Author: reina

A. INTRODUCTION

1. Much has been said about the locus standi of an unsecured creditor to intervene in a Judicial Management Proceeding. For context, a secured creditor is someone who is holding any mortgage, charge or lien on property of the debtor as a security for debt due to him from the debtor[1]. By contrast, unsecured creditors are those who do not fall within this legally defined category of secured creditors.

2. As of the date of this write-up, there are two conflicting decisions in the Court of Appeal in respect of this area of law – locus standi of an unsecured creditor to intervene:

1. In July 2020, the Court of Appeal in Maybank Investment Bank Berhad & Ors v Million Westlink Sdn Bhd (‘Million Westlink’)[2] held that an unsecured creditor has the legal capacity to intervene in a Judicial Management Proceeding.
2. Recently in December 2024, the Court of Appeal case in Desa Tiasa Sdn Bhd v Bellajade Sdn Bhd & Anor (‘Desa Tiasa’)[3], it was held that only a secured creditor can intervene in a Judicial Management Proceeding, thereby excluding an unsecured creditor from intervening (leave to appeal against this COA’s decision was granted on 29.07.2025).

3. The legal lobbyist for Desa Tiasa would argue that companies must be afforded the leeway to rehabilitate through Judicial Management Proceedings without interference by unsecured creditors, whereas the proponent of Million Westlink would contend that unsecured creditors — whose legal rights are affected by the proposed scheme under Judicial Management Proceeding — must be given their day in court.

B. WHY ARE THERE TWO SCHOOL OF THOUGHT?

4. The following provisions under the Companies Act 2016 (‘CA 2016’) and Company (Corporate Rescue Mechanisms) Rules 2018 (‘CCRM Rules 2018’) shape and render the two-opposing school of thoughts.

1. Section 409(a) and (b) CA 2016 provide that if these 2 categories of persons oppose the judicial management, the Court shall dismiss the Judicial Management. These persons are (1) a receiver or manager appointed or (2) a secured creditor.
2. Rule 13 CCRM Rules 2018 provides only 2 categories of persons who can oppose a judicial management application. These persons are (1) any person who has appointed / entitled to appoint a receiver or receiver and manager or (2) any secured creditor referred in s.409(b) CA 2016
3. These two provisions expressly recognize the rights of the secured creditors to be heard in the Judicial Management Proceedings, without extending such rights to the unsecured creditors.

5. In the High Court case of Goldpage Assets Sdn Bhd v Unqiue Mix Sdn Bhd [5], Justice Tuan Nadzarin Bin Wok Nordin wrote a succinct judgment on the legal capacity of an unsecured creditor to intervene in a Judicial Management Application. His Lordship’s legal rationale can be found at paragraphs [32] – [40] of the Judgment. In short:

1. Unsecured creditor can intervene in a Judicial Management Proceeding[5];
2. Nothing in the relevant provisions under Part III Division 8 Subdivision 2 of the CA 2016 that prevents any party from attempting to oppose the Judicial Management Order[6];
3. Section 409(a) and (b) CA 2016 merely mandates the dismissal of Judicial Management if a secured creditor appoints a receiver and manager[7];
4. Rule 13 CCRM Rules 2018 is a subsidiary legislation and must be read with the parent act – CA 2016[8]; and
5. Rule 2 CCRM Rules 2018 must also be referred to and parties can invoke the intervention provisions under the Rules of Court 2012 – Order 15 Rule 6(2)(b)(ii)[9].

6. The above legal rationale has been widely adopted in solicitors’ submissions who argue on behalf of unsecured creditors in Judicial Management Proceedings.

7. This legal position has also been accepted by the Court of Appeal case in Million Westlink.

Post Million Westlink

8. In the recent decision of Desa Tiasa (heard on 12.04.2024), the Court of Appeal held (in its broad grounds) that – Rule 2 read with Rule 13 CRM Rules 2018 clearly excludes unsecured creditors from participating at this stage.

C. JUDICIAL TRENDS IN RECENT TIME – POST MILLION WESTLINK & DESA TIASA

9. As of July 2025, the differing outcomes in the two Court of Appeal decisions present an open issue for determination by the High Court, given that no written grounds of judgment had been rendered in either decision at that juncture.

10. In March 2025, in the High Court case of Ace Holdings Berhad v koperasi Telekom Pahang Berhad & Ors (‘Ace Holdings’)[1], Judicial Commissioner Dato’ Raja Rozela binti Raja Toran allowed unsecured creditors to intervene in a judicial management proceeding on the grounds that:

1. First, no provisions in CA 2016 and CCRM 2018 that limits intervention to a judicial management proceeding to only secured creditors[11].
2. Second, the court recognize the nature of judicial management proceedings directly impacts the rights of all classes of creditors, not just secured creditors. Therefore, principle of justice requires the affected parties to be given opportunity to be heard[12].

11. In July 2025, the High Court case of Millennium Mall Sdn Bhd v Dato’ TS . HK. Mohd Zaidi Ilamdin (‘Millenium Mall Sdn Bhd’)[1] Justice Leong Wai Hong held that an unsecured creditor cannot intervene in a Judicial Management Proceeding on the grounds that: –

1. First, the Court is bound by the more recent decision of Desa Tiasa which does not allow unsecured creditors to intervene[14].
2. Second, Rule 13 CCRM 2018 is a specific subsidiary legislation to Judicial management application, must prevail over Order 15 Rule 6 ROC 2012 which is a general subsidiary legislation to the ROC 2012[15].
3. Third, the intervention application by the unsecured creditors is premature as the Court had not even granted the Judicial Management Order[16].

12. The conflicting position both in the Court of Appeal (Million Westlink and Desa Tiasa) and the High Court (Ace Holdings Sdn Bhd and Millenium Mall Sdn Bhd) would invariably lead to the issue remaining open until clarified by the Federal Court.

D. WHAT’S NEXT FOR UNSECURED CREDITORS – PROPER APPEAL IN THE FEDERAL COURT

13. On 29.07.2025[17], the Federal Court granted leave on the issue of law premised on the following questions:

1. Whether an unsecured creditor may intervene and be heard in Judicial Management Proceedings filed by another unsecured creditor pursuant to Section 405 CA 2016 read together with Rule 13 CCRM Rules 2018?
2. Whether an unsecured judgment creditor holding a not appealable final judgment may be heard in proceedings to appoint a judicial manager over a judgment debtor?
3. Whether Rule 13 CCRM Rules 2018 can be read to give preference to the rights of one unsecured creditor over the rights of another unsecured creditors?
4. Whether Rule 13 CCRM Rules 2018 prohibits the involvement of all unsecured creditors in Judicial Management Proceedings, regardless of whether said unsecured creditor is in support of or objects to said proceedings?

14. The Federal Court’s rulings on the above questions would provide clarity on this point of law. Ultimately, it is our view that a balance must be struck between an unsecured creditor’s right to oppose a judicial management application and a company’s right to rehabilitate its business without undue interference

[1] Definition under Insolvency Act 1967

[2] Maybank Investment Bank Berhad & Ors v Million Westlink Sdn Bhd (Civil Appeal No.: B-02(IM)-1590-08/2019

[3] Desa Tiasa Sdn Bhd v Bellajade Sdn Bhd & Anor (Civil Appeal No.: B-02(IM)-626-04/2023)

[4] Goldpage Assets Sdn Bhd v Unqiue Mix Sdn Bhd [2020] MLJU 723

[5] [2020] MLJU 723 – paragraph 22

[6] [2020] MLJU 723 – paragraph 22

[7] [2020] MLJU 723 – paragraph 24

[8] [2020] MLJU 723 – paragraph 38

[9] [2020] MLJU 723 – paragraph 39

[10] Ace Holdings Bhd (Amiliah bt Lathy Mohamed & Ors, interveners) [2025] MLJU 1812

[11] [2025] MLJU 1812 – paragraph 10

[12] [2025] MLJU 1812 – paragraph 14 and 16

[13] Millennium Mall Sdn Bhd v Dato’ TS . HK. Mohd Zaidi Ilamdin (Originating Summon No.: WA-28JM-34-12/2024)

[14] Paragraph 40 of the Grounds of Judgment

[15] Paragraph 44 of the Grounds of Judgment

[16] Paragraph 45 of the Grounds of Judgment

[17] Bellajade Sdn Bhd v Desa Tiasa Sdn Bhd & Ors (Civil Appeal No: 08(i)-6-01/2025(B))

Can the Management Corporation apply different rates of Charges under the Strata Management Act 2013?

The Strata Management Act (SMA) 2013, which came into force on 1.6.2015, was enacted to, among others, govern the maintenance and management of stratified properties in Malaysia. The provisions of the SMA 2013 comprehensively address the duties, powers and liabilities of various bodies which come to manage the development area, including the Developer, the Joint Management Body (“JMB”) and the Management Corporation (“MC”).

With the introduction of mixed developments, i.e. developments comprising of residential and commercial parcels, the imposition of a single rate of Charges (Maintenance and Sinking Fund charges) across all parcels in the development becomes ever more difficult to justify. To this end, many have taken to the Courts to seek an outcome. The question is, is there an ultimate decision and finality to the matter?

The answer lies in section 60(3)(b) of the SMA 2013. Somewhat.

Section 60(3) SMA 2013 states:

Subject to Section 52, for the purpose of establishing and maintaining the maintenance account, the management corporation may at a general meeting:

1. determine from time to time the amount to be raised for the purposes mentioned in subsection 50(3);
2. raise the amounts so determined by imposing Charges on the proprietors in proportion to the share units or provisional share units of their respective parcels or provisional blocks, and the management corporation may determine different rates of Charges to be paid in respect of parcels which are used for significantly different purposes and in respect of the provisional blocks; and
3. determine the amount of interest payable by a proprietor in respect of late payments which shall not exceed the rate of ten per cent per annum.

It is trite from the provision above, the SMA 2013, and the Strata Titles Act (STA) 1985, that a JMB does not have the powers to impose different rates of Charges for different parcels. What is not expressly permitted under statute, is prohibited under the principles of ultra vires – as per the Court of Appeal decision in Menara Rajawali[1].

As for MCs, the three words worthy to be re-emphasised is “significantly different purposes”. In the case of Fitters Building Services[2], a proprietor sought to move a resolution for a different lower rate of Charges to be imposed on its parcels on the basis that it had been maintaining the parcels at its own costs. The High Court held that the express conditions of the master title clearly indicate that the units in that proprietor’s parcels and other similar units are to be used as ‘commercial buildings’ and to allow different rates of Charges for units of similar use would be unjust to other parcel proprietors. In SCP Assets Sdn Bhd v Perbadanan Pengurusan PD2[3], the Plaintiff had purchased all the car parks in the development. The Defendant MC passed a resolution for the imposition of different rates of Charges for different parcels. The Plaintiff sought reliefs from the High Court for, among others, the imposition of a single rate of Charges based on the allocated share units. The High Court held that the MC is not permitted to impose different rates of Charges on the same types of parcels and stated that:

[66] The expression “parcels which are used for significantly different purposes” is capable of being interpreted in several different ways including –

1. the use for different purpose can mean different category of land use, such as “commercial”, “industrial”, “residential”…;
2. the use for different purpose can mean a change in the use of the parcel subsequent to the original use when the parcel was completed and originally used, as is contended by the Plaintiff here;
3. the different purposes for the use of parcels in a mixed development according to the original intent and purposes of the design in the development, although there is no change in the purpose of use by the parcel owners subsequent to the completion of the development project, as is the contention of the Defendant here;
4. the “significantly different purposes” can be interpreted to mean the other parcels being used for significantly different purpose as compared with the provisional block.

While the High Court in Perbadanan Pengurusan PD2 had delivered its decision based on the facts before it, the Court refused to embark on a journey to find the answer to the, as His Lordship deemed, “tedious and complex question” before us.

The answer, for now, is in the Court of Appeal decision of Aikbee Timbers[4]. Pearl Suria is a mixed-development project with residences, a shopping mall, and a carpark. The residences are owned by individuals, the shopping mall by the Developer (Aikbee Timbers), and the carpark by a company known as Sit Seng & Sons Realty (Sit Seng). At the first Annual General Meeting (AGM), the MC passed a resolution that rates of Charges to be paid by owners of the residential parcel would increase, whilst the rates of Charges to be paid by owners of the commercial parcel would remain unchanged, as the residential parcel owners were exclusively using the common facilities in the development. A parcel proprietor from the residential unit mounted a challenge at the High Court for the imposition of a uniform rate of Charges. The High Court held in his favour and required Aikbee Timbers and Sit Seng to pay ‘back-charges’ of the Charges, i.e. the shortfall for all the years in which a different rate was applied. The Developer, Sit Seng, and the MC appealed to the Court of Appeal, and asked, amongst others, the following question:

‘Whether the MC is entitled under the law to fix different rates of maintenance charges and contribution to the sinking fund for parcels which are different in nature or purpose?’

The Court of Appeal took into consideration the dicta in Perbadanan Pengurusan PD2 and the High Court decision in Sodalite Sdn Bhd[5], which held, inter alia, that “the MC has the powers to differentiate the different type of charges to be imposed on proprietors subject to the condition that the said power must not exceed the two limitations above. The said charges must be proportional to the share units of each parcel and if any different rates are to be applied it must be shown that these parcels are used for significantly different purposes”.

The Court of Appeal in Aikbee Timbers ultimately held that “there are significantly different purposes in the use of the parcels for this development in that there are parcels used for residential purpose and there are parcels used for commercial (mall and car park) purposes” and that the “sums charged must be just in the sense that one must pay for what one is entitled to enjoy and to share his responsibility with those who share the same rights and benefits. The sums charged must be reasonable in the sense that the identified expenses for the common property must not be excessive or unreasonable”. Based on the facts of the case, the total expenditure for the residential parcels far exceeded that of the commercial parcels, and thus, it would be unjust and unreasonable for the commercial parcels to share the expenses. The Federal Court refused the application for leave to appeal this decision.

Nevertheless, the Court of Appeal in the recent decision of Perbadanan Pengurusan Springtide Residences[6] had taken a different approach from the ‘just and reasonable’ route enunciated in Aikbee Timbers and held that “if the legislature had intended for the application of the “just and reasonable” test in s 60(3)(b) SMA, such a test would have been easily inserted by Parliament in that provision”. Although, this case can be distinguished in that the different rates of Charges applied by the MC were for a development area with parcels that have the same use, i.e. for residential purposes only.

Can we, therefore, safely say that the test for “significantly different purposes” is that as enunciated by the Court of Appeal in Aikbee Timbers, i.e. that the imposition of different rates of Charges must be for parcels used for different purposes, and the difference must be significant, and that it must be ‘just and reasonable’ to do so?

This may only be the tip of the iceberg.

[1] Muhamad Nazri bin Muhamad v JMB Menara Rajawali & Anor [2020] 3 MLJ 645

[2] Plaza Pekeliling Management Corporation v Fitters Building Services Sdn Bhd [2017] 1 LNS 2231

[3] [2021] MLJU 623

[4] Aikbee Timbers Sdn Bhd & Anor v Yii Sing Chiu & Anor and another appeal [2024] 1 MLJ 948

[5] Sodalite Sdn Bhd & Ors v 1 Mont’ Kiara and Kiara 2 Management Corp & Ors [2021] 12 MLJ 116

[6] Yong Kein Sin & Anor v Perbadanan Pengurusan Springtide Residences and other appeals [2025] MLJU 1469

Introduction

The Asian International Arbitration Centre (“AIAC”) has recently published their new AIAC Arbitration Rules 2021 (“2021 Rules”) which is aimed to be an upgrade to its previous predecessor the AIAC Arbitration Rules 2018 (“2018 Rules”).

The 2021 Rules which is a product of an extensive study and public consultation comes into effect from 1.8.2021 applying to arbitration commencing thereafter (unless parties otherwise agree).

This article highlights some of the welcomed changes by the 2021 Rules.

What are arbitration rules?

Arbitration rules are essentially a comprehensive set of procedural rules upon which parties may agree for the conduct of their arbitral proceedings. The arbitration rules commons cover all aspects of an arbitral process, providing model arbitration clause, setting out procedural rules regarding the commencement of arbitration, appointment of arbitral tribunal, conduct of the arbitration up to the delivery of an arbitral award. It is important to note that the 2021 Rules are only applicable if the parties expressly agreed to adopt the same.

What are changes in the 2021 Rules?

A summary of the notable amendments to the 2021 Rules is set out below:

1. Consolidation of RulesUnder the previous 2018 Rules, the rules are separated into two parts (i.e. the AIAC Arbitration Rules and the UNCITRAL Arbitration Rules 2013). Further, under the previous regime, should party intend to adopt fast-track arbitration, the parties will have to expressly agree to adopt the AIAC Fast Track Arbitration Rules[1]. These rules often overlap with one and another, making it difficult for parties to comprehend and may not be user friendly.This issue is now resolved with the 2021 Rules where the AIAC Arbitration Rules, UNCITRAL Arbitration Rules 2013 and Fast Track Arbitration Rules have now been consolidated into one single rule. This change is definitely welcome as it provides for a more coherent and comprehensive rules making it more user friendly for parties who opt for arbitration.
2. Fast Track ProcedureUnder the previous versions of the AIAC rules, the option for Fast-Track Arbitration is only available to parties if they expressly agree to adopt the separate Fast Track Arbitration Rules which is rules separate and distinct from the 2018 Rules. However, with the new 2021 Rules, the Fast Track Arbitration is included as part of the rules and are available to parties if:
   1. the amount in dispute[1] is quantified at less than USD500,000.00 for an international arbitration or less than RM2,000,000.00 for a domestic arbitration[2]; or
   2. there is exceptional urgency[3]; or
   3. the parties have agreed to adopt the Fast Track Procedure. The parties can agree to this either by expressly including this in the arbitration clause or by subsequent agreement by way of a submission agreement[4].

The 2021 Rules further provides that in the event of any dispute on whether the requirement under item (i) and/or (ii) above have been established, such dispute is to be determined by the Director of the AIAC[5], decision of which are binding on the parties[6].

In the event that arbitration is conducted via the Fast-Track Procedure, amongst others, the following will apply:

1. the determination of disputes will be by a sole arbitrator unless parties otherwise agree[7];
2. the arbitration will proceed on a documents-only basis, with there being no oral hearing[8]. Whilst the tribunal may convene an oral hearing upon consulting the parties, such hearing cannot exceed five days[9];
3. the arbitration is to be concluded (including any oral hearing[10]) within 90 days from the date on which the Arbitral Tribunal first issued its procedural order[11]. Thereafter, the tribunal is required to submit its draft Final Award for the AIAC’s technical review within 90 days from the closure of the proceedings;

This change is definitely welcomed as it provides parties the option to have their dispute resolved at a quicker and cheaper rate. It is also important to note that, unlike the previous AIAC Fast Track Arbitration Rules[12], there is no express provision in the 2021 Rules to extend the timeline stipulated under Rule 8.8 of the 2021 Rules leaving it a moot point on whether the stringent timeline under Rule 8 can be extended.

3. Summary determination procedureAnother important change by the 2021 Rules is the introduction of a summary determination mechanism aimed for the early dismissal of claims (i.e. Rule 19 of the 2021 Rules). This provides another option for cost and time savings to the parties.The new Rule 19 allows arbitrators to dismiss a claim, counterclaim or defence that is manifestly without merit or that manifestly falls outside the jurisdiction of the Arbitral Tribunal.Under Rule 19, a claim can be dismissed, in whole or in part, within 30 + 15 + 45 days, as follows:
   1. 30 days within filing of statement of defence and counterclaim, the party intending for summary determination is to submit a request to the Arbitral Tribunal (copied to AIAC and other Parties) for summary determination.
   2. 15 days thereafter, the other party is to respond to the application for summary determination.
   3. 45 days from Arbitral Tribunal’s receipt of final submission, the Arbitral Tribunal is to decide whether to allow or dismiss the request.

In light of the new provision for summary determination of dispute, this will encourage parties to ensure that sufficient particulars are pleaded by the parties in their pleading so as to avoid their claims being dismissed summarily under Rule 19 of the 2021 Rules.

4. Publication of AwardsThe new Rule 44.6 of the 2021 Rules allows the AIAC to publish the entire, excerpts or summaries of arbitration awards provided always that the parties have given their written consent and all reference to the parties’ names and other identifying information are redacted. This is a significant step taken to promote the arbitration in Malaysia as it facilitates the development of commercial jurisprudence and enables arbitration practitioners to refer to some of these past rulings as a guidance to their arbitration proceeding. Such option also promotes transparency in arbitration.
5. Multi-party appointments of arbitratorsThe Rules 9.6 and 9.7 of the 2021 Rules introduce new and welcomed provisions dealing with the default mode of appointment of arbitrators in the case where:
   • The parties have agreed to an even number of arbitrators to be appointed; and
   • There are multiple parties as claimant or respondent involved.

In brief, where an even-numbered tribunal is used, under Rule 9.6, each party will nominate half the required number of arbitrators. If any party fails to nominate, the entire Arbitral Tribunal shall be constituted by the Director upon request by any party[1]. On the other hand, in the event of multiple parties as claimant or respondent, under Rule 9.7, the appointment will depend on the number of arbitrators agreed by the parties to be appointed. In the event of an even-numbered tribunal, all claimants and respondents will nominate half the required number of arbitrators. For odd-numbered tribunals, all claimants and respondents will nominate an equal number of arbitrators who shall thereafter nominate a presiding arbitrator. If joint nomination fails, the entire Arbitral Tribunal shall be constituted by the Director of AIAC.

Whilst these changes are very much welcomed since it deals with the two scenarios which were previously absent in the 2018 Rules, the effectiveness / relevancy of these provisions remain to be seen considering the fact that it may be rare for parties to agree to an even number of arbitrators.

6. Clarification in commencement date for arbitrationUnder the previous 2018 Rules, an arbitration is only deemed to be commenced when a request to commence arbitration is submitted to the Director of the AIAC (Rule 2(2)). This is not ideal and is not in line with the international practice as more often than note, arbitration is deemed commenced upon service of notice of arbitration by the claimant to the respondent. This position has now been rectified in the Rule 7.5 of the 2021 Rules which makes clear that the date of commencement of arbitration is the date on which the notice of arbitration was delivered to the Respondent.
7. Consolidating multi-contract disputesUnder the previous 2018 Rules, in the event that there are disputes arising out of various contracts between the same parties, a party intending for these disputes to be heard together can only do so by commencing different arbitrations under the respective contracts and request to have these arbitrations be consolidated.However, with the introduction of Rule 5.3, a party can now refer claims arising out of multiple contracts in a single notice of arbitration further reducing the costs and time for parties involve in disputes of various contracts. Be that as it may, the parties seeking to refer these disputes under single notice of arbitration may still have to satisfy the requirements set out in Rule 22.1 of the 2021 Rules for consolidations of proceedings.

Conclusion

The above are only some of the many amendments brought by the 2021 Rules. Overall, the amendments are very much welcomed and will no doubt only further increase the popularity of the AIAC rules amongst the industry players. The common theme of the amendments appears to be the provision of more cost and time efficient manner in which the parties dispose of their disputes by way of arbitration which is in line with the international best practices. It will be interesting to see how the 2021 Rules will be implemented in practice.

[1] https://www.aiac.world/wp-content/arbitration/AIAC-Fast-Track-Arbitration-Rules-v3.pdf

[2] The amount in dispute is to be calculated at the time of the registration of the arbitration pursuant to Rule 7 of the 2021 Rules

[3] Rule 8.2(b) of the 2021 Rules

[4] Rule 8.2(c) of the 2021 Rules

[5] Rule 8.2(a) of the 2021 Rules

[6] Rule 8.3 of the 2021 Rules

[7] Rule 47.1 of the 2021 Rules

[8] Rule 8.5(a) of the 2021 Rules

[9] Rule 8.5(b) of the 2021 Rules

[10] Rule 8.8(m) of the 2021 Rules

[11] Rule 8.8(m) of the 2021 Rules

[12] Rule 8.8(l) of the 2021 Rules.

[13] Rule 22 of the Fast Track Arbitration Rules 2018.

[14] Rule 9.6(b) of the 2021 Rules

Introduction

The most common problem faced by contractors in the construction industry are non-payment by employer. As Mary Lim J. (now FCJ) once said, cashflow is the lifeblood of the construction industry[1]. Without receiving payment in due time, contractor faces cashflow issue and this may impact payment down the chain of contract to sub-contractors and suppliers. The situation is not helped with the lengthy and expensive process to recover non-payment by way of Court and Arbitration[2]. As a result, an unpaid contractor with weak financial capacity are often forced to settle for an amount which is only a fraction of the amount due to them.

It is for this very reason, the statutory Adjudication under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) was introduced to tackled some of these issues faced by the contractor. In brief, CIPAA aims to offer a quicker dispute resolution mechanism (only approximately 100 working days) at affordable costs, providing cash flow to contractor while the Project is ongoing.

What is CIPAA?

CIPAA is essentially a new forum of dispute resolution. CIPAA came into force on 15th April 2014 and applies to all construction contract in writing entered into after 15th April 2014[3]. CIPAA is meant to be a summary process for resolving payment disputes at any stage of a construction contract, without waiting for the final resolution through Court or arbitration. Some of the features of CIPAA are:

1. Decision Under CIPAA Is Made By An AdjudicatorDispute in CIPAA is to be decided by an independent third-party known as the Adjudicator who is to be appointed by the agreement of parties. This gives parties the flexibility to choose Adjudicator with the appropriate skills and experience that are relevant to the nature of the dispute.

   For example, in the event that the parties foresee that the issue of extension of time will be highly contentious, it may be advisable for parties to appoint an Adjudicator with expertise in delay-analysis etc.

   Failing any agreement by the parties, either party can request that the Adjudicator be appointed by the Director of the Asian International Arbitration Centre (“AIAC”)[4].

2. CIPAA Applies to Payment DisputeCIPAA allows a party in a construction contract to refer disputes relating to payment for work done and/or services rendered Adjudication under the Act. Claims for damages arising out a breach of a contract and loss and expenses are unfortunately not allowed to be referred to adjudication under CIPAA.
3. CIPAA Proceeding Takes Approximately 100 Working DaysCIPAA procedure takes approximately 100 working days and can be summarize as follows:

   

4. CIPAA Proceeding Are Mostly Document Based
   Whilst an Adjudicator has the power under CIPAA to direct for oral hearing[1], Adjudication proceedings under CIPAA are more often time than not disposed of solely by way of exchange of documents without the need for oral hearing. This is also in line with the objective of CIPAA being a cheaper and quicker dispute resolution mechanism.

Why CIPAA?

Whilst CIPAA is an alternative to Court and Adjudication, one may wonder what makes CIPAA stands out from the latte two. Below are some of the advantages offered by CIPAA:

1. CIPAA Is QuickerAdjudication under CIPAA takes only approximately about 100 working days to conclude from the date of initiating claim until the date an Adjudication Decision is delivered. Comparatively, an arbitration and court proceeding may take up 1 to 2 years.
2. CIPAA Is CheaperAs Adjudication proceedings under CIPAA are often time conducted purely on exchange of documents, the costs are usually lower as compared to Court and Arbitration. In fact, under CIPAA, there is no requirement for parties to be represented which further reduces any legal representation costs.

   Pursuant to Section 18(1) of CIPAA, costs shall follow event which mean that the losing party is bound to pay the costs of the winning party. In other words, if the contractor can prove that there is outstanding payment due by the employer, the employer will also be ordered to pay the costs incurred by the contractor in the CIPAA proceeding (including any legal representation costs should the contract chooses to appoint one).

3. Contractor’s Right Under Adjudication Decision Is Far ReachingPursuant to Section 13 of CIPAA, an Adjudication Decision delivered is binding on parties unless (1) it is set aside by the High Court (Section 15 of CIPAA 2012), (2) the subject matter of dispute is settled by written agreement between parties or (3) the dispute is resolved by way of arbitration or court proceeding.

   Further, a winning party also enjoys the following rights under CIPAA:

   1. The winning may apply to enforce the adjudication decision as an order or judgment of the High Court[1]. Once the adjudication decision is registered as a High Court order or judgment, the winning party may execute the order or judgment as per the usual execution proceeding (i.e. garnishee, winding up etc).
   2. The winning party may suspend or reduce rate of works in the event that the amount awarded under the Adjudication Decision is not paid[2]. If a contractor chooses to exercise this right, CIPAA expressly provide that the contractor is (1) not in breach of contract, (2) entitled to a fair and reasonable extension of time, and (3) entitled to recover loss and expense incurred as a result of the suspension / reduction in rate of works[3].
   3. CIPAA allows the winning party to seek direct payment form the principal of the losing party[4]. For instance, in the event that a sub-contractor obtained an adjudication decision in its favour against the contractor and the contractor has failed to comply with the decision, the sub-contractor has a right to seek direct payment form the employer (being the principal to the contractor). The employer in such a situation is bound to pay the sub-contractor if there is amount due and owing by the employer to the contractor.
4. CIPAA’s Scope Is WideCIPAA applies to a wide range of construction contracts. So long as the construction contract is in writing and involves the following works, CIPAA will apply:
   1. Contract to provide consultancy work (i.e. architectural, engineering, surveying, exterior and interior decoration, landscaping and project management services).
   2. Contract to construct, extend, install, repair, maintain, renew, remove, renovate, alter, dismantle, or demolish:
      1.  any building, erection, edifice, structure, wall, fence or chimney, whether constructed wholly or partly above or below ground level;
      2. any road, harbour works, railway, cableway, canal or aerodrome;
      3. any drainage, irrigation or river control work;
      4. any electrical, mechanical, water, gas, oil, petrochemical or telecommunication work; or
      5. any bridge, viaduct, dam, reservoir, earthworks, pipeline, sewer, aqueduct, culvert, drive, shaft, tunnel or reclamation work,”
   3. Contract to carry out works which forms an integral part of, or are preparatory to or temporary for the works described in paragraph (d)(ii) above, including site clearance, soil investigation and improvement, earth-moving, excavation, laying of foundation, site restoration and landscaping; and
   4. Contract for the procurement of construction materials, equipment or workers, as necessarily required for any works paragraph (d)(ii) above.
5. Conditional Payment Clauses Are Prohibited Under CIPAAWhilst it is common for employer to insert conditional payment clauses (i.e. pay-when-paid or pay-if-paid) in the contract to make payment conditional upon occurrence of certain event, such provision will no upheld under CIPAA. Section 35 of CIPAA expressly states that “Any conditional payment provision in a construction contract in relation to payment under the construction contract is void.” In other words, even if there is a pre-condition before a contractor is entitled to payment, such pre-condition will not apply to CIPAA proceeding and the contractor is still entitled to be paid.

Conclusion

All in all, CIPAA is definitely a welcomed legislation and has no doubt helped many contractors with their cash flow problem. However, with the focus of CIPAA being quick and documents based, it is all the more important that parties in the construction industry maintain a proper record keeping of their documents in anticipation of dispute. Further, in view of the far reaching consequences of an Adjudication Decision, parties should also appoint appropriate representation to assist in the conduct of the Adjudication proceedings.

If you have any question on this topic please feel free to contact the author Leong Chee Weng @ cheeweng@lpplaw.asia

[1] Uda Holdings Bhd v Bisraya Construction Sdn Bhd & Anor And Another Case [2015] 5 CLJ 527

[2] Some arbitration clause even stipulates that arbitration could only be commenced upon the completion of the Works or termination of the contractor’s employment which only further inhibits contractor’s right to recover non-payment.

[3] Section 25(g) CIPAA

[4] Section 28 of CIPAA

[5] Section 29 of CIPAA

[6] Section 29(4) of CIPAA

[7] Section 30 of CIPAA

[8] Jack-In Pile (M) Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2020] 1 CLJ 299  

[9] Section 21(b)(i) of CIPAA

Solicitation of clientele concerns both employers and employees alike but for rather different reasons. Employers would be concerned with the potential loss of clients which would affect their business or trade. In contrast, former employees are concerned with whether it is illegal and, if so, why. This article seeks to provide an overview on poaching and solicitation of clients with recent Malaysian case law to illustrate the court’s take on dispute on the subject.

Section 28 of the Contracts Act 1950 prohibits any agreement which restrains a person from exercising a lawful profession, trade, or business of any kind. This encourages movement of trade. However, this does not envisage poaching and solicitating clientele from a previous employer, company or firm. A former employee can be prohibited from poaching or solicitating clients from his or her previous employer similar to how restraint can be imposed on a former employee against the disclosure or use of confidential information obtained in the course of employment.

In the workforce of today it is common for employees to change employers by switching from one company or firm to another. Further, the rate of which can be significantly higher in some industries. As a result, it is increasingly common for companies and firms to implement a non-solicitation agreement with their employees. Non-solicitating agreements can also be included into an employment contract as a non-solicitating clause. This serves as a form of protection of the company’s trade secrets and information of their clients that is essential to their trade, and ensuring loyalty of their existing clientele.

A non-solicitating agreement would be enforceable even after the termination of an employment. The major concern of companies and firms alike is the potential loss of clients to the former employee who acquired their clients through poaching and solicitation. This can occur where a former employee is now an employee of a competing company or firm, or a former employee who has established his own company or firm in the same trade or industry becoming a direct competition.

Where a non-solicitating agreement or a non-solicitating clause in an employment contract exists, breach of such could occur. The company or firm can bring a legal suit against a previous employee who has breached the non-solicitating agreement. Employers have brought legal suits of this nature in Malaysia.

In the 2021 case of Ace Capital Growth Sdn Bhd v Kua Kee Koon & Ors is one such case, the breakdown of the case is as follows: –

• the plaintiff company brought a suit against a former employee and director for the attempt of solicitation of its customers.
• the plaintiff produced the relevant letter of employment for the court which contains a section specific to “Restraint of Trade Clauses” which states “the employee must not canvas, or solicit the business of, or maintain any personal records of any client of Ace Global Metal Sdn Bhd and Ace Capital Growth Sdn Bhd.”
• the court held that where non-solicitation has been expressly prohibited in a contract it survives even after the employment ceases and decided this suit in the plaintiff’s favour.

Another example of Malaysian courts’ recognition of non-solicitation agreements can be seen in Agensi Pekerjaan Talent2 International Sdn Bhd v Kenneth Yong Fu Loong & Anor. In this case the non-solicitation clause reads:

“directly or indirectly approach, induce, solicit or persuade or attempt to approach, induce, solicit or persuade any person or entity who or which was or is a client of Talent2 within the last 12 months of your employment with Talent2 to undertake or perform work or services for that person or entity or to cease doing business with Talent2 or reduce the amount of business which the person or entity would normally do with Talent2.”

The court recognised that clause to be a non-solicitation clause. The issue that was deliberated was whether to allow the application of injunction. To which the court, recognising the significance of a non-solicitation clause, allowed the injunction application.

To summarise, non-solicitation can be included as a clause in an employment contract. It is common for companies and firms to express the prohibition of solicitation of their clientele to be enforced throughout the duration of an employment contract and after its termination. Legal action can be brought against former employees for a breach of non-solicitation clauses or agreements and the courts in Malaysia would decide based on the material facts of each case. As can be seen in the abovementioned recent case law, the court would enforce non-solicitation clauses.

Picture this:

You wish to start a new company with a few of your colleagues. You realise that with your know-how and knowledge plus the help of your colleagues, your new company would offer a similar but better service that will cause a splash in the current market.

However, you cannot help but feel worried. A clause in your employment contract appears to be a stumbling block to your dreams moving forward. It reads:

“Non-competition

You shall not, subject to the written consent of the Company, be engaging, directly or indirectly or be interested in any other competing activities, in any capacity during your employment and in the period of two years from the date you cease employment with the Company.

You will not, subject to the written consent of the Company, solicit or entice the customer other than for the benefit of the Company at any time during your employment and in the period of two years from the date you cease employment with the Company.”

Are you are barred from competing against your employer? Have your dreams been effectively dashed?

As the title of the clause suggests, a restraint of trade clause (otherwise also known as a non-competition clause) is often incorporated into an employment contract to estop an employee from becoming a competitor of the company, whether by starting his/her own company or joining a rival, carrying out an identical or similar trade to that of the company.

Whilst such a clause serves to protect the interests of a company/employer, generally speaking, the same cannot be enforced in Malaysia because of Section 28 of the Contracts Act 1950 (“CA 1950”) which states:

“Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.”

There are, however, limited circumstances where a restraint of trade clause is valid and/or enforceable. These are found in the exceptions provided under Section 28 of the CA 1950, where:

Exception 1 – When goodwill is concerned

“One who sells the goodwill of a business may agree with the buyer to refrain carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein:

Provided that such limits appear to the court reasonable, regard being had to the nature of the business.”

Exception 2 – When a partnership is dissolved

“Partners may, upon or in anticipation of a dissolution of the partnership, agree that some or all of them will not carry on a business similar to that of the partnership within such local limits as are referred to in exception 1.”

Exception 3 – When a partnership continues to subsist

“Partners may agree that some one or all of them will not carry on any business, other than that of the partnership, during the continuance of the partnership.”

Effectively, this means that an entity cannot prevent a person from incorporating, joining and/or continuing a competing business unless it falls under the three exceptions under Section 28 of the CA 1950.

The following ruling authority on Section 28 CA 1950 is a decision on the case of Polygram Records Sdn Bhd v Hilary Ang & Ors (Collectively known as “The Search”) & Anor [1994] 3 CLJ 806 where it states that:

[5] The convenant whereby the defendants undertook to provide exclusive recording rights to the plaintiffs during the currency of their recording contract, is not a covenant in restraint of trade and is therefore not rendered void under s. 28 of the Contracts Act. Section 28 is only applicable in cases where a person is restrained from carrying on his trade or profession in the traditional sense of the doctrine, that is, in the post – contract period and not during the currency of the contract.

[6] The tenor of clause 6 (v) is clearly that of a covenant in restraint of trade in the traditional sense. Whilst the validity of such convenants are tested by the reasonableness test by the English Courts, the position in Malaysia is different. Once the Malaysian Courts take the view that a particular covenant is a covenant in restraint of trade, the Courts, have no discretion, but to declare it to be void under s. 28 of the Contracts Act, subject to the three exceptions provided for by the said section. As none of these exceptions are applicable to the instant case, and having held that clause 6(v) is a covenant in restraint of trade, clause 6 (v) is void and of no effect. As it is a void provision, it should further be deemed to be void ab initio, that is, from the time the second contract was entered into.

Why then would companies include restraint of trade clauses in the first place, if they are generally inadmissible?

Whilst it is trite that an employer cannot restrain an ex-employee from using the skill and knowledge gained during employment, it does not follow that such knowledge and know-how of a particular field gained extends to divulging or misusing a company’s trade secrets and/or confidential information.

Cases such as Ace Capital Growth and Worldwide Rota Dies Sdn Bhd v Ronald Ong Cheow Joon [2010] 8 MLJ 297 have shown that a restraint of trade clause may be valid and enforceable if the effect of such a clause prevents a company’s trade secrets and/or confidential information from being divulged or misused.

[116] It is my judgment that a restraint is permissible if it is fashioned in such a way as to prevent a misuse of trade secrets or business connexion. Here, the restriction extended to Singapore, Thailand, Indonesia, Philippines and Taiwan including Malaysia. In E Underwood & Son Ltd v Barker [1899] 1 Ch 300, the restriction extended throughout the United Kingdom and it was allowed. In Lamson Pneumatic Tube Co v Phillips (1904) 91 LT 363, the restriction to the Eastern Hemisphere was regarded as reasonable.

[118] The defendant was put in a position of acquiring special intimate knowledge of the clients of the plaintiff thereby allowing the defendant the opportunity of exercising influence over them, and surely in such a situation the plaintiff was entitled to obtain the court’s protection. I share the sentiments of Evershed J, in Routh & Anor v Jones [1947] 1 All ER 179, at p 181, to the effect that:

… the master would be exposed to unfair competition on the part of his former servant — competition flowing not so much from the personal skill of the assistant as from the intimacies and knowledge of the master’s business acquired by the servant from the circumstances of his employment.

It ought to be noted that in Malaysia, confidential information and/or trade secrets have not been statutorily . However, in the case of Medien Sdn Bhd v. Dominic Chai Le Seng [2019] 1 LNS 2017, citing Saltman Engineering Co. Ltd v. Campbell Engineering Co. Ltd [1963] 3 All ER, the court pithily held that:

“the information, to be confidential, must, I apprehend, apart from contract, have the necessary quality of confidence about it, namely, it must not be something which is public property and public knowledge. On the other hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker on materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and this produced a result which can only be produced by somebody who goes through the same process.”

Similarly, in Svenson Hair Care Centre Sdn Bhd v. Irene Chin Zee Ling [2008] 8 CLJ 386, the court held that customers’ names, lists and details have also been judicially recognized as being confidential, and wrongful utilization of such particulars warrants injunctive protection.

Put simply, an ex-employee with access to confidential information cannot be prevented from starting or continuing to work in a new company, but he/she would certainly not be allowed to divulge any confidential information and/or trade secrets to anyone.

However, does that mean that you can solicit customers and clients from your old company?

It is settled law that the answer is a clear negative. In the case of Schmidt Scientific Sdn Bhd v Ong Han Suan & Ors [1998] 1 CLJ 685, it was held that it is a breach of duty of fidelity and good faith on the part of the employee to remove a customer list or to deliberately set out to memorise the said list to use it later, even though any use or disclosure is confined to the post-employment period,  with the intention of using it to solicit orders from them after he had left his employer’s service and set up a similar business on his own account.

In the case of Thomas Cowan & Co Ltd v. ORME [1960] 1 LNS 155, the court stated that:

“Now the first point for consideration is, what are the interests of the employer that are to be protected? If the only object of the covenant is to restrain competition and nothing else then it will not be protected. The employer is undoubtedly entitled to have his interest in his trade secrets protected. He is also entitled not to have his old customers enticed away from him by solicitation or such other means. In this case evidence was adduced as to the nature of the plaintiffs’ business, as to the employment of the defendant prior to joining the plaintiffs, and as to the duties involved by the position which the defendant occupied in the plaintiff company. I find that the defendant, by reason of his employment by the plaintiffs, acquired special knowledge and became acquainted with the trade secrets and information relating to the business of the plaintiffs and he is in a position to entice away the customers of the plaintiffs. In fact he has already enticed away one customer of the plaintiffs by offering prices lower than that of the plaintiffs and in two cases he had by letter solicited the custom of persons who were customers of the plaintiffs.”

To conclude, your dream of starting a new company with your colleagues may very well be a worthwhile pursuit permissible by law – one that may not be prevented by a restraint of trade clause, but be mindful to not risk:

1. Divulging confidential information and/or trade secrets gained during your previous employment; and
2. Soliciting the company’s customers and clients within the post-employment period stated in your contract of employment.

Trying to understand the rationale of using this case. Is this the general proposition of the law? Is this where principle was set out?

Perhaps include a high authority CA/FC/SC case and then link it to this case (as the current position of the law)? – if there is one.

Take a look a Polygram Recordings v Search. Something along that line. One of the first/earlier cases decided.

I’m guessing there is a case in Malaysia using the Saltman exposition?

Introduction

In the course of the day-to-day operation of a company, the directors and employees will be tasked to handle confidential information relating to the business of the company. In Malaysia, there are existing statutory provisions and case laws precedent which set out the legal framework on this crucial topic.

The Companies Act 2016 (“CA”) set out the duty not to misuse company’s information by the directors and employees, while the Capital Market and Service Act 2007 (“CMSA”) specifically prohibits insider trading. It is also common for companies to enter into contractual arrangement to prevent the misuse of company information by the directors and employees.

As for business enterprises and partnerships that are not governed by the CA, the contractual arrangement or the principles of common law and equity would govern the employees’ duty of confidentiality.

The Companies Act 2016 and the Capital Market and Service Act 2007

Section 218(1) of the CA states that:

“A directors or officer of a company shall not, without the consent or ratification of a  general meeting-

 (b) use any information acquired by virtue of his position as a director or officer of the

company; to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company”.

 Section 153 of the CMSA imposes a blanket duty to maintain secrecy:

 “A member, employee or agent of the Corporation shall not give, divulge, reveal or otherwise disclose any information or document which has been obtained by him in the course of his duties”

 Section 188 of the CMSA specifically prohibits insider trading.

Contractual Arrangement[1]

In general, the contractual arrangement governs the duties and obligations of the employees of a company. Even in the absence of express contractual terms, the employee’s general obligations to not misuse company’s information is implied and the employee has a general duty of good faith and fidelity on the employer.

Breach of Confidence[2]

The Malaysian case laws have also established the cause of action of breach of confidence by an employee based on these elements, (1) the information in question is of a confidential nature; (2) the confidential nature of the information in question was communicated which creates an obligation of confidence; and (3) the unauthorized use of that information to the detriment of the company.

The Malaysian courts have recognized several information (non-exhaustive) to be of confidential nature such as trade secrets of companies which entails details of suppliers, customers and technological developments and also professional secrets of a professional firm.

In addition to duty of confidentiality, employees of a company or business enterprises are also bound by equitable duties of good faith and fidelity and they are liable to compensation in the event of breach.

Conclusion

As a prudent practice, all employers should include a confidentiality clause in their employment contract. In the event of breach, the employer must take immediate action to prevent the defaulting parties from further abusing the company’s confidential information to the detriment of the company.

[1] Faccenda Chicken Ltd v Fowler & Ors [1987] 1 Ch 117

[2] Coco v AN Clark (Engineers) Ltd (No 2) [1969] RPC 41

In an era of accelerating developments in the domain of Web3, smart contracts and blockchain are concepts that are increasingly familiar. Likewise, heralds for the digitalisation of traditional and classic dispute resolution mechanisms have never been louder. To properly decipher and ensure smooth digital adoption, it is of paramount importance for practitioners, to appreciate and understand the local legislative mechanisms in order to ensure the enforceability of awards arising from such digitalised dispute resolution mechanisms. This article highlights, solely, from a Malaysian legal perspective, how decentralised arbitration platforms can potentially be integrated with existing domestic legal frameworks.

A. BLOCKCHAIN ARBITRATION AND DEVELOPMENT OF DECENTRALISED ARBITRAL PLATFORMS

Traditional arbitration is a common option for many in Malaysia, where it is governed by the incorporation of a standard arbitration clause, the Arbitration Act 2005 and the parties’ choice of procedural rules such as the Asian International Arbitration Centre rules. However, with the advent of technology, the notion of “Blockchain Arbitration” has been conceptualised, which is further categorised into “On-chain” and “Off-chain” arbitrations.

A recent development in the domain of digitalised dispute resolution mechanisms has witnessed the introduction of, amongst others, Kleros, Celeste and Aragon Court (collectively referred to as “KCA”), blockchain arbitration platforms that facilitate and govern the arbitral proceedings in the event of a dispute, commonly acting as the online arbitrator and the arbitral hub.

B. CHALLENGES IN ENFORCING A DECENTRALISED DIRECT ARBITRAL AWARD

At the outset, it is trite that any domestic arbitration in Malaysia shall be governed by the Arbitration Act 2005 (“the Act”). In this regard and at present, arguably, the Malaysian legal framework is unable to support blockchain arbitration platforms such as the KCA, where the rendition of a direct arbitral award by anonymous jurors appointed by such platforms may arguably fall short of the current statutory requirements, which would pose significant challenges to its enforceability.

For example, where KCA renders an award directly to the parties, the said award as rendered would arguably fall outside the ambit of the Act which only acknowledges the enforceability of an arbitral award from a foreign state, which is defined as “a State which is a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by the United Nations Conference on International Commercial Arbitration in 1958”. In the circumstance, where the direct award rendered by KCA is entirely in a digital domain, the said direct award cannot be considered to fall within the definition of a foreign award under the Act.

In amplification of the paragraph above, Section 33(4) of the Act also requires that an award state its seat of arbitration. In this regard, against the backdrop of an entirely digital and online environment, arguably, there is no “seat” of arbitration.

Further, Section 33(1) of the Act expressly provides that “An award shall be made in writing and subject to subsection (2) shall be signed by the arbitrator”. However, where an award is rendered by KCA, the award is entirely digital in nature where the procurement of a signature is almost impossible given the nature of KCA’s protocols which strictly uphold the anonymity of its panel of jurors and by extension thereof, the said award will be devoid of any signatures.

C. POTENTIAL SOLUTION: CASE STUDY IN MEXICO

On September 2020, two private parties entered a real estate leasing agreement over a property located in Mexico, thus falling within the jurisdiction of the Mexican courts. In this agreement, there is in existence a standard arbitral clause, drafted according to local provisions, which provide for the appointment of a sole arbitrator and the framework to regulate the proceedings.

However, the one deviation from the standard clause presents an interesting solution to the conundrum discussed, wherein parties had mutually agreed that the sole arbitrator shall utilise the Kleros Protocol to formulate his decision.  The relevant part of the translated clause reads as follows:-

“…Once the response is received, or after a period of 5 five days has elapsed without it being presented, the arbitrator will draft the procedural order, a document that will contain the executive summary with the relevant aspects of the controversy, the positions and arguments of the parties, as well as the supporting evidence. This procedural order will be sent to the decentralised justice platform named “Kleros” so that, based on its protocols, it will issue its decision on a strict legal basis. The arbitrator will receive the decision from “Kleros” and incorporate it into his arbitral award to govern the substance of the ruling, issuing it in writing and indicating the date, place, name and signature of the arbitrator…”

A dispute subsequently arose between the parties wherein at the enforcement stage, the Mexican Court had, in 2021, recognised the arbitral proceeding and award, giving notice to the defendant to comply with the award, after which the award would be executed through public force.

In light of this significant development, a potential reconciliation between blockchain arbitration platforms with existing legal frameworks is presented, wherein parties may elect for:-

1. substantive decisions of the blockchain arbitration platforms to be adopted and incorporated into the final arbitral award, by the arbitrator appointed under local jurisdictions and their respective provisions; as opposed to
2. procuring a direct arbitral award by the blockchain arbitration platform.

D. CONCLUSION

The election of the first instance will subjugate the function of such platforms to merely as a means of and/or guideline for deciding the merits of the dispute, which eliminates the notion that the jurors appointed under these platforms would serve as the appointed arbitrator, hence reducing the difficulties in enforcement and recognition of the arbitral award. Therefore, it is possible to overcome the obstacles in respect of enforcement within the current domestic legal framework. However, at this juncture, further research, case development and precedents are required to validate the practicalities of this theoretical model.

Introduction

As a shareholder of a company, you may find yourself entangled in an undesired situation of being subject to the majority’s autocratic and arbitrary conducts. Faced with this scenario, you would either seek recourse under an oppression claim or file a derivative action on behalf of your company depending on the types of damages suffered.

Difficulties In Commencing A Suit

Nevertheless, the intended suit could be stifled as typically, an aggrieved shareholder does not have sufficient documents to sue the majority wrongdoers since they are more often than not kept in the dark about the company’s affairs. For a real example, a shareholder was surreptitiously removed as a director of a famous F&B company and his signatory was excluded from the company’s bank account without his knowledge. In turn, the wrongdoers were able to deplete the company’s funds at their whims and fancies.

As a shareholder of the company, he was unable to obtain the company’s bank statements to assist him in identifying and formulating his cause of action against the wrongdoers.

Pre-Action Discovery Mechanism Against 3Rd Party (O24A)

The “Pre-Action Discovery” (‘PAD’) mechanism under the Rules of Court 2012 provides a legal solution to circumvent this conundrum. PAD is a legal mechanism that allows any party to apply to Court to seek documents from amongst others, 3rd parties before filing a civil action in Court.

Applying to our scenario here, the aggrieved shareholder can seek the bank statements from the company’s bank using this PAD mechanism. By obtaining the bank statements, the shareholder can: (1) decide whether he has a proper cause of action; (2) properly frame his claim in Court; and (3) identify possible 3rd party defendants.

Legal Considerations Of Pad

In order to succeed, the aggrieved shareholder must fulfil the following legal requirements:

• state the material facts about the intended action;
• state whether the 3rd party bank will be brought in as a party in the intended action;
• to show that the documents sought are relevant to an issue or an issue likely to arise in the intended action;
• state that the person against whom the order is sought is likely to have these documents.

The PAD application will likely succeed if all of the aforesaid elements are fulfilled. However, if a Court takes the view that an applicant can properly pursue the main action without those documents, it will be minded to dismiss the application.

This was the case in the High Court Decision of Yap Sin Moy v Pembinaan YSL Sdn Bhd v Ors [2018] MLJU 953 where the High Court judge dismissed the application on the basis that the applicant was able to properly frame her cause of action even without the corporate documents she had sought for in her application.

Conclusion & Summary

The long and short to this article is that the PAD mechanism provides an attractive legal avenue for aggrieved shareholders to discover corporate documents which are out of their reach before filing their intended suit. In some instances, it allows them to debunk their mere suspicions of the majority’s alleged wrongdoings.

Introduction

A company’s decision to pursue or not to pursue a legal action generally vests in the board of a company. The decision-making process by the board to commence a legal action against a 3rd party is generally straightforward. The same however cannot be said when the alleged wrongdoers are the company’s directors themselves. To put it simply – would these directors approve a board resolution for the company to sue themselves.

In such an instance, a shareholder of a company may commence a derivative action against these wrongdoers in the name of the company to right the wrongs. Under the Companies Act 2016 (‘2016 Act’), a shareholder must first obtain the leave of court to commence an action in the company’s name. This brief write-up will discuss several key points on this topic based on the experience the author gathered from defending a leave application in the case of Eow Fun Siew & Anor v Mutual Life [2017] 5 MLRH 270).

Preliminary Points

Who may bring such application and the pre-requisite 30 days-notice.

The 2016 Act provides that a member, a former member or a director of a company may apply for leave to initiate, intervene in or defend a proceeding in the name of the company.

However, before filing the leave application, it is mandatory for the applicant to issue a 30-days’ notice in writing to the company’s directors of his intention to apply to Court for leave. This allows the directors to decide whether or not to commence the action. This procedure is in consonance with the pre-requisite requirements to fulfill under the already abrogated common law derivative action.

The Legal Threshold

The Court must be satisfied that the two requirements under the relevant provisions of the 2016 Act are strictly fulfilled before granting the leave.

1. The Applicant is acting in good faith –
   In gist, the Court will look into the intention of the Applicant in bringing the proposed derivative action. Whether the Applicant is genuine in bringing the action purely for the benefits of the company or only for a collateral purpose of achieving a personal gain and benefit. If it is the latter, then it will fall short of meeting this requirement.
2. Whether it appears prima facie to be in the best interest of the company for the leave to be granted.

Whether the granting of leave to pursue the action would be in the best interest of the company would also largely depends on whether the company stands to gain substantially in money or in money’s worth from the proposed action. This means that even if the applicant fulfils the first requirement, the Court may still refuse the application if considering the surrounding circumstances, the company does not stand to benefit commercially from the proposed action. Quoting from a passage in a Singapore Court’s Judgment, the Court succinctly pointed out that: “A $100 claim may be meritorious but it may not be expedient to commence an action for it”.

Examples Where Leave Was Granted

There are many instances where Malaysian Courts have granted leave to pursue a derivative proceeding which are as follows:-

• Directors failed to obtain correct audited accounts for number of years
• Misappropriation of funds by the majority directors
• Failure of directors to properly pursue an action on behalf of the company for amount owing to the company by 3rd parties

Conclusion

The abrogation of the common law derivative action by virtue of Section 347(3) of the 2016 act provides certainty to future litigation in so far as the pre-requisites compliances to a derivative proceeding are concerned. The thorough scrutiny of the 2 requirements under the 2016 act by our Courts bodes well in acting as a filter to sieve any vexatious and frivolous claims by disgruntled shareholders.