Malaysian High Court clarifies limits of post-award court intervention

For the first time in recent years, the Malaysian courts have clarified the limits of judicial intervention under Malaysian law once an arbitral award has been issued.

The Malaysian High Court held that the powers of Malaysian courts in respect of arbitral awards are limited to their recognition and enforcement under Section 38 of the Arbitration Act 2005 (AA). It follows that Malaysian courts cannot grant relief or orders in respect of an award unless recognised in Malaysia pursuant to Section 38 AA. This may have implications for enforcement strategies with a Malaysian nexus.

Danieli & C Officine Mecchaniche SPA v Southern HRC Sdn Bhd (WA-24NCC-471-10/2020)

Background

The Plaintiff, an Italian company, entered into an agreement with the Defendant, a Malaysian company, for the construction of a hot rolled coil plant in Malaysia (Plant) and a related services agreement. Both contracts required disputes to be arbitrated in Singapore.

Disputes arose and were referred to arbitration, in which the parties cross-claimed for, among other things,  damages. They made submissions on the return of the Plant to the Plaintiff and the condition of the Plant in such event. The arbitrators found in the Defendant's favour and awarded damages against the Plaintiff, which were reduced to reflect the diminution in the value of the Plant, sums previously paid by the Plaintiff and the Defendant's previous use of the Plant.

The Plaintiff resisted demands for payment of the award and made payment conditional on the Defendant granting it access to the Plant to determine its condition and operability. This was rejected by the Defendant noting that site access would only be given once the Plaintiff had paid the award.

Court proceedings

Concurrently, the Defendant initiated Italian court proceedings to enforce the arbitral award. The Plaintiff resisted the Italian proceedings and applied to the Malaysian High Court for various declarations and orders allowing it to inspect the Plant and equipment referenced in the arbitral award. Neither party sought to enforce the award in Malaysia.

Notably, the Plaintiff was not seeking relief under the AA, but the Specific Relief Act 1950 and Rules of Court 2012 (ROC) instead. In its application, the Plaintiff noted that the inspection could have a material impact on the Italian recognition proceedings and asserted a genuine interest in having its rights declared and the condition of the Plant verified before making any payment of the award sum.

The Defendant resisted the Plaintiff's application and, in turn, applied to the Malaysian High Court for a declaration that it lacked jurisdiction over the Defendant in respect of the Plaintiff's relief (Order 28 rule 3B(f) ROC). The Defendant argued that, where an arbitral award has been rendered, the Court's powers under the AA are limited to enforcing the award, therefore the Court had no jurisdiction to grant the relief requested by the Plaintiff. The Plaintiff disagreed, contending that the relief sought was not governed by the AA in which case the Court could invoke its inherent jurisdiction to grant such relief.

The Defendant also contended that arbitration was the proper forum to grant the Plaintiff's relief. The Plaintiff, who had not invoked this right during the arbitration, denied that this was a relevant factor.

Malaysian High Court decision

The Malaysian High Court dismissed the Plaintiff’s application, finding that the Malaysian courts’ powers in respect of arbitral awards are limited to their recognition and enforcement under Section 38 AA – the equivalent of Article 35 of the UNCITRAL Model Law 2006 (ML).

The Court emphasised the restriction under Section 8 AA (which mirrors Article 5 ML) that "no court shall intervene in matters governed by this Act, except where so provided in this Act." Section 8 AA, in the Court's view, was intended to discourage reliance on the Malaysian courts’ inherent powers and restrict judicial intervention to those situations listed in the AA.

The AA, as the Court noted, does allow for judicial intervention in support of arbitration. The central provision is Section 11 AA, which permits an arbitral party to apply to the Malaysian High Court for any interim measure "before or during arbitral proceedings". However, the Court pointed out that there was no similar provision for judicial intervention upon the conclusion of arbitral proceedings. In view of the Section 8 restriction, Malaysian courts could not grant any other relief in respect of an arbitral award once issued.

The Court viewed the Plaintiff's conduct during the arbitration proceedings as a relevant factor, in particular that the Plaintiff did not exercise its opportunity to apply for the relief sought during the arbitration. The circumstances indicated that the relief sought was intended to re-open matters already decided in arbitration or an attempt to attack the award in the Italian recognition proceedings. Malaysian courts would decline to intervene on such occasions.

Further, the Court disagreed that this was a situation warranting resort to the Court's inherent jurisdiction. Although accepting that Section 8 AA does not preclude the Court's inherent jurisdiction to determine matters not expressly governed by the statute (La Kaffa International Co Ltd v Loob Holding Sdn Bhd & Anor [2018] 9 CLJ 593), the Court held that the Plaintiff's application was not such a circumstance.

Key takeaways

Overall, the High Court's decision illustrates the pro-arbitration inclination of Malaysian courts. Even where an application is not brought under the AA, the Malaysian courts will firmly apply the principles and spirit of the statute and the ML to ensure the finality of arbitral awards even where seated in foreign jurisdictions.

Nevertheless, the decision appears to restrict the right of parties to post-award judicial assistance, which could arguably include those in aid of enforcing arbitral awards in Malaysia, such as examination of judgment debtor proceedings (Order 48 ROC). Such orders are vital tools for information gathering in order for an award creditor to determine how it might enforce the award. Parties intending to seek such orders from Malaysian courts must now ensure that they first register the relevant arbitral award in Malaysia under Section 38 AA.

A further point of interest is that, while the decision analyses the interplay of Sections 11 and 38 AA and the court's inherent jurisdiction, the High Court did not have the opportunity to consider how this analysis interacts with Section 19J AA (as adapted from Article 17J ML). Briefly, Section 19J AA  empowers the Malaysian High Court to issue interim measures "in relation to arbitration proceedings, irrespective of whether the seat of arbitration is in Malaysia…in accordance with its own procedures in consideration of the specific features of international arbitration". While both Sections 11 and 19J AA give Malaysian courts the power to issue interim measures in relation to arbitration proceedings, Section 19J is worded more expansively. Further, unlike Section 11 AA, Section 19J is not expressly limited to interim measures "before or during arbitral proceedings". It will be interesting to see how future Malaysian decisions approach this difference in wording.

For now, it is clear that Malaysian courts will endeavour to uphold the finality of arbitral awards regardless of where the arbitral seat is located.

For further information, please contact Peter Godwin, Lim Tse Wei, or your usual Herbert Smith Freehills contact.

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.