Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd (and Another

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Transcript of Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd (and Another

No Job NameJuang Setia Sdn Bhd (and Another Appeal)
Federal Court – Civil Appeal Nos. 03-2-11/2018(B) and 02(i)-104-11/2018(B) Tengku Maimun Tuan Mat CJ, Azahar Mohamed CJ (Malaya),
Nallini Pathmanthan, Vernon Ong Lam Kiat and Abdul Rahman Sebli FCJJ
February 17, 2020
Arbitration – Judgment in default – Stay and setting aside – Appeal – Respondent initiated court proceedings and obtained judgment in default despite agreement to arbitrate – Whether agreement between parties to arbitrate should be subordinated to judgment in default obtained in court proceedings contrary to the terms of the governing contract thereby rendering the agreement to arbitrate nugatory – Whether the court in hearing an application to set aside a judgment in default where a valid arbitration clause is binding on the parties, should consider the merits or existence of the disputes raised – Arbitration Act 2005, ss 9(1), (2), 10
The appellant had entered into a building construction contract with the defendant. The contract was a standard form Pertubuhan Akitek Malaysian contract. Clause 34 of the said contract specifically provided that all disputes between the parties are to be referred to arbitration. The respondent subsequently terminated the contract as a result of the unresolved disputes between the parties and commenced proceedings in the High Court claiming payment of monies allegedly due and owing to it for work done. It thereafter proceeded to enter judgment in default against the appellant. The High Court upon the application by the appellant, set aside the judgment in default on the ground that there was a defence on the merits and as there was a valid arbitration clause which was binding on the parties. The proceedings were accordingly stayed pending referral of the disputes to arbitration.
The appellant appealed separately against the setting aside of the judgment in default and against the stay pending arbitration. The Court of Appeal found in favour of the appellant and reversed the High Court's decision to set aside the judgment in default and restored the said judgment. Based on its finding that the judgment in default was regular, the Court of Appeal proceeded to allow the appeal against the stay of proceedings pending arbitration without considering or addressing the matter. Hence the instant appeal on the following questions of law namely, whether a judgment in default can be sustained when the plaintiff who obtained the said judgment is bound by a valid arbitration agreement/clause and the defendant has raised disputes to be ventilated via arbitration pursuant to the arbitration clause ("Question 1"); and whether the court in hearing an application to set aside the judgment in default where a valid
[2020] 2 AMR 387
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arbitration clause is binding on the parties, should consider the merits or existence of the disputes raised by the defendant ("Question 2").
In support of its appeal the appellant contended inter alia that the Court of Appeal had erred in failing to consider the arbitration clause and its effect in light of s 10 of the Arbitration Act 2005 ("the Act") and in dealing solely with the merits of the dispute and concluding that there was no defence on the merits. The respondent in reply submitted inter alia that the appeal with regard to the default judgment had to be determined first as there would be no need to consider the appeal on the stay if the default judgment is maintained.
Issue
Whether an agreement between parties to arbitrate should be subordinated to a judgment in default obtained in court proceedings contrary to the terms of the governing contract and thereby effectively rendering the agreement to arbitrate nugatory.
Held, allowing the appeal with costs of RM20,000 to the appellant subject to allocator, setting aside the order of the Court of Appeal and reinstating the order of the High Court; Questions 1 and 2 answered in the negative
1. Applying s 9(1) and (2) of the Act, it follows that clause 34 of the contract comprises an arbitration agreement which stipulates that all disputes "shall" be referred to arbitration. The use of the word "shall" underscores the mandatory nature of the agreement between the parties. Hence all disputes arising under the contract are to be referred to arbitration unless the arbitration agreement in clause 34 is deemed null, void, inoperable or incapable of being performed. [see p 398 paras 43-46; p 400 para 49]
2. From the statutory perspective, s 10 of the Act remains applicable even when a judgment in default has been procured. This would mean that the court is bound to consider the matters set out in s 10(a), (b) and (c) of the Act notwithstanding the judgment in default. In this regard, by initiating the court proceedings, the respondent had thereby breached the arbitration agreement as contained in clause 34 of the contract. The said judgment in default cannot or ought not to act as bar to arbitration. It would render the arbitration agreement nugatory if the commencement of litigation by the respondent in breach of clause 34, is condoned. [see p 398 para 48(i) - p 399 para 48(iii); p 401 para 53(a) - p 402 para 53(a)]
3. The application for stay pending arbitration raised a jurisdictional point which the court was bound to consider. This could only have been done had the Court of Appeal considered the form and substance of the appeals in totality and appreciated the significance of both applications and which applications clearly, were intertwined. [see p 399 para 48(iv) - p 400 para 48(iv); p 408 para 72 - p 409 para 72]
All Malaysia Reports
388 [2020] 2 AMR
4. In the circumstances and notwithstanding the initiation of the civil suit and unless the arbitration agreement is null, void or inoperative, it was incumbent upon the court to carry out its function under s 10 of the Act namely, to refer the dispute to arbitration. The failure by the Court to Appeal to consider these issues amounts to a fatal flaw, warranting appellate intervention. [see p 400 paras 49-50; p 408 para 72 - p 409 para 72]
5. By virtue of clause 30.3(ii) and based on the use of the words "shall be referred to an arbitrator for judgment under clause 34.0" therein, disputes or differences relating the employer's i.e. the appellant's rights to set-off or counterclaim or any allegations of defective work, are mandatorily required to be referred to arbitration. [see p 403 para 53(b) - p 404 para 53(b); p 408 para 72 - p 409 para 72]
6. Advocates and solicitors have an overriding duty to the court and ultimately the administration of justice as a whole and are duty bound not to suppress facts or law which are either against their client's case or does not support it. Suppressing or deliberately presenting a legal position that does not fully disclose the facts or the law would be a grave dereliction of the responsibilities of an advocate and solicitor. [see p 405 para 55]
7. Where a passage in a judgment is sought to be relied upon, it is incumbent upon counsel to set out and explain:
(a) how the passage cited is applicable to the matter before the court;
(b) the nature of the case cited;
(c) the facts of the case, particularly whether and how such facts are relevant, similar or distinguishable from the matter before the court;
(d) the context in which the statement relied upon was made;
(e) whether the statement amounts to the ratio or is obiter;
(f) whether the case is being cited for a principle of general application; and
(g) whether the statement comprises an expansion of an existing principle;
failing which, such randomly cited passage would be of little or no assistance to the court in adjudicating the matter. [see p 407 para 67]
8. Res judicata is inapplicable to the present factual and legal matrix particularly when the judgment in default is being actively sought to be set aside. The attempt to stifle the appellant from having its case heard by way
Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd (and Another Appeal)
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of arbitration as agreed upon, amounts to a breach of the fundamental principles of natural justice. [see p 407 para 69 - p 408 para 69]
9. The effect of clause 34 is not to subordinate a judgment in default neither does s 10 of the Act have the effect of subordinating a judgment in default. Bearing in mind the agreement by the parties for arbitration to be the sole and exclusive mode of dispute resolution, the breach of the said agreement and the subsequent obtaining of the judgment in default by the respondent cannot then be said to amount to a subordination of a judgment by an arbitration clause. [see p 408 para 70]
10. On the facts and in the circumstances, the Court of Appeal had erred in arriving at the decision that it did. In the premises appellate intervention is warranted to reverse the decision of the Court of Appeal and to reinstate the decision of the High Court. [see p 408 para 72 - p 410 para 75]
Cases referred to by the court
Asia Commercial Finance (M) Bhd v Kawal Teliti Sdn Bhd [1995] 3 AMR 2559; [1995] 3 MLJ 189, SC (ref)
Evans v Bartlam [1937] AC 473; [1937] 2 All ER 646; (1937) 53 TLR 689, HL (ref) Hasil Bumi Perumahan Sdn Bhd & 5 Ors v United Malayan Banking Bhd [1994] 1
AMR 297; [1994] 1 CLJ 328, SC (ref) Henderson v Foxworth Investments Ltd [2014] UKSC 41, SC (Scotland) (ref) Jaginder Singh & Ors v AG [1983] CLJ (Rep) 176, FC (ref) King v Hoare (1844) 13 M & W (ref) MMC Oil & Gas Engineering Sdn Bhd v Tan Bock Kwee & Sons Sdn Bhd [2016] AMEJ
0743; [2016] 2 MLJ 428, CA (ref) Tjong Very Sumito and Ors v Antig Investments Ptd Ltd [2009] SGCA 41,
CA (Sing) (ref) TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 1 LNS 288,
CA (ref) Virgin Atlantic Airways Ltd (respondent) v Zodiac Seats UK Ltd [2013] UKSC 46,
SC (ref)
Legislation referred to by the court
Malaysia Arbitration Act 2005, ss 8, 9, 9(1), (2), 10, 10(1) Contracts Act 1950, s 65 Federal Constitution, Articles 121(3), 123
Other references
Professor Sundra Rajoo and Dr Thomas R Klotzel, "UNCITRAL Model Law & Arbitration Rules – The Arbitration Act 2005 (Amended 2011 & 2018) and the AIAC Arbitration Rules 2018", Sweet & Maxwell, 2019, pp 30-31
All Malaysia Reports
390 [2020] 2 AMR
Justin Voon and Cheng Sing Yih (Justin Voon Chooi & Wing) for appellant Chew Chang Min, Liza Chan Sow Keng and Shareen Tan Sze Ying (Liza Chan & Co)
for respondent
Appeal from Court of Appeal – Civil Appeal Nos. B-03(IM)(NCvC)-102-12/2017 and B-02(IM)(NCvC)-2542-12/2017
Judgment received: February 26, 2020
Nallini Pathmanthan FCJ
Introduction
[1] When the governing contract between two parties provides for an agreement to arbitrate, should that arbitration agreement be subordinated to a judgment in default obtained in court proceedings, contrary to the terms of the governing contract and effectively rendering the agreement to arbitrate, nugatory?
[2] This was the issue in the two related appeals before us. It necessarily involves a comprehension and application of s 10 of the Arbitration Act 2005.
[3] In the instant case, one of the contracting parties initiated court proceedings, notwithstanding the existence of an arbitration clause. As no appearance was entered by the other party, judgment in default was obtained. When an application to set aside the judgment in default fell to be determined, together with an application for a stay pending arbitration, the issues before the courts below included the following:
(a) Whether the arbitration agreement or the proceedings in court obtained despite the agreement to arbitrate took precedence;
(b) Whether the judgment in default ought to be set aside.
[4] On September 19, 2019 we heard both appeals one after the other in relation to the following questions of law:
1) Can a judgment in default in court be sustained when the plaintiff who obtained the judgment in default is bound by a valid arbitration agreement/clause and the defendant has raised disputes to be ventilated via arbitration pursuant to the arbitration clause?
2) Should the court in hearing an application to set aside the judgment in default where a valid arbitration clause is binding on parties consider the "merits" or "existence" of the disputes raised by the defendant?
[5] We allowed both appeals, answered both questions in the negative, and restored the decision of the High Court. Below we set out our full reasons for doing so.
Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd (and Another Appeal)
Nallini Pathmanthan FCJ
[2020] 2 AMR 391
Salient factual background and chronology of court proceedings leading to these appeals
[6] The appellant before us, Tindak Murni Sdn Bhd was the defendant in the High Court at Shah Alam in Civil Suit No. BA-22-NCvC-70-02/2017 ("the civil suit"). The respondent, Juang Setia Sdn Bhd, was the plaintiff that initiated the civil suit.
[7] As stated earlier Tindak Murni Sdn Bhd, the employer ("employer") and defendant in the civil suit, entered into a building construction contract with Juang Setia Sdn Bhd, the contractor ("contractor") and plaintiff in the civil suit.
[8] The building contract is dated June 1, 2015. It related to a project for the construction of the remaining portions of a main access road, earthworks and infrastructure works in relation to 428 condominium units in Dengkil, Selangor. It is a standard form Pertubuhan Akitek Malaysia ("PAM") contract. Disputes arose between the parties resulting in the contractor initiating the civil suit. The suit was initiated notwithstanding the clear and unambiguous provision requiring parties to refer any dispute or difference arising between them in relation to any matter arising in connection with the contract, to arbitration.
Salient clauses of the building contract
[9] Clause 34 of the contract provides for an agreement to arbitrate in respect of any and all disputes arising between the parties in relation to the contract.
[10] Clauses 34.2 to 34.6 provide for the process of arbitration and the provision of an award, which is binding on the parties.
[11] Clause 34.4 stipulates that the arbitrator shall have power to open up, review and revise any, inter alia, certificate and to determine all matters in dispute submitted to him as if no such certificate had been given.
The dispute
[12] Works proceeded under the contract. On January 29, 2016, the architect issued a certificate of practical completion certifying that the works were satisfactorily completed.
[13] The contractor maintained that the employer failed to make payment of a sum totalling RM1,702,870-37 due to it. The parties entered into negotiations in respect of this dispute, but failed to resolve it. This resulted in the contractor issuing a "notice of determination" on August 29, 2016. The effect of this notice was to give the employer seven days to remedy the breach of the agreement. There was no response from the employer as a result of which the contractor issued a notice of termination of the contract pursuant to clause 26.1(i) of the contract.
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[14] The contractor then filed the civil suit. The claim was for the sum alleged to be owing to it under three interim certificates amounting to RM2,684,924-55 being the value of works done.
[15] The employer paid the contractor the sum of RM1,143,149-65, maintaining, inter alia, that there was a dispute between the parties relating to material defects, warranting a set-off or complete defence to the claim.
[16] No appearance was filed within the requisite time period allowed, as a consequence of which the contractor obtained a judgment in default against the employer on March 1, 2017.
[17] The employer then filed a notice of application dated April 10, 2017 to set aside the judgment in default. The bases for the application were that:
(a) The employer had valid disputes against the contractor's claims; and
(b) The existence of the arbitration clause.
[18] The application to set aside the judgment in default was first heard before the registrar of the High Court who determined that there was a defence on the merits in that there were disputes and/or triable issues justifying the matter being heard on its merits. Accordingly the judgment in default was set aside on July 31, 2012.
[19] The employer as defendant did not file a defence as this would constitute a "step in the proceedings" precluding the referral of the matter to arbitration. An application for a stay pending arbitration instead was filed on August 10, 2017. The objective was to stay the court proceedings pending arbitration premised on the arbitration clause.
[20] The contractor appealed to the judge in chambers against the decision of the registrar. The judge heard both:
(a) The appeal against the order setting aside the judgment in default; and
(b) The application for a stay pending arbitration.
[21] The judge:
(a) Dismissed the appeal against the setting aside of the judgment in default; and
(b) Allowed the employer's application for a stay pending arbitration on November 14, 2017.
[22] In so determining the High Court judge found, inter alia that:
(i) There was a defence on the merits as there were issues or disputes of fact that required resolution at trial, in relation to the employer's contention
Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd (and Another Appeal)
Nallini Pathmanthan FCJ
[2020] 2 AMR 393
that there were defects in the work undertaken which precluded recovery of the sum claimed by the contractor; and
(ii) There was a valid arbitration clause that parties had agreed to be bound by. Applying s 10 of the Arbitration Act 2005, the judge found that there was nothing to show that the arbitration agreement between the parties was null and void, inapplicable, or inoperative. The court proceedings were therefore stayed pending referral of the dispute to arbitration.
[23] The contractor then filed two appeals to the Court of Appeal against the decision of the High Court, one in respect of the judge upholding the registrar's decision to set aside the judgment in default and the other against the grant of the stay pending arbitration. On May 3, 2018, the Court of Appeal:
(i) Allowed the contractor's appeal, reversed the decision of the High Court to set aside the judgment in default, effectively granting judgment to the contractor on the grounds that there was no defence on the merits; and
(ii) Allowed the contractor's second appeal in relation to the stay pending arbitration, effectively refusing to stay the court proceedings pending arbitration.
[24] In essence the Court of Appeal dealt solely with the setting aside of the judgment in default. Having concluded that the judgment in default was erroneously set aside, it did not consider or address the application for a stay pending arbitration.
[25] The Court of Appeal dealt with the two applications (i.e. the setting aside and the stay) separately (as did the High Court), as if the two had no nexus whatsoever with the other. In dealing with the application to set aside the judgment in default, the Court of Appeal undertook an extensive study of and provided a treatise on the law relating to certificates of payment.
[26] From paragraphs 31 to 57 of its judgment, it focussed solely and intricately on this area of the law, citing a multitude of cases to support the contention that certificates of…