An arbitration was commenced outside the limitation period, after a court action – which was filed in time – was stayed. Is the claimant time barred? That depends on when time stopped to run …
In Bongsor Bina Sdn Bhd v SH Builders & Marketing Sdn Bhd [2024] CLJU 965, the subcontractor (SH Builders) filed an action in the Sessions Court against the main contractor (Bongsor) for payment of its final progress claim. On the main contractor’s application, the action was stayed as the matter should be referred to arbitration instead. The subcontractor later commenced the arbitration for its claim by serving a notice of arbitration on the main contractor. However, the limitation period has expired by that time.
An arbitrator was appointed in due course, and with his consent, the subcontractor applied to the High Court to determine certain questions of law regarding the limitation period. The High Court found that the subcontractor’s claim in the arbitration was not time barred. The main contractor appealed against that decision, but it was affirmed by the Court of Appeal.
The Court of Appeal held that time under the Limitation Act 1953 stopped running when the Sessions Court action was filed (even though it was subsequently stayed) and not when the notice of arbitration was served (para 16). As that action was filed in time, the subcontractor was not time barred from pursuing its claim in the arbitration that was initiated after the action was stayed. Although the Act required arbitrations to be commenced within the limitation period, that applies only to cases that were referred directly to arbitration from the start, i.e. without any prior court action that had been stayed (paras 42, 46).
There were other interesting nuggets remarked by the Court of Appeal in its reasoning:
a) Expiry of limitation does not extinguish debts, but bars the right to recover it (para 29).
b) As time bars have serious consequences, the Act should be interpreted in a liberal way so as to avoid penalizing a claimant (paras 29, 31).
c) An arbitration clause does not oust the jurisdiction of the courts, nor prohibit a contracting party from filing court proceedings for the dispute that is subject to that clause. Consequently, such proceedings are valid even if they were stayed (paras 36, 39, 40).
d) Court proceedings that are stayed are still regarded as a pending proceedings (para 43).
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