When a Stay Order is Wrongfully Used as an Engine of Delay

Your opponent filed an application in court pursuant to Section 10 of the Arbitration Act, 2005 to stay your client’s action pending reference to arbitration. The court allows the stay without setting any other express condition for which the referral is to be made. Six months later, it became more apparent that your opponent is disingenuous in settling the dispute by way of arbitration. 

Can you apply to the same court to set aside or vary the stay order?

Is the court functus officio from revisiting its own order?

Technically, the effect of a stay order is such that, it delays the disposal of an action or enforcement proceedings. However, there are circumstances where such delay is unwarranted. An example of this is when the applicant does not intend to have the dispute settled.  

In Prestij Mega Construction Sdn Bhd v Keller (M) Sdn Bhd & other cases [2019] 1 LNS 1612 (“Prestij Mega case”):- 

1. after the plaintiff procured a judgment in default against the defendant, the defendant applied for a stay pursuant to Section 10 of the Arbitration Act, 2005 to stay the proceedings in the said suit and for leave to refer the dispute to arbitration;

2. the sessions court (the court at first instance) granted the stay application. However, the defendant failed to refer the dispute to arbitration even after the said Suit had been called up for three case managements;

3. the defendant appealed;

4. the High Court held that the Sessions Court has the inherent and residual jurisdiction to set aside the stay when reference to arbitration pursuant to the stay order was not complied with. In this regard, Aliza Sulaiman JC (as Her Ladyship then was) referred to the decision of Lee Swee Seng J (as His Lordship then was) in FAMG Idaman Resources v Jasmadu Sdn Bhd [2019] 9 CLJ 763 as follows:-

‘[49] I am fortified in my view after reading the judgment of Lee Swee Seng J (now JCA) in FAMG Idaman Resources (supra ) where His Lordship undertook a meticulous examination of the provision in section 10 of the Arbitration Act 1952 (Revised 1972) [Act 93 ] (‘AA 1952’) and AA 2005 as well as section 4 of the Arbitration (Amendment) Act 2011 [Act A1395 ], which amended section 10 AA 2005, before concluding that a stay of the Court proceedings was warranted. His Lordship then proceeded to consider whether the Court should exercise its discretion to impose a condition on the stay in that the defendant should proceed with the arbitration within 30 days from the date of the order. In doing so, His Lordship referred to Commercial Arbitration, Second Edition, Butterworths, 1989 by Mustill and Boyd and said: 

“[59] Whilst such a requirement is not expressly stated in the new section 10 AA 2005, nevertheless the Court in granting stay is vested with a broad discretion to impose such condition as it may deem fit. The learned authors Mustill and Boyd (supra) at page 474 observed as follows: 

“… the applicant must show that he does not intend simply to use the arbitration as a means for postponing or preventing the resolution of the dispute. Manifestly, an applicant who intends to block the progress of arbitration by refusing to appoint an arbitrator in circumstances where the Court has a residual jurisdiction to appoint one on his behalf, can not obtain a stay. The same result will apply in cases where the delay by the applicant is so great as to justify the inference that he does not really wish the arbitration to be effective.” (emphasis added) 

[60] Further at page 482-483 the learned authors Mustill and Boyd (supra) reiterated as follows: 

“The grant or refusal of a stay does not necessarily amount to a final choice of the tribunal which is to determine the issues in the dispute. By virtue of its residual jurisdiction, the Court has power to take a dispute back into its hands, where the conduct of the arbitration has run into difficulties. It also has power to modify the terms of any stay which it has granted.” 

[61] Whilst it is too early a stage to gather any less than appropriate bona fide conduct on the part of the Defendant/Applicant, this Court under its broad discretion under section 10(2) AA 2005 is nevertheless empowered to impose conditions to ensure that “the party seeking the stay will proceed expeditiously with the arbitration and to test the readiness and willingness of his intentions as noted by the learned authors Sundra Rajoo and WSW Davidson in “The Aritration Act 2005” Sweet & Maxwell Asia 2007 at paragraph 10.11 at page 30.

… 

Pronouncement 

[65] I had therefore made an order that the present court proceedings be stayed and that the Defendant do proceed with arbitration within 30 days from the date for the order...”

Can the principles set out in the Prestij Mega case be extended to other cases where a stay order is used as an engine of delay?

Arguably, yes. 

In cases concerning arbitration agreements, there may be a specific or at the very least, a reasonable timeline for the parties to refer the dispute to arbitration. This is expected. As such, it is relatively easier to determine whether a stay order is used as an engine of delay in cases concerning arbitration agreements.

Cases other than those concerning arbitration agreements are mostly concerning stay granted pending appeal. If there is any delay in the disposal of the appeal, it is almost always out of the control of the parties. For example, backlog cases at the appellate court can contribute significantly to the delay of the case. 

Even if there was an adjournment to the hearings at the appellate courts, most of the time, the said adjournment was not without cogent reasons. It is for this reason that it is difficult (albeit not impossible) to prove that the stay order is being used as an engine of delay. 

Perhaps, the easier route to challenge the order is when it can be proved other instances where the party seeking for the stay order was not genuine in pursuing his or her appeal or that the circumstances of the case have materially changed since the stay order was granted. 

Conclusion

Courts have inherent jurisdiction and residual jurisdiction to review its stay order. It is imperative that this remains so to avoid any abuse of the court’s process.