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Case Update: Federal Court Reinstated Injunction of a Non-Party to an Arbitration

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ARBITRATION
Anti-arbitration injunction – Party litigant seeking an injunction to restrain the prosecution of an arbitration – Party litigant who is not a party to an arbitration agreement – Sections 8 and 10, Arbitration Act 2005

Jaya Sudhir A/L Jayaram v Nautical Supreme Sdn Bhd & 2 Others
Civil Appeal No 02(1)-83-09 2018 (W), Federal Court
- see the grounds of judgment here

Facts The third respondent, Nautilus Tug & Towage Sdn Bhd (NTT) is a joint venture company, formed to undertake a project for the provision of harbour tug services. The two shareholders of NTT were Nautical Supreme Sdn Bhd (NSS) and Azimuth Marine Sdn Bhd (AMS) as the minority and majority shareholders, respectively. The appellant, Jaya Sudhir, claimed that NTT was in need of funds to carry out this project and that he played the role of a white knight to invest in this project premised on a collateral understanding between himself, NSS and AMS. As part of this collateral understanding, Jaya Sudhir claimed the terms would be that AMS would hold the 80% shareholding in NTT with part of the shares held on trust for him and that Jaya Sudhir could participate in the equity of NTT either directly or through AMS’s shareholding in NTT. It was also claimed that NSS agreed to this participation and no further consent was required for AMS to divest any part of its shares. Another litigant in the proceedings,Dato’ Seri Timor Shah Rafiq, director of NTT and the nominee director for NSS, was aware of the collateral understanding. Subsequently, NSS, AMS and NTT entered into a shareholders agreement and NSS entered into a harbour tug services agreement for the project. Jaya Sudhir contended that based on the collateral understanding, he had participated in the business of NTT for the project and claimed that 10% of NTT’s shares held in AMS’ name was transferred to him. However, Dato’ Seri Timor and NSS disagreed and denied the existence of any collateral understanding. Jaya Sudhir filed a civil suit against Dato’ Seri Timor, NSS, AMS and NTT sought declarations that Dato’ Seri Timor is bound by the terms of the collateral agreement, to uphold the 10% shareholding transferred to himself, and an injunction to restrain NSS from commencing and continuing any legal proceedings or arbitration which affects the rights attached to the shareholdings. The High Court allowed the application for the anti-arbitration injunction. The Court of Appeal held that a stay of court proceedings should only apply to parties to the arbitration. Hence, this appeal.

Issue The issues before the Federal Court were; (1) whether the requirements of section 10[1] of the Arbitration Act 2005 (“the Act”) must be met by a party litigant seeking an injunction to restrain the prosecution of an arbitration to which he is not a party but which would affect his proprietary rights; and, (2) whether section 8[2] of the Act applies to a party litigant who is not a party to an arbitration agreement and/or arbitration proceedings.

Held In allowing the appeal, the Federal Court held that both sections 10 and 8 of the Act would not apply to a non-party to an arbitration. This is because, where issues relate to any party who is not subjected to arbitration, priority should be given for the matter to be dealt with by the court.
 
[1] Arbitration agreement and substantive claim before court
[2] Extent of court intervention