An arbitration agreement allowing parties to choose between litigation and arbitration is valid, provided it does not explicitly state its nullity or incapacity to perform; courts favor interpretations that uphold arbitration.

[1]The arbitration agreement here is rather uncommon but simple enough to be understood even on first reading. It gives the parties to the contract an option, in the event of a dispute, to either go to court or proceed with arbitration. When a dispute did arise in this matter, one party proceeded with filing a writ action in court only to be met by the other party applying to stay the court proceedings on ground that there is an arbitration agreement that requires the dispute to be referred to arbitration.

Before the High Court

[2]The High Court dismissed the stay application made under s 10Arbitration Act 2005

[3]The High Court also held that the arbitration agreement that gives the parties an option to proceed with litigation or arbitration is not a binding arbitration agreement that clearly and unequivocally requires the dispute to be resolved exclusively through arbitration. The High Court further held that such an arbitration agreement is null and void for failing to meet the requirements of the AA 2005 and is also unenforceable as in lacking certainty.

[4]The High Court was of the view that the permissive word “may” offering the parties the option to refer the disputes either to arbitration or to the court with respect to resolving the dispute indicates a discretion vested on the parties and the non-mandatory language of reference to arbitration makes the arbitration clause unenforceable.

[5]The High Court further held that whilst the plaintiff had commenced a legal suit in the High Court and thus elected to proceed with court proceedings, the defendant had not served a notice of arbitration to trigger arbitration proceedings. The High Court was also influenced by the fact that the defendant in its notice of demand had threatened legal proceedings instead of arbitration indicating an opting for proceeding with a suit in court. The High Court also noted that the plaintiff having opted to initiate court proceedings, it had effectively exercised the option for litigation thereby excluding the possibility of arbitration for the dispute.

[6]The defendant, being dissatisfied with the decision of dismissing its stay application, appealed to the Court of Appeal.

In the Court of Appeal

[7]The defendant as appellant before us, argued that the arbitration agreement giving an option to the parties to elect whether to proceed to court or to arbitration in the event of a dispute is a valid arbitration agreement.

[8]Even if there is doubt as to the validity of the arbitration agreement, the court should lean in favour of arbitration.

[9]It was further argued that when a matter comes to the court under a s.10AA 2005court needs to decide is whether there is an arbitration agreement broad enough to cover the dispute in question and for so long as the arbitration agreement is not null or void, not inoperative or incapable of performance, the court is required to grant a stay of the court proceedings pending reference to arbitration.

Whether there is an arbitration agreement between the parties requiring the court to grant a stay of its proceedings in favour of arbitration

[10]The plaintiff, SPNB Aspirasi Sdn Bhd, is a subsidiary of Syarikat Perumahan Negara Berhad (“SPNB”). On 17.5.2018 it entered into a Development and Contra Transaction (“DACT”) Agreement with Setia Awan Management Sdn Bhd, the defendant, for a residential development project in Sitiawan,