A Respondent facing an arbitration claim would, as a matter of course, be required to pay one-half of all arbitration deposits. If the Respondent has a counter claim to mount, then obviously he would be motivated to proceed with the arbitration and would make the requisite payments. But what if the Respondent is merely putting up a defence? Should the Respondent simply ignore the requests to pay the deposits and leave it to the Claimant to pick up the tab? Bear in mind that the amount of deposits may be quite substantial.
The Court of Appeal in Kebabangan Petroleum Operating Company Sdn Bhd v Mikuni (M) Sdn Bhd & Ors  7 CLJ 544 involved a situation whereby the Appellant started arbitration proceedings but the Respondent refused to pay the deposits. The Appellant then started a suit against the Respondent and its directors. The Respondent applied to strike out and/or otherwise stay the suit in light of the pending arbitration.
The High Court allowed a stay of the suit. However, the Court of Appeal disagreed.
On the specific point of failing to pay the deposits, Suraya Othman JCA held that the Respondent’s “persistence in refusing to pay and its sheer unresponsiveness and callous disregard to the letters issued by the appellant and KLRCA, had rendered the arbitration agreement between the appellant and the (Respondent) inoperative. The conduct of the (Respondent) had indicated that it was disinterested and is abandoning its intention to proceed with the arbitration, thereby waiving its rights for arbitration…”
Although arbitration rules generally provide that if one party fails to pay the deposit, the other party can pay on behalf. However, the Court of Appeal has rendered the need to pay on behalf as being optional, and that the other party can instead opt to go back to court. The failure by one party to pay the deposit would prima facie be a good indication of the defaulting party having abandoned the arbitration agreement.
Of course, in this case, the failure to pay deposits persisted for over a year. Hence, there ought to be some time lapse before one goes back to Court to allege an abandonment of the arbitration agreement. The Court would probably have to determine on a case to case basis whether the arbitration agreement had in fact been abandoned.
In short, a Respondent ought to pay the deposits if the Respondent wishes to continue with the arbitration, but may choose to ignore the need to pay the deposits if the Respondent’s intention is to abandon the arbitration proceedings in order to go back to Court.
Written by: Chan Kheng Hoe ([email protected])