This article is part of a series on arbitral awards in Malaysia.(1)
There is no procedure for an appeal of an award in the Arbitration Act 1952 (the 1952 Act).(2) The award may be set aside pursuant to section 24(2) of the 1952 Act on grounds that there has been misconduct on the part of the arbitrator. The court, if satisfied that there was misconduct, may set aside or remit the award.
"Misconduct" is not defined under the 1952 Act. It normally involves objections of actual or possible unfairness. It is not misconduct for an arbitrator to arrive at an erroneous decision whether their error is one of fact or law. In Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority,(3) Justice Raja Azlan Shah applied the following tests:
- whether there exist grounds from which a reasonable person would think that there was a real likelihood that the arbitrator could not or would not fairly determine the issue; and
- whether the arbitrator's conduct was such as to destroy the confidence of the parties, or either of them, in the arbitrator's ability to come to a fair and just conclusion.
This case was cited with approval by the Court of Appeal in Hartela Contractors Ltd v Hartecon JV Sdn Bhd.(4)
The award may also be set aside if there is some defect or error on the face of the award – for instance, where:
- all the issues that have arisen have not been considered;
- a mistake has been corrected;
- new evidence is available, which could not with reasonable diligence have been discovered;
- the dispute has not been fully adjudicated; or
- the arbitrator has exceeded their jurisdiction.
Determination of point of law
Section 41 of the Arbitration Act 2005 (the 2005 Act) gives power for the determination of a point of law. This appears to be an attempt to replace the old statement of case procedure in section 22 of the 1952 Act. Section 41, however, requires the consent of the parties or the arbitral tribunal.
Previously, section 42 of the 2005 Act allowed a party to make a reference to the High Court on questions of law arising out of an award. This section has no equivalent in the United Nations Commission on International Trade Law (UNCITRAL) Model Law (the Model Law) and is also out of line with the legislation in other jurisdictions.
Section 42 of the 2005 Act was considered in Lembaga Kemajuan Ikan Malaysia v WJ Construction Sdn Bhd.(5) The High Court clarified that a court is not to sit in exercise of its appellate jurisdiction when dealing with a reference under section 42 of the 2005 Act. The High Court also clarified that while questions of law may arise from findings of fact, the courts are to take a restrictive approach in that only questions of law and not questions of fact, or even mixed law and fact, may be referred.
In determining whether a particular question is a proper and valid question of law, the Court of Appeal in SDA Architects (sued as a firm) v Metro Millennium Sdn Bhd(6) held that the court should consider the propriety of the question in the context of the facts of the case as a whole, including the issues that had to be dealt with by the arbitrator.
It is also worth noting that the test to determine an error of law has been applied in the context of a section 42 application. In Telekom Malaysia Bhd v Eastcoast Technique (M) Sdn Bhd,(7) Telekom sought to refer questions of law under section 42 with a view to setting aside the award or having the award remitted to the arbitrator. In determining whether intervention was warranted, the High Court held that it may intervene in relation to any question of law that substantially affects the rights of one or more parties. The High Court then went on to apply the test to establish an error of law as expounded in the case of Finelvet AG v Vinava Shipping Co Ltd, The Chrysalis(8) and found that the arbitrator had erred in law on several instances and proceeded to set aside the award in its entirety.
The above sections are optional in that they apply to domestic arbitrations unless the parties opt out. In the case of international arbitrations, these sections would only apply if the parties specifically opted in. Also noteworthy of mention is the fact that rule 1.1 of the Asian International Arbitration Centre Arbitration Rules 2021 now expressly states that sections 41 and 46 of the 2005 Act shall not apply where the seat of the arbitration is in Malaysia. The effect of this clause is to add finality and certainty to arbitral proceedings by curbing judicial interference and enhancing party autonomy where the seat of arbitration is in Malaysia.
Subsequently, the Federal Court in Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang(9) adopted a non-exhaustive guideline based on the tests employed by the English, Australian, Singaporean, New Zealand and Canadian courts in determining a reference on a "question of law" arising out of an arbitral award under section 42. These include a question:
- of law on matters relating to material rules of statute and common law. The interpretation of the relevant parts of the contract and the identification of those facts must be taken into account when the arbitral tribunal arrives at a decision;
- as to whether the decision of the tribunal was wrong (The Chrysalis);
- as to whether there was an error of law (ie, in the sense of an erroneous application of law), and not an error of fact (Micoperi);
- as to whether the correct application of the law inevitably leads to one answer and the tribunal has given another (MRI Trading);
- as to the correctness of the law applied;
- as to the correctness of the tests applied (Canada v Southam);
- concerning the legal effect to be given to an undisputed set of facts (Carrier Lumber);
- as to whether the tribunal has jurisdiction to determine a particular matter (Premiums Brands). This may also come under section 37 of the 2005 Act; and
- of construction of a document (Intelek).(10)
Additionally, the Federal Court clarified that section 42 contemplates a less narrow interpretation of "question of law", and that a less narrow interpretation of "question of law" in section 42 would not widen court intervention in international arbitration. But "a point of law in controversy which has to be resolved after opposing views and arguments have been considered" is not a "question of law" within the meaning of section 42.(11)(12)
Following Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang, the Arbitration (Amendment) Act 2018 (No. 2) removed the right of a party to refer to the High Court on any questions of law arising out of an award. Parties may now apply to the High Court only to determine questions of law arising in the course of an arbitration provided under section 41.
Setting aside arbitral award
There is no appeals procedure against an award made in Malaysia under the 2005 Act. The only recourse is to set aside the award. The application to set aside an award has to be made within 90 days of receipt of the award.(13) The grounds for setting aside such an award are set out in section 37 of the 2005 Act and include that the award is:
- contrary to the public policy of Malaysia;
- fraud; or
- a breach of the rules of natural justice.
In Twin Advance (M) Sdn Bhd v Polar Electro Europe BV,(14) the High Court held that section 37 is not applicable to arbitral awards of a foreign state or international award where the seat or place of arbitration is not in Malaysia.
The Malaysian courts have interpreted section 37 of the 2005 Act narrowly in the interests of ensuring finality, conclusiveness and binding authority of an award made by an arbitral tribunal. In Tanjung Langsat Port Sdn Bhd v Trafigura Pte Ltd & Another Case,(15) the High Court summarised the principles underlying the setting aside of awards under section 37 of the 2005 Act as follows:
- The court should be slow in interfering with an arbitral award. An award can only be set aside under the limited circumstances prescribed by section 37 of the 2005 Act.(16)
- The applicant must show:
- the matters that are within the scope of the submission to arbitration;
- that the award deals with a "new difference", which is not within the scope of reference;
- whether such new difference was irrelevant to the actual issues for determination;
- whether the new difference would have had a material impact on the final outcome as announced in the award;
- whether that part of the award inflicted by the new difference may be separated from the other parts of the award to warrant only the part affected to be set aside under section 37(3) of the 2005 Act (following the approach of the Singapore Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR 597).(17)
The Court of Appeal in two recent cases held that any application under section 37 of the 2005 Act without seeking appropriate direction pursuant to section 37(6) must be seen to be an abuse of process of the court and must be dismissed in limine unless the exception applies.(18)
Further, in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd, the Federal Court held the High Court retains a residual discretion not to set aside an arbitral award notwithstanding the fact that a ground for setting aside the arbitral award is made out. The Federal Court set out the following guiding principles on the exercise of residual discretion when an application to set aside an arbitral award is made on the grounds of breach of natural justice. The court must consider:
- which rule of natural justice was breached;
- how it was breached; and
- in what way the breach was connected to the making of the award.
Thereafter, the court must consider the seriousness of the breach in the sense of whether the breach was material to the outcome of the arbitral proceedings. If the breach was relatively immaterial or was not likely to have affected the outcome, discretion will be refused. The materiality of the breach and the possible effect on the outcome are relevant factors for consideration by the court. The Federal Court went on to state that while it is necessary to establish materiality and causative factors, prejudice is not a prerequisite or requirement to set aside an arbitral award for breach of the rules of natural justice.(19)
The courts in Malaysia, in line with other Model Law jurisdictions, have also adopted a narrow test in determining whether an award should be set aside on the ground that it is contrary to the public policy of Malaysia. In Kelana Erat Sdn Bhd v Niche Properties Sdn Bhd,(20) the High Court adopted the exposition as to the substance and scope of "public policy" in the Singapore decision of AJT v AJU.(21) Thus, in order to succeed in setting aside an award on the ground that it would conflict with public policy, an applicant will first have to show that the tribunal had decided erroneously. Next, it will have to be shown that the error was of such nature that enforcement of the award would:
- "shock the conscience";
- be "clearly injurious to the public good"; or
- contravene "fundamental notions and principles of justice".
The Federal Court in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd also held that while section 37 should be interpreted in a manner consistent with the underlying policies and objectives of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Model Law, the courts must be mindful against importing principles advocated by foreign jurisdictions without careful consideration of the foreign law in question and the 2005 Act.
The determination as to whether a breach of natural justice has occurred is fact-specific and must be encapsulated within the notions that:
- every party has a right to be heard; and/or
- nobody should be a judge in their own cause.(22)
The former includes where an arbitrator makes an award on an issue that was not presented in the arbitral proceedings and without inviting the parties to present on that issue.(23) Where an arbitrator discerns issues or findings of fact or law on their own accord, they must invite the parties to address such issues or findings before making their award.(24)
Breach of the rules of natural justice as a ground for setting aside was considered in Taman Bandar Baru Masai Sdn Bhd v Dindings Corporation Sdn Bhd.(25) The High Court held that since there is a mandatory requirement for proof under section 37 of the 2005 Act, general allegations without setting out the prejudice suffered and proof thereof would be insufficient. The High Court also observed that almost all rules of natural justice had been incorporated in the Federal Constitution, acts of Parliament and the rules of court. A complaint of a breach of the rules of natural justice must therefore in almost all cases relate to a breach of the Federal Constitution, or any act of Parliament or rules of court. In Sigur Ros Sdn Bhd v Master Mulia Sdn Bhd, the Court of Appeal held that section 37(1)(b)(ii) of the 2005 Act did not require an applicant to demonstrate proof of actual prejudice.(26) This was subsequently affirmed by the Federal Court in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd.(27)
Moreover, the court, in deciding whether to exercise its discretion to set aside the award, has to consider:
- whether it was reasonably foreseeable for the arbitrator to rely on the extraneous evidence or that it caused significant surprise to the parties;
- the seriousness, magnitude or materiality of the breach; and
- the nature and impact of the breach on the outcome of the arbitration.(28)
Moreover, in Low Koh Hwa @ Low Kok Hwa (practising as sole chartered architect at Low & Associates) v Persatuan Kanak-Kanak Spastik Selangor & Wilayah Persekutuan and another case, the High Court set aside an award on the basis that the arbitrator had failed to disclose fully his existing relationship with the honorary directors of the respondent. Such conduct was held to amount to apparent bias, which is clearly in conflict with public policy in Malaysia.(29)
Section 37(4) of the 2005 Act stipulates that an application to set aside an arbitral award may not be made after the expiry of 90 days from the date on which the party making the application had received the award or from the date on which a request under section 35 had been disposed of by the arbitral tribunal. This has been interpreted to mean that the time limit to file an application to set aside is strict and is not subject to any extension of time.(30) However, the Court of Appeal in Government of the Lao People's Democratic Republic v Thai-Lao Lignite Co, Ltd, A Thai Company & Anor held that the time limit to apply to set aside an award can be extended under the rules of court.(31) Note that the Court of Appeal was not appraised of section 8 of the 2005 Act, which limits court intervention except where so provided under the 2005 Act.
Further, in respect of the arbitrator's delay in delivering an award, the decision in Sunway Creative Stones Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd and another summons is instructive. In this case, a party to the arbitration was aware of the arbitrator's delay in delivering the arbitration award within the stipulated timeframe. However, no objection was raised. The same party then applied to set aside the arbitration award pursuant to section 37 of the 2005 Act due to, among other things, the delay of the arbitrator in handing down his award. The High Court dismissed the setting aside of the award on the basis that the party waived its right to challenge the award in failing to raise its objection without undue delay.(32)
Similar facts arose in the case of Ken Grouting Sdn Bhd v RKT Nusantara Sdn Bhd & Another Appeal, where the Court of Appeal refused to follow the High Court's decision in Sunway Creative Stones and ruled that the arbitrator's mandate and jurisdiction ceased once the deadline for the delivery of the award had passed. Therefore, the failure to raise any objection was irrelevant. The Court of Appeal clarified that parties could waive their rights on matters that are deliberated or those which transpired during the arbitration proceedings, but no waiver could be made with respect to the cessation of the arbitrator's mandate and jurisdiction.(33)
For further information on this topic please contact Tan Sri Dato' Cecil Abraham, Dato' Sunil Abraham, Aniz Ahmad Amirudin or Syukran Syafiq at Cecil Abraham & Partners by telephone (+60 3 2726 3700) or email ([email protected], [email protected], [email protected] or [email protected]). The Cecil Abraham & Partners website can be accessed at cecilabraham.com.
Endnotes
(1) For the first article in the series, see "Arbitral awards in Malaysia: overview, form requirements, and correction, supplementation and amendment".
(2) For details of the current arbitration legislation in Malaysia, see "Introduction to arbitration in Malaysia: history and current legislation".
(12) In Kerajaan Malaysia v Syarikat Ismail Ibrahim Sdn Bhd & Ors [2020] MLJU 52, which involved an application under section 42 of the 2005 Act, Hamid Sultan JCA was critical of the decision in Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang on the basis that the Federal Court, in construing section 42 of the 2005 Act, had relied upon authorities which were not related to section 42 of the 2005 Act or the overall scheme of the 2005 Act. While the other two justices of the Court of Appeal came to the same conclusion in respect to the appeal at hand, they did not share the reasoning and nor were they critical of the decision in Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang.
(13) Section 37(4) of the 2005 Act; order 69 rule 5(1)(a) of the Rules of Court 2012.
(15) [2016] 4 CLJ 927, subsequently followed in Intraline Resources Sdn Bhd v Exxonmobil Exploration and Production Malaysia Inc [2017] MLJU 1299.
(18) Garden Bay Sdn Bhd v Sime Darby Property Bhd [2018] 2 MLJ 636 (CA); [31]; Petronas Penapisan (Melaka) Sdn Bhd v Ahmani Sdn Bhd [2016] 2 MLJ 697 (CA) [31].
(22) Malaysian Newsprint Industries Sdn Bhd v Bechtel International, Inc & Anor [2008] 5 MLJ 254 (HC) at [31].
(23) Sime Darby Property Bhd v Gardem Bay Sdn Bhd & Another Case [2017] 6 CLJ 107.
(24) Sigur Ros Sdn Bhd v Master Mulia Sdn Bhd [2018] 2 AMR 222.
- Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd and another appeal [2021] 1 MLJ 1;
- Sigur Ros Sdn Bhd v Master Mulia Sdn Bhd [2018] 3 MLJ 608; and
- Johawaki Development Sdn Bhd v Majlis Agama Islam Wilayah Persekutuan & Another Case [2020] 1 LNS 528.
It is pertinent to note that the decisions in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd [2020] 12 MLJ 198 and Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd and another appeal [2021] 1 MLJ 1, which appear to stand in conflict with each other, were delivered by the same panel of the Federal Court on the same day.
(30) JHW Reels Sdn Bhd v Syarikat Barcos Shipping Sdn Bhd [2013] 7 CLJ 249; Kembang Serantau Sdn Bhd v Jeks Engineering Sdn Bhd [2016] 2 CLJ 427;.