The arbitration agreement remains valid and enforceable despite the contractor's liquidation, emphasizing the doctrine of separability and the need to uphold contractual agreements.

JUDGMENT

Lee Swee Seng JCA:

[1] The narrative of this case was rather predictable. A contractor appointed under a PAM Contract had gone into liquidation. The employer thus terminated the employment of the contractor. The contractor commenced a suit in the High Court to claim for an amount due under some interim payment certificates. The employer disputed the claim and applied under s 10 Arbitration Act 2005 (" AA 2005") for a stay of the Court proceedings pending reference to arbitration as there was a valid arbitration agreement in the PAM Contract 2007 (With Quantities) ("PAM Contract") that the parties had entered into.

[2] The argument against the stay became more novel when the liquidator for the contractor in liquidation contended that the arbitration agreement had become inoperative with the liquidation and that the high costs and expenses in arbitration would justify the Court refusing a stay in preference to a less expensive method of resolving disputes having regard to the cash flow problem of the contractor.

[3] Some cases from other jurisdictions like the UK, Canada and Singapore were cited as support for the proposition that upon liquidation, a liquidator is entitled to treat an arbitration agreement as being inoperative and to fall back on the default mode of resolving disputes via a Court action.

[4] The contractor further argued that winding-up of a company is an action in rem and that the insolvency regime would prevail over arbitration as the insolvency regime seeks to address the rights and obligations of the company in liquidation vis-a-vis all creditors and not just the employer and that the employer is an unsecured creditor like most creditors in the chain of construction contracts.

[5] The employer on the other hand argued that the arbitration agreement remains intact and subsisting and the liquidation does not alter the pre-agreed mode of resolving the parties' disputes via arbitration. The arbitration agreement, it was argued, is valid and enforceable as the termination of the employment of the contractor in this case, does not affect the pre-existing rights and obligations of the parties before the termination and these are enforceable via the arbitration agreement which is a term of the contract.

[6] The employer further argued that the Court cannot rewrite the contract for the contractor on ground that it is more expedient, efficient and economical to proceed with litigation considering the financial straits the contractor found itself to be in, having gone into liquidation.

[7] The employer highlighted the fact that whilst there may be matters best left to a winding-up Court to decide especially in the area of disputes over preferential treatment of debts or the nature of the sums retained with respect to whether there was a trust, by and large, the present dispute has not ventured into that territory reserved for the Insolvency Courts. For the present moment, the parties are at the stage of disputing the amount owing by or to the other in a context where some work had been done by the contractor and employment having been terminated by the employer, the additional sum incurred in getting a rescue contractor to complete the works and the usual issues of defects and delays, if any.

At The High Court

[8] The High Court found much justification for concluding that a liquidation renders the arbitration agreement "inoperative" in its reading of the cases cited from other jurisdictions. It was further enamoured not to grant a stay of the Court proceedings after considering the prohibitive costs of arbitration that a company in liquidation would have to surmount, thus not justifying a stay of the Court proceedings.

[9] The High Court therefore dismissed the s 10 AA stay application. Aggrieved by the decision, the employer as appellant here had appealed to the Court of Appeal. The parties shall be referred to as the Contractor or plaintiff and the Employer as the defendant.

[10] The Contractor is Biaxis (M) Sdn