Under Section 11 of the Arbitration Act 2005, parties in arbitration may apply to the High Court for interim measures, including security for costs. In the case of Perbadanan Pengurusan City Plaza v Sigma Elevator (M) Sdn Bhd [2023] MLJU 3091, the Court of Appeal explored the factors Courts must consider when determining whether to order security for costs.

Background Facts

  • Sigma Elevator (M) Sdn Bhd (“Sigma”) was appointed to upgrade lifts in a building in Johor Bahru by Perbadanan Pengurusan City Plaza (“PPCP”). 
  • A dispute arose between the parties, which culminated in Sigma commencing and eventually winning an adjudication claim against PPCP. 
  • Sigma then successfully enforced the adjudication claim against PPCP both at the High Court and the Court of Appeal. Sigma even secured a judgment debtor summons against PPCP. 
  • Unhappy with the decision of the Courts on the adjudication decision, PPCP then commenced a separate civil action against Sigma which was subsequently struck out, as the High Court held that dispute should have been arbitrated instead, due to the arbitration agreement. 
  • PPCP then commenced arbitration against Sigma. 
  • Sigma applied for security of costs against PPCP in the arbitration, by virtue of Section 11 of the Arbitration Act 2005.

At the High Court

  • The High Court allowed Sigma’s application for security of costs against PPCP. 
  • The High Court found that since: (a) PPCP was insolvent; (b) its account had been frozen; and (c) it failed to pay the earlier costs awarded by the Courts to Sigma, Sigma is entitled to a security for costs of RM400,000. 
  • PPCP then appealed against the High Court’s decision.

At the Court of Appeal

  • In a security for costs application under the Arbitration Act 2005, the Courts are required to consider the case and application in its entirety. Impecuniosity and financial standing alone are insufficient.
  • Further, since an order for security for costs involves an exercise of discretion, it should not be easily disturbed at the appellate stage, unless it can be shown that the exercise of discretion was legally wrong.
  • The Court of Appeal held that the arbitration claim and matters related to it, including the merits and the chance of success, are relevant matters which should be considered by the Courts in a security for costs application under the Arbitration Act 2005.
  • The Court disagreed with Sigma’s argument that the merits of the arbitration claim are irrelevant. The Court held that merits are relevant, but a detailed investigation into the merits was not necessary at the security for costs stage.
  • As the High Court only considered PPCP’s financial standing and not the merits of PPCP’s arbitration claim and the chances of its success, the High Court did not consider all the relevant circumstances of the case when granting security for costs in favour of Sigma. 
  • Therefore, the High Court’s order allowing security for costs, was set aside.

Key Takeaways

Although the Court of Appeal held that merits of an arbitration claim are a relevant consideration, the Court of Appeal did not actually make any finding that PPCP’s arbitration claim has merits. The decision of the High Court was set aside by the Court of Appeal because the High Court did not consider the merits of PPCP’s arbitration claim, and not because there are merits in PPCP’s arbitration claim. 

This decision is an important reminder that in a security for costs application, the Courts will look at the case in its entirety. No single factor is conclusively determinant of whether security of costs will be granted. The impact of this decision would also be felt by legal practitioners in advising clients on the chances of obtaining security for costs from the claimant in arbitration.

***
This article was written by Sean Ferdinand Ng (Associate) from Donovan & Ho’s dispute resolution practice. 

Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.

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