Introduction

The recent Court of Appeal decision of Yeo Eng Lam v Infinity Vantage Sdn Bhd [2020] 6 CLJ 616 (“Infinity Vantage”) concerns the “any other steps in the proceedings” provision of Section 10(1) of the Arbitration Act 2005.

The Plaintiff, Infinity Vantage Sdn Bhd brought a civil suit on 25.08.2017 against the Defendant, Yeo Eng Lam. During a Case Management before the learned Deputy Registrar, the Defendant was directed to file her Statement of Defence on or before 13.10.2017. The Defendant entered a Memorandum of Appearance on 03.10.2017.

On 09.10.2017, the Defendant filed an Interlocutory Application to disqualify the Plaintiff’s Solicitors (“Disqualification Application”) on the ground that the Plaintiff’s Solicitors had acted as common Solicitors for both parties in preparation of a Joint Venture Agreement (“JVA”) (the Plaintiff contends that the JVA had been breached).

On 13.10.2017, the Defendant filed her Statement of Defence and Counterclaim. Only subsequently, on 17.10.2017, the Defendant filed an Interlocutory Application under Section 10 of the Arbitration Act 2005 for proceedings to be stayed pending reference to arbitration (“Stay Application”) pursuant to Clause 29.3 of the JVA.

The Plaintiff contended that the Defendant had taken two other steps in the proceedings namely the filing of the Disqualification Application and Statement of Defence and Counterclaim.

It was further contended by the Plaintiff that the Stay Application should have been filed prior to the filing of the said applications. As such, the Defendant failed to comply with the requirements of Section 10(1) of the Arbitration Act 2005 and should be precluded from referring the matter to arbitration.

The Defendant contended that the Disqualification Application was a defensive step to preclude a potential conflict from arising (as the Plaintiff’s Solicitors was the common Solicitors for the both parties). Further, the Defendant stated that the filing of the Statement of Defence and Counterclaim was in accordance to the Court’s directions and done with “express reservation” that the Defendant reserves her right to refer the matter to arbitration.

The High Court decided in favor of the Plaintiff and dismissed the Defendant’s Stay Application. The Defendant then appealed to the Court of Appeal.

Sole Issue Before the Court of Appeal

The sole consideration of the Court of Appeal rests on whether the Defendant had taken “any other steps in the proceedings” before filing the Stay Application. As such, the main question before the Court of Appeal was what constitutes “steps in the proceedings”?

Decision

The Court of Appeal was guided by the decision of the Federal Court in Sanwell Corporation v Trans Resources Corporation Sdn Bhd & Anor [2002] 3 CLJ 213 (“Sanwell”) as to the legal position in regards to “steps in the proceedings” and “any other action in the proceedings” as follows:

1. The entry of appearance does not amount to a “step in the proceedings”;
2. The service of any pleadings amounts to a “step in the proceedings”;
3. Any other action in the proceedings except the entry of appearance and the service of any pleadings, the Court is to decide whether such action amounts to “a step in the proceedings”.

The Court of Appeal held that the party seeking to rely on the arbitration clause in a contract / agreement must ensure that a Stay Application is filed at the soonest possible time before taking any other steps in the proceedings that would indicate an intention to proceed with the litigation in court.

Also, any application made to the Court must clearly and unequivocally state that it was made with the intention to reserve its right to refer the matter to arbitration.

The Court of Appeal was of the view that the filing of the Disqualification Application and Statement of Defence and Counterclaim were made without express and unequivocal reservation on the Plaintiff’s rights to refer the matter to arbitration notwithstanding that the Statement of Defence as filed pleaded (translated herein) as follows:

“Paragraph 1 – This proceeding brought by the Plaintiff before this Honorable Court is a subject matter of an arbitration agreement. This Defence, hence, is filed without prejudice to the Defendant’s right to stay proceeding and bring this matter for reference to arbitration

Paragraph 3 – While waiting for the said resolution, this Defence cannot be assumed as a step in the proceeding.”

The Defendant’s Statement of Defence included a Counterclaim despite making reference to refer the dispute to arbitration. It is here where the

Defendant faltered as correctly observed by the Court of Appeal. The Court of Appeal expressed their sentiments that the Defendant’s pleadings ran counter to the wish to refer the dispute to arbitration.

The Court of Appeal was not in agreement with the Defendant’s contention that the learned Deputy Registrar had directed the Defendant to file the Statement of Defence. The Court of Appeal did not subscribe to such an excuse since the Defendant could have informed the learned Deputy Registrar of their intention to file the Stay Application.

The Court of Appeal further examined the Defendant’s Disqualification Application whereby the Defendant averred to the fact that the Plaintiff’s Solicitors would likely be called to testify as witnesses in the civil suit. On top of the declaratory reliefs claimed in her Counterclaim, the Defendant showed clear intention to proceed with trial and abandon any reference of the matter to arbitration. Accordingly, the Court of Appeal took the view that the Defendant’s reservation to refer the dispute to arbitration was not unequivocal.

The Court of Appeal ruled that the Stay Application was an afterthought and that the Disqualification Application despite not being a pleading, was a clear indication of the intention to litigate the matter in Court. The filing of the Disqualification Application and the Statement of Defence and Counterclaim were not clear and unequivocal reservation of the Defendant’s right to refer the matter to arbitration.

It was the Court of Appeal’s unanimous decision that such absence of clear and unequivocal reservation only meant that the Defendant had taken active steps in the proceedings.

Conclusion

The decision of Infinity Vantage echoes the locus classicus Federal Court decision of Sanwell. However, it must be borne in mind the decision of Sanwell was decided prior to the Rules of Court 2012 and the predecessor governing rules, Rules of the High Court 1980.

Under the Rules of the High Court 1980, there was the clear distinction between a Conditional Appearance (Order 12 rule 6) and a normal Memorandum of Appearance (Order 12 rule 2). If there was an intention by the Defendant to file an application for proceedings to be stayed pending reference to arbitration, then the Defendant upon being served with a Writ of Summons and Statement of Claim would file a conditional appearance.

The said Conditional Appearance was a clear indicator that the Defendant wishes to challenge the jurisdiction of the Court or to apply to set-aside theWrit of Summons and the service of the said Writ of Summons. This was no doubt a much easier process then of ascertaining the intention of a Defendant from the outset. The Rules of Court 2012 however removed this distinction altogether by only having one form of Memorandum of Appearance to be filed when a

Defendant is served with a Writ of Summons and Statement of Claim. Be that as it may, the decision of Infinity Vantage serves as a useful reminder that if the Defendant wishes to rely on an Arbitration clause and take the matter completely out of the realm of the Courts, an application for proceedings to be stayed pending reference to arbitration pursuant to Section 10(1) Arbitration Act 2005.

The message is loud and clear. The Court cannot be expected to be merciful, if any step in the proceeding is taken by the Defendant, be it in the form of filing of pleadings or any other application, like the Disqualification Application filed in Infinity Vantage.