Malaysian High Court Clarifies Limits On Stay Conditions

• Published date: 28 March 2022
• Subject Matter: Litigation, Mediation & Arbitration, Arbitration & Dispute Resolution
• Law Firm: Herbert Smith Freehills
• Author: Mr Peter Godwin, Daniel Chua and Michele Yee

The Malaysian High Court has refused to impose a condition on a party seeking a stay of proceedings under section 10 of the Arbitration Act 2005 to pay its share of the deposit in the arbitration, on the basis that the issue of costs and expenses of an arbitration are within the exclusive jurisdiction of the arbitral tribunal. This decision highlights that the Malaysian court's power to impose conditions on a stay under section 10 of the Act does not extend to matters that are governed by the Act and within the exclusive jurisdiction of the arbitral tribunal.

Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd (High Court Suit No: BA-22NCvC-85-02/2021)

Background

Pestech Technology Sdn Bhd was appointed by Lion Pacific Sdn Bhd as the sub-contractor for a project concerning the design, construction, equipping and maintenance of a railway. Pestech was contracted to complete certain works for an agreed sum of approximately RM42 million. A dispute arose over payment, and Pestech commenced adjudication to claim the sum owed. The adjudicator found in favour of Pestech and Lion Pacific was held liable for the outstanding sum.

Dissatisfied with the adjudication decision, Lion Pacific applied to the High Court to set it aside. Lion Pacific also commenced an arbitration against Pestech under the arbitration clause in the agreement. However, the arbitration proceedings were terminated as Pestech refused to pay its share of the deposit. Instead, Pestech applied to enforce the adjudication decision in the High Court. The applications to set aside and to enforce the adjudication decision were heard together. The High Court granted enforcement and dismissed Lion Pacific's application. Lion Pacific appealed.

While the appeal was pending, Lion Pacific issued new proceedings in the High Court to set aside the adjudication and enforcement decisions, on grounds that they were tainted with fraud. Lion Pacific alleged that in the adjudication proceedings, the amount Pestech had claimed for loss and expense was higher than the amount certified by the Ministry of Transport. Lion also alleged that Pestech had not obtained prior approval from the Ministry of Transport for the sum claimed, as required under the agreement.

Pestech applied to stay the new proceedings under section 10 of the Arbitration Act, on grounds that the dispute should be referred to arbitration. Lion Pacific opposed the stay application.

The main issues before the High Court were:

(i) whether Lion Pacific's...