News & Views

PROPER LAW OF A CONTRACT UNAFFECTED BY SUBMISSION TO ANOTHER JURISDICTION

Posted on 31st October 2019

The Malaysian Court of Appeal in the case of Rakuten General Insurance Co. Ltd. vs. Sun Ace Kakoh Sdn. Bhd. (J-02(IM)(NCVC)-391-03/2019) upheld the principle that there should be a clear distinction between submission to the jurisdiction of the Malaysian Court and the proper law of contracts. In doing so the Court of Appeal reversed an earlier decision of the High Court of Malaya where the Judicial Commissioner had come to the erroneous decision that “the exercise by a party of the rights of subrogation must be taken in accordance with Malaysian Law and not Japanese Law , as the Plaintiff had submitted to the jurisdiction of the Malaysian Courts.

Consequently, a Malaysian court may not impose on a foreign insurer that has derived its title to sue under the Japanese law of subrogation, the requirement to have its right to sue in its own name determined by the Malaysian law of subrogation, when it brings a claim in Malaysia.

The case involved the Appellant (“Rakuten”) which had insured the liability of a Japanese party (“SAC”) for goods sold by SAC to Japanese buyers under a policy of insurance taken out in Japan. All parties were Japanese and the insurance policy was expressed to be regulated by Japanese laws. Subsequently, SAC purchased goods from the Respondent and sold them on to a Japanese buyer. The goods proved to be defective and the buyer claimed compensation for its losses against SAC, which then sought coverage of its liability under the insurance contract with Rakuten. Having paid up the claim in full, Rakuten then assumed the rights of SAC by subrogation and filed a suit in Malaysia against the Respondent.

At first instance, the High Court held that Rakuten was bound to apply Malaysian law of subrogation if it wanted to bring the suit in its own name in Malaysia. The High Court took the view that as Rakuten had failed to comply with Malaysia law on subrogation, it had no locus standi to bring the suit against the Respondent and struck out Rakuten’s claim.

On appeal, the Court of Appeal unanimously reversed the High Court’s decision thereby reinstating the correct position and the principle that the law of a contract is determined by the lex loci contractus which remains unaffected by a party’s submission to another jurisdiction.

RLSE Litigation team