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23 May 2019
Order 69, Rule 8(2)(b) of the Rules of Court 2012 states that the originating summons of an application to enforce an arbitration award will "state either that the award has not been complied with or the extent to which it has not been complied with at the date of the application".
In a recent Court of Appeal case, Tune Talk Sdn Bhd v Padda Gurtaj Singh,(1) the question before the court was whether a negative declaratory arbitration award is enforceable.
The plaintiff and the defendant entered into a shareholders' agreement in 2008. A dispute arose and, pursuant to the arbitration clause in the shareholders' agreement, the dispute was referred to arbitration. After a full hearing, the arbitrator issued the arbitration award (final award) with the following terms, including that:
The plaintiff obtained an ex parte order for the recognition and enforcement of the final award. The high court dismissed the defendant's application to set aside the ex parte order, thus giving rise to this appeal.
The crux of the defendant's appeal was that as the costs had been taxed and paid, there was nothing in the final award capable of being enforced, or not having been complied with. As such, the plaintiff had not fulfilled the requirement of Order 69, Rule 8(2)(b) of the Rules of Court. The question before the Court of Appeal was whether non-compliance with this requirement rendered the ex parte order liable to be set aside.
The Court of Appeal dismissed the defendant's appeal and affirmed the decision of the high court. The Court of Appeal held that despite the final award being declaratory in nature and having no positive order, the plaintiff had a right to apply for judicial recognition of the final award.
Law on recognition and enforcement of arbitration awards
The Court of Appeal held that, under Section 38(2) of the Arbitration Act 2005, the only documents that needed to be submitted to the high court in order for the arbitration award to be recognised and enforced were:
As long as the formal requirements of Section 38 are complied with (absent any grounds under Section 39 of the Arbitration Act, upon which recognition and enforcement may be refused), the court must grant recognition and enforcement of an arbitration award upon such an application being made.
Sections 38 and 39 of the Arbitration Act are exhaustive
The Court of Appeal further held that Sections 38 and 39 are exhaustive in respect of the high court's basis for refusal to recognise and enforce an arbitration award. If these sections were to be interpreted as not containing all of the substantive requirements, this would conflict with Parliament's intent to encourage arbitration as a method of settling disputes. Therefore, Order 69, Rule 8(2)(b) of the Rules of Court cannot be construed as a substantive requirement of Section 38 of the Arbitration Act.
For this reason, the defendant's failure to raise any grounds under Section 39(1) meant that the judge was right in dismissing the application to set aside the ex parte order.
Non-compliance with procedural requirement is not fatal
The Court of Appeal also noted that non-compliance with Order 69, Rule 8(2)(b) can be rectified or remedied via Order 2 of the Rules of Court, which states that non-compliance with the requirements of the Rules of Court will be treated as an irregularity and will not nullify proceedings in the interest of justice.
Rules of Court requirement cannot exceed jurisdiction granted by Arbitration Act
The Court of Appeal held that the jurisdiction of the high court to recognise and enforce awards is provided by the Arbitration Act. Order 69, Rule 8 of the Rules of Court is subordinate to Section 38 of the Arbitration Act. Further, the Rules of Court constitute subsidiary legislation as they were not created by Parliament. The requirement of Order 69, Rule 8, if construed as a substantive requirement, would be inconsistent with the Arbitration Act and limit the rights to recognition and enforcement of an arbitration award under the act. Such an interpretation could not be upheld.
Common law principles do not apply
The Court of Appeal also held that Sections 38 and 39 of the Arbitration Act do not allow the application of any common law principles to circumscribe the application of the act. Therefore, the common law principle in Takako Sakao v Ng Pek Yuen(2) that a declaratory judgment or award is not capable of execution or enforcement did not apply in the present case.
The Court of Appeal rejected the defendant's argument that imposing a substantive requirement for positive action to recognise and enforce arbitration awards would align Malaysia with other Commonwealth countries, as similar empowering legal provisions in other Commonwealth countries allow the courts discretion to impose further requirements for recognition and enforcement of an award. The Court of Appeal noted that case law in other Commonwealth countries developed only because of this discretion.
The Court of Appeal used the examples of Section 66 of the English Arbitration Act 1996, Section 33 of the New South Wales Commercial Arbitration Act 1984, Section 33 of the Victorian Commercial Arbitration Act 1984, Section 84 of the Hong Kong Arbitration Ordinance 2010 and the Singapore International Arbitration Act, which confer discretion to the courts to impose further requirements for recognition and enforcement of an award. This is unlike Section 38 of the Malaysian Arbitration Act. Therefore, these Commonwealth cases were not directly applicable to the present case.
The decision of the Court of Appeal emphasises the narrow grounds that enable the high court to refuse to recognise or enforce an arbitration award, as long as the requirements of Section 38(2) of the Arbitration Act are complied with. It also establishes a precedent that there is no barrier to the enforcement of a negative declaratory arbitration award.
For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 320 272 727) or email (firstname.lastname@example.org). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
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