1. ) LER CHENG CHYE (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF SDN. BHD. (DALAM LIKUIDASI)) 2. ) LUM TUCK CHEONG (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF SDN. BHD. (DALAM LIKUIDASI)) v 1. ) ATURAN PRISMA SDN BHD 2. ) ABD RAHMAN BIN HARUN 3. ) MAZLAN BIN MD ZAIN 4. ) CHAI CHEE SENG 5. ) GOH LIK SIN 6. ) YAAKOB BIN NORDIN

wa-22ncc-378-06-2024 High Court (Mahkamah Tinggi) 15 January 2025 • WA-22NCC-378-06/2024

Catchwords

Stay of proceedings pending arbitration notwithstanding insolvency of a party to the arbitration and co-defendants who are not parties to the arbitration-Whether an arbitration agreement remains valid if one party becomes insolvent-Whether the arbitration agreement is contrary to the objectives of the insolvency regime and against public interest under section 4 and/or section 10 of the Arbitration Act 2005-Whether a stay of the plaintiffs’ suit should be granted as the Second to Sixth defendants are not parties to the arbitration agreement-Whether a stay of the plaintiffs’ suit should be granted if there are no dispute necessitating reference to arbitration-section 10 of the AA 2005-sections 6[1] and [2] of the Singapore’s International Arbitration Act-in order to get a stay under section 10 of the AA 2005 has to prove-There is an arbitration agreement between the parties;-The proceedings are in respect of a matter that is subject to the arbitration agreement;-The defendants have not taken any other steps in the proceedings; and-The arbitration agreement is not null and void, inoperative or incapable of being performed-section 4 of the AA 2005-Therefore, pursuant to sections 4 and 10 of the AA 2005, an arbitration agreement will not be enforceable in Malaysia if-The arbitration agreement is null and void, inoperative or incapable of being performed; or-The arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia-sections 6[2] and 11 of the Singapore’s IAA-even though a winding up of a company has the effect of terminating agreements which the liquidator may not want to affirm and continue with, the arbitration agreement would survive such a termination.-there are certain subject matters that are not arbitrable under the law.-The Court of Appeal held that subject matters that are not arbitrable under the law include the grant of a dissolution of marriage, orders with respect to adoption, judicial review matters involving certiorari and mandamus, contempt of court, registration and expunging of patent and other intellectual property rights, order for sale under the National Land Code, issues arising out of liquidation, judicial management and receivership under the Companies Act 2016, undue preference of creditors and fraudulent trading under section 540 of the Companies Act 2016. [See Peninsula Education (Setia Alam)-There is a presumption of arbitrability despite the existence of distinct statutory provisions-It is not an “insolvency dispute” because to be an “insolvency dispute”, the dispute must arise from the operation of the statutory provisions of the insolvency regime per se-No financial ability to engage in an expensive arbitration as a ground to refuse a stay?-It is trite law that an arbitration agreement must be given effect to by a court once the pre-conditions for a stay are satisfied. After granting a stay, then only the court examines whether a non-party to the arbitration agreement is entitled to stay the related court proceedings pending the outcome of the arbitration or stay/ restrain by injunction the arbitration hearing pending the outcome of the related court proceedings on ground of avoiding duplicity or inconsistent outcomes between arbitration and court proceedings.-Under section 10[1] AA 2005, once the preconditions set out in section 10[1] are satisfied the court is required to grant a stay of proceedings in favour of arbitration. There is no discretion not to grant. The discretion that had existed under section 6 of the prior Arbitration Act 1952 [“AA 1952”] has been taken away by section 10[1] AA 2005-The presence of co-defendants who are not parties to the arbitration agreement is not a relevant factor on whether a stay of suit against Aturan should be granted-The fact that the Liquidators have chosen to sue additional defendants in the form of the Second to Sixth defendants, who are not parties to

Practice Areas

Stay of proceedings pending arbitration notwithstanding insolvency of a party to the arbitration and co-defendants who are not parties to the arbitration-Whether an arbitration agreement remains valid if one party becomes insolvent-Whether the arbitration agreement is contrary to the objectives of the insolvency regime and against public interest under section 4 and/or section 10 of the Arbitration Act 2005-Whether a stay of the plaintiffs’ suit should be granted as the Second to Sixth defendants are not parties to the arbitration agreement-Whether a stay of the plaintiffs’ suit should be granted if there are no dispute necessitating reference to arbitration-section 10 of the AA 2005-sections 61 and 2 of the Singapore’s International Arbitration Act-in order to get a stay under section 10 of the AA 2005 has to prove-There is an arbitration agreement between the parties;-The proceedings are in respect of a matter that is subject to the arbitration agreement;-The defendants have not taken any other steps in the proceedings; and-The arbitration agreement is not null and void, inoperative or incapable of being performed-section 4 of the AA 2005-Therefore, pursuant to sections 4 and 10 of the AA 2005, an arbitration agreement will not be enforceable in Malaysia if-The arbitration agreement is null and void, inoperative or incapable of being performed; or-The arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia-sections 62 and 11 of the Singapore’s IAA-even though a winding up of a company has the effect of terminating agreements which the liquidator may not want to affirm and continue with, the arbitration agreement would survive such a termination.-there are certain subject matters that are not arbitrable under the law.-The Court of Appeal held that subject matters that are not arbitrable under the law include the grant of a dissolution of marriage, orders with respect to adoption, judicial review matters involving certiorari and mandamus, contempt of court, registration and expunging of patent and other intellectual property rights, order for sale under the National Land Code, issues arising out of liquidation, judicial management and receivership under the Companies Act 2016, undue preference of creditors and fraudulent trading under section 540 of the Companies Act 2016. See Peninsula Education (Setia Alam)-There is a presumption of arbitrability despite the existence of distinct statutory provisions-It is not an “insolvency dispute” because to be an “insolvency dispute”, the dispute must arise from the operation of the statutory provisions of the insolvency regime per se-No financial ability to engage in an expensive arbitration as a ground to refuse a stay?-It is trite law that an arbitration agreement must be given effect to by a court once the pre-conditions for a stay are satisfied. After granting a stay, then only the court examines whether a non-party to the arbitration agreement is entitled to stay the related court proceedings pending the outcome of the arbitration or stay/ restrain by injunction the arbitration hearing pending the outcome of the related court proceedings on ground of avoiding duplicity or inconsistent outcomes between arbitration and court proceedings.-Under section 101 AA 2005, once the preconditions set out in section 101 are satisfied the court is required to grant a stay of proceedings in favour of arbitration. There is no discretion not to grant. The discretion that had existed under section 6 of the prior Arbitration Act 1952 “AA 1952” has been taken away by section 101 AA 2005-The presence of co-defendants who are not parties to the arbitration agreement is not a relevant factor on whether a stay of suit against Aturan should be granted-The fact that the Liquidators have chosen to sue additional defendants in the form of the Second to Sixth defendants, who are not parties to

Judges (1)

Leong Wai Hong Delivered

Parties (8)

ATURAN PRISMA Sdn Bhd Defendant LER CHENG CHYE (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF Sdn Bhd. (DALAM LIKUIDASI)) Plaintiff LUM TUCK CHEONG (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF Sdn Bhd. (DALAM LIKUIDASI)) Plaintiff Abd Rahman bin Harun Defendant Chai Chee Seng Defendant Goh Lik Sin Defendant Mazlan bin Md Zain Defendant Yaakob bin Nordin Defendant

Case Significance

1. ) LER CHENG CHYE (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF SDN. BHD. (... is a High Court (Mahkamah Tinggi) decision dated January 15, 2025 (citation: wa-22ncc-378-06-2024). The case was decided by Leong Wai Hong.

What was the outcome of 1. ) LER CHENG CHYE (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF SDN. BHD. (...?

1. ) LER CHENG CHYE (PELIKUIDASI-PELIKUIDASI BAGI PUSTAKA EFEKTIF SDN. BHD. (... is a High Court decision dated January 15, 2025. The case was heard by Leong Wai Hong. See the full judgment for details.