Apex Marble Sdn Bhd v Leong Tat Yan (W-02(NCvC)(W)-202-01/2018)

APEX MARBLE SDN BHD (Company Registration No. 669745-X)

MCORE SDN BHD (Company Registration No. 599497-H) … APPELLANTS AND LEONG TAT YAN (NRIC No. 670730-04-5087) … RESPONDENT [In The Matter of The High Court of Malaya at Kuala Lumpur Civil Division Suit No. WA-22NCVC-668-10/2018 Between

Apex Marble Sdn Bhd. (Company Registration No. 669745-X)

Mcore Sdn Bhd (Company Registration No. 599497-H) … Plaintiffs And Leong Tat Yan (NRIC No. 670730-04-5087) … Defendant] 2 CORAM: ABANG ISKANDAR BIN ABANG HASHIM, JCA DR BADARIAH BINTI SAMAHID, JCA YAACOB BIN HAJI MD SAM, JCA GROUNDS OF JUDGMENT [1] This is an appeal by the Appellants against the decision of the High Court, Kuala Lumpur given on 5.2.2018, allowing the Respondent’s application in Enclosure 22 for a stay of proceedings pending arbitration. [2] In this judgment, for convenience, the Appellants will be referred to as “Plaintiffs” whereas the Respondent will be referred to as “Defendant” as they were referred to in the High Court. [3] Having heard the oral and written submissions of the respective counsel and the Records of Appeal, we had unanimously allowed the Plaintiffs’ appeal. These are the reasons for our decision. SALIENT BACKGROUND FACTS [4] The Plaintiffs are companies incorporated in Malaysia, and are part of the Bonia Group of Company (Bonia Group). [5] The Defendant –

(i) own 40% of the shares of the 1st Plaintiff; 3

(a) The sum of RM946,496.39 being the proceeds of sale from the business owed by the Defendant to the 1st Plaintiff;

(b) An inquiry as to damages and an order for payment by the Defendant to the 1st Plaintiff of all sum found due upon the making of such inquiry; 4

(c) An account of profits and an order for payment by the Defendant to the 1st Plaintiff of all sum found due upon the taking of such account.

(d) General damages.

(e) Exemplary damages.

(f) Interest on the damages referred to in prayers (a) to (e) above at the rate of 5% per annum from such date as the court deems fit to the date of full payment.

(g) Costs.

(h) Such further or other relief as the court may deem fit. [10] As for the 2nd Plaintiff, the reliefs sought are:

(a) The sum of RM2,249,751.08 being the proceeds of sale from the business owed by the Defendant to the 2nd Plaintiff;

(b) An inquiry as to damages and an order for payment by the Defendant to the 2nd Plaintiff of all sum found due upon the making of such inquiry;

(c) An account of profits and an order for payment by the Defendant to the 2nd Plaintiff of all sum found due upon the taking of such account.

(d) General damages. 5

(e) Exemplary damages.

(f) Interest on the damages referred to in prayers (a) to (e) above at the rate of 5% per annum from such date as the court deems fit to the date of full payment.

(g) Costs.

(h) Such further or other relief as the court may deem fit. Chronology of Events [11] For ease reference, the chronology of events leading to the filing of the Defendant’s application for stay of proceedings pending arbitration (Enclosure 22) is as follows:

31.1.2016 : The Plaintiffs filed their Writ of Summons and Statement of Claim.

21.11.2016 : The Defendant filed two interlocutory applications:

(i) Enclosure (10) – Application under O.12 r 10(1) of the Rules of Court 2012 (ROC) to set aside the writ on the ground that the High Court has no jurisdiction to try the action; and

16.12.2016 : The Defendant filed two applications:

(i) Enclosure (20) – Application to strike on the ground that the Plaintiffs’ solicitors had no authority to act;

25.01.2017 : Enclosure (20) was withdrawn by the Defendant and struck off with no order as to cost.

25.04.2017 : Enclosure (10) and (11) were dismissed by the High Court.

04.05.2017 : The Defendant filed notice of appeal against the dismissal of both Enclosure Nos.(10) and (11).

11.05.2017 : The Defendant filed Enclosure (50) – Application to strike out action on ground of abuse of process.

23.05.2017 : Enclosure (50) was withdrawn by the Defendant and struck off with no order as to cost. 7

05.07.2017 : Defendant filed Statement of Defence and Counterclaim and served on the Plaintiffs.

17.10.2017 : Appeals by the Defendant in respect of both Enclosure Nos. (10) and (11) were dismissed by the Court of Appeal.

15.10.2018 : Enclosure (22) – Application for stay of proceedings pending reference to arbitration was allowed by the High Court. Proceedings and Findings of the High Court [12] Before the High Court, the allegation of breaches of dealership agreement was denied and disputed by the Defendant. The Plaintiffs maintained that Phuong is the Defendant’s nominee and that the Defendant is the real party behind the Dealership Agreement. The Plaintiffs take a position that the Defendant can apply for stay of proceedings under section 10(1) of the Arbitration Act 2005 only if the Defendant accepted that he is a contracting party under the Dealership Agreement. [13] In this regard, the learned High Court Judge (learned Judge) at paras 51 and 53 of his Lordship grounds of judgment (GOJ) held that: “51. I find no juridical basis for the plaintiffs’ position that the defendant can invoke section 10(1) of the Arbitration Act 2005 only if he accepts that he is a party to a dealership agreement. The question here is whether a party who is alleged to be in contracting party and who denies 8 that he is a party to the relevant agreement, is entitled to apply for a stay of proceedings under section 10(1) of the Arbitration Act 2005 in order for the issue of whether that party is in fact a contracting party, to be ventilated before the arbitrator. ….

In my view, despite the fact that the defendant has maintained that Phuong is the real contracting party and that she is not his nominee, the defendant is in law entitled to move the Court for a stay of proceedings under section 10(1) of the Arbitration Act 2005. There is no legal pre-requisite that the defendant must concede to being a party to the dealership agreements before he can invoke section 10(1) of the Arbitration Act 2005….”. [14] On the Plaintiffs allegation that the Defendant had taken steps in this action by filing multiple applications, namely Enclosure 10, 11 and 20, the learned Judge at paras 58, 59 and 60 of GOJ held as follows: “58. I move now to consider the plaintiffs’ allegation that the defendant had taken “multiple steps”. In this regard, I find that the filing of Enclosure 10 and 11 was not a submission to the jurisdiction of this Court. In fact, it is quite the opposite as the defendant’s position as per those application is that this Court had no jurisdiction and alternatively that this Court is not the proper forum.

Next, the defendant’s application (Enclosure 20) to challenge the authority of the solicitors to act for the plaintiffs (filed on 16 December 2016) was withdrawn on 25 January 2017. Similarly, the defendant’s application to strike out the suit (filed on 11 May 2017) (Enclosure 50) was also withdrawn on 23 May 2017. It is worth noting that Enclosure 22 was filed on 16 December 2016, which is the same day when Enclosure 20 was filed (and later withdrawn). 9

In my view, for purposes of determining whether the defendant had taken steps in the proceedings before applying for a stay, the critical conduct of the defendant is the conduct prior to the filing of the stay of proceedings. In this regard, it is clear that the defendant was at all times prior to the filing of Enclosure 22 challenging the jurisdiction of the Court and/or was contending that this Court was not the proper forum.” [15] On the Plaintiffs’ contention that the Defendant had taken steps in the proceedings by filing of the Statement of Defence and Counterclaim, the learned Judge at para 62 of GOJ held as follows: “62. … The filing of a defence and counterclaim was necessary as the Court had, during case management, directed the defendant to file the cause papers as the case was moving towards trial. In conclusion on this point, based on the case law authorities and the suggestion that the defendant had taken multiple or any steps which precluded him from applying for a stay of proceedings under section 10(1) of the Arbitration Act, 2005, is untenable.” [16] Consequent of the above decision, the learned Judge allowed Enclosure 22 and made the following orders:

(i) whether the Defendant not being a party to the arbitration agreement precluded from making an application for a stay pending arbitration under section 10(1) of the Arbitration Act 2005;

(a) there must be an arbitration agreement of clause exists between the parties to a proceedings; 12

(b) the application to stay the proceedings and to refer the matter to arbitration, must be made by both or either one of the parties;

(c) the application is made before the application takes any other steps in the proceedings;

(d) that the agreement is not null and void, inoperative or incapable of being performed; and

(e) that there is in fact dispute exists between the parties with regard to the matters to referred.” [20] Section 9(3) of the Arbitration Act 2005 requires that an arbitration agreement shall be in writing, where it is contained in – (a) a document signed by parties; (b) an exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement; or (c) an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by other [see section 9(4)]. [21] In Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 9 CLJ 1, the Federal Court held that the effect of section 10(1) of the Arbitration Act 2005 is to render a stay mandatory if the court finds that all relevant requirements have been fulfilled. The purpose is to give effect to the arbitration agreement. [22] In summary for the Plaintiffs the contention is that:

(a) a stay of proceedings in relation to non-parties to an arbitration agreement pending the outcome of arbitration 13 proceedings should only be granted in rare and compelling circumstances;

(b) the Defendant not being parties to the arbitration agreement is not bound by any findings made in such arbitration proceedings. [23] Learned counsel for the Defendant on the hand submitted that the Defendant situation herein was premised on the following reasons:

(a) the court’s jurisdiction in the action is founded on the basis of cause of action as alleged by the Plaintiffs in their Statement of Claim. It is not dependent on the nature of defence or what stance the Defendant is taking vis-à-vis the complaints; and

(b) the subject-matters of the Plaintiffs’ action fall within the “subject of an arbitration agreement”. Hence, they are bound to proceed with arbitration. [24] Learned counsel cited the decision in ZAQ Construction Sdn Bhd v. Putrajaya Holdings Sdn Bhd [2014] 10 MLJ 633 wherein Mary Lim J. (as her Ladyship then was) held as follows: “[38] As to whether the proceedings in court are in respect of a matter which is the subject of an arbitration agreement; that depends on what is the ambit of the arbitration agreement. But, even before that, it must first be recognized that it is the plaintiff’s claim before the court and not what the defendant’s response or defence is to that claim which bears the brunt of scrutiny.” 14 [25] He further contended that all the requirements under section 10(1) of the Act have been fulfilled by the Defendant and the High Court was correct in the exercise of its judicial discretion in allowing the Defendant’s application for stay pending reference to arbitration. He relied on the High Court case of Hamidah Fazillah Sdn Bhd v Universiti Tun Hussein Onn Malaysia (UTHM) [2016] 1 LNS 1170 to support his argument. [26] We have considered the authorities submitted by both parties. [27] Section 10(1) of the Arbitration Act 2005 states as follows: A court before which proceedings are brought in respect of a matter which is the subject of an arbitration agreement shall, where a party makes an application before taking any other steps in the proceedings, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed. [28] The threshold that has to be reached to warrant of a stay of proceedings against non-parties pending arbitration, was considered and rightly applied in the case of Jacob and Toralf Consulting Sdn Bhd v Siemens Industry Sofatware GMbH & Co & Ors [2013] 1 LNS 914 where it was held that the test to be utilized was not that of “special circumstances” but rather the “rare and compelling circumstances” test as enaunciated in Reichhold Norway ASA and another v Golman Sachs International [2000] 2 All ER 679. [29] In Reichhold (supra), the standard was stated to be: 15

(a) invoked in “rare and compelling circumstances”;

(b) there ought to be very strong reasons for granting such a stay;

(c) the benefits likely to result from granting such a stay of proceedings must be clearly outweigh and disadvantage to the non-party. [30] Coming back to this instant appeal. In arriving at his decision the learned Judge had stated at para 55 of the GOJ that “The threshold issue here is whether Phuong is the Defendant’s nominee and whether the Defendant is accordingly bound by the Agreement. It is an issue which affects the arbitrator’s threshold jurisdiction. Yet it is the arbitrators who has to decide on this issue. It is important to note that that pursuant to the separability doctrine, even an allegation of illegality of contract or that procured by coercion or duress, will not denude the arbitration agreement of its effect and validity.” We observed that these factors seemed to weigh heavily in the outcome and was a great influence upon the learned Judge in accepted the Defendant’s case. But in so far as the Defendant’s stance against the Plaintiffs’ claims, he firmly maintained that he is not a party to the Dealership Agreement that contained clause on arbitration. Neither had he agreed to be bound by any findings of the arbitrator. The Defendant has now adopted a contradictory stand by applying for a stay of proceedings pending a reference to arbitration. By doing so, the Defendant seeks to reap the benefit of arbitration agreement contained in the Dealership Agreement to which he is not a party and has staunchly denied. The learned Judge opined that “…such 16 as the identity of the real contracting party is a matter which to be forensically and determined by arbitrator” (para 55 GOJ). His Lordship was of the viewed that “…despite the fact that the defendant has maintained that Phuong is the real contracting party and that she is not his nominee, the defendant in law entitled to move the Court for a stay of proceedings under section 10(1) of the Arbitration Act 2005.” (para 53 GOJ). We are constrained to agree with the learned Judge. We are of considered view that such findings would not bind the parties to the court proceedings. There is no arbitration agreement within the meaning of sections 9 and 10 of the Act. Since the Defendant is not a party to the arbitration agreement, section 10 of the Act does not come into play. Any award issued by the arbitrator will not be enforceable against the Defendant. As such there is simply no point in awaiting the outcome of the arbitral proceedings. We are unable to consider precisely what issue fall for consideration in the arbitration, because arbitration has not been commenced and risks that might exist since the parties were not caught by the arbitration clause. [31] The question before us is whether the learned Judge exercised his discretion correctly in determining that a stay pending arbitration should be granted to the Defendant. Having said that section 10 of the Act does not apply, the court’s power to grant a stay is derived from its inherent power to stay court proceedings pending arbitration in the interest of the justice of the case. [32] In the Singapore Court of Appeal case of Tomolugen Holdings Ltd and another v Silica Investors Ltd and other appeals [2015] SGCA 57, in allowing the appeals and granting a stay of the court proceedings against inter alia non-parties, the Singapore Court of 17 Appeal, which reasoning we respectfully adopt, the court is bound to strike a balance between the following:

(a) the plaintiff’s right to choose whom it wants to sue and where;

(b) the court’s desire to prevent a plaintiff from circumventing the operation of an arbitration clause; and

(c) the court’s inherent power to manage its processes to prevent an abuse of process and ensure the efficient and fair resolution of dispute. [33] The balance that is achieved should be just in all the circumstances of the case. [34] As alluded earlier, and taking all these factors into consideration, and the fact that there is no indication whatsoever that Defendant is agreeable to be bound by any findings that may be made by the arbitral tribunal, we are therefore constrained to reverse the finding of the learned Judge of the High Court. His Lordship erred in failing to apply the correct test and the relevant principles governing the grant of a stay of proceedings pending arbitration against non-parties. Appellate intervention is justified. Whether the Defendant is precluded from making an application for a stay of proceedings after having taken multiple steps in the proceedings. 18 [35] The Plaintiffs alleged in paragraph 7 of the Plaintiffs’ Affidavit in Reply that the Defendant had taken multiple steps in this action by filing various applications, namely Enclosures 10, 11, 20 and 50. [36] It was contended by the Plaintiffs that these applications and the Counterclaim were filed by the Defendant either to invoke jurisdiction of the Court or to invoke jurisdiction of the Vietnamese Court, and not to refer the dispute to arbitration. It was further submitted that none of the 8 affidavits filed by the Defendant in respect of Enclosures 10,11, 22 and 50 or in his Counterclaim, did the Defendant reserve his right to refer the dispute to arbitration. [37] The Defendant on the other hand submitted that the Plaintiffs’ contention was misconceived, because;

(i) Enclosure 10 is an application to set aside the writ of summons and its service on the ground that the Court has no jurisdiction to try the action;

Next, the defendant’s application (Enclosure 20) to challenge the authority of the solicitors to act for the plaintiffs (filed on 16 December 2016) was withdrawn on 25 January 2017. Similarly, the defendant’s application to strike out the suit (filed on 11 May 2017) (Enclosure 50) was also withdrawn on 23 May 2017. It is worth nothing that Enclosure 22 was filed on 16 December 2016, which is the same day when Enclosure 20 was filed (and later withdrawn).

In my view, for purposes of determining whether the defendant had taken steps in the proceedings before applying for a stay, the crucial 20 conduct of the defendant is the conduct prior to the filing of the stay of proceedings. In this regard, it is clear that the defendant was at all times prior to the filing of Enclosure 22 challenging the jurisdiction of this Court and/or was contending that this Court was not the proper forum.” [41] In Sanwell Corp v Trans Resources Corp Sdn Bhd & Anor [2002] 2 MLJ 625, the question posed to the Federal Court was whether the function to be served by an entry of appearance in one statute, i.e. the Rules of the High Court 1980 was the same as the functions to be served by the words “steps in the proceedings” in s. 6 of the Arbitration Act 1952. The Federal Court at pp 634-635 had stated as follows: “…If the applicant has taken his first step in the proceedings by entering an appearance, that step is a permissible step that is not considered to be a step in the proceedings that would bar an application for stay. However, if the applicant has subsequently delivered any pleadings, or taken any other step in the proceedings which indicates his election to allow the action to proceed in the court, the applicant will be considered to have abandoned his right to seek recourse to arbitration and would be barred from applying for a stay of the proceedings. Halsbury’s Laws of England (4th Ed, Reissue) para 627, at pp 347-348, explains the situation: “The application must have taken no step in the proceedings after acknowledgment of service. A step in the proceedings is an act which both invokes the jurisdiction of the court and which demonstrates the applicant’s election to allow the action to proceed. An applicant may take what would otherwise be a step if he makes it clear that the act is done without prejudice to his right to apply for a stay. Steps in the proceedings have been held to include: the filing of an affidavit in opposition to a summons for summary judgment, service of defence, and an application to the courts for leave to 21 serve interrogatories, or for a stay pending the giving of security for costs or for an extension of time for serving a defence, or for an order for discovery, or for an order for further and better particulars.” (emphasized by us) [42] In Comos Industry Solution GMBH v Jacob and Toralf Consulting Letrikon Sd Bhd & Ors [2012] 4 MLJ 573, the appellant in the affidavit filed in support of the application to set aside the writ on the ground that Germany and not local courts had jurisdiction (Enclosure 41) clearly stated that they deserved the right to refer the dispute to an arbitration and the appellant not prepared to proceed with the suit. The High Court held that the application to set aside the writ and the grant of leave to file a statement of defence were two steps taken in the proceedings that took away the right of the appellant to refer the dispute to arbitration. There was a valid and binding arbitration agreement between the appellant and the respondent. The Federal Court in allowing the appellant’s appeal at p. 581 held as follows: “ …Whether an action amounts to a step in the proceedings is determined by the nature of the action and whether it indicates an unequivocal intention to proceed with suit and to abandon the right to refer the dispute to arbitration. An application is not a step in the proceedings, if it does not express the willingness of the defendant to go along with the determination of the courts instead of arbitration. A defendant who has specifically stated in the application or supporting affidavit that he intends to seek a stay is not estopped from asserting his right to invoke arbitration. An application, which is made in the event that the specific application for a stay unsuccessful, is not a step in the proceedings.” 22 [43] We observed that that none of the eight (8) affidavits filed by the Defendant in respect of Enclosures 10, 11, 22 and 50 or in his Defence and Counterclaim, did the Defendant reserve his right to refer the dispute to arbitration or evinced that the Defendant was not prepared to proceed with the suit. In other words, all the applications filed by the Defendant and the Defence and Counterclaim, was without qualification whatsoever. [44] The Defendant’s conduct in filing various applications and affidavits without express qualification and the filing of the Statement of Defence and Counterclaim have encouraged the Plaintiffs to believe that the action will be contested in the High Court. The Defendant’s conduct, when objectively viewed, does not meet the requirements stated in Sanwell Corp v Trans Resources Corp Sdn Bhd & Anor (supra) and Comos Industry Solution GMBH v Jacob and Toralf Consulting Letrikon Sd Bhd & Ors (supra). We are of the considered view that the learned Judge failed to consider the relevant case laws on the subject prior to arriving at his conclusion that a stay of proceedings as sought by the Defendant was justified. [45] With due respect to the learned counsel for the Defendant, the case of Hamidah Fazilah Sdn Bhd (supra) cited before us in support of his argument, was actually in favour of the Plaintiffs and is distinguishable. The plaintiff in this case complained that the defendant had through their solicitors on 7 June 2016 written to the plaintiff’s solicitors requesting for further and better particular of paragraphs 70-74 of the plaintiff’s statement of claim. The plaintiff contended that the defendant “is taking any other steps in the proceedings” disentitling them under section 10 of the Arbitration Act 2005 for an order for stay. 23 Paragraph of the said letter started off by the solicitors for the defendant categorically stating that the action filed by the plaintiff in the High Court is inconsistent with the intention of the parties under Clause 67 of the Contract to proceed with arbitration to resolve all matters, disputes and differences arising out of or in connection with the Contract. The whole of Clause 67 was then set out. The last paragraph in paragraph 6 ended with the note that their client, the defendant, shall apply for a stay of the proceedings pending reference to arbitration pursuant to Clause 67 of the Contract and that the defence be filed after the disposal of the application for stay. The High Court in rejecting the plaintiff’s submission stated that “it can hardly be said that the request for further and better particulars of certain paragraphs of the statement of claim that the Contract had been signed under coercion and duress, is a further step in the proceedings when all that the defendant wanted is to understand the claim better.” Clearly, the case involved parties to the arbitration agreement, unlike the instant appeal before us. Further, as alluded above, none of the applications filed by the Defendant and in his counterclaim, did the Defendant reserve his right to refer the dispute to arbitration. [46] In CLS Power System Sdn Bhd v. Sara Timur Sdn Bhd [2015] MLJU 0298, Justice Mary Lim J (now FCJ) held that the defendant’s Notice to Produce Documents referred to in the pleadings issued pursuant to O. 24 r. 10 ROC 2012 without any qualification or reservation is further step in the proceedings that would disqualify them from getting a stay of the proceedings. [47] In the light of what we have addressed above, we find that the Defendant is not entitled to invoke section 10(1) of the Arbitration Act 24 2005 as he has taken further step in the proceedings by filing various applications and the Statement of Defence and Counterclaim in the action filed by the Plaintiffs. The learned Judge misdirected himself and that his exercise of discretion was not justified and was plainly wrong. Conclusion [48] For all the reasons aforesaid, it is our unanimous decision that there are appealable reasons to warrant our appellate intervention. The decision of the High Court is therefore set aside and the appeal is allowed with cost of RM15,000.00 here and below, subject to payment of allocator fee. The proceedings are therefore remitted back to the High Court for the plaintiffs claim to be determined. t.t. (YAACOB BIN HAJI MD SAM) Judge Court of Appeal Malaysia Dated 22 January 2021 25 Solicitors for the Appellants/Plaintiffs: Dhinesh Bhaskaran Christal Wong Messrs Shearn Delamore & Co Peguambela dan Peguamcara 7th Floor, Wisma Hamzah-Kwong Hing No. 1, Leboh Ampang 50100 Kuala Lumpur Solicitors for the Respondent/Defendant: Chong Joo Tian JT Chong Associates N-4-10, Gamuda Biz Suites No. 12, Jalan Anggerik Vanilla 31/99 Kota Kemuning, Seksyen 31 40460 Shah Alam Selangor