In Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd,(1) the Federal Court overturned a Court of Appeal decision(2) on the test which applies to applications to restrain arbitration proceedings made by non-parties to the proceedings. The Court of Appeal had held that the test for granting an injunction application to restrain arbitration proceedings by non-parties to the proceedings is that set out in the High Court of England and Wales decision of J Jarvis & Sons Limited v Blue Circle Dartford Estates Limited.(3) This decision stated that:
- the injunction must not cause injustice to the claimant in the arbitration; and
- the continuance of arbitration must be oppressive, vexatious, unconscionable and an abuse of process.
The third respondent was a joint venture company formed to provide harbour tug services. The first and second respondent each held 20% and 80% shares, respectively, in the company. The appellant alleged that he had agreed to invest in the third respondent premised on a collateral understanding between him and the first and second respondents where:
- the appellant was the beneficial owner of part of the 80% shares owned by the second respondent in the third respondent;
- the first respondent agreed to the appellant's participation in the third respondent's equity; and
- no further consent was required for the second respondent's divestment of any part of its 80% shares in the third respondent to the appellant.
In November 2015 10% of the shares in the third respondent were transferred from the second respondent to the appellant. The first respondent denied the existence of a collateral understanding and commenced arbitration proceedings against the second and third respondents pursuant to the arbitration clause in the shareholders' agreement entered into between the respondents. The appellant applied for an injunction to restrain the first respondent from continuing arbitration proceedings and was successful in the high court. The Court of Appeal reversed the high court's decision.
The questions of law for which leave to appeal to the Federal Court was granted were:
- whether the requirements of Section 10 of the Arbitration Act 2005 must be met by party litigants seeking an injunction to restrain the prosecution of an arbitration to which it is not a party but which would affect its proprietary rights; and
- whether Section 8 of the Arbitration Act 2005 applies to party litigants that are not a party to an arbitration agreement or arbitration proceedings.
In answering the leave questions, the Federal Court also discussed the test which applies to applications to restrain arbitration proceedings made by non-parties.
The Federal Court allowed the appeal and restored the high court's order, issuing an injunction to restrain the arbitration proceedings between the respondents.
Applicability of Sections 8 and 10 of Arbitration Act
The Federal Court held that Section 10(1) of the Arbitration Act manifestly indicated that proceedings before the court must relate to a matter that is the subject of an arbitration agreement before the section can be invoked. As there was no arbitration agreement between the appellant and the first respondent, as defined in Section 9 of the Arbitration Act, and the appellant was not party to the arbitration proceedings, the injunction application did not fall within the scope of Section 10 of the Arbitration Act.
As Section 10 of the Arbitration Act did not apply to the injunction application, the Federal Court held that Section 8 of the Arbitration Act did not apply either. The Federal Court also noted that the powers of the courts in relation to arbitration proceedings have been expressly prescribed in the Arbitration Act and that none of the prescribed powers applied or were of use to the appellant as there was neither an arbitration agreement nor arbitration proceedings relating to the appellant's claim.
The Federal Court held that the basis for the imposition of a higher threshold in the test required to obtain an injunction to restrain arbitration proceedings by non-parties to arbitration by the Court of Appeal is flawed because the Arbitration Act 2005 does not apply to the appellant and the Jarvis test is irrelevant to the facts of the instant case. Jarvis relied on the Court of Appeal of England and Wales decision in The "Oranie" and The "Tunisie",(4) in which a more stringent test had been imposed, as the applicant for the injunction to restrain arbitration proceedings had been party to the arbitration agreement. The Federal Court found that the rationale for the stringent test in Jarvis accords with cases that involve exclusive jurisdiction clauses. As such, in an application for an anti-suit injunction to prevent parties from bringing a claim in a forum other than that agreed by the parties, the party seeking to change the forum must provide sufficient justification in order to alter the contractual obligations. This contrasts with the instant case, where the appellant had no contractual obligation, as they were not party to the arbitration agreement or the arbitration proceedings.
Further, the Federal Court found that even if it proceeded on the basis that the Jarvis test applied to the injunction application, the first respondent had made no concession that there would be no associated consequences for the appellant if the court ordered the arbitration award's registration. While there would be no prejudice to the first respondent if the injunction were granted, it would be oppressive, vexatious and unconscionable for the arbitration proceedings to continue because the appellant was not a party thereto while his proprietary rights were sought to be impugned.
The Federal Court held that the courts may decline to give effect to an exclusive jurisdiction or arbitration clause where:
- third-parties' interests are involved; or
- there is a risk of parallel proceedings and inconsistent decisions arising out of the conduct of arbitration.
The Federal Court held that once multiple proceedings are identified, the court must consider the courts' desire to:
- hold commercial parties to their bargain; and
- avoid disruption and multiplicity or duplicity of litigation to avoid parallel proceedings and the risk of inconsistent findings.
Since the appellant was not a party to the arbitration agreement, the former consideration is irrelevant. Further, apart from the risk of inconsistent findings, costs would also be duplicated if the suit and the arbitration proceedings were to proceed simultaneously, as there were significant overlaps between:
- the suit and arbitration proceedings relating to the 10% shares in question;
- the remaining 70% shares in the third respondent registered in the name of the second respondent;
- the shareholder agreement; and
- the reliefs sought.
As the suit was already at the trial stage, it should have taken precedence over arbitration and hence the injunction granted by the high court was appropriate.
The Federal Court distinguished Jarvis from the present case as when arbitration proceedings commenced in Jarvis, there were no concurrent proceedings brought by the non-party. Further, there was no fear of inconsistent findings in Jarvis as the claim in the arbitral proceedings and the potential claim in court proceedings were distinct.
The Federal Court held that while delay is a relevant factor in the proceedings, it could also be explained by reference to other circumstances. The Federal Court noted that the Court of Appeal had not considered the appellant's explanation. This contrasted with the high court, which had considered the appellant's affidavit and found that the appellant did not wish to escalate matters as these were ongoing without prejudice negotiations, hence justifying the delay. Therefore, the Federal Court held that:
- the Court of Appeal had erred on the issue of delay; and
- the high court had correctly exercised its discretion in finding that there had been no inordinate delay.
Objective or policy of Arbitration Act 2005
The Federal Court acknowledged that the enactment of the Arbitration Act marked a shift in position to one of respect for party autonomy and the courts' non-interventionist policy. However, the Federal Court concluded that the Arbitration Act's language did not apply to the present case and that to argue otherwise would be an overreach and lean away from the clear legislative intent of the provisions of the Arbitration Act, as legislative policy and object must be construed within the ambit of the statute itself.
The Federal Court concluded its judgment by affirming the findings of the high court judge, including that:
- the balance of justice was in favour of the injunction order;
- there were serious issues to be tried; and
- the balance of convenience lay in favour of the suit proceeding over the arbitration.
The Federal Court has endorsed that the test which appears to apply to applications to restrain arbitration proceedings by non-parties is that used in Keet Gerald Francis Noel John v Mohd Noor bin Abdullah & Ors.(5)
Endnotes
(1) Civil Appeal 02(i)-83-09/2018(W).
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