In Tanjung Langsat Port Sdn Bhd v Trafigura Pte Ltd(1) the plaintiff sought to set aside a partial award granted in favour of the defendant and leave granted in favour of the defendant to enforce the award.
The plaintiff and defendant had entered into an agreement for the construction of storage facilities and thereafter entered into a leasing agreement for the facilities. On August 17 2008 a fire and explosion damaged the facilities. In light of the damage, the defendant commenced arbitration against the plaintiff.
The arbitral tribunal decided in favour of the defendant and held that the construction of the facility was the cause of the fire and explosion and the plaintiff's liability extended to the leasing agreement for the facilities. The tribunal awarded the following sums to the defendant:
- $118,374,250 for the loss of use of the facilities;
- $20,747,275.20 for the destruction of its products;
- $2,108,49 as incidental costs accrued; and
- $368,547 for the advanced storage fees paid to the plaintiff.
The plaintiff based its request to set aside the partial award on the following arguments:
- The arbitral tribunal exceeded its jurisdiction.
- The arbitral tribunal failed to apply the express terms of the contracts.
- The arbitral tribunal breached the rules of natural justice.
- The arbitral tribunal failed to give reasons for the award.
Did the tribunal exceed its jurisdiction?
The high court considered the ambit of Section 36 of the Arbitration Act 2005 and referred to the decision in Lesotho Highlands Development Authority v Impregilo SpA,(2) which referenced an equivalent of Section 36, Section 68(2) of the Arbitration Act 1986:
"This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vested in the tribunal no excess of power under section 68(2)(b) is involved. Once the matter is approached correctly, it is clear that at the highest in the present case, on the currency point."
In this regard, the high court held that the arbitral tribunal had not acted in excess of its jurisdiction in holding the plaintiff liable based on the agreed list of issues submitted before it and the relevant contract between the plaintiff and defendant. The court further held that even if the arbitral tribunal had referenced the wrong contract (which the court held that it had not), it was within the tribunal's jurisdiction to make such a determination.
Did the arbitral tribunal breach Sections 30(2) and (5)?
The plaintiff submitted that the award was liable to be set aside as the arbitral tribunal had breached Sections 30(2) and (5) of the Arbitration Act 2005. The high court disagreed and held as follows:
"Sections 30(2) and (5) of the [Arbitration Act 2005] are not independent grounds on which the arbitral award may be set aside; the reason being the grounds for setting aside an arbitral award are limited to those found in s.37 of the [act]. This is in fact apparent from a plain reading of the statute itself, i.e. the opening words of s.37 that "'An award may be set aside by the High Court only if…'."
The court further considered the policy of minimal curial intervention taken by the Malaysian courts:
"Further the law is crystal clear in that even if the arbitral tribunal was wrong in its interpretation of the terms in the [production sharing contract], it is not a ground for Court's intervention. That is the philosophy behind Arbitration Act 2005. The simple rationale behind this philosophy is that the parties have agreed to have their disputes settled or resolved by an arbitral tribunal rather than the Court of law and with that agreement, they have also agreed to abide by the decision of that tribunal irrespective whether the same is correct or not. The window of opportunity for Court's intervention is for all intents and purpose closed save and except when the arbitral tribunal had exceeded its jurisdiction. We see no 'rewriting' of the [production sharing contract]. It was only a pure and simple exercise in construction of an agreement between contracting parties.
Arbitration Act 2005 was enacted with the Model Law in mind. What is stated by the learned authors in Redfern and Martin Hunter, Law and Practice of International Commercial Arbitration (Sweet & Maxwell, 4th Ed. 2004) is of persuasive value."
The high court finally held that with regard to the agreement between the plaintiff and defendant the following was true:
"[T]aken at its highest, even it can be argued that the Majority Tribunal erred in law in deciding that the Deed of Commitments was the relevant agreement to determine liability for the Fire Incident and not applying cl.13.4 of the Storage Agreement to limit liability to Trafigura for the Fire Incident, it is beyond doubt that an error of law is not sufficient ground justifying the setting aside of an arbitral award under s.37 of [the Arbitration Act 2005]."
Did the tribunal breach the rules of natural justice?
The high court first considered the ambit of public policy and held as follows:
"[I]t is clear that in applications to set aside arbitral awards or to resist the enforcement of the award on ground of non-compliance with rules of natural justice, the Court must be mindful of and guard against using the alleged breach of natural justice as a "disguised attack" on or "used (or hijacked)" the arbitral tribunal's factual or legal reasoning."
The high court went on to hold as follows:
"This brings me to the point that the threshold required before a Court will exercise its discretion to set aside a arbitral award for being in conflict with public policy is a high one i.e. it is widely accepted that the definition of public policy ought to be a restrictive one."
The court also stated that "in order to set the arbitral award for being in conflict with public policy, it must be shown that the alleged breach of natural justice has caused actual prejudice to the aggrieved party".
The court finally held that, with regard to the plaintiff's application, the following was true:
"[T]aking it to the highest and even if it could be argued that the Majority Tribunal did not comply with the rules of natural justice in failing to consider [Tanjung Langsat Port's] defence under cl.13.4 of the Storage Agreement, in my respectful view this is not a breach which has caused actual prejudice or 'shock the conscience' or offends 'fundamental principles of justice and morality'. (See MTM Millenium, PT Asuransi)."
Did the tribunal fail to give reasons for the award?
In response to the plaintiff's arguments that the tribunal had failed to give reasons for its award, the high court referenced the Indian case of MS Som Dat Builders Ltd v State of Kerala 2009,(3) where the following was held:
"In the Indian case of Som Datt (supra), the Supreme Court of India at 310  –
'25. The requirement of reasons in support of the award under Section 31(3) is not an empty formality. It guarantees fair and legitimate consideration of the controversy by the arbitral tribunal. It is true that arbitral tribunal is not expected to write judgment like a court nor it is expected to give elaborate and detailed reasons in support of its finding/s but mere noticing the submissions of the parties or reference to documents is no substitute for reasons which the arbitral tribunal is obliged to give. Howsoever brief these may be, reasons must be indicated in the award as that would reflect thought process leading to a particular conclusion. To satisfy the requirement of Section 31(3), the reasons must be stated by the arbitral tribunal upon which the award is based; want of reasons would make such award legally flawed.'
It is not disputed that the exceptions for the non giving of reasons for an award in s.33(3) (a) or (b) [Arbitration Act] 2005 does not apply in the present case. Whilst it is true that s.33(3) [Arbitration Act] 2005 provides that an award shall state the reasons upon which it is based, in Som Datt it is stated the extent of the judgment required of the arbitrator is as reflected in the statement emboldened in para 31 above."
As regard the award in the case at hand, the high court held as follows:
"In any event, in my judgment, the Majority Tribunal did in fact give detailed reasons as to why damages were payable for the loss of the use of the Facility for the minimum lifespan of the Storage Agreement. The Majority Tribunal's reasons thereof can be found under the heading of 'Claim for Loss of Use of the Facility' (Issue 10(c)) from paras 156 to 288, Partial Award. To avoid repetition I shall adopt what I have alluded to in paras 17.3 to 17.3.4 above."
The plaintiff's applications were accordingly dismissed in view of the above reasons.
Trafigura is an important case, as it set out the test for determining whether an arbitral tribunal has exceeded its jurisdiction – in particular, "whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vested in the tribunal no excess of power [is occasioned]."
This case also clarified that an award will be set aside on the basis of public policy only if it caused "actual prejudice", "shock[ed] the conscience" or offended the "fundamental principles of justice and morality".
In this regard, the high court set out clear parameters within which an arbitral award can be set aside as a result of an arbitral tribunal acting in excess of its jurisdiction and on the grounds of public policy.
For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (firstname.lastname@example.org). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.