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Case Update: The effect of foreign entity in determining the law governing the arbitration agreement

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ARBITRATION
Arbitration – Arbitral Award – Meaning of ‘international arbitration’ – Whether arbitration was international or domestic Arbitration – Law Governing the contract when one party is a foreign entity – Arbitration Act 2005, sections 2 and 42

Tan Sri Dato' Vincent Tan Chee Yioun & Anor v Jan De Nul (Malaysia) Sdn Bhd & Anor and Another Appeal
[2018] 1 LNS 1613, Federal Court
- see the grounds of judgment here

Facts Central Malaysian Properties Sdn Bhd (“CMP”), a private company, was the developer of a project in Johor Baharu (“the Project”). Tan Sri Vincent Tan Chee Vioun, an individual, controls CMP (collectively known as “the appellants”). The Project was awarded to Jan De Nul (Malaysia) Sdn Bhd (“JDN”), a private company, whose ultimate holding company is Jan De Nul Group (Sofidra S.A) (“Sofidra”), a company incorporated and based in Luxembourg, a foreign entity. CMP appointed JDN as the contractor for the Project to build a reclaimed platform from the sea coast on which CMP intended to develop commercial and residential buildings. A formal contract was executed between the parties. Works could not start due to CMP’s delays in meeting its financial and payment security obligations. JDN issued a notice of default for CMP’s failure to pay advance payment and the overdue of progress claim certificates. VT then executed a guarantee in his personal capacity. JDN commenced works. CMP defaulted in payment again. A disaster then occurred where the reclaimed platform gave way and collapsed into the sea resulting in the loss of one life. All reclamation and filling works were suspended. JDN then issued a notice notifying CMP its default in payment. CMP failed to remedy the default. JDN referred the dispute to arbitration. The arbitration set out the award. All parties challenged the arbitral tribunal’s final award in the High Court, which was dismissed. On appeal, the Court of Appeal overturned the decision. Hence, this appeal.

Issue The main issue is whether section 42[1] of the Arbitration Act 2005 (“the Act”) automatically applies to an arbitration governed by the laws of Malaysia notwithstanding that one or more parties to the arbitration may be foreign.

Held In dismissing the appeal, the Federal Court held the present arbitration is clearly an international arbitration within the meaning of section 2 (a)[2] of the Act. The laws governing the arbitration agreement are of no relevance. As parties have not agreed to “opt in” Part III of the Act, section 42 of the Act is therefore not an avenue available to the parties.

 
 
[1] Reference on questions of law
(It must, however, be noted that Parliament had most recently amended the Act by way of Arbitration (Amendment) (No. 2) Act 2018 Act, (Act A1569). With effect from 8.5.2018, among others, the entire provision of reference on questions of law under section 42 had been deleted. Currently, therefore, the only recourse against an arbitral award is a setting-aside action under section 37 of the Act.)
[2] Interpretation: (a) in the definition of “international arbitration”…