Knowledge Highlights 24 April 2024
Court of Appeal illustrates Malaysian courts’ support of agreements to arbitrate
The Court of Appeal in Airbus Helicopters Malaysia Sdn Bhd v Aerial Power Lines Sdn Bhd W-02(IM)(NCvC)-1888-10/2022 held that a party in a court action had not necessarily waived its right to arbitration by requesting for an extension of time (“EOT”) to file its defence in litigation proceedings.
This article provides an overview of the court’s decision.
Snapshot
The respondent Aerial Power Lines Sdn. Bhd. (“Aerial”) commenced an action at the High Court against the appellant Airbus Helicopters Malaysia Sdn. Bhd. (“Airbus”) in relation to an alleged malfunctioning of a helicopter. The contract between the parties contained a clause agreeing to arbitrate any difference or dispute that may arise between them (“Arbitration Agreement”).
The Writ of Summons was served on Airbus merely two days before the first case management hearing for the suit (“First Hearing”). During the First Hearing, Airbus requested for an EOT to file its defence, which the court did not consider at the time due to procedural issues.
After the First Hearing, Airbus promptly filed an application under section 10(1) of the Arbitration Act 2005 (“AA 2005”) to stay the court proceedings in favour of arbitration (“Stay Application”).
Aerial opposed the Stay Application on the grounds that Airbus could not rely on section 10 of AA 2005 as it had taken steps in court proceedings by filing the EOT application. Section 10 expressly provides that a stay application in favour of arbitration must be made prior to the applying party taking steps in court proceedings. The High Court agreed and dismissed the Stay Application.
Judgment
The Court of Appeal reversed the decision of the High Court and directed that the High Court proceedings be stayed under section 10(1) of AA 2005.
Clear and unequivocal intention to abandon arbitration
The central question before the Court of Appeal was whether Airbus had unequivocally elected to abandon arbitration and pursue litigation in the High Court. In determining this question, the court assessed Airbus’ intentions based on its actions and the timing of those actions.
The court considered the effect of Airbus filing the EOT and found that this did not constitute a clear and unequivocal intention to pursue litigation as the High Court had yet to rule on the EOT. The court also took into account the practical considerations behind Airbus’ actions such as the complex and voluminous nature of the case, which could have warranted the EOT, noting that Airbus had a substantial task ahead of it, given the complexity of the case and the need to retrieve relevant documents dating back nine years.
This, coupled with the short time frame between being served the Writ of Summons and the First Hearing, provided a reasonable explanation for the EOT application.
The court found that Airbus had demonstrated its intention to honour the Arbitration Agreement by filing the Stay Application before the deadline for filing its defence had passed and before the next scheduled hearing.
“Taking any other steps in the proceedings”
The Court of Appeal noted that there was a divergence of views in High Court cases regarding what constituted “taking any other steps in the proceedings.” Some courts have taken a strict approach, deeming a request for an extension of time as tantamount to taking steps in the proceedings, while others have viewed it as a step preparatory to further actions.
The court in the present proceedings held that the latter interpretation was more aligned with the spirit of promoting arbitration and honouring the parties’ initial agreement to arbitrate disputes. This is also aligned with the broader objective of section 8 of the AA 2005, which discourages court intervention in matters governed by the AA 2005.
Where intervention is allowed, as in section 10, the court would be inclined to uphold the Arbitration Agreement. This was not the case here as Aerial had commenced litigation without candidly communicating to Airbus its intention to deviate from the arbitration agreement.
The court also observed that with the benefit of hindsight, it would be prudent, particularly when dealing with foreign clients or industry-standard contracts, for counsel to reserve the right to apply for a stay of proceedings when requesting for an extension of time in case an arbitration agreement exists.
Comment
The Court of Appeal’s decision underscores the Malaysian courts’ approach of upholding arbitration agreements unless there is evidence of a clear and unequivocal intention by the parties to abandon arbitration in favour of litigation as well as providing clarity on whether a request for an extension of time to file defence amounts to a waiver of the right to arbitrate. The approach taken by the court aligns with the broader legislative objectives of the AA 2005, which aims to reduce unnecessary court intervention in arbitration matters and to give effect to the parties’ intention to arbitrate where the arbitration clause is clear.
The court’s recognition of practical considerations, such as the complexity of the case and the need to retrieve relevant documents, reflects a balanced approach rather than a strict and overly technical approach. Another key takeaway from this decision is that a party to an arbitration agreement should act promptly and diligently in filing its application for stay of proceedings. Much weight was given by the Court of Appeal to Airbus’ promptness in filing its Stay Application before the original deadline for the defence as it demonstrated that Airbus had no intention to abandon the Arbitration Agreement.
This decision serves to underscore the importance of actively safeguarding the right to arbitrate in furtherance of an arbitration agreement. The court’s decision also offered valuable guidance for cases involving foreign clients or industry-standard contracts by emphasising the prudence of exercising the option to file a stay of proceedings when seeking an extension of time to file a defence.
