Perfect Stone Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (WA-24C-37-06/2016)

The Defendant is the Main Contractor appointed by Sunway City Berhad (“Employer”) for a project known as “Cadangan Pembangunan 2 Blok Pangsapuri 20 Tingkat (160 unit), Tempat Letak Kereta 4 Tingkat, Kemudahan Penduduk dan Tembok Penahan Di Atas Lot 48629 (F2), Jalan Sri Hartamas 3, Mukim Kuala Lumpur, Wilayah Persekutuan” (“the Project”). 2

The Defendant appointed the Plaintiff for the Supply and Installations of Stoneworks (“the Subcontract Works”) for the contract sum of RM7,550,000.00. The Contractual Documents consist of the Letter of Acceptance (Award) of Nominated Subcontract for the Supply and Installation of Stone works dated 11.10.2008 (hereinafter referred to as “Letter of Acceptance”) and the Subcontract Documents dated 11.11.2008 and Article of Agreement and Conditions of Building Subcontract dated 11.11.2008 (hereinafter referred to as “the Subcontract”).

Under the letter of Acceptance, the date of commencement of the Subcontract Works was on 5.01.2009 and the completion date was to be on or before 11.11.2009. The terms of the Conditions of the Subcontract are inter alia as follows:

The Plaintiff shall commence the Subcontract Works on the date as stipulated in the Letter of Acceptance;

If the Plaintiff fails to complete the Subcontract Works within the stipulated time, the Plaintiff is responsible for all the loss and damage suffered or incurred by the Defendant; and 3. If there is any dispute between the Main Contractor and the Subcontractor whether during execution or after completion or 3 abandonment of Subcontract Works or after Subcontract has been terminated it has to be referred to the arbitration. [4] On 27.09.2010 the Main Contract between the Defendant and the Employer was terminated as a result of nonpayment by the Employer. Prayer [5] The Plaintiff commenced this action in the High Court against the Defendant alleging that a sum of RM3,153,759.07 is due from and owing by the Defendant to the Plaintiff. [6] The Plaintiff, probably taking the stand that there are no disputes on facts, commenced this action by way of an Originating Summons ("OS") supported by an affidavit. The OS and affidavit in support were duly served on the Defendant, who on 4.07.2016, after having entered its appearance, filed its application for stay of proceeding pending reference to arbitration in Enclosure 5. [7] The Defendant disputes the Plaintiff’s claim and states that there was a delay by the Plaintiff in completing the Subcontract Works and therefore the Plaintiff is responsible for all the loss and damage suffered by the Defendant due to the Plaintiff’s failure to complete the Subcontract Works within time. 4 Principles [8] The law on stay of proceedings pending reference to arbitration is set out in Section 10 (1) of the Arbitration Act 2005 which states as follow: “10. Arbitration Agreement and Substantive Claim before the 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) [9] So long as the matter is within the scope of the arbitration agreement, and that the party seeking a stay of the proceedings has not taken any other steps in the proceedings, the Court shall grant the stay of the proceedings unless the arbitration agreement is null and void, inoperative or incapable of being performed. 5 Whether the requirements of section 10 Arbitration Act 2005 have been met, to justify a stay of the proceedings in Court [10] Section 10(1) Arbitration Act 2005 is couched in mandatory language in that once the requirements found in the subsection are fulfilled, the stay of the court proceedings is mandatory. In other words the Court shall hold the parties to the bargain and shall give effect to the arbitration agreement. [11] This is consistent with the principles enunciated in the UNCITRAL Model Law upon which the Arbitration Act 2005 is based. Parties in electing for arbitration as opposed to litigation must have addressed their mind to the benefits of arbitration as the preferred mode of resolving any disputes that may arise between the parties arising out of the contract. In the event that the party applying for stay has taken any other steps in the proceedings, it could then be argued that in spite of the arbitration agreement that party has agreed to submit to litigation as the mode of resolving the dispute between the parties. As an arbitration agreement is a term of the contract, that term can be waived or varied by subsequent agreement or conduct. Here it has not been suggested that the Defendant has taken further steps in the proceedings and indeed they have not as they have forthwith filed this application for stay of the proceedings. 6 [12] Neither has it been suggested or submitted that the arbitration agreement is invalid, or that it is null and void, inoperative or that it is incapable of being performed. Absent that, there is a plethora of cases to support the proposition that the Court shall grant a stay of the proceedings. [13] In ZAQ Construction Sdn Bhd & Anor v Putrajaya Holdings Sdn Bhd [2014] 10 MLJ 633 at page 643, Justice Mary Lim J (now JCA) highlighted the use of the word "shall" in section 10(1) as opposed to "may" in the old Arbitration Act 1952 in section 6 thereof signifying a significant shift in the stand and stance of the Court in favour of stay of proceedings when the arbitration agreement is valid: “[26] It will be appreciated that the language in sub-s 10(1) is couched in mandatory terms with the use of the word ‘shall’. Where the terms of sub-s 10(1) are met, the court is obliged to stay court proceedings and refer the parties to arbitration. The only exception to this is provided within sub-s 10(1) itself and that is where the court finds the “agreement to be null and void, inoperative or incapable of being performed." 7 [14] This discernible directional shift towards upholding the bargain of the parties to arbitration and the readiness of the Courts to grant a stay of proceedings with the advent of the Arbitration Act 2005 have been alluded to in a number of cases. In CMS Energy Sdn Bhd v Poscon Corp [2008] 6 MLJ 561 at pages 569 it was observed as follows: “[18] In my view if s 10 and s 18 of the Act are read together there is no unmistakable intention of the Legislature that the court should lean towards arbitration proceedings. Under s 10-(1) of the Act, the Court shall stay all proceedings before it in respect of a matter which is the subject of an arbitration agreement, and refer the parties to arbitration unless the court is satisfied as to any of the condition in para (a) or (b) of the section as shown above. And in this case none of the condition is applicable.” [15] In Rightmove Sdn Bhd v YWP Construction Sdn Bhd & Anor [2015] 7 MLJ 687 at page 693 it was emphasized as follows: “[14] Thus, from a reading of s 10(1) of the Act in its current form and the case authorities referred to above, it appears to me that the conditions requisite to the granting of stay of proceedings where there is an arbitration agreement are: (i) the current proceedings 8 are in respect of a matter which is the subject of the arbitration agreement and (ii) the applicant has not taken any other steps in the proceedings. Once these are met, the court is mandatorily required to refer the parties to arbitration unless the plaintiff can show that the agreement is null and void, inoperative or incapable of being performed...." (emphasis added) [16] Whilst under the old Arbitration Act 1952 the word used was "may", under the new Arbitration Act 2005 the word used is now "shall", such that once the requirements of the subsection are met, the Courts no longer have any discretion to refuse stay but that the Court would be obliged to refer the parties to arbitration. The most recent authority on this is the Federal Court case of Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417 where it was held as follows: "[31] Prior to the 2005 Act, the applicable law was the Arbitration Act 1952 (‘the 1952 Act’). The issue of stay of proceedings in the 1952 Act was dealt with under s 6 thereof which reads: "If any party to an arbitration agreement or any person claiming through or under him commences any legal proceedings against any other party to the arbitration, or any person claiming through or 9 under him, in respect of any matter agreed to be referred to arbitration, any party to the legal proceedings may, before taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement, and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings." [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." (emphasis added) [17] What is relevant now is that the subject matter of the Plaintiff's claim must be within the subject of the arbitration agreement as was explained by Justice Mary Lim J (now JCA) in ZAQ Construction Sdn Bhd & Anor v Putrajaya Holdings Sdn Bhd [2014] 10 MLJ 633 as follows: 10 “[36] Subsection 10 (1) requires the court to first and foremost examine whether the ‘proceedings’ in court today are ‘brought in respect of a matter which is the subject of an arbitration agreement’. If the proceedings are indeed brought in respect of a matter which the parties have agreed should be resolved by arbitration, then the court is obliged to stay these proceedings and ‘refer the parties to arbitration’. ... [38] As to whether the proceedings in court are in respect of a matter which is the subject of an arbitration agreement; that depends on what is the ambit of the arbitration agreement. But, even before that, it must first be recognized that it is the plaintiffs’ claim before the court and not what the defendant’s response or defence is to that claim which bears the brunt of scrutiny." [18] Exactly what is the Plaintiff claiming here in this action? The Plaintiff is claiming for the sum of RM3,153,759.07 from the Defendant for Subcontract Works carried out in the said Project. The Defendant disputes this amounts as it does not take into account the loss and damage suffered by the Defendant due to the Plaintiff’s failure to complete the Subcontract Works within the stipulated time. 11 [19] The Defendant contended that the Plaintiff's claim is with respect to a matter which is within the subject of the arbitration agreement. Clause 22 of the Subcontract on referring disputes or differences to arbitration would be relevant and it reads as follows: "Disputes or differences to be referred to Arbitration

22.1 In the event of any dispute between the Contractor, or the Architect on his behalf and the Subcontractor, whether arising during the execution or after the completion or abandonment of the Subcontract Works or after the determination of the employment of the Sub-Contractor under this Subcontract or breach of this Subcontract as to:

the carrying out and completion of the Subcontract Works; or

(ii) any matter of thing of whatsoever nature arising there under or in connection therewith, including any matter or thing left by this Subcontract to the discretion of the Architect; or

(iii) the withholding by the Architect of any certificate to which the Subcontract may claim to be entitled to; or

(iv) the withholding by the Contractor of any payment to which the Subcontract may claim to be entitled to; or

the measurement and valuation under Clauses 4.4 and 4.5; or 12

(vi) the unreasonable withholding of consent or agreement by the Contractor or the Subcontractor." (emphasis added) [20] Clearly Clause 22.1 (iv) of the Subcontract states that any disputes or differences between the contractor or the architect on his behalf and the subcontractor including withholding payment is to be referred to arbitration. Equally clear is that the Plaintiff's claim is with respect to a matter within the scope and ambit of the arbitration agreement and in particular clause 22.1(iv) above. [21] I agree that the Defendant has not taken any other steps in the proceedings other than filing this application before the Court. The Plaintiff's counsel had complained that instead of replying to the Plaintiff's affidavit filed in support of the OS, the Defendant had instead filed this application in Enclosure 5 for stay, leaving the allegations in the Plaintiff's OS and affidavit in support, unanswered. I do not think so. If the Defendant had succumbed to the temptation to file an affidavit to oppose the Plaintiff's OS, the Defendant would have fallen for the bait in that the Plaintiff can then argue that the Defendant has taken a further step in the proceedings. That would disqualify and disentitle the Defendant from filing this application for stay of proceedings. 13 [22] I agree that the Defendant has fulfilled the two requirements needed for a stay which is that the Plaintiff's claim is with respect to a matter which is the subject of the arbitration agreement and that the Defendant has not taken any other steps in the proceedings. The Plaintiff has not alleged that the arbitration agreement is null and void, inoperative or incapable of being performed. [23] There is thus every reason for this Court to grant a stay of the proceedings. Whether there is a dispute between the parties that should be referred to Arbitration [24] The Plaintiff's learned counsel argued that there is really no dispute at all and that this Court should be able to discern the lack of bona fide on the part of the Defendant in trying to create one. According to the Plaintiff there is no need to go behind the architect's Statement of Final Valuation of Works as at 27.09.2010 which Statement was issued on 16.11.2010. [25] According to learned counsel for the Defendant, there was an amendment effected on section 10(1) of the Arbitration Act 2005 vide Act A1395 which came into force on 1 July 2011 ("the 2011 Amendment") 14 which effectively dispensed with the need to prove that there is a dispute that has arisen between the parties. It deleted the old section 10(1)(b) as follows: "(b) that there is in fact no dispute between the parties with regard to the matters to be referred." (emphasis added) [26] Notwithstanding the above learned counsel for the Defendant submitted that there is definitely a dispute between parties which are as follows:

There were delays by the Plaintiff in completing the Subcontract Works before the termination of Main Contract.

2.

The Defendant’s claim against the Employer in the arbitration is in the submission stages, where witnesses and documents have been submitted and decision will be made after submissions.

Further the Employer vide its letter dated 24.09.2010 had informed the Defendant that they will make interim payment for certificate No. 32 onwards to the Subcontractor directly. [27] Thus the Defendant contended that the Plaintiff should make a claim to the Employer direct instead of the Defendant. There was also no Interim Certificate No. 32 issued. [28] Based on the above I would agree that there is a dispute that has arisen between the parties that should be referred to arbitration for resolution. [29] Learned counsel for the Plaintiff referred to the case of Assar Senari Holdings Sdn Bhd v Teratai Sanjung Holdings (M) Sdn Bhd [2011] 1 LNS 1278, where the High Court held as follows: "... Section 9(1) defines the nature of an arbitration agreement as follows: 16 "... 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. " (emphasis supplied) By way of analogy, section 10(1)(b) enacts that the High Court must stay proceedings and refer the matter to arbitration if there is an arbitration agreement unless: "there is in fact no dispute between the parties with regard to the matters to be referred" (emphasis supplied)... " [30] As is plainly obvious the decision was made before the 2011 Amendment where the requirement to show a dispute must first be met before there is a reference to arbitration. The 2011 Amendment had repealed section 10(1)(b). [31] Learned counsel for the Plaintiff also referred to Bangsue Chia Meng Rice Mill Co. Ltd V Rekadjaya Sdn Bhd And Axisjaya Construction Sdn Bhd [2014] 1 LNS 1251. The High Court there had referred to Celcom (M) Sdn Bhd v Sarawak Electricity Supply Corp [2002] 4 MLJ 593 where Justice Gopal Sri Ram JCA (later FCJ) held at page 597: 17 "... It is that there must be a dispute falling within the scope of the arbitration clause or agreement. If there is no dispute, then it follows that there is nothing to refer to arbitration." [32] Justice Gopal Sri Ram JCA (later FCJ) also referred to the decision of Justice George J (later JCA) in ELF Petroleum SE Asia Pte Ltd v Winelf Petroleum Sdn Bhd [1986] 1 MLJ 177 where His Lordship held that where the claim has been admitted, there is nothing to refer to arbitration. At page 179, His Lordship added: "In my judgment what we have here is a mere refusal to pay upon a claim which had been admitted as being owing to the plaintiffs. There is nothing to be settled by arbitration. On a true construction of clause XIV only claims which are bona fide disputes or are bona fide controversies that call for settlement by arbitration. When a claim is admitted it does not call for a settlement by arbitration. All that is called for is for payment of the admitted amount which can be by action in the Courts as has been done in the instant case... " (emphasis added) 18 [33] Again it must be noted that cases decided before the 2011 Amendment to section 10 Arbitration Act 2005 and also those decided under the Arbitration Act 1952 must be read with caution as requiring a need to show a dispute. [34] At any rate I am more than satisfied that here there is no admission of the Plaintiff's claim and on the contrary there was a genuine dispute that has arisen between the parties. [35] The Defendant referred to the case of TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857 where the Court of Appeal at page 870 states as follows: “[24] The present form of s 10 of the Arbitration Act 2005 is the result of the amendment to that section which came into force on 1 July 2011 (Act A1395). It is generally accepted that the effect of the amendment is to render a stay mandatory unless the agreement is null and void or impossible of performance. The court is no longer to delve into the facts of the dispute when considering an application for stay.” 19 [36] Another case cited in favour of the above proposition by the Defendant is that of KNM Process Systems Sdn Bhd v Mission Biofuels Sdn Bhd [2013] 1 CLJ 993 where it was held at page 1000 as follows: “[16] it is also evident with the amendment that it is now mandatory on the court to grant stay where the matter before it is the subject of an arbitration agreement unless the arbitration agreement is, in the words of the statute, “null and void, inoperative and incapable of being performed. [17] It is no longer possible to argue that in respect if the controversy between the parties there is no “dispute” with regards to the matter to be referred to arbitration, which is a test that invites unnecessary ambiguity and requires the court to determine whether there is “dispute” between the parties not dissimilar to the functions performed by the court in determining whether there is a triable issue in a summary judgment application. The test is now the simpler test of whether the matter before the court is the subject of an arbitration agreement or otherwise. To decide on the simpler test, it would become a matter of construction of the relevant arbitration agreement, where it exists.” (emphasis added) 20 Learned counsel for the Defendant also pointed out that KNM Process’ decision (supra) was followed in Rightmove Sdn Bhd v YWP Construction Sdn Bhd [2015] 7 MLJ 687 wherein Justice Mairin Idang JC states as follows: “[14] Thus, from a reading of s 10 (1) of the Act in its current form and the case authorities referred to above, it appears to me that the conditions requisite to the granting of stay of proceedings where there is an arbitration agreement are: (i) the current proceedings are in respect of a matter which is the subject of the arbitration agreement and (ii) the applicant has not taken any steps in the proceeding. Once these are met, the court is mandatorily required to refer the parties to arbitration unless the plaintiff can show that the agreement is null and void, inoperative or incapable of being performed.” [37] The most recent pronouncement of the Federal Court in Press Metal Sarawak Sdn Bhd's case (supra) is most illuminating: "[28] The present s 10 (1) of the 2005 Act (as amended vide Act A1395 which came into force on 1 July 2011 (the 2011 Amendment) reads: 21 10 (1) 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. [29] Prior to the 2011 Amendment, s 10(1) provided as follows: 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; or

that there is in fact no dispute between the parties with regard to the matters to be referred. 22 [30] Paragraph (b) of s 10(1) was completely repealed by the 2011 Amendment. Previously, there must be in existence a dispute between the parties with regard to the matter to be referred, before a court is empowered to make an order under s 10(1). With the deletion of para (b) the only remaining exception under the present s 10(1) is that the arbitration agreement between the parties is null and void, inoperative or incapable of being performed. ..... [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." (emphasis added) 23 [38] It is clear therefore under section 10(1) Arbitration Act 2005 as amended by the 2011 Amendment, the existence of a dispute is no longer a criterion in deciding whether a stay should be granted. The simple test is for the Defendant to show that the current proceedings are in respect of a matter which is the subject of the arbitration agreement and the applicant has not taken any other steps in the proceedings and further that the arbitration agreement is valid. Once these are met the Court is required to grant a stay of proceedings pending referral to arbitration. Pronouncement [39] For the above reasons, the Court granted a stay of the current proceedings pending reference to arbitration and made an order in terms of prayers 1 and 2 of Enclosure 5. I exercised my discretion and made no order as to costs. Dated: 25 November 2016. - signed - Y.A. LEE SWEE SENG Judge Construction Court Kuala Lumpur 24 For the Plaintiff : Danny Ng (Messrs Danny & Co) For the Defendant : Dolorish Sarim and KSarasvathi (Messrs Dorairaj, Low & Teh) Date of Decision : 17 August 2016