On 20 November 2018, the Supreme Court of Myanmar has heard the final arguments in a case that may well shape arbitration law in Myanmar for the foreseeable future.
VDB Loi’s litigation team is assisting a foreign investor and its advocates in a case brought by a local supplier. The parties have signed a framework agreement containing a valid arbitration clause. However, the plaintiff sued in the courts in Myanmar essentially alleging the infringement of intellectual property rights rather than breaches of the framework agreement.
The Yangon High Court has rejected an application for referral of the procedure to arbitration on the grounds that the arbitration clause was not applicable to the dispute, and that the plaintiff had sued several defendants some of whom are not a party to the framework agreement (the plaintiff had also sued a director and a contractor of the main defendant).
Before the Supreme Court the plaintiff maintained this argumentation and added that the arbitration law leaves it in the discretion of the courts whether they refer a case to arbitration or not.
All three arguments are contrary to the arbitration law, and contrary to arbitration practice all over the world.
Sec. 10(a) of the arbitration law states that s Myanmar court shall refer a matter to arbitration if a party requests it to do so based on arbitration agreement. It also exhaustively states the grounds on which the court may refuse such a request: this is only permitted if the arbitration clause is “null and void, inoperative, or incapable of being performed”. In other terms, the court must refer the matter if the arbitration clause is valid and operative; it may not consider whether and to what extent the clause is applicable to the dispute. This is not a competence of the courts, but of the arbitrator (sec. 18(a)).
Sec. 10(a) of the arbitration law leaves no room for the court’s discretion. On the contrary, the court must respect the parties’ intentions as expressed in the arbitration clause. In particular, court may not decide based on equity and justice alone if the statute is as clear as the arbitration law.
And lastly, the arbitration law does not provide any legal basis to join procedures against several defendants if some of them have not signed the arbitration clause. In a situation like this, the plaintiff
must act against the defendants in different procedures. It is true that this may be inconvenient in certain cases, but this an inevitable consequence of the legislator’s decision to favor arbitration and to respect the parties’ freedom to contract. It is also international standard.
The High Courts decision would, if confirmed, seriously impact the reliability and efficiency of Myanmar’s arbitration law. Imagine how easy it would be to work around an arbitration clause if all you had to do is sue a director along with the actual defendant (and how damaging for the individuals concerned!). Imagine how international investors would react if they would learn that the arbitration clauses they signed are subject to a judge’s discretion. And imagine how cumbersome arbitration would become if you had to go through all the instances of the Myanmar court system to find out what the scope of the arbitration clause might be – before the actual arbitration procedure even starts.
The Arbitration Law is a cornerstone of Myanmar’s promise to become a reliable partner for domestic and international investment. It is now up to the Supreme Court to make sure Myanmar keeps that promise.