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What happens if a High Court recognises an arbitral award while another High Court sets aside the same arbitral award at the same time?

This was the predicament before the Federal Court in Masenang Sdn Bhd v. Sabanilam Enterprise Sdn Bhd.[1] On 3.9.2021, the Federal Court rendered a unanimous decision in finding that even for domestic arbitrations, the seat of arbitration cannot simply be “Malaysia” as a whole. The location within Malaysia has to be specified, and the courts at the seat, i.e. a particular location in Malaysia, shall have exclusive supervisory jurisdiction. It is no longer the case where a party can file a challenge to the courts anywhere in Malaysia as it would “give rise to duplicity and chaos”.

Salient Facts

Masenang Sdn Bhd (“Masenang”) is the contractor and Sabanilam Enterprise Sdn Bhd (“Sabanilam”) is the employer under a standard PAM Contract 2006, which contains an agreement between the parties to refer their disputes to arbitration.

The arbitration agreement provides that the arbitration shall be governed by the Arbitration Act 2005 (“AA 2005”) and the seat of arbitration is Kuala Lumpur.

Dispute arose between the parties and the parties referred the same to arbitration.

Having obtained a Final Award (“Award”) in its favour, Masenang filed an application at the High Court in Malaya at Kuala Lumpur (“KL High Court”) pursuant to section 38 of the AA 2005 for the Award to be recognised as binding and enforceable.

Meanwhile, unbeknownst to Masenang, Sabanilam filed an application at the High Court in Sabah and Sarawak at Kota Kinabalu (“KK High Court”) pursuant to section 37 of the AA 2005 for the Award to be set aside and/or pursuant to section 42 of the AA 2005 for certain questions of law arising out of the Award to be determined by the High Court and thereafter for the Award to be set aside, varied and/or remitted for determination by the arbitral tribunal (“Tribunal”).

Masenang sought to strike out Sabanilam’s application before the KK High Court on the basis that the KL High Court has supervisory jurisdiction over the Award with Kuala Lumpur as the seat of arbitration. The application was allowed by the KK High Court (“KK High Court Decision No. 1”)[2] but it was overturned by the Court of Appeal.[3] The Court of Appeal essentially found that the seat of arbitration has no bearing in a domestic arbitration as under the AA 2005, both the High Court in Malaya and the High Court in Sabah and Sarawak are seized with jurisdiction. The matter was therefore remitted to the KK High Court.

In the interim, the KL High Court registered the Award as a judgment of the High Court (“KL High Court Decision”). Sabanilam has appealed against the same and it is pending hearing before the Court of Appeal.

Upon hearing Sabanilam’s application, the KK High Court set aside parts of the Award and remitted the same to the Tribunal for re-determination based on the questions of law determined by the High Court (“KK High Court Decision No. 2”).[4] Masenang has appealed against the same and it is pending hearing before the Court of Appeal.

Questions of Law

The present appeal before the Federal Court concerns Masenang’s appeal against the decision of the Court of Appeal overturning the decision by the KK High Court to strike out Sabanilam’s application, i.e. the KK High Court Decision No. 1. Leave was granted to Masenang only with regard to the issue of Sabanilam’s application before the KK High Court based on the following questions of law:

(a)        Whether, by reason of the Federal Court’s decision in Hap Seng Plantations (River Estates Sdn Bhd v. Excess Interpoint Sdn Bhd [2016] 4 CLJ 641; [2016] 3 MLJ 553 (“Hap Seng”) inter alia, that the High Court in Malaya and the High Court in Sabah and Sarawak each has its own separate territorial jurisdiction, there exists in law two separate supervisory jurisdictions in Malaysia over arbitrations or arbitration awards, namely one under the High Court in Malaya and one under the High Court in Sabah and Sarawak (“Question 1”).

(b)       Whether, by reason of the Federal Court’s decision Hap Seng, inter alia, that the High Court in Malaya and the High Court in Sabah and Sarawak each has its own separate territorial jurisdiction, the High Court in Sabah and Sarawak in Kota Kinabalu has supervisory jurisdiction to hear an application to set aside an Arbitration Award issued in Kuala Lumpur (“Question 2”).

(c)        Whether, in the context of there being two separate territorial jurisdictions in Malaysia, the seat of a domestic arbitration may be a state or a territory within Malaysia (“Question 3”).

Decision of the Federal Court

Before delving into the questions of law, the Federal Court first considered whether the theory of the “juridical seat” of arbitration has relevance or application in domestic arbitrations within Malaysia.

Contrary to the Court of Appeal’s finding, the Federal Court found that the seat of arbitration in a domestic arbitration, i.e. the specified location within Malaysia, is a relevant consideration in determining the jurisdiction of the courts, to avoid multiplicity of proceedings and conflicting decisions and most importantly, to uphold party autonomy.

In light of the fact that Kuala Lumpur is the seat of arbitration, the KL High Court enjoys exclusive supervisory jurisdiction over the arbitration and naturally, the Award.

The KK High Court’s decision setting aside the Award, i.e. KK High Court Decision No. 2, was therefore rendered void and the KL High Court’s decision allowing the recognition and enforcement of the Award, i.e. KL High Court Decision, prevailed.

Upon deliberating on the “juridical seat”, the Federal Court declined to answer Question 1, answered Question 2 in the negative and answered Question 3 in the affirmative.

Takeway

This decision by the Federal Court brings in line the concept of “juridical seat” in domestic arbitration with that in international arbitration where if the parties in an international arbitration have agreed for the seat of arbitration to be Kuala Lumpur, Malaysia, the court having supervisory jurisdiction over the arbitration can be no other than the High Court in Malaya at Kuala Lumpur.

It matters not where the cause of action arose; which court enjoys supervisory jurisdiction over the arbitration ultimately comes down to the designated seat of arbitration.

 

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[1] [2021] 1 LNS 1245; [2021] MLJU 1656.

[2] [2018] 1 LNS 2322; [2018] MLJU 2184.

[3] [2020] 2 CLJ 833; [2020] 3 MLJ 342.

[4] [2020] 1 LNS 1288; [2020] MLJU 1544.

 

*This Alert is intended for general information of the clients of our Firm. It should not be regarded as legal professional advice. If you have any queries on arbitration, please feel free to contact us.

 

Lam Ko Luen Partner and Head, Arbitration [email protected]

Nina Lai Jian Xian Senior Associate [email protected]