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.


CJ Menon’s Cautionary Notes for an Age of Opportunity

The Chief Justice of Singapore cautions on the issues arising from dramatic growth of new entrants, third-party funding and rising costs in international arbitration.

At the Chartered Institute of Arbitrators International Arbitration Conference held in Penang on 22 August 2013, which I had the pleasure of attending, The Honourable The Chief Justice Sundaresh Menon delivered his keynote address entitled “Some Cautionary Notes for an Age of Opportunity.”

Chief Justice Menon highlighted the essential role that arbitration plays in the global infrastructure and in the development of an international rule of law. However, he cautioned that how successfully this Titanic continues to sail ahead would depend on the diligence of its stewards in spotting and reacting to the approaching icebergs.

He identified three distinct issues which he believed the international arbitration community needed to take cognizance of.

1. Dramatic growth in number of new entrants

The first was the “explosive growth in the number of new entrants to the global arbitration community, many from diverse legal traditions“. The result, he feared, was that: “[i]mplied understandings or shared values no longer provide any meaningful means of shaping or influencing conduct in this context. Arbitrators can no longer consider themselves bound by peer standards, because there are no peers in the true sense, amidst all this diversity.”

Chief Justice Menon posed the question as to what yardstick should be applied in the present setting of a largely unregulated industry with little, if any, barriers to entry. Drawing an analogy from sports, “[i]f football were played without rules but with massive stakes and rewards, how would we condemn those playing the man instead of playing the ball?’

2. Third-Party Funding

The second issue was “the growing incidence of third party funding and the participation of funds in international arbitration” and the “virtual absence of any form of regulation” in contrast to third party funding for litigation.

Chief Justice Menon gave examples of a European gas company announcing that a Luxembourg fund would finance its €1 billion ICSID claim and of a Canadian mining company having made an agreement with a third-party funder to cover the costs of a multi-billion arbitration claim brought by its subsidiary against Bolivia.

In particular, he touched on how the prevalent use of third-party funding in international arbitration has seen the emergence of a market for the sale of the payment obligation that will be owed by the claimant in the event of success, as a chose in action to third-party speculators. Such practices are reminiscent of and have the potential to replicate the vulture funds that were prevalent in the 1990s.

Would funders create a portfolio of high risk claims, consisting of frivolous or unmeritorious claims, hedged by low risk claims, consisting of claims with a good chance of success, and sell them as a diversified basket of claims to third-party speculators? This would make it possible to profit from frivolous and unmeritorious claims that would not otherwise have a market with speculators if they were sold individually.

3. Rising Cost

Finally, Chief Justice Menon raised the issue of the rising costs of international commercial arbitration and warned that there was a “growing recognition amongst users that the level of costs in international arbitration is rising at an unsustainable rate“.

While he acknowledged the various reasons for such rising costs, he stated that it was “unsatisfactory that the international arbitral community has not acted with dispatch to address this issue. On the contrary, the trend might even point somewhat the other way“.

4. Possible Responses to these Challenges

Chief Justice Menon suggested two ways to combat these three issues.

The first is to develop and implement codes of ethics to set uniform standards for both arbitrator and counsel conduct. He then proceeded to distinguish the common arguments in opposing the implementation of such a uniform code.

The second is for arbitral institutions to play a larger role in developing and implementing a regulatory framework to apply and enforce such standards.

This speech completed a trilogy of views expressed by Chief Justice Menon on the topic of international arbitration. The first were the views expressed in his keynote address at the 21st International Council for Commercial Arbitration Conference on 11 June 2012 which were then expanded on at the seminar at Queen Mary, University of London on 27 September 2012.

Federal Court Ajwa decision on the Arbitration Act 2005

The Federal Court has recently released its Grounds of Judgment for its decision in the arbitration case of Ajwa for Food Industries Co (MIGOP), Egypt v Pacific Inter-link Sdn Bhd. This is the first reported Federal Court decision relating to the Arbitration Act 2005 and I had written earlier on the Court of Appeal decision.

The facts of this case involved Court applications to set aside or vary two PORAM arbitration awards. The parties had dealt with each other in an informal basis and that agreements were concluded through telephone conversations and email exchanges prior to any formal documentation. The Appellant, Ajwa, did not dispute purchasing the products from the Respondent, Pacific. Ajwa contended however that it never agreed to refer any disputes to PORAM arbitration.

Ajwa’s contention was that the Sales Contracts relied on by Pacific did not contain any specific dispute resolution clause and in most cases, were unsigned. Pacific had also relied on certain Standard Terms and Conditions (“STC”) and which Ajwa contended it had never seen nor agreed to. Therefore, Ajwa’s case for setting aside was essentially that the PORAM Tribunal had no jurisdiction to conduct the arbitral procedings as there was no agreement, written or otherwise, to refer the disputes arising from the purchases.

The Federal Court had granted leave to appeal on these two questions of law:

1st Question:

Whether for the purpose of section 9(5) of the Arbitration Act 2005, the agreement in writing where a reference is said to be made to a document containing an arbitration clause must satisfy the conditions of an agreement in writing as set out in section 9(4) of the Arbitration Act 2005.

2nd Question:

Whether an arbitration agreement in writing in respect of specific transactions, can be constituted by reference in an agreement to a document containing an arbitration clause pursuant to section 9(5) of the Arbitration Act 2005, where:

(i) The document containing an arbitration agreement is not attached to the purported agreement or otherwise published; and/or

(ii) Notice of the document containing an arbitration clause is purportedly founded on past conduct of the parties in referring to arbitration disputes arising out of unrelated transactions.

It was held at [28] that:

  1. There is no requirement under the Act that where a reference is said to be made to a document containing an arbitration clause in an agreement, that agreement must be signed. In the present case, it is clear that the contract of sale was in writing and satisfies the requirement of section 9(4) of the Act. That agreement in writing incorporates the STC which contains the arbitration clause and satisfies the requirement of section 9(5) of the Act.
  2. Section 9(5) of the Arbitration Act does not require that the STC which contains the arbitration agreement being attached or published. It is sufficient that the incorporation is by notice in the document.

I was anticipating this Federal Court decision not so much on the specific legal issues raised but more on the chance for our apex Court to lay down a conclusive pro-arbitration policy for the judiciary under the Arbitration Act 2005. From that aspect, I was left disappointed.

Intelek Timur Sdn Bhd v Future Heritage Sdn Bhd [2004] 1 MLJ 401 (FC) but this was under the old Arbitration Act 1952. In my view, it would have been useful for our apex Court to have seized this opportunity to explain the significance of our Arbitration Act 2005 in adopting the Model Law and to reiterate the policy of judicial non-interference save in the exceptional and the specific circumstances provided for under Model Law / the Arbitration Act 2005.

This pro-arbitration approach by the judiciary can be seen time and time again in the apex Court of Singapore. We see such a pronouncements such as in the decisions of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86 (CA), Tjong Very Sumitomo and others v Antig Investments Pte Ltd [2009] 4 SLR 732  (CA) and AJU v AJT [2011] 4 SLR 739 (CA). In England, we also see a similar pro-arbitration stance taken by the House of Lords in Fiona Trust & Holding Corporation & Ors v Privalov & Ors [2007] 4 All ER 951 (HL).

It is hoped that in the near future, through the guidance of submissions of Counsel, Malaysia’s Federal Court will lay down this marker that Malaysia is very much in support of the party’s right to choose arbitration and that the Court will not easily interfere in the arbitration process.

The Case for Indemnity Costs in Opposing Arbitral Awards

[Originally published in the Malaysian Institute of Arbitrators Newsletter 2013]

In upholding the contractual agreement for parties to arbitrate a dispute, a party who obtains an arbitral award in his favour should be entitled to expect that the Court will enforce the award as a matter of course. After the award has been issued however, the successful party will likely still face Court challenges by the losing party through an application filed to set aside the award or to oppose the enforcement of the award.

If such an application is unsuccessful however, there may be a case to argue that the successful party should then be allowed costs on the higher indemnity basis rather than just the standard basis.

This article will analyse how the different jurisdictions have dealt with this issue and how in Malaysia, there is a case for costs on an indemnity basis to be awarded in such unsuccessful challenges to an arbitral award.

Hong Kong’s Position in Support of Indemnity Costs

The Hong Kong Court of Appeal in Pacific China Holdings Ltd (in Liquidation) v Grand Pacific Holdings Ltd [2012] HKCA 332 has affirmed the principle that an unsuccessful party in applying to set aside an arbitral award, or in resisting the enforcement of the award, in the absence of special circumstances, will be liable to pay costs on an indemnity basis.

The Court of Appeal affirmed the principle set out by Reyes J in the Hong Kong Court of First Instance case of A v R [2009] HKCFI 342 and its own approach in Gao Haiyan & Anor v Keeneye Holdings Ltd & Anor (No 2) [2012] 1 HKC 491 in holding that, given that the parties had agreed to arbitration, applications by a party to set aside an arbitral award or to resist enforcement should be exceptional events.

The reasoning is that if the losing party is only made to pay costs on a conventional party-and-party basis, the winning party would in effect be subsidising the losing party’s abortive attempt to frustrate enforcement of a valid award. The winning party would only be able to recover about two-thirds of its costs of the challenge and would be out of pocket as to one-third. This is despite the winning party already having successfully gone through an arbitration and obtained an award in its favour. The losing party, in contrast, would not be bearing the full consequences of its abortive application.

Therefore, it now appears quite settled in Hong Kong that the onus is on the losing party who is unsuccessful in such a challenge to demonstrate the special circumstances why an indemnity costs order ought not be granted.

Australia and England

By contrast to the Hong Kong position however, the cases from Australia and England adopt the position that in an unsuccessful challenge to an arbitral award, costs should still only be awarded on the standard basis unless there are other circumstances to justify an indemnity costs order.

In Australia, the Court of Appeal of Victoria in IMC Aviation Solutions Pty Limited v Altain Khuder [2011] VSCA 248 considered the issue of whether indemnity costs should be awarded in an unsuccessful challenge to an arbitral award. The Judge at first instance had adopted the approach of Reyes J in A v R in awarding such indemnity costs. However, the Court of Appeal overturned this decision and held that there was nothing in the Victorian civil procedure statute or in the nature of enforcement proceedings for arbitral awards which, of itself, warranted costs being awarded against an unsuccessful party on a basis different from that on which they would have been awarded in other civil proceedings. The general position would be that costs will ordinarily be awarded against the unsuccessful party on the standard basis unless the successful party can establish special circumstances.

In England, the English courts may likely 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) for example, 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.

Similar to the Australian position however, the English decisions have not appeared to adopt the Hong Kong approach in leaning towards awarding indemnity costs for unsuccessful challenges. The general position is that an order for indemnity costs will be made only where there is some conduct or some circumstances which takes the case out of the norm (see the English High Court decision of Fiona Trust & Holding Corporate and ors v Yuri Privalov and ors [2011] EWHC 664 (Comm) summarising the general principles justifying the award of indemnity costs).

The English High Court decision of Exfin Shipping (India) Ltd. Mumbai v. Tolani Shipping Co. Ltd Mumbai, [2006] EWHC 1090 (Comm) is an example where costs were awarded on an indemnity basis. The applicant was unsuccessful in applying to set aside an arbitral award and it was held that the applicant had acted in its own perceived commercial interest and without merit. That was sufficient to take the case “out of the norm” thus justifying the order for indemnity costs.


An award of costs on an indemnity basis is set out in Order 59 Rule 16(4) of the Rules of Court 2012 (“RC”) which essentially allows for all costs except in so far as they are of an unreasonable amount or have been unreasonably incurred.

The issue of whether costs on an indemnity basis should be allowed in unsuccessful challenges to an arbitral award does not appear to have been considered by the courts here. Thus far, the general principle in Malaysia on indemnity costs would also require something out of the norm in order to depart from costs on the standard basis. The Federal Court in Takako Sakao (f) v Ng Pek Yuen (f) & Anor (No 2) [2010] 2 MLJ 181 set out some of the guideless for an award of indemnity costs and emphasised that the discretion to award such costs is unfettered.

Order 59 Rule 8 of the RC does provide some guidance on the special matters to be taken into account in the exercise of the Court’s discretion in the award of costs, one of which is to consider the “conduct of all parties, including before and during the proceedings.” The act of challenging an arbitral award can be seen as an exceptional event (see this general sentiment expressed in the Federal Court decision of Intelek Timur Sdn Bhd v Future Heritage [2004] 1 MLJ 401 and the Court of Appeal in AJWA For Food Industries Co (MIGOP), Egypt v Pacific Inter-Link Sdn Bhd and another appeal [2013] 2 CLJ 395). Therefore, similar to the Hong Kong position, the losing party should bear the full consequences of its unsuccessful attempt at challenging the award by being penalised with indemnity costs.

It remains to be seen which direction we will move towards and whether we will adopt the more punitive approach of awarding indemnity costs for unsuccessful challenges to an award. This may then enhance Malaysia’s position as an arbitration-friendly jurisdiction, with the courts upholding awards and discouraging frivolous challenges.

Satellite Wars: A Commentary on the Astro v Lippo Arbitration Dispute

[Originally published in Skrine’s Legal Insights Issue 4/2012]

In the Singapore High Court decision of Astro Nusantara International BV and others v PT Ayunda Prima Mitra and others [2012] SGHC 212, the Plaintiffs from the Astro group of companies (“the Astro Claimants”) succeeded in enforcing five arbitral awards totalling more than US$250 million against the Defendants from the Lippo group of companies (“the Lippo Respondents”).

Although the case was decided under the provisions of the Singapore International Arbitration Act (“IAA”), the decision is also useful in the Malaysian context for the interpretation of the Arbitration Act 2005 (“Malaysian Arbitration Act”).

This article will first set out a brief overview of the relevant provisions of the IAA before going on to discuss the facts and the legal issues of the case.


The IAA follows closely the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). Section 3 of the IAA states that, subject to the IAA, “the Model Law, with the exception of Chapter VIII thereof, shall have the force of law in Singapore.” The excluded Chapter VIII of the Model Law deals with the enforcement, and opposition to the enforcement of arbitral awards. There are a number of Articles of the Model Law (incorporated by IAA) and Singapore procedure which are relevant to the facts and disputes of the case.

First, Article 16 of the Model Law provides that the arbitral tribunal may rule on its own jurisdiction either as a preliminary determination or as a determination within the award on the merits. Where the arbitral tribunal makes such a preliminary determination on jurisdiction, the dissatisfied party may, under Article 16(3) of the Model Law (equivalent to section 18(8) of the Malaysian Arbitration Act), appeal to the Singapore High Court within 30 days.

Secondly, Article 34 of the Model Law (similar to section 37 of the Malaysian Arbitration Act) sets a time limit of 90 days for a dissatisfied party to apply to the Singapore High Court to set aside an arbitral award.

Lastly, in terms of enforcing an arbitral award and recognising such award as a Singapore Court Judgment, the Singapore procedure allows the Court to grant leave to enforce the award on an ex parte basis (i.e. without the presence of a respondent). The Order must be served on the respondent who may then apply to set aside the Order within a prescribed time frame.


In 2008, the Astro Claimants (consisting eight companies) initiated arbitration proceedings against the Lippo Respondents (being three companies) under the auspices of the Singapore International Arbitration Centre. The dispute concerned a failed joint venture relating to the supply of satellite-delivered direct-to-home pay television services in Indonesia.

The Astro Claimants succeeded in obtaining five arbitral awards against the Lippo Respondents, totalling more than US$250 million. The Astro Claimants then obtained leave from the Singapore High Court to enforce the five awards against the Lippo Respondents (“Enforcement Orders”) and attempted to serve the Enforcement Orders on the Lippo Respondents in Indonesia.

In this dispute, there were two important time limits that had passed. Firstly, in the course of the arbitration, the Lippo Respondents had challenged the jurisdiction of the arbitral tribunal on the ground that three of the Astro Claimants were not parties to the arbitration agreement. The tribunal ruled by way of a preliminary determination that it had the jurisdiction to adjudicate the disputes in the arbitration. The Lippo Respondents did not to appeal to the Singapore Court against this decision within the 30 days period prescribed under Article 16(3) of the Model Law. Instead, the Lippo Respondents chose to continue with the arbitration proceeding under protest, and filed a counterclaim against the Astro Claimants in the arbitration. The time limit for appeal against this determination of jurisdiction had long passed.

Secondly, after the five arbitral awards were issued in favour of the Astro Claimants, the Lippo Respondents did not to apply to the Singapore High Court to set aside the awards within the 90 days period prescribed under Article 34 of the Model Law. As such, the time limit for doing so had also expired.

The Enforcement Orders were then purportedly served on the Lippo Respondents in Indonesia. After the expiry of the period to set aside the Enforcement Orders, the Astro Claimants entered judgment against the Lippo Respondents. The Lippo Respondents subsequently applied to challenge the service of the Enforcement Orders and to challenge the enforcement of the awards on the ground that the tribunal had no jurisdiction to join three of the Astro Claimants in the arbitration.


The Lippo Respondents challenged the validity of service of the Enforcement Orders. The High Court ruled that there was no proper service of the Enforcement Orders and gave leave to the Lippo Respondents to challenge the enforcement of the awards.

Of greater significance, however, were the issues concerning the challenge to the enforcement of the awards. These issues gave rise to certain novel questions of law and which led to the Singapore Court having earlier allowed the ad hoc admissions of foreign counsel, namely David Joseph QC for the Astro Claimants and Toby Landau QC for the Lippo Respondents, to argue the matters in the Court.

There were two significant issues concerning the challenge to the enforcement of the awards, viz:

1. Whether the Lippo Respondents were entitled to resist the enforcement of the awards in the country in which the awards were made when they did not take any steps to set aside those awards within the prescribed time frame; and

2. Whether the Lippo Respondents had a right to revive a challenge based on the alleged lack of an arbitration agreement and a misjoinder of some of the Astro Group companies to the arbitration well after the award had been made.

Issue 1: Failure to Apply to Set Aside and Ability to Resist Enforcement

Under the Model Law, it is generally accepted that there are two forms of challenging an award. The first is an ‘active’ remedy under Article 34 (equivalent to section 37 of the Malaysian Arbitration Act) to apply to set aside the award. The second is a ‘passive’ remedy under Article 36 (equivalent to section 39 of the Malaysian Arbitration Act) where the resisting party can wait until an application is made to enforce the award under Article 35 (equivalent to section 38 of the Malaysian Arbitration Act) and at that point in time, raise the grounds under Article 36 to oppose the enforcement.

As explained by the Singapore High Court, the IAA makes a distinction between an international arbitral award rendered in Singapore (i.e. a domestic international arbitral award) and an international arbitral award rendered in a foreign New York Convention country (i.e. a foreign international arbitral award).

For an international arbitral award (whether domestic or foreign), the IAA specifically excludes the mechanism of opposing the enforcement provided in Chapter VIII of the Model Law i.e. Articles 35 and 36. However, in respect of a domestic international arbitral award, an award is deemed “final and binding” under section 19B of the IAA, but subject to the express right of the dissatisfied party to resort to the sole and exclusive challenge through the setting aside mechanism.

Although Chapter VIII of the Model Law is excluded by the IAA, in the case of a foreign international arbitral award, the dissatisfied party may still oppose the enforcement of the award under the prescribed grounds set out in section 31 of the IAA (which reproduces Article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards concluded in New York on 10 June 1958).

The Court pointed out that this difference in approach to domestic and foreign international arbitral awards is not unique to Singapore as several civil law jurisdictions, such as Germany and Quebec also adopt a similar difference in the treatment of domestic and foreign international arbitral awards.

The Court further emphasised that the Model Law more properly resembles civil law rather than common law drafting. Hence, any discussion on the Model Law should draw from arbitration law in civil law jurisdictions.

The Lippo Respondents’ sole avenue of challenge in the Singapore Courts in relation to the arbitral awards was through an application to set aside those domestic international arbitral awards. The Lippo Respondents had failed to do so within the statutorily prescribed time limits. Therefore, the Lippo Respondents could not avail itself of the remedy of opposing the enforcement of those awards.

Issue 2: Failure to Appeal on Jurisdiction Challenge

In relation to the issue of the tribunal’s preliminary determination on jurisdiction, an aggrieved party in such a situation would have three options in attempting to challenge this preliminary determination:

1. Appeal to the Court under Article 16(3) of the Model Law;

2. Choose to leave the arbitral regime in protest and not to appeal under Article 16(3), and boycott the proceedings. Arguably, the boycotting party would then be able to apply to set aside the award under Article 34(2)(a)(i) on jurisdictional grounds; and

3. As arose in the present facts, the aggrieved party could choose not to appeal under Article 16(3) but continue with the arbitral regime by fully participating in the hearing with an express reservation of its rights.

The High Court held that in relation to the third option, it would not be open to a party to hold off bringing a jurisdictional challenge (i.e. by failing to appeal to the Court within the set time limit) and, at the same time, participate in the arbitration on the merits in the expectation that it could revive its jurisdictional challenge at a later stage should it prove to be unsuccessful in the arbitration. Such conduct would make a mockery of the finality and effectiveness of arbitral awards on jurisdiction.

Challenging such an award on jurisdictional grounds is thus excluded from the grounds which a party may invoke at the setting-aside or the enforcement stage if the party has chosen not to bring an appeal under Article 16(3).

It was held there are no passive remedies when it comes to challenging jurisdiction under the IAA – a party wishing to oppose a jurisdictional award must act within the prescribed time frame.

The Singapore High Court cautioned that if a party decides to hedge its bets as the Lippo Respondents had done, the disadvantages and risks of this tactic are dire under the IAA if the outcome is an adverse award on the merits.


Failure to Set Aside and Ability to Resist Enforcement

Unlike the IAA, the Malaysian Arbitration Act permits the dissatisfied party under either a domestic or a foreign international arbitral award to oppose the enforcement of the arbitral award in the enforcement proceeding.

One interpretation of the Malaysian Arbitration Act (and one which is in line with jurisprudence from many other Model Law countries) is that, a party can always opt for either the ‘active’ remedy by applying to set aside an award under section 37 of the Malaysian Arbitration Act or for the ‘passive remedy’ by opposing the enforcement of the award in the enforcement proceeding under section 39 of the Malaysian Arbitration Act.

However, there are High Court authorities that suggest that the failure to set aside an award within the prescribed time limit may be fatal to the party’s subsequent attempt to oppose enforcement (Ngo Chew Hong Oils & Fats (M) Sdn Bhd v Karya Rumpun Sdn Bhd [2009] 1 LNS 1321 and Bauer (M) Sdn Bhd v Embassy Court Sdn Bhd [2010] 1 LNS 1260).

It remains to be seen whether this will be the approach that will be confirmed by the appellate courts.

Failure to Appeal on Jurisdictional Challenge

This Singapore High Court decision on the interpretation of Article 16(3) of the Model Law does provide a useful guide on the interpretation of section 18(8) of the Malaysian Arbitration Act.

Applying the principles of the Singapore High Court decision, if a party fails to appeal to the High Court pursuant to Section 18(8) of the Malaysian Arbitration Act against the arbitral tribunal’s preliminary determination that it has jurisdiction, then the party could possibly be precluded from raising a challenge on jurisdiction in either the subsequent setting aside application of the final award under section 37 of the Malaysian Arbitration Act or in enforcement proceeding under section 39 of the Malaysian Arbitration Act.

The Singapore High Court decision referred to authorities from Germany and Quebec on this point which the Malaysian courts can also draw reference from in the future.

Breaches of a shareholders agreement cannot form oppression

The Federal Court in Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd & Ors and another appeal [2013] 2 MLJ 297 (original Grounds of Judgment here) set out an important (and another possibly controversial) clarification on the law concerning oppression proceedings under section 181 of the Companies Act 1965 (“the Act”).

Raus Sharif PCA (delivering the judgment of the Court) first held that the just and equitable principle under 218(1)(i) of the Act, being principles emanating from the House of Lords decision of Ebrahimi, would equally apply in a situation involving section 181 of the Act. This is very useful and it helps streamline our Malaysia approach to the English approach already set out in the House of Lords decision of O’Neill v Phillips in that the concept of unfairness under section 210 of the English Companies Act (the equivalent of section 181 of the Act) is parallel to the concept of “just and equitable” expounded in Ebrahimi.

But the Federal Court seems to have made a sweeping finding at [37] that matters concerning a shareholders agreement and the breach of such an agreement are not matters relating to the affairs of the company. Therefore, such breaches cannot form the basis for a section 181 action. It was held that these are only private matters enforceable by the parties to the shareholders agreement. I do not think other jurisdictions and other cases in Malaysia have actually made such a far-reaching finding.

Oppression under section 181 of the Act revolves around whether there is commercial unfairness. Such unfairness is judged by the agreement, both formal and informal, reached among the parties. That is why the Articles of Association and, I would have thought, any shareholders agreement would be the primary assessment of whether any of the acts are unfair and are in breach of those formal agreements.

So say for instance, a typical situation where a shareholders agreement provides that there are reserved matters that will require the vote of the minority shareholder / nominated director of the minority shareholder. The shareholders agreement could contain a clause that the Articles of Association would be amended to reflect the terms of the agreement but it is quite common to see that the Articles of Association not amended. If the majority shareholder pushes through certain resolutions (for instance to transfer out assets) which is oppressive against the minority, a direct application of the Jet-Tech decision would mean that the minority shareholder would have not be able to rely on section 181 of the Act. The minority’s remedy may only be to sue for damages for a breach of the shareholders agreement.

I don’t think any Malaysian case or authorities from other jurisdictions have made such a sweeping finding before, in that breaches of a shareholder agreement cannot form the basis of oppression.

On a related note, this statement by the Federal Court, applied directly, may be used in support of the conflict between an arbitration clause in a shareholders agreement and statutory relief under section 218/181 of the Act (see for instance, the English Court of Appeal decision in Fulham Football Club (1987) Ltd The Football Conference Ltd [2011] EWCA Civ 855). It is now quite common to find an arbitration clause in a shareholders agreement. Therefore, if a breach of the shareholders agreement is only a private matter, then there may not be section 181 relief and parties may only be able to rely on the arbitration clause and have the dispute (for instance, the above example of the resolutions passed in breach of the agreement) referred to arbitration.