MALAYSIA: HIGH COURT ISSUES ANTI-ARBITRATION INJUNCTION AGAINST LONDON ARBITRATION AND REJECTS PARALLEL APPLICATION TO STAY COURT PROCEEDINGS

In MISC Berhad v Cockett Marine Oil (Asia) Pte Ltd (Admiralty in Personam No. WA-27NCC-46-05/2020), the Malaysian High Court issued an anti-arbitration injunction to halt a London-seated arbitration on the grounds that the arbitration proceedings were in breach of an exclusive jurisdiction clause in favour of the Malaysian courts. The decision confirms the power of Malaysian courts to restrain a foreign-seated arbitration where the court takes the view that it has jurisdiction over the dispute, and provides guidance on the circumstances in which a Malaysian court will exercise this power.

Background

MISC Berhad ("MISC"), a Malaysian company, invited tenders for the supply of bunkers. In a tender invitation sent by email to Cockett Marine Oil (Asia) Pte Ltd ("Cockett"), a Singaporean company, MISC attached a copy of its terms and conditions which provided amongst others, that the agreement for the supply of bunkers shall be governed by Malaysian law and be subject to an exclusive jurisdiction clause in favour of the Malaysian courts. Cockett submitted its tender and, after negotiations through a series of email correspondences, made a final offer to supply the bunkers at USD718 per metric tonne. The footer in each of Cockett's emails in the negotiations contained a hyperlink to its website, which contained Cockett’s standard terms and conditions. MISC accepted this offer (“Supply Contract”).

Cockett failed to deliver the bunkers to MISC when the former's vessel was detained by the Malaysian Maritime Enforcement Agency (“MMEA”) due to potential offences under the Malaysian Customs Act 1967. MISC terminated the Supply Contract on the premise that Cockett was in breach of its obligation to deliver the bunkers free of claims and encumbrances. Following the release of the detained bunkers by the MMEA, the parties entered into a new contract, where MISC agreed to purchase the bunkers based on “the same quoted price and the MISC’s terms as per the bidding document”.

Subsequently, MISC issued proceedings against Cockett in the Malaysian High Court, claiming damages for breach of contract (the "Malaysian proceedings"). Cockett's solicitors in Singapore accepted service of process and lodged its appearance in the Malaysian courts while reserving its right to dispute the jurisdiction of the Malaysian courts. In a case management conference, the registrar granted Cockett an extension of time to file its defence following an oral application by Cockett's solicitors (which was not objected to by MISC's solicitors).

Two days later, Cockett obtained an ex-parte anti-suit injunction against MISC from the English courts (which was set aside three weeks later at the inter partes hearing of the injunction). Approximately one month later, Cockett did not file a defence but instead commenced London-seated arbitration proceedings under the auspices of the London Maritime Arbitrators Association ("LMAA") against MISC ("London arbitration"). Cockett sought a stay of the Malaysian proceedings pursuant to section 10 of the Malaysian Arbitration Act 2005, taking the position that the Supply Contract was concluded on its standard terms and conditions, which contained an English governing law clause and an LMAA arbitration clause seated in London. In response, MISC sought an anti-arbitration injunction from the Malaysian High Court to restrain Cockett from taking any further steps in the London arbitration proceedings on the basis that the Supply Contract was concluded on the terms and condition contained in its initial tender invitation.

The main issues before the High Court were:

1. whether an arbitration agreement existed between the parties;
2. whether Cockett was entitled to a stay of the Malaysian proceedings; and
3. whether MISC has satisfied the test for an anti-arbitration injunction.

Decision

The court refused Cockett's application to stay the Malaysian proceedings, for the following reasons:

1. The court reviewed the correspondences by reference to the parties' respective submissions through Malaysian and English case law, and concluded that the 'battle of the forms' for the Supply Contract was concluded on MISC's terms and conditions. As such, the exclusive jurisdiction clause in favour of the Malaysian courts was effective.
2. Following the court's determination on the 'battle of the forms', there was no arbitration agreement which would entitle Cockett to a stay of the Malaysian proceedings. Even if there was an arbitration agreement between the parties, Cockett's request during the case management conference for an extension of time to file a substantive defence in the proceedings was inconsistent with an intention to pursue arbitration. The court also noted that Cockett's previous express reservation of its right to challenge the court's jurisdiction is ineffective in light of the extension of time it initially sought (for our previous discussion on this point, see our blog post here).

As for MISC's application for an anti-arbitration injunction, the High Court opined that the applicable test for the grant of an anti-arbitration injunction is the usual American Cyanamid test for an interim injunction, i.e. (i) whether there are serious issues to be tried, (ii) whether damages would be an adequate remedy, and (iii) whether the balance of convenience lies in favour of granting the injunction. The court issued an anti-arbitration injunction against Cockett because

1. MISC's claim for breach of contract raises serious issues requiring judicial determination;
2. damages would not be an adequate remedy for MISC's loss of its right to litigate the dispute in the forum of its choice as agreed in the Supply Contract as such "loss of forum" is unquantifiable; and
3. the balance of convenience lies in favour of granting the anti-arbitration injunction as it would prevent parallel proceedings in Malaysia and London, and the Malaysian court is currently seised of jurisdiction over the parties to the dispute.

Comment

An anti-arbitration injunction has the same effect as an anti-suit injunction (discussed here) as both prevent a party from bringing or prosecuting a claim in any forum other than the forum agreed by the parties.

Courts in other common law jurisdictions issue anti-arbitration injunctions very sparingly. For example, in Hong Kong, the Court of First Instance in Lin Ming and another v Chen Shu Quan and others HCA 1900/2011 (discussed here) was prepared to assume that it retained jurisdiction to restrain arbitration proceedings as part of its general jurisdiction to grant injunctive relief, but emphasised that such jurisdiction must be exercised “very sparingly and with great caution”. By contrast, the Malaysian Federal Court in Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd & Ors (Federal Court Civil Appeal No. 02(i)-83-09/2018(W)) held that (i) the American Cyanamid test is applicable to an anti-arbitration injunction sought by a party not named in arbitration agreement, and (ii) a higher standard applies where a party seeks an anti-arbitration injunction is a party to the alleged arbitration agreement (i.e. (a) the injunction cannot cause injustice to the claimant in the arbitration; and (b) the continuance of the arbitration must be oppressive, vexatious, unconscionable or an abuse of process) (discussed here). Both tests have been applied in subsequent first instance decisions (here, here and here) in the context of domestic arbitration proceedings.

However, anti-arbitration injunctions against foreign arbitration proceedings are even rarer. For example, the English Court of Appeal in Sabbagh v Khoury and others [2019] EWCA Civ 1219 (discussed here) demonstrates that in exceptional cases the English courts may grant an anti-arbitration injunction to restrain a foreign seated arbitration even where England is not the natural forum of the dispute, provided the dispute in question does not fall within the scope of the arbitration agreement. The Malaysian courts have not adopted a uniform test when considering anti-arbitration injunctions against foreign arbitration proceedings. In Government of Malaysia v Nurhima Kiram Fornan & Ors (Originating Summons No. BKI-24NCvC-190/12-2019 (HC2)), the Malaysian High Court appeared to accept that a higher threshold applies (i.e. the arbitration proceedings enjoined therein was considered oppressive and vexatious) (discussed here), whereas the High Court in this case was satisfied that the American Cyanamid test applies for the grant of an anti-arbitration injunction.

It is not apparent in the judgment whether the court gave any consideration to conflict of laws issues which arose in the dispute, including (i) whether it had jurisdiction to order injunctive relief against foreign arbitral proceedings, (ii) whether it was the most appropriate forum to determine the existence of the alleged arbitration agreement and whether it should have exercised jurisdictional competence to do so (in light of the ongoing London proceedings and the English court's supervisory jurisdiction over the London proceedings), and (iii) what conflict of laws rules apply to determine the 'battle of the forms'. It is also doubtful that damages for "loss of forum" would be unquantifiable, as damages for breach of an arbitration agreement is now an accepted cause of action (though untested in Malaysia).

However, it is clear from the handful of Malaysian authorities (including this case) that in granting anti-arbitration injunctions against foreign arbitration proceedings, the Malaysian courts will exercise jurisdictional competence to determine jurisdictional questions, and will not ascribe any significance to the fact that it is not the supervisory court of the arbitration proceedings sought to be enjoined.

For further information, please contact Peter Godwin, Partner, Daniel Chua, Associate, Michele Yee, Associate 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.

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