MALAYSIAN COURT RECONFIRMS THAT TRIBUNALS TAKE PRIORITY OVER COURTS WHEN GRANTING INTERIM RELIEF

The Malaysian High Court has reconfirmed that if the same interim relief can be granted by an arbitral tribunal and the courts, a party should first apply to the tribunal. The decision in Malaysia Resources Corporation Bhd v Desaru Peace Holdings Club Sdn Bhd [2022] MLJU 3355 is significant for arbitrations with a Malaysian nexus as parties should prioritise tribunal-ordered interim relief in their case strategy where possible.  This case demonstrates that should a party fail to approach its tribunal in the first instance, the Malaysian courts would generally be reluctant to grant the interim relief sought, resulting in wasted costs.

Background

Malaysia Resources Corporation Bhd ("MRCB") was the main contractor for upgrade works to a luxury resort owned by Desaru Peace Holdings Club Sdn Bhd ("Desaru").  Disputes arose during the project, which led to MRCB commencing three separate adjudications against Desaru.  The adjudications, in turn, resulted in a series of related court actions.  The parties eventually agreed to refer all their disputes to arbitration, and to suspend the adjudication awards and related court proceedings, following which a three-member tribunal was constituted.

MRCB sought to have Desaru provide security for costs in the arbitral proceedings due to alleged concerns over Desaru's financial position.  MRCB initially asked Desaru to provide this security.  This was rejected by Desaru, following which MRCB enquired if Desaru would have any objections to it commencing a security for costs application before the arbitral tribunal.  Desaru did not respond.

MRCB eventually filed a security for costs application before the Malaysian High Court pursuant to Section 11(1) of the Arbitration Act 2005 ("AA 2005"), rather than the arbitral tribunal.  Throughout the court proceedings, Desaru did not object to MRCB's interim relief application to the Court.

High Court Decision

MRCB's security for costs application was dismissed.  The Court, on its own motion, questioned whether MRCB's application should first be filed before the arbitral tribunal. Following the parties' submissions, the Court found that the framework of the AA 2005 required that MRCB seek the relief from the arbitral tribunal in the first instance before resorting to court as both fora could grant the same relief.

The Court's decision centred on the interplay between Sections 11(1) and 19(1) of the AA 2005. Both provisions expressly granted the Court and arbitral tribunals concurrent jurisdiction to grant certain interim measures, including security for costs.  Although neither provision prescribed an order of priority between arbitrators and court – unlike the Singapore International Arbitration Act – the Court nevertheless found that the underlying intent of the AA 2005 was for arbitral parties to first use arbitral channels before resorting to the Malaysian courts, if both could grant the same relief.  This was consistent with the Malaysian courts' role in supporting and aiding arbitral tribunals to ensure that their awards are not rendered impotent or unenforceable.

Notably, the Court also appeared to take the view that an agreement to arbitrate reflected a choice that the arbitral tribunal's views would take precedence on matters relating to interim relief.  The Court's refusal to entertain MRCB's security for costs application therefore accorded with the principles of party autonomy and minimal judicial intervention (Section 8 of the AA 2005; Article 5 of the UNCITRAL Model Law) which underpin the AA 2005.  In the Court's view, this approach avoided the potential conflicts that could arise from the court and the arbitral tribunal having concurrent powers and competences.

That said, the Court recognised that there were exceptional circumstances where the Court could first be approached.  These included where: the interim measure is sought against a third party over whom the arbitral tribunal has no jurisdiction; the matters are very urgent; the High Court’s coercive powers of enforcement are needed; or the arbitral tribunal has not been constituted.  However, MRCB could not demonstrate any of these exceptional circumstances.

Commentary

The Malaysia Resources Corporation Bhd decision is a helpful reminder of the established Malaysian position that arbitral parties should generally approach their tribunals for interim relief in the first instance before resorting to court if the same relief is available from both.

This has practical significance.  It is not uncommon for arbitral parties to simultaneously apply to tribunals and local courts for the same interim relief, particularly in multi-jurisdictional disputes.  Parties may at times consider tribunal-ordered interim relief as an avenue supplementary (or alternative) to the local court system.  In practice, therefore, arbitral parties sometimes attempt to first file an interim relief application before the Court and, if the decision is unfavourable, to file a similar application before the arbitral tribunal.

The Malaysia Resources Corporation Bhd decision makes it clear that Malaysian courts will not permit such conduct. Further, Malaysian courts will be unwilling to infer from the parties' conduct or silence an implied agreement that interim relief applications are to first be made to court rather than tribunals.  In this regard, while Desaru did not raise a jurisdictional or preliminary objection against MRCB's court interim relief application, this did not prevent the Court from scrutinising MRCB's failure to first approach the tribunal.

This reemphasises Malaysia's pro-arbitration stance and its alignment with the positions of other jurisdictions, notably:

• Singapore, where Section 12A of the Singapore International Arbitration Act expressly limits the High Court’s role in granting interim measures in relation to international arbitrations to one that is subsidiary to the arbitral tribunal. Thus, the Singapore High Court may only grant interim measures when: (1) the case is one of urgency necessary for the purpose of preserve evidence or assets; (2) where there is no urgency, the application is made with the permission of the arbitral tribunal or with the agreement in writing of the other party; (3) the arbitral tribunal has no power or is unable for the time being to act effectively.  The Singapore Court of Appeal clarified that the same rule of precedence applies in respect of domestic arbitrations (NCC International AB v Alliance Concrete Singapore Pte Ltd [2008] SGCA 5).
• England, where the House of Lords in Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] AC 334 expressed a similar view. In that case, the plaintiffs sought from the English courts a mandatory injunction to compel the defendants' continuation of construction work.  The defendants sought to stay the plaintiffs’ action as the contract contained an arbitration clause. The House of Lords stayed the action so as to not "encroach on the procedural powers of the arbitrators".  Similarly, in Gerald Metals SA v Timis [2016] EWHC 2327 (Ch), the English High Court found that where parties had sufficient time to obtain urgent relief from an expedited tribunal or emergency arbitrator, the English courts did not have the power to grant said urgent relief.

Thus, arbitral parties will need to carefully consider the nature of any interim relief required. Applications for common interim measures, such as freezing injunctions, prohibitory injunctions and security for costs, will likely have to proceed before arbitral tribunals in the first instance.  Parties preferring judicial recourse will need to provide compelling reasons and supporting evidence.  Hence, the need for good record keeping.

Alternatively, arbitral parties can agree to exclude their tribunal's jurisdiction to grant interim measures and to leave this as a matter exclusively for the local courts.  This was an option noted by the Court and in our analysis of Gerald Metals.  This presents an option for parties who are certain that they would prefer recourse to courts for interim relief.

For more information, please contact Peter Godwin, Partner, Craig Shepherd, Partner, Tse Wei Lim, Senior Associate, Kin-Hoe Loi, 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.