By an earthworks contract (the contract) dated 30 October 1996 between the first defendant and the plaintiff, the first defendant engaged the plaintiff to carry out earthworks for a theme park in Johor known as the Agarta Theme Park. The total contract sum was in the region of RM24.1m. As a collateral for the payment of the works done in pursuance of the contract, the second defendant granted an irrevocable guarantee in favour of the plaintiff up to an aggregate sum of RM15.5m (the guaranteed sum). The contract contained an arbitration clause which required that any dispute or difference between the plaintiff and the first defendant arising in connection with the contract be referred to and determined by an arbitrator. The plaintiff commenced work. It was, inter alia, a term of the contract that if the cost of the earthworks exceeded the guaranteed sum and the excess amount was not secured by any additional guarantee the plaintiff was entitled to stop the earthworks.

On 3 June 1997, the plaintiff informed the first defendant that the cost of the earthworks done had reached the guaranteed sum and sought approval to perform works exceeding the guaranteed sum. The plaintiff also informed the first defendant that it would stop work if approval and/or the additional guarantee was not forthcoming. The first defendant did not respond. The plaintiff thus gave notice of termination pursuant to the relevant clause in the contract. Upon the plaintiff complying with the requirements of the contract by delivering to the defendants and to the project architect the required reports, the project architect issued a final certificate for RM17,459,445.69 for works done under the contract. Although demand has been made, the defendants have failed to effect payment. Hence this suit. The plaintiff has filed an application (encl 8) for summary judgment against the defendants. By way of encl 13, the first defendant seeks to stay the present proceedings on the premise that the matter ought, in accordance with the contract, be referred to arbitration for its resolution.

The preliminary issue

Both the second defendant and the plaintiff contend by way of a preliminary issue that the plaintiffs application for summary judgment (encl 8) and the first defendants application for a stay of proceedings (encl 13) ought to be heard together and that encl 8 be determined first and in respect of any balance in dispute, the matter be referred to arbitration. The first defendant opposes this proposition.

Finding of the court

Pivotal to the second defendants and the plaintiffs stand is the view that the search for the existence of a dispute or difference to be arbitrated in considering an application for a stay of proceedings under s 6 of the Arbitration Act 1952 (the Act) is fundamentally the same as the enquiry to be made as to whether there exists a defence or whether there are triable issues in the application for summary judgment.

It is normal that in construction contracts when the contractor files a recovery claim followed immediately by an application for summary judgment, the said application would generally be met by a cross-application from the employer to stay the action pending arbitration. This poses the immediate problem to the court as to which application should be heard first.

The second defendant and the plaintiff rely heavily on the basis that arbitration agreements generally make it a pre-condition of the right to arbitration that there first be a dispute or difference between the parties about a matter covered by the arbitration agreement. Referring to the affidavit evidence of the respective parties, the first defendant argued that it had in its affidavit disputed the plaintiffs claim whereas the plaintiff had in its affidavit contended that there is no defence to this action. Relying on the words of Kerr J in SL Sethia Liners Ltd v State Trading Corp of India Ltd [1986] 2 All ER 395, the second defendant described such cross-