1. ) HASHIM BIN ABD RAZAK 2. ) MAIMON BINTI ABDUL RAZAK 3. ) ZAINAH MAHANI BINTI ABD RAZAK v PEMBINAAN PD JAYA SDN. BHD. (Dalam Likuidasi)

Case Significance

Confirms that an arbitration clause survives the liquidation of a contracting company under the doctrine of separability and section 10 of the Arbitration Act 2005, and that the section 49 trustee-adoption requirement does not extend to companies in winding-up.

This Court of Appeal decision at Putrajaya concerns the interaction between an arbitration agreement and the winding-up of a contracting company. The appellants, the registered owners of land, had in 2002 entered a joint venture agreement with the developer respondent, Pembinaan PD Jaya Sdn Bhd (now in liquidation), to develop the land into shop offices; the agreement contained an arbitration clause. When disputes arose, court proceedings were stayed in favour of arbitration, and the appellants later applied to set aside that stay. The High Court dismissed the application, and the appellants appealed. The Court of Appeal addressed several questions of principle. It distinguished individual bankruptcy from corporate winding-up, holding that section 49 of the Arbitration Act 2005, which concerns adoption of a contract by a trustee, is inapplicable to a company in liquidation, so that the Director General of Insolvency was not required to adopt the arbitration agreement. Applying the doctrine of separability and the mandatory stay under section 10 of the Arbitration Act 2005, it held that the arbitration clause survived the winding-up and was not rendered inoperative or incapable of being performed merely by the respondent's liquidation, the dispute being arbitrable because it arose from pre-insolvency contractual rights. The court also observed that it was for the appellants to initiate the arbitration once the stay was granted and, if necessary, to seek leave to proceed against a company in liquidation under section 471 of the Companies Act 2016. Endorsing the reasoning of the Judicial Commissioner below, the Court of Appeal unanimously dismissed the appeal and affirmed the decision, ordering costs of RM10,000 to the respondent subject to allocatur. In reaching that conclusion the court treated the arbitration agreement as autonomous from the underlying joint venture contract, so that even the developer's insolvency did not deprive the parties of their agreed forum for resolving the dispute. The judgment is significant for confirming that an arbitration clause survives a party's liquidation and that the section 49 adoption requirement does not extend to companies.