13 February, 2016
Introduction by Tun Zaki Bin Tun Azmi (Former Chief Justice of Malaysia)
I am delighted to note that Justice Datuk Dr Hamid Sultan’s 2nd chapter of his forthcoming book on Janab’s Key to ‘international arbitration: Malaysian arbitration act 20015’ comprehensively deals with the conditions, demands and compliance faced in securing an international arbitral award. it also addresses the adversities faced in securing an international arbitral award that can be recognized in the seat country of arbitration and enforced in numerous countries under the New York Convention.
He has also revealed the intricacies of how to understand and appreciate the UNCITRAL model law, UNCITRAL arbitration to ensure that the award rendered by the arbitral tribunal is capable of recognition and enforcement under the New York Convention.
Before proceeding to elaborate on the mechanism to activate an arbitral proceeding under the model law he adeptly reminds parties that both the court of the seat of arbitration and the country where the award is to be enforced continues to reserve its respective rights to scrutinize such award. but he cautions that such courts “should only refuse recognition and enforcement of the award in extremely rare occasions and only when it can be demonstrated that the claimant had abused the arbitration process which has materially prejudiced an innocent respondent” and not otherwise.
This is indeed a timely reminder to our malaysian Courts to respect the decision of an international arbitral award rather than attempting to use “circuitous jurisprudence” in refusing recognition and enforcement. The article, very briefly but concisely analyses the author’s views on issues regarding arbitration in Malaysia, taking into consideration Astro v Lippo case decided by the Singapore apex court of which many in the arbitration are critical of. the issues can be quite easily understood by reading this well written article.
Introduction
It would not be an understatement to say that passive remedy is a core feature of New York Convention 1958 (New York Convention), and choice of remedies is a feature of the model law 1985 (model law). However, passive remedy is arguably not a feature of domestic international arbitration in Malaysia when the respondent to a written arbitration agreement and/or submission agreement to the award had participated in the arbitration proceedings and did not take active steps to set aside the award.
In addition, a written arbitration agreement or its nexus is a sine qua non for securing an arbitration award for it to be enforceable under the New York Convention and in consequence an award may not be given recognition if the claimant cannot produce the arbitration agreement with the respondent notwithstanding the fact that an arbitral tribunal may have ruled that there was an agreement by reference or conduct, etc. in International Bulk Carriers Spa v CTI Group Inc [2014] 8 CLJ 854, the Court of appeal dealt with section 9 of Malaysian arbitration act 2005 (aa 2005) at the stage of recognition and enforcement of the award pursuant to sections 9, 38 and 39 of the act (article 7, 35 and 36 of model law), and stated:
“(1)parties relying on the provision of the arbitration act 2005 must strictly comply with the provisions of the act and more so when they are given exclusive privilege and benefit to register a foreign award which can only be challenged in limited circumstances as set out in s. 39 of the act. an award registered under s. 38 can be set aside as of right if the conditions stated in the section is not satisfied. on the facts, there were flaws in the registration of the award under s. 38 and the mandatory requirement of s. 38 was not complied with on the face of the record. there was no obligation to make an application under s. 39 to set aside an award even though the applicant can satisfy one of the criteria in the said section. the registration of the award herein was ab initio a nullity and ought to be set aside as of right.
(2) the appellant was not a signatory to the agreement or had any form of nexus as provided in s. 9(1) to (5) of the act. prima facie, it could not be registered pursuant to s. 38 as an arbitration agreement under s. 38(2) (b) must refer to signatories or at least to persons referred to in s. 9(1) to (5) of the act.” this paper will address the scope and shortcomings of ‘passive remedy’ as a mode to defeat the enforcement of arbitral award in malaysia with reference to malaysian arbitration act 1952 (aa 1952) (old regime) as well as aa 2005. [See Bilta (UK) Ltd v Muhammad Nazir (2010) ewhC 1086 (Ch); Ajwa For Food Industries Co v Pacific Inter- Link Sdn Bhd [2013] 7 CLJ 18; Food Ingredients v Pacific Inter-Link Sdn Bhd & Others [2011] 1 LNS 1631].
Anathema
A claimant to an award must take cognisance of the fact that passive remedy may stand as an anathema for him to enjoy the fruits of the successful arbitral award as the award can be challenged at the enforcement stage, pursuant to the New York Convention on the following grounds: (i) incapacity of the parties; (ii) invalidity of the agreement; (iii) lack of procedural fairness;
(iv) jurisdiction issues such as arbitrability on the scope of arbitration agreement; (v) composition of arbitral tribunal not in accordance with agreement; (vi) the award is not yet binding; (vii) subject matter not capable of settlement by arbitration under the law of the country; (ix) recognition and enforcement will be contrary to public policy.
In support of ‘passive remedy’, Lord Collins in Dallah Real Estate Co v Ministry of Religious Affairs Pakistan [2011] AC 763 (Dallah), had asserted as follows:
“103. Nor is there anything to support Dallah’s theory that the New York Convention accords primacy to the courts of the arbitral seat, in the sense that the supervisory court should be the only court entitled to carry out a re-hearing of the issue of the existence of a valid arbitration agreement; and that the exclusivity of the supervisory court in this regard ensures uniformity of application of the Convention. there is nothing in the Convention which imposes an obligation on a party seeking to resist an award on the ground of the non-existence of an arbitration agreement to challenge the award before the courts of the seat. 104. it follows that the english court is entitled (and indeed bound) to revisit the question of the tribunal’s decision on jurisdiction if the party resisting enforcement seeks to prove that there was no arbitration agreement binding upon it under the law of the country where the award was made.” It must be noted that Dallah’s case arguably advocates a proposition that when an arbitration award is enforced even through the seat court, it will not be an improper exercise of discretion for the seat court to promote passive remedy and/or re-examine the issues relating to the jurisdiction of the arbitral tribunal or breach of New York Convention article i to V.
Adopting a ‘passive’ strategy and objecting at the time of enforcement may not be productive in all jurisdictions more so in malaysia. in Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 CLJ 545, the Court of appeal when dealing with an issue relating to passive remedy under the old regime, which did not have a provision like that of article 4 of the model law, had this to say:
“(3) Where parties agree to refer some of their disputes to an arbitrator selected by them, they can by words or conduct acquiesce to have the same arbitrator decide other disputes between them although these disputes are not covered by their original agreement. However, the party that chooses to do so may be estopped from later asserting that the arbitrator lacked jurisdiction. on the facts, this was not a case where the respondent merely took steps in the conduct of the arbitration proceedings. this was a case where the respondent requested to go forward upon a matter that fell outside the scope of the arbitration agreement. the dispute the respondent raised directly brought into issue all those matters over which the respondent had earlier claimed the arbitrator lacked jurisdiction. in these circumstances, a reasonable man in the shoes of the appellant would have been entitled to assume that the respondent was no longer pursuing its challenge to the arbitrator’s jurisdiction. the respondent, having regard to its conduct, should therefore be estopped from asserting that the arbitrator had no jurisdiction to adjudicate the disputes raised before him.”
The test emerging from bauer’s case appears to be ‘whether the respondent to the award had participated during the arbitration proceedings’. in Government of India v. Cairn Energy India Pty Ltd & Anor [2012] 3 CLJ 423, the federal Court asserted that (i) the seat of the arbitration is the place where challenges to an award are made; and (ii) the curial law ought to be that of the seat. the federal Court’s decision as a general rule does not promote passive remedy as a choice when dealing with foreign arbitral awards.
It must be noted that in Dallah’s case, the respondent objected to the arbitral process as the purported written arbitration agreement was in dispute. in consequence, the court under the New York Convention was arguably obliged on the facts to refuse recognition and enforcement. the other statements in the quote of Dallah’s case above as well as the judgment that the court has powers to re-evaluate the award must be taken as obiter only and in practice the english Courts are more likely to promote the comity and reciprocity principle if the seat court has ventilated the issue and also where the seat court is known for its independence and impartiality. the english Courts are generally vigilant to ensure the arbitral process and/or its sovereignty is not compromised in recognising a foreign award. [See Soleimany v Soleimany [1999] Qb 785].
Written Agreement – A Sine Qua Non it must be emphasised that notwithstanding the right of the claimant to the award, to challenge it, article iV of the New York Convention, which has been subsumed -under article 35 of the model law and Section 38 of aa 2005, does not permit the claimant to seek recognition of the award if there is no written arbitration agreement with the respondent to the award. Difficulties in obtaining recognition of the award may arise if the respondent to the award is a non-party to the award, notwithstanding the arbitral tribunal may have ruled that there is an arbitration agreement by conduct or reference, etc. that is to say, the respondent to the award need not even rely on passive remedy to object to the award as the court by its own motion ought not to give recognition to an award if there is no written agreement. article iV of the New York Convention reads as follows:
“1. to obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply:
(a) the duly authenticated original award or a duly certified copy thereof;
(b) the original agreement referred to in article ii or a duly certified copy thereof.
2. ………….”
Domestic International Arbitration Astro V Lippo
When an international arbitration award is enforced through the seat court, the award is referred to as domestic international arbitration award. the new phrase ‘domestic international arbitration’ appears to originate from the decision of belinda ang Saw ean J, judge of the High Court of Singapore, pursuant to the case of Astro Nusantara International BV v. PT Ayunda Prima Mitra & Others [2012] SghC 212 (Astro I). it received endorsement by the Honourable Chief Justice of Singapore, Sundaresh menon, in an iconic judgment of the Court of appeal Singapore, in the case of PT First Media TBK v Astro Nusantara Internationalo BV & Ors [2014] 1 SLr 372 (Astro II). both of these cases were referred to by Chow J in the Hong Kong case of Astro Nusantara International BV v. PT First Media TBR HCCT 45/2010 [2014] 1 SLr 372 (Astro III). the trilogy of these cases are also referred to as ‘astro v lippo’ as the claimants to the award in those cases were the astro group and the respondents were the lippo group.
Choice of remedy and Passive remedy (a) AA 2005 and AA 1952 – A meaningful appreciation of the concept and jurisprudence relating to choice of remedies as well as passive remedy in the Malaysian context cannot be appreciated without reference to:
(i) the three ‘astro’ cases with the english case of ‘Dallah’ and the relevant Malaysian cases referred herein;
(ii) as well as section 27 of aa 1952 which was the old regime which recognises ‘passive remedy’. the old regime did not recognise passive remedy in the context when choice of active remedies is available within the spirit and intent of the model law or aa 2005. the Court’s power under the old regime is not related to the concept of ‘to assist and supervise the arbitral process’.
the model law gives absolute power as well as places the responsibility on the seat court to assist and supervise the arbitral process. this distinction is akin to differentiating between an apple and an orange. thus, when concluding to choice of remedies available one should not lose sight of the difference to reach a conclusion. the said section 27 of AA 1952 reads as follows:
(a)“enforcement of award – an award on an arbitration agreement may, by leave of the High Court, be enforced in the same manner as a Judgment or order to the same effect, and, where leave is so given, judgment may be entered in terms of the award.”
(b) CREFAA 1985 Convention on the recognition of enforcement of foreign arbitral awards act 1985 (CREFAA 1985) in malaysia which has been repealed pursuant to section 51 of aa 2005, specifically states that a convention award shall be enforceable in malaysia either by action or in the same manner as the award of an arbitration is enforceable by virtue of section 27 of aa 1952. the other provisions of Crefaa 1985 are now subsumed under sections 38 and 39 of aa 2005.
(c) Dallah’s Case and Malaysia – even under the old regime, Dallah’s case and its obiter was not strictly followed in malaysia when it relates to enforcement stage. in the case of Lombard Commodities Ltd v. Alami Vegetable Oil Products Sdn Bhd [2010] 2 MLJ 23, the federal Court had refused to entertain ‘passive remedy’ at the enforcement stage relating to a foreign arbitral award where the seat was in the UK. this was, notwithstanding the fact that the respondent to the said award had not participated in the arbitral proceedings. Arifin Zakaria CJ (Malaya) (as His Lordship then was) speaking for the federal Court when allowing the recognition of that award, had this to say:
“[44] in Sabah Gas Industries Sdn bhd v trans Samudera lines (S) Sdn bhd [1993] 2 mlJ 396, it was similarly held that a party who had been given every opportunity to submit and to take part in arbitration proceedings in london ought to have challenged the conduct of the arbitrator and/or validity of the award in the english Courts and not here. Similarly in Hebei Import & Export Corp v Polytek Engineering Co ltd FAC V No 10 of 1988 (Hong Kong), the Court of final appeal of Hong Kong held that a party may be precluded by his failure to raise a point before the court of supervisory jurisdiction from raising that point or issue before the court of enforcement.
[45] for the above reasons, i am in agreement with the appellant’s submission that this issue could not be raised in the court here being the court of enforcement. if at all the respondent wanted to raise the issue that the respondent was not a party to the arbitration agreement this must be done in the english courts as the supervisory courts.”
(d) the New York Convention and enforcement – the New York Convention is relevant only to ‘foreign arbitral awards’. it has got nothing to do with foreign judgments. foreign arbitral awards in Malaysia are enforced through the provision of Sections 38 and 39 of aa 2005. Sections 38 and 39 have literally subsumed articles 35 and 36 of the model law. articles 35 and 36 had subsumed the criteria for recognition and enforcement as stated in the New York Convention. articles 35 and 36 arguably, have preserved ‘passive remedy’.
What is pertinent to note under the New York Convention as well as article 36 of the model law is that the court where the enforcement proceeding is commenced always has a judicial discretion to enforce an arbitration award. [See Dalmia Cement Ltd v National Bank of Pakistan [1975] Qb9]. What this points to is that although the New York Convention does not guarantee a foreign arbitral award will be recognised as of right but it nevertheless places the discretion to enforce the award in the hands of the enforcement court. it is trite that this discretion cannot be arbitrarily exercised but in the realm of international arbitration, the courts are expected to do so within the jurisprudence of comity as well as the reciprocity principle to give deference to article iii of the New York Convention. the Contracting States as well as the model law states are expected to show deference to the judgement of seat court which is empowered to ensure the arbitral process is assisted and supervised to deliver an award which will be recognised by another contracting state for its enforcement. article iii states as follows:
“each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. …………………………”.
(e) Scheme of New York Convention and Model Law the scheme of the New York Convention and the model law has been formulated to enable the seat court to assist and supervise the arbitral process to deliver an award which will be recognised and enforced under the New York Convention. the model law complements the New York Convention and attempts to achieve a universal standard of fairness relating to arbitration proceedings as well as in the enforcement of the awards. When both are read conjunctively, it demonstrates the fact that the enforcement court should refrain itself from re-evaluating the award making process as there is already in place a specific procedure at the seat court to set aside an arbitration award which has been agreed upon by the parties. the registration process should only be administrative in nature if a court of competent jurisdiction of the seat has evaluated the complaint of the respondent unless that seat court is not reputed for its independence or impartiality or the complaint has not been taken up in the seat court at all. [See Galsworthy Ltd of the Republic of Liberia v Glory Wealth Shipping Pte Ltd [2010] SghC 304].
Thus, if ‘passive remedy’ is not caveated within the cornerstones of comity or reciprocity jurisprudence as well as scheme of the model law, it will encourage dilatory tactics leading to the addition of circuitous jurisprudence by courts, justifying as to why an award at the enforcement stage ought not be enforced. a wrong employment of passive remedy will only promote economic stress and unjust result to the claimant considering the fact that the party autonomy concept requires parties to settle the difference in relation to the award at the seat court pursuant to article 34 when the respondent had participated in the arbitration process.
The jurisprudence applicable for refusing to set aside recognition and enforcement was explained by Sir anthony mason, sitting in the Hong Kong Court of final appeal in the case of Hebei Import & Export Corporation v Polytek Engineering Co. Ltd.: CfA 1999 as follows:
“What I have said does not exclude the possibility that a party may be precluded by his failure to raise a point before a court of supervisory jurisdiction from raising that point before the court of enforcement. failure to raise such a point may amount to an estoppel or want of bona fides such as to justify the court of enforcement in enforcing award.”
(f) extrinsic Material and SIAA – one of the primary obstacles in appreciating principles of international arbitration takes place when one attempts to reconcile case laws from various jurisdictions which may not have pari materia provisions as that of malaysia notwithstanding these case laws are not binding on the malaysian courts.
Confusion may arise when malaysian courts employ the foreign cases in the judicial process or adopt the views of foreign jurists and/or academicians on the subject matter. lack of harmonisation in judicial decisions of the Contracting States has resulted in a number of avoidable consequences. for example, (i) an award may not be given recognition and enforcement in one state but will be given in another state; (ii) it leads to forum shopping; (iii) issues are re-litigated thereby adding to costs; (iv) the judicial process of one country becomes the subject of adverse comment in another; (v) it creates a field day for jurists and academician
to write on the inconsistencies which may not have practical value in all contracting states. in essence, lack of harmonisation creates commercial uncertainty which is not good news for promoting international arbitration as a better option to litigation. for example, malaysia and Singapore are said to be model law countries but their legal provisions for international arbitration are not exactly identical though in many aspects they are similar. in interpreting the provisions of aa 2005, malaysian courts are constrained to look only at the act and apply the normal canons of construction and interpretation and cannot use per
se extrinsic materials other than the Hansard (parliamentary report). [See Chor Phaik Har v Farlim Properties Sdn Bhd [1994] 4 CLJ 285 fC]. the dangers of employing extrinsic material when interpreting a statute like the aa 2005 may lead to commercial uncertainty. moreover, common law jurisprudence does not permit such employment, although there may be differences in approach in civil law jurisdictions or in cases where statute expressly allows for such employment. the position
in Singapore is different from that of Malaysia.
For example, Section 4 of the Singapore, international arbitration act (SIAA) allows the court when interpreting the model law to use extrinsic materials such as document of the united Nations Commission on international trade law (UNCITRAL) and its working group, etc. which resulted in the publication of the model law. in essence, documents such as travaux préparatories cannot be used as extrinsic materials for the purpose of interpreting the model law or aa 2005 in malaysia whereas they can be used in Singapore. Section 4(1) of SIAA reads as follows:
"4. —(1) for the purposes of interpreting the model law, reference may be made to the documents of —
(a) the united Nations Commission on international trade law; and
(b) its working group for the preparation of the model law, relating to the model law.”
In ‘astro ii’, the Singapore Court of appeal, when interpreting the model law had this to say: “thus, in our view, the travaux make it clear beyond argument that the model law provides for the system of “choice of remedies”, and that this system applies equally to both foreign and domestic awards which are treated uniformly under the model law. it follows that under the model law, parties that do not actively attack a domestic international award remain able to passively rely on defences to enforcement absent any issues of waiver.”
(g) old regime, Model Law, AA 2005, CREFAA 1985 and Passive remedy a simple methodology can be employed to explain the concept and jurisprudence relating to the New York Convention, the model law and aa 2005, premised on the common law canons of construction and interpretation as well as statutes in contrast to Singapore, to deal with the question whether ‘passive remedy’ is an anathema to the enforcement of international arbitration award.
As stated earlier, the New York Convention recognises ‘passive remedy’ in respect of foreign arbitral awards. that is to say, when an arbitral tribunal delivers an award, that award has no force of law for the purpose of execution in a Contracting State. it will only be good for execution if the claimant can satisfy that it is a New York Convention award pursuant to articles i to iV of
the Convention. the respondent can object to its enforcement on any of the grounds stated in articles i to iV on the grounds it is not a New York Convention award, and/or under article V of the convention. [See FJ Boeman Pty Ltd v Council of the City of Gold Coast (1973) AC 115; Union of India v Popular Builders AIr 2000 SC 3185].
Article ii(3) of the convention obliges the seat court to ventilate the issue of arbitrability if the complaint is that the purported arbitration agreement is null and void, inoperative or incapable of being performed. [See WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka [2002] 3 SLr 603 SghC 104]. the aa 1952 had provision to check the arbitrability issue, but it did not sub- delegate that power at the first instance to deal with the issue of arbitrability to the hands of the arbitral tribunal. [See Seloga Jaya Sdn Bhd v Pembenaan Keng Ting (Sabah) Sdn Bhd [1994] 2 CLJ 716; Alagappa Chettiar v Coliseum Café [1962] MLJ 111].
AA 1952 was similar to the arbitration act 1950 of england and the legislation of many other countries within the Commonwealth had provision to address the arbitrability issue under the old regime. [See Singapore arbitration act 1940; Indian Arbitration Act 1940]. the old regime was not based on the recommendation of uNCitral. it was state based law to condone arbitration proceedings. it was not formulated to allow the court to assist and supervise the arbitration proceedings in order to enable the arbitral tribunal to deliver an award which would be enforceable under the New York Convention.
Even under the old regime, the respondent to the purported arbitration agreement had many choices if he takes the view it is not arbitrable. for example, (i) he could refuse to participate in the arbitration; (ii) object to its enforcement at a contracting state. if the objection is taken at the seat court, whether it was successful or not, the enforcement court under the convention is arguably expected under article iii to recognise the award as binding, with a small window to refuse recognition under article V. However, in view of article iii if read with article ii(3), it will appear that the enforcement court is obliged to give deference to a decision on the issue of arbitrability by the seat court and in this process, will have to accord weightage to the decision of the seat court.
the claimant under the old regime had at least three choices when enforcing an arbitration award. they are as follows: (i) by registering the award under section 27 of aa 1952 and enforcing the award in that state; (ii) upon registering the award, it becomes a judgment of the court and can be executed in a foreign state if reciprocal enforcement of Judgment statute in that state permits to do so; (iii) the award can be registered as a ‘foreign award’ in a Contracting State. [See Koninklijke Bunge NV v Sinitrada Co Ltd [1973] 1 MLJ 194; Christopher Martin Boyd v Deb Brata Das Gupta [2014] 9 CLJ 887].
In Malayan Flour Mills Bhd v Raja Lope & Tan Co [2000] 6 MLJ 591, the court dealt with section 27 of aa 1952 and had this to say:
“Section 27 of our arbitration act 1952 is pari material to s 26 of the english arbitration act 1950. this section provides for the enforcement of the award which is similar to judgment of court provided leave is obtained from the High Court. If leave is granted to enforce the award ‘all enforcement proceedings available in the High Court like writ of seizure and sale, garnishes proceeding including bankruptcy or winding up proceedings will be available to the award holder’ (see Janab’s Key to Civil procedure in malaysia and Singapore (2nd ed) april 1995 at p 796). [See Mohamed Abdullah Tpe Abdul Majeed v Habib Mohamed [1986] 1 MLJ 526].
In essence, the old regime (i) did not define international or domestic awards; (ii) did not have provision for arbitral tribunal to rule on its jurisdiction with a right of appeal to the High Court as an active remedy as per article 16 of the model law; (iii) did not have provision to set aside an award on all the grounds stated in article i to V of the New York Convention as a positive remedy like that of article 34 of the model law;
(iv) did not provide for recognition and enforcement of an award like that of articles 37 or 39 of the model law.
if it is a foreign arbitral award, the enforcement was made pursuant to CREFAA 1985.
It must be noted that, even under the reciprocal enforcement of Judgement act 1958, the malaysian courts have shown great respect and deference to the judgments of foreign courts, from a respected jurisdiction premised on the jurisprudence of comity and reciprocity. for example, in Dato’ Ho Seng Chuan v Rabob Bank Asia Ltd [2002] 3 AMr 2606, an application to register a judgment of the Court of Singapore was made pursuant to the reciprocal enforcement Judgment act 1958 and the respondent objected to the same. the court had refused to entertain the objection. Vincent Ng Khim Khoay J (as His lordship then was) without mincing words, stated:
“the plaintiff ought not to be permitted to use (or rather to abuse) the privilege of the malaysian courts’ process to reverse or attack or denude the order of the Singapore court or Singapore judgment, emanating from proceeding in which he had actively participated. it is circuitous in nature.”
To promote international arbitration, the sacrosanct words of wisdom of the learned judge is one which the arbitral community would need to give deference especially so when dealing with jurisprudence on the availability of a ‘passive remedy’. even though the above case relates to a foreign judgment, the jurisprudence applicable in the malaysian context is likely to remain the same as the test is simply not whether the respondent to the award has the right to passive remedy but whether the respondent ought to be allowed to abuse the privilege of the Malaysian court process. learned authors, mustill and boyd on Commercial arbitration, 2nd ed. p. 90 on a similar issue have this to say:
“mutual recognition of awards is the glue which holds the international arbitrating community together, and this will only be strong if the enforcing court is willing to trust, as the Convention assumes that they will trust, the supervising authorities of the chosen venue.”
The AA 1952 had minimum role in assisting and supervising the arbitral process when contrasted with the model law. it is significant to note that unlike the old regime, the new regime forcefully advocates inter alia – (i) party autonomy; (ii) equal treatment of parties; (iii) free to determine the seat court; (iv) free to determine the law of substantive dispute; (v) recourse against award; (vi) enforcement of award, etc. in essence, parties submitting to the seat court had agreed to allow the seat court to assist and supervise the arbitral process for the arbitral tribunal to deliver an award which is enforceable under the New York Convention. a literal interpretation of the model law as well as aa 2005 applying the lay or common sense approach arguably would be as follows:
(a) parties are free to determine the seat court and in consequence submit to the lex arbitri of the seat court. that is to say, pursuant to article 34 of the model law or section 37 of aa 2005, an award had to be challenged in the seat court if it involves international arbitration as it says ‘exclusive recourse’.
Even if it is domestic international arbitration, the challenge has to be under article 34 or section 37 of aa 2005, and passive remedy challenge under section 39 will arguably be only available if the respondent to the award did not participate at all or is relying on grounds other than those provided under article 34 or section 37 of aa 2005.
(b) whether it is international and/or domestic international arbitration, a challenge can be mounted on jurisdictional issues, etc. before the arbitrator. [See article 16 of model law; Section 18 of aa 2005]. if this challenge has been exhausted by a ruling of the seat court, it may become res judicata and the challenge will not be entertained again by the court. [See Pasukhas Constructions Sdn Bhd & Anor v MTM Millenium Holdings Sdn Bhd [2015] 4 AMr 377].
(c) aa 2005 envisages a one-stop adjudication process in relation to any challenge to the integrity of the arbitral award of the seat court. [See Lesotho Highlands Development Authority v Impreglio Spa [2005] uKhL 43; Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2010] CLJ 83].
What is important to note is that whether it is international arbitration and/or domestic international arbitration, parties having chosen the seat and agreed to the law to challenge the award only pursuant to article 34 or section 37 of aa 2005, thereby is
said to have indirectly or tacitly agreed not to challenge the award in any foreign jurisdiction under the New York Convention 1958. [See Twin Advance (M) Sdn Bhd v Polar Electro Europe BV [2013] 3 CLJ 294]. this is how article 34(1) of the model law is framed:
“Chapter V vII. Recourse Against Award – Article 34. Application for setting aside as exclusive recourse against arbitral award (emphasis added).
(1) Recourse to a court against an arbitral award may be made only by an application for setting aside in accordance with paragraphs (2) and (3) of this article. ………..” The head-note to article 34 is explicit that the ‘exclusive recourse against arbitral award’ is to set aside the award, thereby destroying in toto the jurisprudence on passive remedy to be engaged in foreign jurisdiction or under article 36 at the seat court. Section 37 of aa 2005 is similar to article 34.
If courts are not prepared to enforce agreed contractual terms by virtue of the concept of lex arbitri of the seat jurisdiction, it will cause uncertainty as well as promote distrust in employing arbitration as a mode of alternative dispute resolution.
Essentially, section 39 of aa 2005 is intended to address foreign awards and/or the administrative enforcement of domestic or domestic international arbitration awards. if the losing party had participated in the seat court in a foreign jurisdiction and had challenged the award under the equipollent article 34 of the seat court, the malaysian court is more than likely to give deference to the decision of the seat court. this would be in accordance with the concept of party autonomy wherein the parties have chosen and agreed to the process at the seat court. the exception to this would be if the objection is mounted on some good reasons premised on public policy, etc. in which case the courts in malaysia may exercise its discretion not to accord recognition and disallow enforcement of the said award.
As to whether public policy should be made strictly applicable to arbitration proceedings is debatable as no ‘public’ is involved in an arbitration proceeding when it is between private parties and is also concealed by the jurisprudence relating to confidentiality. further, the underlying reasons for the award by the arbitral tribunal are not a precedent and they do not bind other cases, unrelated to the arbitration proceedings. in PT Asuransi Jasa Indonesia v Dexia Bank SA [2007] 1 SLr(r) 597, Chan Sek Keong CJ Singapore asserted that public policy would encompass a narrow scope and for the purpose of setting aside or upholding of the arbitral award, the test would be to see whether the award would ‘shock the conscience’ or would be clearly injurious to the public good or wholly offensive to an ordinary reasonable and fully informed member of the public.
(h) Arbitration friendly Courts, Nominal fee Structure and KLRCA
The decisions of the malaysian courts as well as the courts’ fees structures have been arbitration friendly, thereby obviating the need to employ ‘passive remedy’. these circumstances will also arrest the development of cases that would promote ‘passive remedy’. for example:
(a) if a losing party intends to take a jurisdictional challenge on the arbitration award, he may do so under section 18 of aa 2005 (article 16), i.e. appeal to the High Court which will be heard by a single judge. the court fees for filing an originating summons and a supporting affidavit for this purpose will be only about rm208 ringgit (less than uSD$50) to settle the issue of jurisdiction of the arbitral tribunal.
(b) instead of challenging the jurisdictional award under section 18, the losing party is also at liberty to set aside the award before the High Court under section 37 (article 34) for which he has to pay court fees of rm208 (less than uSD$50) and he has a further right of appeal to the Court of appeal presided by three judges with court fees for the notice of appeal, memorandum of appeal, etc. and a refundable security deposit, all amounting to about rm2,000.00 (i.e. less than USD$220.00). a further right of appeal to the federal Court with similar fee structure where five judges would also available to be pursued.
That is to say, with a court fees and a refundable security deposit all in about rm3,000.00 (less than USD$350.00), the losing party will eventually have the benefit of nine judges to look at the propriety of the award. However, if it is international arbitration and the award is attempted to be registered in Malaysia, the malaysian courts as stated earlier will be slow to intervene and the losing party still has a right of appeal to the Court of appeal as well as the federal Court for a minimal fees, as stated earlier.
It is unlikely that other Contracting States will provide such a low fee structure as to enable a litigant as of right, to reap the benefits of a judgment on an award by a total of nine judges. With such an arbitration friendly mechanism in place to challenge an award at the expense of the tax payer, and appropriate procedural framework given by arbitral institutions like KlrCa which has a good mix of arbitrators and counsel not only from malaysia but from outside of malaysia to enter the country as of right by fiat of statute for purpose of the arbitration proceeding; it is doubtful whether malaysian courts will entertain any dilatory tactics by way of ‘passive remedy’, when the court in a litigation process does not permit the litigant to advocate a case or complaint on instalment basis, as that would amount to an abuse of process. [See Shahidan bin Shafie v Atlan Holdings Bhd & Anor [2013] 7 MLJ 215; Henderson v Henderson [1843] 3 hare 100].
In addition, the decisions of the malaysian courts have always been arbitration friendly and proactive in assisting and supervising the arbitral tribunal and in the decision making process have only employed common law canons of construction an interpretation giving priority to literal rule and common sense approach so as to maintain commercial certainty. [See Hilas & Co v Arcos Ltd [1932] All er 494; Sejati Education Sdn Bhd v S3M Development (Sabah) Sdn Bhd (S-02-1282-08/2014)]. Support for this proposition can be found in a number of cases.
The canons of interpretation of statutes in Malaysia does not encourage convoluted arguments when interpreting aa 2005 so as to promote circuitous jurisprudence which may result in commercial uncertainty more so in the realm of commercial international arbitration. arguably, it will be ludicrous for the courts to entertain passive remedy when parliament has given great concession by fee structure as well as employment of nine judges to deal with the issue of jurisdiction as an active remedy in international commercial arbitration as a commitment to promote international arbitration and provide a one stope dispute settlement mechanism. in Middlemiss & Gould v Hartlepool Corporation [1972] 1 Wlr 1643, Lord Denning mr asserted that the leave to enforce the award should be given unless there is a real ground for doubting the validity of the award.
(i) Arbitration and Submission Agreement – it is important to note that, if in the first instance there is no arbitration agreement and/or submission agreement according to law and the respondent by conduct has not submitted to the arbitral proceedings, then the award cannot be registered as a foreign award at all under the New York Convention. if the enforcement court enforces the award, it will amount to a breach of the convention obligation, but the losing party will have no recourse whatsoever. this is one of the greatest set backs of the New York Convention. in essence, the integrity of the enforcement court plays a significant role to preserve the administration of commercial justice in international arbitration. [See Karaha Bodas Co. LLC v Perusahaan Pertambangan Minyak Dan Gas Bumi Negara 2004 wL 541837].
It must be noted that agreeing to institutional rules which enable the inclusion of third parties in the arbitration proceedings may result in a valid arbitration between the original parties to the arbitration agreement and the third parties. [See Astro I and II]. Difficulties may arise in seeking recognition of the award if there is no written arbitration agreement unless the seat court had dealt with the issue and had concluded that there is in fact a valid and enforceable arbitration agreement and the enforcement court is prepared to accept that ruling for the purpose of recognition as well as enforcement premised on the jurisprudence anchored on comity as well as reciprocity. [See Commonwealth Development Corp (UK) v Montague [2000] QCA 252; International Bulk Carriers Spa v. CTI Group Inc (2014) 8 CLJ 854].
(j) recognition and enforcement – a claimant must take cognisance of the fact that a favourable award and/ or favourable decision of the seat court relating to the arbitral proceedings such as arbitrability, etc. is not a guarantee that the final award will be recognised and enforced in the state the claimant intends to execute. Various objections may be taken at the court where enforcement and recognition is sought pursuant to New York Convention. if the enforcement court is arbitration friendly, it may allow the enforcement of the award even though the respondent is able to establish a ground for refusing enforcement under the New York Convention. essentially, a victory in court, in litigation matters guarantees enforcement in the court of its judgment. that, however, may not be the case for arbitral awards. [See Apex Tech Investment Limited v Chuang’s Development (China) Limited (CA) Hong Kong Civil Appeal No. 231 of 1995].
(k) Astro I, II and III – in Astro ii, the Court of appeal, Singapore was vigilant not to recognise an arbitration award when parties who were not signatories to the arbitration agreement, although they had some nexus to the dispute and were joined in as parties by the arbitral tribunal on an application by the claimant as well as with the consent of the third parties, but without the consent of the respondents. the arbitral tribunal had rendered an award on jurisdiction but it was not challenged under article 16(3) of the model law. the respondents also did not apply to set aside the award under article 34 of the model law. the respondents mounted a challenge at the enforcement stage under article 36 of the model law. the thrust of the respondents’ argument was that they were entitled to ‘passive remedy’ at the enforcement stage as they had a choice of remedies both under the model law as well as New York Convention. the Singapore High Court (Astro i) allowed enforcement on the grounds that the respondent to the award is required to take a positive step to challenge the issue as to jurisdiction under article 16(3) or set aside the award under article 34 of the model law. the High Court emphasised that a court did not have ‘double control’ over a domestic international award both at the setting aside and enforcement stage, when the respondent to the award had participated in the arbitral proceedings though he had reserved his right to challenge the issue on jurisdiction.
On appeal to the Court of appeal, the court asserted that ‘passive remedy’ in domestic international arbitration was intact and the respondent to the arbitral award had a choice of remedies, and as long as the respondent had preserved its right to challenge the award the concept of waiver under article 4 of the model law or the doctrine of issue estoppel will not apply. the Court of appeal inter alia held:
“(a) in the course of determining if the ground for refusing enforcement was established, the enforcement court was entitled to undertake a fresh examination of the issues which were alleged to establish that ground of challenge.
(b) an arbitral award bound the parties to the arbitration because the parties had consented to be bound by the consequences of agreeing to arbitrate their dispute. their consent was evinced in the arbitration agreement. therefore, in a multiparty arbitration agreement, the vitiation of consent between two parties did not ipso facto vitiate the consent between other parties.”
on the issue of joinder, without the consent of all parties, CJ Singapore stated:
“(2) agreement to arbitrate under a set of rules: although our construction of r 24(b) is dispositive of the Joinder objection, we would make one comment on mr Joseph’s principal argument that fm had implicitly consented to the joinder of the 6th to 8th respondents by agreeing to the 2007 SIAC rules and, by extension, r 24(b); under those circumstances, no further consent by fm was required.
We are cognisant of the raging controversy in this area of multiparty arbitrations (for an overview of such situations, see bernard Hanotiau, Complex Arbitrations: Multiparty, Multicontract, Multi-Issue and Class Actions (Kluwer law international, 2006) at pp 163- 196) where a prevalent argument is that there is default consent to a forced joinder whenever the joinder is properly ordered pursuant to the applicable institutional rules. the reasoning is fairly straightforward. parties, by agreeing to arbitrate under those rules, are deemed to have consented to the exercise of the power to force a joinder: tobias Zuberbuhler et al, “introductory rules: Consolidation of arbitral proceedings (Joinder), participation of third parties (art 4) in Swiss rules of International Arbitration: Commentary (Tobias Zuberbuihler et al eds) (Kluwer law international, 2005) at para 12; Lew, Mistelis & kroll at para 16-42.
197. in principle, this is not objectionable as parties can contractually agree to any rules which they would like to subject their arbitrations to. this may include rules which confer on the tribunal ultimate discretion to order forced joinders without having to obtain further consent from the parties who are already part of the arbitration reference. However, as emphasised earlier, the idea of forced joinders is a drastic one. because the power of the tribunal to join non- parties to an arbitration at any stage without the consent of the existing parties and at the expense of the confidentiality of proceedings is such utter anathema to the internal logic of consensual arbitration, a rule which allows the tribunal to order a forced joinder without obtaining ‘fresh’ consent to the joinder must be decidedly unambiguous. rule 24(b) is not so. at a more general level, in the face of linguistic ambiguity in the provision which regulates the power to join without obtaining further consent, the consent under an arbitration agreement to arbitrate in accordance with a set of institutional rules cannot be taken as an ex ante consent to the forced joinder.”
The hallmark of the judgment by the Court of appeal was its attempt to give great deference to one of the important obligations of Contracting State i.e. the duty not to recognise an arbitration award if all parties have not agreed to the arbitration agreement and/or submitted to arbitration proceeding. the debatable issues in the malaysian context are: (i) whether such deference should be given in the case of domestic international arbitration when it is a seat court and party autonomy principles requires the respondent who had participated in the arbitral process of the award to ventilate his grievance pursuant to section 37 of aa 2005 (article 34); (ii) whether in the case of international arbitration the respondent to a ‘foreign award’ should be allowed to challenge the award under section 39 of AA 2005 (article 36), when the respondent has participated in the arbitration proceedings but had not challenged the award according to due process of law as provided under section 37. in this respect, it must be noted that the High Court of Hong Kong in the case of astro iii had allowed the enforcement of the award, which was refused enforcement in Singapore. the decision was not based on article 35 or 36 of the model law or its equivalent but rather on the grounds that the claimant had obtained recognition and enforcement of the award fourteen months before the respondent filed an application to condone delay to set aside the award. the High Court of Hong Kong considered the good faith principle in international arbitration on the peculiar facts of the case and refused extension of time to set aside recognition and enforcement of the award.
It will be interesting to study how the Court of appeal, Hong Kong will deal with the issue when ‘Astro iii’ appeal reaches its purview. in the malaysian context, seat court as well as if it is the enforcement court, the court is likely to take a literal approach to the provisions of aa 2005 and rule that in the case of domestic international arbitration the grounds to set aside the award under section 37 of aa 2005 (article 34) are mandatory unless compelling exception applies to extend time and refuse recognition. if Malaysian courts venture into circuitous and convoluted jurisprudence by recognising dilatory tactics, it may defeat the spirit and intent of aa 2005 within the canon of interpretation, and cause great hardship to a fair minded international arbitration community which seeks certainty and finality. unless the exception applies, it is not for the court to say what is just to a respondent at the enforcement stage, when the respondent has failed to take the necessary steps and/or abandoned his rights to address his grievance but attempts to promote a technical advantage couched as ‘passive remedy’, regardless of whether it is domestic or domestic international arbitration or international arbitration. entrenched legal doctrines, such as estoppel, res judicata, good faith, laches, contractual breach to the provisions of the seat court, etc.; may assist the claimant to obtain recognition and enforcement of an arbitration award and doctrines such as abuse of process, finality to the litigation process in the public interest, etc.; may deny the claimant to the award the right to ventilate any grounds under the New York Convention.
Conclusion
As a general rule and subject only to rare exceptions:
[a] ‘passive remedy’ at the enforcement stage, is an anathema to domestic international arbitration if the losing party has participated in the arbitral process.
[b] ‘passive remedy’ will be an anathema to the enforcement of foreign award if a foreign award which has been ventilated by a seat court of reputable jurisdiction is denied registration.
[c] ‘passive remedy’ will be an anathema too if the claimant to a foreign arbitral award where the respondent was not a party to the arbitration agreement and had not participated in the arbitral process is granted recognition and registration of the award. Such recognition and registration of the award is a nullity ab initio not only for breach of the New York Convention but also for the violation of section 38 of aa 2005, unless the respondent to the arbitral award had participated in the arbitral proceedings and submitted to the jurisdiction of the seat court where the award was issued. [See Badiaddin bin Mohidin & anor v Arab-Malaysian Finance Berhad [1998] 1 MLJ 393].
[d] ‘passive remedy’ has a lesser role to play within the ambit of the malaysian Jurisprudence as the consideration here is not whether passive remedy should be allowed but whether it should be allowed to be abused.
[e] passive remedy is a good option which all enforcement court must take cognisance of and should only be refused recognition in an exceptional case to protect the integrity of the arbitral process as well as the sovereignty of the enforcement court.
Astro ii ought to be seen as a rare exception, in the Malaysian context, for at least six reasons: (i) extrinsic material can be used in Singapore to interpret the model law in order to conclude choice of remedies is available at all stages; (ii) lippo was not objecting against all the claimants to the award on the grounds there was no arbitration agreement; (iii) the Court of appeal in fact had allowed part of the award to be enforced; (iv) the parties who were joined without the consent of lippo had no arbitration agreement with lippo and in consequence part of the award cannot be said to be a New York Convention award; (v) Astro will not be able to produce the arbitration agreement for recognition of the award under section 38 of AA 2005 (article 35) which is a mandatory requirement under article iV of the New York Convention. [See International Bulk Carriers Spa v CTI Group Inc (2014) 8 CLJ 854].
It is without doubt that ‘Astro ii’ is an iconic judgment in the nuance of ‘choice of remedies and passive remedy’ for all those in the study, practice and administration of international arbitration to take cognizance of. [See Renato Nazzni, ‘Consistency on the res Judicata and Abuse of Process under the New York Convention (2014) 80 Arbitration, Issue 3; rishabh Jogani, ‘the role of National Courts in the Post-Arbitral Process; the Possible Issues with the enforcement of a Set-Aside Award; (2015) 81 Arbitration, Issue 3].
By Datuk Dr. Haji Hamid Sultan Bin Abu Backer – Judge, Court Of Appeal Malaysia
1 this article is a reproduction of writers’ proposed Second Chapter to the book titled Janab’s Key to ‘international arbitration: malaysian Chapter with Commentary to malaysian arbitration act 2005’.
2 the previous article “birds eye View of international arbitral process: malaysian Chapter published in the previous KLRCA publication must be read together with this article to appreciate the concept and jurisprudence relating to New York Convention 1958 and model law 1985 UNCITRAL rules. both articles are dedicated to the law students of DSlu, Vishakphatinam for the pursuit and dissemination of knowledge.
For further information, please contact:
Suganthy David, Kuala Lumpur Regional Centre for Arbitration
enquiry@klrca.org
