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Arbitration is private. It doesn’t have the tools to dig into the corporate files. It’s usually controlled by arbitrators who want repeat business from corporations, not from the injured persons.
-Ralph Nader, political activist
Arbitration is a form of alternative dispute resolution. It involves both parties agreeing to appoint an arbitrator(s) to decide a dispute.
Arbitrations gain life from the contract between the parties.
Taking steps
Assume a scenario.
Lassie and Doughnut sign a contract (to supply dog treats) in 2011. It (contract) contains an arbitration clause.
Doughnut breaches the contract in 2021 by supplying rotten treats.
Lassie files a Writ in the High Court of Kuala Lumpur claiming damages of RM10m (via her solicitors, Messrs Lucy). She serves Doughnut with the papers.
Doughnut needs time to collate his documents and to instruct his solicitors (some 10 years having passed). Doughnut engages Messrs Duke and instructs them to request a 2-week EOT to file his defence. Messrs Duke do so, with Messrs Lucy not objecting.
Subsequently, Doughnut discovers the contract. Upon perusal, the arbitration clause is discovered.
Doughnut then files an application to stay the Writ and to refer the proceedings to arbitration.
The subtle jurisprudential change in determining a “step in the proceedings”
Previously, it would be a foregone conclusion that Doughnut’s application would be dismissed. This would be due to the fact that seeking (and obtaining) an EOT to file one’s Defence would constitute taking a “step in the proceedings”, as per S. 10 of the Arbitration Act 2005:
10. Arbitration Agreement and Substantive Claim before Court
1) 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 other 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.
Recently, the CA determined that this is not always so.
Airbus Helicopters
In Airbus Helicopters v Aerial Power Lines [2024] MLJU 188, the CA determined that the mere request for an EOT would not always constitute a step in the proceedings.
Facts
In Airbus, the CA set-out a backdrop of facts (para. 48). Briefly-put, the Defendant company was a wholly-owned subsidiary of a French company. There were difficulties in obtaining instructions and documents given intervening holidays in France (Bastille day).
The CA drew a fine distinction between asking whether the step was merely preparatory to “taking any other steps” or if it constituted the “step itself”. The CA ultimately held that on the facts, it would be too simplistic to determine that merely asking for an EOT would constitute a step:
[53] With the greatest of respect, it would be too simplistic and indeed too strict an approach, steeped in technical traps, to say that a mere request for an extension of time to file Defence would ipso facto tantamount to “taking any other steps in the proceedings.” An approach consistent with the paradigm shift in encouraging parties to go for arbitration and to hold them to their bargain to so proceed in the arbitration agreement would resonate with the overall focus of s 8 of the AA 2005 which is that no court shall intervene in matters governed by this Act, except where so provided in this Act. If we may be so bold as to say that when intervention is allowed as in s 10 of the AA it would be more predisposed to promoting the bargain earlier struck by the parties in favour of arbitration considering that the plaintiff had coyly commenced litigation in breach of the arbitration agreement without candidly communicating to the defendant that in spite of the bargain struck it had now no intention of so arbitrating for whatever may be the reasons.
The CA caveated this by stating that in determining whether a course of action amounts to a “step” would be a fact-sensitive matter:
[10] What is less clear is whether a request for an extension of time to file Defence (“the Request”) is also indicating an unequivocal intention to abandon the arbitration agreement and instead proceed with litigation. Has the defendant by so asking, waived its right to arbitration? It would appear that such a determination would invariably be fact-centric and fact-sensitive.
The CA ultimately held that the request for an EOT to deliver a defence would not amount to a step.
Inherent tension and conflicting decisions
There are 2 schools of thought (one developed, the other developing).
Traditionally, a request for an EOT would constitute a “step in the proceedings”. The CA in IFCI v Archipelago Insurance [2022] 2 MLJ 971 (which was referenced in Airbus) cautioned that the number of steps was immaterial, with the request constituting the first “step”:
[31] In this regard, we agree with counsel for the plaintiff that the judicial commissioner fell into error in distinguishing Yeo Eng Lam case merely because two steps had been taken in the proceedings by the defendant in that case. Perusing the authorities alluded to earlier, the number of steps taken is immaterial as the pertinent consideration is whether there is any other steps taken in the proceedings as envisaged under s 10(1) of the Act. In any event, in the present case, we find the first step in the proceedings taken by the second defendant was the request for an extension of time to file the statement of defence and secondly, the filing and the serving of the same on the plaintiff.
The HC in UM v Esa Jurutera [2023] MLJU 1130, Delta Corp v Michael Lwee [2023] MLJU 630 and MISC v Cockett Marine [2022] 8 MLJ 786 all decided that requests for an EOT would constitute a step.
However, in Sumber Khazanah v Apex Communications [2023] MLJU 2260, the HC held that the request for an EOT would not constitute taking a step. This accords with Airbus.
Clarity from the FC on this thorny issue would be timely, to say the least.
Reconciling the Airbus decision
I am of the view that the Airbus decision must be read alongside Lee Swee Seng JCA’s decision of JSB v ACSB [2024] 1 MLJ 195.
Here, His Lordship decided that when one refers a matter to arbitration and then refuses to satisfy one’s part of the arbitral deposit, that would amount to an abuse of process. In such a situation, a party would be at liberty to move the Court to set-aside the stay order and for the matter to proceed to Court.
There is an overarching logic here that may be lost at first blush. The CA appears to be giving due credence to the bargain struck by the parties.
However, when one utilises the terms to gain an unfair advantage (e.g., referring the matter to arbitration and then allowing it to languish), the Courts will not hesitate to strike-down such an abuse.
I am of the view that Airbus must be read based on its own peculiar facts, with the judgment of JSB v ACSB acting as penumbra. Should it be discovered that Airbus conducts itself in a manner designed to stifle the arbitral proceedings, the Court would be at liberty to unseat the stay order and direct the matter to proceed (in Court).
Conclusion
The thorny issue of requesting an EOT (and whether that constitutes a step in the proceedings) is far from resolved. It is hoped that this issue is canvassed before the Federal Court. A cogent, decisive pronouncement would be a great boon to practitioners (much like the Sinnaiyah decision, which conclusively determined the standard of proof in civil proceedings).
In the Lassie v Doughnut situation outlined above, the facts would play a decisive role in determining whether the matter goes for arbitration.
GAVIN JAYAPAL
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