substantive contract would also apply to the arbitration clause. There have been English decisions that have since followed the SulAmerica approach.

(2) Or should the law of the seat of the arbitration be the governing law of the arbitration clause?

FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others [2014] SGHCR 12 departs from the SulAmerica approach in treating substantive law in the main contract being a strong indication of the parties’ intention to have that same substantive law be the law governing the arbitration clause. The case of Firstlink instead argues that, the natural inference ought to be that the law of the seat of arbitration should be the law governing the arbitration clause. This is because when commercial relationships break down and there is dispute resolution, the parties’ desire for neutrality comes to the fore. The law governing the performance of contractual obligations prior to the breakdown takes a backseat and primacy should be accorded to the neutral law selected by parties to govern the proceedings of dispute resolution.

In Malaysia, the High Court in Government of the Lao People’s Democratic Republic v Thai-Lao Lignite Co Ltd [2013] 3 MLJ 409, it was held that the law governing the arbitration clause should be the law of the seat of the arbitration (see [98] to [100]). On appeal, the Court of Appeal upheld the High Court decision but the Grounds of Judgment did not delve into the issue on the law governing the arbitration clause. This case is now pending an application for leave to appeal to the Federal Court.

The case of Thai-Lao Lignite demonstrates the significance of the law applicable to the arbitration clause. One of the contentions in the High Court for the setting aside of the award (as seen in the reported decision) was that Malaysian law should apply to the arbitration clause (as that is where the seat of arbitration is stipulated). From that, it would follow that the ‘party’ to the arbitration clause must be a signatory to the main agreement itself in order to be a party to the arbitration agreement. However, if the governing law of the main agreement (New York law) were to apply to the arbitration clause, under New York law, the concept of an “intended third party beneficiary” would be deemed to be a party to the arbitration agreement. Hence, a non-signatory to the main agreement but one which is an intended third party beneficiary, could rely on the arbitration clause and could be one of the claimants to initiate arbitral proceedings (just like in the facts of Thai-Lao Lignite. However, by applying Malaysian law to the arbitration clause, the High Court held that this was one of the grounds for setting aside the award. The Judicial Commissioner held that the arbitral tribunal had exceeded its jurisdiction by allowing a non-signatory and essentially, a non-party to claim in the arbitral proceedings.

(3) Takeaway Point: Expressly Provide for the Law Governing the Arbitration Clause

It is therefore best to expressly provide for the law governing the arbitration clause to negate any uncertainty. It will just require the simple provision such as “The law of this arbitration clause shall be [state the law e.g. the law of Malaysia]“

 

Delivering a Talk on Enforcing Arbitral Awards and Foreign Judgments

I have been invited by the Singapore Management University School of Law to deliver a lunchtime seminar on Enforcing Arbitral Awards and Foreign Judgments in Malaysia. This will be held on Tuesday 12 August 2014.

As part of my talk, I will set out some of the statistics for the successful (or unsuccessful) applications for the enforcement of arbitral awards under the Arbitration Act 2005.

 

SMU

 

Substituting two Petitioners into a Winding Up Petition

The High Court in Allied Empire Plantations Sdn Bhd v Chip Lam Seng Berhad [2014] 6 CLJ 81 (“Allied Empire”) touched on some of the principles on the substitution of a Petitioner in a winding up Petition and where two parties were allowed to be substituted in as co-Petitioners.

The law governing the substitution of a party as Petitioner in a winding up Petition is contained in rule 33 of the Companies (Winding-up) Rules 1972 (“Rules”). Rule 33 provides that:

“… the Court may upon such terms as it thinks just substitute as petitioner any person who, in the opinion of the Court, would have a right to present the petition and who is desirous of proceeding with the petition.”

The case of Allied Empire involved two parties applying to be substituted as a petitioner. The first was Jadeline and the second was AmBank.

Jadeline

After the presentation of the Petition in August 2012, Jadeline had entered into an assignment with the Petitioner for the absolute assignment of the chose in action to claim the underlying debt giving rise to the Petition. The question of law that then arose was whether Jadeline could be deemed to be a creditor at the time of the presentation of the petition (and therefore “would have a right to present the petition) or whether Jadeline’s status as the creditor only crystallised after the entering of the assignment. In essence, the Court found that with the debt having been absolutely assigned to Jadeline by the Petitioner, the effect under the law is that all rights to present the Petition would also now be with Jadeline.

Procedurally though, here are cases that have found that not only must the intended substituting party be a creditor, that party must have also had issued the statutory notice (under section 218(2)(a) of the Companies Act 1965) (“218 Notice”) in order to fall within the definition of “would have a right to present the petition” (see for example, the High Court decision of Teoh Vin Sen v True Creation Sdn Bhd [2008] 4 CLJ 393). Presumably, the High Court in Allied Empire would have considered that the effect of the absolute assignment was that the complete chose in action of presenting the Petition had been absolutely assigned by the Petitioner over to Jadeline. Therefore, even the procedural issuance of the statutory notice would have been deemed to have been “assigned” to Jadeline.

AmBank

Where AmBank was applying for it to be substituted as a petitioner as well, AmBank had issued its statutory notice in December 2012 and applied for the substitution in September 2013. While AmBank had issued its 218 Notice, Jadeline had raised the objection that AmBank had not issued the 218 Notice prior to August 2012 (i.e. the time of the presentation of the Petition). Therefore, in short, AmBank did not fall within the definition of “would have a right to present the petition.” The Judge made short shrift of this argument by finding that the debt owing to AmBank was not seriously disputed. Section 218(2)(c) would also allow for a presumption of insolvency and there i snothing to prevent a creditor from presenting a petition to wind up a debtor without relying on the presumption in the statutory notice if the evidence is so clear that the debtor is in any event insolvent.

Substitution of Both Parties as Co-Petitioners

The Court then had to consider whether to allow only one of the parties to be substituted in as a Petitioner. Jadeline had made its application first while AmBank had the larger debt. The Court ordered that both parties be made Petitioners while AmBank was allowed to be the first Petitioner and which had the responsibility to ensure the necessary advertisement, gazetting and other getting up were complied with (but with costs to be born equally by the two Petitioners).

While it is true that there is nothing to prevent there being two or more Petitioners, there appears to be a general rule that Plaintiffs (or in this case, the two Petitioners) must be represented by the same set of solicitors. Allowing AmBank and Jadeline to be substituted in as Petitioners and yet, being represented by two different solicitors, may not have been possible.

The rationale of having plaintiffs, claimants or petitioners  to have a common set of solicitors appears to be in order to ensure consistency in the prosecution of a claim. The rule can be seen as far back as in Wedderburn v Wedderburn (1853) 17 Beav 158, where Sir John Romilly M.R. held that:

“Mr. and Mrs. Hawkins may, in concurrence with the other four co-plaintiffs, remove their solicitor, and the other four may allow him to conduct the proceedings for all. But if the plaintiffs do not all concur, Mr. Hawkins cannot take a course of proceeding different and apart from the other plaintiffs, for the consequence would be, that their proceedings might be totally inconsistent. When persons undertake the prosecution of a suit, they must make up their minds whether they will become co-plaintiffs; for if they do, they must act together. I cannot allow one of several plaintiffs to act separately from and inconsistently with the others.”

In the English Court of Appeal case of Lewis And Another v Daily Telegraph Ltd. (No. 2) [1964] 2 QB 601, it was held that:

“In my view, it was not regular, and not in accordance with the proper practice, that two firms of solicitors should be placed on the record as representing the plaintiff Lewis and the plaintiff company separately.”

Similarly, in the Supreme Court of Victoria decision of Goold and Porter Proprietary Limited v Housing Commission [1974] VR 102, it was held that:

“There seems to be a long line of authority to the effect that plaintiffs, where there is more than one plaintiff in an action, must appear by the same counsel. The cases seem very largely to be equity cases but the matter is stated categorically in the authorities Wedderburn v Wedderburn (1853) 17 Beav 158; Davey v Watt (1902) 28 VLR 24; Lewis v Daily Telegraph [1964] 2 QB 622 [*4]; [1964] 1 All ER 705; Odgers on Pleading and Practice, 18th ed., p. 16; Halsbury, 3rd ed., vol. 3, p. 72; Newton v Ricketts (1848) 2 Phil 624; Ballard v White (1843) 2 Hare 158 at p. 159; Swift v Glazebrook (1842) 13 Sim 185; Re Norwoods Patents (1895) 11 RPC 214, at p. 221; Re Wright, [1895] 2 Ch 747 at p. 748) to which I have been referred, including one in this Court which was decided by Holroyd, J, Davey v Watt (1902) 28 VLR 24; 8 ALR 90.

In Lewis v Daily Telegraph (No. 2) [1964] 2 QB 601 at p. 623, [1964] 1 All ER 705, there is a dictum of Russell, LJ, which does indicate his Lordship’s view that where there are a number of plaintiffs in an action, whether that action is a consolidated action or not, there is a discretion to allow separate representation to the plaintiffs. But that appears, on a review of the authorities by counsel, to be the only reference to the possibility in an action of this kind which is not a consolidated action, of plaintiffs appearing by separate counsel. The condition of the plaintiffs so doing is stated to be to avoid injustice, and his Lordship indicates that it must be rare.

In the absence of any other authority suggesting that there is a discretion, I am disposed to the view that there is no discretion in the case of an action which is not a consolidated action, and that, therefore, I should refuse the application which has been made by Mr. Marks and by Mr. Eames, for the plaintiffs, in this action, or some of them, to appear by separate counsel. I say ‘or some of them’ because some of the plaintiffs are not here at this moment, either in person or by solicitor or counsel, so I am told. However that may be, and assuming that I have a discretion, I am of the opinion that no injustice would be done to the plaintiffs by requiring them all to appear by the same counsel. I am satisfied that the only conflict that might arise between them is not related in any way to the relief sought in the action; it might well be that different considerations would actuate different plaintiffs in certain eventualities but those eventualities, which I do not more particularly refer to, seem to me to have nothing to do with the actual conduct of the action as it appears on the pleadings. And I think that the interests of the plaintiffs to the extent that they may differ, could be well looked after by solicitors or solicitors and counsel who are not appearing in the action, and they do not have anything to do with the conduct of the action.”

Therefore, allowing both AmBank and Jadeline to be co-Petitioners may not have been possible since both parties would have wanted their own solicitors. The Court would then have had to make the difficult choice on who to select from the two competing parties. I am not aware of what are the guiding principles on how to select between these two competing parties.

 

 

Indemnity Costs for Initiating Court Proceedings in Breach of Arbitration Clause

I had earlier written about the case for indemnity costs in opposing arbitral awards. This was in the context of costs being awarded on an indemnity basis where there was an unsuccessful attempt at setting aside an award or resisting an enforcement of an award.

In my earlier article, I had pointed out that the English courts may award indemnity costs where proceedings are brought in breach of a binding arbitration agreement. In the High Court decision of A v B (No 2) [2007] EWHC 54 (Comm), court proceedings were stayed as the proceedings were brought in breach of an arbitration agreement. It was held that as the breach had caused the innocent party to incur legal costs, those costs should normally be recoverable on an indemnity basis.

The approach in A v B has now been adopted in Australia in the Supreme Court of Western Australia decision of Pipelines Services WA Pty Ltd v ATCO Gas Australia Pty Ltd [2014] WASC 10. The Court had ordered Pipeline to pay costs on an indemnity basis to ATCO when ATCO had successfully applied for a stay of proceedings under section 8 of the Commercial Arbitration Act 2012.

In making this order, the Court confirmed the application of the principle in the English case of A v B [2007] EWHC 54 that indemnity costs will generally be awarded where a party commences legal proceedings in breach of a contractual obligation to refer a dispute to arbitration.

I am not aware of the Malaysian Courts having determined whether costs on an indemnity basis should be allowed if there is a successful stay of Court proceedings under section 10 of the Arbitration Act 2005. Hopefully this case for indemnity costs can be canvassed before the Courts.

Shareholder Oppression Action Not Arbitrable

The Singapore High Court in the Silica Investors case (Silica Investors Ltd v Tomolugen Holdings Limited and others [2014] SGHC 101) refused a stay of an oppression action initiated by a shareholder pending a reference to arbitration. The Court found that based on the facts of the case, the minority oppression claim was non-arbitrable. There were relevant parties, including other shareholders, who were not parties to the arbitration. Further, the Plaintiff in the oppression action was seeking for remedies that the arbitral tribunal could not grant, including winding up.

Briefly, there was an arbitration clause in an agreement between only two of the shareholders. The Plaintiff filed an oppression action against both the party to the arbitration agreement as well as against non-parties (being the directors and some of the other shareholders of the Company). The Plaintiff sought a share buy-out order, an alternative prayer for winding up, and for several declaratory orders.

The Judge took great lengths in looking at the developments in Australia, Canada and the UK, and the academic commentary arising from those cases. In particular, the Judge distinguished the English Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards and another [2012] Ch 333 (where an unfair prejudice action was stayed pending arbitration) as the unfair prejudice relief in that case was for a specific injunction Order. There was no possibility of a share buy-out or winding up in that case.

This is a fascinating area of the law where there is still no clear answer on the right balance to be struck. On the one hand, there is the policy of interpreting an arbitration clause as wide as possible in order for contracting parties to be bound by their bargain to go to the exclusive forum of arbitration. On the other hand, parties e.g. shareholders, may still want to rely on their statutory remedies and the Court will have to consider whether a dispute is arbitrable or not.

Leave to Proceed Against Company in Voluntary Liquidation

The Court of Appeal departed from well-established insolvency principles that leave of Court is not required for an action or proceeding against a company in a members’ voluntary winding up. The Court of Appeal in Westech Sdn Bhd (in voluntary liquidation) v Thong Weng Lock (as surviving partner of Thong Kee Trading Co) [2014] 3 MLJ 427 held that case law had established that leave of Court under section 263 of the Companies Act 1965 (“Act”) was required whether the winding up was a members’ voluntary winding up or otherwise. This finding appears to have been made obiter dictum since the the company before the Court was in creditors’ voluntary winding up, and not in a members’ voluntary winding up.

By way of background, there are two forms of voluntary winding up. The first is termed a members’ voluntary winding up. The company must be solvent, and the directors and members resolve to wind up the company. The creditors must be paid in full in such a situation. The second is a creditors’ voluntary winding up. The company in this case is insolvency. The decision to wind up the company is still made by the directors and members, but the creditors (through a creditors’ meeting) have the ability to choose the liquidator of the company. These forms of voluntary winding up is contrasted with a compulsory winding up, or otherwise known as the Court-ordered winding up. Here, the common situation is of a creditor filing a Petition to wind up the company on the grounds of insolvency.

It is quite clear that section 263 of the Act applies only in a creditors’ voluntary winding up situation. Section 263(1) refers to the “commencement of a creditors’ voluntary winding up” and where section 263(2) states that after the “commencement of the winding up no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes.” Further, section 263 is contained in the section of the Act titled “Subdivision (3) – Provisions applicable only to Creditors’ Voluntary Winding up.” This provision requiring leave of Court is similar to a compulsory winding up situation where section 226(3) provides for a similar stay and no action or proceeding shall be proceeded with or commenced against the wound up company except by leave of Court. The legislative intent of these two provisions is that the liquidator of the wound up company should not be forced to incur unnecessary expenses through defending legal actions if the creditors can obtain their relief within the winding up process through the filing of a Proof of Debt.

On the other hand, the situation is different in a members’ voluntary winding up. The company would have been solvent and the creditors should be paid off in full. Therefore, the Act is silent in providing any form of statutory stay of proceedings or enforcement. In fact, ordinarily in a members’ voluntary winding up, the onus is then on the liquidator to formally apply to the Court for an order for a stay of such actions and proceedings. This could be done through an application under section 274(1)(b) read with section 226(3) of the Act. There is some discussion of these circumstances in a members’ voluntary winding up in the English Court of Appeal decision of Gerard v Worth of Paris Ltd [1936] 2 All ER 905.

Having set out the law, we then come to the facts of Westech. The High Court had allowed a leave application filed under section 263(2) of the Act and where the Court of Appeal overturned this High Court decision. I will not touch on the merits of the decision although it was an unusual leave application and on the merits, the Court of Appeal had very good grounds in setting aside the High Court decision. It is important to emphasise that it appears that Westech concerned a creditors’ voluntary winding up. Publicly available information shows that Westech Sdn Bhd commenced its creditors’ voluntary winding up process on 26 October 2006. However, it appears that the arguments made before the Court of Appeal (see for example [24]) was on the basis that the company was in a members’ voluntary winding up. Hence, the reference to the Declaration of Solvency made under section 257 of the Act (which applies only to a members’ voluntary winding up).

Nonetheless, I am unable to agree with the finding by the Court of Appeal at [34] of the decision that the language of section 263(2) of the Act makes no distinction between a voluntary winding up by members of the company or winding up by a creditor on the ground of the company’s insolvency. I have set out the analysis above on how section 263 of the Act should only apply to a creditors’ voluntary winding up situation.

 

 

10 Things I Wish I’d Known as a Young Lawyer

I will be speaking at the University of Malaya Law Career Convention 2014 tomorrow from 12-1pm on a topic entitled “10 Things I Wish I’d Known as a Young Lawyer.” You can click over to my Prezi presentation (I can’t seem to embed it anymore to WordPress).

Also, I set out below a list of recommended reading which I will be referring to in my talk tomorrow.

List of Recommended Further Reading

Good English

Read Widely, Store Knowledge

  • Kehakiman website for the latest unreported Malaysian appellate authorities.
  • UK Supreme Court for recent Supreme Court decisions and the useful Press Summaries.
  • Lexis MLJ alerts and CLJLaw alerts.
  • LoyarBurok for legal-related posts and current affairs.
  • Modern Advocacy Perspectives from Singapore – each chapter is written by a Senior Counsel to shed their thoughts and tips on the litigation process.
  • Ladies and Gentlemen of the Jury: Greatest Closing Arguments in Modern Law – in particular, the closing arguments for the Nurenberg trial is awe-inspiring.

Embrace Technology

  • Inbox Zero.
  • Feedly for cloud RSS.
  • Storage of all information, contacts and calender on the cloud.
  • Desktop search engines.

Gaining Commercial Knowledge

Finding Your Passion

Significance of the Malaysian Bar

Other recommended reading

Corporate Rescue Talk at MIA

I was invited by the Malaysian Institute of Accountants to deliver a talk on 4 March 2014 focusing on the insolvency-related provisions of the Companies Bill. It was an interesting session, with a lot of questions and a lively discussion among the participants. The areas I touched on were the changes to the receivership, winding up and schemes of arrangement provisions, and the introduction of judicial management and the corporate voluntary arrangement.

rescue

A copy of my slides can be downloaded here.