CASE UPDATE: HIGH COURT ORDERS RELEASE OF 38 TONNES OF PROCESSED RAW MATERIAL AS INTERIM MEASURE UNDER SECTION 11 OF THE ARBITRATION ACT 2005
Introduction
On 02.09.2022, the High Court in Shah Alam Originating Summons No. BA-24NCC(ARB)-6-05/2022: Aeromet Group Limited v. Alliance Industry Sdn. Bhd. issued a mandatory injunction ordering the Defendant to forthwith release to the Plaintiff approximately 38,358 kilograms of processed raw material (hereafter “the Processed Raw Material”) pending ongoing arbitration proceedings at the Hong Kong International Arbitration Centre (HKIAC).
A unique feature of this case is this – a mandatory injunction was ordered by the High Court on an ex-parte basis, but was initially refused after hearing the application inter-partes. However, following a material change in circumstances, the High Court granted the Plaintiff a mandatory injunction as initially prayed for.
This Case Update shall highlight some of the key aspects of the High Court’s decision.
Material Background Facts
On 01.12.2021, the Plaintiff and the Defendant entered into a Material Processing Contract where, in return for a fee, the Defendant was to process the Plaintiff’s scrap metal and return it to the Plaintiff within fifteen (15) days (hereafter “the Contract”). The Contract was to remain in effect up until 30.06.2022. It was an express term of the Contract that all disputes which cannot be amicably resolved be referred for arbitration in Hong Kong.
On 13.05.2022, the Plaintiff arranged for a freight company to extract the Processed Raw Material from the Defendant’s premises. However, the freight company was prevented from taking custody and control of the Processed Raw Material.
Given the above, the Plaintiff on 18.05.2022 – by way of its solicitors – issued a Notice of Demand to the Defendant demanding, amongst others, that the Defendant deliver the Processed Raw Material to the Plaintiff within forty-eight (48) hours, failing which, the Plaintiff shall have no further alternative but to seek interim measures under Section 11 of the Arbitration Act 2005 (hereafter “the Act”).
On 23.05.2022, the High Court, upon an application by the Plaintiff, pronounced an ex-parte Order under Section 11 of the Act ordering, amongst others, a mandatory injunction that the Defendant forthwith release the Processed Raw Material to the Plaintiff or the Plaintiff’s representatives (hereafter “the ex-parte Order”). Despite service and notice of the ex-parte Order being given on 25.05.2022, the Defendant failed to comply with the terms therein.
On 31.05.2022, the Plaintiff – accompanied by two (2) Court Bailiffs – made another attempt to execute the ex-parte Order. Despite the presence of the Court Bailiffs, the Defendant was unwilling to release the Processed Raw Material to the Plaintiff – which left the Plaintiff with no choice but to enter into a reluctant compromise with the Defendant to have a third-party security company hold the Processed Raw Material pending full and final disposal of the inter-partes Hearing.
On 08.06.2022, the High Court noted that Processed Raw Material was in the custody and care of a third-party security company and pronounced an ad-interim Order to retain the status quo pending the full and final disposal of the inter-partes Hearing.
Powers of the High Court to Award Interim Measures under Section 11 of the Act
Section 11 of the Act provides that the High Court may, upon an application by a party before or during arbitral proceedings, order any interim measure to aid or facilitate the arbitral proceedings, and these measures include orders to:-
maintain or restore the status quo pending the determination of the dispute;
take action that would prevent or refrain from taking action that is likely to cause current or imminent hard or prejudice to the arbitral process;
provide a means of preserving assets out of which a subsequent award may be satisfied, whether by way of arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court;
preserve evidence that may be relevant and material to the resolution of the dispute; or
provide security for the costs of the dispute.
Malaysian Courts have consistently held that interim measures issued by the High Court under Section 11 of the Act may include mandatory injunctions: please refer to Padda Gurtaj Singh & Ors. v. Axiata Group Bhd. & Ors. [2022] MLJU 526 (High Court) and La Kaffa International Co. Ltd. v. Loob Holding Sdn. Bhd. & Another Appeal [2018] 9 CLJ 593 (Court of Appeal).
High Court’s Reasons for Ordering Restrain and Subsequent Release of Processed Raw Material
At first and on 08.07.2022, the High Court ordered that the Defendant be restrained from dealing with and/or disposing of the Processed Raw Material under the care and supervision of the third-party security company pending the full and final disposal of arbitration. The rationale of the High Court was as follows:-
the Plaintiff’s claim against the Defendant discloses serious bona fide issues to be tried and determined in arbitration, including whether the Defendant has breached the Contract;
damages will not be an adequate remedy if the Plaintiff succeeds in arbitration as the Defendant’s financial position is such that its total liabilities exceed its total assets;
the Defendant ceased business operations on 01.06.2022 and therefore, there is a real risk and likelihood that the Defendant may, if not restrained, deal with or dispose of the Processed Raw Material to third parties;
the Defendant failed to prove that it has any other customers claiming ownership of the Processed Raw Material;
the balance of convenience lay in favour of the Plaintiff given that the Plaintiff has duly paid all outstanding processing fees to the Defendant, without having received the Processed Raw Material; and
the Plaintiff may suffer irreparable damage in the event its application is not allowed.
Interestingly, despite the above reasons, the High Court stopped short of granting a mandatory injunction ordering the immediate release of the Processed Raw Materials to the Plaintiff pending the full and final determination of arbitration proceedings. The High Court’s rationale for this, amongst others, was that the Processed Raw Materials are no longer in danger of being disposed of since they remained in the custody and care of a third-party security company and not the Defendant. The Plaintiff appealed against a part of this decision (i.e. the refusal of the relief for a mandatory injunction) and accordingly referred the substantive dispute to arbitration.
However, on 02.09.2022, the High Court, upon application by the Plaintiff, took note of several material changes in circumstances and ordered a mandatory injunction against the Defendant and the third-party security company (with costs payable by the Defendant) for the forthwith release of the Processed Raw Material to the Plaintiff. Amongst these material changes in circumstances were:-
despite arbitration commencing with the HKIAC, the Defendant failed and/or refused to participate in the ongoing proceedings;
the Defendant’s solicitors filed an application to discharge themselves as solicitors for the Defendant on the basis that the Defendant no longer intended to litigate the dispute with the Plaintiff; and
the Defendant owed substantial sums to the third-party security company holding the Processed Raw Material – costs of which were supposed to be borne equally by the Plaintiff and the Defendant pending the conclusion of arbitration.
Key Takeaways
The pertinent points to be taken away from this decision of the High Court are as follows:-
notwithstanding the existence of an arbitration clause, the High Court is vested with wide powers under Section 11 of the Act to grant interim measures before or during arbitral proceedings to aid or facilitate the process;
although the interim measures ordered by the High Court may include mandatory injunctions, it is only given where there exists an “unusually strong and clear case”;
upon granting interim measures and upon reference to arbitration, an aggrieved party may still apply to the High Court to raise material changes in circumstances which would warrant further orders and/or a variation to the orders already pronounced; and
it is not open to a respondent in an application under Section 11 of the Act to contest the application against the granting of interim measures and subsequently refuse to participate in the arbitration proceedings. Doing so will run the risk of the High Court pronouncing further orders to ensure that the interests of all parties are protected fairly and equitably.
Our team comprising of Edward Kuruvilla, Alden Yeoh & Soh Lip Shan successfully represented the Plaintiff in the above proceedings. The full Grounds of Judgment of the High Court have since been reported and may be accessed at Aeromet Group Ltd. v. Alliance Industry Sdn. Bhd. [2022] MLJU 3448.
This article is authored by Edward Kuruvilla who leads the Firm’s Dispute Resolution practice group. For more information, please feel free to contact Edward Kuruvilla at
edward@kyblegal.com or visit the Firm’s website at www.kyblegal.com.
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