Far East Holdings Bhd v Majlis Ugama Islam dan Adat (02-19-04/2016)

Far East Holdings Bhd 2. Kampong Aur Oil Palm Sdn Bhd ... Appellants AND Majlis Ugama Islam dan Adat Resam Melayu Pahang ... Respondent CORAM: Zulkefli Ahmad Makinudin PCA Ramly Ali FCJ Azahar Mohamed FCJ Zaharah Ibrahim FCJ Jeffrey Tan FCJ

These 3 related appeals arose from a domestic arbitral award (award) dated 19.9.2012, as amended by a corrective award dated 11.10.2012, of a single arbitrator who granted the claim of the Majlis Ugama Islam dan Adat Resam Melayu Pahang (Majlis) against Far East Holdings Bhd (Far East) and Kampong Aur Oil Palm Sdn Bhd (KAOP). 2

Further to the award and pursuant to section 42 (section 42) of the Arbitration Act 2005 (AA 2005), Far East and KAOP referred 18 “questions of law arising out of the award” to the High Court. Meanwhile, pursuant to section 38 of AA 2005, Majlis applied to the High Court for recognition and enforcement of the award. On 31.3.2014, the High Court held that “there were no questions of law that merit intervention ... under section 42”. Despite so, the High Court set aside the pre and post-award interest awarded by the arbitrator. All parties appealed. The Court of Appeal dismissed all 3 appeals (see Far East Holdings Bhd & Anor v Majlis Ugama Islam Dan Adat Resam Melayu Pahang and another appeal [2015] 4 MLJ 766). Thereafter, all parties obtained leave to respectively raise the following ‘questions of law’ (leave questions) to this court: Civil Appeals 02-19-04/2016 and 02-20-04/2016 a) Whether the approach under the Arbitration Act 1952 (repealed) of a distinction between a general reference and a specific reference (see Syarikat Pemborong Pertanian Sdn Bhd v. Federal Land Development Authority [1971] 2 MLJ 210), and that there could be no reference over an error of law under a specific reference, is applicable under the provisions of the Arbitration Act 2005? b) Whether the test of ‘illegality’ stated in the Government of India v. Cairn Energy India Pte Ltd & Anor [2011] 6 MLJ 441 or the test of ‘patent injustice’ stated in Ajwa For Food Industries Co. (MIGOP), Egypt v. Pacific Inter-Link Sdn Bhd & Anor Appeal [2013] 2 CLJ 395 or the test of 3 ‘manifestly unlawful and unconscionable’ and/or ‘a perverse decision’ in Kerajaan Malaysia v. Perwira Bintang Holdings Sdn Bhd [2015] 1 CLJ 617 are applicable tests under section 42(1) and (1A) of the Arbitration Act 2005? c) Whether by the application of the correct test for review under Section 42(1) and (1A) of the Arbitration Act 2005, the decision in the present case on the issues of the Capital Increase, the two Options and the Damage Award are sustainable? Civil Appeal 02-21-04/2016 a) Whether under or in proceedings under the Arbitration Act 2005, the Arbitrator has the jurisdiction to award pre-award interest? b) Whether the Arbitrator has the jurisdiction to award pre-award and post award interests when it is not specifically pleaded? c) Whether the Arbitrator has the power to award pre-award and post award interests under the general relief, “all further and/or incidental relief which are appropriate under the circumstances of the present case to be awarded to the Claimant?” d) Whether the Court can interfere with the discretionary power of the Arbitrator to award pre-award and post award interests? Background facts 3. In Appeals 02-19-04/2016 and 02-20-04/2016, Far East and KAOP are the appellants while Majlis is the respondent. In Appeal 02-21-04/2016, Majlis is the appellant, while Far East and 4 KAOP are the respondents. For ease of reference, we would refer to the parties as Far East, KAOP and or Majlis.

Majlis is a body corporate established under section 4 of the Administration of Islamic Law Enactment 1991 (Enactment). Far East is a public listed company wholly or substantially owned by the Government of the State of Pahang. KAOP is a wholly owned subsidiary of Far East.

On 29.1.1985, the state authority approved the alienation of 11,073 acres of land (said land) to Majlis for the cultivation of commercial crops. Thereafter, Majlis entered into negotiations with Far East and KAOP to cultivate the said land. On 16.1.1992, all three parties entered into an agreement (agreement) to develop the said land into an oil palm plantation. Inter alia, the agreement provided that the said land would be so developed by a wholly owned subsidiary of KAOP, and that Majlis would transfer the said land to the said subsidiary of KAOP.

Clause 2.01 of the agreement (the clauses of the agreement would henceforth be referred as clause/sub-clause) thus stipulated the monetary value of the said land: “All the three parties in this agreement agree and accept that the value of the said Land is Ringgit: TWO THOUSAND FOUR HUNDRED AND THIRTY NINE AND SEVEN CENTS (RM2,439-07) only per hectare or Ringgit: NINE HUNDRED EIGHTY SEVEN AND EIGHT CENTS (RM987-08) only per acre, and the total price of the said Land with an area of 4.481.3 hectares or 11,073 acres is 5 Ringgit: TEN MILLION NINE HUNDRED TWENTY NINE THOUSAND NINE HUNDRED AND EIGHTY THREE (RM10,929,983-00) only and if the area of the said Land according to the Document of Title is more or less of the area designated therefore the total value of the said Land being provided for herein with the additional/deductible rate according to the final area of the said Land.”

On 5.4.1996, Majlis was registered as proprietor of the said land. On 13.4.1999, Majlis transferred the said land to Madah Perkasa Sdn Bhd (Madah Perkasa), the wholly owned subsidiary of KAOP who would develop the said land. In consideration of the transfer of the said land, Majlis on or about 19.4.1999 was allotted 8,218,033 less 201,650 shares [there was a deduction of 201,650 shares for non payment of RM201,650.00 towards the premium and quit rent of the said land, pursuant to clause 2.01(d)] at the nominal value of RM1.33 per share.

Majlis contended that: (8,218,033 shares) to Majlis and 67% (16,685,099 shares) to Far East; Majlis to purchase a further 3,984,501 shares at RM1.33 per share from Far East;

clause 2.02(c) provided that the 1st option was binding on Far East for a period of two years “from the date of the receipt of the approvals by the 6 shareholders of FEH through Extraordinary Meeting, Foreign Investment Committee (FIC) relating to this joint venture and the Majlis Mesyuarat Kerajaan Negeri relating to the approval of transfer of the said Land to the Developer Company (whichever the later)”; of the issued share capital of KAOP from Far East;

clause 2.02(f) provided the 2nd option shall be binding on Far East for three (3) years starting and effective from the fifth year after the approvals mentioned in clause 2.02 (c) above are obtained. Dispute 9. Dispute arose between the parties. According to Far East and KAOP, Far East had extended loans totalling RM22,096,868.00 to KAOP to finance the development of the said land. In 1998, KAOP capitalised those loans as paid up capital and allotted 22,096,868 shares to Far East who consequently held 38,781,967 shares (16,685,099 + 22,096,868). But in the result, the allotment of 8,218,033 shares to Majlis would only amount to 17.5% and not 33% equity of KAOP. Because Far East held 38,781,967 plus 201,650 [there was an increase of 201,650 shares to Far East for payment of the premium and quit rent of the said land – see clause 2.01(d)] out of a total of 47,000,000 shares, 7 Majlis contended that exercise of the [2] options to purchase shares from Far East would not give Majlis control, let alone 60% control, of KAOP. The Arbitral Proceeding 10. Clause 5.01(f) provided that “ ... disputes that may arise between the three parties herein in relation to this agreement and cannot be resolved by mutual agreement shall be decided by an arbitrator agreed upon and appointed by the parties herein pursuant to the Arbitration Act 1952”. On 24.7.2008, the Kuala Lumpur Regional Centre for Arbitration appointed the instant arbitrator as the sole arbitrator to arbitrate the dispute.

In its statement of claim, Majlis pleaded that in 1998 Far East unlawfully increased the paid up capital of KAOP by 22,096,868 shares; that Far East failed to transfer the said 16% to Majlis despite exercise of the 1st option; that Far East failed to fix a price for the said 11% despite exercise of the 2nd option; that Far East unilaterally fixed the price of the said 11% at the exorbitant price of RM5.50 per share; that Far East diluted the interest of Majlis in KAOP; and that Far East breached the agreement which provided that Majlis would ultimately own 60% of the equity of

Majlis prayed for (i) an order to cancel the allotment of 22,096,868 shares to Far East; (ii) an order that Far East transfer 8 the said 16% shares to Majlis; (iii) an order that the arbitrator to determine the value of the said 11% in accordance with clause 2.02(e); (iv) an order that Far East transfer the said 11% to Majlis, that is, upon payment of the consideration as determined by the arbitrator; and, (v) “damages and losses payable to [Majlis] by [Far East] in respect of the dividends and all other payments for the dilution of [Majlis’] interest in [KAOP] to 17% and for the failure on the part of [Far East] to transfer 16% and 11% of the shares, respectively, in [KAOP] to [Majlis]”.

In its statement of defence, Far East and KAOP pleaded that the holding of Majlis “would only be increased from 33% to 60% subject to the terms of the said agreement”; that Majlis failed to exercise the options within time, that is, by or before 4.10.2000 and 4.10.2006; that clause 3.02 did not specifically state that Far East and KAOP were responsible for the finance to develop the said land; that clause 3.02 merely stated the manner in which Far East and KAOP would fund the development of the said land; that there was no prohibition in the agreement to an increase of the issued share capital of KAOP; that the agreement did not stipulate that Majlis would be entitled to any allotment of the increased issued share capital of KAOP; that Majlis and Far East, as shareholders, were jointly responsible to pay the loan and accrued interest; that Majlis was aware and consented on 10.4.1997 and 13.5.1997 to the increase in the equity; that Majlis merely expressed an intention to exercise the 1st option without any indication on the 9 payment of the consideration; that failure to pay the consideration nullified the intention to exercise the 1st option; that transfer of the said 16% could not occur without payment and because the 1st option had expired; that the purported exercise of the 2nd option was made without any indication to pay the consideration based on the value of the current assets of KAOP; that failure to pay the consideration nullified the intention to exercise the 2nd option; that on 28.8.2006, Far East offered sale of the said 11% at the price of RM5.50 per share; that the agreement did not provide that the price of the said 11% should be jointly fixed; that Majlis never protested against the valuation of RM5.50 per share; that Majlis requested for time to consider the price of RM5.50 per share and for an extension of time to 31.12.2006 to exercise the 2nd option; and that notwithstanding the request for extension of time, Majlis commenced legal proceedings.

In reply, Majlis pleaded that time to exercise the 1st option could not run without an offer from Far East to Majlis to exercise the 1st option; that Far East could only make the offer after registration of the said land in the name of Madah Perkasa; that Far East was aware of the intention of Majlis to exercise the 1st option; that time was not a fundamental term of the agreement but was at large; that Far East failed and or refused to give notice for the exercise of the 1st option; that Majlis did not breach any of the fundamental terms as alleged; that by letters dated 1.9.2004 and 8.9.2004, Majlis notified Far East of its intention to exercise 10 the 2nd Option; that by letters dated 26.10.2004 and 25.11.2004, both parties agreed that the said 11% would be valued by a valuer appointed with the consent of the parties; that any decision that concerned Majlis and the agreement could only be made in accordance with the Enactment and not by any individual; that Majlis never agreed to the increase in the issued share capital of KAOP; that Far East did not justify the alleged advance of RM22,096,868.00 to entitle Far East to the allotment of 22,096,868 shares; that the allotment of 22,096,868 shares was not in accordance with the memorandum and articles of KAOP; that the allotment contravened the provisions of the Companies Act 1965; that Dato Haji Abdul Mutalib was not authorised to decide on matters that pertained to Majlis and to the agreement without the prior approval of Majlis given in accordance with the Enactment; that Majlis never agreed to reduce its holding by 201,650 shares on account of non-payment of RM201,650.00 towards premium and quit rent of the said land; that Majlis was ready and able to pay all dues related to the said land and the consideration payable on exercise of the 1st Option; that Far East unilaterally appointed Aftaas Corporate Advisory Services Sdn Bhd(AFTAAS) to value the said 11% shares; and that Far East disregarded the rights of Majlis.

Parties could not reach agreement on the issues and facts. All the same, Far East and KAOP submitted the following issues to the arbitrator for determination: 11 per share amounting to RM5,299,386.33 within the time stipulated in clause 2.02(b) and (c);

Whether Majlis had exercised the 2nd option to purchase 2,739,344 shares within the time stipulated in clause 2.02(e) and (f); and (f) and therefore breached the fundamental terms of the agreement.

The arbitrator delivered a most detailed award that covered all issues raised.

On whether the agreement was a shareholders’ agreement or a joint venture agreement, the arbitrator held that what was material was the terms of the agreement (para 8.3 of the award).

On whether Majlis pleaded (i) absence of knowledge of the dates of the relevant approvals, (ii) disagreement with the reduction of 201,650 shares by reason of non–payment of quit rent of the said land, (iii) particulars of the special damages claimed, payment of interest on damages awarded, and loss of dividends, 12 the arbitrator held that [at the material time] Majlis did not know when Far East obtained the required approvals from the KLSE and FIC (see paras 10(a) and 21.4 of the award); that whether Majlis agreed to reduce its shareholding by 201,650 shares by reason of non–payment of quit rent was pleaded in the reply (see para 10(b) of the award); that Far East had sufficient notice of the damages claimed (see paras 10(c) and 30.4 of the award); and that pre-award interest, although not pleaded, could be awarded (see paras 10(d) and 31.1 of the award).

On whether KAOP could increase its paid up capital, the arbitrator held (i) that Majlis had not given any mandate to Dato’ Abdul Muttalib and or Dato Wan Ahmad Tajuddin to consent to the allotment of 22,096,868 shares to Far East (see para 12.5 of the award); (ii) that on 16.4.1997 and 13.5.1997, KAOP was still wholly owned by Far East, and Majlis was yet not a shareholder of KAOP (see para 13.5 of the award); (iii) that only Dato Hamdan bin Jaafar, the proxy for Far East, had voting rights at those board meetings (see para 13.6 of the award); and (iv) that Dato’ Abdul Muttalib and Dato Wan Ahmad Tajuddin, who had no voting rights, were present on 16.4.1997 and 13.5.1997 as mere observers (see para 13.6 of the award).

On whether the objection of Majlis to the allotment of 22,096,868 shares to Far East was an afterthought, the arbitrator held (i) that Far East and KAOP should have pleaded limitation and 13

(ii) that Majlis only later knew about the allotment (see para 14.3 of the award).

On the allegation that Dato’ Abdul Muttalib and Dato Wan Ahmad Tajuddin were KAOP directors, the arbitrator held that Dato’ Abdul Muttalib and Dato Wan Ahmad Tajuddin were appointed by Far East, not by Majlis, to represent Majlis (see para 15.3 of the award) and that the presence of Dato’ Abdul Muttalib and Dato Wan Ahmad Tajuddin at board meetings did not constitute consent by Majlis to the said allotment (see 15.8 of the award).

On the reduction of 201,650 shares to Majlis, because of the non-payment of RM201,650.00 towards quit rent, the arbitrator held that Majlis requested such reduction (see para 15.9 of the award).

On the allotment of additional shares to Far East to settle the loans, the arbitrator held that there was no provision in the agreement for the capitalisation of loans (see para 15.10 of the award).

On the funding for the development of the said land, the arbitrator held (i) that clause 3.02 provided the manner to raise those required funds (see para 15.11 of the award); (ii) that it was not provided that the development of the said land would be financed by allotment of shares (see para 15.13 of the award); and

(iii) that the said allotment in 1998 effectively prevented Majlis 14 from acquiring majority control of KAOP, which was contrary to the spirit and intent of the agreement (see para 15.14 of the award).

On the defence in general, the arbitrator remarked at paras 16 to 19 of the award (i) that in contradistinction to the formal exchange of correspondence between Majlis and Far East with respect to the allotment of 151,616 shares, there was no official meeting or letter from Majlis to confirm the allotment of 22,096,868 shares; (ii) that after 13.5.1995, when Far East found out that the terms of the agreement were not to its liking, it expressed intention to fundamentally change the terms of the agreement; (iii) that Far East, who alleged that Dato Abdul Muttalib and Dato Wan Ahmad Tajuddin consented to the allotment, must call Dato Abdul Muttalib and Dato Wan Ahmad Tajuddin to testify; (iv) that an adverse inference should be invoked against Far East for failure to call Dato Abdul Muttalib and or Dato Wan Ahmad Tajuddin to testify; (v) that no benefit could be derived by Majlis to agree to the capitalisation of the loans and interest; (vi) that the true reason for the allotment in 1998 was to deny Majlis a 60% interest in KOAP; (vii) that the income generated by KOAP, which could give generous dividends, would settle the bank loans and interest in due course; (viii) that the reasons proffered for the said allotment could not be accepted; and

(ix) that the board meeting on 13.5.1997, when Far East was the only shareholder of KOAP, set the scene to deprive Majlis of ever acquiring a majority control of KOAP. 15

At para 20 of the award, the arbitrator held that Majlis “had successfully established” (i) that the agreement expressly stated that Majlis was entitled to exercise 2 options to ultimately own 60% shares; (ii) that after execution of the agreement, any change in the equity of KAOP required the consent of Majlis which could only be given by a committee or person authorised by Majlis pursuant to the Enactment; (iii) that 22,096,8686 shares were allotted without the consent of Majlis; (iv) that the said allotment was a fundamental breach of the agreement; (v) that the allotment of 22,096,8686 shares to Far East at RM1.00 per share was inconsistent with the agreement which provided that the allotment to Majlis was at RM1.33 per share and inconsistent with the allotment of 151,616 shares at RM1.33 per share to capitalise the RM201,650.00 paid towards the premium and quit rent.

At para 20.3 of the award, the arbitrator concluded (i) that the allotment of 22,096,868 shares should be cancelled; (ii) that Far East should pay damages to Majlis; and (iii) that Majlis, with the cancellation of the allotment of 22,096,868 shares, would be indebted to Far East in the sum of RM22,096,868.00. The arbitrator noted that Far East had enjoyed dividends from those 22,096,868 shares from 2002 to date of the award. Thereafter, the arbitrator held that there should be a “re-allocation” of the dividends between Far East and Majlis and that there should be payment of interest at the rate of 4% per annum “on the shortfall of the dividends payable to Majlis” by Far East to Majlis. But in 16 favour of Far East, the arbitrator held that there was justification for the allotment of 151,616 shares to Far East, that is, to capitalise the payment of RM201,650.00 towards the premium and quit rent of the said land.

As said, the arbitrator delivered a most detailed award, to the point that even after he made his aforesaid conclusions, he persisted to deliberate on the issues and evidence to further justify his conclusions.

On the 1st option, the arbitrator held (i) that the 2-year time line under clause 2.02(c) was subject to clause 2.02(b); (ii) that Far East was aware that Majlis intended to exercise the 1st option; (iii) that notice of that intention was given by letter dated 2.11.1995; (iv) that on 12.12.1995, Far East replied that the conditions in clause 2.02 were yet to be fulfilled; (v) that by letter dated 21.8.1996, Majlis again informed Far East of its intention to exercise the 1st option, to which Far East did not reply; (vi) that time was not of the essence, as clause 2.02(c) was dependant on an offer by Far East to Majlis; (vii) that Far East must give notice under section 47 of the Contracts Act to make time of the essence; and (viii) that in the absence of a notice fixing time for exercise of the 1st option, Far East could not contend that time to exercise the 1st option had lapsed (see paras 22.1 – 24.4 of the award).

On the time to exercise the options, the arbitrator held that once time for completion was allowed to pass and parties 17 entered into negotiations, there was a waiver on time being of the essence (see para 24.5 of the award).

On the negotiations between the parties and the exercise of the 1st option, the arbitrator held (i) that Majlis, by letters dated 2.11.1995 and 21.8.1996, had clearly put Far East on notice of its intention to exercise the 1st option; (ii) that Majlis expected Far East to inform Majlis of the date for completion; (iii) that clause 2.02(b) provided that Far East must make an offer to Majlis; (iv) that the conduct of the parties plus clause 2.02(b) had lulled Majlis into a sense of security that notice would be given to Majlis to exercise the 1st option; and (v) that the letter of Majlis dated 14.10.2002 fulfilled clause 2.02(b) of the agreement (see para 24.6 – 24.10 of the award).

On the contention that Majlis had no funds to exercise the options, the arbitrator held that the accounts of Majlis showed that Majlis had sufficient funds to exercise the options (see para 25.3 of the award).

On Far East’s revocation of the offer to exercise the 1st option, the arbitrator held (i) that the 1st option, in the absence of an offer by Far East to Majlis to trigger time to run, was still valid and in subsistence; (ii) that Majlis, by letter dated 14.10.2002, had lawfully exercised the 1st option; (iii) that Far East, by letter dated 24.12.2002, unlawfully revoked the option; and (iv) that time for 18 exercise of the options was not of the essence, which, even if of the essence, was waived by conduct (see para 26.1 of the award).

On the 2nd option, the arbitrator held (i) that clauses 2.02(e) and (f) were the applicable provisions; (ii) that Far East, by letter dated 22.10.2003, informed Majlis that the 2nd option could be exercised at any time between 5.10.2003 to 5.10.2006;

(iii) that the 2nd option could only be exercised after a valuation of the shares as determined by negotiation and based on the current asset value of KAOP and Madah Perkasa at the time of exercise of the 2nd option; (iv) that Majlis, by letter dated 1.9.2004, informed Far East that it would exercise the 2nd option; (v) that it was agreed at a meeting between Majlis and Far East on 8.9.2004 that the value of the shares would be the value as at the date of exercise of the 2nd option and as determined by a valuer appointed with the consent of the parties and by negotiation; and (vi) that witness RW1 confirmed that there was such a meeting on 8.9.2004 and such an agreement (see paras 27.7(a) and 27.8 of the award).

As to whether Majlis could exercise the 2nd option, the arbitrator held that the 2nd option was valid and that Majlis was entitled to exercise the 2nd option at a price to be determined, for the following reasons: (i) Majlis had exercised the 2nd option on 1.9.2004; (ii) Far East had not sought the consent of Majlis to appoint AFTAAS as the valuer; (iii) there was no explanation from Far East for the delay in the appointment of a valuer, even though agreement was reached on 8.9.2004 on the appointment of a 19 valuer with the consent of the parties; (iv) in not appointing a valuer with the consent of the parties, Far East delayed and prevented exercise of the 2nd option; and (v) time was not of the essence (see paras 27.14 and 27.15 of the award).

On the AFTAAS report on the value of the shares, the arbitrator held (i) that AFTAAS was appointed without the consent of Majlis; (ii) that the AFTAAS report was commissioned for Far East; (iii) that Far East only appointed AFTAAS when it was hardly a month before expiry of the 2nd option; (iv) that Majlis received the AFTAAS report on 4.9.2006; (v) that Majlis could not have agreed to AFTAAS as the valuer, as a director of AFTAAS was also a director of Far East; and (vi) that the AFTAAS report should be viewed with caution (see para 28.1 – 28.14 of the award).

On the fair value of the shares, the arbitrator held (i) that the Nett Tangible Asset was the better approach to value the shares; and (ii) that the fair value of each share was RM5.3244 (see para 29.5 – 29.10 of the award).

On damages for breach of the agreement, the arbitrator held (i) that the loss of dividends was a direct result of breach to transfer the said 16% and 11% to Majlis; (ii) that Majlis’ loss of dividends for the period up to 2010 amounted to RM97,692,957.00; (iii) that the cost of exercise of the 1st option was RM5,299,386.00; (iv) that the cost of exercise of the 2nd option was RM14,585,363.20; (v) that the total cost of exercise of 20 both options was RM19,884,749.20; and (vi) that the quantum of damages payable by Far East to Majlis was RM77,808,207.80 (RM97,692,957.00 less RM19,884,749.20) (see para 30.1 -30.13 of the award).

On interest, the arbitrator held (i) that payment of interest was based on common law and section 11 of the Civil Law Act; (ii) that it was held in Karpal Singh v DP Vijandran [2003] 2 MLJ 385 that an award of interest is a matter of court discretion;

(iii) that an award of pre-award interest at 4% per annum was reasonable; (iv) that jurisdiction to award post-award interest was provided in section 33(6) of AA 2005; and (v) that the award should carry post-award interest at the rate of 4% per annum from date of the award to date of satisfaction (see paras 31.1 – 31.14 of the award).

The arbitrator ordered Far East to return the certificates for 22,096,868 shares for cancellation and the company secretary to restore the issued share capital of KAOP to the proportion of 67.61% (16,836,715 shares) to Far East and 32.39% (8,066,417 shares) to Majlis. The arbitrator declared that the allotment of 22,096,868 shares was unlawful and contrary to the terms and spirit of the agreement and that Majlis had exercised the 1st and 2nd options in accordance with the agreement. The arbitrator ordered Far East to transfer 3,984,501 shares (16%) to Majlis. The arbitrator also ordered Far East (i) to transfer 2,739344 shares (11%) to Majlis at RM5.3244 per share; (ii) to pay damages in the 21 sum of RM77,808,207.80 (RM97,692,957.00 minus RM19,884,749.20); (iii) to pay damages to Majlis for loss of dividends from 2002 to date of the award and interest thereon at 4% per annum from 1.1.2011 to date of the award, both on the basis that Far East had 10,112,870 shares and Majlis had 14,790,262 shares; and (iv) to pay costs of RM150,000.00 to Majlis. At the High Court 41. In relation to the capitalisation of the loans, Far East and KAOP referred the following 5 “questions of law arising out of the award” to the High Court: Board of [KAOP] could validly bind [Majlis] in the stand they took in failing to object to the new allotment of shares? 22 22,096,868 additional shares to [Far East] is an afterthought? nominees as witnesses and consequently, drawing an adverse inference against [Far East and KAOP] for not calling them?

The High Court noted that the findings of the arbitrator were (i) that the agreement stated that the initial share capital of KAOP was fixed at 24,903,132 shares to be held by Far East (16,685,099 shares) and Majlis (8,218,033 shares); (ii) that Majlis was entitled to exercise 2 options to ultimately own 60% equity;

(iii) that after execution of the agreement, any change of the capital of KAOP required the consent of Majlis which could only be given by Majlis or a committee or person authorised by Majlis pursuant to the Enactment; (iv) that 22,096,868 shares were allotted to Far East without the consent of Majlis; and (iv) that the said allotment was a fundamental breach of the agreement.

On those findings of the arbitrator, the High Court held 23 would ultimately own 60% equity, was supported by Berjaya Times Square v M-Concept Sdn Bhd [2012] 1 MLJ 597, where it was held by the Federal Court that in interpreting a private contract, one must look at the factual matrix.

On the finding of the arbitrator that Dato Abdul Mutalib and Dato Wan Ahmad were appointed by Far East and not Majlis, the High Court agreed that both Dato Abdul Mutalib and Dato Wan Ahmad were appointed by the board of directors of KAOP on 20.1.1993, that is, when KAOP was still wholly owned by Far East, and therefore not by Majlis.

On the invocation of the adverse inference against Far East and KAOP for failure to call Dato Abdul Mutalib and or Dato Wan Ahmad to testify, the High Court held that since it was the case of Far East and KAOP that Dato Abdul Mutalib and or Dato Wan Ahmad were authorised to act on behalf of Majlis, the adverse inference was “countenanced by law”.

The High Court also agreed with the finding that the said allotment in 1998 was without the consent of Majlis, as Dato Abdul Mutalib and Dato Wan Ahmad were not appointed by Majlis, and as consent was not given by Majlis in accordance with the Enactment.

In relation to the exercise of the 1st option, Far East and KAOP referred the following 4 “questions of law arising out of the award” to the High Court:

The High Court held (i) that clause 2.02(c) must be read with clause 2.02(b) which provided that Far East must make an offer to Majlis to exercise the 1st option; (ii) that the required approvals from the shareholders of Far East, FIC, Land Office, were not matters within the knowledge of Majlis, and that Majlis, unless informed, would not know the dates of the approvals; and (iii) that there was no error by the arbitrator in the construction of sub-clauses 2.02(b) and (c).

On the 2nd option and the exercise thereof, Far East and KAOP referred the following 6 “questions of law arising out of the award” to the High Court:

To those questions, the High Court answered (i) that the findings of the arbitrator on the exercise of the 2nd option were findings of fact which should not be disturbed; and (ii) that there 26 was no error of construction of the provisions that pertained to the 2nd option.

On the quantum of damages and the award of interest, to which Far East and KAOP had put forward 3 ‘questions of law arising out of the award’, the High Court held that the arbitrator did not err on the award of damages which was premised on breach. But on the interest awarded, the High Court held that the arbitrator had no jurisdiction to award pre-award interest, and that post-award interest, since not pleaded, should not have been awarded. Except on the pre and post award interest, the High Court held that there was no ‘question of law arising out of the award’ that merited judicial intervention.

The application of Majlis for recognition and enforcement of the award was granted in terms, minus the pre-award and post award interest. Decision of the Court of Appeal 53. Far East and KAOP submitted that the award was manifestly unlawful, unconscionable and perverse and ought to be set aside.

Majlis cited Majlis Amanah Rakyat v Kausar Corporation Sdn Bhd [2009] MLJU 1697; [2009] 1 LNS 1766; [2011] 3 AMR 315) and submitted that a court should take a limited view of its jurisdiction under section 42. Majlis cited Ajwa For Food Industries 27 Co (MIGOP) Egypt v Pacific Inter-Link Sdn Bhd & Another Appeal [2013] 2 CLJ 395, where it was said by Ramly Ali JCA (as he then was) delivering the judgment of the court, that “the court should be slow in interfering with an arbitral award ... Once parties have agreed to arbitration they must be prepared to be bound by the decision of the arbitrator … ”, and submitted that a court should be slow in interfering with an arbitral award. Majlis also cited Exceljade Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2014] 1 AMR 253, where Nallini Pathmanathan J, as she then was, cited Georgas SA v Trammo Gas Ltd (The ‘Baleares’) [1993] 1 Lloyd’s Rep 215, where Steyn J said that parties who submit disputes to arbitration bind themselves to honour the arbitrator’s award on the facts and that the principle of party autonomy decrees that a court ought not to question the arbitrators’ findings of fact.

The Court of Appeal, per Aziah Ali JCA, as she then was, delivering the judgment of the court, agreed that Baleares as well as Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte Ltd [2007] 3 SLR 86 reflected the policy of minimal intervention by the court: “[38] Thus on the authorities, it is clear that in applications made under s 42 of the Act, errors by an arbitrator such as drawing wrong inferences of fact from the evidence before him, be it oral or documentary, is in itself not sufficient for the setting aside of an award (Intelek Timur Sdn Bhd v Future Heritage Sdn Bhd [2004] 1 MLJ 401; [2004] 1 CLJ 743). Likewise, the suggestion that the arbitrator has misapprehended and 28 misunderstood the evidence presented is also not a sufficient ground to set aside an arbitral award (Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority [1971] 2 MLJ 210; [1969] 1 LNS 172). The court also does not and should not sit in appeal and examine the correctness of the award on merits (Hartela Contractors Ltd v Hartecon JV Sdn Bhd & Anor [1999] 2 MLJ 481; [1999] 2 CLJ 788 (CA). The instances we state here are not in the least intended to be exhaustive.”

Aziah Ali JCA though added “that it is a fundamental principle of law that an arbitral award that is tainted with illegality can be challenged and may be set aside by the courts on the ground that an error of law has been committed, and that the question of construction of a document is a question of law”: “In the case of The Government of India v Cairn Energy India Pty Ltd & Anor [2011] 6 MLJ 441; [2012] 3 CLJ 423, the Federal Court said, amongst others, that all matters regarding the construction of a document is a question of law and is thus a specific reference. Therefore it is necessary for the appellant to show illegality. The Federal Court said as follows (para 33): ‘In our view the Supreme Court in Ganda Edible and the Federal Court in Intelek Timur did not introduce any new ground for challenge. Both cases merely reiterated a fundamental principle of law, to wit, that if a decision of an arbitrator is tainted with illegality, it is always open for challenge. Thus, even where a specific reference has been made to the arbitrator, if the award subsequently made is tainted with illegality, it can be set aside by the courts on the ground that an error of law had been committed. It must be 29 stressed here that the award must be tainted with some sort of illegality. It must also be emphasised that the word ‘may’ is used here, in that the award may be set aside. Discretion still lies with the court as to whether to respect the award of the arbitral tribunal or to reverse it.’ Further in para 34, the court said: ‘ … the Supreme Court in Ganda Edibile did state that construction is, generally speaking, a question of law. In our view all matters regarding the construction of a document is a question of law. It may very well be that in some cases, other matters are brought up for consideration which may involve questions of fact, but where the matter solely referred to is the construction of a document, it must be said to be solely a question of law … ’ And in para 44 of the judgment, the court also said: ‘In this case it is not in dispute that the matter referred for arbitration is one of construction of the terms in the PSC, a question of law and thus a specific reference. Therefore it is necessary for the appellant to show illegality.’ ”

In the opinion of the Court of Appeal, “the matter that was referred for arbitration relates to the construction of the agreement and is thus a question of law and a specific reference, although in the course of interpreting the terms of the agreement, the arbitrator was required to make findings of fact” and “a final award must be seen in its entirety and the entire facts of the case leading to the award must be taken into account to decide if there 30 is error of law on the face of the award (Sanlaiman Sdn Bhd v Kerajaan Malaysia [2013] 3 MLJ 755; [2013] 2 AMR 523)”.

As to whether there was an error of law in the construction of the agreement by the arbitrator, the Court of Appeal held that “the approach adopted by the arbitrator in construing the agreement is proper as it is consonant with case law … is appropriate since the dispute between the parties arose out of a commercial contract”.

On the substantive issues before the Arbitrator and his findings, the Court of Appeal first critically examined the issues and evidence and held that the findings of the arbitrator on the allotment of 22,096,868 shares to Far East, on the presence of the two supposed directors of Majlis at KAOP board meetings, on the absence of the consent of Majlis, on the source and manner of funding, on the absence of provision for the allotment of additional shares, on the invocation of the adverse inference, on the impossibility of Majlis ever controlling KAOP, on breach of the agreement, on the options, on the value of the shares, on loss of dividends and damages, indeed on each finding of the arbitrator, were “based on findings of fact from the evidence, oral and documentary, that were produced before him”.

But on the interest awarded, the Court of Appeal agreed with the High Court that there is no provision in AA 2005 for pre- 31 award interest, and that post-award interest, which was not pleaded, should not have been awarded.

All three appeals were dismissed by the Court of Appeal. Submissions before this Court in 02-19-04/2016 and 02-20- 04/2016 (Appeals by Far East and KAOP).

Long submissions (106 pages by Far East and KAOP, 217 pages by Majlis) were filed by the parties and by the Malaysian Bar Council who appeared as “amicus curae”. Much of what were submitted by the parties were but a different twist to the same arguments before the arbitrator with respect to the issues, findings of fact and evidence which we have already alluded to and or narrated in our summary of the arbitral proceedings. As such, we would only summarise the legal submissions and mention the authorities cited by learned counsel, interspersed, where necessary, with some of the facts and factual arguments. Far East and KAOP’s submissions 63. In relation to leave questions 1 and 2, Far East and KAOP submitted as follows. Section 42 is unique to Malaysia; the right to challenge an award is not subject to leave being granted. Under section 42, a challenge may be brought without the leave of court on any question of law arising out of an award which substantially affects the rights of one or more of the parties. Notwithstanding the wording of section 42, the Court of Appeal in 32 numerous cases, including the instant, adopted the restriction in case law decided under the former Arbitration Act 1952 (AA 1952), where a distinction was made between a specific reference of an issue to arbitration and a general reference. Under AA 1952, there could not be a review at all if the arbitrator’s error of law was made under a specific reference (King v Duveen & ors [1913] 2 KB 32 relying on Timpson v Emmerson (1847) 9 L.T. (O.S.) 199, Absalom Limited v Great Western (London) Garden Village Society, Limited [1933] AC 592, Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 CLJ 218, Sharikat Pemborong Pertanian Perumahaan v Federal Land Development Authority [1971] 2 MLJ 210, The Government of India v Cairns Energy Pty Ltd & anor [2012] 3 CLJ 423).

The distinction between a specific and a general reference was still applied (Sanlaiman Sdn Bhd v Kerajaan Malaysia [2013] 2 AMR 523, Chain Cycle, Petronas Penapisan (Melaka) Sdn Bhd v Ahmani Sdn Bhd [2016] 2 MLJ 697). Where not stated, the Court of Appeal should not read restrictions into section 42. Unlike the UK provision, the 2nd Schedule clause 5 of the New Zealand Arbitration 1996 or section 49 of the Singapore Arbitration Act 2002, AA 2005 does not require leave to be obtained to challenge an award. Section 8 of AA 2005 maintains a balance between the finality of awards and the right of review. It is not warranted to impose “a further restriction derived from case law of the Absalom exception on the basis of the flood-gates 33 argument and the like”, as was done in Chain Cycle. The restriction militates against the express wording of section 42. The word ‘any’ is of the widest amplitude. There is no justification to read “any question of law” as applicable to some questions of law but not to others (Schiffahrtsagentur Hanburg Middle East Line GmbH v Virtue Shipping Corpn; The Qinoussian Virtue [1981] 2 All ER 887 at 893-894). “Any question of law” is wide enough to cover all questions of law arising out of an award, whether made pursuant to a general reference of a dispute or a specific reference of an issue. “Arising out of an award” means that the question of law must arise from the award and not from the proceedings (Majlis Amanah Rakyat v Kausar Corporation [2009] MLJU 1697, Exceljade, Kerajaan Malaysia v Perwira Bintang Holdings Sdn Bhd [2015] 1 CLJ 617 at [57c]). It should not matter whether the award is the product of arbitration pursuant to a general reference or a specific reference.

The construction of a contract is a question of law (Bahamas International Trust Co Ltd v Threadgold [1974] 1 WLR 1514 at 1525, Pioneer Shipping Ltd & ors v B.T.P. Tioxide Ltd (The Nema) [1982] AC 724 at 736B, Lesotho Highlands Development Authority v Impregilo SpA [2006] AC 221 at [31], Cairns Energy at [36]). In the context of questions of law arising out of arbitration awards, Lord Steyn said in Lesotho that “a mistake in interpreting the contract is the paradigm of a question of law which may in the circumstances of section 69 be appealed ... ”. Given the 34 similarities between the UK provision and section 42, no other limitation should be read into section 42 apart from the restriction in the provision itself.

The proper test is “substantially affects the rights of one or more of the parties”. The test of illegality stated in Cairns Energy, of patent injustice stated in Ajwa Food Industries and of manifestly unlawful and or unconscionable or perverse in Kerajaan Malaysia v Perwira Bintang, do not conform to section 42 which should be read as it stands. The language of a statute should not be substituted with other words (Brutues v Cozens [1972] 2 All ER 1297 at 1299), Murray and another v Foyle Meats Ltd [1999] 3 All ER 769 at 733). The phrase “substantially affects the rights” was the only restriction taken from section 69(3)(c) of the UK Act. The raft of restrictions in section 69(3)(c) of the UK Act has not been adopted in AA 2005. Section 42 takes a more liberal approach in comparison to the UK section 69. For purposes of section 42, only the phrase “substantially affects the right of the parties” falls to be construed and applied as a test. A party’s legal rights could be substantially affected even without ‘patent injustice’, ‘substantial injustice’ or ‘manifestly unlawful’ and the like (SDA Architects v Metro Millenium Sdn Bhd [2014] 2 MLJ 627 at 35). The approach taken by the High Court in Lembaga Kemajuan Ikan Malaysia v WJ Construction Sdn Bhd [2013] 8 CLJ 655 and Tune Insurance Malaysia Bhd & Anor v Messrs K Sila Dass & Partners [2015] 9 CLJ 35 93, without resort to the label of ‘patent injustice’, ‘substantial injustice’ or ‘manifestly unlawful’, is the correct approach.

A mistake in the construction of a contract or misapplication of its terms would substantially affect rights.

The Court of Appeal took the wrong approach when it followed Cairns Energy at 448, which was decided under AA 1952. In the Lembaga Kemajuan Ikan case, Mary Lim J, as she then was, observed that section 42(1) approximates to an error of law on the face of the award. If the arbitrator proceeded illegally as understood in the old cases, then he has committed an error of law that is reviewable under section 42. “The phrase originates from Government of Kelantan v Duff Development [1923] AC 395 and has been adopted in Halsbury’s Laws 4th Edn. Vol. 2 para 623. An arbitrator would have proceeded illegally if he applied ‘principles of construction that the law does not countenance’ or deciding on evidence which was not admissible: see application of the principle in Intelek Timur Sdn Bhd v Future Heritage Sdn Bhd [2004] 1 CLJ 743; Sami Mousawi v Kerajaan Negeri Sarawak [2004] 2 CLJ 186.” A clear case would be where the arbitrator failed to consider the relevant law or omitted consideration of relevant causes in the contract in arriving at his decision (Maimunah Deraman v Majlis 36 Perbandaran Kemaman [2011] 3 CLJ 689 at [27-28]). A further area of review under the “question of law” principles decided wrongly is the illogical or perverse award that no arbitrator acting reasonably could have made (learned counsel cited Perwira Bintang at [35] and Sikkim Subba Association v State of Sikkim AIR 2001 SC 2062). In all such cases, rights were substantially affected. In the seminal case of The Nema under section 1(4) of the UK Arbitration Act 1979 which bore similarity to section 42, Lord Diplock included the category of where a question of law would arise under Edward v Bairstow [1956] AC 14. ‘Questions of law’ should not be restricted to ‘patent injustice’ or ‘manifestly unjust’ and the like. It should apply to every legal issue decided by the arbitrator that substantially affected the parties.

On the capital increase, options, and damages issues, apart from the arguments that pertained to the construction of the agreement, the evidence and the factual findings of the arbitrator, Far East and KAOP submitted as follows. The legality of the capital increase must be determined solely by reference to the Companies Act and the Articles of Association (Tung Ah Leek v Perunding DJA Sdn Bhd (2005) 3 MLJ 667 at [13]). The agreement was a joint venture agreement. In striking down the allotment, the arbitrator failed to appreciate that Far East and KAOP were separate legal entities and separate in law from their shareholders. Shareholders could not preclude a company or its shareholders from exercising rights under the articles or under the Company Act (Exeter City 37 AFC v Football Conference Ltd [2004] 4 All ER 1179, Union Music Ltd V Watson [2003] 1 BCLC 453, Russell v Northern Development Bank (1992) BCLC 1016 HL). Rights of shareholders, inter se, are only enforceable between them. In Jet-Tech Materials Sdn Bhd & anor v Yushiro Chemical Industry Co. Ltd & ors and another appeal [2013] 2 CLJ 277 at [37], the Federal Court made a distinction between matters that concerned the company and breaches of a shareholders’ agreement. The arbitrator made a fundamental mistake when he struck down the allotment without any determination as to whether the proper remedy was damages. A company is not governed by a shareholders’ agreement. Unless an understanding in a shareholders’ agreement is incorporated in the Articles, it does not bind the company (Tung Ah Leek and Beh Chun Chuan v Paloh Medical Centre Sdn Bhd & ors [1999] 3 MLJ 262).

In relation to the consent of Majlis and the authority of Dato’ Abdul Mutalib or Dato’ Wan Ahmad Tajuddin, the arbitrator failed to appreciate that the Enactment governed only Majlis and not Far East or KAOP. The mistake was not to understand where the responsibilities of a director lie in company law. Upon appointment, a director’s fiduciary duties and loyalties are owed to the company (Scottish Co-operative Wholesale Society Ltd. V. Meyer (1959) AC 324 at 341, 363 and Boulting v. A.C.T.A. (1963) 2 QB 606). The arbitrator failed to apply the rule of ostensible authority. The Appellants were entitled to assume that everything 38 was regular when the representatives of Majlis consented to the capital increase. There could be no safety if internal irregularities could be allowed to defeat transactions validly entered into (Pekan Nenas Industries Sdn Bhd v Chang Ching Chuen [1998] 1 MLJ 465). The rule was firmly established in Penang Development Corporation v Teoh Eng Huat (1992) 1 MLJ 749 and First Energy that if the relevant officer who participated in the transaction is a high official, it is ostensible authority that matters and not actual authority. In Hubah Sdn Bhd & Ors v Koperasi Pusaka (Penampang) Bhd [2013] 6 CLJ 837, it was held that the rule in Turquand’s case applies to bodies other than corporations. In all these cases, internal irregularity did not vitiate the transaction because of the doctrine of ostensible authority. The arbitrator failed to appreciate the rule in Turquand which was recently applied in Bumiputra Commerce Bank v Augusto Romei (2014) 3 MLJ 672. Far East and KAOP were not concerned with the internal management of Majlis. Far East and KAOP were entitled to assume that all matters of indoor management required to be done were done. The alleged absence of mandate did not affect the decisions consensually made. If Dato Abdul Mutalib chose not to object to the capitalisation of the loans, it was logical for the board to proceed on the basis that there was consensus. Majlis was bound by the consent of Dato Abdul Mutalib and Dato Wan Ahmad Tajuddin. 39

It was unreasonable to impose the burden on Far East and KAOP to call Dato Abdul Mutalib and Dato Wan Ahmad Tajuddin. Majlis, who pleaded that the presence of the two Datos at the meeting did not constitute consent, had to prove that defence. Dato Abdul Mutalib and Dato Wan Ahmad Tajuddin were Majlis representatives even before Majlis was a shareholder of KAOP. Majlis should explain why they were not called. It was wrong to invoke the adverse inference against Far East and KOAP.

On the option clauses, the arbitrator failed to consider that time ran from the last of the approvals (Sanlaiman). On 19.4.1999, Majlis was allotted its shares. By then, Majlis should know that approval for transfer had been granted. The consent for transfer, given on 5.10.1998, must have been in Majlis’ knowledge, as the consent letter was addressed to the solicitors for Majlis. Time started to run on 19.4.1999. The contention that there should be an offer to exercise the 1st option was erroneous. Clause 2.02(b) and (c) contained the offer itself. “If it were otherwise, it would lead to the absurdity that the making of the offer was left to the discretion of Far East who could delay the increase in stakeholding by Majlis”. The 1st Option was conferred by the agreement itself. The price and option period were specified. There was nothing more to be done by Far East, other than for Majlis to exercise the option and tender the price.

The terms of an option must be strictly construed, both as to time and manner for its exercise (United Scientific Holdings 40 Ltd v Burnley Borough Council (1976) AC 904, Tan Chee Hoe v Ram (1983) 2 MLJ 31, Chin Kim & anor v Loh Boon Siew [1970] 1 MLJ 197, McLachlan Troup v Peters & anor [1983] 1 VR 53, Bressen v Squires [1974] 2 NSWLR 460, Lewes Nominees Pty Ltd v Strang (1983) 49 ALR 328). The arbitrator failed to strictly apply the timelines in the option clauses. The arbitrator’s reliance on Berjaya Times Square was erroneous.

The arbitrator held that the letter dated 14.10.2002 was an offer by Far East to Majlis to exercise the 1st option and was a waiver of its right to insist on time being of the essence. But that letter was a nullity, for it was issued 2 years after the dateline for exercise of the 1st option had expired. If that letter were an offer, then it was a new offer upon the terms set out therein. A new offer is an offer to create a new contract (Mintye Properties Sdn Bhd v Yayasan Melaka (2006) 4 CLJ 267). The arbitrator failed to appreciate the terms of the letter dated 14.10.2002. That letter dated 14.10.2002, which was not an offer under the option clause, was revoked.

The arbitrator failed to consider that clause 2.02(h) required payment for transfer of shares. There must be consideration (Macon Works & Trading Sdn Bhd v Phang Hon Chin & anor [1976] 2 MLJ 177). It is for the option-holder to exercise the option (Laybutt v Amoco Australia Pty Ltd (1974) 132 CLR 57 at 76). To complete a purchase, an option-holder gives notice of intention so to do and tenders the whole purchase price (learned 41 counsel cited Chin Kim at 198 which cited Fry on Specific Performance 6th Edition at 515). In his construction of the 1st option, the arbitrator applied the wrong principles of law that substantially affected the rights of Far East who was not obligated to transfer the option shares to Majlis.

At para 27.4 of the award, the arbitrator acknowledged that Far East had, by letter dated 22.10.2003, informed Majlis that the 2nd option could be exercised at any time from 5.10.2003 to 5.10.2006. Time for exercise of the 2nd option ran from 22.10.2003. At para 27.5 of the award, the arbitrator acknowledged that the value of the 2nd option shares had to be determined through negotiations. Even after expiry of the 2nd option, the parties could not agree on the value of the 2nd option shares. However, the arbitrator dismissed the contention that the 2nd option was not exercised within time. Instead, the arbitrator ruled that the right of Majlis to exercise the 2nd option was valid and in subsistence. The arbitrator accepted the valuation of Adam & Co and proceeded to determine the value of the 2nd option shares. But the arbitrator failed to appreciate that the value of the 2nd option shares, pursuant to clause 2.02(e), had to be determined through negotiations. The arbitrator failed to appreciate that when parties failed to agree on the value of the 2nd option shares within the time specified, the 2nd option was void and unenforceable (Sik Hong Photo Sdn Bhd v Ch’ng Beng Choo [2010] 3 MLJ 633). In ruling that Far East delayed exercise of the 2nd 42 option by not appointing a valuer with the consent of Majlis, the arbitrator failed to observe that the burden lay on the option-holder to insist on negotiations to settle the price. The provisions of clause 2.02(e) were ignored. Majlis had the burden to initiate negotiations. Majlis failed to take the requisite steps within the option period. The price was to be decided by the parties through negotiations. The price was not for the arbitrator to decide. The arbitrator should have declared that the 2nd option had lapsed. In Wisma Sime Darby Bhd Wilson Parking (M) Sdn Bhd [1996] 2 MLJ 81, it was held that the phrase “a rent to be agreed” was void for uncertainty, as the agreement did not provide a machinery or formula which the court could utilise to ascertain what was otherwise unascertainable without the agreement of the parties.

The wrong formula was used to value the shares. Clause 2.02(e) provided that the price “shall be based on the current value”. Adam & Co relied on the NTA method which was contrary to clause 2.02(e). Net tangible value, which was not stipulated in the agreement, was more favourable to Majlis. A valuation contrary to agreement is not valid (Jones v Sherwood (1992) 2 All ER 170 at 179).

The wrong principles of assessment of damages were applied. The sum payable on the options was deducted from the RM97,692,957.00 awarded for the shortfall in dividends. The arbitrator failed to appreciate that dividends are paid from the funds of a company which could not be used to buy its own shares 43 (learned counsel cited section 67 of the Companies Act 1965 and Belmont Finance Corporation v Williams Furniture (No. 2) (1980) 1 All ER 393). The technique by the arbitrator, for to find that the options shares had been paid, was prohibited by law.

Majlis claimed the dividends it could have received from 2002 to 2010. By 2002, Majlis had 33% equity. Clause 2.02(k) provided that the final say on dividends lay with Majlis. Therefore, all dividends declared had the consent of Majlis. Yet the arbitrator re-allocated the dividends which had the consent of Majlis. Failure of the arbitrator to refer to clause 2.02(k) was a serious misconstruction of a material clause, as in Intelek Timur.

When it was ruled that the capital increase was unlawful and should be cancelled, the arbitrator should have ordered Far East to return the dividends (Re Cleveland Trust Plc Ltd (1991) BCLC 424 and Re Exchange Banking Co (1882) 21 Ch.D. 519). The re-allocation was on the assumption that the options had been exercised. But that assumption was wrong, as it was open to Majlis to take up a part of the option shares. Contrary to company law, the arbitrator ordered the funds of the company (KAOP) to pay for its own shares. Dividends are paid according to the amount paid by the shareholder (learned counsel cited section 56(1)(c) of the Companies Act 1965). As the consideration had not been paid, the order to transfer the option shares was an error that substantially affected Far East. 44

Assessment of damages on wrong principles is always a ground to set aside and re-assess an award of damages, if liability is sustained (Davies v Powell Duffryn Collieries (1942) AC 601). Misapplication of law in the assessment of damages had substantially affected the rights of Far East and KAOP. Majlis’ submissions 82. The principle of minimal interference by the court, which is an ingrained aspect of the UNCITRAL Model Law on International Commercial Arbitration, is reflected in section 8. That principle was accepted in Perwira Bintang, Government of the Lao People’s Democratic Republic v Thai-Lao Lignite Co Ltd & anor [2014] 2 AMR 375, Ajwa For Food Industries, Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2010] 5 CLJ 83, Rmarine Engineering (M) Sdn Bhd v Bank Islam Malaysia Bhd [2012] 7 CLJ 540, and Chain Cycle. The Model law requires recognition of the principles of party autonomy, minimal court intervention and international harmonisation of laws. In the context of the Model law regime, the better view would be against the old “error on the face of the award” rule. That was the position in Exceljade and Perwira Bintang. The non-interventionist approach was captured in Government of India v Cairns Energy. It is settled that an arbitration award is final and can only be challenged in exceptional circumstances (Intelek Timur, Far East Holdings Bhd & anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang [2015] 4 MLJ 766). A wrong inference of fact is not sufficient to set aside an 45 award. Courts do not exercise appellate jurisdiction over arbitration awards (Pembinaan LCL Sdn Bhd v SK Styrofoam (M) Sdn Bhd [2007] 4 MLJ 113). The jurisdiction to set aside or remit an arbitrator’s award is one that should be exercised with care (Hartela Contractors Ltd v Hartecon JV Sdn Bhd [1999] 2 MLJ 481). Lack of appraisal of the law is not a legitimate ground to set aside or remit an award. There must be a serious failure to analyse and appraise material and relevant evidence which affected the award (Sami Mousawi Utama Sdn Bhd v Kerajaan Negeri Sarawak [2004] 2 CLJ 186, Sharikat Pemborong Pertanian & Perumahan). The arbitral tribunal should be the master of the facts and procedure (Majlis Amanah Rakyat v Kausar Corporation). A court can intervene when the award is tainted with illegality (Government of India v Cairns Energy). Findings of fact by an arbitral tribunal, which are not illogical, unconscionable or perverse, have not been interfered with.

Section 42 calls for further judicial comment. As to what amounts to a question of law, Tune Insurance Malaysia had it (i) that the question must be identified with sufficient precision (Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2010] 5 CLJ 83), (ii) that the question must arise from the award (Majlis Amanah Rakyat v Kausar Corporation), (iii) that the party referring the question must satisfy the court that a determination of the question will substantially affect his rights, (v) that the question of law must be a legitimate question of law and 46 not a question of fact dressed up as a question of law (Georges SA v Trammo Gas Ltd (The Belarus) [1993] 1 Lloyd’s Reports 2015),

(vi) that a reference must be dismissed if a determination of the question of law will not have a substantial effect on the right of the parties (Exceljade), (vii) that jurisdiction should be exercised only in clear and exceptional circumstances, or where the decision is perverse (Lembaga Kemajuan Ikan), (viii) that intervention by the court must be only if the award is manifestly unlawful and unconscionable, and (ix) that the arbitral tribunal remains the sole arbiter of fact and evidence (Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318).

Exceljade decided that the test for setting aside awards under section 24 of AA 1952 is no longer applicable to section 42 which is completely different. Exceljade lay down the correct approach. Perwira Bintang held that the approach in Exceljade should be preferred. The old jurisprudence on ‘error of law on the face of the award’ had been rejected.

The rule in Turquand was not raised in the arbitral proceedings, because Far East and KAOP took the stand that the allotment was in accordance with the memorandum and articles. Hubah was not relevant to the instant case. In Penang Development v Teoh Eng Huat & anor [1992] 1 MLJ 749, the rule in Turquand was invoked because of the conduct and action taken by the corporation. In the instant case, there was not an iota of evidence that Majlis consented to the allotment. It was 47 unchallenged evidence (of witness CW1) that the allotment was never discussed at any of the meetings of Majlis. It was the finding of the arbitrator that Majlis had no knowledge of the allotment until much later. There were no facts to apply the rule in Turquand.

Majlis, being a creature of statute, must act in accordance with the Enactment (Malaysia Shipyard and Engineering Sdn Bhd v Bank Kerjasama Rakyat Malaysia Bhd [1985] 2 MLJ 359, Chase Manhattan Bank NA v Mercantile Co-operative Thrift & Loan Society Ltd [1992] 2 MLJ 168).

The rule in Turquand could also not apply for the following reasons: (i) the actions by Far East and KAOP were not in good faith, (ii) Far East and KAOP were aware of the provisions of the Enactment, (iii) it was the finding of the arbitrator that Far East had all intention to renege on the agreement.

The adverse inference was rightly invoked. The issue on the allotment was not resolved by invocation of the adverse inference. Section 2 of the Evidence Act 1950 provides that the strict rules of evidence do not apply to arbitration proceedings. In Russell v Northern Bank Development Corp Ltd, the House of Lords decided that the undertaking of the company was enforceable by the shareholders inter se as a personal agreement. In construing an agreement, a court is not confined to the four corners of the document. The court is entitled to look at the factual matrix 48 (Attorney-General of Bellize & ors v Bellize Telecom Ltd [2009] 2 All ER 1127; Berjaya Times Square, Hotel Anika Sdn Bhd v Majlis Daerah Kluang Utara [2007] 1 MLJ 248). A contract must be interpreted which would avoid absurdity, inconsistency or repugnancy (Malaysian Newsprint Industries Sdn Bhd v Perdama Cigna Insurance Bhd & ors [2008] 2 MLJ 256), and which would make commercial sense (Damansara Realty Bhd v Bangsar Hill Holdings Sdn Bhd & anor [2011] 9 CLJ 257) and business logic (Bon Chong Hing @ Chong Hing & anor v Gama Trading Co (Hong Kong) Ltd [2011] 4 MLJ 52).

Limitation was not pleaded by Far East and KAOP. The arbitrator was correct to hold that the challenge to the impugned allotment was not barred by limitation. The rule in Turquand was also applicable to the letter dated 24.12.2002. Far East could not say that the letter dated 24.12.2002 was written without the authority of the board. Whether time was intended to be truly of the essence must be determine by reference to the other provisions of the agreement (Berjaya Times Square at 704) and the conduct and dealings of the parties (Damansara Realty Bhd v Bungsar Hill Holdings at 271). Once time for completion was allowed to pass and parties went on to negotiate, then the conduct amounted to a waiver on time being of the essence (Wong Kup Sing v Jeram Rubber Estates Ltd [1969] 1 MLJ 245 and Berjaya Times Square). It was a synallagmatic contract, where there were mutual obligations and time was therefore not of the essence 49 (United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 and Sime Hok Sdn Bhd v Soh Poh Seng [2013] 2 MLJ 149).

The 2nd option was not void for uncertainty. It was not raised before the arbitrator that the 2nd option was void. Since the machinery for valuation was provided, the court could substitute other machinery to ascertain the price (Sudbrook Trading Estate Ltd v Eggleton & ors [1983] AC 444 and Pacific Forest Industries Sdn Bhd & anor v Lin Wen Chih & anor [2009] 6 MLJ 293). Submission by the Bar Council 91. In essence, the Bar Council was of the view that court intervention should be at a minimal, that the point of reference would be whether the award or any part of it is obviously wrong, that the question of law to be decided cannot be anything else, that Chain Cycle indicated that the Absalom principle should be retained, that an application under section 42 is not an appeal, that a question of law must be a pure question of law, and that ‘patent injustice’, ‘manifestly unlawful’, ‘unconscionable’, ‘perverse decision’, and ‘illegality’, are instances or circumstances where the court found the decisions of the arbitrator as being outside the ‘range of correct answers’ to warrant the setting aside or variation of the award, but are not applicable tests under section 42. Our decision Historical Background 50

Before AA 1952, arbitration in the states of Malaya was governed by the Arbitration Ordinance 1950 which was based on the English Arbitration Act 1889. The UK Arbitration Act 1950, which consolidated and amended arbitration law in England and Wales, was followed in British North Borneo and Sarawak in their respective ordinances of 1952 but was not applied in Malaya until and extended to West Malaysia. The UK Arbitration Act 1979, which amended the UK Arbitration Act 1950, was not followed. AA 2005 93. In 1985, the Model Law on International Commercial Arbitration (Model Law) was passed by the United Nations Commission on International Trade Law (UNCITRAL). AA 2005 “was based on the ... Model Law ... The Arbitration Act 2005 (Act 646) repealed and replaced the Arbitration Act 1952 (Act 93) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985 (Act 320) ...” (Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd [2010] 3 MLJ 656 per Low Hop Bing JCA, delivering the judgment of the court; see also Malaysian Newsprint Industries Sdn Bhd v Bechtel International, Inc & Anor [2008] 5 MLJ 254). But more than just repealed and replaced, AA 2005 reformed the law relating to domestic arbitration and provided for international arbitration, the recognition and 51 enforcement of awards and for related matters. Wholesale changes were brought about.

Before AA 2005, in relation to the setting aside of an award, section 24 of AA 1952 provided: “(1) Where an arbitrator or umpire has misconducted himself or the proceedings, the High Court may remove him. Court may set the award aside.

Under AA 1952, the ground to set aside an award was provided in the aforesaid section 24(2). But the law came to accept that the common law ground of error on the face of the award/record was also available. In Shanmugan Paramsothy v Thiagarajah Pooinpatarsam & ors [2001] 6 MLJ 305, KC Vohrah J, as he then was, imparted the following historical development: “Nowhere in the Act has the remedy of 'error of law on the face of the award' been provided. In 1971, in Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority [1971] 2 MLJ 210, an arbitration matter came up before the High Court and obviously, although the legislation under which the 52 matter was brought up before the court was not mentioned in the judgment, the legislation under which the court took cognizance of the matter was the Arbitration Ordinance 1950 (now repealed). Under that Ordinance, there was also no provision made in regard to the remedy of error of law on the face of the record. Nevertheless, Raja Azlan Shah J (as he then was) had this to say at p 211: ‘It is essential to keep the distinction between a case where a dispute is referred to an arbitrator in the decision of which a question of law becomes material from the case in which a specific question of law has been referred to him. The wealth of authorities make a clear distinction between these two classes of cases and they decide that in the former case the court can interfere if and when any error appears on the face of the award but in the latter case no such interference is possible upon the ground that the decision upon the question of law is an erroneous one. Instances of the former are afforded by Absalom Ltd v Great Western (London) Garden Village Society Ltd [1933] AC 592, British Westinghouse Electric & Manufacturing Co Ltd v Underground Railways Co of London Ltd [1912] AC 673, Hodgkinson v Fernie 3 CB (NS) 189; 140 ER 712, and Attorney General for Manitoba v Kelly and Ors [1922] 1 AC 268 at p 281 (PC), Government of Kelantan v Duff Development Co Ltd [1923] AC 395 at p 411 and Re King & Duveen [1913] 2 KB 32 are instances of the latter. In the present case, I have on consideration come to the conclusion that no question of law was referred. What was submitted to the arbitrator was a question of law which incidentally, and indeed necessarily, arose in applying ascertained facts. The reference involved both composite questions of law 53 and fact. The court can therefore review the award if and when there is error apparent on the face of the award.’ It is implicit that his Lordship was of the view that the remedy of error of law may be resorted to notwithstanding an absence of a provision for that remedy in the Arbitration Ordinance 1950. It has to be borne in mind that the relevant English cases before the coming into force of the English Arbitration Act 1979 ('the 1979 Act') were decided on the basis of common law although there was existing legislation and there was no provision therein for this common law remedy. The 1979 Act abolished this remedy (more about this later). The Supreme Court in 1972, in Pacific & Orient Insurance Co Sdn Bhd v Woon Shee Min [1980] 1 MLJ 291 considered an arbitration matter where obviously the Act was considered. The Federal Court was fully aware that the Act does not provide for the remedy of error of law on the face of the award but the court, nevertheless, considered the case on the basis that the remedy is available under our law. The court did not allow the appeal against the judgment of the High Court, Johore Bahru dismissing an application by the appellant company to set aside the award of the arbitrator. This is what Wan Sulaiman FJ stated: ‘After hearing evidence from both sides the arbitrator Mr Chelliah Paramjothy, a senior lawyer, gave his award on 20 July 1976. Upon the basis that the respondent has a right to be indemnified by the appellant company for the damage to motor vehicle his award was that the appellants should pay to the respondent the sum of RM8,000 'on a total loss basis' for the motor vehicle. Section 24(2) of the Arbitration Act reads 54 'where an arbitrator … has misconducted himself or the proceedings, or an arbitration or award has been improperly procured, the High Court may set the award aside'. This subsection is almost identical in wording with the English s 23(2). However, it appears from Mr Ball's opening words that it is not on this ground that the appellants depended to have the award set aside but on the inherent power of the court to set aside an award which is bad on the face of it, as involving an apparent error in fact or in law. (See Russell on Arbitration (18th Ed) p 349). At p 357 of the same volume appears this passage: An award which, on its face, fails to comply with the requirements of a valid award, will be remitted or set aside. By a somewhat anomalous extension of this rule, notwithstanding that an arbitrator's decision is in general final, if an error either of fact or law is allowed to happen on the face of the award, this is a ground for setting it aside …' Over the years, the courts in Malaysia have regularly considered arbitration applications on the basis that the remedy of error on the face of the award is available for consideration under our law. In Ganda Edible Oils Sdn Bhd v Transgrain BV [1988] 1 MLJ 428, the Supreme Court referred to Sharikat Pemborong Pertanian & Perumahan and accepted that the remedy of error of law on the face of the award is available to be considered. In a more recent case, Hartela Contractors Ltd v Hartecon JV Sdn Bhd & Anor [1999] 2 MLJ 481 at p 488, the Court of Appeal recognized that the jurisdiction of the ordinary courts in the environment of private arbitration stems from statute and common law.” 55

Thus, under AA 1952, “there are two grounds for the court’s intervention namely, under the common law where there is an error of law on the face of an award and for misconduct by an arbitrator under s 24(2) of the Act” (Federal Flour Mills Bhd v FIMA Palmbulk Service Sdn Bhd [2005] 6 MLJ 525, per Arifin Zakaria FCJ, as he then was, delivering the judgment of the court). That jurisdiction to set aside an award on the ground of ‘error of law on the face of the award’ “exists at common law independently of statute” (Halsbury's Laws of England (4th Ed) Volume 2 para 623).

“The general rule at common law is that, absent a contrary intention in the agreement to arbitrate entered into between the parties to a controversy, the award of an arbitrator is final, binding and conclusive. It may not be challenged merely on the ground that it is erroneous … So jealously did the common law guard against curial interference with private arbitrations that it was most reluctant to create exceptions to the general rule ... the common law as a very limited exception grudgingly allowed a court to intervene and set aside an award on the face of which there appeared an error of law” (Hartela at 488 per Gopal Sri Ram JCA, as he then was, delivering the judgment of the court) AA 2005 and ‘error of law on the face of the award’

But under AA 2005, the grounds for setting aside an award could not be more different. 2 provisions provide for the 56 setting aside of domestic awards. Section 37(1) of AA 2005 provides: “(1) An award may be set aside by the High Court only if-

a party to the arbitration agreement was under any incapacity;

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of Malaysia;

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present that party's case;

(iv) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;

(vi) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act; or 57

(ii) the award is in conflict with the public policy of Malaysia.”

Section 42(1) – (4) of AA 2005 (Part III of AA 2005 applies to all domestic arbitration unless the parties agree otherwise in writing) provide: “(1) Any party may refer to the High Court any question of law arising out of an award. 58 AA 2005 and the law developed under AA 1952 100. Given the radical change, The Arbitration Act 2005 by Sundra Rajoo and WSW Davidson at page 5 thus matter-of-factly commented that the substantial body of case law developed under AA 1952 is no longer relevant: “In the past, because of the close identity between the English Act of 1950 and the 1952 Act, the Malaysian courts have tended to rely upon English case law for guidance, although over the years there has developed a substantial body of local case law. A good deal of this body of case law is now no longer relevant. We should stress however that the English 1996 Act, although not following the Model Law format, does follow many of the broad principles which are embodied in the Model Law and many decisions of the English courts under the 1996 remain relevant and persuasive for the interpretation of the Act. Before relying on any such decisions, a necessary step should always be to compare the wording of the section in which the decision was based and assess the relevance in the light of the similarities and differences. The same applies to authorities from other Commonwealth jurisdictions.” 59 [1999] 1 LRI 69, where faced with a similar radical change of statutory regime the India Supreme Court commented that the provisions of the Indian Arbitration Act 1996 have to be interpreted and construed independently, quite without reference to the Indian Arbitration Act 1940: “ ... the 1996 Act [equivalent of the Act] is very different from the Arbitration Act 1940 [equivalent of the 1952 Act]. The provisions of this Act have, therefore, to be interpreted and construed independently and in fact reference to 1940 may actually lead to misconstruction. In other words, the provisions of the 1996 Act have to be interpreted being uninfluenced by the principles underlying the 1940 Act. In order to get help in construing these provisions, it is more relevant to refer to the UNCITRAL Model Law rather than the 1940 Act.” Ariff J, as he then was, held that the jurisdiction under section 42 is in line with the jurisprudence on error of law on the face of the record: “In my view, the emphasis on the words ‘arising out of an award’ is a pertinent one. A question of law must arise out of an award, and not out of the arbitration. As such, the jurisdiction conferred on the court should be a 60 limited one, more in line with the jurisprudence on error of law on the face of the award.” The principles envisaged are akin to error on the face of the award”.

But a very different view was expressed in Exceljade, where Nallini J, as she then was, held that the test for the setting aside awards under AA 1952 could not be extended to AA 2005: “Under the previous s 24 of the repealed Arbitration Act 1952, the test for setting aside awards under the section was whether an error of law on the face of the record arose … That section being repealed, it would follow that the test previously applied in respect of the repealed s 24 ought not logically be extended or utilised in respect of the new s 42 … A comparison of the two sections, namely s 24 of the repealed Arbitration Act 1952 and the present s 42 are quite evidently different and distinct. Section 42 allows ‘any question of law arising out of an award’ to be brought by ‘any party’ by way of a reference to the High Court. Given the clearly wider ambit of this section, as compared to the prior s 24 of the repealed Arbitration Act, it is evident that the question that a court needs to 61 ask itself is whether the question framed before it is indeed a question of law.”

Mohamad Ariff, by then JCA, in Perwira Bintang conceded that the view in Exceljade on section 42 should be preferred and that the jurisprudence on ‘error of law on the face of the award’ should be rejected. “Since this case was decided, Parliament has inserted sub-s (1A) to s 42, such that as a matter of statutory interpretation, the court is now cautioned against setting aside or varying an award unless the error of law substantially affects the rights of parties … … The statutory wording mandates the court to dismiss (‘shall dismiss’) the reference on the question of law unless the question of law affects in a substantial way the rights of the party or parties … With the amendment, and reading the provision in its overall context, the views expressed in Exceljade, should perhaps now be preferred. However, on the special facts of a particular appeal, the previous jurisprudence and the new law may just overlap. This is the position taken by the appellant. Counsel for the appellant submits: ‘It is submitted that regardless of whether the test for section 42 of the AA 2005 is error of law arising out of an award or question of law arising out of the award, the Malaysian authorities recognizes that the arbitrator is the master of facts.’ Nevertheless, the Exceljade approach will align our law with that of other jurisdictions where the old 62 jurisprudence on ‘error of law on the face of the award’ has been rejected.”

Exceljade was also endorsed in Chain Cycle, where Varghese George JCA, delivering the judgment of the court, held that what amounts to a question of law under section 42 was settled by Exceljade, and in Tune Insurance Malaysia, where Hasnah Hashim J, as she then was, cited with approval the statement of law in Exceljade that the test for setting aside awards under AA 1952 could not be extended to AA 2005.

The Federal Court also accepted that AA 2005 must be interpreted and construed independently. In Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417, it was held by Ramly Ali FCJ, delivering the judgment of the court, that section 10(1) of AA 2005 is not tied to section 6 of AA 1952: “Prior to the 2005 Act, the applicable law was the Arbitration Act 1952 (‘the 1952 Act’). The issue of stay of proceedings in the 1952 Act was dealt with under s 6 thereof which reads: ‘If any party to an arbitration agreement or any person claiming through or under him commences any legal proceedings against any other party to the arbitration, or any person claiming through or under him, in respect of any matter agreed to be referred to arbitration, any party to the legal proceedings may, before taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration 63 agreement, and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings.’ The clear effect of the present s 10(1) of the 2005 Act is to render a stay mandatory if the court finds that all the relevant requirements have been fulfilled; while under s 6 of the repealed 1952 Act, the court had a discretion whether to order a stay or otherwise. What the court needs to consider in determining whether to grant a stay order under the present s 10(1) (after the 2011 Amendment) is whether there is in existence a binding arbitration agreement or clause between the parties, which agreement is not null and void, inoperative or incapable of being performed. The court is no longer required to delve into the details of the dispute or difference (see TNB Fuel Services Sdn Bhd). In fact the question as to whether there is a dispute in existence or not is no longer a requirement to be considered in granting a stay under s 10(1). It is an issue to be decided by the arbitral tribunal.”

That the provisions of AA 1952 are not applicable under AA 2005 was also impliedly said in TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857, where Anantham Kasinather JCA, delivering the judgment of the court, said: “With respect, the learned High Court judge, in our judgment, considered the merits of the respondent's application for the injunction on the basis of the Arbitration Act 1952 and not the Arbitration Act 2005, which ought to have been the case. 64 … the learned trial judge erred in not considering the application for the injunction on the basis of sub-s 9(5) of the Arbitration Act 2005 ... if the learned trial judge had applied s 9(5) of the Act to these facts, we are of the considered opinion that Her Ladyship would have come to the conclusion that the 'arbitration agreement' was binding on the parties.”

With respect, we could not agree with the statement in Exceljade that “under the previous s 24 of the repealed Arbitration Act 1952, the test for setting aside awards under the section was whether an error of law on the face of the record arose”. ‘Error of law on the face of the award’ was the common law ground to set aside an award (see Halsbury’s Law of England 4th Edition, Volume 2 at paras 621 & 623). “Where an arbitrator or umpire has misconducted himself or the proceedings” was the statutory ground to set aside an award. Those two grounds, one under common law the other under AA 1952, as different as chalk and cheese, could not be equated as the one and the same. But we share the view that with the radical change to the statutory regime, that section 24 of AA 1952 and the law developed thereunder are not relevant under section 42. It would only follow that all decisions made under section 42 but yet applied the law developed under section 24 of AA 1952 and the decisions that followed them were wrongly decided on law and should not be followed. AA 2005 and ‘error of law on the face of the award” 65

Section 8 provides that “No court shall intervene in matters governed by this Act, except where so provided in this Act”. That was read to mean “minimal intervention consistent with the policy underlying the UNCITRAL Model Law” (Perwira Bintang). In MMC Engineering Group Bhd & Anor v Wayss & Freytag (M) Sdn Bhd [2015] 10 MLJ 689, Mary Lim J, as she then was, held that “there is still room left for the continued application of the error of law on the face of the award test”: “In any case, there is still room left for the continued application of the error of law on the face of the award test. The test has its roots under common law. The preponderance of the test led to deliberate legislative intervention in other jurisdictions while that is not the case here. I do not find any express statutory provision excluding that test quite unlike the position in the United Kingdom. For example, in the UK 1979 Arbitration Act, s 1 deals with ‘judicial review of arbitration awards’, and sub-s 1(1) expressly states: ‘1(1) In the Arbitration Act 1950 (in this Act referred to as ‘the principal Act’) section 21 (statement of case for a decision of the High Court) shall cease to have effect and, without prejudice to the right of appeal conferred by subsection (2) below, the High Court shall not have jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award.’ This statutory policy is maintained in the UK 1996 Arbitration Act in sub-s 81(2) which reads as follow: ‘Nothing in this Act shall be construed as reviving any jurisdiction of the Court to set aside or remit an 66 award on the ground of errors of fact or law on the face of the award.’ There are no comparable provisions in our Act 646 that either mirrors or comes close to the clear express language of sub-s 1(1) in the 1979 Act or sub-s 81(2) in the 1996 Act. I do not believe there is any room for making any necessary inference either. Although this court may be prepared to bring this area of law alongside the mainstream approaches under model law, I am reminded that the courts are only interpreters and not legislators of the law. Even in the case of the United Kingdom, the court’s practice and approach changed because of legislative intervention.”

In the United Kingdom, ‘error of fact or law’ is no longer a ground to set aside an award (see Halsbury’s Laws of England 4th Edition (Reissue) Vol 2 at para 692 footnote 3). Until rendered ineffective by section 1(1) of the UK Arbitration Act 1979, section 21(1) of the UK Arbitration Act 1950 provided that “An arbitrator or umpire may, and shall if so directed by the High Court, state - Arbitration Act provided that “the High Court shall not have jurisdiction to set aside or remit an award on an arbitration agreement on the ground of errors of fact or law on the face of the award”. When the UK Arbitration Act 1950 was repealed, section 81(2) of the UK Arbitration 1996 affirmed that “Nothing in this Act shall be construed as reviving any jurisdiction of the Court to set aside or remit an award on the ground of errors of fact or law on 67 the face of the award”. There is an equipollent provision in Singapore, Australia, and Canada.

Section 81(2) of the UK Arbitration Act 1996 ousted the jurisdiction of the court “to set aside or remit an award on the ground of errors of fact or law on the face of the award”. In the United Kingdom, “appeal to the court on a question of law arising out of an award made in the proceedings” (section 69(1) of the UK Arbitration Act 1996) could not be allowed on the ground of errors of fact or law on the face of the award.

AA 2005 is devoid of a provision in the words of section 81(2) of the UK Arbitration Act 1996. But AA 2005 is nonetheless clear that “No court shall intervene in matters governed by this Act, except where so provided in this Act”. Pertinent to “where so provided in this Act”, AA 2005 provides for court intervention in the matters stated in sections 10, 11, 13(7), 15(3), 18(8), 29, 37, 41, 42, 44(1), 44(4), 45, and 46 of AA 2005. “Where a party seeks intervention is one of those situations, the court is permitted to intervene only in the manner prescribed by the model law, and in the absence of any express provision the court must not intervene at all. By contrast, where the situation is not of a type to which the model law is addressed, the court may intervene or decline to intervene in accordance with the provisions of the relevant domestic arbitration law” (A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary by Howard M. Holtzmann & Joseph E. Neuhaus, 68 published 1994 at 224). Accordingly, section 8 “would … not exclude court intervention in any matter not regulated by [AA 2005]” (The Arbitration Act 2005 supra at 8.17); matters which are not governed by the Model Law include the following areas: the inherent jurisdiction in the court to grant an injunction to stay arbitral proceedings; and the whole topic of confidentiality of arbitral proceedings (for a non-exhaustive list of matters not governed by the Model Law, see A Guide to the UNCITRAL Model Law on International Commercial Arbitration supra at 218).

But “ … in situations expressly regulated by the Act, the courts should only intervene where so provided in the Act … ” (L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte [2012] SGCA 57 per Sundaresh Menon JA, as he then was, delivering the judgment of the court). Since the setting aside of an award is a matter governed by AA 2005, the court is permitted to set aside an award only in manner prescribed by AA 2005. The court is not permitted to set aside an award in manner not prescribed by AA 2005, there is no jurisdiction to set aside an award on the ground of ‘error of fact or law on the face of the award’. It is accepted that under AA 1952, the jurisdiction for court intervention stemmed from both common law and statute. But under AA 2005, “the common law ground of setting aside an award for ‘error on 69 the face of the award’ no longer exists” [The Arbitration Act supra at 8.23(b)]. General Reference and specific reference 116. With the common law jurisdiction of setting aside an award for ‘error on the face of the award’ gone, the distinction between a general reference and a specific reference, though pertinent under AA 1952 (see The Government of India v Cairn Energy at [29] and [33]), is not relevant. Test under section 42 117. Under section 42(1), any party may refer to the High Court “any question of law arising out of an award”. And under section 42(1A), “The High Court shall dismiss a reference made under subsection (1) unless the question of law substantially affects the rights of one or more of the parties”. The question of law must not only arise out of the award, but must substantially affect the rights of one or more of the parties. Short of one and the reference shall be dismissed.

An award might or might not be perverse, unconscionable, unreasonable, and the like. But it only matters whether there is a question of law arising out of the award that substantially affects the rights of one or more of the parties. Under section 42, that is the only ground for the court to intervene. Perverse, unconscionable, unreasonable, and the like 70 are not tests for the setting aside of an award. The so-called guidelines (g) “This jurisdiction under s. 42 is not to be lightly exercised, and should be exercised only in clear and exceptional cases”; (h) “Nevertheless, the court should intervene if the award is manifestly unlawful and unconscionable”; and (j) “While the findings of facts and the application of legal principles by the arbitral tribunal may be wrong (in instances of findings of mixed fact and law), the court should not intervene unless the decision is perverse”, stated in Perwira Bintang are not in line with section 42 and should not be followed. ‘Question of law’

There is no local authority on what is a ‘question of law’ in the context of section 42. Foreign authorities are at hand. But before we delve into those foreign authorities, we should first underscore that in Singapore, United Kingdom, Australia, New Zealand, and Canada, an appeal on a question of law arising out of an award could not be brought except with the agreement of the parties to the proceedings, or with leave of the court.

In the United Kingdom, an appeal on a question of law arising out of an award made in the proceedings “shall not be brought except (a) with the agreement of all the other parties to the proceedings, or (b) with the leave of the court” (section 69(2) of the UK Arbitration Act 1996). The right to appeal is also subject to the restrictions in section 70(2) and (3) of the UK Arbitration Act 71

The position in Singapore, Australia, New Zealand and Canada is no different. A party may appeal to the court on a question of law arising out of an award only with the agreement of the parties to the proceedings or with leave of the court (see section 49(1) and (3) of the Singapore Arbitration Act 2001; section 34A(1) of the uniform Commercial Arbitration Acts of New South Wales, Queensland, South Australia, Tasmania, Victoria, West Australia, Australian Capital Territory; clause 5(1) of