DENG CHENGLIANG v Levin Tan Eu Sheng [Nod At Encl. 19] (WA-22NCC-216-04/2024)

There are two agreements between the plaintiffs and the defendants. The first is a Share Sale Agreement whereby the plaintiffs agreed to purchase a portion of the defendants’ shares in a Malaysian company for USD 1.6 million. If certain conditions are not met, the defendants promise to refund the USD 1.6 million to the plaintiffs. This agreement has an arbitration clause for arbitration in the Singapore International Arbitration Centre. [See Clause 10.3 of Share Sale Agreement in Enclosure 7 supporting affidavit of defendants at page 42].

The second agreement is a Letter of Guarantee whereby the defendants agreed to refund the USD 1.6 million to the plaintiffs on demand if certain conditions are not met. In this agreement the parties agree “that the Courts of Malaysia shall have jurisdiction over all disputes arising under this Guarantee”. [See Clause 8 of Letter of Guarantee in Enclosure 7 supporting affidavit of defendants at page 58].

The defendants failed to meet the conditions agreed by parties. The plaintiffs demanded for the refund of the USD 1.6 million but the defendants failed to refund. Thus, the plaintiffs commenced this suit for the defendants’ breach of their obligations to refund under both the Share Sale Agreement and the Letter of Guarantee.

On 06-06-2024, the defendants filed an application for a stay of all proceedings before me pending reference to arbitration on the basis that Clause 10.3 of the Share Sale Agreement has an arbitration clause.

The plaintiffs contend the stay application should be dismissed as the parties had agreed in the Letter of Guarantee “that the Courts of Malaysia shall have jurisdiction over all disputes arising under this Guarantee”.

On 22-01-2025 I had allowed the stay application only for the claim based on the Share Sale Agreement which has an arbitration clause, but not for the claim based on the Letter of Guarantee which does not have an arbitration clause. The order I made for Enclosure 6 were - i. Proceedings in respect of the claim based on the Share Sale Agreement be stayed and referred to arbitration pursuant to Section 10(1) of the Arbitration Act 2005. ii. Proceedings in respect of the claim based on the Letter of Guarantee to proceed before this Court. iii. Defendants to file defence and counter claim [if any] by 12-02-

Plaintiffs to file reply and defence to counter claim, if any, by 26-02-2025. iv. Costs in the cause. [7] The plaintiffs did not lodge any appeal to the Court of Appeal against my order. However, defendants have appealed to the Court of Appeal on 10-02-2025. [8] The Notice of Appeal [Enclosure 29] filed is incoherent and shows, with respect to learned counsel, a lack of understanding of the order I had made as the appeal is against my entire order. The Notice of Appeal reads as follows-Sila ambil perhatian bahawa Perayu-Perayu/Defendan-Defendan yang dinamakan di atas, … merayu kepada Mahkamah Rayuan terhadap keseluruhan keputusan interlokutori tersebut yang memutuskan bahawa permohonan Perayu-Perayu/Defendan-Defendan di bawah Notis Permohonan bertarikh 6 Jun 2024 (Kandungan 6) untuk satu Penggantung Prosiding sementara menunggu rujukan kepada Timbang Tara di bawah Seksyen 10 Akta Timbangtara 2005 dibaca bersama Aturan 69 Kaedah 10 Kaedah-Kaedah Mahkamah 2012 dan Aturan 12 Kaedah 10 Kaedah-Kaedah Mahkamah 2012 dibenarkan dengan kos dalam kausa. [Emphasis added] [9] In my respectful opinion, the notice of appeal that was filed is not competent. This issue is, however, for the Court of Appeal to decide during arguments on appeal. My role is simply to provide the Grounds of Judgment for the order I had made. Material facts The Parties [10] The plaintiffs Deng Chengliang and Xie Yong are citizens of the People’s Republic of China. At all material times, the 1st plaintiff acts for or on behalf of the 2nd plaintiff when dealing with the defendants. [11] The defendants Levin Tan Eu Sheng and Tan Tiong Kiat are Malaysian citizens. At all material times, the 1st defendant acts for or on behalf of the 2nd defendant when dealing with the plaintiffs. Share Sale Agreement dated 03-01-2019 [12] By a Share Sale Agreement dated 03-01-2019, the plaintiffs and the defendants entered into an agreement whereby the plaintiffs agreed to purchase a portion of the defendants’ shares in a Malaysian company for a consideration of USD 1.6 million. [See Enclosure 7- Defendants’ Affidavit in Support, Exhibit “LTES-2”] [13] However, the shares were never transferred to the plaintiffs because the parties had a consensus that the USD 1.6 million was for an equivalent stake of 16% in an Indonesian company known as PT Eco Power Engineering (Indonesia) [“PT Eco”], which would undertake certain hydro projects in Indonesia. This consensus can be seen in Clause 5.1 of the Share Sale Agreement. [14] The parties expressly set a target date of 30-09-2019 for PT Eco to execute a power purchase agreement with the relevant government authorities in Indonesia and secure a bank loan for the hydro projects. If there was no achievement by 30-09-2019, the defendants promised to refund the USD 1.6 million to the plaintiffs. This can be seen in Clauses 5.2 and 5.5 of the Share Sale Agreement. Letter of Guarantee dated 03-01-2019 [15] In addition to the Share Sale Agreement, the defendants executed a Letter of Guarantee dated 03-01-2019 in favour of the plaintiffs. This Letter of Guarantee created a separate and independent liability and obligations on the part of the defendants to, among others, refund the USD 1.6 million to the plaintiffs on demand and to indemnify all costs and expenses that the plaintiffs may incur arising out of the Letter of Guarantee. [See Enclosure 9- Plaintiffs’ AIR, Exhibit “DCL-2”, PDF pages 56 - 60] Failure by PT Eco [16] PT Eco failed to execute the power purchase agreement and also failed to secure a bank loan by 30-09-2019. This led to the plaintiffs requesting a refund of the USD 1.6 million from the defendants. [See Enclosure 9 -Plaintiffs’ AIR, Exhibit “DCL-3”, PDF pages 62 - 64] Defendants requested for extensions of time to conclude the deal [17] The defendants never disputed that PT Eco had failed to execute the power purchase agreement or secure a bank loan by 30-09-2019. Instead, they requested the plaintiffs to grant them extension of time to conclude the deal. [18] Overall, the plaintiffs granted two extensions of time from 30-12-2019 until 31-07-2020 to the defendants. The defendants even promised to refund the USD 1.6 million if the deal could not be concluded by 31-07-

[See Enclosure 9 - Plaintiffs’ AIR, Exhibit “DCL-4”, PDF pages 66 - 74, Exhibit “DCL-5”, PDF page 77 and Exhibit “DCL-5”, PDF pages 76 - 77] [19] In July 2020, the defendants requested for a third extension of time to conclude the deal which the plaintiffs did not agree to. The plaintiffs requested the defendants to refund the USD 1.6 million. [See Enclosure 9 - Plaintiffs’ AIR, Exhibit “DCL-7”, PDF pages 88 - 89] Defendants promised to repay [20] At all material times, the defendants never denied or disputed their obligation to refund the USD 1.6 million to the plaintiffs. Emails from the defendants show that they repeatedly promised the plaintiffs that they would refund the money to the plaintiffs and even proposed a repayment instalment plan. [See 1 Enclosure 9 - Plaintiff’s Affidavit in Reply, Exhibit “DCL-8”, PDF pages 91 - 92] Commencement of This Suit [21] However, none of these promises was honoured by the defendants. Hence, the plaintiffs commenced this suit for the defendants’ breach of their obligation under the Share Sale Agreement and the Letter of Guarantee. Defendants’ Stay Application [22] On 06-06-2024, the defendants filed an application for a stay of proceedings pending reference to arbitration (Enclosure 6) on the basis that Clause 10.3 of the Share Sale Agreement is an arbitration clause for arbitration in the Singapore International Arbitration Centre and its arbitral rules shall be applicable. The defendants’ contentions [Enclosure 14 written submissions at paragraphs 11 and 12] [23] The defendants contend that a stay of both causes of actions should be granted in view of the arbitration clause in the Share Sale Agreement. The plaintiffs’ contentions [Enclosure 12 written submissions at paragraph 47] [24] The plaintiffs contend that a stay should not be granted as Clause 8 of the Letter of Guarantee states that parties agree “that the Courts of Malaysia shall have jurisdiction over all disputes arising under this Guarantee”. Court’s analysis The law on court’s power to stay court proceedings and refer the parties to arbitration [25] The court’s power to stay court proceedings and refer the parties to arbitration is governed by section 10 of the Arbitration Act 2005 (“AA 2005”). [26] Section 10 of the AA 2005 reads: Section 10. Arbitration agreement and substantive claim before court

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;

The court, in granting a stay of proceedings pursuant to subsection

(1), may impose any conditions as it deems fit. [27] The defendants in order to get a stay have to prove-

there is an arbitration agreement between the parties;

the proceedings are in respect of a matter that is subject to the arbitration agreement;

the defendants have not taken any other steps in the proceedings; and

the arbitration agreement is not null and void, inoperative or incapable of being performed. [See-i. Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417 (FC) ii. E & D Asset Sdn Bhd v Tai Weng Construction & Engineering Sdn Bhd [2023] 1 LNS 2355 (HC) iii. ZAQ Construction Sdn Bhd & Anor v Putrajaya Holdings Sdn Bhd [2014] 10 MLJ 633 (HC)] Application to facts [28] The plaintiffs have filed a suit based on the defendants’ alleged breaches of two agreements. The two agreements are the Share Sale Agreement and the Letter of Guarantee. [29] The Share Sale Agreement has an arbitration clause in Clause 10.3 which states: “… All disputes arising from or in connection with this Agreement shall if possible be settled amicably by negotiation. In case no settlement can be reached thereby the dispute shall, if either Party so requires, be resolved by arbitration. The arbitration shall take place in the Singapore International Arbitration Centre ... [30] The Letter of Guarantee does not have an arbitration clause. Instead, parties agree “that the Courts of Malaysia shall have jurisdiction over all disputes arising under this Guarantee”. [31] In my view, parties were represented by solicitors in the transaction in question. The amount in issue is not a small sum. If parties chose to agree to different forums to resolve any dispute in the manner as described, the court will enforce compliance with their choices. [32] It is trite law that a dispute in relation to a contract which has no arbitration clause cannot be referred to arbitration even if this contract is related to a contract with an arbitration clause. A party asserting that an arbitration clause in an agreement applies to another but related agreement which has no arbitration clause must show that there is such incorporation on the plain wording of the said arbitration clause. [See Daewoo Corp v Bauer (M) Sdn Bhd [1998] 7 MLJ 25 (HC) per Nik Hashim J at p 31 G to I [“Daewoo Corp”] and affirmed in Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 MLJ 545 (CA) per Gopal Sri Ram JCA at page 555 H] [“Bauer (M) Sdn Bhd”] [33] In Daewoo Corp, Nik Hashim J held at page 31 G to I- “It is trite law that a dispute in relation to contracts without an arbitration clause cannot be referred to arbitration even if those contracts are related to a contract with an arbitration clause… … As adverted to earlier, the eight other work orders do not contain arbitration clauses. Even if they are related to work order PRP-A-008 which contains such a clause, it is clear that the arbitrator is not competent to deal with the Questions Arising Out Of The Other Work Orders As The Scope Of The arbitration clause under cl 34 extends only to the works under work order PRP-A-008.” [Emphasis added] [34] The actual decision in Daewoo Corp was overturned on appeal by the Court of Appeal but the legal proposition by Nik Hashim J, as set out above, was affirmed by the Court of Appeal. See Bauer (M) Sdn Bhd at page 555 H, where Gopal Sri Ram JCA said-The construction point The rival submissions advanced in this appeal reveal the point upon which the controversy turns. And in this context, some recall of the facts relevant to the issue is unavoidable. The appellant's argument is that although the eight work orders stand apart from the first work order (in which is to be found the arbitration clause), they are directly referable to the first work order. Accordingly, the arbitration clause is to be regarded as having been incorporated in all latter eight work orders. As against this, the respondent argues that the arbitration clause does not extend beyond the scope of the works in the first work order. The issue, therefore, as correctly identified by the learned judge, is whether the arbitration clause is confined to disputes arising under the first work order or whether it extends to the eight work orders. That, as I have already said, is a question of pure construction. The approach to be and the principles by which the issue falls to be resolved are well settled and beyond argument. The starting point must be the arbitration clause itself. Counsel on both sides of the Bar have referred us to several cases on the question of interpretation. While I have found the authorities interesting, I must confess that I have derived little assistance from them. In my judgment, the true ambit of the arbitration clause in the present instance falls to be determined by reference to its own language. Although decided cases do assist in providing general guidelines, they are, save in very exceptional cases, merely decisions upon their own facts and are not to be taken as establishing the meaning that is to be assigned to the words used by parties to express themselves in a given case. As Sir Thomas Bingham MR (now Lord Bingham LCJ) said in Giffen (Electrical Contractors) Ltd v Drake & Scull Engineering Ltd (1993) 37 Con LR 84 at p 90: … it follows that we have to look very closely at the particular language of the provisions that we have to construe and the particular circumstances of the contract in question. Unless clear rules have been laid down-and they sometimes have been–for example, as to the meaning to be given to the expression ‘condition’ in the context of charterparty and a bill of lading, one has, I think to be cautious in reasoning from one case to another since cases appear to turn very much on their own particular terms and their own particular facts. In the present case, the relevant portion of the arbitration clause reads: In the event that any disputes or differences should arise … either during the progress or after the completion or abandonment of the works, as to any matter or thing of whatsoever nature arising thereunder or in connection therewith then such disputes or differences shall be referred to arbitration. (Emphasis added.) The first work order expressly describes ‘the works’ that fall within it. It is only differences or disputes that arise in connection with the works that must be held to fall within the scope of the clause. In the absence of other facts, it would be a strain upon the language of the clause to suggest that it extends to cover matters not within the scope of the first work order. I therefore find myself in agreement with the learned judge that the arbitration clause, upon its proper construction, does not extend to the eight work orders. [Emphasis added] [35] I should mention that in Daewoo Corp, the High Court cited with approval Alagappa Chettiar v Palanivelpillai & Ors [1967] 1 MLJ 208 HC [“Alagappa Chettiar”]. [36] I should add that the proposition in Alagappa Chettiar that the Court has a discretion under the Arbitration Ordinance 1950 not to grant a stay has been taken away by the new AA 2005 in the form of s 10. On the mandatory effect of granting a stay once s 10 of the AA 2005 is satisfied by the defendant, I need only refer to the Federal Court judgment in Tindak Murni Sdn Bhd v. Juang Setia Sdn Bhd & Another Appeal [2020] 4 CLJ 301 FC, where Nallini Pathmanathan FCJ delivering the judgment of the court said: “The Contractor’s Submission That There Was No Dispute That Warranted Referral To Arbitration [52] It was also emphasised by counsel for the contractor in the course of the oral hearing before us that the relevant clauses of the governing contract and case-law relating to interim certification was such that its claim was beyond dispute. In other words, the existence of a debt due and owing to the contractor was undisputed. As such, the contention was that there was simply no dispute that warranted referral to arbitration. [53] With respect, this contention is flawed and affords no answer to the employer’s application to have the dispute referred to arbitration for the following reasons:

Under s.10 of the Arbitration Act 2005 as it presently stands, there is no question of the court entering into the arena of whether or not a “dispute” subsists between the parties. The role of the court is simply as set out in s. 10, which we have explained in extenso above. This is borne out, inter alia, by the decision of the Court of Appeal, as comprehensively explained by Anantham Kasinather JCA in TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857; [2013] 1 LNS 288. His Lordship compared the present version of s 10(1) of the Arbitration Act 2005 with the earlier version of the section and stated:

The present form of s. 10 of the Arbitration Act 2005 is the result of the amendment to that section which came into force on 1st July 2011 (Act A1395). It is generally accepted that the effect of the amendment is to render a stay mandatory unless the agreement is null and void or impossible of performance. The Court is no longer required to delve into the facts of the dispute when considering an application for stay … (Emphasis added.) The position stated above is therefore trite, namely that the court is not to enquire or investigate whether there subsists a dispute warranting referral to arbitration. That is a matter for the consideration and determination of the arbitral tribunal. Prior to the amendment to s 10 the courts expended considerable time and effort in determining whether a ‘dispute’ subsisted by virtue of the earlier wording of s 10:

The court before which proceedings brought in respect of a matter which is the subject matter of an Arbitration Agreement shall, where party makes an application before taking any other step 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; or

that there is in fact no dispute between the parties with regard to the matters to be referred. (Emphasis added.) (See for example Tjong Very Sumito and others v Antig Investments Ptd Ltd [2009] 4 SLR 732; [2009] SGCA 41 which stated that ‘if it was at least arguable that the matter is the subject of the arbitration agreement, then a stay of proceedings should be ordered … it is only in the clearest of cases that the Court ought to make a ruling on the inapplicability of an arbitration agreement’. This resulted in the courts undertaking an exercise of determining whether a dispute existed between the contracting parties). With the removal of limb (b) however, the issue of the subsistence or otherwise of a dispute between the parties is rendered obsolete and irrelevant In the textbook entitled UNCITRAL Model Law & Arbitration Rules — The Arbitration Act 2005 (Amended 2011 & 2018) and the AIAC Arbitration Rules 2018 by Datuk Professor Sundra Rajoo (special contributor Dr Thomas R Klotzel) (published by Sweet & Maxwell in 2019), the author discussed the effect of amending s 10 of the Arbitration Act 2005 (at pp 30– 31):

1.161 The amendment to section 10 removes the courts’ power to stay arbitration proceedings where the court is satisfied that there is no dispute between the parties with regard to the matters to be referred to arbitration. The old provision placed an undue restriction on the arbitration process which was not contained in the UNCITRAL Model Law or the New York Convention.

1.162 In line with Article 8A of the UNCITRAL Model Law, under the current section 10 of the AA 2005 the High Court is under the obligation to refer the parties to arbitration unless the High Court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed …” [37] By executing the Letter of Guarantee in addition to the Share Sale Agreement, the defendants created a separate and independent liability and obligation on their part towards the plaintiffs. [38] When the defendants failed to refund the USD 1.6 million to the plaintiffs, they committed, among others, a breach of the Letter of Guarantee. This breach is actionable by the plaintiffs as a distinct and standalone cause of action which is independent of the Share Sale Agreement. [39] In the Letter of Guarantee, the defendants agreed that the Courts of Malaysia shall have jurisdiction over all disputes arising under the Letter of Guarantee. Therefore, the question of whether the defendants have breached the Letter of Guarantee is a matter that this Honourable Court has jurisdiction over. [40] In the premises, the Court will stay the claim based on the Share Sale Agreement and refer parties to arbitration pursuant to Section 10(1) of the AA 2005. Proceedings in respect of the claim based on the Letter of Guarantee is to proceed before this Court.

[41] For the reasons above, I make the following order-i. Proceedings in respect of the claim based on the Share Sale Agreement be stayed and referred to arbitration pursuant to Section 10(1) of the Arbitration Act 2005. ii. Proceedings in respect of the claim based on the Letter of Guarantee to proceed before this Court. iii. Defendant to file defence and counter claim [if any] by 12-02-

Plaintiff to file reply and defence to counter claim, if any, by 26-02-2025. iv. Costs in the cause. ………(signed)………… Leong Wai Hong Judge High Court of Malaya Kuala Lumpur (NCC 6) Dated: 07th March 2025. COUNSEL: 1) Chuar Kia Lin, Kelvin Seah and Valerie Seaw for plaintiffs. (Pierre Chuah & Associates (Kuala Lumpur)) 2) Daphne Jun Yan and Lee Jing Jin for defendants. (Josephine, L K Chow & Co. (Kuala Lumpur)) CASES REFERRED TO: 1) Alagappa Chettiar v Palanivelpillai & Ors [1967] 1 MLJ 208 (HC). 2) Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 MLJ 545 (CA). 3) Daewoo Corp v Bauer (M) Sdn Bhd [1998] 7 MLJ 25 (HC). 4) E & D Asset Sdn Bhd v Tai Weng Construction & Engineering Sdn Bhd [2023] 1 LNS 2355 (HC). 5) Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417 (FC). 6) Tindak Murni Sdn Bhd v. Juang Setia Sdn Bhd & Another Appeal [2020] 4 CLJ 301 (FC). 7) ZAQ Construction Sdn Bhd & Anor v Putrajaya Holdings Sdn Bhd [2014] 10 MLJ 633 (HC). LEGISLATION REFERRED TO: 1) The Arbitration Act 2005, Sections 10 and 10(1). BOOK REFERRED TO: 1) UNCITRAL Model Law & Arbitration Rules — The Arbitration Act 2005 (Amended 2011 & 2018) and the AIAC Arbitration Rules 2018 by Datuk Professor Sundra Rajoo (special contributor Dr Thomas R Klotzel) (published by Sweet & Maxwell in 2019).