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LINDE GAS MALAYSIA SDN BHD

v.
PASIFIK UTAMA SDN BHD & ANOR
COURT OF APPEAL, PUTRAJAYA
TENGKU BAHARUDIN SHAH JCA
HASAN LAH JCA
JEFFREY TAN JCA
[CIVIL APPEAL NO: W-03-134-2007]
1 MARCH 2011
CIVIL PROCEDURE: Striking out - Appeal against - Rules of the
High Court 1980, O. 18 r. 19 - Whether pleadings herein revealed issues
of law and fact requiring determination - Whether case obviously
unsustainable or appropriate for disposal - Whether plaintiff abused court
process by seeking redress - Whether plaintiff’s claim vexatious or frivolous
- Whether Judicial Commissioner erred in upholding the striking out of
plaintiff’s claim
ARBITRATION: Jurisdiction - Jurisdiction of court - Whether ousted
by an arbitration clause in contract - Whether defendants had submitted
to jurisdiction of court and abandoned rights to arbitration - Arbitration
Act 1952, s. 34 - Whether applicable
The plaintiff was served with an Arbitration Notice (AN) to the
Kuala Lumpur Regional Centre for Arbitration (KLRCA) pursuant
to cl. 7 of a Carbon Dioxide Procurement Contract (the
Procurement Contract) for alleged breach by the plaintiff. The
plaintiff, who disputed the validity of the Procurement Contract
(including the arbitration clause therein contained) and the
jurisdiction of any arbitrator over the dispute between them filed
a writ of summons and statement of claim in the High Court. The
defendants entered an unconditional appearance to the writ of
summons. Subsequently, the defendants filed their statement of
defence and summons in chambers to strike out the whole or part
of the plaintiff's claim under O. 18 r. 19(b) and/or (d) of the Rules
of the High Court 1980. The Deputy Registrar allowed the
defendant’s application in part and struck out a substantive part
of the plaintiff’s claim. The plaintiff’s appeal to the judge in
chambers was dismissed by the judicial commissioner, hence the
appeal to this court. It was the plaintiff’s submission that the
validity of the arbitration clause must be decided before any

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arbitration could take place, hence the filing of the writ of

summons in court with the declarations sought for. According to
the plaintiff, as the defendants not only filed unconditional
appearance but also their statement of defence, they had taken
steps in the proceeding and thus submitted to the court’s
jurisdiction and having done so they could not then contend that
the court had no jurisdiction over the matter. The plaintiff also
denied ever having acceded to any arbitration and that even the
KLRCA recognised that the matter had to be decided by the
court before any arbitration, therefore, s. 34(1) Arbitration Act
1952 (the AA 1952) did not apply. The plaintiff further submitted
that this was not a proper case for striking out under O. 18 r. 19
of the Rules of the High Court 1980.
Held (allowing the appeal; setting aside the order of the High
Court)
Per Tengku Baharudin Shah JCA delivering the judgment of
the court:
(1) The appeal, being from an O. 18 r. 19 decision, should take
guidance from the well settled principle applicable thereto. It
is only in plain and obvious cases that recourse should be had
to this summary process. The procedure could only be
adopted when a claim is on the face of it ‘obviously
unsustainable.’ If there is a point of law which requires serious
discussion, objection should be taken on the pleading and the
point set down for argument. The court must be satisfied that
there was no reasonable cause of action or that the claims
were frivolous or vexatious (Bandar Builder Sdn Bhd v.
UMBC). (para 21)
(2) This was not a plain and obvious case in the defendants’
favour. The pleadings herein revealed issues of law and fact
which require determination. There were also issues as to
whether the jurisdiction of the court was ousted by an
arbitration clause in a contract, which existence or validity was
challenged and whether the defendants who had submitted to
the jurisdiction of the court had abandoned their rights to
arbitration, could now deny the court’s jurisdiction to
determine the issue. The case was therefore neither on the
face of it obviously unsustainable nor in the circumstances
appropriate for disposal under O. 18 r. 19 of the Rules of the
High Court 1980. (para 22)
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(3) There was nothing frivolous or vexatious in the plaintiff

seeking determination by the court of the legal status of the
Procurement Contract/Arbitration Clause, that being the
source of the arbitrator’s jurisdiction and power resolving the
dispute between them. The plaintiff did not abuse the court
process by seeking redress there but the defendants did so by
seeking to shut the plaintiff out after having themselves opted
to abandon their recourse to arbitration. (para 25)
(4) Article 21 of the KLRCA Rules no doubt empowers an arbitral
tribunal to rule on objection to its jurisdiction or determine the
existence or validity of an arbitration contract/clause. But as
pointed out in Safege Consulting Engineers v. Ranhill Bersekutu
Sdn Bhd jurisdiction and power are distinguishable. The judicial
commissioner had erred in rejecting the plaintiff’s submission
that the court retains the jurisdiction to determine the issue
at hand. (para 30)
(5) In the instant case, there was neither an ongoing arbitration
held at the KLRCA nor an international arbitration as
contemplated by s. 34. Though the AN was served on the
plaintiff, the plaintiff had not submitted to KLRCA’s
jurisdiction. On the contrary, the source of the arbitrator’s
jurisdiction was challenged as being null and void ab initio.
There was no arbitration in progress at KLRCA. There was
therefore no question of the court interfering with any
arbitration at KLRCA so as to trigger the application of
s. 34(1). (para 35)
(6) Clause 7 of the Procurement Contract expresses the intention
of the parties to refer their dispute to a domestic arbitration
and not an international one, the governing law being specified
as the laws of Malaysia. Local arbitration may be conducted
under the KLRCA Rules but s. 34 of the AA 1952 would not
be triggered as that would be contrary to the parties’ intention
and the purpose of the section. The JC therefore erred in
upholding the striking out of the plaintiff's claim on the ground
that the court’s jurisdiction was ousted by the arbitration
clause and s. 34(1) of the AA 1952. (para 36)
(7) Appellate interference was in order to rectify the decision of
the JC who had not only misconstrued the law but also
misappreciated the facts. (para 38)

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Bahasa Malaysia Translation Of Headnotes

Plaintif telah disampaikan dengan Notis Timbangtara (NT) ke
Pusat Timbangtara Serantau Kuala Lumpur (PTSKL) di bawah
kl. 7 Kontrak Pemerolehan Dioksida Pengepungan (kontrak
pemerolehan) atas dakwaan pelanggaran oleh plaintif. Plaintif, yang
mempertikaikan kesahihan kontrak pemerolehan (termasuk klausa
timbangtara yang terkandung di dalamnya) dan bidangkuasa manamana penimbangtara
atas pertikaian di antara mereka memfailkan
writ saman dan pernyataan tuntutan di Mahkamah Tinggi.
Defendan-defendan memasuki kehadiran tanpa syarat ke atas writ
saman. Kemudiannya, defendan-defendan memfailkan pernyataan
pembelaan dan saman dalam kamar untuk membatalkan seluruh
atau sebahagian dari tuntutan plaintif di bawah A. 18 k. 19(b)
dan/atau (d) Kaedah-Kaedah Mahkamah Tinggi 1980. Timbalan
Pendaftar membenarkan sebahagian dari permohonan defendan dan
menolak satu bahagian substantif tuntutan plaintif. Rayuan plaintif
kepada hakim dalam kamar telah ditolak oleh Pesuruhjaya
Kehakiman oleh itu rayuan dibuat kepada mahkamah ini. Ia adalah
hujahan plaintif bahawa kesahihan klausa timbangtara harus
diputuskan sebelum apa-apa timbangtara boleh dikendalikan, oleh
itu pemfailan writ saman di mahkamah dengan deklarasi-deklarasi
yang dipohon. Menurut plaintif, oleh kerana defendan-defendan
memfailkan kehadiran tanpa syarat dan pernyataan pembelaan,
defendan-defendan telah mengambil langkah-langkah dalam
prosiding dan telah menyerah kepada bidangkuasa mahkamah dan
oleh itu defendan-defendan tidak boleh sekarang berhujah bahawa
mahkamah tidak mempunyai bidangkuasa mengenai perkara itu.
Plaintif juga menafikan bahawa plaintif telah menerima mana-mana
timbangtara dan PTSKL mengiktiraf yang perkara itu perlu
diputuskan oleh mahkamah sebelum apa-apa timbangtara, oleh itu
s. 34(1) Akta Timbangtara 1952 (AT 1952) tidak boleh
diterimapakai. Plaintif seterusnya berhujah bahawa ini bukanlah kes
yang sesuai untuk dibatalkan di bawah A. 18 k. 19 KaedahKaedah Mahkamah Tinggi
1980.
Diputuskan (membenarkan rayuan; mengenepikan perintah
Mahkamah Tinggi)
Oleh Tengku Baharudin Shah HMR menyampaikan
penghakiman mahkamah:
(1) Rayuan yang datangnya dari keputusan A. 18 k. 19, bimbingan
sepatutnya diambil dari prinsip-prinsip mantap yang
digunapakai. Jalan penyelesaian di bawah proses summary
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hanya boleh digunakan apabila kes adalah terang dan jelas.

Prosedur itu hanya boleh dipakai apabila tuntutan adalah pada
permukaannya ‘tidak boleh bertahan.’ Jika terdapat satu
perkara undang-undang yang memerlukan persoalan serius
bantahan sepatutnya diambil ke atas pliding dan perkara
dicatatkan untuk hujahan. Mahkamah mesti berpuas hati
bahawa tidak terdapat kausa tindakan munasabah atau
tuntutan-tuntutan adalah remeh dan menyusahkan (Bandar
Builder Sdn Bhd v. UMBC).
(2) Ini bukan kes terang dan jelas yang memihak kepada pihak
defendan. Pliding-pliding di sini menunjukkan isu-isu undangundang dan fakta yang
memerlukan penentuan. Terdapat juga
isu-isu sama ada bidangkuasa mahkamah disingkir oleh klausa
timbangtara di dalam kontrak, yang kewujudannya dan
kesahihannya dicabar dan sama ada defendan-defendan yang
telah menyerah kepada bidangkuasa mahkamah telah
melepaskan hak-hak mereka kepada timbangtara, boleh
sekarang menafikan bidangkuasa mahkamah untuk memutuskan
isu. Oleh itu kes ini bukan pada permukaannya tidak boleh
dipertahankan dan di dalam keadaan tidak sesuai untuk
diputuskan secara terus di bawah A. 18 k. 19 Kaedah-Kaedah
Mahkamah Tinggi 1980.
(3) Tiada apa-apa yang remeh atau menyusahkan mengenai
permohonan plaintif untuk mahkamah memutuskan status
undang-undang kontrak pemerolehan/klausa timbangtara, itu
adalah sumber bidangkuasa penimbangtara dan kuasa untuk
menyelesaikan pertikaian antara mereka. Plaintif tidak
salahgunakan proses mahkamah dengan memohon pembetulan
di sana tetapi defendan-defendan telah berbuat demikian
dengan memohon untuk menolak plaintif keluar apabila
defendan-defendan sendiri telah memilih untuk melepaskan
hak-hak mereka kepada timbangtara .
(4) Artikel 21 Kaedah-Kaedah PTSKL memberi kuasa kepada
tribunal timbangtara untuk memerintah satu bantahan kepada
bidangkuasa atau untuk memutuskan kewujudan atau
kesahihan kontrak/klausa timbangtara. Tetapi seperti yang telah
dinyatakan di dalam Safege Consulting Engineers v. Ranhill
Bersekutu Sdn Bhd bidangkuasa dan kuasa boleh dikenal beza.
Pesuruhjaya Kehakiman salah apabila menolak hujahan plaintif
bahawa mahkamah sepatutnya mengekalkan bidangkuasa untuk
memutuskan isu.

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(5) Di dalam kes ini, tidak ada satu timbangtara berterusan

diadakan di PTSKL mahupun timbangtara antarabangsa seperti
yang dipertimbangkan oleh s. 34. Walaupun NT telah
disampaikan kepada plaintif, plaintif tidak menyerah kepada
bidangkuasa PTSKL. Sebaliknya, sumber bidangkuasa
penimbangtara dicabar dan dikatakan tidak sah dan terbatal.
Tiada timbangtara dijalankan di PTSKL. Oleh itu tiada
persoalan mahkamah menganggu apa-apa timbangtara di
PTSKL untuk menggunapakai s. 34(1).
(6) Klausa 7 Kontrak Pemerolehan menyatakan niat pihak-pihak
untuk merujuk pertikaian mereka ke timbangtara domestik dan
bukan antarabangsa, undang-undang pemerintahan ditetapkan
sebagai undang-undang Malaysia. Timbangtara tempatan boleh
dikendalikan di bawah Kaedah-Kaedah PTSKL tetapi s. 34 AT
1952 tidak digunakan kerana itu bertentangan dengan niat
pihak-pihak dan tujuan seksyen tersebut. Pesuruhjaya
Kehakiman salah apabila mempertahankan penolakan tuntutan
plaintif atas alasan bahawa bidangkuasa mahkamah telah
disingkir oleh klausa timbangtara dan s. 34(1) AT 1952.

(7) Campurtangan rayuan diperlukan untuk memperbetulkan

keputusan Pesuruhjaya Kehakiman yang bukan hanya
menyalahtafsirkan undang-undang tetapi tersalah ambilkira
fakta-fakta di hadapannya.

Case(s) referred to:

Bandar Builder Sdn Bhd & Ors v. United Malayan Banking Corporation
Bhd [1993] 4 CLJ 7 SC (refd)
Jati Erat Sdn Bhd v. City Land Sdn Bhd [2002] 1 CLJ 346 HC (refd)
Heyman v. Darwins [1942] 1 All 337 (refd)
Klockner Industries - Anlagen GmbH v. Kien Tat Sdn Bhd & Anor [1990]
1 LNS 70 HC (refd)
New India Assurance Company Ltd v. Lewis [1966] 1 LNS 115 FC (refd)
Newacres Sdn Bhd v. Sri Alam Sdn Bhd [1991] 3 CLJ 2781; [1991] 1 CLJ
(Rep) 321 SC (refd)
Safege Consulting Engineers v. Ranhill Bersekutu Sdn Bhd [2004] 4 CLJ 699
CA (refd)
Sanwell Corporation v. Trans Resources Corporation Sdn Bhd & Anor [2002]
3 CLJ 213 FC (refd)
Sarawak Shell Bhd v. PPES Oil & Gas Sdn Bhd & Ors [1998] 3 CLJ 275
CA (refd)
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Soilchem Sdn Bhd v. Standard Electrik Lorenz AG [1992] 1 LNS 51 HC

(refd)
Tan Kong Cheng & Sons Realty Co Sdn Bhd v. Lim Ah Pat [1996] 1 CLJ
231 FC (refd)
Thamesa Designs Sdn Bhd & Ors v. Kuching Hotels Sdn Bhd [1993] 4 CLJ
12 SC (refd)
Thye Hin Enterprises Sdn Bhd v. Daimlerchrysler Malaysia Sdn Bhd [2004]
3 CLJ 591 CA (refd)
Legislation referred to:
Arbitration Act 1952, ss. 6, 34(1)
Arbitration Act 2005, s. 10(1)
Rules of the High Court 1980, O. 18 rr. 19(b), (d)

For the appellant - VS Chan (CW Lam with him); M/s Lee & May
For the respondent - Mahathir Abdullah; M/s Raslan Loong
[Appeal from High Court, Kuala Lumpur; Civil Suit No: S7-22-1288-2004]

Reported by Suhainah Wahiduddin

JUDGMENT

Tengku Baharudin Shah JCA:

[1] This is an appeal against the decision of the learned judicial
commissioner (JC) who dismissed the appellant/plaintiff’s (the
plaintiff) appeal against the decision of the learned Deputy
Registrar of the High Court (the DR) in striking out the
substantive part of the plaintiff’s claim against the respondent/
defendants (the defendants) under O. 18 r. 19(b) and/or (d) of
the Rules of the High Court 1980 (RHC). We heard arguments
of learned counsel for the respective parties and came to a
unanimous conclusion that the said decision was wrong and
contrary to law. We therefore allowed the plaintiff’s appeal with
costs here and below and set aside the order. Consequently, we
also dismissed the striking out application of the defendants.
Background
[2] The plaintiff was served with an arbitration notice dated
20 August 2004 (the AN) to the Kuala Lumpur Regional Centre
for Arbitration (KLRCA) pursuant to cl. 7 of a Carbon Dioxide
Procurement Contract dated 14 June 2000 (the procurement
contract) for alleged breach by the plaintiff.

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[3] The plaintiff who disputed the validity of the procurement

contract (including the arbitration clause therein contained) and
the jurisdiction of any arbitrator over the dispute between them
filed a writ of summons and statement of claim on 25 August
2004 in the High Court seeking for the following prayers:
(a) A declaration that the procurement contract was null and void
and that consequently cl. 7 thereof was also null and void and
hence there was no agreement to arbitrate;
(b) A declaration that no arbitrator had authority to act or
jurisdiction to make any award pursuant to the AN;
(c) A declaration that the KLRCA Rules had no application to
the dispute between the defendants and the plaintiff;

(d) An injunction to restrain the defendants from threatening,

committing, inducing, procuring breaches of or unlawfully
interfering in the supply agreement dated 17 July 1997
between the plaintiff and Petronas (the supply agreement);
(e) General damages, interest and costs.
[4] The defendants entered an unconditional appearance to the
writ of summons on 2 September 2004.

[5] On 9 September 2004 KLRCA wrote to the solicitors of the

defendants and plaintiff notifying them that notwithstanding the
AN no action would be taken until appropriate measures were
taken in the High Court Civil Suit. The arbitration clause in the
contract was however taken note of.
[6] The defendants filed their statement of defence on
10 September 2004 and subsequently filed summons-in-chambers
(encl. 20) to strike out the whole or part of the plaintiff’s claim
under O. 18 r. 19(b) and/or (d) of the RHC. The DR heard and
allowed the defendants’ application in part in that prayers (a) to
(c) and prayer (e) of the plaintiff’s statement of claim were struck
out. The plaintiff’s appeal to the judge in chambers was dismissed
by the learned JC, hence the appeal to this court.
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The Plaintiff’s Claim

[7] The plaintiff’s case is that the validity of the procurement
contract must be determined first, if it is declared to be void the
purported agreement to arbitrate would also be void. In that
event, neither the arbitrator nor KLRCA would have any
jurisdiction.
[8] The procurement contract is alleged to be null and void for
want of consideration, smacked of mala fides, was a sham
document, and tantamount to corrupt practice. It was contended
that documentary evidence showed that the purported agreement
on ‘procurement and commission’ had nothing to do with the
defendants nor the plaintiff. The plaintiff did not and could not
engage the defendants to procure any supply agreement because
at the time of the execution of the supply agreement the plaintiff
was not even formed and was not in existence. The defendants
were also not the procurers of the supply agreement.
[9] The plaintiff saw no justification for paying the defendants a
300% commission without consideration. The defendants had no
right to impose another person’s obligation onto the plaintiff as
such commission was in return for management services rendered
to that other.
[10] It was further contended that the filing of the unconditional
appearance by the defendants amounted to submitting to the
jurisdiction of the court. The court’s jurisdiction cannot be ousted
by agreement and any agreement to arbitrate did not bar the
court’s jurisdiction nor did it bar the institution of proceedings in
the court.
The Defendants’ Contention
[11] The defendants stand was that the arbitration clause must
be read together with art. 21 of the KLRCA Rules and as such
any dispute arising under the procurement contract must be
referred to the arbitrator.
[12] They contended that the filing of the pleadings and affidavits
by the defendants could not at law amount to a submission to the
jurisdiction of the court in circumstances where the court had no
jurisdiction to hear the dispute in any event. Therefore the
plaintiff’s claim was frivolous and vexatious and an abuse of the
process of the court and should be struck out under O. 18 r 19.

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JC’s Finding

[13] The learned JC held the view that art. 21 of the KLRCA
Rules empowers the arbitral tribunal to determine the very issue
of the existence or validity of the procurement contract of which
the arbitration clause forms part of. She relied on the authority of
Sarawak Shell Bhd v. PPES Oil & Gas Sdn Bhd & Ors [1998]
3 CLJ 275, that s. 34(1) of the Arbitration Act 1952 (the AA
1952) excludes the jurisdiction of the court in cases that are
before the KLRCA.

[14] She rejected the plaintiff’s contention and held that in light
of s. 34(1) of the AA 1952, the defendants’ failure to file
conditional appearance and to apply for stay of the proceedings
did not estop the defendants from filing O. 18 r. 19 application
and accordingly dismissed the plaintiff’s appeal.
The Appeal

[15] Before us, learned counsel for the plaintiff submitted that the
validity of the arbitration clause must be decided before any
arbitration can take place, hence the filing of the writ of summons
in court with the declarations sought for. As the defendants not
only filed unconditional appearance but also their statement of
defence, they had taken steps in the proceeding and thus
submitted to the court’s jurisdiction. Having done so they could
not then contend that the court had no jurisdiction over the
matter. It is common ground that the AA 1952 applies in this case
as the events took place in 2004.
[16] It was thus submitted in the circumstances that the matter
did not come under O. 18 r. 19(1) as the defendants had by so
submitting to the court’s jurisdiction opted for the issue to be
determined by the court instead of arbitration. The court always
retains jurisdiction over disputes between Malaysian parties. The
validity of an agreement is for the court to decide and only the
court can decide whether an agreement is void ab initio for non
consideration. If the agreement is void there is no authority for
any arbitrator to come in.
[17] The plaintiff denied ever having acceded to any arbitration.
Even the KLRCA recognized that the matter had to be decided
by the court before any arbitration. Therefore s. 34(1) of the AA
1952 did not apply. Furthermore, with the allegation of fraud apart
from non-consideration to vitiate the agreement, arbitration would
not be an appropriate forum.
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[18] It was also submitted that this is not a proper case for
striking out under O. 18 r. 19 on ground of lack of jurisdiction as
the defendants did not in their pleadings deny that the court had
jurisdiction.
[19] Responding to the plaintiff’s argument learned counsel for
the defendants submitted that the plaintiff omitted to state that
the claim has two limbs as also the striking out application is
against both claims but the court only allowed the relief relating
to the procurement contract in which the arbitration clause is
prescribed. They had to defend the claim relating to the supply
agreement which has no arbitration clause.
[20] It was contended that the arbitration clause itself empowers
the arbitrator to determine the issue of validity and for the
KLRCA Rules to apply to any dispute. The provision of s. 34(1)
of the AA 1952 was thus triggered and the court’s jurisdiction
was ousted in determining the validity of the agreement. Learned
counsel relied heavily on the decision of this court in Sarawak Shell
(supra) which held that the effect of s. 34(1) of the Act is to leave
no possibility of the court retaining any power to intermeddle in
the arbitration at KLRCA. Arbitration is said to have commenced
by virtue of art. 3 para. 2 of the KLRCA Rules which deems the
arbitration proceedings to commence on the date on which the
notice of arbitration is received by the party against whom the
claim is initiated. And art. 21 para. 2 of the KLRCA Rules also
empowers the arbitrator to determine the existence or validity of
any arbitration agreement or clause.

Our Conclusion
[21] The appeal being from an O. 18 r. 19 decision, we take
guidance from the well settled principle applicable thereto. It is
only in plain and obvious cases that recourse should be had to
this summary process. The procedure can only be adopted when
a claim is on the face of it ‘obviously unsustainable’. If there is a
point of law which requires serious discussion objection should be
taken on the pleading and the point set down for argument. The
court must be satisfied that there is no reasonable cause of action
or that the claims are frivolous or vexatious. (See Bandar Builder
Sdn Bhd & Ors v. United Malayan Banking Corporation Bhd [1993]
4 CLJ 7).

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[22] The submissions of learned counsel show that this is not a

plain and obvious case in the defendants’ favour. The pleadings
reveal issues of law and fact which require determination. Indeed,
the defendants did not deny this but preferred that they be
resolved by arbitration. You also have the issues of whether the
jurisdiction of the court is ousted by an arbitration clause in a
contract, which existence or validity is challenged and whether the
defendants who have submitted to the jurisdiction of the court
thereby abandoning their rights to arbitration, can now deny the
court’s jurisdiction to determine the issue. The case is therefore
neither on the face of it obviously unsustainable nor in the
circumstances appropriate for disposal under O. 18 r. 19.
[23] In Newacres Sdn Bhd v. Sri Alam Sdn Bhd [1991] 3 CLJ
2781; [1991] 1 CLJ (Rep) 321 the Federal Court rejected the
argument of the appellant therein that the respondent did not
have a cause of action against it since the respondent failed to
refer their dispute to arbitration as required by the term of the
agreement to arbitrate. It was held that the arbitration clause was
never intended to oust the court’s jurisdiction and that the
respondent could still go to court provided no award had been
made by an arbitrator. The appellant’s conduct in not objecting to
the respondent's recourse to court and by filing affidavits,
statement of defence and counterclaim amounted to a waiver of
its right to go to arbitration. The appellant’s failure to have
recourse to s. 6 of the AA 1952 reinforced the argument that it
had abandoned its right to go to arbitration.
[24] In Thamesa Designs Sdn Bhd & Ors v. Kuching Hotels Sdn Bhd
[1993] 4 CLJ 12, where the parties to a garnishment proceeding
never questioned the court’s jurisdiction and went ahead with the
hearing, the Federal Court held that it was too late for the
respondent/garnishee to raise the issue in the face of the
arbitration clause in the contract that the court had no jurisdiction
to hear the matter.
[25] In light of the high authorities there is nothing frivolous or
vexatious in the plaintiff seeking determination by the court of the
legal status of the procurement contract/arbitration clause, that
being the source of the arbitrator’s jurisdiction and power of
resolving the dispute between them. The plaintiff did not abuse
the court process by seeking redress there but the defendants did
so by seeking to shut the plaintiff out after having themselves
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opted to abandon their recourse to arbitration. On this ground

alone this appeal should be allowed and the order of the learned
JC set aside.
[26] Whether the court or the arbitrator determines the validity
of an arbitration contract was considered by the Federal Court in
New India Assurance Company Ltd v. Lewis [1966] 1 LNS 115. It
was held as settled law that where the dispute is as to whether a
contract which contains an arbitration clause in the widest and
most usual form was entered into at all that issue cannot go to
arbitration under the clause. The reason for that is attributed to
the words of Viscount Simon LC in Heyman v. Darwins [1942]
1 All 337 that “the party who denies that he had ever entered
into the contract is thereby denying that he ever joined in the
submission” and to the words of Lord Mcmillan that “If there has
never been a contract at all, there has never been in a part of it
an agreement to arbitrate; the greater includes the less”.
[27] In the context of the present case, as the very source of the
arbitrator’s authority is being challenged, he is yet to be clothed
with the jurisdiction so as to enable him to exercise the power to
determine the issue. It would otherwise be putting the cart before
the horse.
[28] In Tan Kong Cheng & Sons Realty Co Sdn Bhd v. Lim Ah Pat
[1996] 1 CLJ 231 Gopal Sri Ram JCA, in delivering the judgment
of the Federal Court, reiterated the common law position that a
prior agreement between contracting parties to refer their dispute
to arbitration did not operate to bar either of them from instituting
proceedings in the ordinary courts. However, the court could, in
the exercise of its discretion, stay an action and require the
plaintiff to adhere to the obligation voluntarily undertaken to go
to arbitration.
[29] The common law position was adopted by our AA 1952
which was enacted to regulate the procedures pertaining to
arbitration as an alternative means of resolving disputes. Section 6
of the AA 1952 provides statutory recognition that the court
retains its jurisdiction over disputes notwithstanding any agreement
to arbitrate. The power to stay court proceedings is premised on
the existence of an agreement to arbitrate and the disputes therein
contemplated. The exercise of such discretion is conditional upon
the application being made before any steps are taken in that

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proceedings. That same position is in fact maintained in the

Arbitration Act 2005 except that the new s. 10(1) now makes it
mandatory to order a stay of court proceedings upon application
being made, other conditions remaining but specifically prescribed.
[30] Article 21 of the KLRCA Rules no doubt empowers an
arbitral tribunal to rule on objection to its jurisdiction or determine
the existence or validity of an arbitration contract/clause. But as
pointed out by Abdul Aziz Mohamed JCA in Safege Consulting
Engineers v. Ranhill Bersekutu Sdn Bhd [2004] 4 CLJ 699
jurisdiction and power are distinguishable. “Even if an arbitrator
has power to ... it is only a power, a remedy or a tool available
to an arbitrator to use in his domain. But he must first have that
domain, that jurisdiction. If he has not got the domain, the
jurisdiction, the question of the power, remedy or, tool is irrelevant
... The power ... , if it exists, cannot confer jurisdiction that does
not exist.” The learned JC therefore erred in rejecting the plaintiff’s
submission that the court retains the jurisdiction to determine the
issue at hand.
[31] The next issue is whether s. 34(1) of the AA 1952 applies
in this case as cl. 7 of the procurement contract provides for
settlement of any dispute by arbitration at the KLRCA. KLRCA
was established with the objective of providing a system for
settlement of dispute for the benefit of parties engaged in trade,
commerce and investment in and within the Asian Pacific region
with the primary functions to promote international commercial
arbitration in the region and to render assistance in the
enforcement of awards. This is stated in the introduction to the
Arbitration Rules of the KLRCA (Revised August 2001). Section
34 was added to the AA 1952 in 1980 consequent to its
establishment and in recognition of the independent and
international nature and functions of the centre which fact must
be borne in mind in construing the provision.
[32] This is acknowledged by Zakaria Yatim J (the first director
of KLRCA who later became judge) in his judgment in Klockner
Industries - Anlagen GmbH v. Kien Tat Sdn Bhd & Anor [1990]
1 LNS 70 where he said, “The arbitration centre is an
independent international institution.” In that case he opined that
s. 34 of the AA 1952 precluded the High Court from exercising
its supervisory jurisdiction as provided in the AA 1952 or other
written law in respect of any arbitration held at the KLRCA. In
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Soilchem Sdn Bhd v. Standard Electrik Lorenz AG [1992] 1 LNS 51

Abu Mansor J followed Klockner and held that the section was
meant to exclude the jurisdiction of the court in such cases. In
Sarawak Shell Mahadev Shanker JCA adopted Klockner and Soilchem
and concluded that there is therefore no possibility that the court
had some other power to intermeddle in the arbitration at the
centre whether by way of inherent jurisdiction or common law or
otherwise.
[33] In our view, reliance by the learned JC on Sarawak Shell is
however misplaced as the situations and issues differ. In that case
the existence or validity of the agreement to arbitrate was not in
dispute nor was the jurisdiction of the KLRCA an issue. The
plaintiff there also conceded that the arbitration proceedings at the
KLRCA was in progress when court intervention was sought.
Unlike the present case, both Klockner and Soilchem relied on by
Sarawak Shell were concerned with applications made to court in
the course of on going international arbitrations held at KLRCA.
[34] We agree with Mohd Ghazali Yusoff JCA in Thye Hin
Enterprises Sdn Bhd v. Daimlerchrysler Malaysia Sdn Bhd [2004]
3 CLJ 591 that s. 34 of the AA 1952 only excludes interference
with the arbitration itself. It does not extend to situations where
the relief sought from the court is not supervisory in nature. (see
also Dato PG Lim, the former Director of KLRCA (1982 - 2000)
in her article entitled Jati Erat Sdn Bhd v. City Land Sdn Bhd
[2001] MLJU 657 in, [2002] 1 CLJ 346 Revisited).
[35] In the instant case there was neither an ongoing arbitration
held at the KLRCA nor an international arbitration as
contemplated by s. 34, all parties being local companies. Though
the AN was served on the plaintiff, the plaintiff had not submitted
to KLRCA’s jurisdiction. On the contrary, the source of the
arbitrator’s jurisdiction was challenged as being null and void ab
initio. KLRCA itself admitted by its letter that no action would be
taken by the centre pending direction of the court. There was no
arbitration in progress at KLRCA. There is therefore no question
of the court interfering with any arbitration at KLRCA so as to
trigger the application of s. 34(1). In any event , the relief sought
by the plaintiff before the court is not supervisory in nature.
[36] Be that as it may, cl. 7 of the procurement contract
expresses the intention of the parties to refer their dispute to a
domestic arbitration and not an international one, the governing
law being specified as the laws of Malaysia. Local arbitration may

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be conducted under the KLRCA Rules but s. 34 of the AA 1952

would not be triggered as that would be contrary to the parties'
intention and the purpose of the section. The learned JC therefore
erred in upholding the striking out of the plaintiff’s claim on the
ground that the court’s jurisdiction was ousted by the arbitration
clause and s. 34(1) of the AA 1952.
[37] On learned counsel’s submission that the defendants had to
file their statement of defence because of the claim in respect of
the supply agreement which contained no arbitration clause, it is
trite law that if a defendant has served any pleadings, then he has
clearly taken a step in the proceedings and has thereby elected to
proceed with the proceedings in court and would be barred from
applying for a stay of proceedings to refer the dispute to
arbitration. (See Sanwell Corporation v. Trans Resources Corporation
Sdn Bhd & Anor [2002] 3 CLJ 213 FC)
[38] For the aforesaid reasons appellate interference was in order
to rectify the decision of the learned JC who had not only
misconstrued the law but also misappreciated the facts before her.
We accordingly allowed the appeal and set aside the order of the
High Court.