April 01 2010
The Arbitration Act 2005, which repealed the Arbitration Act 1952 and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985, was enacted to address the various inadequacies in those acts. However, Malaysia faces continued challenges in the enforcement of foreign arbitral awards under the Foreign Arbitral Awards Convention Act.
One such challenge, which was of considerable concern to the international community, was the Court of Appeal decision in Sri Lanka Cricket v World Sport Nimbus Pte Ltd ( 2 CLJ 316). This case concerned the construction of Section 2(2) of the Foreign Arbitral Awards Convention Act. Section 2(2) provides as follows:
"s.2(2) The Yang Di Pertuan Agong may, by order in the Gazette, declare that any State specified in the order is a party to the New York Convention, and that order shall, while in force, be conclusive evidence that that State is a party to the said Convention."
No such Official Gazette notification was issued by the Yang Di Pertuan Agong under Section 2(2) in respect of any of the contracting states to the New York Convention or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (each a 'convention state').
In Sri Lanka Cricket the Court of Appeal, faced with an application for the registration and enforcement of a Singapore arbitral award, held that as Singapore had not been gazetted as a convention state under the Foreign Arbitral Awards Convention Act, the award could not be summarily enforced under the act. The Court of Appeal took comfort in the fact that there was other recourse to enforce the award in Malaysia. The first option was to have the award registered as a judgment in the jurisdiction in which the award was made and seek its enforcement in Malaysia under the provisions of the Reciprocal Enforcement of Judgments Act 1958. The second option was to sue under the award in a common law action.
However, these alternative modes of enforcement provided little relief. They were clearly not the 'ready fix' that the international community was looking for in order to have its disputes resolved efficaciously. The Reciprocal Enforcement of Judgments Act recognizes judgments of a limited number of Commonwealth jurisdictions and is capable of enforcing only monetary judgments, thus leaving claimants without recourse in respect of non-monetary claims. A common law action on the award does not strictly limit the defences available to impugn the award (unlike the New York Convention), thus leaving the claimant with the daunting task of having to deal with various issues already determined in the arbitration. The lengthy timeframes required by these alternative methods also militate against their being the preferred mode of enforcement.
Hence, it became urgent to address the Sri Lanka Cricket decision. This happened recently in the Federal Court decision in Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd ( 1 CLJ 137). In Lombard Commodities the Federal Court was faced with a similar issue regarding the enforcement of an arbitral award, this time emanating from the United Kingdom. The Federal Court took the opportunity to set out in clearly defined terms that a Gazette notification pursuant to Section 2(2) of the Foreign Arbitral Awards Convention Act declaring the United Kingdom to be a party to the New York Convention was not a condition precedent to an award being regarded as a convention award under the act. The Federal Court held that the use of the word 'may' in Section 2(2) of the act simply confers a power, without a corresponding obligation to exercise this power. The provision in Section 2(2) was held to be evidential in effect and could not be regarded as a pre-condition to the enforcement of an award. It was primarily designed to dispense with the need to prove that a state is a convention state. Further, there was nothing to preclude the adducement of such other evidence as appropriate to establish a state as a convention state.
The concerns of the international community with respect to the enforceability of arbitral awards in Malaysia under the Foreign Arbitral Awards Convention Act will be allayed by the Federal Court's clear statement that the imposition of an additional condition (the need for Gazette notification) before a convention award may be enforced in Malaysia is contrary to the stated object of the Foreign Arbitral Awards Convention Act, wholly repugnant to Article III of the New York Convention and undermines the regime for the enforcement of convention awards.
The Arbitration Act 2005 has also removed the reference to a Gazette notification, thus clearing the way for all arbitral awards to be enforced under both the old and new regimes on the basis of Articles III and IV of the New York Convention.
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