Legislative and Jurisprudential Developments
This new newsletter follows and expands on the approach taken in the first issue, consisting of providing a legal "watch" of key developments in British common law as applied daily in the jurisdictions of "Greater Asia," from Australia to India.
This ambition characterizes our firm, based in Malaysia, at the geographical and legal heart of this vast region.
The legislative and jurisprudential developments of July 2019 were selected because we believe they are likely to influence parliaments and courts (the latter through the application of the legal principle of "persuasiveness") through the jurisdictions of the countries concerned.
Countries covered: Malaysia – Singapore – Australia – India – China (Hong Kong SAR) – Myanmar – Papua New Guinea.
Newsletter No. 2 - July 2019
Malaysia
Legislation
- Companies Act
An amendment to the Companies (Amendment) Bill 2019 was passed by the Lower House of the Malaysian Parliament (Dewan Rakyat) on July 10 and will soon be submitted to the Upper House (Dewan Negara).
Among the most important provisions of the bill are:
– the right of the company, its directors, or a creditor to apply to the High Court for the appointment of a qualified judicial manager for this purpose. Furthermore, the High Court will no longer be able, as is currently the case, to dismiss the application on the grounds that an administrator has been appointed and a secured creditor has objected; either of these two conditions is now sufficient, which aims to strengthen the protection of secured creditors.
– facilitating the redemption of preferred shares by the company using its share capital, which will no longer be subject to the prerequisite of reconstitution at the same amount of said capital, but only to the obligation for the directors to certify that the company remains solvent.
– a simplification of the formalities required for documents binding the company (affixing of a common seal or signature of two directors), which would now only apply when such a formality is required by law, a resolution, a contract, or the articles of association.
– the possibility for the High Court to require a company initiating legal proceedings to provide financial security (security for costs) in order to rule out frivolous claims.
– the obligation to appoint and set the remuneration of auditors at the Annual General Meeting of listed companies, which was previously the subject of scattered and partially contradictory texts, is affirmed.
- Trademarks Act
The new Trademarks Act, replacing the 1976 Act (Trademarks Act 2019), was adopted at second reading on July 2.
Among the various amendments to the previous regime, particular attention must be paid, with a view to preventing and preparing for potential litigation, to the reform of the trademark licensee registration system, which determines the necessary standing for any legal action.
The Trademark Act 2019 creates a category of "registrable transactions" and ends the "registered user" status, replacing it with a licensing system under the general heading of "registrable transactions."
This should be carefully considered by French companies that have granted, in one form or another, the use of their trademark to a company in Malaysia, which may be a distributor or agent.
- Customs
An amendment to the Customs (Amendment) Act 2019 was gazetted on July 9.
The changes are far-reaching, contained in 96 amendments, including 61 new measures, all spread over a 132-page document.
Very briefly summarized, the main points to note in this text, which concern (in particular) French companies engaged in import and/or export operations, include the possibility of obtaining a ruling from the authorities, the creation of new offenses such as the destruction of evidence stored on computers, the possibility of new duty-free zones, the power granted to customs services to intercept suspicious transactions, an extension of the liability of directors of the companies concerned, and an entirely new chapter on the origin of products.
Case Law
- Rights of a Third Party Against Arbitration Proceedings
By a judgment of the 1st In July, the Federal Court of Malaysia, the country's highest court, granted a third party's application to stay arbitration proceedings from which it had been excluded.
It thus agreed with the High Court, which at first instance, before the Court of Appeal ruled to the contrary, had affirmed the superiority of recourse to the courts ("litigation") over arbitration when the rights of a party not party to the arbitration clause may be prejudiced by its absence, even though they would be taken into account in a judicial proceeding.
This decision [Jaya Sudhir a/l Jarayam v Nautical Supreme Sdn Bhd & Ors] underlines the need to consider all contractual aspects (in this case, a separate agreement with a third party) before drafting an arbitration clause. It also reiterates the importance of reviewing arbitration clauses in existing contracts, not simply by reference to possible "standard" models, but based on the circumstances at the time. their conclusion.
- Duty of Confidentiality in Arbitration Proceedings
In a subsequent decision and in a related case, the High Court of Malaysia clarified the scope of the duty of confidentiality as it applies to parties in possession of such information but who are not parties to the arbitration.
In this case, the High Court had to rule (for the first time since the enactment of the law) on the interpretation to be given to Section 41A of the Arbitration Act, as amended in 2018, which prohibits the dissemination of information relating to the arbitration proceedings and the resulting award without the express agreement of the parties.
In its decision [Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd], the High Court affirmed several important points that serve as a reference in similar or comparable cases:
– the primacy of the rule enacted by the Arbitration Act over the principle of confidentiality derived from common law;
– the affirmation of the rule that Section 41A is to be interpreted strictly and is not applicable to persons who are not parties to the arbitration; and
– the right of said third parties to rely on the rights to dissemination of information granted to the parties (for example, to obtain protection of a right “to protect or pursue a legal right or interest of the party”) by Article 41(A)(2)(a)(i).
Once again, this confirms the importance of keeping regularly informed of legislative and case law developments in all common law jurisdictions of British inspiration and in Asia-Oceania and South Asia (India). Indeed, the aforementioned section 41A reproduces the terms of section 18 of the Hong Kong Arbitration Ordinance (Cap 609), which itself is inspired by a previous version of the mirror text in New Zealand (Arbitration Act 1996, Public Act 1996 No. 99). It is important to anticipate the impact, which can typically be precedent-setting before legislative in these common law jurisdictions, where case law is not only interpretative but also creates rights.
Singapore
Case Law
- Singapore International Commercial Court Arbitration Decision
The Singapore International Court (SICC) issued its second arbitration-related decision on July 19, 2019, following a transfer of appeal from the High Court under the Supreme Court of Judicature Act.
The case involved two individuals, Thai and Cambodian nationals, and an Australian company that was to acquire their businesses through a yet-to-be-incorporated vehicle. The key legal issue, amid extremely complex circumstances made even more difficult to interpret by the anonymity granted by SICC, was whether a party that had transferred all of its rights under the sales contract containing the arbitration clause to another party could nevertheless claim to be a party to the arbitration. After a rather labyrinthine process of reasoning, the international judge assigned to the case by SICC ruled that the party concerned had the right to present its claims and that the arbitral tribunal had jurisdiction to assess them.
- High Court Decision on Arbitration
On July 1, the High Court issued a groundbreaking judgment in response to a party's application in an arbitration between companies in the People's Republic of China. The arbitration clause was not free from ambiguity, specifying that the arbitration, if it were to take place, should take place in Shanghai, but entrusting the administration of the arbitration to SIAC (Singapore International Arbitration Centre), while failing to specify the applicable law or the seat.
On the applicable law, the High Court determined that the parties' explicit choice was Chinese law, but that this choice should be overruled in favor of Singapore law because Chinese law prohibits "domestic" arbitrations (between Chinese companies) outside the People's Republic.
Regarding the seat, the High Court reasoned that since Shanghai does not constitute a jurisdiction, it could only be the physical place of arbitration, while the "seat" was, by default, Singapore.
This decision has been criticized by legal scholars from several angles. Pending a possible appeal, the key takeaway from the decision is, once again, the need to carefully draft the arbitration clause, which must contain the designation of the seat and the jurisdiction to which it belongs, and clearly designate the physical place of arbitration ("venue") as such.
Australia
Legislation
- Modern Slavery Act
The NSW Modern Slavery Act, which was scheduled to come into force on July 1, will ultimately not be implemented on that date, as the Premier's office noted certain drafting flaws that could render the text unconstitutional.
However, this is only a postponement, and it is essential to remain vigilant with regard to this text, as well as its federal equivalent (the Commonwealth Modern Slavery Act), which has been in force since January 1, 2019.
Both texts, both complementary and conflicting, which raises certain interpretation difficulties, must be taken into consideration by French companies either because they operate in Australia or because they enter into contracts with Australian companies and are part of the "chain" of suppliers required to comply with the provisions of the "Acts."
More generally, because the Australian precedent constitutes a relevant model of behavior with regard to "modern slavery," particularly forced labor and that of children and adolescents, in Southeast Asian countries where such legislation is currently lacking.
- Whistleblowers
The federal law on whistleblower protection came into force on July 1 (Treasury Laws Amendment (Enhancing Whistleblower Protections) Act 2019).
It naturally concerns French companies already established in Australia, but not only them. It has implications for any company having a business relationship with an Australian company, given the nature of the exchanges and information deemed confidential between the parties.
Case Law
- Complex Commercial Contracts
Under common law, a party to a contract deriving from it the right to either enforce its continuity or terminate it in the event of a breach by the other party, must choose between the two options, and once this choice is made, the decision is binding on them.
This is derived from a fundamental principle of contract law (the "doctrine of election") and was clarified by the New South Wales Court of Appeal in a decision dated July 26 [Donau Pty Ltd v ASC AWD Shipbuilder Pty Ltd].
This decision is welcome because in real-life business practice, particularly in complex contracts involving large amounts and to be performed over a relatively long period of time, it is often difficult to determine a party's choice.
In this case, the contract concerned the manufacture and supply of essential parts for warships for the Australian Navy. As is far from unusual in such a context, the parties gradually deviated from the terms of the original contract and then agreed to reformulate the terms of their relationship in a new contract (the Second Heads of Agreement) reflecting their operating method, thereby deviating from the original contract.
When the first party sought to invoke the termination clause in the original contract, the second party objected that by negotiating the second contract and continuing the relationship despite the alleged breaches of the original contract, it had not unequivocally stated its intention to choose the termination option over performance, and that it had therefore waived it.
This reasoning is consistent with the common law principle that the two options must be mutually exclusive; one cannot simultaneously behave as if one desired performance of a contract and seek its termination (see, in particular, Sargent v ASL Developments Ltd (1974)).
The judges composing the Court of Appeal, although disagreeing on several points, decided that the continuation of a business relationship did not invalidate the right to demand termination of the original contract and, consequently, of the second contract that resulted from it, but that this right must be exercised within a reasonable time, which was not the case given the factual circumstances.
This summarizes a decision that could in all likelihood serve as a reference for courts applying common law in Southeast Asia and South Asia. Its lessons should be retained in cases of deviation from the terms of a commercial contract agreed to by both parties.
India
Legislation
- Establishment of the Arbitration Centre
The Indian Minister of Law introduced a bill in the lower house of Parliament (Lok Sabha) on July 3rd to establish a "New Delhi International Arbitration Centre."
It is not too early to express interest in this establishment and to declare an intention to submit international commercial disputes in future contracts to this new institution, as the Centre will clearly have no shortage of competent common law arbitrators, and its awards will therefore, by virtue of their quality, be easily enforceable under the New York Convention.
- Revision of the Arbitration Act
The upper house of the Indian Parliament (Upper House / Rajya Sabha) adopted an amendment (2019 Amendment Bill) to the Arbitration and Conciliation Act on July 18th.
The bill, which essentially echoes the terms of the bill passed by the Lower House of Parliament (Lok Sabha) the previous year, contains several provisions intended to regulate and make arbitration more attractive in the Republic of India:
– Creation of an independent Arbitration Council, responsible in particular for defining rules for the evaluation of arbitral institutions, for the accreditation of arbitrators, and generally for overseeing arbitration procedures;
– Definition of the qualification and experience requirements for arbitrators;
– Possibility for the Supreme Court and the High Court to delegate the appointment of arbitrators to arbitral institutions at the request of the parties;
– Protection of arbitrators against liability claims that may be brought against them provided they have acted "in good faith" in accordance with the Arbitration and Conciliation Act and its implementing regulations;
– obligation imposed on arbitrators, the arbitral institution, and the parties to respect the confidentiality of the arbitral proceedings, except when this must be waived in order to enforce the arbitral award;
– exemption of international commercial arbitrations from the 12-month time limit (except for extensions under certain conditions) for the rendering of arbitral awards (the 2019 version of the Amendment Bill, however, added a best efforts clause to the previous text to expedite the conclusion of the arbitration “as expeditiously as possible”).
- Food Packaging Regulations
The new Food Safety and Standards (Packaging) Regulations, 2018, have been applicable since January 1, 2019.
Materials used, such as ink, in packaging must comply with Indian standards as defined by the Bureau of Indian Standards. Specific rules also apply, such as the maximum content of certain substances such as manganese or cobalt in plastic packaging, and the ban on the use of recycled plastic... and even newspaper.
Case Law
- Characterization of the Employer-Employee Relationship
A Supreme Court judgment dated July 24 [The Officer In-charge, Sub-Regional Provident Fund Office & ANR. vs. M/s Godavari Garments Ltd.] once again addresses, and sheds new light on, the debate over what constitutes an employer-employee relationship when the latter is given wide latitude in the performance of their duties.
The issue is global in light of the supposed "Uberization" of the economy, but also perhaps, and even more broadly, linked to the fragmentation of the relationship, as with teleworking. In this regard, see our Newsletter No. 1 for a commentary on the Fair Work Ombudsman's decision regarding the legal relationship between Uber and its drivers in Australia.
In this case, the Indian Supreme Court engaged in a detailed interpretation of what characterizes an employer/employee relationship, well beyond the relationship of subordination.
Of particular importance, we believe, is its assessment that the "control" criterion is obsolete and, as affirmed by a previous judgment cited in the Court's decision [Silver Jubilee Tailoring House and Ors. v. Chief Inspector of Shops and Establishments and And (1973)], appropriate for a pre-Industrial Revolution rural society, but whose relevance had gradually eroded over the two decades prior to the year of this judgment.
The Court, continuing this reasoning, held that the criteria to be taken into account should be multiple.
In this case, Godavari Garments hired women as part of a program to assist the poorest to sew garments. In refusing to contribute to a social welfare fund (EPF or Employee Provident Fund), the company argued that the women were independent contractors and not employees. The Court noted Godavari Garments' arguments that:
– the sewing machines used by the workers were their property;
– they worked at home and not on company premises;
– they could do the work themselves or outsource it to a third party;
– they were not required to report even occasionally to the company's factories.
Furthermore, the workers were paid "by piecework" and not by time spent.
Conversely, it should be noted that the materials (fabrics, thread, buttons, etc.) were supplied by Godavari Garments.
Based on all these factors, Godari Garments concluded that it did not exercise "supervision," which is an essential characteristic of an employer/employee relationship.
The Court considered, on its own initiative, an additional criterion: the power to reject the finished product in the absence of compliance with the instructions given by the purchaser of the work. In this case, relying on its 1974 judgment [Silver Jubilee Tailoring House and Others v. Chief Inspector of Shops and Establishments], it held that Godavari Garments' discretionary right to reject the sewn garments constituted the element of control and supervision characteristic of a relationship of subordination.
China (Hong Kong SAR)
Case Law
- Public Action Against a Director
On July 3, the Hong Kong Competition Commission referred a complaint of antitrust practice for cartelization in the provision of social housing redecoration services to the competent specialized court (Competition Tribunal).
What makes this case interesting, beyond Hong Kong competition and company law generally, is its interpretation of a director's duties. The Commission requested the disqualification from holding office as a director of a director whom it admitted was neither directly nor indirectly involved in the price-fixing offense, but "had reason to suspect unlawful conduct and took no steps to prevent it" and "should have known of the existence" of this conduct.
This case will be followed closely, as it may further broaden the scope of directors' liability in Asian common law jurisdictions. The Commission, having taken care not to seek any financial penalty against the person concerned, is clearly aiming to establish a new level of requirement in the exercise of the mandate of company director.
Myanmar
Legislation
- Foreign Investment in Listed Companies
On July 12, the Securities and Exchange Commission of Myanmar (formerly Burma) issued "Notification 1/2019" announcing the right of foreigners, whether individuals or legal entities, to acquire shares in Burmese companies listed on the Yangon Stock Exchange.
It is implicit that these investments cannot exceed 35% of the capital, because above this percentage, a company is deemed foreign under company law (Myanmar Companies Law (2017)). A locally listed company cannot fall under this status without serious disadvantages, which includes many restrictions, including a ban on owning land (Transfer of Immovable Property (Restriction) Act (1987)).
Papua New Guinea
Legislation
- New York Convention
Papua New Guinea has become a party to the "New York Convention" [Convention on the Recognition and Enforcement of Foreign Arbitral Awards].
The instrument of accession was deposited on July 17 and will take effect as provided for in the Convention on October 15. The deposit was not subject to any reservations (including "reciprocity reservation" or "commerciality reservation"), and the Convention will therefore become applicable in its entirety.
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The content above is purely for informational purposes, relating to a selected overview of legislative, regulatory and case law developments in the relevant geographical area, which is not and does not claim to be exhaustive.
It does not constitute legal advice in relation to any particular case and should not be regarded as such. A more detailed doctrinal study on any of the topics mentioned may be requested.
Philippe Girard-Foley is a Registered Foreign Lawyer accredited by the Supreme Court of Singapore before the Singapore International Commercial Court – Certificate of Full Registration under Section 36P Legal Profession Act (Chapter 61).