Arbitration Clause struck down by Court of Appeal

In many contracts, it is common to find both an arbitration clause and an exclusive jurisdiction clause. The arbitration clause would roughly state that any dispute should be referred to arbitration. The exclusive jurisdiction clause, on the other hand, would roughly state that parties submit to the exclusive jurisdiction of the High Court of Malaya which shall have the exclusive jurisdiction to hear and determine all actions and proceedings arising out of the contract.

In the case of TNB Engineering & Consultancy Sdn Bhd v Boccard Oil and Gas Sdn Bhd, the Court of Appeal made the incredible decision that the arbitration clause would be inconsistent with the exclusive jurisdiction clause, and therefore the arbitration clause would be a nullity.

This seems to be a decision that, with respect, could be deemed to be erroneous. Surely since the parties have included an arbitration clause, that would mean parties have agreed to arbitration as a dispute resolution process. That does not contradict with an exclusive jurisdiction clause because decisions of arbitrators may nevertheless be subject to review, and this review would be by the High Court.

To hold that the arbitration clause is void would be to negate the intention of the parties to resolve disputes by arbitration in the first place.

On the other hand, the clauses could be read together, by holding that parties must first resort to arbitration, subject to the High Court's powers of review.

Holding that the arbitration clause is inconsistent with the exclusive jurisdiction clause would, with respect, adversely affect the operation of a lot of contracts in Malaysia, and effectively curtail the development of arbitration as a form of dispute resolution.

At the end of the day, Courts should bear in mind that it is not the forum but the actual resolution of the dispute which is critical.