Failure to mediate before arbitration is question of admissibility, not jurisdiction

Our Foo Joon Liang and Tasha Lim discuss Malaysian courts’ approach in dealing with the issue whether the failure to mediate before arbitration is question of admissibility rather than jurisdiction.

Introduction

The UK Commercial Court recently considered whether a party’s failure to comply with a pre-condition that parties mediate before referring the dispute to arbitration deprived the arbitral tribunal of jurisdiction to hear the dispute, or whether this failure affected only the admissibility of a dispute in arbitration. The Court concluded that the requirement to mediate was an issue of admissibility rather than jurisdiction.

The approach taken in this case is similar to the approach taken by the Malaysian courts. This article reviews notable Malaysian cases and outlines the courts’ approach in those instances.

Malaysian perspective

In Padda Gurtaj Singh v Tune Talk Sdn Bhd,(1) the plaintiff filed an originating summons against the defendants to compel them to register the transfer of ordinary shares of Tune Talk Sdn Bhd and issue new share certificates to the plaintiff. The first defendant thereafter filed an interlocutory application to stay the court proceedings, pending arbitration, as contained in clause 16 of the shareholders agreement (SHA) and pursuant to section 10(1) of the Arbitration Act 2005 (the Act). The plaintiff objected to the application and contended, among other things, that there was no controversy, dispute or difference between the plaintiff and first defendant that had arisen under the SHA, and that neither party had issued a written notice of dispute pursuant to clause 16.1 of the SHA.

In reaching its conclusion, the court held that the sole issue to be determined was whether the matter in respect of which the plaintiff had brought the court proceedings was in any way subject to clause 16 of the SHA. This is because if the matter was not subject to the arbitration agreement, section 10(1) of the Act would not apply and the court would have no jurisdiction to order a stay.

The court followed the rational in Cosmos Infratech Sdn Bhd v Melati Evergreen Sdn Bhd(2) and PBJV Group Sdn Bhd v PRPC Utilities and Facilities Sdn Bhd,(3) wherein Justice Lim Chong Fong held that the non-existence of a notice of dispute or the fulfilment of the precedent condition to arbitration is irrelevant in determining whether there is a dispute, claim or controversy.

In another case, ZAQ Construction Sdn Bhd v Putrajaya Holdings Sdn Bhd,(4) there was a tiered resolution clause in the contract (clause 63) which provided that the dispute was first to be referred to the employer’s representative. The plaintiff sought to resist the stay application on the premise that as neither party had referred a dispute to the employer’s representative, the arbitration clause was deemed inoperative. Justice Mary Lim(5) rejected the argument that the arbitration clause was inoperative just because one party had chosen not to take any preliminary steps. The court further held that for purposes of section 10 of the Act, the defendant did not have to show that it had a defence of merit or even bring an arguable claim before the arbitral tribunal, as the quality of the defence is not a relevant consideration. The court is not required to evaluate, let alone determine, the merits of the plaintiffs’ claim or the defendant’s defence when deciding whether to grant a stay.

Comment

The courts have a precedent for taking a pro-arbitration approach when it comes to arbitration agreements. While the discussed cases have found in favour of a pro-arbitration approach, parties should still attempt to comply with pre-arbitration requirements to avoid the dispute being rendered inadmissible in arbitration proceedings.

If a party has attempted to mediate but the opposing party has refused to participate, it does not lie with the opposing party to report that mediation has not been complied with sufficiently.

For further information on this topic please contact Foo Joon Liang or Tasha Lim Yi Chien at Gan Partnership by telephone (+603 7931 7060) or email (joonliang@ganlaw.my or tasha@ganlaw.my). The Gan Partnership website can be accessed at www.ganlaw.my.

Endnotes

(1) [2020] MLJU 2158.

(2) [2019] 1 LNS 1685.

(3) [2020] MLJU 1159.

(4) [2014] 10 MLJ 633.

(5) This was her title at the material time.

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