Keg Sdn Bhd (dalam Likuidasi) v Ikano Johor Jaya Sdn Bhd (BA-22C-31-11/2025)

Enclosure 5 is the Defendant’s application under Section 10(1) of the Arbitration Act 2005 (“the Act”) for a stay of the proceedings in this suit pending reference to arbitration (“the Application”).

The Plaintiff, KEG Sdn Bhd (in liquidation), resists the Application on the basis that the arbitration agreement contained in Clause 20.4–20.6 of the FIDIC Conditions (as amended) is null and void, inoperative or incapable of being performed within the meaning of Section 10(1) of the Act.

The relevant cause papers that have been filed and are related to this appeal are as follows :-

the Defendant’s Notice of Application dated 12.8.2025 [Enclosure 5];

(ii) the Defendant’s Affidavit in Support affirmed by Tan Chia Wen on 12.8.2025 together with exhibits [Enclosure 6];

(iii) the Plaintiff’s Affidavit in Reply affirmed by Arthur Law Hian Tat on 2.9.2025 [Enclosure 8];

(iv) the Defendant’s Reply Affidavit affirmed by Tan Chia Wen on 22.9.2025 [Enclosure 11].

On 6.2.2026, this Court allowed the Application with costs of RM5,000.00 (subject to allocator fee). Dissatisfied with my decision in allowing Enclosure 5, the Plaintiff filed an appeal on 12.2.2026.

Hence, I provide the reasonings for my said decision.

Vide a Letter of Acceptance dated 19.4.2021 (“LOA”), the Defendant appointed the Plaintiff as the contractor for: CONSTRUCTION AND COMPLETION OF 1 BLOCK OF 10-STOREY CARPARK BUILDING COMPRISING OF: PHASE 1: 1) 9-STOREY CARPARK AND PHASE 2: I) 1 LEVEL OF COMMERCIAL AREA (RETAIL) ON PART OF LOT 102078 (HSD 453151), PHASE 2, JALAN DESA TEBRAU, TAMAN DESA TEBRAU, MUKIM TEBRAU, DISTRICT OF JOHOR BAHRU, JOHOR DARUL TAKZIM FOR MESSRS IKANO JOHOR JAYA SDN BHD (“Projects”) WORK PACKAGE –WP300: ARCHITECTUAL WORKS” (“Works”)

The parties subsequently entered into a Contract Document containing, inter alia, :-

the Contract Agreement dated 28.12.2021;

(ii) the LOA;

(iii) the FIDIC Conditions;

(iv) the Particular Conditions. [“the Contract”]

The FIDIC Conditions (as amended and expressly agreed vide the Particular Conditions) (“the FIDIC Conditions”) contains the agreed dispute resolution clause at Clause 20 which is a muti tiered and sequential dispute resolution scheme :

Disputes shall be adjudicated by an Engineer (Clause 20.4);

(ii) A dissatisfied party may issue a Notice of Dissatisfaction (Clause 20.4);

(iii) The parties shall attempt amicable settlement for 56 days (Clause 20.5);

(iv) Arbitration may be commenced only thereafter (Clause 20.6).

As these clauses are pivotal in Enclosure 5, Clauses 20.4 to 20.6 of the FIDIC Conditions (as amended) are reproduced below (in extenso):- “20.4 Obtaining Engineer’s Decision If a dispute (of any kind whatsoever) arises between the Parties in connection with, or arising out of, the Contract or the execution of the Works, including any dispute as to any certificate, determination, instruction, opinion or valuation of the Engineer, either Party may refer the dispute in writing to the Engineer for its decision, with copies to the other Party and the Engineer. Such reference shall state that it is given under this Sub-Clause. The Engineer shall decide or determine any such dispute in accordance with this Sub-Clause 20.4 [Obtaining Engineer’s Decision], acting fairly, impartially and at the cost of the Employer. In the event that the Employer replaces the Engineer, the new Engineer shall decide or determine such dispute in accordance with this Sub-Clause 20.4 [Obtaining Engineer's Decision] in place of the previous Engineer. Both Parties shall promptly make available to the Engineer all such additional information, further access to the Site, and appropriate facilities, as the Engineer may require for the purposes of making a decision on such dispute. The Engineer shall be deemed to be not acting as arbitrator(s). Within 84 days after receiving such reference, or within such other period as may be proposed by the Engineer and approved by both Parties, the Engineer shall give its decision, which shall be reasoned and shall state that it is given under this Sub-Clause. The decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below. Unless the Contract has already been abandoned, repudiated or terminated, the Contractor shall continue to proceed with the Works in accordance with the Contract. If either Party is dissatisfied with the Engineer’s decision, then either Party may, within 28 days after receiving the decision, give notice to the other Party of its dissatisfaction. If the Engineer fails to give its decision within the period of 84 days (or as otherwise approved) after receiving such reference, then either Party may, within 28 days after this period has ended, give notice to the other Party of its dissatisfaction. In either event, this notice of dissatisfaction shall state that it is given under this Sub-Clause, and shall set out the matter in dispute and the reason(s) for dissatisfaction. Except as stated in Sub-Clause 20.7 [Failure to Comply with Dispute Adjudication Board’s Decision] and Sub-Clause 20.8 [Expiry of Dispute Adjudication Board’s Appointment], nether Party shall be entitled to commence arbitration of a dispute unless a notice of dissatisfaction has been given in accordance with this Sub-Clause. If the Engineer has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been given by either Party within 28 days after it received the Engineer’s decision, then the decision shall become final and binding upon both Parties.

20.5 Amicable Settlement Where notice of dissatisfaction has been given under Sub-Clause 20.4 above, both Parties shall attempt to settle the dispute amicably before the commencement of arbitration. However, unless both Parties agree otherwise, arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made.

20.6 Arbitration Unless settled amicably, any dispute in respect of which the Engineer’s decision (if any) has not become final and binding shall be finally settled by arbitration. Unless otherwise agreed by both Parties:

the dispute shall be finally settled under the Rules of Arbitration of the Asian International Arbitration Centre,

the dispute shall be settled by one arbitrator appointed in accordance with these Rules, and

the arbitration shall be conducted in the language for communications defined in Sub-Clause 1.4 [Law and Language], The seat and venue of arbitration shall be Kuala Lumpur. The arbitrator(s) shall have full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the Engineer relevant to the dispute. Nothing shall disqualify the Engineer from being called as a witness and giving evidence before the arbitrator(s) on any matter whatsoever relevant to the dispute. Neither Party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the Engineer to obtain its decision, or to the reasons for dissatisfaction given in its notice of dissatisfaction. Any decision of the Engineer shall be admissible in evidence in the arbitration. Arbitration may be commenced prior to or after completion of the Works. The obligations of the Parties, Engineer shall not be altered by reason of any arbitration being conducted during the progress of the Works.”

A dispute arose between the parties and, notwithstanding its initial attempt to refer the matter directly to arbitration, the Plaintiff subsequently submitted the dispute to the Engineer in compliance with Clause 20.4 of the FIDIC Conditions.

The Engineer gave his decision on 8.7.2025 which prompted the Plaintiff, pursuant to Clause 20.4, to issue the Notice of Dissatisfaction on 15.7.2025.

In compliance with Clause 20.5 of the FIDIC Conditions, the Defendant, by letter dated 23.7.2025, invited the Plaintiff to attend a meeting on 8.8.2025 to explore the possibility of an amicable settlement. The meeting was subsequently postponed to 2.9.2025.

On 30.7.2025 the Plaintiff commenced the present suit against the Defendant.

Following service of the Writ and Statement of Claim, the Defendant entered appearance and immediately filed Enclosure 5 seeking a stay of proceedings pursuant to Section 10(1) of the Act.

The Defendant contends that there exists a binding arbitration agreement between the parties pursuant to Clauses 20.4 to 20.6 of the FIDIC Conditions. Notwithstanding the dispute resolution mechanism stipulated under Clause 20 of the FIDIC Conditions, the Plaintiff commenced the present proceedings against the Defendant. The Defendant therefore seeks a stay of these proceedings pending the arbitration process between the parties.

In opposing Enclosure 5, the Plaintiff submits that :-

the arbitration agreement between parties is null and void, inoperative, or incapable of being performed; and

(ii) in light of the Plaintiff having been wound up, it would be just, convenient, and in the interests of justice for the dispute to be determined by the Court, such course being both efficient and cost-effective. ISSUES FOR DETERMINATION

The sole issue for determination by this Court is whether there exists an arbitration agreement between the parties and, if so, whether the circumstances relied upon by the Plaintiff render that arbitration agreement null and void, inoperative or incapable of being performed.

Section 10(1) of the Act provides that ; “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.”

On the mandatory nature of a stay where there exists a valid arbitration agreement between the parties, the Federal Court in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd (2016) 5 MLJ 417 held that :- “[32] The clear effect of the present s 10(1) of the 2005 Act is to render a stay mandatory if the court finds that all the relevant requirements have been fulfilled; while under s 6 of the repealed 1952 Act, the court had a discretion whether to order a stay or otherwise. [33] What the court needs to consider in determining whether to grant a stay order under the present s 10(1) (after the 2011 Amendment) is whether there is in existence a binding arbitration agreement or clause between the parties, which agreement is not null and void, inoperative or incapable of being performed. The court is no longer required to delve into the details of the dispute or difference (see TNB Fuel Services Sdn Bhd). In fact the question as to whether there is a dispute in existence or not is no longer a requirement to be considered in granting a stay under s 10(1). It is an issue to be decided by the arbitral tribunal.”

In Peninsula Education (Setia Alam) Sdn Bhd v Biaxis (M) Sdn Bhd (In Liquidation) ) [2024] 5 MLJ 388, the Court of Appeal held that an arbitration agreement has a life of its own and survives the winding-up and termination of the main contract. The liquidation of a company does not, ipso facto, invalidate the arbitration clause. The disputes between the parties, including whether the main contract was validly terminated and what reliefs flow from that, are precisely the kinds of disputes the independent arbitration agreement is meant to govern.

In a recent decision of the Court of Appeal in Hashim bin Abdul Razak & Ors v Pembinaan PD Jaya Sdn Bhd (Dalam Likuidasi) (2025) MLJU 4374, referred and adopted Peninsula Education (Setia Alam) Sdn Bhd (supra.) and held the following:- “[61] The mandatory language of Section 10 of the AA 2005 is such that the court could not disregard the terms of the arbitration agreement just because one of the parties thereto was in liquidation. The fact that the debt was not admitted was sufficient for it to come within the meaning of a ‘matter which is the subject of an arbitration agreement’ in Section 10 of the AA 2005, for reference to arbitration. The principle of the court granting a stay of proceedings in favour of arbitration applied equally across the board even when a claimant was already in liquidation and was claiming a disputed debt in litigation and not arbitration. The Respondent’s liquidation would not change an iota of its initial agreement to arbitrate. This was again mentioned in Peninsula Education (Setia Alam) Sdn Bhd (supra) at para [48] and [62] as follows: “[48] It is thus not a question of whether because of the liquidation of a party to an arbitration agreement, a new paradigm has set in to render “inoperative” the arbitration agreement. The mandatory language of our s.10 AA 2005 is such that the Court cannot disregard the terms of the arbitration agreement just because one of the parties to it is in liquidation. The fact that the debt is not admitted is sufficient for it to come within the meaning of a “matter which is the subject of an arbitration agreement” for reference to arbitration. … [61] We are fully conscious of the fact that in the present case the Contractor is already in liquidation and not a case where it is seeking to wind up the Employer for what it perceives to be a debt not disputed on substantial ground for work done. However, the principle of the Court granting a stay of its proceedings in favour of arbitration applies equally across the board even when the claimant is already in liquidation and is claiming a disputed debt in litigation and not arbitration. Its liquidation has not changed an iota its initial agreement to arbitrate” [64] Applying the reasoning from Peninsula Education (Setia Alam) Sdn Bhd (supra), it is clear that at the outset, even a fundamental event such as the liquidation or bankruptcy of a party to the agreement does not render the arbitration agreement inoperative or incapable of being performed. It is evident that Clause 27 of the JVA, that the parties signed, fulfils every requirement of this definition and constitutes a valid arbitration agreement within the meaning of the AA 2005”

On the principle that parties are bound by the terms they have agreed upon, the Federal Court has sounded a clear caution in Juara Serata Sdn Bhd v Alpharich Sdn Bhd [2015] 9 CLJ 37, at “[36] In the final analysis, we would go as far to state that the defendant in this case is not in a position to resile from the terms inserted in the agreement which had imposed obligations on it. To allow it to do so would be tantamount to allowing a party in breach to take advantage of its own wrong. Parties must be held to their bargain. In our instant case, the decision of the courts below were based upon a consideration of the dispute resolution process in cls. and 17 of the agreement which required an initial reference to the architect/consultant for a decision and if no decision was made by him or if either party was aggrieved by the decision, it may then refer the dispute to arbitration. The defendant failed to refer its dispute on the decision to arbitration resulting in the decision becoming “final and binding upon the parties”. The High Court found, which we have no reasons to disagree, that the various reasons for non-payment of the interim certificate amount by the defendant were described as “non-starters” because of the failure by the defendant to adhere to the contractual mechanism for dispute resolution. The arbitral mechanism is contemplated by the cls. 16 and 17 of the agreement to which parties were bound.”

The Federal Court in Press Metal Sarawak Sdn Bhd (supra.). has limited the Court’s inquiry to:

whether there exists a binding arbitration agreement;

(ii) whether the application was made before taking steps in the proceedings; and

(iii) whether the agreement is null and void, inoperative or incapable of being performed.

These are threshold questions only. The Court is not concerned with the merits of the dispute. Nor is it open to the Court to refuse a stay on general notions of convenience or perceived fairness once the statutory requirements are met

whether there exists a binding arbitration agreement

The relevant provision relating to the issue of an arbitration agreement is in Section 9 of the Act, which reads:

Definition and form of arbitration agreement

In this Act, ‘arbitration agreement’ means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.

An arbitration agreement may be in the form of an arbitration clause in an agreement or in the form of a separate agreement.

An arbitration agreement shall be in writing.

An arbitration agreement is in writing where it is contained in —

a document signed by the parties;

an exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement; or

an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other

A reference in an agreement to a document containing an arbitration clause shall constitute an arbitration agreement, provided that the agreement is in writing and the reference is such as to make that clause part of the agreement.

The arbitration agreement is contained in Clause 20.6 of the FIDIC Condition, which satisfies the formal requirements under Section 9 of the Act.

At this stage, the Court is concerned only with the existence of a valid arbitration agreement.

The legal position on this issue is clear: that parties are bound by the terms of the arbitration agreement which they had voluntarily executed.

whether the Application Was Made Before Any “Step in the

The Defendant applied for a stay promptly after entering appearance and before delivering any pleading or invoking the Court’s jurisdiction on the merits.

The authorities draw a clear distinction between procedural steps and steps going to the substance of the dispute. Entry of appearance or correspondence preserving rights does not amount to a “step in the proceedings”. In Sanwell Corp v Trans Resources Corp Sdn Bhd [2002] 2 MLJ 625 the Federal Court “reaffirmed that Sime Axa Assurance correctly decided that an entry of an unconditional appearance does not constitute a step in the proceedings within the meaning of s 6 of the Act.”

On the facts, I am satisfied that the Defendant has not taken any step inconsistent with reliance on the arbitration agreement.

whether the Arbitration Agreement Is Null and Void, Inoperative, or Incapable of Being Performed

The burden of establishing any of the statutory exceptions in Section 10(1) of the Act lies squarely on the party resisting the stay.

The Plaintiff seeks to show that the arbitration agreement is null and void, inoperative or incapable of being performed in the following manner :-

Clause 20.4 of the FIDIC Conditions provides for the referral of disputes to the Engineer for a decision. The Plaintiff takes objection to this on the basis that the Engineer is appointed by the Defendant, which, according to the Plaintiff, gives rise to a conflict of interest.

(ii) The Plaintiff also points to the period of 84 days allocated for the Engineer’s decision, contending that such delay is manifestly unfair and impractical in the context of a company in liquidation. This, coupled with the Engineer being appointed by the Defendant, is said to be contrary to the principle of impartial adjudication.

(iii) The Plaintiff further submits that, being in liquidation, it lacks the financial means to fund arbitration

The first 2 grounds will be taken together. The short answer is that the Contract was negotiated between the parties, amendments were agreed upon and accepted, and performance of the Contract was duly undertaken. As set out at paragraphs 10- 12 above, evidence shows that the Plaintiff had initially acted in accordance with the agreed dispute resolution mechanism set out in Clause 20 of the FIDIC Conditions.

In Juara Serata Sdn Bhd (supra.), the Federal Court emphasised that parties are bound to the arbitral mechanism contemplated in the contract between parties and must be held to their bargain.

As such, the Plaintiff is bound by the terms in Clause 20.4 of the FIDIC Conditions and cannot now resile from it.

The Court rejects the first two arguments advanced by the Plaintiff to support its contention that the arbitration is null and void, inoperative or incapable of being performed.

The Plaintiff further contends that its alleged impecuniosity renders the arbitration agreement inoperative or incapable of being performed within the meaning of Section 10(1) of the Act. This submission is, with respect, misconceived and unsupported by authority.

The statutory exceptions under Section 10(1) are narrow and well-defined. An arbitration agreement is inoperative where it has ceased to have effect in law, for example by novation, mutual abandonment, repudiation accepted by both parties, or where it has otherwise been exhausted. An agreement is incapable of being performed where there exists an objective impossibility preventing the arbitration from being commenced or continued, such as the non-existence of the agreed arbitral mechanism with no viable means of replacement.

Financial inability on the part of one party does not fall within either category. Impecuniosity is a matter of personal or commercial hardship; it does not affect the legal operability of the arbitration agreement nor does it make performance objectively impossible.

To accept impecuniosity as a basis to refuse a stay would be to introduce a discretion which Parliament has not conferred upon the Court. Section 10(1) is framed in mandatory terms, and once its requirements are satisfied, the Court is not at liberty to decline a stay on equitable or pragmatic grounds. Such an approach would undermine party autonomy and dilute the pro-arbitration policy of the Act.

Malaysian courts, in Peninsula Education (Setia Alam) Sdn Bhd (supra.) and Hashim Bin Abdul Razak (supra.) have consistently rejected attempts to enlarge the statutory exceptions by importing considerations of hardship, inconvenience, or access to justice.

The Court of Appeal in Hashim Bin Abdul Razak (supra.) has unequivocally and unreservedly held that “even a fundamental event such as liquidation or bankruptcy of a party to the agreement does not render the arbitration agreement inoperative or incapable of being performed.”

On the facts before this Court, there is no evidence of any objective impediment preventing the arbitration from being commenced or pursued in accordance with the parties’ agreement. The Plaintiff’s reliance on impecuniosity therefore fails to bring the case within any of the statutory exceptions under Section 10(1).

It bears reiteration that the Court’s function under Section 10 is intentionally circumscribed.

In the present case, I find that:

a binding arbitration agreement exists between parties;

(ii) the Defendant has complied with the procedural requirements of section 10(1); and

(iii) the Plaintiff has failed to establish that the arbitration agreement is null and void, inoperative or incapable of being performed.

In light of the mandatory wording of Section 10(1) of the Act, this Court is bound to stay the proceedings pending referral of the dispute to arbitration. This Court notes that as the Plaintiff has, in fact, issued its Notice of Dissatisfaction on 15.7.2025

Accordingly, the Defendant’s application is allowed. The proceedings in this case is stayed pending reference to arbitration. Costs of RM5,000.00 is awarded to the Defendant, subject to allocator. Dated : 10 March 2026 t.t ………………………………………… Shahriza Zalina Binti Abdul Shukor Judicial Commissioner Mahkamah Tinggi Malaya Shah Alam For the Plaintiff : Ong Eng Cheng Lim Shan Shan (Messrs. Eunice Derek & Co) For the Defendant : Mak Hon Pan (Messrs. Karen, Mak & Partners)