Gopal Sri Ram JCA:

[1] We heard this appeal on 20 November 1995, and, at the conclusion of oral arguments, directed Counsel to put in written submissions. Our decision and the reasons therefor now follow.

[2] The facts relevant to this appeal may be stated thus.

[3] On 29 November 1991, the appellant entered into an agreement with the respondent under which the former agreed to construct 260 units of houses for the latter. As each phase of construction was completed, the appellant handed to the respondent certificates of completion of the particular phase. The respondent was to pay to the appellant the sum shown on the certificate.

[4] According to the appellant, the respondent defaulted in making payment on three certificates, namely, certificates 5, 6 and 7. So, on 16 March 1993, it commenced proceedings in the High Court at Penang, claiming from the respondent a sum of RM285,474.30. The respondent entered an unconditional appearance and, on 12 April 1993, delivered its defence. The appellant, by a summons dated 17 June 1993, moved for summary judgment. That summons was never heard because, at some point in time after the summons was filed, the parties agreed that the dispute between them be referred to arbitration. But they could not agree on the arbitrator.

[5] There then followed an exchange of correspondence between the appellant's solicitors and the President of the Persatuan Akitek Malaysia, or PAM, following which, on 1 October 1993, the parties appeared before the arbitrator appointed by PAM and obtained directions on the conduct of the arbitration.

[6] After the commencement of arbitration proceedings, the appellant took steps to discontinue its action in Court. But it ran into difficulties.

[7] There is some correspondence upon the matter and it is necessary for us to produce it in order to appreciate the arguments of Counsel and the decision reached by the learned Judge.

[8] It begins with a letter dated 28 October 1993, from the appellant's solicitors to the respondent's solicitors which reads as follows:

Presgrave & Matthews

Advocates & SolicitorsPenang

28 October 1993

Messrs. Mahinder Singh Dulku & Co TG 3-5, Level 47 Komtar Tower Penang

Dear Sirs

Mahkamah Tinggi Pulau Pinang Guaman No 22-91-1993 Wah Bee Construction Engineering lwn. Pembenaan Fungsi Baik Sdn Bhd.

We refer to the above matter and to the recent conversation between your Mr Wong Yee Chue and our Miss Ooi Eng Choo wherein you have confirmed that you have no objection to our clients discontinuing the above matter with liberty to refile if our client so wishes with costs of RM700 to you.

We enclose herewith a copy of Notis Pemberhentian dated 28 October 1993 filed in Court by way of service on you. We will be forwarding you the cheque of RM700 upon receiving the same from our client.

Kindly acknowledge receipt of the above by signing and returning the duplicate of this letter to us.

Yours faithfully

Sgd.

[9] On the same day as the date of the foregoing letter, the appellant's solicitors filed the notice of discontinuance of which the letter speaks.

[10] They did so, of course, on the basis that the respondent's solicitors had consented to the discontinuance.

[11] A day later, that is, on 29 October 1993, the appellant delivered its statement of case in the arbitration proceedings. That statement of case included the claim which formed the subject matter of the action in Court.

[12] On 1 November 1993, however, the respondent's solicitors withdrew their consent to the discontinuance of the action. Their reasons for doing so appear in their letter which reads as follows:

Mahinder Singh Dulku, Ismadi & Co

Advocates & SolicitorsPenang

1 November 1993

M/s. Presgrave & Matthews Advocates & Solicitors Standard Chartered Bank Chambers 2 Lebuh Pantai 10300 Penang

Dear Sirs,

Re: Mahkamah Tinggi Pulau Pinang Guaman No 22-91-1993 Wah Bee Construction Engineering lwn. Pembenaan Fungsi Baik Sdn Bhd.

We refer to your letter dated 28 October 1993 and are to adv