Can the winner of a foreign arbitration seek to enforce the arbitral award in Malaysia as a foreign judgment, after converting the award to a judgment abroad? If so, in resisting enforcement of the judgment, can the losing party raise grounds for challenging the award? Apparent so, says the Court of Appeal in Tumpuan Megah Development Sdn Bhd v ING Bank NV [2024] CLJU 42.
ING Bank and OW Bunker (judgment creditors or “JCs”) commenced arbitration in London against Tumpuan (judgment debtor of “JD”). The arbitral tribunal published an award in favour of the JCs. Instead of applying to register the award in Malaysia, the JCs obtained a UK High Court judgment based on the award. Although the JD participated in the arbitration (reserving its objection as to the tribunal’s jurisdiction), the JD did not apply to set aside the award nor oppose the UK High Court proceedings.
Thereafter, the JCs applied in Malaysia for the UK court judgment to be recognized locally. The High Court here granted a recognition order ex-parte. Subsequently, the JD applied to set aside that order. In doing so, the JD contended that the subject contracts alleged by the JCs were fraudulent and non-existent, and hence there was no arbitration agreement and the arbitral tribunal lacked jurisdiction. The JD sought an order for those issues to be tried.
The problem facing the JD was that its allegation did not appear to fall within the permitted grounds for setting aside the registration of a foreign judgment. Those grounds – which are set out in s 5, Reciprocal Enforcement of Judgments Act 1958 (“REJA”) – pertain mainly to issues concerning the foreign judgment and court proceedings, as opposed to the award or arbitral tribunal. In contrast, the grounds for challenging an arbitral award are contained in the Arbitration Act 2005 (“AA”), and they include lack of jurisdiction on the part of the tribunal.
Notwithstanding the above, the Court of Appeal held that in applying to set aside a foreign judgment based on an arbitral award, the applicant is entitled to raise the grounds under the AA including the tribunal’s lack of jurisdiction. Consequently, the alleged fraud – albeit affecting the jurisdiction of the tribunal but not the UK High Court – is an issue relevant to whether the UK judgment should be recognized. The Court of Appeal ordered for issues to be tried as sought by the JD.
In coming to its conclusion, the Court of Appeal considered that the losing party in an arbitration can opt for the passive remedy of challenging the award when the winner seeks to enforce it; the losing party does not have to actively apply to aside the award. The losing party should not be deprived of its passive remedy where the winner has opted to convert the award into a foreign judgment before attempting to enforce it in Malaysia. This is illustrated by the following paras of the case:
“[50] The JCs cannot deprive the JD of the latter’s passive remedy by strategically electing to enforce the Arbitral Award that had been enforced in the UK High Court as a judgment of the Court by way of registering the foreign judgment in the High Court of Malaya under the REJA.
[103] Here the JCs have the upper hand on deciding under which provisions of the Malaysian statute to proceed under with respect to the enforcement of a foreign judgment. Whilst we have expressed the view that the more appropriate statute to do this is under our AA 2005, we do not think that by electing to proceed under the REJA, the JD should be deprived of any of its defences that may be available to it had the enforcement been under ss. 38 and 39 of the AA 2005. …
[112] We have kept in the forefront of our mind that the JCs’ application was made not under s. 38 AA 2005 but under s. 5 of the REJA. Be that as it may, being essentially an enforcement of an Arbitral Award, we see the test in the circumstances of this case, to be no less different than one made under the AA 2005. …”
According to the Court of Appeal, it was still open to the JD to re-litigate the issue of lack of jurisdiction despite having unsuccessfully raised this in the arbitration. This is because an arbitral tribunal’s decision on its own jurisdiction is not final. The court dealing with the application to enforce the award (or the foreign judgment based on the award) is entitled to hear the matter afresh without being bound by the tribunal’s decision.
If it was the JCs intention to avoid jurisdiction being re-litigated by seeking enforcement in this roundabout manner, then it did not work.
The contents of this article are published for the purpose of general information only; they are not to be regarded, used or relied on as legal advice for any matter. Please contact us if you require legal advice specific to your case.