In the recent Court of Appeal case Nautical Supreme Sdn Bhd v Jaya Sudhir a/l Jayaram,(1) the plaintiff sought an injunction to restrain arbitration proceedings between the second, third and fourth defendants, despite the fact that it was not a party to the proceedings.
The fourth defendant was a joint venture which had been formed to undertake a project for the provision of harbour tug services. Its initial shareholders were the second and third defendants. The plaintiff claimed that he had agreed to invest in the project on the premise of a collateral understanding between himself and the second and third defendants. Pursuant to the collateral understanding:
- the third defendant would hold 80% of the shares in the fourth defendant, with part of the shares being held in a trust for the plaintiff;
- the plaintiff would be entitled to participate in the fourth defendant's equity, either directly or through the third defendant's shareholding; and
- the second defendant had agreed to the plaintiff's participation in the fourth defendant's equity, and no further consent was required for the third defendant's divestment of any part of its shares.
The plaintiff subsequently claimed that 10% of the fourth defendant's shares held in the third defendant's name be transferred to him. The second defendant denied the existence of the collateral understanding and commenced arbitration proceedings against the third and fourth defendants pursuant to the arbitration clause in the shareholders' agreement. The plaintiff applied for an injunction to restrain the second defendant from continuing arbitration proceedings and was successful in the High Court.
The following questions of law arose in this appeal:
- Do Sections 10(1)(a) and 10(3) of the Arbitration Act 2005 apply to non-parties to arbitration proceedings?
- Can non-parties to arbitration proceedings restrain such proceedings and, if so, which test applies?
- Should the test to restrain arbitration proceedings be less stringent for non-parties to arbitration proceedings than for parties?
The Court of Appeal allowed the second defendant's appeal and set aside the High Court decision which had allowed the plaintiff's application to restrain the arbitration proceedings between the second, third and fourth defendants.
Applicability of Sections 10(1) and 10(3) to non-parties
The Court of Appeal held that based on a plain reading of Sections 10(1) and 10(3) of the Arbitration Act, the provisions do not apply to non-parties to arbitration proceedings. Nevertheless, this did not mean that the act did not apply to the plaintiff. The court held that where arbitration proceedings are pending, the courts should observe the Arbitration Act and take cognisance of the pending arbitration. Thus, to that extent, it could not be said that the Arbitration Act did not apply to the plaintiff. Therefore, the High Court judge had erred by failing to give due consideration to the pending arbitration between the second, third and fourth defendants and the objectives of the Arbitration Act, which include respect for party autonomy and a non-interventionist court policy once the act's requirements have been satisfied.
Applicable test
The Court of Appeal held that the test for accepting an injunction application to restrain arbitration proceedings by a non-party to the proceedings can be found in the UK High Court case J Jarvis & Sons Limited v Blue Circle Dartford Estates Limited.(2)
Based on Jarvis, the conditions to be satisfied are twofold:
- an injunction cannot cause injustice to the claimant in the arbitration; and
- the continuance of the arbitration must be oppressive, vexatious, unconscionable or an abuse of process.
The court's discretion to grant such an injunction is exercised only sparingly, with due regard to the principles of the Arbitration Act, when a delay by the party applying for the injunction is material to the court's exercise of discretion and may be fatal to the application.
Applying the test to the facts of the case, the Court of Appeal held that the plaintiff's 10-month delay in applying for an injunction to restrain the arbitration proceedings between the second, third and fourth defendants was fatal to the injunction application. It also held that the High Court had erred in using the test in Keet Gerald Francis Noel John v Mohd Noor @ Harun Abdullah,(3) which is the general test for the grant of interim injunctions and had no application to the facts and circumstances of this case.
Multiplicity of proceedings
The Court of Appeal further applied Jarvis to hold that the prospect of concurrent proceedings and consequences of inconsistent findings is no longer a material factor to be considered in an application to restrain arbitration proceedings. Therefore, the High Court had erred in relying on Bina Jati Sdn Bhd v Sum-Projects (Bros) Sdn Bhd(4) for the claim that the arbitrator's jurisdiction may be ousted where there is a prospect of multiplicity or concurrent proceedings, as Bina Jati was decided prior to the Arbitration Act's implementation.
Should test be less stringent?
The Court of Appeal held that parties to arbitration are subject to the requirements of Sections 10(1) and 10(3) of the Arbitration Act, while non-parties to an arbitration must satisfy the test in Jarvis to restrain arbitration proceedings. Therefore, non-parties to arbitration must satisfy a higher threshold to merit an injunction to arbitration proceedings than that required of a party to arbitration.
The Court of Appeal's decision has clarified the principles applicable to an injunction application to restrain the arbitration proceedings by a non-party.
For further information on this topic please contact K Shanti Mogan or Yiew de Quan at Shearn Delamore & Co by telephone (+60 320 272 727) or email ([email protected] or [email protected]). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
Endnotes
(1) Civil Appeal W-02(IM)(NCC)-2296-11 of 2017.
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