Polar Opposites: Setting Aside a Foreign Arbitral Award

Originally published in Skrine’s Legal Insights Issue 3/2012

The High Court has confirmed in its oral grounds of judgment in Twin Advance (M) Sdn Bhd v Polar Electro Europe BV (Penang High Court Originating Summons No. 24-2292-12/2011) that where the seat of arbitration is outside of Malaysia, the Malaysian Courts have no jurisdiction under section 37 of the Arbitration Act 2005 (“the Act”) or under its inherent jurisdiction to set aside such an arbitral award.

BRIEF FACTS

The foreign defendant commenced arbitration proceedings against the Malaysian plaintiff where the seat of arbitration was in Singapore. The defendant obtained an arbitral award for damages and thereafter commenced proceedings to enforce the award in Malaysia under section 38 of the Act.

The plaintiff then filed an Originating Summons in the Malaysian courts to set aside the arbitral award, relying on section 37 of the Act. The defendant obtained leave to enter conditional appearance and applied to strike out the proceedings under the Originating Summons on the grounds that the Malaysian courts had no jurisdiction to hear such an application and that any application to set aside the arbitral award should have instead been made in the Singapore courts where the seat of arbitration was.

MODEL LAW AND NON-INTERFERENCE

On 7 August 2012, the Court read out its oral grounds of judgment allowing the defendant’s striking out application. The Court first highlighted the historical context of the Act and the adoption of the United Nations Commission on International Law (UNCITRAL) Model Law on International Commercial Arbitration 1985 (“Model Law”). The Court also agreed with the approach that it was Parliament’s intention to limit the Court’s intervention in international arbitrations and that the Court may only exercise such powers if the Act expressly provides the Court with such powers.

The Court also referred to the Officiating Address by the Chief Justice of Malaysia at the Launch of the KLRCA Fast Track Rules made on 27 February 2012. The Chief Justice had stressed that with the amendments to the Act that came into force in July 2011, the Courts are more receptive to respecting the parties’ choice to go for arbitration. The Chief Justice had also highlighted that section 8 of the Act (being identical to Article 5 of the Model Law) states in clear terms that no court shall intervene in matters governed by the Act, except where expressly provided in the Act.

THE PLAINTIFF’S ARGUMENTS

The plaintiff advanced two main arguments in support of its contention that the Court had jurisdiction under the Act to hear the setting aside. Firstly, that the plain wording of section 37 of the Act (which is based on Article 34 of the Model Law) provides that “an award may be set aside by the High Court” and makes no reference to whether the award had its seat of arbitration in or outside of Malaysia.

Secondly, the plaintiff submitted that as the grounds for setting aside listed in section 37 of the Act are also repeated in the grounds for resisting enforcement under section 39 of the Act, it would be inconsistent to hear the grounds listed in section 39 without also being able to apply the grounds in section 37 of the Act.

FINDING OF NO JURISDICTION

The Court disagreed with the plaintiff’s submissions. The Court held that section 3 of the Act, being based on Article 1(2) of the Model Law, makes it clear that the provisions of the Act would not apply to any arbitration with the seat of arbitration outside of Malaysia. Nonetheless, it further held that section 3 is a general provision which must be read subject to any specific provisions under the Act, for instance enforcement under sections 38 and 39 of the Act (which are based on Articles 35 and 36 of the Model Law). Section 38 has a specific reference to “an award from a foreign State” while section 39 contained the wording “irrespective of the State in which it was made”.

Under the recent amendments to the Act, both section 10 which relates to a stay of Court proceedings (based on Article 8 of the Model Law) and section 11 which allows for interim measures (based on Article 9 of the Model Law) also expressly state that they apply to international arbitrations with the seat of arbitration outside of Malaysia.

The Court further went on to hold that there was a glaring distinction in the references to “an award from a foreign State” and “irrespective of the State in which it was made” in sections 38 and 39 respectively which were omitted from the wording of section 37 of the Act.

The Court also noted that sections 37(2)(a) and (b) of the Act listed out additional grounds allowing for the setting aside of an award which were absent in the grounds listed in section 39 of the Act.

On the basis of statutory interpretation, the Court held that the different wording in sections 38 and 39 compared with section 37 of the Act was not unintentional. It was intended for section 37 to be read in harmony with section 3 which would then only apply where the seat of arbitration is in Malaysia. Sections 38 and 39 are to be construed as an exception to the general position of section 3 of the Act.

Such an interpretation was in line with the Model Law framework and also consistent with the Federal Court authorities of The Government of India v Cairn Energy India Pty Ltd & Anor [2011] 6 MLJ 441 and Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd [2010] 2 MLJ 23 which held that a setting aside of an award must be applied to the court at the seat of arbitration. While the Court recognised that these authorities were decided under the previous Arbitration Act 1952, the same principles would still apply in interpreting sections 37, 38 and 39 of the present Act.

Having held that section 37 of the Act was not applicable for the award where the seat of arbitration is outside of Malaysia, the Court then considered whether it could invoke its inherent jurisdiction in an application for setting aside. The Court answered in the negative and adopted the Court of Appeal decision of Sarawak Shell Bhd v PPES Oil & Gas Sdn Bhd & Ors [1998] 2 MLJ 20 in finding that the Court has no inherent jurisdiction to interfere with arbitrations.

It was held that it was the consensus of the parties to arbitrate any dispute and for the seat of arbitration to be in Singapore. The plaintiff’s remedy was clearly unaffected as it could have gone to the Singapore Courts to make the necessary application for setting aside. Therefore, the application pursuant to section 37 of the Act could not be maintained for want of jurisdiction and the Court struck out the proceedings. The plaintiff has since filed an appeal against this decision.

COMMENTARY

It is clear from this decision that an application to set aside an arbitral award under section 37 cannot be equated with the opposition to an application to enforce an arbitral award under section 39 of the Act. The former applies only to arbitral awards where the seat of arbitration is in Malaysia whereas the wording of section 39 makes it clear that that provision applies to an arbitral award irrespective of the State in which it was made.

This decision is significant in confirming that Malaysian Courts have no jurisdiction, whether under the Act or under its inherent jurisdiction, to set aside any foreign arbitral awards i.e. an award where the seat of arbitration is outside of Malaysia. This interpretation of the Act harmonises Malaysia’s arbitration laws with that of the approach under the Model Law. The proper venue for setting aside of such a foreign arbitral award must be the national courts of the seat of arbitration.

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One thought on “Polar Opposites: Setting Aside a Foreign Arbitral Award

  1. Pingback: Grounds of Judgment of Twin Advance v Polar Electro Europe BV | Of Counsel

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