Jaya Sudhir A/L Jayaram v Dato' Seri Timor Shah Rafiq & 3 yang Lain (WA-22NCC-165-05/2017)

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NAUTILUS TUG & TOWAGE SDN BHD DEFENDANTS JUDGMENT Introduction [1] This judgment encompasses the grounds for two applications, namely, the plaintiff’s application for an injunction, and the first and second defendants’ application for a stay of proceedings. [2] The plaintiff’s application was for an injunction to restrain the second, third and fourth defendants from continuing:- 2

with the arbitration proceedings commenced by the second defendant against the third and fourth defendants at the Kuala Lumpur Regional Centre for

with the Kuala Lumpur High Court Suit Originating Summons No. WA-24NCC(ARB)-9-02/2017 commenced by the second defendant against the third and fourth defendants. (‘plaintiff’s application’) [3] The first and second defendants’ application on the other hand, was for an order to stay the proceedings in this suit, pending the determination of:-

the arbitration proceedings between the second, third and fourth defendants; and

the Kuala Lumpur High Court suit no. WA-24NCVC-544- 08/2016 between the second defendant (as the plaintiff) and the plaintiff (as the defendant). (‘the first and second defendants’ application’) [4] The plaintiff’s application calls for the determination of whether the plaintiff, who is not a party to the arbitration agreement, can seek to restrain the second, third and fourth 3 defendants who were parties to the arbitration agreement, from continuing with the arbitration proceedings. [5] The plaintiff’s application for an injunction was heard first on the 25 September 2017, as it was filed prior to the first and second defendants’ application for stay. The stay application was initially fixed for hearing on the 4 October 2017, but was adjourned, to enable parties to put in their respective affidavits in reply and written submissions. I had subsequently delivered my decision in respect of both applications on the 6 November 2017. [6] I had allowed the plaintiff’s application in part, where only his application to restrain the second, third and fourth defendants from continuing with the arbitration proceedings was allowed. The first and second defendants’ application however was dismissed. Brief facts [7] The fourth defendant is a joint venture company. The second and third defendants were the initial shareholders, with the former holding 20%, and the latter 80%. [8] The fourth defendant was formed to undertake a project for the provision of harbour tugs services for a company called Vale Malaysia Minerals Sdn Bhd (‘Vale’). It was however in need of funds to carry out the project. 4 [9] This was where the plaintiff came into the picture. The plaintiff had described himself as the ‘white knight’. The second defendant acknowledged the plaintiff’s contribution and participation as an investor, but questioned the extent of his involvement and his rights arising from it. [10] The crucial part of the plaintiff’s claim lies in what he claimed to be a collateral understanding between him, the second and third defendants, for his agreement to come in as an investor. These were the alleged terms agreed:-

That the third defendant would hold 80% shares in the fourth defendant, where part of the shares will be held on trust for the plaintiff;

That he would be entitled to participate in the fourth defendant’s equity, either directly, or through the third defendant’s shareholdings at a later stage; and

The second defendant agrees to his participation in the fourth defendant’s equity, and that no further consent was required for the third defendant’s divestment of any part of its shares in the fourth defendant. [11] The plaintiff also contended that the first defendant was aware of the collateral understanding, as the latter had negotiated the terms on the second defendant’s behalf. 5 [12] All was fine in the beginning, as the fourth defendant proceeded with its work on the project. Common to most joint venture companies however, problems soon arose. The plaintiff claimed that he wanted the joint venture to cease, but that the first defendant had convinced him otherwise. The plaintiff relented. [13] A shareholders agreement was subsequently entered between the second, third and fourth defendants on the 15 March 2013 (‘the shareholders agreement’). Subsequent to that, the fourth defendant entered into a ‘Harbour Tug Services Agreement’ with Vale dated 11 April 2013. [14] The plaintiff contended that he had at all material times, participated in the business and operational matters of the fourth defendant in respect of the project, premised on the collateral understanding. This, he further contended, cemented his belief, that the first and second defendants had acknowledged his beneficial ownership of part of the 80% of the fourth defendant’s shares held in the third defendant’s name. [15] The plaintiff claimed that 10% of the fourth defendant’s shares held in the third defendant’s name was transferred to the him on the 16 December 2015, pursuant to the collateral understanding. The plaintiff also claimed that the second defendant did not object to it then, and that business went on as usual. 6 [16] The first and second defendants however disagreed with the plaintiff’s contention. They were clearly aggrieved with the transfer, and denied the existence of any collateral understanding. They also alleged that the transfer of shares to the plaintiff was in contravention of the terms and conditions of the shareholders agreement. [17] This led to the second defendant issuing a notice of breach dated 1 July 2016 against the third and fourth defendants. The plaintiff however, contended that the second defendant had breached the collateral understanding by issuing this notice. [18] Pursuant to the notice of breach, the second defendant commenced arbitration proceedings against the third and fourth defendants pursuant to the arbitration clause in the shareholders agreement. This was done through the Kuala Lumpur Regional Centre for Arbitration. The ambit of the arbitration clause is not an issue in this matter. [19] The reliefs sought by the second defendant in the arbitration proceedings were as follows:-

A declaration that the transfer of the fourth defendant’s 10% shares to the plaintiff was in breach of the shareholders agreement; 7

An order that the second defendant is entitled to purchase the 10% transferred shares of the fourth defendant; and

An order that the second defendant is entitled to purchase the third defendant’s remaining 70% shares in the fourth defendant. [20] The second defendant did not stop there. It proceeded to commence three civil suits in the Kuala Lumpur High Court (‘KLHC’). The suits and their nature are briefly as follows:-

KLHC Originating Summons No. WA-24NCC-280- 07/2016 (‘OS 280 suit’) The second defendant seeks to obtain an injunction to prevent the third defendant from disposing or dealing with its 70% shares in the third defendant, and also its 10% shares held in the plaintiff’s name, pending the conclusion of the arbitration proceedings.

KLHC Originating Summons No. WA-24NCC(ARB)-9- 02/2016 (‘OS 9 suit’) The second defendant seeks to prevent the fourth defendant from proceeding with an Extraordinary General Meeting fixed on the 23 February 2017, to amongst others, remove the first defendant from the fourth defendant’s board of directors. 8

KLHC Suit No WA-22NCvC-544-08/2016 (‘the tort suit’) The second defendant’s suit against the plaintiff is premised on the tort of inducement, where it seeks to claim damages from the plaintiff, for inducing the third and fourth defendants to breach the shareholders agreement. [21] The arbitrations proceedings had already reached an advanced stage, and were scheduled for hearing before the esteemed arbitrator, Datuk Professor Sundra Rajoo, from 1 to 8 November 2017, and on the 27 November 2017. Preamble to the two applications [22] I am mindful of the fact that the decision for both applications had to be diametric. It would be a travesty if I were to allow or dismiss both applications. The decision could only fall one way. Either the plaintiff’s application for an injunction is allowed and the first and second defendants’ application for a stay is dismissed, or the latter allowed, and the former dismissed. Counsel for all parties are ad idem on this. [23] A similar situation arose in Lin Ming v Chen Shu Quan [2012] 2 HKLRD 547, where the Hong Kong High Court was faced with a stay, and also an injunction application by the opposing parties. The court took the position that common sense dictates that the court could only adopt one or the other course, and not both. 9 [24] Although I had delivered the decision for both applications simultaneously, it was the plaintiff’s application for an injunction that I had addressed first, as it was filed and fixed for hearing prior to the first and second defendants’ stay application. The Plaintiff’s application [25] I should firstly state that the third and fourth defendants were receptive to the plaintiff’s application, and had supported it. Only the second defendant resisted it. [26] Central to the plaintiff’s claim, is the collateral understanding, and its alleged breach by the second defendant. The issues [27] The second defendant’s opposition were broadly on the following grounds:-

The plaintiff is estopped from opposing the arbitration proceedings, in account of his judicial admissions in the tort suit,

The third and fourth defendants’ consent to the application,

The plaintiff’s inordinate delay in filing the application, 10

The plaintiff is guilty of tactical manoeuvre,

The test for an anti-arbitration injunction has not been satisfied, and

That the plaintiff has not met the criteria for an injunction to be granted. [28] I shall set out the issues raised in turn.

Judicial admission [29] The second defendant highlighted the plaintiff’s defence in the tort suit, where the latter pleaded that the issue pertaining to the share transfer, and whether it had breached the shareholders agreement, is subject to arbitration. [30] The second defendant contended that the plaintiff’s pleaded defence had amounted to a judicial admission, and that he is now estopped from stating otherwise. The case of Zulpadli bin Mohammad & Ors v Bank Pertanian Malaysia Bhd [2013] 2 MLJ 915 (CA) was cited in support, where the appellate court held that the respondent was estopped from taking a different position from his pleaded defence in an earlier suit. The Court of Appeal’s ratio in that case was also referred to, where it was held that admissions in pleadings are judicial admissions, and are admissible against the party making them. 11

The third and fourth defendants’ consent to the application [31] The second defendant took issue with the third and fourth defendants unabashed support of the plaintiff’s application. It was quite obvious that the third and fourth defendants have chosen to take sides with the plaintiff, as they were parties to the transfer of the third defendant’s 10% shares in the fourth defendant to the plaintiff. [32] The second defendant urged this court not to allow the plaintiff’s application against the third and fourth defendants by virtue of their consent, as this would have the effect of the arbitration being stayed. It was further contended, that the third and fourth defendants had breached the shareholders agreement, namely the arbitration provision, by consenting to the plaintiff’s application. [33] The second defendant contended that friendly parties, namely the third and fourth defendants, ought not be allowed to purport being on opposing sides in this suit, and then consent to the plaintiff’s application. It was submitted that the third and fourth defendants should have been named as co-plaintiffs, as this would then enable the second defendant to apply for a mandatory stay of this suit under s.10 Arbitration Act 2005 (‘AA 2005’). 12

Inordinate delay [34] The second defendant drew attention to the fact that the plaintiff had only filed his application nearly ten months after he was made aware of the arbitration proceedings and the tort suit. This delay was particularly inherent, as it was filed some two months before the arbitration proceeding was to commence. It was submitted that the delay itself is fatal to the plaintiff’s application. [35] The second defendant had nevertheless alluded that parties were previously in negotiations for settlement, but contended these were without prejudice negotiations, and that there was no consensus for parties to keep matters in abeyance.

Tactical manoeuvre [36] The second defendant contended that the plaintiff laid idle, when the parties were proceeding and making preparations with the OS 9, OS 280 suits, and also the arbitration proceedings, and that he had merely took steps to oppose the tort suit. The plaintiff was accused of filing this injunction application as a tactical manoeuvre, to scuttle the hearing of the arbitration proceedings. [37] The second defendant had also accused the third and fourth defendants of being complicit to this tactical manoeuvre, by not objecting or consenting to the plaintiff’s application for an injunction. 13

That the plaintiff has not satisfied the test for an anti-arbitration injunction [38] I must firstly state that I have great reluctance in using the phrase ‘anti-arbitration injunction’ coined by the second defendant, as I do not think that it is a fair representation of an application of this nature. [39] It was contended that the law on granting injunctions to restrain arbitration proceedings has evolved since the inception of the current AA 2005. It was submitted that the court now has limited powers to intervene under the AA

[40] Learned counsel for the second defendant relied on s. 10(1) and (3) AA 2005, which states:-

A court before which proceedings are brought in respect of a matter which is the subject of an arbitration agreement shall, where a party makes an application before taking any other steps in the proceedings, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. …..

Where the proceedings referred to in subsection (1) have been brought, arbitral proceedings may be 14 commenced or continued, and an award may be made, while the issue is pending before the court. [41] The English case of J Jarvis & Sons Limited v Blue Circle Dartford Estates Limited [2007] EWHC 1262 (TCC) was referred to in support. In that case, the main contractor, who was the claimant, sought to obtain an injunction to prevent the arbitration proceedings commenced by the employer, who was the respondent. The respondent had commenced arbitration pursuant to the arbitration provisions in the construction contract between it and the claimant. The court referred to the English Arbitration Act 1996, and several cases that preceded the Act. The following passages from the judgment were cited in support:- 40 From this review of authority I derive four propositions:

The Court’s power under section 37 of the Supreme Court Act 1981 to grant injunctions includes a power to grant an injunction to restrain an arbitration from proceeding.

(ii) That power may be exercised if two conditions are satisfied, namely: (a) the injunction does not cause injustice to the claimant in the arbitration, and (b) the continuance of the arbitration would be oppressive, vexatious, unconscionable or an abuse of process. 15

(iii) The Court’s discretion to grant such an injunction is now only exercised very sparingly and with due regard to the principles upon which the Arbitration Act 1996 is expressly based.

(iv) Delay by the party applying for an injunction is material to the Court’s exercise of discretion and may in some cases be fatal to the application. …… 46 …..It is an inevitable consequence of the mandatory language of section 9 of Arbitration Act that from time to time there will be concurrent proceedings in court and before an arbitrator. Indeed, Taunton-Collins v Cromie [1964] 1 WLR 633 (an authority much relied by counsel under the old regime) would have been decided differently if section 9 had been in force. Furthermore, if section 9 of Arbitration Act had been in force in 1994, the University of Reading proceedings would have taken a different course. In particular, Judge Bowsher would have allowed rather than dismissed Miller’s application for a partial stay of the litigation. That circumstance may have caused Judge Humphrey Lloyd to refuse the application for an injunction. 47 I therefore conclude that the prospect of concurrent proceedings in the present case, with all the usual consequences of concurrent proceedings, does not 16 make the arbitration either vexatious or unconscionable or an abuse of process. (emphasis added by the second defendant’s counsel) [42] The Hong Kong case of Lin Ming (supra) was also referred to in support. In that case, the High Court had also applied the test set out in the Jarvis case. [43] It was forcefully submitted, that the plaintiff’s application does not meet the requirements set out in the Jarvis case. Firstly, the plaintiff was accused of inordinate delay. Secondly, it was submitted that the continuation of the arbitration proceedings would not be oppressive, vexatious, unconscionable or an abuse of process, as any arbitral award made would not bind the plaintiff. It was further contended, that the arbitration proceedings would only deal with the contractual rights and obligations of the second, third and fourth defendants vis-à-vis the shareholders agreement, which the plaintiff was not a party to. [44] The second defendant also claimed that the plaintiff could ventilate its claim on the alleged collateral understanding in the tort suit by mounting a counterclaim. [45] The second defendant acknowledged Bina Jati Sdn Bhd v Sum-Projects (Bros) Sdn Bhd [2002] 2 MLJ 71 (CA) as the leading authority on this issue, but contended that the case was decided prior to the AA 2005 coming into effect. For instance, the appellate court in that case held that an 17 arbitrator’s jurisdiction could be ousted where there were allegations of fraud, but that the position has now changed, as the AA 2005 now permits an arbitrator to decide on allegations of fraud. [46] It was also submitted that the second defendant had incurred substantial costs in the arbitration proceedings which would go to waste, and that the second defendant would lose control of the ‘prosecution’ of the issues, as it was a claimant in the arbitration proceedings, as opposed to now being one of the defendants in this suit. The second defendant alleged that there is a likelihood that they would suffer delay in this proceeding, as the plaintiff would be in control.

That the plaintiff has not satisfied the test for an injunction [47] It was submitted that the test for an injunction in respect of an arbitration matter, should not follow the general test for an interlocutory injunction, as set out by the Court of Appeal in the case of Keet Gerald Francis Noel John v Mohd Noor @ Harun Abdullah [1995] 1 CLJ 293 (CA). Learned counsel reasoned that the test set out in that case, would only apply where the applicant is applying for an interim injunction, pending the hearing of a claim for a final and permanent injunction, and not pending the trial of an action, such as in this case. 18 [48] The second defendant’s learned counsel had nevertheless addressed the tests set out in the Keet Gerald case (supra). No serious issues to be tried [49] The second defendant contended that there were no serious issues to be tried pertaining to the plaintiff’s contention on the existence of the collateral understanding, as it was inconsistent with contemporaneous documents, such as follows:-

The shareholders agreement had made no mention or reference to any collateral understanding, particularly in light of clause 29, which states that the shareholders agreement encompass the entire agreement between the parties.

The third defendant’s letters to the bank pertaining to the transfer of the 10% shares referred to clause 20.5 of the shareholders agreement, namely the ‘exception clause’, and not to any alleged collateral understanding.

Sudhir had signed the ‘Deed of Ratification and Accession’ which described the transfer of the 10% shares being pursuant to clause 20.5 of the shareholders agreement, and not pursuant to a collateral understanding.

The third defendant’s affidavits in the OS 280 suit put reliance on the exception clause of clause 20.5 of the 19 shareholders agreement, and not the collateral understanding. Damages [50] The second defendant contended that the plaintiff would not suffer any damages if his application for an injunction is not allowed, as the award made in the arbitration proceedings would not bind him. [51] Conversely, it is the second defendant who would suffer damages, which could not be compensated monetarily if the injunction is allowed, as they would be deprived of having their case speedily disposed of through the arbitration proceedings, which were already at an advance stage. Balance of convenience [52] The second defendant argued that the balance of convenience lies in favour of not allowing the plaintiff’s application for an injunction, as it had already incurred substantial costs with the arbitration proceedings, and that the costs would be wasted, should an injunction to restrain the arbitration proceedings be allowed. Findings [53] I shall set out my findings on the respective issues raised by the second defendant in turn. However, it would be pertinent 20 to firstly set out my general observation on the plaintiff’s case. [54] The plaintiff’s claim is primarily premised on what he alleged was the collateral understanding in respect of his claim on the shares. Through this suit, the plaintiff is seeking to obtain amongst others, declaration of his rights on the 10% shares of the fourth defendant that has been transferred to him from the third defendant, and also the balance 700,000 shares of the fourth defendant registered in the third defendant’s name. The plaintiff is also seeking to invalidate certain provisions in the shareholders agreement. [55] The second defendant on the other hand, claimed that there was no such collateral understanding, and that the only agreement that existed in respect of the shares in the fourth defendant is the shareholder agreement. It is not disputed that only the second, third and fourth defendants are parties to the shareholders agreement sans the plaintiff. [56] The pressing issue now is whether the plaintiff, who is not a party to the arbitration proceedings, should be given the right to have his claim on the shares heard first through this suit, and restrain the second, third and fourth defendants from proceeding with the arbitration proceedings. 21

Judicial admission [57] I have considered the plaintiff’s defence in the tort suit, and in particular to the paragraph where the second defendant claimed that the plaintiff had made the judicial admission. I am unable to fathom how the plaintiff’s pleaded defence could amount to a judicial admission. [58] It is patent that the second, third and fourth defendants were parties to the shareholders agreement. By virtue of that, all three parties have subscribed to its terms and conditions. One of the term in the shareholders agreement is that any issues pertaining to the agreement would be subjected to arbitration proceedings. All three parties have assented to participate in the arbitration proceedings. [59] That to my mind was the context in which the plaintiff had pleaded its defence in the tort suit, in that the second, third and fourth defendants are subjected to arbitration proceedings by virtue of the shareholders agreement. In my view, it did not amount to a concession by the plaintiff that the share transfer issue could only be resolved by way of arbitration. [60] The plaintiff was clearly not a contracting party to the shareholders agreement. He is as such not governed by the its terms and conditions. The foundation of his claim is not 22 with the shareholders agreement but with what he alleged as the collateral understanding. [61] As the plaintiff was not a party to the shareholders agreement, he could not seek recourse through the arbitration proceedings. He could only ventilate his claim through this suit.

The third and fourth defendants consenting to the application [62] I took cognisance of the fact that the third and fourth defendants were indeed in support of the plaintiff’s application for an injunction, which the second defendant takes issue with. Nevertheless, I take the view that their support does not add any further credence to the plaintiff’s application. It is sufficient for me to merely consider the plaintiff’s application on its own merits. [63] In fact, I agree with the second defendant’s contention that the third and fourth defendants having subscribed to the shareholders agreement, and participating in the arbitration agreement, should not be expressly supporting the plaintiff’s application, as they are subjected to the arbitration proceedings. [64] On that note, I am also disinclined to accept the proposition that the third and fourth defendants should have been made co-plaintiffs in this suit. As I have stated earlier, the second, 23 third and fourth defendants are compelled to resolve the issues between them through arbitration proceedings. [65] I take the view that it is only right that the plaintiff had named the third and fourth defendants as defendants in this suit, as they were parties to the shareholders agreement. His claim over the shares would necessarily involve the third and fourth defendants, as any order or judgment granted in his favour over the shares, would need the third and fourth defendants’ compliance.

Inordinate delay [66] The plaintiff had in paragraph 23 of his second affidavit set out in detail the chronology and timeframe of events leading to this injunction application. I have considered them, and came to the conclusion that there was no inordinate delay on his part. The chronology of events justified why the application was filed at the material time. [67] Although the plaintiff was candour with the fact that there was no agreement for parties to keep their dispute in abeyance, I accept the plaintiff’s explanation that he had withheld any action to avoid aggravating the situation. It was only reasonable that the plaintiff would need some time to arrange and make a reasoned decision on the approach that he would need to take. 24

Tactical manoeuvre [68] I fail to appreciate the merits of the second defendant’s argument that the plaintiff had filed this injunction application as a tactical ploy, to scuttle the hearing of the arbitration proceedings. It is clear that the injunction sought is to restrain the arbitration proceedings, and that it was done for the plaintiff’s benefit, particularly as the subject matter of the arbitration is the shares that the plaintiff has staked his claim. It would be more accurate to state that this application was the plaintiff’s bid to preserve his claim over the shares. To term it as a tactical manoeuvre does not make his application illegitimate, at least in the legal sense. [69] As to the allegation of the third and fourth defendants being complicit to this tactical manoeuvre, as I have mentioned in the preceding paragraphs, their support is of no consequence. [70] The third and fourth defendants are separate entities from the plaintiff. Any actions or inactions by them in this suit would be their own. If their actions had indeed run foul of the provisions of the shareholders agreement, the consequences are for them to suffer, and not the plaintiff. 25

That the plaintiff has not satisfied the test for an anti-arbitration injunction [71] I agree with the plaintiff’s counsel’s proposition that the previous and current Arbitration Act are of no implication to the plaintiff’s application. The fact remains that the plaintiff is not subjected to the shareholders agreement. As such, he is not, and could not be made a party to the arbitration proceedings. The provisions in AA 2005 has no bearing on the plaintiff’s application. [72] The court in the Lin Ming case (supra) cited by learned counsel for the second defendant for instance, stayed the first plaintiff’s claim, but stopped short of staying the second plaintiff’s claim, as the latter was not a party to the arbitration agreement. I also took note that the High Court there had also stated its preference for the arbitration proceedings to proceed, on the basis that the litigation would likely take much longer to get to trial and be heard. With respect, although that may be the case there, I would like to think and have confidence that litigation in our courts are able to proceed as expeditiously as any arbitration proceedings. [73] I therefore take the view that the cases cited by the learned counsel for the first and second defendants are of no relevance to this application, as the parties in those cases were the subject of the arbitration clauses or agreement. 26 [74] The Court of Appeal’s decision in Bina Jati case (supra) is most relevant. I might add that the Federal Court had in Chase Perdana Bhd v Pekeliling Triangle Sdn Bhd & Anor [2007] 7 MLJ 677 cited the Bina Jati case with approval. In the Bina Jati case, the respondent had appointed the appellant as its main contractor for a development project. Parties fell into dispute over payments that the appellant claimed was due to it. Both parties then agree to an arbitration pursuant to the arbitration clause in the building contract. The respondent had in its defence in the arbitration, claimed that part of the monies due to the appellant had been assigned to a third party. It also alleged that the appellant, the architect and the engineer had colluded and committed fraud on it. Premised on this allegation, the respondent filed an application in the High Court for an injunction to restrain the appellant from proceeding with the arbitration proceedings. The respondent succeeded, which led to the appeal. [75] The Court of Appeal in dismissing the appeal, held that the payments made to the third party, and the allegations of collusion and fraud against the architect and consultant, should not be determined in the arbitration, as the third party, the architect, and the consultant, are not parties to the arbitration clause under the building contract. The appellate court also surmised that the allegations were closely connected with the main claim, and that they should be heard in open court. 27 [76] The following passage from the Court of Appeal’s judgment is instructive:- Where some are parties and others are not parties to the arbitration it is best that their disputes be dealt with by the court. In The 'Eastern Saga'; Oxford Shipping Co Ltd v Nippon Yusen Kaisha [1984] 3 All ER 835, the court held: Since arbitration is a private procedure it is an implied term of an arbitration agreement that strangers to the agreement are excluded from the hearing and conduct of an arbitration under the agreement. In the absence of the consent of all parties an arbitrator has no power to order that a dispute referred to arbitration under the agreement be heard or determined with another dispute involving a stranger which has been referred to arbitration under a different agreement, even though the two disputes are closely related and a consolidated hearing would be convenient' (see also Bauer

(M) Sdn Bhd v Daewoo Corporation [1999] 4 MLJ 545 at p 561 (CA); The 'Vimeira'; Interbulk Ltd v Aiden Shipping Co Ltd [1984] 2 Lloyd's Rep 66 at p 75). Moreover, disputes between parties cannot be divided so that part is dealt with by arbitration and another part in court (see Tumock v Sartoris (1889) 43 Ch D 150). 28 [77] Some of the reliefs sought by the second defendant against the third and fourth defendants in the arbitration proceedings, and by the plaintiff in this suit are similar. I set out below a table that sets out in gist the reliefs sought in the arbitration proceedings and this suit:- Arbitration proceedings Suit A declaration that the transfer of shares in the fourth defendant from the third defendant to the plaintiff was in breach of the shareholders agreement. A declaration that the plaintiff is the legal and beneficial owner of the 100,000 shares in the fourth defendant and that the transfer of these shares by the third defendant to the plaintiff does not require the second defendant’s consent. A declaration that the second defendant is entitled to purchase from the third defendant 100,000 of the 700,000 shares in the fourth defendant and 600,000 of the remaining shares A declaration that the plaintiff is entitled to purchase or receive the transfer of the of any part of the 700,000 shares in the fourth defendant registered in the third defendant’s name. [78] I had the fortune considering the Singapore Court of Appeal’s decision in the case of Tomolugen Holdings Ltd and another v Silica Investors Ltd; and others appeals [2015] SGCA 57 (CA). It is a most comprehensive judgment pertaining to a stay application in favour of arbitration. It also pertained to the rights of parties who were not subjected to the arbitration proceedings. [79] Although the facts and circumstances in that case may not be in consonant with this suit, the appellate court’s decision provides a useful guide on the various solutions that the 29 courts could adapt. For instance, it was held that the court could either stay the court proceedings, or the arbitration, on issues that do not overlap. There were a few other options promulgated, but in essence, the court there held that the ultimate solution must serve the ends of justice. The appellate court had also provided the following non-comprehensive factors to be considered:

the relationship between the parties to the court proceedings and the parties to the arbitration,

the claims in the court proceedings and those in the arbitration,

issue estoppel,

the risk of inconsistent findings between the two sets of proceedings,

the risk of delay, and

cost. [80] In my judgment, the primary consideration on whether to grant an injunction to restrain an arbitration proceeding, where the rights of a non-party to the arbitration proceedings is involved, is what would be fairest approach to all parties. It must not result in any party suffering a severe disadvantage. The benefits must outweigh the disadvantage for the ends of justice to be met. 30 [81] I also take the view that the facts and rights of the parties must be critically examined, to enable the court to come to a just decision, for the factual matrix of each case may differ from one case to another. [82] In my judgment, where the issues relate to any party who is not subjected to arbitration, priority should then be given for the matter to be dealt with by the courts, particularly where the subject matter is the same. This would be the fairest approach, as the party who is not subjected or able to participate in the arbitration proceedings, would not be left out in the cold and his rights affected. This will also avoid conflicting results arising from the arbitration and court proceedings. [83] If the arbitration is to proceed followed by this suit, the issues there would have to be litigated again, this time involving the plaintiff’s claim. This would not serve the ends of justice. In this case for example, there is a possibility that decision in the arbitration proceedings may be in conflict with the court’s decision here, as both proceedings pertain to the shares in the fourth defendant. [84] I therefore find no merits in the second defendant’s contention that there would be no conflicting decisions in the arbitration proceedings and this suit, as any award in the former would not bind the plaintiff. No doubt the plaintiff would not be bound by any arbitral awards, but the parties to the arbitration 31 proceedings will. Any award given would necessarily involve the shares that are the subject matter of the plaintiff’s suit. His claim over the shares would necessarily be impacted. [85] The issues raised in the arbitration proceedings clearly overlap with the issues in this suit. It would be a travesty if this suit and the arbitration proceedings were to run concurrently. If for instance the plaintiff succeeds in this suit, and the second defendant is also successful in the arbitration proceedings, the third and fourth defendants would have great difficulty in complying, once the arbitral award is enforced through a High Court order. They would be faced with the quandary of which order to comply with. [86] It is apparent that the contest is over the control of the fourth defendant. The difference though is that unlike the arbitration proceedings where the plaintiff’s claim over the shares would not be ventilated, this suit on the other hand would enable all material parties to be included. The advantage of having the court proceedings taking priority over the arbitration proceedings is obvious, as all the relevant parties are involved in this suit. On the contrary, the plaintiff is not involved, nor can he be involved in the arbitration proceedings. In my view, it would be fairer for the dispute to be decided by this court. 32

Whether the plaintiff has satisfied the test for an injunction [87] It is my view that the test set out in the Keet Gerald case is pertinent in considering the plaintiff’s application. The cases that the second defendant has sought to rely on were cases where the parties seeking for an injunction were also parties to the agreement. As I have mentioned several times in this judgment, the plaintiff is clearly not a party to the shareholders agreement, unlike the second, third and fourth defendants. The provisions in the AA 2005 are therefore not applicable to the plaintiff’s application. [88] It would therefore be necessary to apply the test set out in the Keet Gerald case (supra) and analyse whether the plaintiff’s application has fulfilled the criteria. Serious issues to be tried [89] The second defendant contended that there were no serious issues to be tried pertaining to the plaintiff’s contention on the existence of the collateral understanding, as it was inconsistent with contemporaneous documents. [90] It has been established that a collateral understanding or agreement is a recognisable cause of action. Raja Azlan Shah CJ (as his Highness then was), in delivering judgment for the Federal Court in the case of Tan Swee Hoe Co Ltd. V Ali Hussain Bros [1980] 2 MLJ 16 (FC) held:- 33 “In our view there is a growing body of authority which supports the proposition that a collateral agreement can exist side by side with the main agreement which it contradicts”. (p 18) [91] As to whether the plaintiff’s assertion of a collateral understanding is meritorious or otherwise, that can only be decided upon the conclusion of the trial. At this stage, it would suffice for me to merely identify whether there were issues raised by the parties in this suit that are serious enough to merit a trial. This was the criteria set out by the Court of Appeal in the Keet Gerald case (supra), where the court held that a judge hearing an application for an interlocutory injunction, must undertake the following inquiry as to where there are serious issues to be tried. The relevant passage is as follows:-

he must ask himself whether the totality of the facts presented before him disclosed a bona fide issue to be tried. He must, when considering this question, bear in mind that the pleadings and evidence are incomplete at that stage. Above all, he must refrain from making any determination on the merits of the claim or any defence to it. It is sufficient if he identifies with precision the issues raised on the joinder and decides whether these are serious enough to merit a trial…… (p 207) 34 [92] I have read the numerous affidavits and submissions filed by all parties, and am satisfied that there is some basis to the plaintiff’s contention of the existence of a collateral understanding. For instance, the documents exhibited in the affidavits do suggest that the plaintiff had taken a very active participation in the Vale project. It is undeniable that he had come in at a later stage. The second defendant does not deny this, but questioned the extent of his involvement. The plaintiff had claimed to be a ‘white knight’, and that his participation was premised on his alleged interests in the shares of the fourth defendant through the third defendant. Whether or not this was indeed the case, would be an issue for this court to determine after a full trial. [93] I also took note of the fact that the second defendant had reduced its stake in the fourth defendant, when it was the one that had procured the Vale contract. Whether the reduction was pursuant to the plaintiff’s participation based on the alleged collateral understanding, are merely some of the issues that I have identified. It is merely sufficient for me to at this stage, agree that there are serious issues to be tried, which in my opinion is the case here. Damages [94] I am unable to agree with the second defendant’s proposition that the plaintiff would not suffer any damages if his application for an injunction is not allowed, as the award 35 made in the arbitration proceedings would not bind him. True the award may not bind him, but the award, if granted in favour of the second defendant, would impinge the plaintiff’s claim. [95] I am also of the view, that damages would not be an adequate remedy when it comes to the issue of shares of a company that is not readily available in the open market. An action for specific performance for instance, would be the preferred conclusion; see Pamaron Holdings Sdn Bhd v Ganda Holdings Bhd [1988] 3 MLJ 346 (HC). This would equally apply in an action for declaratory reliefs such as that sought by the plaintiff here. Balance of convenience [96] The second defendant contended that the balance of convenience lies in favour of not allowing the plaintiff’s application for an injunction, as it had already incurred substantial costs with the arbitration proceedings, and that the costs would be wasted, should an injunction to restrain the arbitration proceedings be allowed. [97] The simple answer to that is that costs cannot be a decisive factor to override rights. The plaintiff’s rights could not be extinguished simply by virtue of the effect that the second defendant had incurred costs. 36 [98] The balance of convenience lies in favour of this suit proceeding over the arbitration for several reasons. Unlike the arbitration proceedings, all parties involved in the issue of the third and fourth defendants’ shares are in this suit. The issues raised in the arbitration proceedings clearly overlaps with the issues in this suit. It would be most unfortunate if this suit and the arbitration proceedings were to run concurrently, as there is a possibility that the outcome in the arbitration proceedings and this suit conflicts with each other, for the reasons that I have stated earlier. [99] I am therefore satisfied that the plaintiff has shown merits in his application for an injunction to restrain the second, third and fourth defendants from continuing with the arbitration proceedings. I am however unable to allow his application to restrain the second, third and fourth defendants from continuing with the proceedings in the OS 9 suit, as it would have the same effect of restraining the proceedings of another High Court; see Pilecon Engineering v Malayan Banking [2012] 3 MLJ 100 (HC). The first and second defendant’s application for stay [100] As stated earlier in this judgment, the decision for the plaintiff’s and the first and second defendant’s application could only favour one party. Having considered and allowing the plaintiff’s application, the first and second defendant’s application could not possibly be allowed. 37 [101] I had nevertheless considered the grounds and submissions of all parties. They are similar, if not identical to the ones raised in the plaintiff’s application. In my view, there is no further need to consider them in isolation, as it would be a repetition. [102] As I have found the facts and law in favour of the plaintiff’s application, the inevitable conclusion is that the first and second defendants have failed to show any special circumstances to justify for a stay of proceedings. It follows that the first and second defendant’s application must be dismissed. Conclusion [103] The plaintiff’s application is therefore allowed with costs in cause. The first and second defendants’ application is dismissed with costs of RM10,000 subject to allocatur. Dated: 20 March 2018. (Mohamed Zaini Mazlan) Judge Kuala Lumpur High Court (Commercial Division) 38 Counsel for the plaintiff Robert Low, Jimmy Chong and Karen Yong Hwei Woon [Messrs Ranjit Ooi & Robert Low] Counsel for the second defendant Pang Kong Leng and Chon Zhin Theng [Messrs Cheah Teh & Su] Counsel for the third defendant Lim Tuck Sun and Kenneth Ko Counsel for the fourth defendant David Mathews, Sharmila Ravindran and Beh Lee Choon