Trade Wars: A New Hope?
30 April 2017
A commentary on the first judicial review of a decision under the Safeguards Act 2006 by Nicholas Lai and Manshan Singh.
A safeguard measure is a form of trade protection. The Ministry of International Trade and Industry (“MITI”) undertakes a safeguard investigation under the Safeguards Act 2006 (“Safeguards Act”) and Safeguards Regulations 2007 (“Safeguards Regulations”) to determine whether a safeguard measure is necessary to protect the domestic industry from suffering injury or threat thereof from a surge of imports.
ATTACK OF THE CLONES?
Megasteel Sdn Bhd (“Megasteel”), the sole Malaysian producer of Hot Rolled Coils steel products (“HRC”) at the material time, petitioned to MITI for safeguard measures against HRC imports. On 10 September 2015, MITI initiated an investigation. Notably this was Megasteel’s second attempt to seek safeguard protection, having failed in the first ever safeguard investigation in 2011 in respect of the same product.
On 8 January 2016, after investigating the matter and considering the views of the affected parties, the Government of Malaysia, acting through the Minister of International Trade and Industry (“Minister”) released its negative preliminary determination (“Decision”). The investigation was terminated. In effect, this meant that the Government declined Megasteel’s request for safeguard protection.
However, this time around Megasteel decided to challenge the Minister’s Decision in the Malaysian courts, thus making this the first ever judicial review of the Minister’s decision in a safeguard investigation.
DECISION OF THE GALACTIC REPUBLIC
The Decision was based on a Non-confidential Preliminary Determination Report dated 8 January 2016 (“Report”) issued by MITI as the investigating authority under the Safeguards Act. In the Report, MITI summarised the evidence of Megasteel and 37 respondents or interested parties including foreign governments, foreign and local trade associations, importers and exporters of HRC. In essence, MITI found, inter alia,
- there was no surge in HRC imports coming into Malaysia warranting a safeguard measure; and
- the domestic HRC industry was not seriously injured as claimed, or where injured, it was not caused by the HRC imports.
It is noteworthy that all interested parties, save one, were opposed to Megasteel’s petition and its proposal for safeguard measures.
It is also noteworthy that MITI for the first time relied on data provided by the Royal Malaysian Customs (“RMC”) when analysing the import volume. RMC’s data allowed MITI to obtain a clearer picture of the relevant import volumes by removing HRC imports that had been given duty exemption status under a national steel policy from its volume analysis. The use of RMC data is a step forward from the 2011 investigation where MITI highlighted the limitations of the consolidated data provided by the Department of Statistics, Malaysia which did not distinguish the different categories of import volume.
Ultimately, MITI was satisfied that even if the investigation were to be continued beyond the preliminary determination, the elements necessary for the imposition of a safeguard measure would not be found. Thus, MITI recommended that the investigation be terminated in accordance with section 20(2)(b) of the Safeguards Act.
THE EMPIRE STRIKES BACK
Dissatisfied with the Decision, Megasteel filed an application in the High Court on 4 April 2016 for leave to initiate a judicial review. The Minister and MITI were named as the respondents in the application which sought, inter alia, the following:
- an order to quash the Decision;
- a declaration that the Decision was tainted with irrationality, illegality and procedural impropriety; and
- an order directing the Minister and MITI to re-initiate, continue or complete the investigation and issue a final determination.
In summary, Megasteel contended, inter alia, that the Minister and MITI had failed to:
- consider the increase of HRC imports in relative terms (i.e. the increase of HRC imports relative to domestic production) as required by the Safeguards Regulations;
- provide sufficient reasons for excluding the duty-exempt HRC and thus wrongly used the data obtained from RMC in the volume analysis; and/or
- furnish Megasteel with a copy of the data provided by RMC.
Megasteel’s application for leave was granted by the High Court on 10 May 2016. The battleground now moved from the halls of MITI to the courts of law for the first time. The rules of the game had changed; every step taken, or omitted, in this ‘trade war’ carried crucial consequences.
THE REBEL ALLIANCE
Megasteel’s judicial review proceedings were of great concern to the many interested parties who had participated in the original safeguard investigation undertaken by MITI. Order 53 rule 4 of the Rules of Court 2012 (“Rules of Court”) expressly requires a party who has obtained leave to commence judicial review to file a Notice of Hearing of Application for Judicial Review (“Notice”) and to serve a copy of the same and all cause papers on “all persons directly affected by the application”.
However, in this case, Megasteel did not serve or chose not to serve the Notice, nor the cause papers on any of the 37 interested parties in the original investigation. Out of the 37 interested parties, only nine interested parties (consisting of local and foreign stakeholders) fortuitously came to hear about the judicial review through third-party sources within the industry and successfully applied to intervene in the proceedings (“Interveners”). Hence, the Minister, MITI and the Interveners, in an unusual position, found themselves on the same side and collectively sought to oppose Megasteel’s application for judicial review.
THE FORCE AWAKENS
On 6 February 2017, the judicial review was called for hearing before the Court. The Interveners collectively raised a number of objections to Megasteel’s judicial review application.
One of the main objections turned on Megasteel’s failure to serve the Notice and cause papers in accordance with the Rules of Court. The Interveners argued that the interested parties in the original investigation must be “persons directly affected by the proceedings”, given that Megasteel had sought for a continuation of the investigation. The Interveners contended that the failure to serve the Notice and cause papers on them had prejudiced their interests.
On the other hand, Megasteel took the position that the term “interested parties” defined in the Safeguards Acts cannot be equated to “persons directly affected by the application” under the Rules of Court, as to do so would allegedly open the floodgates.
The Interveners also challenged Megasteel’s failure to give full and frank disclosure to the Court at the ex parte leave stage. It was submitted that the standard of disclosure for judicial review is uberrimae fidei (utmost of good faith), being a higher standard than bona fide (good faith). The Interveners submitted that Megasteel failed, inter alia, to disclose:
- its multiple previous attempts to seek trade protection from MITI by way of safeguards and anti-dumping measures;
- the fact that Megasteel itself was importing HRC in significant volumes during the period of the investigation and thereby contributed to the increase in imports complained of; and
- the views, submissions and evidence provided by the interested parties in the original safeguards investigation were not included in the ex parte application.
The Court having heard the submissions of the Interveners and the response by Megasteel, dismissed Megasteel’s application. According to the Court:
- there was non-compliance with Order 53 rule 4 of the Rules of Court as Megasteel did not serve the Notice and the cause papers on all parties directly affected by its application; and
- there was no full and frank disclosure on Megasteel’s part; amongst other things, Megasteel’s omission to disclose that it was a significant importer of HRC constituted a material non-disclosure.
A NEW HOPE?
It has been reported that Megasteel has closed its steel mill in Banting in August 2016 (staronline-100916
). The judicial review was positioned to provide Megasteel a glimmer of hope, a fighting chance to obtain trade protection from MITI and perhaps resume production at its mill. Unfortunately for Megasteel, this hope was quashed as a result of the Interveners’ preliminary objections being upheld by the Court.
WILL THE DEATH STAR BE RESURRECTED?
This decision is noteworthy for two reasons. First, it is the first time that the decision in a safeguard investigation has been challenged in Malaysia by way of a judicial review.
Secondly, the decision is instructive in relation to applications for judicial review of a decision under the Safeguards Act as it highlights the importance of serving the relevant cause papers on the parties who participated in the original safeguards investigation and the need for full and frank disclosure on the part of an applicant in such proceedings.
As Megasteel did not file an appeal against the High Court’s decision within the time frame prescribed by law, matters in this case have come to a close. Just as Star Wars aficionados may wonder whether they will witness another resurrection of the Death Star in future episodes of this series, stakeholders in the Malaysian steel industry may well be wondering whether Megasteel will open another battlefront in this long-running trade war.