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  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.
AUSTRALIAN FEDERAL COURT REAFFIRMS HIGH THRESHOLD FOR REFUSING ENFORCEMENT OF AWARD ON PUBLIC POLICY GROUNDS
In a recent application to enforce an arbitral award, the Federal Court of Australia rejected the award debtor’s arguments that it would be contrary to public policy to enforce the award, where allegations of procedural unfairness had already been determined in foreign courts. In doing so, the Court reaffirmed the high threshold required for an Australian court to refuse enforcing a foreign arbitral award on public policy grounds, and the importance of international harmony and concordance of approach.
GIVE MANDATORY MEDIATION A CHANCE: INSIGHTS FROM THE LCAM-HSF SURVEY ON COMPULSORY MEDIATION
Study shows support by members of the dispute resolution community for some degree of mandatory mediation in both litigation and arbitration proceedings.
Please use this link to access the recording of a live webinar in which Craig Tevendale, Chris Parker KC, Gill Mansfield and Jonathan Wood discuss the survey’s outcomes.
Herbert Smith Freehills partnered with the London Chamber of Arbitration and Mediation (LCAM) to conduct a survey of perspectives on compulsory mediation in arbitration and mediation (the Survey). The results are in and we are pleased to share the insights they provide. Continue reading
HKIAC 2022 CASE STATISTICS SHOW STRONG GROWTH AND CONTINUED APPEAL OF HONG KONG AS A LEADING SEAT
The HKIAC’s arbitration caseload reached its highest level for more than a decade last year, according to the institution’s recently released 2022 case statistics. The figures underline Hong Kong’s continuing international appeal as well as its unique strengths as a seat for China-related disputes. They also show that Hong Kong’s arbitration third party funding regime, introduced in 2019, is now firmly established and increasingly popular with parties. This suggests that success-based fee arrangements, recently allowed in the jurisdiction, may also see rapid adoption.
Court of Appeal confirms peremptory order despite pending jurisdictional challenge
In the case of S3D Interactive, Inc v Oovee  EWCA Civ 1665, the Court of Appeal has dismissed an appeal of a decision to enforce a peremptory order under s42 of the English Arbitration Act (Act), finding that the Court retains the power to enforce a peremptory order even where a jurisdictional challenge is pending.
Cryptocurrency disputes and consumer arbitration: the next instalment
The English High Court has handed down judgment in another case concerning trades on a cryptocurrency exchange. The case of Chechetkin v Payward Ltd and others  EWHC 3057 (Ch) is a further illustration of the procedural and substantive complexity that can arise from arbitrating disputes in a consumer context.
3 for the price of 1: English Commercial Court issues guidance on: (i) what constitutes an “award” (ii) whether a cross-claim under a different contract can fall within an arbitrator’s jurisdiction, and (iii) the circumstances in which the Court will order compliance with a Peremptory Order
In the case of RQP v ZYX, the English Court has issued a jam-packed judgment on three important issues. In dismissing RQP’s three applications, Mr Justice Butcher has provided guidance on the circumstances in which (i) an arbitrator’s decision will constitute an “award” which is capable of being challenged under the English Arbitration Act (the Act); (ii) a cross-claim arising out of a separate contract falls within the scope of an arbitration clause and (iii) the Court will enforce a peremptory order under s42 of the Act.
ZYX commenced a London-seated LCIA arbitration against RQP concerning various issues under a License Agreement. A complicated procedure ensued, centering around two main issues: “jurisdictional issues” and “security issues”.
In its Response to the Request for Arbitration, RQP raised certain jurisdictional issues regarding whether some of the claims fell within the scope of the arbitration clause. In response, ZYX also made an objection to a cross-claim brought by RQP whereby it sought to set off sums owing from ZYX to RQP under a different agreement (the Second Consultancy Agreement) against any sums it owed to ZYX in this dispute.
In March 2021 during what he called a “Mid-Stream Case Management Conference” (MSCMC), the Sole Arbitrator gave some oral “comments” on RQP’s jurisdictional objections. He subsequently sent an email to the parties stating that “Because of the many intertwined issues, I made a point not to decide on jurisdictional objections at this stage and restricted myself to comment, and to a statement that the issues of jurisdiction will be dealt with as the arbitration continues“. In the same email, he also confirmed his oral comments in writing “for the sake of good order“.
In late March 2021, RQP issued a claim under s67 of the English Arbitration Act (the Act) to set aside what it referred to as the “Arbitrator’s Award on Jurisdiction”.
Separately but also in March 2021, ZYX made an application for security on the basis that RQP had been dissipating assets. In granting the application, the Sole Arbitrator ordered RQP to (i) issue a bank guarantee in favour of ZYX or make a deposit in the sum of over USD 10M as security for any future award issued in favour of ZYX and (ii) provide security for a future costs award in the sum of USD 250,000. RQP subsequently stated that it would not be able to make payment of the cash deposits or obtain the bank guarantees.
ZYX then sought a peremptory order under s41(5) of the Act to the effect that RQP should issue a bank guarantee or provide a deposit as security for a future award, as ordered by the Arbitrator.
The Arbitrator granted the order (the Peremptory Order).
However, in the meantime, RQP contended that it had learned of conduct on the part of ZYX which it said constituted a breach of the arbitration agreement. Based on this contention, RQP terminated the arbitration agreement and did not provide the security. In spite of this, RQP still advanced its s67 application, but stated that it was doing so “solely for the purpose of seeking a determination as to the scope of the Arbitrator’s jurisdiction at the commencement of the Claim“.
The Arbitrator granted permission to ZYX to a make an application for enforcement of the Peremptory Order (under s42(2)(b) of the Act).
- Was there an “award”?
It is established authority that the court does not have the power to review interlocutory decisions which are not awards (see Republic of Uganda v Rift Valley Railways (Uganda)  EWHC 970 (Comm). Consequently, the first question for the court was whether the Arbitrator’s comments at the MSCMC and his written follow-up constituted an “award”.
Referring to the guidance in ZCCM Investments Holdings v Kanshanshi Holdings PLC  EWHC 1285 (Comm), Mr Justice Butcher made the following comments on awards versus interlocutory decisions:
- The Court will look at substance over form. However, the arbitral tribunal’s own description of the decision is relevant, though not conclusive.
- It is relevant to look at how the reasonable recipient would have reviewed the decision, considering the objective attributes of the decision. Mr Justice Butcher also formed the view that a reasonable recipient would consider whether the decision complies with the formal requirements for an award under any applicable rules, and that it must be assumed that the reasonable recipient had all the information available to the parties and tribunal when the decision was made.
- Factors in favour of a decision being an award are if the decision (i) is final in the sense that it disposes of the matters submitted to arbitration so as to render the tribunal “functus officio” (i.e, their mandate has expired in relation to the relevant issue addressed by the decision), and (ii) deals with the substantive rights and liabilities of the parties rather than purely procedural issues.
Based on these factors, Mr Justice Butcher concluded that there was no award, given that the Arbitrator (i) had specifically stated that he was only making preliminary comments (ii) did not comply with the formal requirements for an award under the LCIA rules and (iii) did not call the decision an award. It was therefore not necessary to consider the detail of the s67 challenge.
- Did the cross-claim fall within the jurisdiction of the arbitrator?
Even though there was no award, the judge still went on to consider (on an obiter basis) whether RQP’s cross-claim, which was essentially a ” set-off”, fell within the arbitration clause. This involved considering whether it was a “transaction set-off” (a cross-claim arising out of the same or closely-related transaction) or an “independent set-off” (which does not require any relationship between the transactions out of which the cross-claims arise). The judge added that a transaction set-off was an equitable set-off which usually meant that it was necessary to show that it would be manifestly unjust to enforce a payment without taking into account the cross-claim.
Based on the facts, the judge expressed the view that the cross-claim was not sufficiently closely connected with the claim, because: (i) it arose out of a separate agreement with an inconsistent jurisdiction clause (ii) the two agreements were between different parties and the Second Consultancy Agreement was entered into more than 2 years before the License Agreement and (iii) it was not manifestly unjust to consider ZYX’s claim without taking into account the cross-claim.
- Enforcement of peremptory order under s42 of the Act
As a preliminary point, the judge needed to consider whether the word “tribunal” in s42 of the Act could include a tribunal whose jurisdiction is subject to challenge. The judge concluded that it could. A key factor on which the judge based his decision was that it is open to a tribunal to defer a decision on its jurisdiction to an award on the merits, but it may still need to ask the court to make an order requiring compliance with a peremptory award.
The judge then went on to conclude that it was appropriate to make an order under s42 in this case. The starting point was that the court will generally seek to support the arbitral process and will not ordinarily seek to review the decision of the arbitral tribunal. Moreover, the Peremptory Order was appropriate in this case because:
- The order was made in response to non-compliance with an order which had persisted for a considerable length of time (from August 2021 to October 2022).
- RQP’s contention that it did not have the money to pay was explicitly considered by the Arbitrator and indeed was the reason given for ordering security in the first place.
- There had been no material change of circumstances since the Arbitrator made the order, despite RQP’s protestations of impecuniosity.
As a final point, the judge needed to consider RQP’s argument that the Arbitrator no longer had jurisdiction given the repudiatory breach it contended, which, RQP argued, was a material change in circumstances. The judge concluded that the fact that the jurisdiction of the tribunal was contested was not of itself a good reason to refuse an order under s42, as there are other circumstances where the court can make orders which seek to support the arbitral process even where jurisdiction is contested, such as under sections 70(6), 70(7) and 67 of the Act.
All three of these decisions are consistent with the principle of judicial minimalism – the courts will only interfere in an arbitration to the extent necessary to support the arbitral process. That includes giving short shrift to attempts to circumvent procedural orders and decisions. In doing so, the court provided useful guidance on the distinction between orders on the one hand (which cannot be challenged on the basis of lack of jurisdiction or enforced under the New York Convention) and awards on the other.
This case is also a rare but important example of both the willingness on the part of arbitrators to grant security for claim in appropriate circumstances and the use of s42 of the Act by the courts to ensure that orders (rather than awards) still bite. Indeed, the Law Commission’s consultation paper on the English Act asks whether s42 could be a means of enforcing emergency arbitrator orders too, such that this provision may receive greater attention in future.
For more information, please contact Craig Tevendale, Partner, Liz Kantor, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.
Inconsistent dispute resolution clauses – exploring the limits of the Fiona Trust presumption
The presumption that “rational businessmen” intend all their disputes to be resolved in the same forum may not apply where the parties clearly intended otherwise. Construing such intentions requires a “broad and commercially minded approach” to inconsistent dispute resolution clauses.
In H v G  HKCFI 1327, the Hong Kong Court of First Instance set aside an arbitral tribunal’s determination that it had jurisdiction over claims under a warranty where an associated contract contained the arbitration clause, but the warranty itself provided for litigation in Hong Kong. This decision underlines that there are limits to the Fiona Trust presumption in cases where the parties’ overall contractual arrangements give rise to agreements containing different dispute resolution provisions.
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)
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.
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  9 CLJ 593), the Court held that the Plaintiff’s application was not such a circumstance.
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.
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.
English Court rules that pre-conditions to arbitration are not matters of jurisdiction
The English High Court has declined to set aside an arbitral award, despite the fact that the Defendant had allegedly failed to comply with certain pre-conditions to arbitration agreed in a multi-tiered dispute resolution clause.
The Court said that the alleged non-compliance was a question of admissibility of the claim before the tribunal and not of the tribunal’s jurisdiction. The matter was best determined by the arbitrators and the award was not amenable to challenge under Section 67 of the English Arbitration Act 1996 (Act).
The decision provides welcome certainty that arbitration agreements will be upheld, even where there are questions regarding compliance with pre-conditions to arbitration, such as mandated cooling off or negotiation periods.
Republic of Sierra Leone v. SL Mining Ltd  EWHC 286 (Comm)
The underlying dispute concerned the cancellation of a large-scale mining licence. The licence contained a multi-tiered dispute resolution clause, in which the parties agreed to attempt to amicably settle disputes before commencing arbitration:
“The parties shall in good faith endeavour to reach an amicable settlement of all differences of opinion or disputes which may arise between them in respect to the execution performance and interpretation or termination of this Agreement, and in respect of the rights and obligations of the parties deriving therefrom.
In the event that the parties shall be unable to reach an amicable settlement within a period of 3 (three) months from a written notice by one party to the other specifying the nature of the dispute and seeking an amicable settlement, either party may submit the matter to the exclusive jurisdiction of a Board of 3 (three) Arbitrators who shall be appointed to carry out their mission in accordance with the International Rules of Conciliation and Arbitration of the… ICC…”
The Defendant served a Notice of Dispute on 14 July 2019 and its Request for Arbitration followed some six weeks later, on 30 August 2019.
The Claimant applied to set aside the award under Section 67 of the Act, which provides that an application may be made to Court to challenge any award as to its “substantive jurisdiction”. This is defined under Section 82(1) as referring to the matters specified in Section 30(1) of the Act.
Section 30(1) states that unless otherwise agreed by the parties, a tribunal may rule on its own substantive jurisdiction: “that is – as to: (a) whether there is a valid arbitration agreement; (b) whether the tribunal is properly constituted; and (c) what matters have been submitted to arbitration in accordance with the arbitration agreement.”
The Claimant relied on Section 30(1)(c), submitting that because proceedings could not be commenced until the three month window for negotiations had lapsed, the dispute had not been submitted to arbitration in accordance with the parties’ arbitration agreement.
It was common ground between the parties that there is a distinction between a challenge that a claim is not admissible before the tribunal and a challenge that the tribunal had no jurisdiction to hear the claim. Only the latter challenge is available to a party under Section 67 of the Act. The distinction had been recognised by the Court in an earlier case in which it was said that: “Issues of jurisdiction go to the existence or otherwise of a tribunal’s power to judge the merits of a dispute; issues of admissibility go to whether the tribunal will exercise that power in relation to the claims submitted to it.”
The Court found that leading commentary and international authorities all lean “one way” in saying that pre-conditions to arbitration are questions of admissibility, not jurisdiction.
The Court cited Gary Born’s International Commercial Arbitration (3rd edn. 2021), in which Born said that the best approach is to presume, “absent contrary evidence”, that pre-arbitration procedural requirements are not jurisdictional, but matters better determined by the arbitrators. The rationale for this approach engages important public policy issues:
“…parties can be assumed to desire a single, centralised forum (a ‘one-stop shop’) for resolution of their disputes, particularly those disputes regarding the procedural aspects of their dispute resolution mechanism.… The more objective, efficient and fair result, which the parties should be regarded as having presumptively intended, is for a single, neutral arbitral tribunal to resolve all questions regarding the procedural requirements and conduct of the parties’ dispute resolution mechanism.”
The Court was also persuaded by decisions in other leading international arbitration venues. The United States Supreme Court in BG Group v Republic of Argentina 134 S.Ct.1198 rejected a challenge to an arbitral award on the basis that a mandatory pre-condition to arbitration, namely a need to exhaust remedies before a local court, had not been complied with. The Supreme Court held that the question of compliance with pre-arbitration procedures was a matter for the arbitral tribunal to decide and not a question of jurisdiction to be reviewed by the courts.
The Singapore Court of Appeal in BBA v BAZ  2 SLR 453 and BTN v BTP SGCA 105 has also recognised the distinction between jurisdiction and admissibility. In the latter case, whether a claim was time barred was held to be a question of admissibility, not a question of jurisdiction.
As a matter of English law, the key question was whether the alleged prematurity of the proceedings properly fell within Section 30(1)(c) of the Act. The Court rejected the Claimant’s submission that this depends on the construction of the dispute resolution clause at hand, on the basis that there is no difference between a clause which provides: “No arbitration shall be brought unless X” and another which says: “In the event of X the parties may arbitrate”.
The Court found that Section 30(1)(c) of the Act has been applied so as to identify what matters have been submitted to arbitration, rather than whether or not matters have been submitted to arbitration. It concluded that if an issue relates to whether a claim could be brought to arbitration (i.e. whether arbitration is the appropriate forum), the issue is ordinarily one of jurisdiction and subject to further recourse under Section 67 of the Act. Whereas if it relates to whether a claim has been brought too early, the issue is one of admissibility and that is best decided by the arbitrators.
In reaching its conclusion, the Court distinguished its previous decisions in Emirates Trading Agency LLC v Prime Mineral Exports Private Limited  EWHC 2104 (Comm) (see our blog post here) and Wah (aka Tang) v Grant Thornton International (GTIIL) Ltd  EWHC 3198 (blog post here). In both cases, a challenge under Section 67 of the Act was entertained in circumstances where there was allegedly a failure to comply with a multi-tiered dispute resolution clause. However, the distinction between admissibility and jurisdiction had not been argued before the Court in either case.
The English High Court’s decision is of great practical and commercial significance, engaging fundamental policy considerations, including upholding arbitration agreements and promoting cost-effective and efficient resolution of disputes.
These policy issues are likely to be persuasive in other arbitration-friendly jurisdictions where this question may arise. Like the Act, many of its international counterparts limit the circumstances in which national courts can intervene in arbitration. In addition, although the Act is bespoke legislation and England and Wales is not an UNCITRAL Model Law jurisdiction, the distinction between matters of admissibility and jurisdiction has been recognised in Singapore, a Model Law jurisdiction.
Parties to disputes, however, remain best advised to comply with multi-tiered dispute resolution clauses where possible. Such clauses will usually be enforceable if they are drafted with a sufficient degree of certainty. Arbitral tribunals retain broad discretion to stay proceedings for a mandated cooling-off or negotiation period, or to apply cost sanctions on a non-compliant party.
It would also be open to a tribunal to rule that a premature claim is not admissible before it. In these circumstances, the parties may have to appoint a new tribunal after they have complied with the relevant pre-conditions, resulting in delay and unnecessary extra cost.