APEX COMMUNICATIONS SDN BHD v SUMBER KHAZANAH SDN BHD (DALAM LIKUIDASI)

Case Significance

Illustrates the construction and enforcement of an arbitration clause incorporated through a chain of subcontracts, the Court of Appeal holding the reference to arbitration mandatory and staying the court action under section 10 of the Arbitration Act 2005, and confirming that seeking extensions of time did not waive the right to arbitrate.

This Court of Appeal decision concerns the enforceability and interpretation of an arbitration clause and an exclusive-jurisdiction clause in a chain of subcontracts, and a stay of court proceedings under section 10 of the Arbitration Act 2005. A construction package had been subcontracted through several layers: the main contractor engaged a first-layer subcontractor, Apex Communications Sdn Bhd, which engaged a second-layer subcontractor whose subcontract contained the arbitration clause and the exclusive-jurisdiction clause, and the work was ultimately performed by a further-layer subcontractor whose rights were assigned. When one party sued in the High Court, the first-layer subcontractor applied to stay the action in favour of arbitration, but the High Court dismissed the stay, holding that the reference to arbitration was only optional and not mandatory. Two cross-appeals followed against that single decision. This record concerns the first-layer subcontractor's appeal. The Court of Appeal held that, on the proper interpretation of the arbitration clause and given its express incorporation and adoption in the later agreement, the reference to arbitration was mandatory rather than optional, and that the High Court had erred in reading it as optional. It also accepted the finding that the party's requests for extensions of time were not steps in furtherance of the court proceedings and did not amount to an abandonment of the right to arbitrate. Allowing the appeal, the court set aside the High Court's erroneous finding that arbitration was optional, allowed the stay application, and ordered that the suit be stayed pending reference of the dispute to arbitration in accordance with the arbitration clause. It dismissed the cross-appeal by the party resisting arbitration, which had challenged the finding that the extension-of-time requests were not steps in the litigation, and ordered costs of RM30,000 in each of the two appeals, totalling RM60,000, to be paid to the party that had sought the stay, subject to allocatur. The judgment illustrates how an arbitration clause incorporated through a chain of subcontracts is construed and enforced under section 10 of the Arbitration Act 2005, and how the court distinguishes procedural indulgences from steps that waive the right to arbitrate.