NAVIGATING THE INTERSECTION OF ARBITRATION AND LITIGATION

Legal Updates from YHA Law Firm

1. Illustrative Scenario:

In a recent case, Party X served Party Y with a Writ and Statement of Claim. Subsequently, Y entered a Memorandum of Appearance and, at the first case management hearing, requested an extension of time to file a Defense. Rather than submitting the Defense, Y sought to stay the proceedings under section 10(1) of the Arbitration Act 2005, aiming to refer the dispute to arbitration in line with the contract’s arbitration clause.

2. Legal Issues:

The crux of the issue is whether Party X can object to the stay application, contending that Party Y has estopped from choosing arbitration by seemingly opting for litigation through its actions.

3. Legal Principes & Law:

Section 10 of the Arbitration Act 2005 mandates a stay in proceedings if there is an agreement to arbitrate, unless the stay applicant has actively participated in the court proceedings or the arbitration agreement is deemed null, void, inoperative, or incapable of being performed.
Without a clear, unequivocal, and irrevocable intention to abandon arbitration, the court is inclined to favor staying court proceedings to allow arbitration as per the contract’s stipulations.

4. Application to Scenario:

Merely requesting an extension to file a Defense does not constitute taking steps in the legal proceedings sufficient to imply an abandonment of the arbitration agreement. Such a request, particularly when entry of appearance is necessary to avoid a default judgment, should not be interpreted as a definitive move to engage in litigation over arbitration. The absence of further procedural engagement, such as the submission of pleadings by Party Y, supports this view.

5. Reference cases:

Airbus Helicopters Malaysia Sdn Bhd (formerly known as Eurocopter Malaysia Sdn Bhd) v. Aerial Power Lines Sdn Bhd [2024] 2 MLJ 471
Ranhill E & C Sdn Bhd v. Tioxide (M) Sdn Bhd and other appeals [2015] MLJU 1873; [2015] 1 LNS 1435
Dynaciate Engineering Sdn Bhd v. Punj Lloyd Sdn Bhd [2020] MLJU 2388; [2020] 1 LNS 2252
Dian Kiara Sdn Bhd v. GCH Retail (M) Sdn Bhd [2020] 12 MLJ 570
Federal Court in Sanwell Corp v. Trans Resources Corp Sdn Bhd & Anor [2002] 2 MLJ 625; [2002] 3 CLJ 213

ADMIRALTY IN REM – WRONGFUL ARREST – POSSESORY RIGHT – ARREST GONE WRONG: WHEN A SHIP ARREST BACKFIRES WITH DAMAGES

In Eletson Holdings Inc & Ors v The Vessel “Paros” [2026] 8 MLJ 80, the High Court set aside an arrest after finding that the plaintiffs had no proprietary or possessory right to the vessel at the time of the writ, as the bareboat charter had already been terminated. The Court held that the claim was in substance a corporate control dispute dressed up as an admiralty action, and emphasised that such disputes do not fall within admiralty jurisdiction. Critically, the plaintiffs’ failure to disclose the termination of the charter when obtaining the arrest warrant amounted to a serious breach, leading the Court to find mala fides or gross negligence and order damages for wrongful arrest. The decision reinforces that ship arrest is a powerful remedy that must be exercised with full disclosure and a proper maritime foundation.

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GUARANTEE – PERSONAL GUARANTEE ≠ PAY ON DEMAND: COURT DRAWS THE LINE BETWEEN SURETYSHIP AND DEMAND GUARANTEES

In CE Energy DMCC v Bashar [2026] Lloyds’s Rep 267, the Commercial Court clarified that not all guarantees labelled “on demand” will be treated as demand guarantees. On a proper construction, the court held that the personal guarantee in question was a contract of suretyship, requiring proof of the principal debtor’s liability rather than automatic payment upon demand. Crucially, the court found that the debtor’s “irrevocable” admissions of debt in a payment agreement created a binding contractual estoppel, which the guarantor could not challenge. The decision also confirms that, where payment is due on a “day certain”, a seller may still claim the price notwithstanding retention of title. The case underscores the importance of precise drafting and the risks of entering into settlement agreements that conclusively fix liability.

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MARITIME NEGLIGENCE – PLAINTIFF CLAIMED FOR DAMAGES CAUSED DURING ANCHOR DEPLOYMENT OPERATION – CALDERBANK OFFERS

In Tom Eastwind 365 Sdn Bhd v The Owners of the Vessel “Icon Sophia” [2025] 9 MLJ 397, the High Court held that the doctrine of res ipsa loquitur applied in a maritime collision during an anchor deployment operation, allowing an inference of negligence against the tug owner. The Court clarified that the doctrine is not defeated merely because the defendant adduces evidence explaining the accident – such evidence goes to rebutting the inference, not preventing it. While liability was established due to the tug master’s error of judgment in manoeuvring too close to a stationary barge, the plaintiff failed to properly prove its damages and was awarded only RM50,000. Notably, despite succeeding on liability, the plaintiff was ordered to pay costs after rejecting reasonable Calderbank offers, underscoring the risks of pursuing litigation without properly substantiated claims.

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JURISDICTION – BILLS OF LADING – BREACH OF HIMALAYA CLAUSE – BREACH OF EXCLUSIVE JURISDICTION CLAUSE – ONEROUS OR UNUSUAL TERMS

In Maersk Guinéa-Bissau SARL v Almar-Hum Bubacar Baldé SARL [2026] 1 Lloyd’s Rep 215, the English Commercial Court held that a shipper was liable for breach of an exclusive jurisdiction clause and a Himalaya clause after commencing proceedings in Guinea-Bissau instead of England. The Court confirmed that such clauses are standard and enforceable, and that commencing foreign proceedings in breach of them can give rise to a claim for damages. Notably, the Court also recognised that Himalaya clauses may be used offensively, allowing subcontractors to recover losses caused by wrongful litigation. The foreign judgment was not recognised due to lack of jurisdiction and denial of natural justice.

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DELIVERY WITHOUT PRESENTATION OF BILL OF LADING – LOI WON’T SAVE YOU: SHIPOWNER LIABLE FOR MISDELIVERY DESPITE INDEMNITY

In United Overseas Bank Ltd v The “Maersk Katalin” [2026] 1 Lloyd’s Rep 18, the Singapore High Court reaffirmed that delivery of cargo without presentation of original bills of lading remains a fundamental breach, even where carried out against letters of indemnity. The Court held that LOIs merely shift commercial risk but do not authorise misdelivery, and rejected arguments of consent, ratification and causation. Significantly, the Court emphasised that the burden lies on the carrier to prove that the loss would have occurred in any event – a burden not easily discharged. The decision underscores the continued strict liability regime in misdelivery cases, particularly where banks as bill holders are involved.

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CONTRACT LAW – ‘UK COURTS’ MEANS ENGLAND: COURT UPHOLDS JURISDICTION DESPITE VAGUE CLAUSE

In SMT Global Logistics Ltd v Georgian Airlines LLC [2025] Lloyd’s Rep. Plus 89, the Commercial Court held that a clause referring disputes to “the court in accordance with current legislation of the United Kingdom” was a valid jurisdiction clause in favour of the High Court of England and Wales. The Court also confirmed that the Montreal Convention does not apply to pure contractual claims for non-performance, such as repayment and loss of profits. Emphasising a broad and commercially sensible interpretation, the Court enforced the parties’ choice of forum and refused to stay proceedings, reaffirming that jurisdiction clauses will be upheld unless there are overwhelming reasons to depart.

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