Export-Import Bank of Malaysia Berhad v Lim Yaw Boon (WA-22NCC-190-04/2023)

The Defendant, by way of a Notice of Application, moves this Court pursuant to Section 10 of the Arbitration Act 2005 (“the Act”) for a stay of the present proceedings pending reference of the dispute to arbitration. The Plaintiff resists the application.

The Plaintiff’s claim against the Defendant is founded on a Personal Guarantee Agreement dated 3 August 2016 (“the Guarantee Agreement”). The Plaintiff seeks to enforce the Defendant’s S/N AaEHfuhrgUKmhp3aBVhXg obligations thereunder following an alleged default by the borrower under a Facility Agreement of even date.

A judgment in default of appearance was initially entered against the Defendant. That judgment was subsequently set aside by this Court on 6 December 2023. The Defendant was granted leave to enter appearance. The present stay application was filed thereafter on 3 January 2024.

The Defendant relies on clause 9.14 of the Guarantee Agreement as constituting a binding arbitration agreement and contends that this Court is obliged to stay the proceedings and refer the dispute to arbitration.

In dealing with an application such as the one before me, one first starts by looking at Section 10 of the Act. This is how it reads:

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 principles pertaining to the granting of a stay in cases such as the present on have been set out in the landmark decision of Press S/N AaEHfuhrgUKmhp3aBVhXg Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417. The Federal Court held as follows: “An arbitration agreement or clause is a written submission, agreed to by the parties, and like other written submissions, must be construed according to its language and in the light of the circumstances in which it is made (see Heyman & Anor v Darwins Ltd [1942] AC 356, per Viscount Simon LC at p 366). The question whether a given dispute comes within the provisions of an arbitration clause or not, primarily depends on the wording of the clause itself (see Heyman & Anor v Darwins Ltd per Lord Porter at p 392). The parties must be held to what they have agreed to in an agreement. Therefore, it is essential to consider the wordings of the clause specifically and determine what they have agreed to. Whether a dispute falls within an arbitration clause must depend on (a) what is the dispute or difference between the parties and (b) what disputes the arbitration clause covers (see Heyman & Anor v Darwins Ltd per Viscount Simon LC at p 360). The court must see what the matters as found in the proceedings before the court are, and then consider whether they are within the scope of the submissions in the arbitration clause (see Monro v Bognor Urban District Council [1915] 3 KB 167 per Bankes LJ at p 172). An applicant for a stay under s 10(1) of the 2005 Act must therefore establish that the matters in question are within the scope of the arbitration submission.”

In Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd & Another Appeal [2020] MLJU 232; [2020] 3 MLJ 545, a judgment in default was S/N AaEHfuhrgUKmhp3aBVhXg entered against the appellant. The appellant applied to set aside the judgment in default. The court found there was a defence on the merits. The default judgment was set aside. The appellant then applied to stay the proceedings pending reference to arbitration. The Respondent resisted the application, contending that the appellant had taken steps in the proceedings by applying to set aside the default judgment. Alternatively, the Respondent also took the position that there was in effect no dispute between the parties, as the claim was based on interim certificates that were conclusive and indisputable. The Court disagreed. Nallini Pathmanathan, FCJ, speaking for the Federal Court, held: “In the instant appeals the more pressing question might well be whether the position is any different where one of the contracting parties, the contractor here, had obtained judgment in default in court proceedings, notwithstanding the arbitration clause. The plain answer can only be that it makes no difference whatsoever. There are several reasons for this.

firstly, Section 10 stipulates that the court can act only as stipulated under the section. When analysed s 10 only allows consideration of the following matters: i. that there subsists an agreement to arbitrate; ii. that no step has been taken in court proceedings (which is not in issue here); iii. that the arbitration agreement is not null, void, inoperative or incapable of being performed. S/N AaEHfuhrgUKmhp3aBVhXg Therefore from the statutory perspective, even when a judgment in default has been procured, s 10 remains applicable. This in turn means that the court is bound to consider the matters set out in (a), (b) and (c) notwithstanding the judgment in default. This is particularly so when there are active efforts being made to set aside the judgment in default of appearance such that the matters in dispute can be ventilated fully by way of arbitration; …the employer’s application to stay the court proceedings pending arbitration raised a jurisdictional point which the court was bound to consider. This could only have been done if the Court of Appeal had considered the form and substance of the appeals in totality and appreciated the significance of both applications. While both applications were indeed separate, ie the setting aside of the judgment in default and the stay pending arbitration, it is crystal clear that the two applications (and thus appeals) were inextricably intertwined. It was incumbent upon the Court of Appeal to consider the effect of hearing the first appeal relating to the setting aside in vacuo, as it were, without even mentioning or addressing the stay pending proceedings. That effect was to ignore the existence of an arbitration agreement and to exclude the application s 10 of the Arbitration Act 2005. The Court of Appeal missed an essential jurisdictional issue, namely whether the dispute ought to be dealt with by way of litigation or arbitration. This was a relevant consideration even when determining the appeal relating to the setting aside of the judgment in default because the fact of the subsistence of the arbitration agreement, a jurisdictional issue, amounted to a matter warranting further investigation. In other words it afforded a defence on the merits (see Evans v Bartlam [1937] AC 473; S/N AaEHfuhrgUKmhp3aBVhXg [1937] 2 All ER 646; (1937) 53 TLR 689 and Hasil Bumi Perumahan Sdn Bhd & Ors v United Malayan Banking Corp

It is also trite that the Court is no longer required to delve into the facts of the dispute when considering an application for a stay even if the Court is in some doubt about the validity of the ‘arbitration agreement’ (see: TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857).

Thus, it is well-settled that in an application under Section 10 of the Act, the Court does not adjudicate upon the merits of the substantive dispute. The Court’s inquiry is confined to two principal questions:

whether there exists a valid and operative arbitration agreement which covers the dispute before the Court; and

whether the party seeking the stay has satisfied the statutory pre-conditions, including that the application was made before taking any other steps in the proceedings.

I must add that even where an arbitration agreement exists, it is axiomatic that a stay is not automatic. The Court must be satisfied that the agreement is not null and void, inoperative, or incapable of being performed, and that the dispute before the Court falls within its scope.

Having had those trite principles in mind, I will address two main points raised by the parties that are crucial for determination: S/N AaEHfuhrgUKmhp3aBVhXg i. whether the filing of the application to set aside the judgment in default and for a stay of execution of the default judgment constitute by the Defendant amounted to taking a step in the proceedings; and ii. whether the dispute resolution clause in the agreement governing the contractual relationship between the parties mandates a reference to arbitration.

The Defendant in the case before me filed an application to set aside the judgment in default. Pending the hearing of the setting aside, the Defendant also applied to stay the execution of the default judgment. The Plaintiff contends that these amount to taking a step in the proceedings. As such, the Plaintiff submits that the Defendant is no longer entitled to apply to stay the dispute between the parties pending reference to arbitration.

I rejected the Plaintiff’s submission as being untenable.

I have already set out the two authorities that are plainly binding upon me where this issue is concerned. I am unable to accept that the filing of the application to set aside the judgment in default and for a stay of execution of the default judgment constitutes a step in the proceedings such that it disentitles the Defendant from seeking a stay pending reference to arbitration. The reason for this is commonsensical. When a default judgment is entered, the party against whom it is entered has no alternative but to deal with the S/N AaEHfuhrgUKmhp3aBVhXg default judgment first. The said party must take this defensive action before proceeding to make any other application. An application for a stay of execution is but an attendant application to preserve the rights of the party concerned while the setting aside application is being dealt with. Both applications are inextricably intertwined, and both constitute defensive action. Such defensive action preserves the rights of the parties pending the making of a substantive application, which will deal with the merits of the matter. That in itself cannot be said to amount to taking a step in the proceedings.

The Defendant’s prior applications to set aside the judgment in default and to stay its execution were, in substance, defensive in nature. Standing alone, such steps would not necessarily amount to a clear and unequivocal election to abandon arbitration. THE DISPUTE RESOLUTION CLAUSE OF THE GUARANTEE

The Plaintiff submitted that the stay application by the Defendant ought to be dismissed because the dispute resolution clause did not mandate a reference to arbitration. To my mind, the Plaintiff was on firmer footing in relation to this submission.

The central issue in this application turns on the proper construction of clause 9.14 of the Guarantee Agreement. I will set it out in detail: Governing laws and Dispute Resolution

Governing Laws S/N AaEHfuhrgUKmhp3aBVhXg This Agreement shall be governed by and construed in accordance with the laws of Malaysia and/or any other applicable law acceptable by EXIM Bank.

Dispute Resolution Any dispute arising out of or in connection with this Agreement or any part thereof shall be settled in the first instance through amicable consultation and negotiations in good faith between the parties. In the event that such dispute cannot be settled by the parties amicably within thirty (30) calendar days, any party may at any time refer the same for settlement by arbitration in Kuala Lumpur in accordance with the arbitration rules of the Kuala Lumpur Regional Centre for Arbitration as in force on the date of execution of this Agreement. The arbitration shall be administered by the Kuala Lumpur Regional Centre for Arbitration (“KILRCA”) in accordance with its practice rules and regulations. The appointing authority shall be the Chairman of KLRCA. There shall be a single arbitrator appointed by the Director of the Regional Centre for Arbitration, who shall be neutral and impartial. The language to be used in the arbitral proceedings shall be English. The award of the arbitrator shall be final and binding upon the parties to the arbitration, and each party thereof agrees that such award may be enforced by appropriate action in any court having jurisdiction over it or its assets. Notwithstanding, EXIM Bank shall not be prevented from taking proceedings relating to the dispute in any courts with jurisdiction. To the extent allowed by laws, EXIM Bank may take concurrent proceedings in any number of jurisdictions. Pending resolution of the dispute, other parts of this Agreement which are not S/N AaEHfuhrgUKmhp3aBVhXg subject to the dispute shall continue to be enforceable.

The clause, as one can see, provides, in substance, that disputes are to be resolved by arbitration after unsuccessful amicable negotiations. However, it goes on to expressly state: “Notwithstanding, EXIM Bank shall not be prevented from taking proceedings relating to the dispute in any courts with jurisdiction. To the extent allowed by law, EXIM Bank may take concurrent proceedings in any number of jurisdictions.”

The Defendant submits that this provision must be read narrowly and that the reference to “taking proceedings” in court is confined to ancillary or interim relief in aid of arbitration.

I am unable to agree with that construction.

First, the language employed is clear and unqualified. The phrase “shall not be prevented” is emphatic. It is introduced by the word “Notwithstanding”, which signals an intention that what follows is to operate despite the existence of an arbitration clause.

Secondly, there is no textual basis to confine the word “proceedings” to interim or ancillary relief. If the parties had intended such a limitation, it could have been easily and expressly stated.

Thirdly, the Defendant’s construction renders the clause largely redundant. The right to seek interim measures from the court is already preserved by statute under the Act. To read clause 9.14 as S/N AaEHfuhrgUKmhp3aBVhXg merely restating that statutory position would deprive the clause of independent contractual meaning.

Construed objectively and as a whole, clause 9.14 confers on the Plaintiff a contractual election. While arbitration remains available, the Plaintiff is expressly entitled to commence court proceedings relating to the dispute. That entitlement is neither illusory nor conditional.

In these circumstances, the arbitration clause cannot be said to operate as a mandatory and exclusive dispute resolution mechanism binding the Plaintiff to arbitration, to the exclusion of litigation. WHETHER THE ARBITRATION AGREEMENT IS OPERATIVE IN THE

Section 10 of the Act requires the Court to consider whether the arbitration agreement is operative and capable of being performed in relation to the dispute before it.

Here, the Plaintiff has elected to commence proceedings in court pursuant to an express contractual right reserved to it under clause 9.14. Once that election is made, the arbitration mechanism, insofar as it is relied upon to compel a stay of court proceedings commenced by the Plaintiff, is rendered inoperative. To hold otherwise would be to rewrite the parties’ bargain by depriving the Plaintiff of a right it expressly negotiated and retained.

The Court’s task is to give effect to the contract as written and not to impose a different dispute resolution regime under the guise of promoting arbitration.

The Court is satisfied that:

clause 9.14 of the Guarantee Agreement does not impose a mandatory obligation on the Plaintiff to resolve disputes exclusively by arbitration;

the clause expressly preserves the Plaintiff’s right to commence proceedings in court; and

once that right is exercised, the Defendant cannot invoke section 10 of the Arbitration Act 2005 to compel a stay.

The Defendant’s application for a stay of proceedings pending reference to arbitration is therefore misconceived. I dismissed the stay application with costs. Dated the 22nd day of December 2025 -sgd- ……………………………………………………………………… MUHAMMAD ADAM @ EDWARD BIN ABDULLAH Judicial Commissioner High Court (Commercial Division NCC 4) High Court of Kuala Lumpur In the Federal Territory, Malaysia Counsel for the Plaintiff : Cliff Siow Juan Wen, Messrs. The Chambers of Kamarul Hisham & Hasnal Rezua Counsel for the Defendants : Esther Lee Zhi Qian Messrs. Halim Hong & Quek S/N AaEHfuhrgUKmhp3aBVhXg

Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417

Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd & Another Appeal [2020] MLJU 232; [2020] 3 MLJ 545

TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857

Section 10 of the Arbitration Act 2005