JUDGMENT

Leong Wai Hong J:

[Stay Of Proceedings Pending Arbitration Notwithstanding Insolvency Of A Party To The Arbitration And Co-Defendants Who Are Not Parties To The Arbitration]

Introduction

Issues

[1] The issues before me, [as framed by the plaintiffs in their reply written submissions at para 2 and modified by me], are:

i. Whether an arbitration agreement remains valid if one party becomes insolvent;

ii. Whether the arbitration agreement is contrary to the objectives of the insolvency regime and against public interest under s 4 and/or s 10 of the Arbitration Act 2005 ["AA 2005"];

iii. Whether a stay of the plaintiffs' suit should be granted as the Second to Sixth defendants are not parties to the arbitration agreement between Pustaka Efektif Sdn Bhd (In Liquidation) ("Pustaka") [the plaintiffs in this suit are Ler Cheng Chye and Lum Tuck Cheong as liquidators of Pustaka] and the 1st defendant Aturan Prisma Sdn Bhd ("Aturan"); and

iv. Whether a stay of the plaintiffs' suit should be granted if there are no dispute necessitating reference to arbitration.

Projects

[2] Aturan is the main contractor for two projects known as the "Scott Tower Project" and the "PR1MA Tebrau Project" located at Johor Bahru ["Projects"]. Aturan employed Pustaka as the sub-contractor for the Projects.

[3] The contractual relationship between Pustaka and Aturan are governed by two Letters of Award and the Agreement and Conditions of PAM Contract 2006 (Without Quantities) ("PAM Contract"). [See encl 8 p 15 at paras 8 to 10].

Arbitration clause

[4] The PAM Contract has an arbitration clause in cls 34.1 and 34.5.

[See Enclosure 8 p 16 at para 12].

[5] Pustaka was wound up by a court order on 31 December 2020.

Suit

[6] The plaintiffs who are liquidators of Pustaka has filed a writ action against Aturan and five other defendants. In these Grounds of Judgment, I shall call the 1st defendant Aturan or the 1st defendant.

[7] The Second, Third, Fourth and Sixth defendants are the directors of Aturan at the material time. The Fifth defendant served as the Chief Financial Officer of Aturan from 2013 until November 2022. [See encl 21 para 33a and Statement of Claim from paras 1 to 7]. In these Grounds of Judgment, I shall call the plaintiffs the Liquidators or the plaintiffs.

[8] The reasons for the suit are as follows.

The Liquidators sue Aturan

[9] Aturan is retaining a total retention sum of RM 8,665,951.95 for the Projects ["Retention Sum"] on the ground that Pustaka owes Aturan an unpaid outstanding sum of RM 33,289,292.18 due under the Projects.

[10] Aturan claims it is entitled to a set-off of this Retention Sum against the unpaid sum of RM 33,289,292.18.

[11] The Liquidators refused to recognise Aturan's claim of RM 33,289,292.18 on the ground it was not proven. The Liquidators further took the position that the withholding of the Retention Sum to set off the claim of RM 33,289,292.18 is a void disposition of property pursuant to s 472(1) of the Companies Act 2016. The Liquidators thus sued Aturan for the Retention Sum.

[See plaintiffs' written submissions in encl 21 at para 4].

The Liquidators Sue The 2nd To 6th Defendants

[12] The Liquidators also sued Aturan's two directors as the 2nd and 3rd defendant, as well as Aturan's Chief Financial Officer as the 5th defendant for not directing Aturan to release the Retention Sum to them.

[13] The Liquidators contend that the 2nd defendant, 3rd defendant and 5th defendant are jointly and severally liable for not directing Aturan to release the Retention Sum to them, without the need for an arbitrator's decision on the dispute. [See plaintiffs' written submissions in encl 21 para 33 a].

[14] To succeed, the Liquidators will have to overcome a trite principle of law, first stated in the century-old case of Said v. Butt [1920] 3 KB 497, that directors are exempted from personal liability for the contractual breaches of their company if their acts, in their capacity as directors, are not in themselves in breach of any fiduciary or other pe