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A Judgment in Default Set Aside – The Existence of an Arbitration Clause Amounts to a Defence on the Merits

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19 March 2024

Our Partner, Idza Hajar Ahmad Idzam together with our Legal Associates, Lee Sheen Yee and Siti Sarah Kamaruzaman from our Litigation Practice Group succeeded in an application to set aside a Judgment in Default dated 08.08.2023 (“JID”) entered by Menta Construction Sdn Bhd (“Plaintiff”) against our Client, PRPC Utilities and Facilities Sdn Bhd (“Defendant”). The JID concerned a Goods and Services Tax (“GST”) in the amount of RM1,034,598.79 which were purportedly retained under the contracts between the parties (“Application”).

The Defendant’s Application to set aside the JID is premised on the ground that the Defendant has a meritorious defence raising arguable and triable issues based on, among others the following:-
 
(a) the existence of an arbitration clause in the contracts in the event of conflict/dispute ;
(b) the execution of Statement of Final Accounts (“SOFA”) evidencing that the Plaintiff has no rights to further claim outside the SOFA;
(c) the execution of a Certificate of Final Acceptance (“FA”); and
(d) the GST payment on the retention sums is not due when the Plaintiff allegedly paid the said amount to the Royal Malaysian Customs Department (RMCD) (if any) on the ground that the retention sums payment have yet to be released to the Plaintiff by the Defendant. As a matter of law, GST payment on retention sums is only due after the retention sum is released.

The Defendant relied on the Federal Court’s decision in the case of Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd and another appeal [2020] 3 MLJ 545 and argued that the principles held by the Court in Tindak Murni ought to be applied i.e. when a contract contains an arbitration clause requiring the parties to resolve their disputes through an arbitration process and the failure to do the same “warranted the conclusion that this amounted to a defence on the merits. Accordingly the judgment in default ought to have been set aside…”.

Having heard the submissions by both parties, the High Court held that the existence of an arbitration clause in the contracts between the parties would amount to a defence on the merits. The Plaintiff cannot rely on the JID to circumvent and undermine the supremacy of the arbitration clause which was agreed by both parties. The JID was accordingly set aside.

For more insights into this area of law, please contact our Litigation Partners:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam
Idza Hajar Ahmad Idzam
Nan Muhammad Ridhwan Rosnan

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