Lembaga Kemajuan Tanah Persekutuan v Mesra Budi Sdn Bhd (DA-22-NCVC-6-02/2017)

On 14/5/2017, vide enclosure 6, the Defendant made an application before this court to have the proceedings stayed pending the matter be referred for arbitration. This court, after hearing submissions by both parties had dismissed the application. Dissatisfied with the ruling, the Defendant had filed an appeal to the Court of Appeal. The appeal is yet to be heard before the Court of Appeal.

The Defendant thereafter, vide enclosure 21, had filed an application for stay of the execution of the ruling, pending the outcome of the appeal of 2 enclosure 6 by the Court of Appeal. After hearing submissions by both parties, this court had allowed the application for stay by the Defendant with cost of RM3,500.00.

Dissatisfied with the ruling, the Plaintiff filed a Notice of Appeal to the Court of Appeal.

Here are the grounds for that ruling.

The Plaintiff, a housing developer had entered into a contract with the Defendant for a project known as “Cadangan Pembinaan dan Menyiapkan 300 Unit Rumah Teres Satu Tingkat di FELDA Ciku 5, Gua Musang, Kelantan”. The Plaintiff, who alleged that the Defendant had breached the contract, filed a Writ dated 21/2/2017 and Statement of Claims dated 20/2/2017, claiming a certain amount from the Defendant for payments of the works purportedly done and loses purportedly incurred by the Plaintiff.

The “Contract Document” had an “Arbitration Clause” whereby parties have to refer to arbitration in the event of a dispute. Unfortunately the “Contract Document” was not signed by parties.

However, vide enclosure 6, the Defendant sought to stay all the proceedings and thereafter be referred to arbitration as per the “Arbitration Clause” in the “Contract Document” by virtue of section 10 of the Arbitration Act 2005. 3

After hearing submissions by both parties, this court had on 14/5/2017 disallowed the application by the Defendant with cost. With that ruling, the Defendant had to submit to the jurisdiction of this court and it follows that the Defendant had to file in their Statement of Defence etc.

Dissatisfied with that ruling, on 26/9/017, the Defendant filed an appeal to the Court of Appeal regarding enclosure 6.

On 27/9/2017, the Defendant vide enclosure 21, filed an application before this court for stay of the ruling (to stay the present court proceeding) pending the outcome of the appeal of the Court of Appeal.

On 10/12/2017, after hearing submissions by both parties, this court had allowed the Defendant’s application with cost of RM3,500.00 to the dissatisfaction of the Plaintiff who thereafter filed an appeal to the Court of Appeal. C. SUBMISSIONS BY PARTIES

The Plaintiff’s counsel submitted that the Defendant’s application for stay should be dismissed with cost because by virtue of section 73 of Court of Judicature Act 1964, an appeal shall not operate as a stay of execution or proceeding. 4

The Plaintiff further submitted that the Defendant has the duty to prove special circumstances that merit the application and the onus was on the Defendant to prove so, to the satisfaction of this court. The Plaintiff referred to the case of Wu Shu Chen v Raja Zainal Abidin B. Raja Hussin & Anor (1995) 3 MLJ 224 where the court said: “The court will not deprive a successful party of the fruits of his litigation until an appeal is determined, unless the unsuccessful party can show special circumstances to justify it.” (See also Ming Ann Holdings Sdn Bhd v Danahatra (2002) 3 CLJ 380.

The Plaintiff also submitted that, there were no special circumstances shown by the Plaintiff to the satisfaction of this court to justify this application. In fact, what was before the court was the Defendant’s argument about the jurisdiction of the court to hear the proceedings and their insistence to have this proceeding referred to arbitration.

The Plaintiff further submitted that the Defendant had on one breath applied for this proceeding to be referred to arbitration by virtue of section 10 Arbitration Act 2005, but in another breath had submitted to the jurisdiction of this court by filing a counter claim against the Plaintiff and “Jawapan kepada Pembelaan kepada Tuntutan Balas”.

The Defendant agreed that this court had an absolute and unfettered discretion to grant a stay if there exist special circumstances. 5

The Defendant submitted that this court has a mandatory obligation, pursuant to section 10 of the Arbitration Act 2005 and the accepted principles of law, to stay all court proceedings and to refer the dispute to arbitration.

The Defendant also submitted that this court, by virtue of the principle of stare decisis are bound by the many decisions of the apex courts that allow for stay pending the disposal of the appeal involving arbitration proceeding (see Press Metal Sarawak v Etika Takaful (FC) 2016 5 MLJ 417).

The Defendant also denied that the Defendant had submitted itself to the jurisdiction of this court when it willingly filed in its Statement of Defence and counterclaim. D. FINDING OF THE COURT

First and foremost it is germane for this court to state here that this court did not agree with the Plaintiff’s submission that the Defendant had submitted itself to the jurisdiction of this court. This court observed that the Defendant had filed the Statement of Defence and Counterclaim dated 28/9/2017 and the Reply to Defence to Counterclaim dated 19/10/2017 on a strictly without prejudice basis.

Further, this court also observed and was satisfied that the prayers in Enclosure 6 was made with many express qualifications that, inter alia that the Defendant reserved the right to refer the dispute to arbitration and 6 challenged the jurisdiction of this court on the basis that the proper forum to hear the dispute is within arbitration proceeding.

Towards this end, this court would like to refer to the case of Comos Industry Solution GMBH v Jacob and Toralf Consulting Letrikon Sdn Bhd & Ors [2012] 4 MLJ 573, where the Court of Appeal held: “In the affidavit filed in support of encl 41, the appellant openly reserved the right to refer the dispute to arbitration. Indeed, in all papers filed, the appellant unceasingly challenged the jurisdiction of the court below and reserved the right to refer the dispute to arbitration. Given the qualifications under which it was made, the prayer for time to file a statement of defence was only a precautionary step to obviate the risk of a judgment in default of pleadings, should prayer (a) in encl 41 be refused. Here, encl 41 never expressed the willingness of the appellant to go along with the determination by the courts and to abandon arbitration.”

Hence this court ruled that the Defendant did not waive its right to have this matter referred to arbitration.

Secondly it is equally germane for this court to state here briefly the reason for this court’s ruling when rejecting enclosure 6. The refusal was not because this court refused to subject itself to the binding precedent of the various decisions of the apex court to recognize arbitration clauses by virtue of section 10 of Arbitration Act 2005. Rather it was on the question of whether the arbitration clause was operational or was triggered because 7 the “Contract Document” which had an “arbitration clause” was not signed by parties. Hence parties are not bound by the arbitration clause.

Back to the instant application for stay, this court agreed that an appeal shall not operate as a stay of execution unless this court so orders. This court also agreed that to qualify for the stay, the applicant must show to the court that there are special circumstances that justify this application. In the Federal Court case of Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Bhd (2004) 1 MLJ 257 it was held that: “(1) An appeal shall not operate as a stay of execution unless the court so orders. The paramount consideration governing an application for a stay of execution is that the appeal to this court, if successful, should not be rendered nugatory. If upon balancing all the relevant factors, this court comes to the conclusion that an appeal would be rendered nugatory without the grant of a stay or other interim preservation order, then it should normally direct a stay or grant other appropriate relief that has the effect of maintaining the status quo (paras 7,10).”

The Court of Appeal in Rowstead Systems Sdn Bhd v Bumicrsytal Technology (M) Sdn Bhd (2005) 3 MLJ 132, in granting a stay said: “……….. the recent Federal Court ruling in the case of Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Bhd [2004] 1 MLJ 257 appears to have overruled the decision of See Teow Guan and reinstate the principle that was established in Serangoon 8 Garden Estate whereby the applicant still requires to show special circumstances in an application for stay of proceedings of execution. We are therefore bound by the ruling of the Federal Court (see also the Court of Appeal decision in Ming Ann Holdings Sdn Bhd v Danaharta Urus Sdn Bhd [2002] 3 MLJ 49).”

This court after hearing the submissions by both parties and balancing it with all other relevant factors, had allowed the application for stay (enclosure 21) for the following reasons:

This court observed that there were special circumstances present in this application that warrants a stay. The fact that this matter involved arbitration issue was in itself a “special circumstance” to be reckoned with. This was because it involved 2 different “jurisdictions”. By virtue of section 10 of the Arbitration Act 2005, the powerful jurisdiction of this court can be “set aside” once section 10 of the Arbitration Act 2005 was triggered.

This court was also of the considered opinion that if this court did not grant the stay, the outcome of the appeal would be rendered nugatory. Much time will be wasted in the event this court were to proceed with the proceeding and only to learn that the Court of Appeal decided that this court had no jurisdiction to hear. As the Federal Court said in Kosma Palm Oil Mill (supra) said: “(2) There are many factors that may constitute special circumstances and the fact that an appeal would be rendered nugatory if the stay was 9 refused is the most common one. The merits of a party's case in a stay application is not a relevant matter for consideration (paras 18–19).”

This court was also of the considered opinion that by not giving the Defendant a stay would place the Defendant in a difficult position where it is compelled to “take steps in the proceedings” before this court. This will invariably cause prejudice to the Defendant and is also contrary to the Defendant's stance that the dispute should be referred to Arbitration.

Further, this court agreed with the Defendant that the directions given by this court may deprive the Defendant of relying on Section 10 of the Arbitration Act 2005, as compelling the Defendant to file its Defence may be construed as the Defendant taking “further steps in the proceedings”.

Therefore, if the Defendant's application for stay is not granted, there is a real risk that the Defendant's right to arbitrate will be affected as it may be compelled to submit to the jurisdiction of this court when the Court of Appeal has yet to make a final determination on the appeal. This would cause grave consequences on not only the Defendant’s right to refer the matter to arbitration, but will also render the appeal on jurisdiction nugatory.

It is wise to note that if this action is allowed to proceed in this court and subsequently the appeal was allowed by the Court of Appeal, all the time and efforts spent by this court would be wasted. Towards this end, the case of Rowstead Systems Sdn Bhd v Bumicrsytal Technology (M) 10 Sdn Bhd (2005) 3 MLJ 132 is worth mentioning where the Court of Appeal in granting the application held: “We have also taken into consideration the fact that in the event that a stay of proceedings was not granted and the learned JC be allowed to proceed with the hearing of this case, it would result in a waste of time and effort by all persons involved since if the Court of Appeal allows the appeal the whole proceedings conducted by the learned JC would have to be completely expunged. In the circumstances it would be more expedient to allow a stay of the proceedings until the hearing of the appeal has been completed.”

Further this court was of the considered opinion that if the trial of this matter were to proceed simultaneously with the appeal, there is always a possibility that different findings will be made by 2 different courts especially regarding the applicability of the arbitration clause, resulting in uncertainties which will be a subject of further appeal.

In the upshot, the Defendant’s application was allowed with cost of RM3,500.00. 11 Dated: 28th February 2018 (DATO’ AHMAD BIN BACHE) Pesuruhjaya Kehakiman Mahkamah Tinggi Malaya Kota Bharu Peguam Perayu/ Plaintif - En. Nasir bin Abdullah Tetuan Salina Fazilawati & Co, 3512-E, 2nd & 3rd, Floor, Jalan Sultanah Zainab, 15050 Kota Bharu, Kelantan. Peguam Responden/Defendan-En. Ariff bin Tan Sri Rozhan, En. Daniel Forsberg & En. Kow Kean Fatt Tetuan Ariff Rozhan & Co, L-6-1, No.2, Jalan Solaris, Solaris Mont Kiara, 50480 Kuala Lumpur.