Court of Appeal (Putrajaya)

Application for stay of proceedings pending arbitration


1.    The Appellant is the main contractor who contracted works with Syarikat Bekalan Air Selangor Sdn Bhd (“Syabas”) and had engaged the Respondent as a sub-contractor to carry out water works project.

2.    It is agreed by both parties that the terms and conditions spelt out in the contract entered into by the Appellant and Syabas shall also be the terms and conditions governing the contract entered into between the Appellant and the Respondent.

3.    Accordingly, the parties had repeatedly in disputes where resulted with the termination of the contract of the Appellant and Syabas.  This is because the Respondent has failed to comply to the notice of default issued by Syabas to the Appellant.

4.    As a result, the Appellant terminated the sub-contract with the Respondent.

5.    Dissatisfied with the termination, the Respondent filed an application to the High Court.  The Appellant then filed an application for stay of proceedings pending arbitration pursuant to Section 10 of Arbitration Act 2005 (“Act 646”).

6.    The High Court rejected the Appellant’s application.  Therefore, the Appellant appealed against the decision of the High Court.

Issue 1.    Whether the Appellant fulfilled all the requirements for a proceedings to be stayed and referred to the arbitration.

1.    The requirements for arbitration –

(a) Clause 54 of the contract between the Appellant and the Respondent was drafted as follows:

“in the event of any dispute or difference arising between the parties to the contract, the said dispute or difference shall be referred to arbitration.”

(b) Meanwhile, the root of the application by the Appellant is based on Section 10(1) of Act 646 which provides as follows:

“a court before which proceedings are brought in respect of a matter which is the subject of an arbitration agreement, shall where a party makes an application before taking any steps in the proceedings, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed; or that there is in fact no dispute between the parties with regard to the matters to be referred”.

(c)  Next, the following ingredients must be fulfilled in order for a proceedings to be granted a stay and referred to arbitration pursuant to Section 10 of Act 646.

(d) Based on the Section 10(1) of Act 646, it was decided by the Court of Appeal that –

(i)    there must be an arbitration agreement or clause exits between the parties to a proceedings;

(ii)   the application to stay the proceedings and to refer the matter to arbitration, must be made by both or either one of the parties;

(iii)  the application is made before the applicant takes any other steps in the proceedings;

(iv) that the agreement is not null and void, inoperative or incapable of being performed; and

(v)  that there is in fact dispute exists between the parties with regards to the matters to referred.”

(e)  The Court took note that there is an arbitration clause agreed by both parties to refer to any dispute arose, therefore, fulfilling the first requirement.

(f)   For the second requirement, it is clear that an application for the dispute to be referred to arbitration has been made by the Appellant.

(g) The third requirement has also been fulfilled by the Appellant as the Court rejected the contention of the Respondent stating that the Appellant has taken steps in the proceedings.  As such, the Court held as follows:

  “the Appellant cannot be said to have abandoned its right to stay application under Section 10 of Act 646 based on the evidence that the Appellant had expressly reserving its right to put in a stay application pending arbitration as per the appellant’s first affidavit.” 

(h)  As for the fourth requirements, there is no issue on whether the arbitration clause in the agreement is either null and void or inoperative or incapable of being performed.

(i)    The fifth element is fulfilled when it is clear that the parties are disputing, particularly on the failure to agree on the sum outstanding.

(j)    The Court is satisfied that all the requirements under Section 10 of Act 646 is fulfilled pursuant to the facts and evidence stipulated above.

(k)  Therefore, the Court shall granted a stay of proceedings and referred the matter to an arbitration as per Section 10 of Act 646 once the Court is satisfied that the ingredients have been fulfilled.

Decision 1.    The Court of Appeal allowed the appeal with order as to costs against the Respondent.
Key Take Away

1.    An arbitration is recognized as one of the alternative for dispute resolutions. In Malaysia, matters relating to arbitration is governed by the Malaysian Arbitration Act 2005 and the centre is currently widely known as the Asian International Arbitration Centre (“AIAC”).

2.    As for the arbitration agreement between parties, it is worth noting that an arbitration agreement may exist in the form of an arbitration clause or in a form of separate agreement.



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