1. ) DENG CHENGLIANG 2. ) XIE YONG v 1. ) Levin Tan Eu Sheng [Nod At Encl. 19] 2. ) TAN TIONG KIAT

Case Significance

Illustrates that a stay under section 10 of the Arbitration Act 2005 is applied agreement by agreement: the court enforces an arbitration clause in one contract while retaining jurisdiction over a related contract that expressly confers jurisdiction on the courts.

This High Court decision at Kuala Lumpur addresses how the court allocates a dispute between arbitration and litigation where two related agreements point to different forums. The plaintiffs had agreed to purchase a portion of the defendants' shares in a Malaysian company for USD 1.6 million under a Share Sale Agreement, which provided that if certain conditions were not met the defendants would refund the USD 1.6 million; that agreement contained an arbitration clause referring disputes to the Singapore International Arbitration Centre. A second agreement, a Letter of Guarantee, obliged the defendants to refund the same USD 1.6 million on demand if the conditions were not met, and it provided that the Courts of Malaysia would have jurisdiction over all disputes arising under the guarantee. The defendants applied to stay the court proceedings and refer the parties to arbitration under section 10 of the Arbitration Act 2005.

The court analysed the two agreements separately according to their own dispute-resolution provisions. It held that the claim founded on the Share Sale Agreement fell within that agreement's arbitration clause and had to be stayed and referred to arbitration under section 10(1) of the Arbitration Act 2005, which makes a stay mandatory once a valid arbitration agreement covering the dispute is shown. The claim founded on the Letter of Guarantee, however, was governed by the parties' express choice that the Malaysian courts would have jurisdiction over disputes under that instrument, so it was for the court, not an arbitral tribunal, to decide whether the guarantee had been breached.

The court accordingly ordered that the Share Sale Agreement claim be stayed and referred to arbitration, that the Letter of Guarantee claim proceed before the court, and that the defendants file any defence and counterclaim by a fixed date. The judgment illustrates that a section 10 stay is applied agreement by agreement: the court will enforce an arbitration clause in one contract while retaining jurisdiction over a related contract that expressly confers jurisdiction on the courts.