SAM Sdn Bhd V SPNB Aspirasi Sdn Bhd [2025] 4 MLRA 619

Court Of Appeal, Putrajaya

Arbitration Agreement disputes on deciding whether the grant for Stay Of Proceedings for arbitration should be favoured

1. The Respondent (Plaintiff in the High Court) is SPNB Aspirasi Sdn Bhd, a subsidiary of Syarikat Perumahan Negara Berhad (“SPNB”).  The Appellant (Defendant in the High Court) is SAM Sdn Bhd, a development company.
2. On 17 May 2018, the parties entered into a Development and Contra Transaction Agreement (“DACT Agreement”) for a residential development project in Sitiawan, Perak. 
3. Under this agreement, the Appellant was tasked with undertaking the development works and the Respondent agreed to purchase 20 plots of land and transfer 1,169 units valued at RM248,035,014.00 as part of the financing arrangement.
4. Disputes arose regarding the transfer of the lands.  Consequently, the Appellant terminated the DACT Agreement in July 2021 and demanded compensation of RM311,897,723.00.
5. Clause 18 of the DACT Agreement contained an asymmetrical clause which forms an Arbitration agreement stating that – “In the event that any dispute or difference whatsoever shall arise between parties touching or concerning this Agreement or its construction or effect or as to the rights, duties or liabilities of either party or of parties hereto under this Agreement in connection with the subject matter of this Agreement the same maybe (sic) referred to any court in Malaysia or to arbitration in accordance with the provisions of the Arbitration Act 2005 or any statutory modification or re-enactment thereof.” [Emphasis added]
6. In response to the termination, the Respondent, initiated a civil suit in the High Court seeking damages for breach of contract.  Before taking any other procedural steps in the lawsuit, the Defendant filed an application under section 10 of the Arbitration Act 2005 (“AA 2005”) requesting a mandatory stay of the court proceedings in favour of arbitration.
7. The High Court dismissed the stay application on several grounds: 
8. The clause lacked key components (seat, number of arbitrators, and appointment mode), rendering it null, void, inoperative, or incapable of performance under section 10(1) AA 2005. 
9. The permissive language “may” giving an option between court and arbitration meant there was no mandatory and exclusive commitment to arbitrate.
10. The Respondents, having filed the court action first, had effectively exercised the litigation option and extinguished the possibility of arbitration.
11. Dissatisfied, the Appellant appealed to the Court of Appeal.

1. Whether there is an Arbitration Agreement between the Parties requiring the court to grant a stay of its proceedings in favour of Arbitration. 
2. Whether the giving of an option to the parties to proceed to court or to arbitration renders the agreement null and void, inoperative or incapable of being performed. 

(1) Whether there is an Arbitration Agreement between the Parties requiring the court to grant a stay of its proceedings in favour of Arbitration. 

(a) This issue is answered in the positive. The court firstly define “Arbitration Agreement” by stating that there will be no valid arbitration agreement if the key components of an arbitration agreement such as the seat and the number of the arbitrator are not agreed upon. 

(b) Relying on section 22(2) of AA 2005, an arbitration agreement cannot fail just because the parties failed to decide on the seat of arbitration. An observation is made where if the applicable law is Malaysian Law to both parties, then the dispute about deciding the seat of arbitration vanishes. 

(c) Having considered that as well, the dealings between the parties would only be domestic arbitration, in which there will be one arbitrator at an arbitration seat in AIAC and the absence of the parties’ agreement on this does not invalidate the arbitration agreement. 

(d) The court further stated that since the arbitration agreement is made with reference to the AA 2005, and any key components that are not agreed upon will be relying on the default provisions stated in the Act. 

(e) Thus, the lack of agreement on other key components of arbitration will not prejudice the parties or the arbitration. 

(f) As the court had established there is a valid arbitration agreement, the court cited a precedent from Far East Holdings Bhd v Anor v. Majlis Ugama Islam dan Adat Resam Melayu Pahang & Other Appeals [2018] 1 MLRA 89 at [108] and [109], where there is a mandatory need for the court to stay the proceeding if the court is satisfied that there is reason why the matter should be referred to the arbitration. 

(g) This means, the court must grant a stay of proceedings to allow the matter to be referred to arbitration. 

(2) Whether the giving of an option to the parties to proceed to court or to arbitration renders the agreement null and void, inoperative or incapable of being performed. 

(a) This issue is answered in the negative. The court found that while the word “may” in clause 18 is permissive and initially offers options, it exists because parties are not contractually compelled to litigate or arbitrate if they choose to live with a dispute. 

(b) However, the moment either party decides to resolve the dispute and validly elects the arbitration route, a binding and enforceable arbitration agreement crystallises.  The option mechanism does not diminish contractual certainty or mandatory commitment.

(c) Yet, filing a court case first does not exhaust or erase the alternative option granted to the opposing party.  The court must test the situation based on section 10(1) of the AA 2005 which is whether there is a valid arbitration agreement that is not null and void and which is not inoperative or not incapable of being performed. 

(d) For the purposes of a section 10 stay, a prima facie finding of a valid arbitration agreement is entirely sufficient to grant a stay. 

(e)The test as set out in section 10 of the AA 2005 is that there must be –

1. 1. an arbitration agreement;
   2. a matter which is the subject of the arbitration agreement; and 
   3. that the arbitration agreement is not null and void, inoperative or incapable of being performed.

(f) The above requirement must all be on the basis that the applicant for the stay has not taken any other steps in the proceedings which in this case is not disputed. Since the Appellant opted for arbitration by applying for a stay before taking any other steps in the civil suit, a binding arbitration agreement came into active existence.

(g) The court further added that there is no exhaustion of rights just because one party has opted for litigation instead of arbitration. Both are equally valid rights in that the plaintiff may exercise its rights to go to court of arbitration. Choosing one way of resolution does not extinguish the other. 

(h) However, the moment the parties choose to go for arbitration, the decisions will be binding upon them and they must comply. The court cited that section 10 of AA 2005 has an inherent preference towards upholding arbitration agreement once there is an agreement to arbitrate if the parties have agreed beforehand to proceed with arbitration.  

(i) In this situation, the requirement of section 10 of the AA 2005 is met and the arbitration agreement ought to be upheld; the court proceedings stayed. 

1. The Court of Appeal allowed the appeal and set aside the order of the High Court.
2. The court granted the order to stay the civil court proceedings pending reference of the dispute to arbitration as requested by the Appellant under section 10 of the AA 2005.
3. Costs of RM15,000.00 were awarded to the Appellant.

1. Providing a choice between litigation and arbitration does not invalidate a dispute resolution clause.   The clause operates as a standing offer; the moment a party invokes the arbitration limb, it restricts the other party from pursuing court action.
2. If a contract leaves dispute paths open, filing a lawsuit first does not guarantee a victory in the forum selection.  The defending party can immediately halt the litigation using a section 10 stay, provided they do not step further into the court proceedings (such as filing a defence or active merits applications).
3. Drafters need not be overly concerned if they forget to specify the seat of arbitration, the applicable rules, or the number of arbitrators. Although it is best practice to include these terms expressly, the Malaysian Arbitration Act 2005 provides default provisions that help ensure the arbitration agreement remains effective.