Posco Engineering & Construction Co Ltd v Zecon Engineering & Construction Sdn Bhd

Appellant(s): Posco Engineering & Construction Co. Ltd.

Respondent(s): Zecon Engineering & Construction Sdn Bhd

• Dato' Dr. Choo Kah Sing
• YA Datuk Dr Lim Hock Leng
• YA Dato' Amarjeet Singh a/l Serjit Singh

• The parties entered into a construction contract containing an arbitration clause, and a foreign company (later merged into the defendant) commenced arbitration against the plaintiff in 2016; the sole arbitrator later withdrew upon his appointment as Speaker of the Dewan Rakyat, halting proceedings pending appointment of a substitute arbitrator.
• Over roughly five years, there was correspondence and inaction between the parties and the arbitral institution concerning non-payment of the plaintiff's share of the Advance Preliminary Deposit (APD) and the failure of either party to formally request appointment of a substitute arbitrator, until the defendant eventually paid the outstanding APD in 2024.
• The plaintiff then filed an originating summons seeking a declaration that the arbitration agreement was inoperative due to the defendant's delay, obtained an interim injunction restraining the arbitration, and the defendant's application under section 10(1) of the Arbitration Act 2005 to stay the court proceedings and refer the matter back to arbitration was dismissed by the High Court.

• Whether the arbitration rules (rule 4(7)/Article 8(1)/Article 14(1) of the KLRCA Rules 2013) impose an obligation solely on the claimant in an arbitration to request appointment of a substitute arbitrator, and whether failure to do so within a reasonable time (invoking section 47 of the Contracts Act 1950) amounts to a repudiatory breach rendering the arbitration agreement inoperative.
• Whether section 10(1) of the Arbitration Act 2005 empowers the court to declare an arbitration agreement inoperative absent a civil claim that is the subject of the arbitration agreement having been filed in court, and whether sections 8 and 18 of the Act (conferring jurisdiction on the arbitral tribunal to rule on its own jurisdiction) precluded the High Court from granting such declaratory and injunctive relief.
• Whether the principle in Bremer Vulkan (mutual passivity by both parties precludes either from treating delay as repudiation) applied, and whether the High Court applied the correct legal test (per J Jarvis) in granting an interim injunction to restrain continuation of the arbitration.

• The Court of Appeal held that the obligation to request appointment of a substitute arbitrator under the KLRCA Rules lay on either party, not the claimant alone, and that section 47 of the Contracts Act 1950 (a substantive law provision) was inapplicable to procedural arbitration rules; thus there was no repudiatory breach by the defendant, and the Bremer Vulkan principle of mutual passivity applied to defeat the plaintiff's claim.
• The Court held that section 10(1) of the Arbitration Act 2005 is only triggered where a civil claim that is the subject of an arbitration agreement has been filed in court; since the plaintiff's originating summons was not such a claim, the High Court lacked basis to declare the arbitration agreement inoperative, and in any event such a determination fell within the arbitral tribunal's jurisdiction under section 18 read with section 8 of the Act.
• The Court found the High Court had failed to apply the correct oppressive/vexatious/unconscionable/abuse-of-process test from J Jarvis in granting the interim injunction; both the appeal against the declaration (Appeal 2036) and the appeal against the injunction (Appeal 2037) were allowed with costs of RM30,000 each, while the appeal against dismissal of the stay application (Appeal 2038) was struck out as academic, with parties directed to proceed to appoint a substitute arbitrator without delay.