Ifci Limited v Archipelago Insurance Limited (W-02(IM)(NCC)-1854-12/2020)

Bishopgate Capital Limited ... Defendants (No. Syarikat: LL14187)

Archipelago Insurance Limited (No. Syarikat: LL09355) CORAM: NOR BEE BINTI ARIFFIN, JCA NORDIN BIN HASSAN, JCA SEE MEE CHUN, JCA 2 JUDGMENT [1] This is the appellant’s appeal against the decision of the High Court in allowing the respondent’s application for a stay of proceedings pursuant to section 10(1) of the Arbitration Act 2005 (‘the Act’). In the Court below, the appellant was the plaintiff, Bishopgate Capital Limited the 1st defendant and the respondent was the 2nd defendant. Parties will be referred to as they were at the High Court. [2] The main issue in the present appeal is fairly straight forward which pertains to the interpretation of the words ‘any other steps in the proceedings’ in the Act and whether the 2nd defendant had taken any other steps in the proceedings filed by the plaintiff against it. Consequentially, whether the Judicial Commissioner was right in her finding that the 2nd defendant has not taken any steps in the proceedings which entitled it to the stay of proceedings under section 10(1) of the Act. Background Facts [3] The salient facts in the present appeal are as follows. The plaintiff, a company incorporated in India, granted a short-term loan in the sum of INR 552,400,000 to Gouttephone Technology Private Limited (‘GPTL’). GPTL in turn, assigned all its rights and benefit under a Promissory Note in the value of USD 10,000,000 to the plaintiff as security for the loan. 3 [4] As provided under the Promissory Note, the 1st defendant inter alia promised to pay the holder of the Promissory Note the sum of USD10,000,000 on its maturity date which was on 19.11.2018. [5] The Promissory Note was insured by the 2nd defendant, a company incorporated in Labuan, pursuant to a Credit Default Risk Insurance Policy dated 20.11.2017 issued by the 2nd defendant (‘the AIL Policy’). The policy, among others, provides that the 2nd defendant agreed to indemnify the plaintiff against losses arising from any default of the Promissory Note. [6] Thereafter, GTPL was in default of the loan resulting in the plaintiff issuing a Notice for Event of Default to GTPL on 18.10.2018. Having failed to remedy the default, GTPL requested the plaintiff to redeem the Promissory Note. The redemption process was carried out by the plaintiff on 10.11.2018 but the 1st defendant failed to make any payment to the plaintiff in accordance with the terms of the Promissory Note. [7] The plaintiff then lodged its claim with the 2nd defendant on 22.11.2018 in the sum of INR 572,457,085 under the AIL Policy to recover losses it incurred arising from the 1st defendant’s default. However, the payment sought has not been paid by the 2nd defendant. [8] On 22.3.2019, the plaintiff and the 2nd defendant executed an amicable Settlement Agreement. The 2nd defendant entered this Settlement Agreement as representative of the 1st defendant. The terms of the Settlement Agreement provides inter alia that the 1st defendant was 4 to pay the plaintiff INR 6,250,000 on or before 31.3.2019 and INR 618,750,000 on or before 31.5.2019. [9]

(i) as against the 1stdefendant, the balance settlement sum of INR 618,750,000;

(a) the entry of appearance is the mandatory procedural step to be taken by an applicant in proceedings in the High Court. It is a step in the proceedings as required by the RHC. However, it is a permitted, excluded or an exempted step in the proceedings that does not amount to a step in the proceedings within the meaning of the s 6 of the Act which would prejudice the applicant’s right to apply for a stay of the proceedings;

(b) if the applicant has served any pleadings, then he has clearly taken a step in the proceedings within the meaning of s 6 of the Act. He has thereby elected to proceed with the proceedings in the High Court and would be barred from applying for a stay of proceedings to refer the dispute to arbitration;

(c) if he has taken any other action in the proceedings (other than steps (a) or (b) abovementioned), the court will then have to consider whether such action amounts to a step in the proceedings by determining the nature of the action and whether or not it indicates an unequivocal intention to proceed with the suit and to abandon the right to have the dispute disposed of by arbitration’ (emphasis added) [22] Further, the Federal Court in the same case, in discussing the High Court case of Usahabina v Annuar bin Yahya [1987] 7 MLJ 691 opined that the act of requesting for an extension of time to file the statement of defence is a step taken in the proceedings. At page 631 of the case, this is what Mohtar Abdullah FCJ has to say: ‘.. At this juncture, we note the existence of one salient fact in Usahabina which was mentioned in passing by the learned JC, but unfortunately not properly appreciated 9 by him. It is this fact. In that case, the defendant who had entered an unconditional appearance failed to file his defence within the time limited for doing so. He had requested for, and the plaintiff had agreed to, an extension of one week to file the defence. Pausing here for a moment, what the defendant did was clearly a step in the proceedings within the meaning of s 6 of the Act by requesting an extension of time to file the defence, clearly indicating an intention to deliver a statement of defence, thus abandoning the right to arbitration (see Ford’s Hotel Co v Bartlett [1896] AC 1)’ (emphasis added) [23] The decision in Sanwell Corp (supra) on this issue was followed by the High Court inter alia in Winsin Enterprise Sdn. Bhd. v Oxford Talent

(M) Sdn. Bhd. [2010] 3 CLJ 634, CLSS Power System Sdn. Bhd. v Sara Timur Sdn. Bhd. [2015] 11 MLJ 485, and Mun Seng Fook v AIG Malaysia Insurance Bhd. [2019] 7 MLJ 59. [24] In Winsin Enterprise (supra), Mary Lim J (as Her Ladyship was, now FCJ) said this: ‘[17] From the evidence it is clear that the defendant sought and was granted by the plaintiff an extension of time to 21 July 2008 to serve and file the defence. Having evinced such an intention to the plaintiff s. 10(1) is no longer available to the defendant. This would be the position whether under the new or old law. In fact, I am inclined to go further to say that because of the language deployed in s. 10(1) where stay is now mandatory, subject to the reservations as earlier discussed, applicants who seek to rely on an arbitration agreement must make the application for stay promptly, even before the filing of an appearance.’ (emphasis added) 10 [25] Reverting to the present case, the 2nd defendant had requested twice for an extension of time to file its statement of defence. This request for an extension of time to file the defence, as was held by the Federal Court in Sanwell Corp (supra), is a step in the proceedings indicating an intention to deliver a statement of defence, thus abandoning the right to arbitration. [26] Further, the 2nd defendant has filed its statement of defence in court and served it on the plaintiff to which the plaintiff had also served its reply. This service of pleading by the 2nd defendant is clearly a step taken in the proceedings of the plaintiff’s suit and an indication that the 2nd defendant elected to proceed with the proceedings in High Court and submit to the jurisdiction of the High Court. Therefore, the 2nd defendant has waived its right to refer the dispute to arbitration and its application for stay of proceedings pursuant to section 10(1) of the Act is bereft of any basis. [27] This Court in Linde Gas Malaysia Sdn. Bhd. v Pasifik Utama Sdn. Bhd. & Anor [2011] 5 CLJ 40 reiterated the principle enunciated in Sanwell Corp (supra) and held as follows: ‘[37] On learned counsel’s submission that the defendants had to file their statement of defence because of the claim in respect of the supply agreement which contained no arbitration clause, it is trite law that if a defendant has served any pleadings, then he has clearly taken a step in the proceedings and has thereby elected to proceed with the proceedings in court and would be barred from applying 11 for a stay of proceedings to refer the dispute to arbitration. (See Sanwell Corporation v. Trans Resources Corporation Sdn. Bhd. & Anor [2002] 3 CLJ 213 FC)’ (emphasis added) [28] On the same issue, the 2nd defendant submitted that there was an express reservation of its rights to arbitration in its statement of defence and its filing of the same was merely to avoid judgment in default being entered against it. [29] With regards to the 2nd defendant’s contention on the reservation of rights to refer the dispute to arbitration, the facts show that when the 2nd defendant sought the extension of time to file the statement of defence, the 2nd defendant did not mention its intention to refer the dispute to arbitration pursuant to the arbitration clause in the AIL Policy. The application for stay of proceedings was only made 6 days after the plaintiff has served its reply to the 2nd defendant’s statement of defence. This cannot be said a prompt action by the 2nd defendant or a clear indication to refer the matter to arbitration. Furthermore, the express reservation in the statement of defence does not discard or dilute the requirement under section 10(1) of the Act that the application for stay of proceedings must be made before taking any other steps in the proceedings. [30] In Yeo Eng Lam v Infinity Vantage Sdn. Bhd. [2020], 4 MLJ 835, this Court had decided that the defendant had taken steps in the proceedings when filing an application to disqualify the plaintiff’s solicitor 12 and filing the statement of defence and its counterclaim, although the defendant has made an express reservation to refer the matter to arbitration in its statement of defence. [31] In this regard, we agree with counsel for the plaintiff that the Judicial Commissioner fell into error in distinguishing Yeo Eng Lam case (supra) merely because 2 steps had been taken in the proceedings by the defendant in that case. Perusing the authorities alluded to earlier, the number of steps taken is immaterial as the pertinent consideration is whether there is any other steps taken in the proceedings as envisaged under section 10(1) of the Act. In any event, in the present case, we find the first step in the proceedings taken by the 2nd defendant was the request for an extension of time to file the statement of defence and secondly, the filing and the serving of the same on the plaintiff. [32] The wordings of section 10(1) is plain and unambiguous inter alia that the application for stay of proceedings must be made before taking any other steps in the proceedings. As such, it must be given their natural and ordinary meanings. (see: Dr Koay Cheng Boon v Majlis Perubatan Malaysia [2012] 4 CLJ 445 (FC) and PP v Sihabduin Haji Salleh & Anor [1981] CLJ 39 (FC)) It is also trite law that a Court should not read words into an act of Parliament unless there is clear reason for it found within the Act itself. (see: Gan Boon Aun v PP [2016] 6 CLJ 647 (FC), Vengadasalam v Khor Soon Weng & Ors [1985] 2 MLJ 449 (SC)) [33] The other important issue in this appeal is that the 1st defendant in the plaintiff’s suit is not a party to the arbitration clause under the AIL 13 Policy. Thus, as the dispute involves a party and a non-party to the arbitration agreement, we agree with the plaintiff’s contention that in the circumstances, it is best the dispute be dealt with by the Court to avoid split litigation as explained by the Federal Court in Jaya Sudhir Jayaram v Nautical Supreme Sdn Berhad & Ors [2019] 7 CLJ 395 in the following words: ‘[59] We shall next focus on the argument with respect to multiplicity of proceedings and risk of inconsistent findings. The Court of Appeal held that the issue of multiplicity of proceedings and possibility of inconsistent findings as expounded in Bina Jati, supra, are no longer material factors to oust the jurisdiction of an arbitrator under Act 646 in view of the decision in J. Jarvis. The High Court in J. Jarvis, we apprehend, said that all of those observations relating to concurrent proceedings and the risk of inconsistent findings were true but it was an inevitable consequence of the mandatory language of s. 9 of the UK Arbitration Act 1996 that from time to time there would be concurrent proceedings in court and before an arbitrator. The decision of the Court of Appeal in the instant action, in our view, effectively sets to naught the principles laid down by the same court in the case of Bina Jati, supra and as affirmed by the Federal Court in the case of Chase Perdana Bhd. v Pekeliling Triangle Sdn. Bhd. & Anor [2008] CLJ 313; [2007] 7 MLJ 677 that where some are parties and others are not parties to the arbitration it is best that their disputes be dealt with by the court and that disputes between parties cannot be divided so that part is dealt with by arbitration and another part in court. In short, what the Court of Appeal and the Federal Court in both cases are trying to emphasise is that the risks inherent in split litigation ought to be avoided.’ (emphasis added) [34] In Bina Jati Sdn Bhd v Sum-Projects (Bros) Sdn Bhd [2002] 2 MLJ 71, this Court, on the same issue said this: 14 ‘Where some are parties and others are not parties to the arbitration it is best that their disputes be dealt with by the court. In The 'Eastern Saga'; Oxford Shipping Co Ltd v Nippon Yusen Kaisha [1984] 3 All ER 835, the court held: Since arbitration is a private procedure it is an implied term of an arbitration agreement that strangers to the agreement are excluded from the hearing and conduct of an arbitration under the agreement. In the absence of the consent of all parties an arbitrator has no power to order that a dispute referred to arbitration under the agreement be heard or determined with another dispute involving a stranger which has been referred to arbitration under a different agreement, even though the two disputes are closely related and a consolidated hearing would be convenient' (see also Bauer (M) Sdn. Bhd. v Daewoo Corporation [1999] 4 MLJ 545 at p 561 (CA); The 'Vimeira'; Interbulk Ltd v Aiden Shipping Co Ltd [1984] 2 Lloyd's Rep 66 at p 75). Moreover, disputes between parties cannot be divided so that part is dealt with by arbitration and another part in court’ (emphasis added) [35] Apart from this, there is also an alternative claim by the plaintiff against the 2nd defendant which arose from the Settlement Agreement. This Settlement Agreement does not contain an arbitration clause for the application of section 10(1) of the Act. As such, stay of proceedings for the alternative claim does not arise. Again, there should not be split litigation in the plaintiff’s suit. 15 [36] For completeness, the plaintiff has made reference to Order 12 rule 10(7) of the Rules of Courts 2012 and submitted that under this provision the 14 days period under Order 18 rule 2(1) to file the statement of defence becomes suspended and is reinstated only if the application for stay of proceedings is dismissed. Thus, the 14 days period to file the statement of defence only commences form the date of such dismissal. As such the issue of judgment in default for not filing the statement of defence prior to the application for stay of proceedings does not arise. Order 12 rule 10 (7) states: Order 18, rule 2(1) does not apply to any defendant making an application under paragraph (1) or (2), unless the application is dismissed and in which case, the defendant shall serve his defence within fourteen days after the dismissal of the application or within such other period as the court may order. [37] In this regard, we are of the view that Order 12 rule 10(7) has no application in the present case as the 2nd defendant’s application for stay of proceedings was not made under Order 12, rule 10 paragraph (1) or (2) but instead under section 10 (1) of the Act and Order 69(10) Rules of Court 2012. [38] Be that as it may, as discussed earlier, we are of the view that the 2nd defendant had taken steps in the proceedings of the plaintiff’s suit which disentitled it for the stay of proceedings. 16 Conclusion [39] In conclusion, based on the abovementioned reasons, we were of the view that the Judicial Commissioner had erred in allowing the stay of proceedings pursuant to section 10(1) of the Act which warrant appellate intervention. In the circumstances, we unanimously allowed the appeal and set aside the decision of the High Court. We also ordered costs of RM15,000.00 to be paid by 2nd defendant to the plaintiff subject to payment of the allocator fee. Dated this day, 22 December 2021 - sgd - (DATO’ NORDIN BIN HASSAN) Judge Court of Appeal Malaysia Putrajaya. For the Appellant : Vijay Raj & Ng Kar Man with him [Messrs. Skrine] For the Respondent: Trevor George De Silva & Wong Leong Hong with him [Messrs. The Law Officer of LH Wang] 17