In Masenang Sdn Bhd v Sabanilam Enterprise Sdn Bhd  6 MLJ 255, the Federal Court had occasion to consider the jurisdiction of the High Courts of Malaya and of Sabah and Sarawak with regard to the enforcement and setting aside of a domestic arbitration award.
Masenang was a contractor and Sabanilam was the employer. The contract adopted the PAM Form 2006. Arising from contractual disputes, the matter was referred to arbitration. The arbitration was heard in Kuala Lumpur and the award was handed down in Kuala Lumpur. Sabanilam was required to pay Masenang a sum in excess of RM26 million pursuant to the arbitral award.
Masenang then applied to register the award in the Kuala Lumpur High Court. At the same time, Sabanilam applied to set aside the award in the Kota Kinabalu High Court. Masenang took the view that the Kuala Lumpur High Court had jurisdiction because the arbitration was seated in Kuala Lumpur. Sabanilam, on the other hand, took the view that the Kota Kinabalu High Court had jurisdiction because the project was located in Penampang, Sabah.
On 22 March 2018, the Kota Kinabalu High Court struck out Sabanilam’s application to set aside the arbitral award on the basis that it is the Kuala Lumpur High Court that had supervisory jurisdiction. Sabanilam appealed.
On 22 March 2019, the Court of Appeal reversed the decision of the Kota Kinabalu High Court. The Court of Appeal took the view that both the High Court of Malaya and of Sabah and Sarawak enjoyed concurrent jurisdiction, and therefore the enforcement and/or setting aside of a domestic arbitral award could be heard by any domestic court.
In doing so, the Court of Appeal took the view that the entire Malaysia is a single seat.
Appeal to the Federal Court
Masenang appealed to the Federal Court, seeking the Federal Court’s view as to whether in law, there exists two separate supervisory jurisdictions in Malaysia over arbitration awards, namely one under the High Court of Malaya and the other under the High Court of Sabah and Sarawak. Masenang contended that the High Court of Sabah and Sarawak had no supervisory jurisdiction to set aside an arbitration award issued in Kuala Lumpur.
At the Federal Court, Masenang contended that the concept of “seat of arbitration” is relevant for both domestic and international arbitrations, and ordinarily the venue or place of arbitration would be the “seat”. Since the PAM Form provided for the PAM Arbitration Centre in Kuala Lumpur to be the place of arbitration, therefore it must be presumed that Kuala Lumpur is the seat of arbitration.
The place where the cause of action occurred is not relevant in determining which High Court has supervisory jurisdiction because an application to enforce or set aside an arbitral award is not an action to enforce a cause of action under the construction contract. Any application to enforce or set aside an arbitral award ought to be made at the relevant High Court having supervisory jurisdiction.
Sabanilam, on the other hand, argued that there is only one law applicable to the whole of Malaysia governing arbitrations namely the Arbitration Act 2005. As the Arbitration Act 2005 does not distinguish between West or East Malaysia, therefore the entire Malaysia would constitute the seat of arbitration. The venue of arbitration (i.e. Kuala Lumpur) is not necessarily the “seat”,
Reasoning of the Federal Court
The learned Nallii Pathmanathan FCJ was troubled by the fact that if parties could apply to enforce or set aside arbitral awards at any High Court of their choice, then there would be the possibility of conflicting judgements given by different High Courts sitting at different places. This would also introduce a two-tier conflict whereby the first tier would be the arbitration itself and the second tier would be the question as to which High Court ought to hear any challenge to the arbitral award.
Whether the concept of “seat” has relevance in a domestic arbitration?
The identification of the seat of arbitration has the consequential effect of ascertaining which court would have the exclusive jurisdiction to regulate and supervise the arbitration. Identification of seat also means that parties agree for any challenge to an interim or final award would be made in the court of the place designated as the seat of arbitration.
Her Ladyship then considered s 2 of the Arbitration Act 2005 which defines “High Court” as “the High Court in Malaya and the High Court in Sabah and Sarawak or either of them, as the case may require”. Interpreting the words “or either of them, as the case may require”, her Ladyship opined that for any particular domestic arbitration, the High Court enjoying supervisory jurisdiction will be the court at the seat of the domestic arbitration only.
Since the Arbitration Act 2005 does not distinguish between domestic and international arbitrations and the concept of “seat” is clearly important in an international arbitration, therefore similarly the concept of “seat” would equally apply to domestic arbitrations.
Although s 3 Arbitration Act 2005 stipulates that for a domestic arbitration, “the seat of arbitration is in Malaysia”, nevertheless her Ladyship goes on to express the view that it is not the whole of Malaysia which comprises the seat. Instead, the seat has to be designated at a particular place or location within Malaysia. The seat therefore determines the exclusive jurisdiction of the particular High Court to supervise the arbitration. The phrase “seat…is in Malaysia” was construed to mean that the seat is “within” Malaysia.
Relevance of territorial jurisdiction of the courts
The concept of territorial jurisdiction of the courts as envisaged by the Courts of Judicature Act is fundamentally different from the theory of the juridical seat understood in arbitral law. Since the seat of arbitration is a matter of agreement between parties, then party autonomy in arbitration dictates that the court having supervisory jurisdiction must be the court of the seat. If parties fall back on the territorial jurisdiction of the courts, it would mean that party autonomy would suffer.
There would be confusion in the event that all High Courts are vested with the jurisdiction to supervise the arbitration. Different High Courts assuming supervisory jurisdiction would lead to duplicity and conflicting decisions.
The Federal Court therefore distinguished between:
- Territorial jurisdiction of courts under civil procedure laws; and
- Supervisory jurisdiction of courts under arbitral law.
Towards this end, it must be noted that parties to arbitration oftentimes choose a neutral venue as the seat of arbitration. Such a neutral venue would not naturally be the court having territorial jurisdiction, but the court would be vested with supervisory jurisdiction by agreement of parties. The territorial jurisdiction of the courts is only applicable for purposes of determining civil disputes.
Whilst Malaysian law remains the lex arbitrii, the jurisdiction of the courts to supervise the arbitration depends on the seat. These two cannot be conflated. The Arbitration Act 2005 provides for a complete and comprehensive codification of the law relating to arbitration and there is no basis to include principles under the Courts of Judicature Act pertaining to territorial jurisdiction in an application to enforce or set aside an arbitral award.
Specific law as opposed to general law
Applying the maxim of generalia specialibus non derogant, the Arbitration Act 2005 is a special law governing arbitrations that prevails over the provisions of other general laws. The role of the courts under the Arbitration Act 2005 is narrow and limited, and any underlying cause of action that led to the initial dispute must be deemed to have merged in the arbitration award.
Party autonomy is of utmost importance, and the choice of seat is a matter to be determined by the parties. Once the seat is determined, the court at the seat of arbitration has exclusive jurisdiction to supervise the arbitration proceedings.
Any decision with regard to the arbitration issued by a court other than the court of the seat is void.
The Arbitration Act 2005 is not in fact entirely clear on the issue that only one High Court would have exclusive jurisdiction. Notwithstanding the Federal Court’s interpretation of s 2 of the Act, the definition of “High Court” in s 2 in fact provides for “the High Court in Malaya and the High Court in Sabah and Sarawak or either of them, as the case may require”. The use of “and” shows that both High Courts in fact enjoy jurisdiction over the arbitration proceedings and the use of “or” subsequently points to either one of these High Court, only as the case may require.
Nevertheless, the decision of the Federal Court is welcome because it supports party autonomy, and is consistent with the arbitral practice of allowing parties to choose a neutral venue as the seat. More importantly, this decision would mean that parties cannot forum-shop when seeking to set aside arbitration awards, as parties would be compelled to go before the High Court having exclusive jurisdiction by reason of being the seat court. Any attempt to forum-shop would be to no avail as the Federal Court has pronounced that any such decision by a High Court which is not the court of the seat to be void.
Author: Chan Kheng Hoe ([email protected])