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FEDERAL COURT PUTRAJAYA
TINDAK MURNI SDN BHD – Appellant
Versus
JUANG SETIA SDN BHD & ANOTHER APPEAL – Respondent
Key Points: - (!) - (!) The court must stay proceedings and refer to arbitration if there is an arbitration agreement, under s 10 AA 2005. - (!) - (!) Arbitration agreements may be in contract clauses (cl 34) fulfilling s 9(1)-(2); such clauses mandate arbitration for disputes arising under the contract. - (!) - (!) s 10 limits the court to checking existence and validity of the arbitration agreement, not merits, when staying proceedings. - (!) - (!) The court must refer to arbitration if a valid arbitration agreement exists; judgment in default cannot override the arbitration clause. - (!) - (!) The Court of Appeal erred by not applying s 10 coherently across both appeals; the arbitration clause prevails, and the stay/arbitration should be ordered. - (!) - (!) The Federal Court answers: Question 1 - negative; Question 2 - negative; i.e., judgment in default cannot sustain against arbitration, and merits should not be considered when s 10 applies. - (!) - (!) The Supreme Court reinstates High Court order staying proceedings and referring to arbitration.
Introduction
[1] When the governing contract between two parties provides for an agreement to arbitrate, should that arbitration agreement be subordinated to a judgment in default obtained in court proceedings, contrary to the terms of the governing contract and effectively rendering the agreement to arbitrate, nugatory?
[2] This was the issue in the two related appeals before us. It necessarily involves a comprehension and application of s 10 of the Arbitration Act 2005 .
[3] In the instant case, one of the contracting parties initiated court proceedings, notwithstanding the existence of an arbitration clause. As no appearance was entered by the other party, judgment in default was obtained. When an application to set aside the judgment in default fell to be determined, together with an application for a stay pending arbitration, the issues before the courts below included the following:
(a) Whether the arbitration agreement or the proceedings in court obtained despite the agreement to arbitrate took precedence; and
(b) Whether the judgment in default ought to be set aside.
[4] On 19 September 2019, we heard both appeals one after the other in relation
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