Arbitration Update: Lost in Drafting? Making Sense of an Ambiguous Arbitration Clause
Introduction
Does a requirement to refer a dispute to arbitration “within forty-five (45) days” impose a strict deadline, such that missing it brings the right to arbitrate to an end?
The High Court in Craun Research Sdn Bhd v Bole Engineering Sdn Bhd1 (“Craun Research”) recently considered this question in the context of an arbitration clause that when read literally, appeared to contain conflicting requirements.
While clause 66.3 of the parties’ agreement appeared to require a dispute to be referred to arbitration within 45 days of the SO’s decision, clause 66.4 of the same agreement had the general provision which prohibited the commencement of arbitration until the completion, termination or abandonment of the works.
In reading the arbitration clause as a whole, the Court held that the 45-day period was not a time limit for referring the dispute to arbitration. Rather, it was the period within which the parties were to agree on an arbitrator.
The decision serves as a useful reminder that time periods in arbitration clauses should not be read in isolation — particularly where a literal reading would put different parts of the same dispute resolution mechanism at odds with one another.
Brief facts
Craun Research Sdn Bhd (“Craun”) appointed Bole Engineering Sdn Bhd (“Bole”) to carry out gas pipe laying and related works for a project in Mukah. The contract incorporated the PWD Form 203A, which contained the dispute resolution mechanism under clause 66. The material provisions were:
“66.1 If any dispute or difference shall arise between the CRAUN RESEARCH SDN BHD and the Contractor out of or in connection with the contract, then parties shall refer such matter, dispute or difference to the officer named in Appendix for a decision.
66.2 The officer named in Appendix’s decision shall be in writing and shall subject to clause 66.4 hereof, be binding on the Parties until the completion of the Works and shall forthwith be given effect to by the Contractor who shall proceed with the Works with all due diligence whether or not notice of dissatisfaction is given by him.
66.3 If the Parties –
(a) fails to receive a decision from the officer named in the Appendix within forty-five (45) days after being requested to do so; or
(b) is dissatisfied with any decision of the officer named in the Appendix, then such dispute or difference shall be referred to arbitration within forty-five (45) days to an arbitrator to be agreed between the Parties and failing such agreement, to be appointed by the Director of the Regional Centre for Arbitration in Kuala Lumpur on the application of either Party hereto. Such arbitration shall be heard at the Kuala Lumpur Regional Centre for Arbitration and shall be conducted in accordance with the rules for arbitration of the Kuala Lumpur Regional Centre for Arbitration using the facilities and the system available at the Centre.
66.4 Such reference, except on any difference or dispute under clause 51 hereof shall not be commenced until after the completion or alleged completion of the Works or determination or alleged determination of the Contractor’s employment under this Contract, or abandonment of the Works, unless with the written consent of the CRAUN RESEARCH SDN BHD and the Contractor.
…
66.8 The award of the Arbitrator shall be final and binding on the Parties.”
Craun subsequently terminated Bole’s employment for alleged delay and defective works. The dispute was referred to the officer named in the Appendix, namely Craun’s Chief Executive Officer (“SO”), who determined that Craun was entitled to RM3,022,285.84. Craun then commenced High Court proceedings claiming the same sum together with interest and costs.
Bole applied under section 10 of the Arbitration Act 2005 (“AA 2005”) to stay the proceedings pending arbitration. Craun resisted the stay, principally contending that more than 45 days had elapsed since the SO’s decision and Bole was therefore precluded from referring the dispute to arbitration.
High Court decision
Issue 1: Was the SO’s decision final?
Craun relied on Juara Serata Sdn Bhd v Alpharich Sdn Bhd2, where the relevant contractual provision expressly provided that the SO’s decision would become final and binding unless the matter was referred to arbitration.
The Court distinguished Juara Serata on the basis that under clause 66.2, the SO’s decision was binding only until completion of the works. By contrast, clause 66.8 expressly provided that an arbitrator’s award would be final and binding. The SO’s decision was therefore temporarily binding but not final, akin to the concept of “temporary finality” or “pay now, argue later” in adjudication proceedings.
Issue 2: Did the 45-day period operate as a deadline to arbitrate?
The real difficulty lay in reconciling clauses 66.3 and 66.4. It would not make sense for clause 66.3 to require arbitration to be commenced within 45 days of the SO’s decision, while clause 66.4 generally prohibited the commencement of arbitration until completion, termination or abandonment of the works.
The Court illustrated the difficulty with a simple example: if the SO decided one year before completion or termination, it would be impossible to refer the dispute to arbitration both within 45 days of the SO’s decision and only after completion or termination.
Applying the principle that a contract should be construed as a whole and, so far as possible, give effect to each of its provisions, the Court held that the 45-day period instead concerned the period within which the parties were to agree on an arbitrator. If no agreement was reached within that period, an application could be made for the appointment of an arbitrator.
Bole’s failure to refer the dispute to arbitration within 45 days of the SO’s decision therefore did not preclude it from invoking the arbitration clause. The arbitration clause had not become inoperative.
Issue 3: Had Bole nevertheless waived its right to arbitrate?
Craun also argued that Bole had waived or abandoned its right to arbitration through its conduct. The Court disagreed. Bole had not taken a step in the Court proceedings and had made its stay application very soon after the action was commenced.
The Court also noted that Craun had previously sought a stay of the adjudication decision pending the final disposal of arbitration proceedings, which would reasonably have encouraged Bole in its belief that the dispute would be referred to arbitration.
The Court accordingly held that Bole, and indeed Craun, remained entitled to invoke the arbitration clause.
Stay granted — but the clock was still ticking
While the Court granted the stay, Bole was not given an open-ended period to commence arbitration. The Court considered that it would not be just for Bole to be given “all the time in the world” to initiate the arbitration and that the dispute ought to be resolved without undue delay.
Exercising its power under section 10(2) of the AA 2005, the Court ordered that the stay would lapse automatically if Bole failed, for whatsoever reason, to refer the dispute to arbitration within 60 days.
Key takeaways
The decision demonstrates that the presence of a specified period in an arbitration clause does not, without more, make that period a strict time bar. Its effect ultimately turns on the wording and structure of the arbitration agreement as a whole.
More importantly, Craun Research illustrates the difficulties that can arise when different parts of a dispute resolution mechanism do not sit comfortably together. Rather than reading the 45-day wording in isolation, the Court sought to reconcile the provisions and give effect to the parties’ contractual scheme as a whole.
The decision also serves as a reminder that successfully obtaining a stay does not necessarily give the party seeking arbitration unlimited time to act. The Court may impose conditions under section 10(2) of the AA 2005 to ensure that the arbitration is pursued without undue delay.
Footnote:
- [2026] MLJU 4060.
- [2015] 6 MLRA 700.
This update is prepared by Phuah Kai Ling.
For more information, please reach out to your usual contact from our Arbitration Practice Group.
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