SETIA AWAN MANAGEMENT SDN BHD v SPNB ASPIRASI SDN BHD

Case Significance

Holds that a clause giving the parties an option between litigation and arbitration can be a binding arbitration agreement under section 10 of the Arbitration Act 2005, and that the absence of express provisions on seat, number of arbitrators, or appointment does not render it inoperative: applying kompetenz-kompetenz, the Court of Appeal stayed the court proceedings in favour of arbitration.

This Court of Appeal decision at Putrajaya, delivered in a judgment of the court by Lee Swee Seng JCA (sitting with Choo Kah Sing and Ahmad Fairuz bin Zainol Abidin JJCA), concerns whether a clause giving parties a choice between litigation and arbitration is a binding arbitration agreement, and the operation of the kompetenz-kompetenz principle on an application to stay court proceedings. The appellant, Setia Awan Management Sdn Bhd, and the respondent, SPNB Aspirasi Sdn Bhd, were parties to a contract containing an unusual option clause. When the respondent commenced a writ action in the High Court, the appellant applied under section 10 of the Arbitration Act 2005 to stay those proceedings on the ground that the dispute fell to be referred to arbitration. The High Court dismissed the stay application, holding that a clause giving the parties an option to proceed with litigation or arbitration was not a binding arbitration agreement clearly and unequivocally requiring the dispute to be resolved exclusively by arbitration.

The Court of Appeal allowed the appeal. It held that the option clause did constitute an arbitration agreement within the meaning of section 10 of the Arbitration Act 2005, and that the absence of express provisions on the seat, the number of arbitrators, or the appointment process did not render the arbitration agreement null, void, inoperative or incapable of being performed, since such matters can be supplied by the default mechanisms of the Act. Applying the kompetenz-kompetenz principle, under which an arbitral tribunal has authority to rule on its own jurisdiction, the court held that questions about the scope and operation of the agreement were for the tribunal in the first instance and that the court should hold the parties to their agreement to arbitrate. It set aside the High Court's dismissal, granted a stay of the court proceedings pending reference to arbitration, and ordered costs of RM15,000 here and below to the appellant. The judgment is a significant statement that an option clause can be a binding arbitration agreement and that gaps in its machinery do not defeat it.