Cross-border transactions by Maldives-based entities span a range of industries, such as:
- aviation;
- maritime;
- tourism;
- import-export; and
- finance.
The number of such transactions is on the rise, which could lead to disputes between parties based in different jurisdictions and instances where debtors' assets are located in a jurisdiction other than that where litigation was based.
Export-Import Bank of Malaysia Berhad (Exim Bank) granted a loan facility to Sultans of the Seas Marine Taxi Pvt Ltd (first defendant) and a corporate guarantee was given to the facility by Sultan of the Seas Pvt Ltd (second defendant), both Maldives-incorporated entities. The defendants defaulted on the loan. The facility agreement was governed by Malaysian law and the Malaysian courts had non-exclusive jurisdiction.
On 1 November 2011 the Malaya High Court in Kuala Lumpur (Commercial Division) issued a default judgment for non-appearance against the defendants for the payment of outstanding dues in the loan plus interest, penalty and costs (Export-Import Bank of Malaysia Berhad v Sultan of the Seas Marine Taxi Pvt Ltd).(1)
On 5 June 2013 Exim Bank filed suit in the Maldives Civil Court(2) against the defendants to obtain a local judgment, as foreign judgments are not automatically enforced in the Maldives.
The defendants raised a procedural point (before responding to the claim) that the matter had already been adjudicated in the Malaya High Court and that proceeding with the case in the Maldives would amount to res judicata and double jeopardy.
The presiding judge at the Civil Court declared that the matter had already been adjudicated in Malaysia and that the Maldivian courts did not have jurisdiction on the matter. The case was dismissed.
Exim Bank appealed the decision to the High Court. The three-judge bench at the High Court upheld the Civil Court's decision that proceeding with the matter in the Maldivian courts would amount to res judicata.
Exim Bank appealed the High Court decision to the Supreme Court. The points of appeal were the same as those before the High Court:
- The facility agreement was governed by and construed under Malaysian law and the parties had irrevocably agreed that the Malaysian courts, or courts in other jurisdictions, had jurisdiction to hear and determine any suit, action or proceedings in connection with the agreement.
- Under the facility agreement, the submission to the jurisdiction of the Malaysian courts did not, and should not be construed as to, limit Exim Bank's right to take legal proceedings in any other jurisdiction, nor did the taking of legal proceedings in any one or more jurisdictions preclude the taking of legal proceedings in any other jurisdiction, whether concurrently or not.
- The Maldives was the most appropriate forum to institute legal proceedings against both defendants as both companies were incorporated and based in the Maldives.
- The subject matter of the case related to the recovery of loan facilities and was not a prohibited act or against Maldivian public policy.
- The debt against the defendants had been established in the Malaya High Court and the judgment served as the basic piece of evidence against the defendants.
- If the Maldivian courts recognise a foreign judgment and the foreign judgment is directly enforced in the Maldives, it would be akin to a local court decision and the principle of res judicata could apply. However, this was not the case, as there is no bilateral agreement between the Maldives and Malaysia on this subject.
- Section 18 of the Maldives Contract Act provides that parties can choose an internationally accepted law as the governing law of a contract. This purports that the Maldivian courts are not restricted to adjudicate only on Maldivian law-governed contracts.
- The private international law principle established by the English Queen's Bench Division in Godard v Gray(3) should apply in this case as these principles are followed in developed jurisdictions such as the United Kingdom, Canada and Singapore. In Godard, it was held that a judgment of a foreign court of a competent jurisdiction cannot be questioned by the parties on the merits when recognition or enforcement of the judgment is sought in England.
On 14 October 2020 the Supreme Court issued its judgment, holding as follows:
- According to generally accepted principles of private international law, the res judicate principle will apply if foreign court judgments are recognised in the Maldives. Res judicata will not apply when enforcing foreign judgments in the Maldives.
- Recognition of foreign judgments will occur when there is a bilateral agreement between the two counties on the matter.
- When a contract is governed under foreign law, the Maldivian courts can adjudicate contracts governed by internationally accepted laws under Section 18(d) of the Contract Act. This implies that the Maldivian courts have the jurisdiction to adjudicate foreign law-governed contracts. However, there is no specific procedure as to how the local courts will apply foreign law.
- In such cases, the court may proceed with the usual procedural rules of the court rather than apply specific procedures to the case.
- There are two main ways in which courts apply this rule:
- Under the lex fori (ie, choice of law) rule. In such instances, the court decides that the matter will be decided based on foreign law and undertakes the responsibility to apply and interpret such foreign law.
- Alternatively, the parties can establish the rules of foreign law before the court in the same manner that they attempt to establish the facts and applicable law before the court. Accordingly, references to foreign law and affidavits of foreign lawyers may be submitted to establish points of foreign law. In the event that a party fails to prove a point of foreign law, the presiding judge may apply the law of the country where the case was heard.
- In most instances, in countries that have a civil law system or inquisitorial system, the courts bear the burden of applying and interpreting foreign law.
- In common law jurisdictions or counties with adversarial systems, the burden of proof of foreign law generally rests with the party relying thereon.
- Under the Judicature Act and Maldivian procedural law, it appears that the Maldives system has more features of an adversarial system. In such systems, the presiding judge will decide matters based on the evidence submitted to the court by the parties.
Based on the above, the Supreme Court ruled that parties seeking to apply foreign law to a matter in the Maldivian courts have the burden of proving the foreign law to the court. Where a party fails to prove the foreign law, the judge may apply Maldivian law.
In light of the above, foreign court judgments can be submitted to the Maldivian courts as evidence. Further, a local court decision will be required to enforce a foreign judgment in the Maldives, as initially submitted by Exim Bank.
The judgment also leaves opens the possibility of the Maldivian courts adjudicating on foreign law-governed contracts.
The Maldivian economy comprises multinational investments and high-net-worth transactions but has limited capacity for dispute resolution. A mechanism for applying principles practised in developed nations will increase the credibility of the Maldivian justice system. The recent outcome of the Hague Conference on Private International Law, the Convention on Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters 2019, is an international instrument that would harmonise private international law among jurisdictions which accede to the convention. The Maldives should consider acceding to the convention, as it did to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958.
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