Enforcing foreign arbitral awards in Malaysia

47356302_xlAfter the promulgation of the 2005 Arbitration Act (the 2005 Act), the Malaysian courts have consistently taken a pro-arbitration approach to the enforcement of arbitral awards. This is typified by the recent decision of the Malaysian Court of Appeal in Sintrans Asia Services Pte Ltd v Inai Kiara Sdn Bhd, a case involving the enforcement in Malaysia of a foreign arbitral award made in Singapore. In this case, the Court of Appeal ruled that, when acting purely as an enforcement court, the Malaysian courts should not entertain jurisdictional challenges which are more appropriately resolved in the seat of arbitration. Dato’ Nitin Nadkarni, partner, and Crystal Wong Wai Chin, associate, at Lee Hishammuddin Allen & Gledhill in Malaysia, discuss the case.

What was the background to the appeal?

A time charter hire agreement (the charter party) entered into between a Malaysian entity, the respondent charterer, and a Singaporean entity, the appellant owner of the dredger, ‘Gibraltar’, and governed by Singapore law, provided for disputes to be resolved by arbitration in Singapore under the arbitration rules of the Singapore Chamber of Maritime Arbitration (SCMA) (the arbitration agreement).

Disputes having arisen between the parties on 3 July 2013, the appellant filed an admiralty action in Malaysia to arrest the respondent’s vessel ‘Inai Selasih’ as security for the appellant’s claim for unpaid charter hire. A consent order was made for the respondent to provide security for a claim to be made in arbitration (the consent order). The appellant commenced arbitration proceedings against the respondent in Singapore and obtained an award (the award). The respondent did not participate in the arbitration proceedings.

The respondent resisted the appellant’s application to register and enforce the award in Malaysia alleging that, by commencing the admiralty action, the appellant had waived the arbitration agreement. The High Court accepted that by commencing the admiralty action, the arbitration agreement ‘[…] has been rendered null and void…and hence the arbitrator has no jurisdiction to hear or determine the dispute’.

What did the court decide?

The Court of Appeal unanimously allowed the appeal and held that the arbitration agreement had not been waived. The consent order made it clear that parties had agreed to the disputes being resolved by arbitration. Accordingly, the appellant’s application for registration and enforcement of the award was allowed.

The Court of Appeal further held that the Malaysian court was ‘purely an enforcement court’. Since the law of the contract was Singapore law and the seat of the arbitration was Singapore, any challenge to the validity of the arbitration clause should have been made in Singapore. Having failed to raise this issue in the Singapore courts, the respondent could not now challenge it in enforcement proceedings.

Why, if at all, is the judgment significant?

The decision of the Court of Appeal can be justified on the facts of the case and in particular the finding that the terms of the consent order expressly preserved the arbitration agreement.

The difficulty with the decision lies in the finding that the validity of the arbitration agreement could only be determined by the courts at the seat of the arbitration. The Court of Appeal felt itself bound by the earlier decision of the federal court in Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd [2010] 2 MLJ 23. In the Lombard case, the federal court had refused to allow a challenge to the validity of the arbitration agreement at the enforcement stage of a foreign arbitral award.

What are the implications for international arbitration lawyers?

Section 39 of the 2005 Act sets out the limited circumstances in which a court may refuse enforcement of a foreign arbitration award. The 2005 Act, s 39 subsumes the criteria for recognition and enforcement set out in article V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) and article 36 of the UNCITRAL Model Law on International Commercial Arbitration 1985 (the Model Law). Of particular relevance is the 2005 Act, s 39(1) (a) (ii), which allows a party to resist enforcement of an international award on the grounds that:

‘[…] the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of the State where the award was made...’

This provision reflects an international legal norm requiring the courts of the enforcement jurisdiction to consider challenges to the validity of the arbitration agreement. It is generally accepted that, while due deference should be given to the seat of arbitration, a challenge to the validity of an arbitration agreement may also be made in the enforcement court.

This issue arose for decision in Dallah Real Estate & Tourism Holding Co v Pakistan [2010] UKSC 46. In this case, the UK Supreme Court held that the New York Convention, art V safeguards the right of a party, which has not agreed to arbitration, to object in the enforcement court to the jurisdiction of the tribunal. The language of the New York Convention, art V(1)(a) and section 103(2)(b) of the Arbitration Act 1996 requires the enforcement court to revisit the issue of jurisdiction where the person resisting enforcement maintains that it was not party to any relevant arbitration agreement under the applicable law. It was held that:

‘[…] a person who denies being party to any relevant arbitration agreement has no obligation to participate in the arbitration or to take any steps in the country of the seat of what he maintains to be an invalid arbitration leading to an invalid award against him…’

The decision in Dallah has been adopted as good law both in Singapore (PT First Media TBK v Astro Nusantara International BV [2013] SGCA 57)) and Australia (IMC Aviation Solutions Pty Ltd v Altain Khuder LLC [2011] 282 ALR 717, Dampskibsselskabet Norden A/S v Beach Building and Civil Group Pty Ltd [2012] FCA 696).

It appears that the Malaysian courts have taken a very restrictive approach to the provisions of the 2005 Act. Notwithstanding the clear language of the 2005 Act, the Malaysian courts have, as part of their pro-arbitration stance, further curtailed the supervisory role of the courts in the arbitral process in order to assure parties that enforcement will not be refused, except in very limited circumstances.

With this decision, the Malaysian courts have taken another step towards making Malaysia an arbitration-friendly jurisdiction by limiting court interference in international awards.

Dato’ Nitin Nadkarni heads the construction and arbitration practice group in Lee Hishammuddin Allen & Gledhill in Malaysia. His practice covers a wide range of international and domestic arbitration, commercial litigation and dispute resolution encompassing all aspects of the construction, engineering, energy, and oil and gas sector. He is a fellow of both the Chartered Institute of Arbitrators and the Malaysian Institute of Arbitrators.

Crystal Wong Wai Chin is an associate at Lee Hishammuddin Allen & Gledhill in Malaysia, where she specialises in construction and engineering arbitration, commercial litigation and defamation. She also holds a diploma in international commercial arbitration.

Interviewed by Jane Crinnion. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Filed Under: Arbitration , News

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