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Case Update: Agreement that merely refers to initial contract containing arbitration clause deemed insufficient for a stay as purpose of settlement agreement would be defeated

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15 November 2021

CIVIL PROCEDURE
Construction Contract – Loan Agreement – Default Payment – Adjudication – Settlement Agreement – Payment Claim – Stay Application – Arbitration Act 2005 – Rules of Court 2012

China State Construction Engineering (M) Sdn Bhd v Astaka Padu Sdn Bhd
Civil Suit No: JA-22NCvC-190-12/2020| High Court
- see the grounds of judgment here

Facts China State Construction Engineering (M) Sdn Bhd (“Plaintiff”) was appointed by Astaka Padu Sdn Bhd (“Defendant”) to carry out construction works for a commercial building project. The Defendant had defaulted in its payment obligation towards the Plaintiff and after negotiations, parties entered into a loan agreement giving the Defendant additional time to pay. However, the Defendant failed to pay pursuant to the Loan Agreement. Hence the Plaintiff initiated adjudication proceedings against the Defendant. Parties subsequently entered into another round of negotiations which crystallised into a Settlement Agreement. Nevertheless, the Defendant still failed to make payment according to the timeline stipulated in the Settlement Agreement. Plaintiff then issued the second payment claim and filed it in the High Court to recover the sums owed. The Defendant proceeded to file its Defence and Counterclaim. The Defendant then filed the application to stay all further proceedings in respect of the action instituted by the Plaintiff pending determination by arbitration.

Issue 1. Whether the Settlement Agreement contained an arbitration clause?
2. Whether the Defendant had taken steps in court proceedings?

Held In dismissing the application, Learned Judicial Commissioner Evrol Mariette Peters held that what needed to be established was whether there was in existence an arbitration agreement in the first place. The Defendant took the position that the arbitration clause between the parties was found in the initial contract and since the Settlement Agreement emanated from said contract, hence the arbitration clause would apply. The Defendant was also of the view that the clause was incorporated by reference pursuant to s. 9(5) of the Arbitration Act since in the Settlement Agreement it had made reference to the Contract. However, the Learned Judicial Commissioner disagreed and was of the view that no reference was made directly to the arbitration clause and that the Settlement Agreement was a separate contract between parties. In addition, it would defeat the purpose of entering into a Settlement Agreement if the parties had intended to cling onto the Contract. In respect of the second issue, the Learned Judicial Commissioner held that the since the Defendant had filed a Counterclaim, it had amounted to consent that the dispute between the parties should be determined by the High Court. If the Defendant was truly of the view that all proceedings should be stayed pending arbitration, the Defendant could have sought an interim stay instead, which it had elected not to do. Hence, the application was dismissed with costs.

ZUL RAFIQUE & Partners
{15 November 2021}

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