Has a recent Malaysian federal court decision watered down the non-interventionist policy enshrined within its arbitration regime?
In overturning the Court of Appeal’s decision, the Malaysian Federal Court, in Jaya Sudhir Jayaram v Nautical Supreme & Ors, held that the test in Keet Gerald Francis Noel John v Mahdi Noor & Ors is the appropriate test to be employed when a stranger to an arbitration agreement applies to injunct ongoing arbitration proceedings undertaken by the parties to the arbitration agreement.
This resulted in a belated curial action initiated by the stranger proceeding and the ongoing arbitration proceedings was injuncted from continuing. The decision is sending shock waves throughout the Malaysian arbitration sector, because the non-interventionist policy of maximum support but minimum interference – consistent with the amendments to the Arbitration Act 1956, leading to the Arbitration Act 2005 (AA 2005) to make it in line with the UNCITRAL Model Law, and endorsed by the Federal Court in Press Metal Sarawak v Etiqa Takaful – seems to have been decimated.
The parties in the appeal were Jaya Sudhir Jayaram (Sudhir) against Nautical Supreme (NSSB), Azimuth Marine (AMSB) and Nautilus Tug & Towage (NTT). For the purpose of this article, the salient facts in Jaya Sudhir were that there was a shareholders’ agreement between NTT, NSSB and AMSB, which included an arbitration agreement.
The shareholders were NSSB holding 20%, and AMSB holding 80% of the equity in the corporate vehicle, NTT. The shareholders’ agreement had a clause restricting the transfer by a shareholder of its equity to any third party without the written consent of the other shareholder.
However, AMSB transferred 10% of its shares in NTT to Sudhir, a third party and a stranger to the arbitration agreement. This resulted in NSSB claiming breach of the shareholders’ agreement, and to be entitled to buy over all of AMSB’s remaining equity in NTT. NSSB commenced arbitration proceedings against AMSB and NTT pursuant to the AA 2005.
Sudhir was given notice of this, and he was initially content to stay on the side-lines. However, some 10 months later, with the arbitration proceeding entering its second day of hearing, Sudhir secured an anti-arbitration injunction from the High Court. The injunction was set aside by the Court of Appeal, but reinstated by the Federal Court.
By reason of the Federal Court’s decision, Sudhir’s claim in the court, and NSSB’s claim against him for among other things the tort of inducing a breach of contract, proceeded to trial but with the claims and counterclaims by NSSB and AMSB against each other in the arbitration proceedings being injuncted from proceeding.
It is, therefore, clear that not every issue in the curial proceedings brought by Sudhir could be determined in court. The end result was that proceedings were truncated; with Sudhir’s claims that were brought later, moving ahead of the arbitration proceedings, initiated by NSSB much earlier, of which notice had been given to Sudhir.
Keet Gerald test relief?
The result of the anti-arbitration injunction is that it provides final relief to the stranger in the curial proceedings, with his claim proceeding to trial ahead of the arbitration. In coming to its decision, the Federal Court had applied the Keet Gerald test, which is the general test for interlocutory injunction applications, which does not provide final relief in Malaysia.
In doing so, the Federal Court has departed from this position as it has applied the Keet Gerald test to restrain the parties to the arbitration agreement from arbitrating by granting Sudhir the final relief sought by him, which is for his claim in court to be heard and the arbitration stayed.
Delay should have been fatal
In coming to its decision in Jaya Sudhir, the Federal Court had overturned the Court of Appeal’s findings that there was inordinate delay by Sudhir in moving his application for an anti-arbitration injunction. The Court of Appeal had held that the fact that Sudhir had been aware for as long as 10 months since the arbitration proceedings were initiated – before he filed his application for the anti-arbitration injunction two months before the commencement of the hearing of the Arbitration Proceedings – was fatal to his application. The Court of Appeal’s findings are in line with Malaysian cases on delay being fatal to injunction applications generally, and specifically to anti-arbitration injunctions in other jurisdictions.
It was, therefore, rather atypical for the Federal Court to accept Sudhir’s excuse that his belated application for an anti-arbitration injunction was because he wanted to negotiate a settlement and that “he would need some time to arrange and make a reasoned decision on the approach that he would need to take”, despite NSSB wanting to expedite the arbitral proceedings and asserting there was to be no stay in the proceedings.
This sets an awkward precedent to excuse delays grounded on an applicant being unsure of which course of action to take, and/or wanting to rely upon an intention to negotiate a settlement despite the other party making it clear that there should be no stay in proceedings.
Legislative policy and intent
Instead of taking into account the legislative intent behind the AA 2005 as a whole, the Federal Court, in coming to its decision in Jaya Sudhir, had interpreted sections 8 and 10 of the AA 2005 as standalone provisions, and gave them its pure literal interpretation.
Section 17A of the Interpretation Acts 1948 and 1967 provides that in the interpretation of a provision of an act, a construction that promotes the purpose or object underlying the act should always be preferred to a construction that does not.
This was the approach taken by the Federal Court in Press Metal, which had encouraged and endorsed a non-interventionist policy that underlaid the AA 2005. It is surprising that the unanimous decision of the Federal Court in Jaya Sudhir was delivered by a coram comprising two of the learned judges who formed part of the coram in Press Metal, with one of them having delivered the seminal judgment in Press Metal endorsing the non-interventionist policy.
In fact, in a later decision delivered just three-and-a-half months after Jaya Sudhir, the Federal Court, comprising at least one of these two learned judges, in interpreting section 70A of the to Street, Drainage and Building Act, 1974, held that although the language is clear and unequivocal, the court must examine more than the label itself to determine “the intent of the legislature and the nature of the statute”.
With all due respect, the Federal Court in Jaya Sudhir has departed from the legislative policy underlying the current AA 2005, as well as the non-interventionist policy endorsed by itself in Press Metal.
Cases before the AA 2005
In coming to its decision, the Federal Court in Jaya Sudhir had placed reliance on the cases of Bina Jati v Sum-Projects (Brothers) and Chase Perdana v Pekeliling Triangle & Anor. With all due respect, such reliance is misplaced, as these cases had all been decided prior to the AA 2005. Case authorities in other jurisdictions that have also premised their arbitration statutes on the UNCITRAL Model Law have in the main decided that inconsistency and multiplicity of proceedings are no longer grounds to grant an anti-arbitration injunction.
Refusal to follow Jarvis test
The Federal Court’s application of the Keet Gerald test was at the expense of the test laid down in J Jarvis & Sons v Blue Circle Dartford Estates.
Jarvis held that the court’s power to grant an anti-arbitration Injunction may be exercised if “the injunction does not cause injustice to the claimant in the arbitration, and the continuance of the arbitration would be oppressive, vexatious, unconscionable or an abuse of process” (the Jarvis test).
It was also held in Jarvis that any discretion to grant injunctions against arbitration must be exercised sparingly, and with due regard to any pending arbitration, and the objectives and principles of the act.
In criticising the Court of Appeal’s reliance on the Jarvis test, the Federal Court reasoned that Sudhir was a stranger to the arbitration agreement, unlike the applicant in Jarvis, who was a party to the arbitration agreement.
However, the Federal Court’s reasoning is at odds with its reliance upon the authority of Bina Jati, where the applicant (in Bina Jati) was a party to the arbitration agreement. The point is that if Bina Jati was relied upon, then it would follow that it would make no difference as to whether the applicant is, or is not, a party to the arbitration agreement.
It would have followed that the Court of Appeal in Jaya Sudhir was correct in applying the higher threshold test in Jarvis, even when the applicant for the anti-arbitration injunction was a stranger to the arbitration agreement.
The effect of the Federal Court’s decision in Jaya Sudhir is that it has departed from its earlier position of giving effect to the legislative intent of the AA 2005, which was anchored upon the UNCITRAL Model Law, and this departure has watered down the non-interventionist policy of maximum support but minimum interference [by the courts], and ought to be re-visited.