ARBITRAL DELIBERATIONS STAY SECRET DESPITE ALLEGATIONS TANTAMOUNT TO TRIBUNAL DISHONESTY

The Singapore International Commercial Court has refused to order disclosure of the deliberations of a three-member tribunal in a Singapore-seated ICC arbitration, despite the dissenting arbitrator’s “serious allegations tantamount to accusing the Majority of dishonesty“. This case shows that there is a high bar to obtain disclosure of a tribunal’s deliberations, even if one of the arbitrators alleges serious procedural misconduct.

The court considered that it could assess most of the due process and impartiality issues, without ordering disclosure of deliberations, based on the arbitral record.

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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.

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LAUNCH OF AIAC ARBITRATION RULES 2021

The Asian International Arbitration Centre has launched the latest revisions to its Arbitration Rules, following their last update in 2018. Upon coming into effect on 1 August 2021, the AIAC Arbitration Rules 2021 will apply to all AIAC arbitrations commenced after this date, unless parties agree otherwise. The 2021 revisions come following an extensive study by an international External Advisory Committee for the Revision of the AIAC Arbitration Rules (including Peter Godwin, Partner, HSF Kuala Lumpur) and a public consultation of the draft rules.

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MALAYSIAN FEDERAL COURT CONFIRMS THAT ONLY DISPOSITIVE SECTIONS OF ARBITRAL AWARDS ARE TO BE REGISTERED

The Malaysian Federal Court has resolved the recent debate about whether courts should recognise and enforce whole arbitral awards under Malaysian law. The Court clarified that only the dispositive sections of arbitral awards will be enforced by Malaysian courts under Section 38 of the Malaysian Arbitration Act 2005 (AA). Parties seeking to enforce arbitral awards before the Malaysian courts need no longer disclose any other section of their awards, including the tribunal’s reasoning or summary of findings.

The Siemens decision widens the confidentiality of arbitral awards under Malaysian law, which carries practical implications for parties to Malaysian-seated arbitrations going forward. Parties intending to take advantage of this enhanced protection should also be mindful that their awards may not be afforded a similar degree of confidentiality by other rules connected to their arbitrations.

Siemens Industry Software Gmbh & Co KG (Germany) (formerly known as Innotec Gmbh) v Jacob and Toralf Consulting Sdn Bhd (formerly known as Innotec Asia Pacific Sdn Bhd) (Malaysia) & Ors, Civil Appeal No: 02(f)-115-12/2018(W)

Background

On 31 July 2008, the appellant and respondents concluded an agreement for the full and final settlement of all matters and certain legal proceedings between them (Settlement Agreement). The Settlement Agreement contained an arbitration clause requiring the resolution of any dispute arising from it through Singapore-seated arbitration under the arbitration rules of the International Chamber of Commerce (ICC).

A dispute subsequently arose between the parties in relation to the Settlement Agreement. This dispute was eventually referred to a panel of three arbitrators.

On 8 May 2015, the arbitral tribunal delivered its final award and dismissed the appellant’s claim. In arriving at its decision, the tribunal made certain findings against the appellant and about the circumstances in which the Settlement Agreement was concluded. These findings were recorded in the tribunal’s reasoning but not in the award’s dispositive section. The “dispositive section” refers to the section of the award, usually at the very end, declaring which of the parties’ claims/counterclaims succeed and the reliefs they are entitled to.

The respondent subsequently applied to the Malaysian High Court for the recognition and enforcement of the arbitral award pursuant to Section 38 AA. Where enforcement was granted, the entire arbitral award would be registered as if it were a judgment of the High Court.

The appellant did not resist the recognition and enforcement application on any of the grounds under Section 39 AA, which largely mirror Article 36 of the UNCITRAL Model Law. However, the appellant challenged the extent to which the High Court should register the award, arguing that the award should not be registered in its entirety, but confined to the award’s dispositive section only. The appellant argued that a bifurcated registration would fit the statutory enforcement scheme and protect the arbitration’s confidentiality.

The High Court accepted the appellant’s challenge and held that only the dispositive section of the award was capable of being registered and enforced as a judgment of the High Court under Section 38 AA. This was subsequently overturned on appeal to the Malaysian Court of Appeal.

Dissatisfied with the Court of Appeal’s decision, the appellants raised an appeal to the Federal Court.

Federal Court decision

The Federal Court allowed the appeal, and agreed with the High Court that only the dispositive section of an arbitral award was capable of being registered and enforced under Section 38 AA.

In so deciding, the Federal Court drew an analogy between arbitral awards and judicial decisions, which comprise two separate parts, namely the:

  • order or judgment, which sets out the reliefs or prayers granted by the court. The Federal Court considered that the dispositive section of an arbitral award was equivalent to an order/judgment; and
  • Grounds of judgment, which refer to the court’s reasoning and findings that form the basis of the order/judgment. The Federal Court found that this was akin to the reasoning and findings of an arbitral tribunal.

Emphasising this distinction, the Federal Court noted that, as a matter of law and practice, a successful party to a court action would only file and rely upon an order/judgment for execution, and not the grounds of judgment. Arbitral awards, which the Federal Court viewed as analogous to court decisions, should therefore be given similar treatment for the purposes of recognition and enforcement. The court considered that this was consistent with the approach of Malaysian courts when enforcing foreign judgments under the Reciprocal Enforcement of Judgments Act 1958 (REJA), which could be adopted for the purposes of enforcing arbitral awards. Under REJA, Malaysian courts are concerned only with the registration of the operative part of the judgment and not with the foreign court’s findings or reasoning underlying its decision. Accordingly, this meant that the ambit of Section 38 AA should be confined to the dispositive section of an arbitral award only, which the Federal Court found reflected the practice of other jurisdictions.

A further reason for the Federal Court’s decision was that the bifurcation of awards functioned to protect the confidentiality of the arbitration. The court found that the registration of the entire arbitral award would have undermined its confidentiality. Further, as Malaysian courts are not required to assess the merits of the tribunal’s award when enforcing it under Section 38 AA, the registration of the entire award was unnecessary.

Another point of interest was the Federal Court’s view that the wording of the relevant AA provisions supported the bifurcation of awards, notably the court’s view on the statutory definition of “award” under the AA:

“[I]f the intention is to register the findings as part of the decision of an arbitral tribunal, the definition of “award” in section 2 of the AA 2005 ought to be “a decision of the arbitral tribunal and the substance of the dispute…” rather than the present definition “a decision of the arbitral tribunal on the substance of the dispute”.”[1]

While this definition was interpreted within the context of recognition and enforcement of arbitral award, the Federal Court did not expressly limit its discussion to this part of the AA. It will be interesting to see how this aspect of the Federal Court’s decision will be interpreted in the future.

Implications for Malaysian-seated arbitrations

The Federal Court decision in Siemens strengthens the confidentiality of arbitrations in Malaysia. It was not uncommon for parties to produce entire arbitral awards when seeking enforcement under Section 38 AA, making the award publicly accessible. Siemens makes it clear that parties should dispense with this practice.

However, parties intending to rely on this enhanced confidentiality should note that different confidentiality regimes may apply to their arbitral awards under the rules applicable to their arbitration. This is particularly relevant in ICC-administered arbitrations, where awards made as from 1 January 2019 may be published in their entirety, unless parties object to publication or restrict this by agreement. Therefore, a party intending to keep the tribunal’s findings confidential must make sure to take such steps. Failure to do so can result in the award’s unintended publication by the ICC.

A further discrepancy may arise where a party seeks to enforce awards in investor-state arbitrations under the UNCITRAL Rules in the Malaysian courts. Such awards may be published in whole under the UNCITRAL Transparency Rules, which apply by default to investment treaties concluded after 1 April 2014 or, in the case of earlier investment treaties, where Contracting States or disputing parties have agreed to their application. While there are exceptions to this publication requirement, it remains to be seen how they will interact with Malaysian law and the Siemens decision.

Parties intending to take advantage of the Siemens decision should, therefore, revisit the rules applicable to their arbitration and ensure that confidentiality standards are consistent across the whole arbitration regime chosen by parties.

[1]       Siemens, at [33]

 

For further information, please contact Peter Godwin, Regional Head of Practice – Dispute Resolution, Asia and Managing Partner, Kuala Lumpur, Lim Tse Wei, Associate, or your usual Herbert Smith Freehills contact.

Peter Godwin
Peter Godwin
Managing Partner
+60 3 2777 5104
Tse Wei Lim
Tse Wei Lim
Associate
+60 3 2777 5135

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.

MALAYSIA’S HIGH COURT ALLOWS JUDICIAL INQUIRY OF DAMAGES FOR A WRONGFULLY GRANTED COURT-ORDERED INJUNCTION WITHOUT AWAITING THE OUTCOME OF THE ARBITRATION

In Jaks Island Circle Sdn Bhd v Star Media Group Bhd and Another (Originating Summons No. WA-24C(ARB)-11-02/2018), the Malaysian High Court considered whether an inquiry of damages arising out of an undertaking by an applicant to pay damages for an injunction wrongly granted by a court in support of arbitration proceedings should await the outcome of a pending arbitration between the parties.

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