Extra Excel (M) Sdn Bhd v Quek Peck Keow (JA-12A-10-03/2021)

This is an appeal (“this Appeal”) against the decision of the learned Sessions Court Judge (“SCJ”) on 24 March 2021, dismissing the Appellant’s application for stay of proceedings pending arbitration pursuant to section 10 of the Arbitration Act 2005 (“Arbitration Act”). For ease of reference, the Appellant and Respondent will be referred to respectively as the Defendant and Plaintiff.

The Plaintiff, an individual, had entered into a distributorship agreement (“Distributorship Agreement”) with the Defendant, a multi-level marketing company, which provided the Plaintiff with the right to participate in the direct sales of the Defendant’s products to consumers.

The specific terms and conditions of the Distributorship Agreement were also contained in a document referred to as the E Excel Policies and Procedures (“EEPP”).

Disputes arose between the parties and the Plaintiff commenced an action in the Sessions Court. The Defendant applied for a stay of proceedings pending arbitration pursuant to an arbitration agreement in Clause 1.3 of the EEPP. The learned SCJ dismissed the application 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 3 and as a result thereof, the Defendant appealed to this Court. This Appeal was allowed for the following reasons.

With regard to an application for stay of proceedings, reference was made to section 10 of the Arbitration Act, which 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. [Emphasis added.] [6] What needs to be established are that, there is in existence an arbitration agreement/ clause, that the party making the application had not taken any step in the proceedings. It must also be established that the agreement in question is not null or void, or incapable of being performed. Contentions, evaluation, and findings [7] The Defendant’s contention in this Appeal was premised on Clause 1.3 of the EEPP which reads: Any and all disputes, claims and causes of action arising our of or in connection with the Agreement of the Malaysia Distributorship (including any questions regarding its existence, validity or termination) brought by a Distributor, or one other than E Excel Malaysia, shall be referred to and 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 4 resolved through final and binding arbitration and not by a court of jury. Such disputes, claims and causes of action shall proceed individually and shall not be combined or consolidated with any other person’s or entity’s dispute, claim, or action and, without limitation of the foregoing, shall not under any circumstances proceed as part of a class action. The arbitration shall be conducted in English and before a single arbitrator appointed by E Excel Malaysia. The arbitration shall be conducted acccording to the Arbitration Act 2005 or such statutory modification to amendment thereof for the time being in force. Subject to the final orders as to costs made by the arbitrator, the arbitrator’s fees and administration costs of the arbitration shall be borne equally by the parties. [Emphasis added.] [8] At the outset, the Plaintiff contended that the Defendant’s application for stay was premised upon an arbitration clause that was contained in the 2015 version of the EEPP that was no longer effective. However, I was of the view that the arbitration clause in question, that is, Clause 1.3 in the 2015 version was exactly the same as found in the 2019 version. In the final analysis, the issue was whether there was, regardless of its date, an arbitration agreement in the EEPP that the parties were bound by. [9] In any event, the nub of the Plaintiff’s contention pivoted on Clause 10.2 of the EEPP, which reads: Clause 10.2 Any dispute, difference or disagreement with respect to suspension of a Distributor that is not referred to arbitration within one hundred fifty (150) days of such suspension pursuant to the provisions of this Agreement shall be deemed final, conclusive, and binding on the parties and not amendable to further challenge in any way or forum whatsoever. The Proceedings shall continue even if the Distributor complained against is absent. 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 5 [10] The Plaintiff contended that Clause 10.2 had restricted a party from enforcing his rights after the 150 days, and had denied the Defendant’s right to claim damages, and as such, the Plaintiff submitted that Clause 10.2 had rendered the arbitration agreement null and void pursuant to section 29 of the Contracts Act 1950 (“Contracts Act”), which reads: Section 29 – Agreements in restraint of legal proceedings void Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Saving of contract to refer to arbitration dispute that may arise Exception 1 - This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in the arbitration shall be recoverable in respect of the dispute so referred. Saving of contract to refer questions that have already arisen Exception 2 - Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any law as to references to arbitration. … Whether the learned SCJ had considered the doctrine of separability [11] I was unable to agree with the Plaintiff’s submission with regard to Clause 10.2 for the reason that first and foremost, the gist of such clause was whether there was a right to raise the issue of the suspension after the expiry of 150 days; and had nothing to do with the 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 6 validity of the arbitration agreement which was in Clause 1.3 of the EEPP. In fact, Clause 10.2 appears under the sub-heading “Investigative Proceedings and Disciplinary Proceedings”. [12] The focus of the application for stay at the Sessions Court, therefore, should not have been on Clause 10.2, but on Clause 1.3 of the EEPP which incidentally appears under the heading “Law and Dispute Resolution”. [13] Secondly, for the purpose of determining whether there was an arbitration agreement between the parties, Clause 1.3, therefore, should not have been read with Clause 10.2 pursuant to the doctrine of separability, envisaged in section 18 of the Arbitration Act, which reads: Section 18 – Competence of arbitral tribunal to rule on its jurisdiction

The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.

For the purposes of subsection (1)-

an arbitration clause which forms part of an agreement shall be treated as an agreement independent of the other terms of the agreement; and

a decision by the arbitral tribunal that the agreement is null and void shall not ipso jure entail the invalidity of the arbitration clause.

A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence.

A party is not precluded from raising a plea under subsection (3) by reason of that party having appointed or participated in the appointment of the arbitrator. 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 7

A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

Notwithstanding subsections (3) and (5), the arbitral tribunal may admit such plea if it considers the delay justified.

The arbitral tribunal may rule on a plea referred to in subsection (3) or

(5), either as a preliminary question or in an award on the merits.

Where the arbitral tribunal rules on such a plea as a preliminary question that it has jurisdiction, any party may, within thirty days after having received notice of that ruling appeal to the High Court to decide the matter.

While an appeal is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

No appeal shall lie against the decision of the High Court under subsection (8). [Emphasis added.] [14] The doctrine of separability warrants an arbitration clause in an agreement to be read separately from the other terms in such agreement. This was explained by the Court of Appeal in Press Metal Sarawak Sdn Bhd v. Etiqa Takaful Bhd [2015] 4 CLJ 734, through Prasad Sandosham Abraham JCA in the following passages: We also refer to the same text (Malaysia Sundra Rajoo ·WSW Davidson) on the arbitration agreement at paras. 18.9, 18.10 and 18.11 and we quote:

18.9 Separability means that an arbitration clause in a contract is to be considered a separate agreement, detached from the main contract, and therefore to be treated as an agreement independent of the other terms of the contract (see Binder, p144, paragraph 4.009). In other words, the validity of the arbitration clause does not depend on the validity of the contract as a whole. The arbitration clause by surviving the demise of the main contract then constitutes the necessary agreement of the parties that any disputes between them should be referred to arbitration. The doctrine 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 8 therefore seeks to preserve the arbitral process. The concept of separability of the arbitration clause because of its obvious practical advantages is now widely accepted both by arbitration rules and in national laws.

18.10 Section 18(2) provides a legal basis for the appointment of the arbitrator. If the arbitrator is to decide on his own jurisdiction, he must first assume that jurisdiction. The doctrine of separability allows him to do Solicitor (see Redfern and Hunter, p 299).

18.11. It is now provided that an arbitration agreement, whether part of a main agreement or in a self-contained contract, is a distinct legal obligation as the principle of separability provides that the arbitration clause and the contract which incorporates it are two distinct contracts. The arbitration agreement within the contract is separate from that of the contract (see Bremer Vulkan Schiffbau und Maschinenfabrik v. South Indian Shipping Corp Ltd, The Bremer Vulkan [1981] 1 Lloyd's Rep 253; [1981] 1 All ER 289 at 297; Paal Wilson & Co A/S v. Partnenreederei Hannah Blumenthal, The Hannah Blumenthal [1983] 1 All ER 34; Harbour Assurance Co (UK) Ltd v. Kansa General International Insurance Co Ltd [1993] QB 701; Dalmia Dairy Industries v. National Bank of Pakistan [1978] 2 Lloyd's Rep 223). It is clear now that with the enactment of section 18, the doctrines of separability and Kompetenz-Kompetenz are part of Malaysian law. (emphasis added). [Emphasis added.] [15] The Federal Court in Press Metal Sarawak Sdn Bhd v. Etiqa Takaful Bhd [2016] 9 CLJ 1, further explained: [38] The court must acknowledge the competency of an arbitral tribunal to decide on its own jurisdiction without interference. The intention of Parliament is clear. Reading ss. 8,10 and18 together would indicate that Parliament has given the arbitral tribunal much wider jurisdiction and powers; and such powers extend to cases where even its own jurisdiction or competence or the scope of its authority, or the existence or validity of the arbitration agreement or clause, is challenged. To comply with the requirements of s. 10(1) the court should restrict its enquiry only to the issue of whether there is in existence a binding arbitration agreement or clause between the parties and whether the arbitration agreement or clause is null and void, inoperative or incapable of being performed. If the court is satisfied that the arbitration agreement or clause does not fall into any of 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 9 these exceptions, it must order a stay of proceedings and refer the matter to arbitration. [39] On the issue of jurisdiction of an arbitral tribunal and the provisions of s. 18 of the 2005 Act, learned authors of the book The Arbitration Act 2005, UNCITRAL Model Law as applied in Malaysia, Sundra Rajoo and WSW Davidson, commented to the following effect: Section 18 deals with the issue of who is to decide on the arbitral tribunal's jurisdiction and corresponds with article 16 of the Model Law. It is one of the key pillars of the Model Law. Like article 16, section 18 sets out two general principles, namely the doctrines of Kompetenz-Kompetenz and separability… [Emphasis added.] [16] In the present case, Clause 1.3 of the EEPP should be detached and considered separately from Clause 10.2, and has to be treated independently of the other terms of the EEPP. The Plaintiff’s submission contained issues that went to the jurisdiction of the arbitrator or the merits of the dispute, and hence, in my view, they should be raised in the arbitration to be decided by the arbitrator. [17] The doctrine of separability had not been considered by the learned SCJ, as he had focused on Clause 10.2, and concluded that the arbitration agreement was null and void. On this ground alone, this Appeal should be allowed. However, in the interest of completeness I had proceeded to consider the Plaintiff’s submission on the validity of the arbitration agreement. 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 10 Whether the arbitration agreement was null and void, inoperative or incapable of being performed. [18] The Plaintiff further argued that since Clause 10.2 restricted a party from enforcing his rights after the 150 days, it violated section 29 of the Contracts Act, and was, therefore, null and void. In support thereof, the Plaintiff relied on several cases such as New Zealand Insurance Co Ltd v. Ong Choon Lin [1992] 1 CLJ Rep 230, J & Wong Logging Contractor v. Arab Malaysian Eagle Assurance Bhd [1993] 1 LNS 2, and MBF Insurans Sdn Bhd v. Lembaga Penyatuan Dan Pemulihan Tanah Persekutuan (FELCRA) [2007] 6 CLJ 639, and section 6 of the Limitation Act 1953. [19] In my view, the relevant and applicable case was Dancom Telecommunication (M) Sdn Bhd v Uniasia General Insurance Bhd [2018] 5 CLJ 551, where the Court of Appeal had dealt with Clause 14.2, which was similar to Clause 10.2 of the EEPP. In Clause 14.2, it was stated:

Any difference ie dispute arising from the policies shall become the subject matter of reference to arbitration wherein the appointment of arbitrator(s) shall be in accordance with the specific provisions expressly contained therein; and

In the event that the insurance company (ie, the defendant herein) disclaims liability thereunder, as in the instant appeal, the insured (ie, the plaintiff herein) has the contractual obligation to refer the claim to arbitration within 12 calendar months from the date of the disclaimer; otherwise the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable under the policies. [Emphasis added.] 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 11 [20] In dealing with whether Clause 14.2 in that case, was null and void, on the premise that it violated section 29 of the Contracts Act, it was answered by Low Hop Bing JCA in the negative, in the following passages: [26] As a general rule, s. 29 strikes down as void: any "agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals"; and any agreement "which limits the time within which he may thus enforce his rights". [27] The two expressions in quotes must be construed in the context in which they appear so as to take colour and precision: noscitur a soccis. They must also be construed conjunctively with the bringing of actions, within six years, under s. 6(1)(a) as set out below: … [28] In my view, the expression "ordinary tribunals" generally in s. 29 means the ordinary courts of law, as s. 29 does not render illegal any contract by which parties have agreed to refer their dispute to arbitration under the exceptions 1 and 2. Actions to be brought under s. 6(1)(a) are actions commenced in ordinary courts of law and not by way of reference to arbitration. Section 6(1)(a) neither affects nor applies to the freedom of the parties to refer a dispute to arbitration by incorporating an arbitration clause in an agreement for the purpose of vesting jurisdiction in an arbitrator(s) to hear and determine a dispute between contracting parties, as has been done in cl. 14. Such an arbitration clause to refer a dispute to arbitration may validly specify a period which abridges or for that matter even enlarges the time bar under s. 6(1)(a). This is because s. 6(1)(a) must be read with s. 29 exception 2 which specifically states that it shall not affect "any law as to references to arbitration". The law as to references to arbitration is to be found in the Arbitration Act 1952 (now the Arbitration Act 2005) which I shall proceed to consider now. 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 12 … [34] At pp. 169 and 170, ibid, the learned author poses an almost identical question: "If a condition of a contract provides that a claim is required to be referred to arbitration within a specified time period failing which such claim will be deemed to have been abandoned and shall not thereafter be recoverable, would such a condition contravene s. 29 of the Contracts Act 1950?". He referred to s. 29 and gave the answer in the negative on the basis of exceptions 1 and 2 thereto, thereby viewing the arbitration clause such as cl. 14 containing the 12-month time frame as valid. [Emphasis added.] [21] In a similar vein, Clause 10.2 would not be rendered null and void by virtue of section 29 of the Contracts Act. [22] The Plaintiff further submitted that the arbitration agreement was also null and void as it could not be performed. This was again premised on Clause 10.2 which refers to the lapse of 150 days. [23] In my view, as alluded to above, this contention is untenable because the emphasis should be Clause 1.3 of the EEPP as that is the arbitration clause, and not Clause 10.2. In any event, all issues raised by the Plaintiff pursuant to Clause 10.2 of the EEPP should be left to the arbitrator to decide. 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 13 Conclusion [24] It is crucial to bear in mind that ‘following the decision of the Court in CMS Energy Sdn Bhd v. Poscon Corporation [2009] 1 LNS 1625, a court of law should lean towards compelling the parties to honour the arbitration agreement even if the Court is in some doubt about the validity of such agreement. This is consistent with the 'competence principle' that the arbitral tribunal is capable of determining its jurisdiction, always bearing in mind that recourse can be had to the High Court following the decision of the arbitral tribunal:’ per Anantham Kasinather JCA in TNB Fuel Services Sdn Bhd v. China National Coal Group Corp [2013] 1 LNS 288. [25] Based on the aforesaid reasons, and after careful scrutiny and judicious consideration of all the evidence before this Court, and written and oral submissions of both parties, including the grounds of judgment of the learned SCJ, this Appeal was allowed with costs. Dated: 21 November 2021 SIGNED …………………………………………. (EVROL MARIETTE PETERS) Judicial Commissioner High Court, Johor Bahru 21 November 2021 ……………………………………………………………………………………………… ________________________________________________________________________ 14 Counsel: For the Appellant/ Defendant – Thomas Shaun Mathews and Deenasini Sathasivam; Messrs Mohanadass Partnership For the Respondent/ Plaintiff – R Jayabalan; Messrs R Jayabalan Cases referred to: ➢ CMS Energy Sdn Bhd v. Poscon Corporation [2009] 1 LNS 1625 ➢ Dancom Telecommunication (M) Sdn Bhd v Uniasia General Insurance Bhd [2018] 5 CLJ 551 ➢ J & Wong Logging Contractor v. Arab Malaysian Eagle Assurance Bhd [1993] 1 LNS 2 ➢ MBF Insurans Sdn Bhd v. Lembaga Penyatuan Dan Pemulihan Tanah Persekutuan (FELCRA) [2007] 6 CLJ 639 ➢ New Zealand Insurance Co Ltd v. Ong Choon Lin [1992] 1 CLJ Rep 230 ➢ Press Metal Sarawak Sdn Bhd v. Etiqa Takaful Bhd [2015] 4 CLJ 734 ➢ Press Metal Sarawak Sdn Bhd v. Etiqa Takaful Bhd [2016] 9 CLJ 1 ➢ TNB Fuel Services Sdn Bhd v. China National Coal Group Corp [2013] 1 LNS 288 Legislation referred to: ➢ Arbitration Act 2005 – sections 10 and 18 ➢ Contracts Act 1950 – section 29 ➢ Limitation Act 1953 – section 6