Introduction
In Extra Excel (M) Sdn Bhd v Quek Peck Keow1, the Court of Appeal (“CA”) considered whether a company could rely on a unilateral amendment made to an arbitration clause to override proceedings already commenced in Court. The CA held that once a dispute has crystallised and proceedings have been commenced in Court, a dispute resolution clause cannot be unilaterally rewritten to require that dispute be resolved through arbitration.
Case background
The Respondent (“Quek Peck Keow”) was appointed as a distributor of the Appellant’s (“Extra Excel (M) Sdn Bhd”) health products in August 2011. The resolution of any dispute between the parties was governed by a standard-form rulebook drafted by Extra Excel (M) Sdn Bhd, called the E. Excel Policies and Procedures (“EEPP”).
The material terms of the EEPP are as follows:
- Clause 1.1 of the EEPP provided that Extra Excel (M) Sdn Bhd reserves the right to modify the EEPP from time to time without prior notice, and that distributors are bound by such amendments.
- Clause 1.3 of the EEPP contained the agreement to arbitrate, which provided that any and all disputes, claims, and causes of action arising out of or in connection with the EEPP or the Malaysia Distributorship, brought by a distributor or any person other than Extra Excel (M) Sdn Bhd, were to be referred to and resolved through final and binding arbitration.
- Clause 10.2 of the EEPP contained a time bar of 150 days within which a dispute concerning a suspension had to be referred to arbitration.
On 11 March 2020, Extra Excel (M) Sdn Bhd suspended Quek Peck Keow’s distributorship. At the material time, the November 2019 version of the EEPP was in force. Quek Peck Keow challenged the suspension and commenced Sessions Court proceedings on 16 December 2020 seeking declarations that the suspension was null and void, reinstatement and damages.
Extra Excel (M) Sdn Bhd responded by filing an application under section 10(1) of the Arbitration Act 2005 (“AA 2005”) to stay the Court proceedings pending arbitration, relying on Clause 1.3 of the November 2019 EEPP.
The Sessions Court dismissed the application after finding that the arbitration clause was void and unenforceable because it excluded Quek Peck Keow’s right to damages through an unlawful 150-day time bar.
The High Court reversed that decision; the CA subsequently restored the Sessions Court’s decision and held that the arbitration clause was inoperative on account of the unlawful time bar (“CA Decision”). The CA Decision became final.
While the earlier proceedings were still ongoing, Extra Excel (M) Sdn Bhd unilaterally amended Clause 1.3 of the EEPP in June 2021. The amendment removed the 150-day time bar and expressly added “E. Excel Malaysia” as an entity entitled to commence arbitration. Thereafter, Extra Excel (M) Sdn Bhd appointed a sole arbitrator and issued a Notice of Arbitration.
Following the CA Decision, Extra Excel (M) Sdn Bhd filed a second stay application (“2nd Stay Application”), this time relying on the amended June 2021 version of Clause 1.3. Quek Peck Keow meanwhile commenced separate proceedings in the High Court by way of Originating Summons (“OS 2”) seeking a declaration that no valid agreement to arbitrate existed and an injunction restraining the arbitration.
The Sessions Court dismissed Extra Excel (M) Sdn Bhd’s 2nd Stay Application, which was subsequently affirmed by the High Court on appeal. The High Court also allowed OS 2 and restrained the arbitration.
Extra Excel (M) Sdn Bhd appealed both decisions to the CA.
Issues
The key issues before the CA included the following:
- whether section 10(1) of the AA 2005 required the courts below to determine for themselves the existence and operability of the agreement to arbitrate, or whether that question ought to have been left to the arbitral tribunal under section 18 and the doctrine of kompetenz-kompetenz2;
- whether Clause 1.3 in its November 2019 form ever entitled Extra Excel (M) Sdn Bhd to commence arbitration against its own distributor; and
- whether a party may unilaterally amend its own standard-form arbitration clause, after a dispute has crystallised and been placed before a Court, to rely on the amended clause to compel arbitration of that dispute.
CA decision
The CA upheld the decisions of the courts below and dismissed both appeals.
The Court’s role in determining the existence and operability of an agreement to arbitrate
Firstly, the CA rejected Extra Excel (M) Sdn Bhd’s argument that the validity and applicability of the agreement to arbitrate should be determined exclusively by the arbitral tribunal under the doctrine of kompetenz-kompetenz. The CA held that whilst section 18 of the AA 2005 empowers a tribunal to rule on its own jurisdiction, section 18(8) expressly contemplates an appeal against the tribunal’s preliminary ruling on jurisdiction to the High Court. The doctrine merely allocates the sequence in which a jurisdictional question is addressed and does not remove the question from the Court’s competence altogether.
The CA further held that section 10(1) of the AA 2005 reinforces this position, as it requires the Court to determine not only whether a binding agreement to arbitrate exists, but also whether it is null and void, inoperative or incapable of being performed. The CA emphasised that the Court cannot discharge that statutory duty merely by treating the production of a document purporting to be an agreement to arbitrate as sufficient and outsourcing to the tribunal the very determination that Parliament requires the Court to make.
The CA also set out a non-exhaustive list of circumstances that would generally justify a Court making its own final determination on the existence or validity of an agreement to arbitrate under section 10(1) of the AA 2005, where:
- the Court is asked to grant final relief, such as a declaration or injunction;
- the issue turns solely on the construction of written instruments and an undisputed chronology;
- the same or a materially identical clause has already been the subject of a final and conclusive determination by a Court of competent jurisdiction; or
- the party invoking arbitration is seeking to relitigate a jurisdictional issue that it has previously lost.
The original arbitration clause did not confer a right on Extra Excel (M) Sdn Bhd to commence arbitration
Secondly, the CA held that on the proper construction of Clause 1.3 in its 2019 form, Extra Excel (M) Sdn Bhd never possessed any contractual right to commence arbitration against Quek Peck Keow. The qualifying words “brought by a distributor, or one other than E. Excel Malaysia” applied to all disputes arising out of both the agreement and the distributorship. The clause operated only in one direction, permitting a distributor, but not Extra Excel (M) Sdn Bhd, to compel arbitration. Any ambiguity was, in any event, to be construed against Extra Excel (M) Sdn Bhd under the contra proferentem3 principle as the drafter of the standard-form EEPP.
Unilateral amendments cannot retrospectively compel arbitration of a crystallised dispute
Thirdly, the CA held that the June 2021 amendment to Clause 1.3 unilaterally made by Extra Excel (M) Sdn Bhd could not be applied retrospectively to compel arbitration of a dispute that had already crystallised and become the subject of Court proceedings.
Whilst the CA accepted that parties are free, by mutual agreement, to submit an existing dispute to arbitration pursuant to section 9(1) of the AA 2005 and section 29 of the Contracts Act 1950 (“CA 1950”), that liberty belongs to the parties jointly and not to one party unilaterally. The CA highlighted that the liberty to submit an existing dispute to arbitration describes what parties may achieve by agreement, at or after the point a dispute arises. It does not describe what one party may achieve alone by invoking a standing contractual mechanism that permits it unilaterally to vary the terms on which disputes are generally resolved.
The CA held that a clause of that nature operates prospectively upon the parties’ ongoing relationship and cannot operate retrospectively upon a dispute that has already crystallised and has already been placed before a Court. To permit otherwise would allow one party, through unilateral amendment, to achieve what section 9(1) of the AA 2005 and section 29 of the CA 1950 contemplate can only be achieved through the agreement of both parties. This would effectively permit one party to compel the other to repudiate its earlier agreement to arbitrate.
The CA further held that once a Court is properly seized of a dispute, its jurisdiction cannot be divested except by the “true agreement” of both parties directed at that specific dispute. The CA emphasised that a general contractual right to amend a rulebook governing an ongoing relationship could not be construed as conferring upon one party the right, after the fact, to redirect an existing dispute from the courts to arbitration. In the absence of clear and express wording, the parties’ procedural rights in relation to a crystallised dispute are fixed as at the date the dispute arose.
Key takeaways
Section 10(1) of the AA 2005 mandates a stay of court proceedings in favour of arbitration where a valid agreement to arbitrate exists. This decision serves as an important reminder that section 10(1) requires courts to determine whether a valid and operative agreement to arbitrate exists before granting a stay of Court proceedings.
The decision also confirms that a party cannot rely on a unilateral amendment to an agreement to arbitrate to alter retrospectively a dispute resolution mechanism.
For further information, please contact:
Teo Tze Jie, Shearn Delamore & Co.
Footnotes:
- [2026] MLJU 3948.
- Kompetenz-Kompetenz means that the arbitral tribunal may independently rule on the question of whether it has jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement, without having to resort to a Court.
- Contra proferentem means that where an ambiguity or doubt arises in the interpretation of a written document such as an agreement, that ambiguity or doubt would be resolved by construing the agreement against the person who drafted, prepared or put forward the agreement.
