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Permissive word ‘May’: Should it be used in an Arbitration Agreement?

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As many are well aware, there are long line of precedents in Malaysia distinguishing the peremptory word ‘shall’ and the permissive word ‘may’ when interpreting legislation, contracts and etc.

In a recent case handled by Ms. Idza Hajar Ahmad Idzam from Messrs Zul Rafique & Partners, the permissive word ‘may’ was given a close examination by the High Court of Kuala Lumpur. Ms. Idza was appearing for the defendant i.e. PRPC Utilities and Facilities Sdn Bhd (“the Defendant”) and an application was filed by the Defendant for inter alia an order to stay the court proceeding pending reference to arbitration (“Stay Application”).

BRIEF FACTS

By virtue of a letter of award read with the documents specified therein (collectively referred to as “the Contract”), the Defendant had appointed the plaintiffs as contractors to carry out the agreed scope of works. Due to unresolved disputes between the parties, the plaintiffs had then commenced an action in the High Court of Kuala Lumpur against the Defendant.

Having entered appearance in the suit filed by the plaintiffs, the Stay Application was filed given the existence of a binding arbitration agreement in the Contract which reads as follows:-

“If a dispute has not been resolved within thirty (30) calendar days after the relevant Notice of Dispute was delivered, whether or not without prejudice meeting occurred, then either Party may by notice refer the Dispute to arbitration under the UNCITRAL Arbitration Rules in force from time to time.”

ISSUES RAISED

In resisting the Stay Application, the plaintiffs had raised numerous issues where the sole pertinent issue which caught the attention of the learned Judge hearing the matter revolve around the usage of the permissive word ‘may’ in the arbitration agreement. The plaintiffs contended that the permissive word ‘may’ connotes an option where either party may elect to have the matter litigated in the High Court of Kuala Lumpur rather than referring the same to arbitration.

Great reliance and emphasis was placed by the plaintiffs on the Court of Appeal case known as Lembaga Pelabuhan Kelang v Kuala Dimensi Sdn Bhd [2011] 2 MLJ 629 where the pertinent passage of the judgment is reproduced herein:-

“In addition, unlike the peremptory word “shall”, the permissive word “may” used in the arbitration clause i.e. cl. 11.1 of DA1 is capable of readily abandoning the discretion to refer to arbitration, and opting for litigation instead, as expressed and contractually agreed by the parties in the supplemental agreements…”

In response, the Defendant distinguished the said Court of Appeal case on inter alia the ground that the factual matrix of this case differs from the said Court of Appeal case where there was no supplemental agreement(s) opting for litigation in the former unlike the latter. The Defendant submitted that the Court of Appeal’s decision in Lembaga Pelabuhan Kelang (supra) did not stem from the word ‘may’ used in the arbitration clause but instead due to the existence of the court jurisdiction clauses in the subsequent supplemental agreement.
  
Reliance was placed on numerous precedents from other jurisdictions and from Malaysia including but not limited to the High Court case of Maya Maju (M) Sdn Bhd v Putrajaya Homes Sdn Bhd [2018] MLJU 1629 where Justice Lee Swee Seng (as His Lordship then was) had succinctly held inter alia that:-

“It is important at this stage to ask what does the auxiliary verb ‘may’ qualify. Here it qualifies the options of either not proceeding further after the E.R.’s decision or no decision from him or to proceed further…. To compel him to refer the dispute to arbitration with the use of the word ‘shall’ rather than ‘may’ for example, would constrain him to proceed further.. In as much the word ‘shall’ may at times convey a directional rather than a mandatory requirement, likewise the word ‘may’ depending on the context may also denote a mandatory requirement rather than a directional one when the option is exercised”.

The Defendant took the same position as outlined above in that the permissive word ‘may’ used in the arbitration agreement ought to be construed as parties having the option to either proceed with arbitration or to proceed no further after the meeting held is exhausted.

DECISION

Having heard the parties, the learned Judge was in agreement with the submission of the Defendant. The pertinent passage of His Lordship’s decision is reproduced herein:-

“I share the views of Justice Lee and find that the word ‘may’ as used in Article 52.3 of the Conditions of Contract here is also in the context of an option of either to proceed to arbitration or to proceed no further after the meeting held pursuant to Article 52.2 of the same is exhausted. It is not an option of either to arbitrate or litigate the disputes as so interpreted by the Plaintiffs.”

The learned Judge was further satisfied that Defendant has fulfilled all the requirements pursuant to Section 10 of the Arbitration Act 2005 and thereafter allowed the Defendant’s Stay Application with costs. The full grounds of the learned Judge’s decision is here.

COMMENTARY

The exercise undertaken leading to the decision made by the learned Judge in this case has demonstrated that the permissive word ‘may’ ought not be interpreted rigidly. The entire context where such word has been adopted ought to be considered in concluding the proper interpretation to be attached from the usage of the word ‘may’.  

Although the Court of Appeal case of Lembaga Pelabuhan Kelang (supra) has been distinguished on facts, such precedent remains good law and perhaps may be applicable for subsequent or other case(s) where there exists a subsequent agreement(s) between parties submitting to the jurisdiction of the court.

As this issue of law has yet to be determined by a higher court in Malaysia, it remains an unsettling issue where similar arguments may be raised by interested parties in the future who opt for litigation in court premised on the ground that the word ‘may’ was used in the arbitration agreement. As such, should one opt to adopt the permissive word ‘may’ in its arbitration agreement, one may wish to be explicit in its drafting of the aforesaid by clearly stipulating the intended and agreed interpretation of the word ‘may’ adopted in the arbitration agreement to prevent or preclude the abovementioned contention from being raised. 



Authors:
Idza Hajar Ahmad Idzam
Bailey Leong 
Marvin Low 

For more insight into this area of law, please contact our Partners in Litigation Practice Group:
P Jayasingam
Idza Hajar Ahmad Idzam
Farah Shuhadah Razali