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2023 MarsdenLR 2225
HIGH COURT MALAYA SHAH ALAM
BIAXIS (M) SDN BHD (IN LIQUIDATION) – Appellant
Versus
PENINSULA EDUCATION (SETIA ALAM) SDN BHD (ENCL 5) – Respondent
[Writ Saman No: BA-22C-7-03/2023]
An arbitration agreement is inoperative if the party is wound-up, and a Liquidator is not bound by such agreements unless explicitly stated.
Headnote:(A) Arbitration Act 2005 - Section 10 - Application for stay of proceedings - Defendant claimed stay based on arbitration clause in PAM Contract 2007 - Court found no valid arbitration agreement binding the Liquidator, thus denying the application - Liquidator's role does not require separate agreement for arbitration binding - Court concluded arbitration agreement inoperative due to company's winding-up status - No dispute existed to invoke arbitration clause. (Paras 10, 17, 25, 30, 34)
(B) Arbitration Agreement - Validity - An arbitration agreement must be binding and applicable to all parties involved, including liquidators - The absence of a dispute precludes the invocation of arbitration. (Paras 22, 33)
Facts of the case:
The Defendant sought a stay of proceedings under the Arbitration Act, asserting that the Plaintiff's claim was subject to arbitration. The Plaintiff, represented by a Liquidator, contested the applicability of the arbitration clause due to the winding-up of the original contracting party and the absence of a dispute. The Court ruled against the stay.
Findings of Court:
The Court determined that the arbitration agreement was inoperative due to the winding-up of Biaxis (M) Sdn Bhd, and the Liquidator was not bound by the arbitration clause. The claim was validly filed in court.
Issues: The main issues included the existence of a valid arbitration agreement, the Liquidator's binding status, the operability of the arbitration agreement, and the appropriateness of arbitration under insolvency law.
Ratio Decidendi: The court held that the Liquidator is not bound by the arbitration agreement as he is not a party to it, and the winding-up renders the arbitration agreement inoperative. Furthermore, the absence of a dispute prevents the arbitration clause from being invoked.
Result: Defendant's application for stay of proceedings dismissed.
| Table of Content |
|---|
| 1. defendant's application for stay based on arbitration agreement. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7) |
| 2. arguments regarding the validity of arbitration clause. (Para 8 , 9 , 10 , 11 , 12) |
| 3. issues to determine regarding arbitration agreement. (Para 13 , 14 , 15 , 16) |
| 4. existence of enforceable arbitration agreement. (Para 17 , 18 , 19 , 20 , 21 , 22 , 23) |
| 5. arbitration agreement's inoperative status. (Para 24 , 25 , 26 , 27 , 28 , 29) |
| 6. nature of arbitral proceedings and insolvency considerations. (Para 30 , 31 , 32 , 33 , 34) |
Defendant's Application for Stay of Proceedings pursuant to s 10, Arbitration Act 2005 - Enclosure No 5)
A. Introduction
[1] The Defendant had filed for a Stay of Proceedings of this suit filed by the Plaintiff pursuant to s 10 of the Arbitration Act 2005 (AA 2005) (at Enclosure No 5) on the basis that the Agreement and Conditions of PAM Contract 2006, cl 34.5 provides for a mandatory requirement for the parties to take any dispute arising between them to Arbitration.
B. Brief Background
[2] The Plaintiff was appointed as a Contractor via Letter of Award dated 28 April 2016 ("LOA") by the Defendant as the Employer for a project known as "Educity" which was subsequently renamed as "Edusentral" ("the Project").
[3] In line with the LOA, parties had entered into the Agreement and Conditions of PAM Contract 2007 (With Quantities) and Amendments, Amplifications and Supplementary Clauses to Agreement and Conditions of Building Contract 2 ("the Agreements").
[4] The execution of both the LOA and the Agreement and Conditions of PAM Contract 2006 is not disputed by the Biaxis (M) Sdn Bhd and the Defendant. However, Biaxis (M) Sdn Bhd was wound-up on 20 April 2022 by the Penang High Court and consequentially, one Dato' Dr Shanmughanathan a/I Vellanthurai was appointed as the Liquidator ("Liquidator").
[5] On 3 March 2023, the Plaintiff (the Liquidator initiated an action in the name of the Plaintiff) commenced this suit (BA-22C-7-03/2023) against the Defendant, claiming for an alleged outstanding unpaid sum held by the Defendant amounting to RM13,100,556.25 due to the Plaintiff under the Project.
[6] However, on 11 April 2023, the Defendant filed via Enclosure No 5 for a Stay of Proceedings pursuant to s 10 AA 2005 for which this Court had dismissed the Defendant's application.
[7] Being unsatisfied with this Court's decision, the Defendant has filed a Notice of Appeal at the Court of Appeal and as such this Grounds of Judgment is written for the purpose of the same.
C. Grounds Of Application - Enclosure No 5
[8] Clause 34.5 of the Agreement and Conditions of PAM Contract 2007 (With Quantities) has provided that any disputes between the Plaintiff and the Defendant ought to be referred to Arbitration.
[9] The Plaintiff has erroneously filed this action in this Court to the contrary to the Agreements as this Court is not the appropriate forum to resolve the disputes between the parties and as such, is an abuse of Court process. The Arbitration Clause is valid and enforceable under s 9 AA 2005.
D. Opposing Defendant's Application
[10] The Liquidator is not bound by the Arbitration Clause in the Agreements as he is not party to the same, therefore, there is no Arbitration Agreement pursuant to s 9 AA 2005.
[11] Clause 34.5 which has been referred to by the Defendant is inoperative as Biaxis (M) Sdn Bhd has been wound-up and as such, an Arbitration Agreement (if any) "... although not void ab initio, "have ceased for some reason to have future effect" or "have become inapplicable to the parties and their dispute" [see: McEwan and Herbst at s 3:57; Lamm and Sharpe, at p 301; see also Casey, arc h.3.7,2]" (the Plaintiff's submission).
[12] The nature of arbitral proceedings would be detrimental to the affected creditors which is contrary to the purpose of insolvency law as an arbitral proceeding is much more expensive and time consuming which will absolutely prejudice all other creditors since th
