Stay Pending Arbitration: Request for Extension of Time Not a Further Step in the Proceedings

Introduction

Depending on the nature of a claim, it is not unusual that a request for an extension of time is made when a party receives the Statement of Claim.

The need for an extension of time becomes more imminent if the Statement of Claim runs into many paragraphs or when the client is located abroad.

In the recent case of Airbus Helicopters Malaysia Sdn Bhd v Aerial Power Lines Sdn Bhd [2024] CLJU 168, upon entering appearance, the Defendant whose parent company was located in France applied to the Court for an extension of time to file its Defence. The request was made during the first case management, notwithstanding that there was an arbitration agreement between the parties.

Nonetheless, before the deadline to file the Defence, and on the eve of the second case management, the Defendant applied to stay the court proceedings under Section 10 of the Arbitration Act 2005.

This means that there was merely a request for an extension of time, but the extension was eventually not engaged.

What ensued was a fervent insistence by the Plaintiff, that the Defendant had abandoned the arbitration agreement and opted for litigation. The High Court agreed with the Plaintiff but the Court of Appeal overruled the decision.

Section 10 of the Arbitration Act 2005 (“Act“)

If there is an arbitration agreement between the parties, Section 10 of the Act allows the Court to stay the proceedings upon a party’s application. This however is qualified by the restriction that the party making the application must not have taken any other steps in the court proceedings.

What amounts to a step in the proceedings?

The Court has to determine the nature of the action and whether it indicates an unequivocal intention to proceed with the suit and to abandon the arbitration agreement. The mere entering of an appearance does not count. However, the service of pleadings would demonstrate an intention to proceed with litigation and to abandon the arbitration agreement. See the Federal Court’s decision in Sanwell Corp [2002] 3 CLJ 213.

This exercise is fact-centric and fact-sensitive.

A workable guide, according to the Court of Appeal, is to ask whether the action complained of is preparatory to “taking any other steps” or is it the step itself.

Whether a mere request for an extension of time is an abandonment of the arbitration agreement?

The answer is no. The Defendant should not be penalised for an act done in the abundance of caution. It is important to note that while an extension was sought, it was never engaged. The Stay Application was filed before the deadline to file the Defence, before any extension of time was necessary.

The Cout of Appeal prefaced by noting in paragraph 32 that in civil matters, no one is prejudiced by the mere expression of a thought save for instances involving defamation or fear of bodily harm or injury.

The Court of Appeal also cautioned against cases decided by the UK as it is not a UNCITRAL Model Law country. Hence, in the UK there may not be the same default gravitation towards arbitration, unlike Model Law countries that encourage a hands-off approach and minimal interference by the Courts. In this regard, the Court of Appeal took note of the paradigm shift in encouraging parties to go for arbitration.

A few cases were considered. The first was the Canadian case of Central Investment & Development Corporation [1982] 133 D.L.R (3d) 440 where an application to extend time to receive proper instructions did not constitute a step in the proceedings. In the same vein, reference was made to the Canadian case of Peace River Hydro Partners [2022] SCC 41 which pronounced that there was no election to proceed with the suit when requesting an extension of time to make a decision.

The Malaysian case of Hamidah Fazilah Sdn. Bhd. [2016] CLJU 1170 is also instructive. There was an application for further and better particulars regarding certain paragraphs of the Statement of Claim. That according to the High Court was not a further step in the proceedings because all the Defendant wanted was to understand the claim better.

Whether the failure to reserve one’s right to proceed to arbitration is fatal?

The discussion stemmed from the case of C & B Global [2019] 1 LNS 765. In this case, the Defendant obtained the Plaintiff’s consent for an extension of time, and subsequently filed its Defence containing a reservation of right to file a stay application. The High Court held that there was no clear and unequivocal intention to abandon the arbitration agreement.

What if there was no reservation of right? The Court of Appeal noted that while a reservation of right is preferred as a matter of prudence, the failure to do so is not fatal. The Singapore High Court case of Broadcast Solutions Pte Ltd [2013] SGHC 273 was cited in support. It was held that the absence of an express reservation did not transform the nature of an equivocal act into clear submission.

Conclusion

1. The determination of whether there was a step in proceedings is a fact-centric and fact-sensitive exercise. There must be a clear and unequivocal intention to proceed with litigation and abandon the arbitration agreement.
2. A mere request for an extension of time will not be construed as a further step in Court proceedings. There must be some added factors. For instance, in the Federal Court case of Usahabina v Anuar bin Yahya [1998] 2 CLJ Supp 131 where the stay application was only filed after a judgment in default had been entered into. In such a scenario the Court will consider the stay application an afterthought.
3. While a reservation of rights is usually recommended, the failure to do so will not prejudice the party seeking to rely on the arbitration agreement.