On 10 March 2022, the Shah Alam High Court in Spaz Sdn Bhd (In Liquidation) v Malaysia Airports Holdings Berhad (BA-22NCvC-277-07/2021) allowed the application by Malaysia Airports Holdings Berhad (“MAHB”) for a stay of proceedings pending reference to arbitration (“Stay Application”) pursuant to Section 10(1) of the Arbitration Act 2005 (“AA 2005”). The Stay Application arose from a civil suit commenced by Spaz Sdn Bhd (In Liquidation) (“Spaz”) against MAHB for unpaid works done and loss of profits. In allowing the Stay Application, the High Court declined to impose a condition under Section 10(2) AA 2005, that MAHB be precluded from raising the defence of limitation in arbitration.
 
This decision is significant because for the first time in Malaysia, the High Court has recognised a distinction between conditions relating to administrative matters and those which affect the substantive rights of the parties, when deciding whether to impose a condition pursuant to Section 10(2) AA 2005.
 
The Stay Application
 
In 2014, MAHB awarded a turnkey contract to Spaz for the development of the Malaysia Airports Academy with the contract sum amounting to RM 151,988,690.00 (“the Contract”).
 
In July 2021, Spaz commenced a civil suit against MAHB in the Shah Alam High Court for the remaining value of works done which were unpaid and loss of profits amounting in total to RM25,827,881.76, arising from the purported unlawful termination of the Contract in July 2015. Thereafter, MAHB filed the Stay Application on the basis that there is a valid and binding arbitration agreement between the parties. 
 
In opposing the Stay Application, Spaz submitted that the arbitration agreement was incapable of being performed without causing substantial injustice to them, due to inter alia events resulting from the Covid-19 pandemic, and the course of events in obtaining the Official Receiver’s sanction which led to the commencement the suit against MAHB (“First Ground”).
 
Further, Spaz contended that in the event the Court is minded to grant the Stay Application, the Court ought to impose a condition pursuant Section 10(2) of the AA 2005 that MAHB be precluded from raising the defence of limitation in the arbitration (“the Condition”). This is because if MAHB succeeds in the Stay Application, Spaz would have to commence arbitration proceedings, and as the limitation period would have set in by then and Spaz’s claims would be time-barred (“Second Ground”)
 
First Ground
 
MAHB submitted that Spaz’s contention that the arbitration agreement is incapable of being performed is unsustainable because the incapability was not caused by any external factors beyond Spaz’s control but was instead caused by Spaz’s own delays. Therefore, Spaz’s non-compliance with the multi-step procedure in the arbitration agreement does not render the same incapable of being performed.
 
The High Court agreed with MAHB’s submissions and held that the arbitration agreement is not incapable of being performed by reason of Spaz’s own non-compliance of the arbitration agreement procedures.
 
Second Ground
 
SPAZ relied on two Malaysian cases¹ namely Apex Marble and Lineclear and submitted that the Courts have allowed the imposition of condition for waiver of the defence of limitation at arbitration pursuant to Section 10(2), in granting a Section 10(1) AA 2005 stay of proceedings. The High Court noted that in these cases, some of the relevant considerations were that (i) there was a dispute as to the existence of the arbitration agreement; (ii) there were many applications being filed and due to the effluxion of time and without any fault of the party applying for stay, the limitation period would have set in if the proceedings was referred to arbitration; and (iii) whether the delays were attributable to the party applying for a Section 10(1) stay of proceedings.
 
In the Stay Application, however, the High Court made a finding that there was no dispute regarding the existence of the arbitration clause and that the delays were self-inflicted by Spaz and were not caused by MAHB being the applicant of the Stay Application. As such,  the two Malaysian cases were distinguishable on the facts.
 
Nature of conditions under Section 10(2) AA 2005
 
Pertinently, the Court had the opportunity to consider the recent Singapore Court of Appeal decision of The Navios Koyo² which draws a distinction between the following: 

1. Administrative conditions which are orders consequential upon the stay order and sought to give effect to the arbitration agreement, such as imposing a timeline to commence arbitration, requiring a party to appoint a solicitor to accept service or ordering parties not to frustrate the appointment of the tribunal; and 


2. Conditions which seek to decide a substantive issues, such as the waiver of a defence to time bar, which should rightly be determined in arbitration. 

The distinction is relevant as the Singapore Court of Appeal held that the threshold for the latter is considerably higher than that for administrative conditions. The Court of Appeal in The Navios Koyo also laid down the relevant factors to be considered in deciding whether to impose any conditions, which includes looking into the substantive effect of any condition that may be imposed, such as depriving a party of a substantive and accrued defence.
 
In the Stay Application, the High Court relied on the The Navios Koyo and declined to impose a condition that MAHB be precluded from raising the defence of limitation in arbitration, as the same would deprive MAHB of its substantive right of the defence of limitation.      
 
Comment
 
This decision is significant as it provides clarity on the distinction between conditions relating to administrative matters and those which affect the substantive rights of the parties, the latter being subject to a considerably higher threshold. In this regard, the Courts would generally be slow to exercise its discretion to impose conditions which relate to one’s substantive rights. 
 
Malaysia Airports Holdings Berhad was represented by our Partner Shannon Rajan, Senior Associate Siew Suet Mey and Associate Jeremiah Ch’ng.