Court of Appeal – Setting Aside of Arbitral Award under the Arbitration Act 2005 only in narrowly defined circumstances

The Court of Appeal in the Ajwa for Food Industries appeal (in its as-yet unreported grounds of judgment) set out Malaysia’s continued pro-arbitration stance under the Arbitration Act 2005 (“Act”) and of the very narrow circumstances justifying the Court’s setting aside of an arbitral award under section 37 of the Act.

Narrow Circumstances in Allowing for Setting Aside

In the Grounds of Judgment dated 16 May 2011, Ramly Ali JCA held the following:

Section 37 of the Arbitration Act 2005: setting – aside of arbitral award

13. Section 37(1) of the Arbitration Act 2005 provides for the various grounds on which an arbitral award may be set aside. The onus is on the party making the application to provide proof. The court discretion in setting aside arbitral award is now limited to the narrowly defined circumstances in line with the modern international arbitral practice. The effect of the present sections 8, 9, 37 and 42 of the Arbitration Act 2005 is that the court should be slow in interfering with an arbitral award. The court should be restrained from interference unless it is a case of patent injustice which the law permits in clear terms to intervene. Once parties have agreed to arbitration they must be prepared to be bound by the decision of the arbitrator and refrain from approaching the court to set it aside. Constant interference of the court as was the case in the past will defeat the spirit of the Arbitration Act 2005 which is for all intent and purpose to promote one-stop adjudication in line with the international practice (see: Taman Bandar Baru Masai v. Dinding Corporation Sdn Bhd [2010] 5 CLJ 83; and Lesotho Highland Development Authority v. Impregilo Spa [2005] UKHL 43).

While there is a suggestion that “patent injustice” could possibly form a ground for intereference, it would have been preferable for the Court of Appeal to emphasise that the grounds for setting aside any arbitral award must be limited to only the narrowly defined circumstances set out in section 37 of the Act, as this would be in line with the Model Law.

Troubling Interpretation of Section 42 of the Act

On the other hand, the other aspect of this case concerned the Court of Appeal’s troubling interpretation of section 42 of the Act. The Appellant raised a challenge to the jurisdiction of the arbitral tribunal as the Appellant had contended that there was no arbitration agreement in the first place. Therefore, the Appellant wanted to refer a question of law on the existence of such an agreement to the Court under section 42 of the Act. However, this arbitration fell within the definition of an international arbitration under the Act since one of the parties was from Egypt. Therefore, section 3 of the Act clearly states that Part III of the Act (under which section 42 falls) shall not apply unless the parties agree in writing (there was no such agreement). A simple application of the clear wording of section 3 of the Act should have been applied.

The Court of Appeal however was swayed by the argument that it could not have been Parliamentary intent to exclude the ability under section 42 of the Act to refer questions of law to the Court on a fundamental question such as jurisdiction. With respect, it is submitted that this rationale is flawed. Aside from the clear Parliamentary intent in section 3 of the Act (that Part III and therefore section 42 of the Act will not apply in this case), there are already sufficient safeguards in the Act to deal with questions of jurisdiction of the arbitral tribunal. Section 18 of the Act, following the Model Law, allows the arbitral tribunal to decide on its own competence and the jurisdiction of the arbitration. There is an appeal mechanism built in to section 18 allowing an aggrieved party to appeal against such a decision of the tribunal if the tribunal does rule that it has jurisdiction. Further, section 37 of the Act allowing for a setting aside of the award would also allow for a challenge on jurisdiction and similarly, section 39 of the Act in setting out grounds of opposing enforcement also allows for a challenge on jurisdiction.

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One thought on “Court of Appeal – Setting Aside of Arbitral Award under the Arbitration Act 2005 only in narrowly defined circumstances

  1. Pingback: Federal Court Ajwa decision on the Arbitration Act 2005 | Of Counsel

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