The respondents' conduct rendered the arbitration agreement inoperative as they submitted to the Court's jurisdiction, thus the stay of civil proceedings was improperly granted.

Suraya Othman JCA:

Introduction

[1] The five respondents/defendants except the 4th respondent/defendant filed a notice of application (encl 7) for a stay of proceedings of the civil suit pending the matter being referred for arbitration pursuant to s 10 of the Arbitration Act 2005 . The High Court on 11 October 2018 allowed the respondents' application for stay (encl 7). The appellant/plaintiff, dissatisfied, appealed against that decision. We heard the appeal and allowed the appeal. We now give our reasons for doing so.

Case Background

[2] The appellant, Kebabangan Petroleum Operating Company Sdn Bhd is a company incorporated for the purpose of carrying out the exploration and production of petroleum pursuant to a Production Sharing Contract for the benefit of Petroleum Nasional Berhad ("Petronas") and its co - ventures.

[3] The 1st respondent, Mikuni (M) Sdn Bhd was the supplier of actuated ball valves for the appellant's offshore activities.

[4] The 2nd to 5th respondents, Yong Chun Khiong, Ismail Bahari, Aminuddin Idrus and Mohd Najib Ahmed @ Ahmad were the directors of the 1st respondent at the material time and were sued for, inter alia, for fraud and/or fraudulent misrepresentation.

[5] On 22 December 2010, the appellant and the 1st respondent entered into the Umbrella Agreement. It was a contractual requirement for the 1st respondent to supply ball valves manufactured by and sourced directly from OMB Valves SpA in Italy ("OMB").

[6] The appellant subsequently discovered that all the ball valves supplied by the 1st respondent were counterfeit ball valves.

[7] The appellant then filed a notice of arbitration dated 23 September 2016 against the 1st respondent. The 1st respondent responded by filing a Response to the Notice of Arbitration dated 20 October 2016.

[8] By a letter dated 8 November 2016, the Kuala Lumpur Regional Centre for Arbitration ("KLRCA") directed the parties to pay a Provisional Advance Deposit in the sum of RM55,800.00 in equal shares by 29 November 2016. On 29 November 2016, the appellant paid its portion of the deposit in the sum of RM27,900.00. However, the 1st respondent failed to pay its portion of the deposit despite numerous reminders sent from November 2016 till March 2017.

[9] The appellant then filed a civil suit on 1 November 2017 against the 1st respondent, for, inter alia, breach of its contractual obligations for supplying counterfeit ball valves to the appellant. The 2nd to 5th respondents who were the directors of the 1st respondent at the material time were sued for, inter alia, for fraud and/or fraudulent misrepresentation.

[10] All the respondents (except the 4th respondent) then applied to the High Court by way of a Notice of Application filed on 6 December 2017 (encl 7) to stay the civil suit (current proceedings) pending the matter to be referred to and disposed of by arbitration.

[11] The respondents' application is premised on cl 31 of the Terms and Conditions of the Umbrella Agreement between the appellant and the 1st respondent.

[12] The appellant objected to the stay application (encl 7) and contended that any arbitration agreement which existed between the parties had become inoperative since the 1st respondent had failed and/or refused to pay its portion of the Provisional Advance Deposit in the sum of RM27,900.00 to KLRCA.

[13] The respondents subsequently filed a Notice of Application on 15 February 2018 (encl 24) to strike out the appellant's Writ against them pursuant to O 18 r 19(1)(b) of the Rules of 2012.

[14] The appellant contended that the striking out application by the respondents of the appellant's Writ (encl 24) tantamount or constitute to the respondents taking steps in the proceedings (taking steps in the civil suit) and by doing so, the respondents can no longer insist on the matter to be referred for arbitration.

[15] On 11 October 2018, both the applications were heard simultaneously by the High Court. The High Court allowed the respondents' application for a s