The case of Protasco Bhd v. Tey Por Yee & Another Appeal [2018] 6 MLRA 674 CA is a seminal decision by the Malaysian Court of Appeal regarding the jurisdictional boundaries between court proceedings and arbitration, particularly when a dispute involves non-parties to an arbitration agreement.
1. Case Information
- Court: Court of Appeal, Putrajaya.
- Citation: [2018] 6 MLRA 674.
- Parties: Protasco Bhd (Appellant/Plaintiff) v. Tey Por Yee (Respondent/2nd Defendant) and Ooi Kock Aun (Respondent/3rd Defendant).
2. Factual Background
In late 2012, Tey Por Yee proposed an investment to Protasco involving the acquisition of a 76% stake in an Indonesian company, PT ASI, from PT Anglo Slavic Utama (PT ASU). Tey and his nominee, Ooi Kock Aun, subsequently became substantial shareholders and directors of Protasco. Protasco entered into a Sale and Purchase Agreement (SPA 2) with PT ASU and paid approximately USD 27 million.
The investment failed as various conditions were not met. An internal investigation by Protasco alleged that Tey and Ooi were the secret beneficial owners of PT ASU, had forged signatures, and had “bulldozed” the deal to misappropriate funds. Protasco sued Tey and Ooi for deceit, fraud, and breaches of fiduciary duties, and sued PT ASU for conspiracy and breach of contract.
3. Procedural Conflict
- PT ASU’s Stay: PT ASU was a party to the SPA 2, which contained an arbitration clause. The Court of Appeal had previously granted PT ASU a mandatory stay of court proceedings under Section 10 of the Arbitration Act 2005 (AA 2005).
- The High Court Ruling: Tey and Ooi, although not parties to the arbitration agreement, applied for a stay of the court proceedings against them pending the outcome of the Protasco-PT ASU arbitration. The High Court granted the stay, reasoning that the issues were inextricably intertwined.
4. Key Legal Issues
- Applicability of Section 10 AA 2005: Whether the mandatory stay provision applies to directors or shareholders who are non-signatories to the arbitration agreement,.
- Inherent Power of the Court: What factors should the court weigh when deciding whether to stay a civil suit against non-parties in favor of a related arbitration between other parties?,.
5. Court’s Analysis and Holding
A. Rejection of Section 10 for Non-Parties
The Court of Appeal clarified that Section 10 of the AA 2005 is inapplicable to Tey and Ooi because they were not parties to the arbitration agreement,. The court’s power to stay proceedings against them is instead derived from its inherent jurisdiction to manage its own processes in the interests of justice,.
B. Wide Interpretation of Arbitrability
Relying on the “Fiona Trust” principle and the Federal Court decision in Press Metal Sarawak, the court held that arbitration clauses should be interpreted widely. Consequently, the claims against PT ASU for conspiracy and constructive trust were arbitrable, as rational business people intend for all disputes arising from their commercial relationship to be decided in one forum.
C. The “Tomolugen” Options
Adopting the methodology from the Singaporean case Tomolugen Holdings Ltd, the court identified four options for managing the overlapping proceedings:
- Stay the entire court suit until the arbitration finishes.
- Stay the arbitration until the court suit against non-parties is determined.
- Allow both to proceed in parallel.
- Stay only certain issues in court while allowing others to proceed.
D. Reversing the Stay Against Directors
The Court of Appeal set aside the stay against Tey and Ooi and ordered that the High Court trial proceed first, while temporarily staying the arbitration between Protasco and PT ASU. The court reasoned that:
- Avoidance of Re-litigation: Findings by an arbitrator are not binding on the High Court or non-parties. If the arbitration happened first, Tey and Ooi could still demand a “day in court” to defend their personal liability, leading to duplicity of evidence.
- Primacy of the Fraud Claim: Tey and Ooi were the alleged masterminds; resolving their liability in court first would facilitate the arbitrator’s task regarding PT ASU later.
- Interests of Justice: Granting the directors a stay would essentially allow them to evade personal accountability behind a corporate shield for an extended period.
6. Significance of the Decision
The Protasco ruling is the leading Malaysian authority on bifurcated proceedings. It reinforces that while the law favors arbitration, the court will not permit an arbitration agreement to be used as a “backdoor” tactic to delay justice for non-signatories, especially when the allegations involve serious personal torts like fraud and breach of fiduciary duty.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
