In Ahmani Sdn Bhd v Petronas Penapisan (Melaka) Sdn Bhd(1) the Malaya High Court considered awards rendered by arbitral tribunals which the parties neither claimed nor pleaded in the arbitral proceedings.
Ahmani Sdn Bhd sought to set aside an award pursuant to Sections 37 and 42 of the Arbitration Act 2005 in respect of a dispute between it and the respondent, Petronas Penapisan (Melaka) Sdn Bhd.
One issue that arose was the consideration of an unpleaded matter. The applicant contended that the 20% inflation awarded by the arbitral tribunal had not been pleaded or claimed by the respondent.
The applicant contended that the parties were neither alerted nor invited to address the issue of inflation, and that the award contained decisions on matters that were beyond the scope of the submission to arbitration. Against this background, the applicant invoked Sections 37(1)(a)(iv), 37(1)(a)(v), 37(b)(ii) and 42 of the Arbitration Act before the High Court.
The High Court noted that Sections 37(1)(a)(iv) and 37(b)(ii) were not properly invoked, as the applicant was seeking to set aside parts of the award. These sections could not be relied on, as both would lead to the setting aside of the entire award.
Section 37(1)(a)(v) could be relied on, as it permits parts of an award to be set aside.
The court agreed with the applicant's contention that the 20% inflation was outside the scope of the submission to arbitration for the following reasons:
- The arbitral tribunal had failed to consult the parties to the arbitration regarding the 20% inflation. Further, its decision did not reasonably flow from any already argued or submitted premise.
- During the arbitration, the arbitral tribunal agreed that the respondent had failed to prove that there was a lack of evidence in relation to additional costs.
- The applicant and respondent agreed that the issue of inflation was never addressed by the parties; nor were they invited to address the same during the arbitration.
The High Court thus held as follows:
"Where the Arbitral Tribunal wants to do more, which it obviously wanted in this case, including introducing the matter or element of inflation, as well as offer its views as to the value of that factor of inflation; the Arbitral Tribunal was obliged to go back to the parties. There, it may sound out its concerns, bring up this matter of inflation and even offer its view as to the value of the inflation as well as the source or evidence of that value and then, invite views or submissions of the parties on the matter. The Arbitral Tribunal is obliged to do so because it takes jurisdiction from the submission of the parties."
In essence, by failing to invite the parties to address the matter of inflation during the arbitration, the arbitral tribunal had exceeded its jurisdiction by rendering an award in respect of a matter not claimed or pleaded by the parties.
Having addressed the applicant's applications under Sections 37 and 42, respectively, the court set aside the respondent's counterclaim and amended the award accordingly.
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