First, an application made under section 37(1)(a)(v) and 37(2)(b) of the Arbitration Act 2005 (“Act”) in that the learned Arbitrator had breached the rules of natural justice and/or had exceeded his jurisdiction (“Section 37 Application”) which challenges the Loss of Profit Ruling; and 2. Secondly, an application made under section 42 of the Act which challenges all 3 Rulings on the ground that the learned Arbitrator had committed errors of law (“Section 42 Application”). [9] The principal relief applied for by the Main Contractor is to vary the Award to the extent that the Termination Ruling be reversed resulting in the Termination being held to be lawful and as a consequence that the claims of the Subcontractor be dismissed and the counterclaims of the Main Contractor be allowed. Other alternative reliefs are possible by virtue of section 42(4) of the Act. [10] The Subcontractor by another Originating Summons has applied for the Award to be enforced. The parties shall be referred to as Plaintiff 7 and Defendant in the Setting Aside OS or as Main Contractor and Subcontractor respectively. Where reference is made to the parties at the Arbitration the Claimant is the Subcontractor and the Respondent the Main Contractor. [11] Both parties agreed that both the OS shall be heard together as the result of the Setting Aside OS shall correspondingly affect the Enforcement OS. Principles [12] Under section 36(1) of the Act, an arbitral award is final and binding on the parties. Consistent with the Model Law, our Courts have taken a minimalist intervention approach to arbitral awards under the Act. [13] This has been reiterated in several appellate decisions (a) in the Kerajaan Malaysia v Perwira Bintang Holdings Sdn Bhd [2015] 6 MLJ 126 case - decision of Mohd Ariff Yusof JCA (b) in the case of Awangku Dewa bin Pgn Momin & Ors v Superintendent of Lands and Surveys, Limbang Division [2015] 3 MLJ 161 ; (c) in the case of Cairn Energy India Pty Ltd & Anor v The Government of India [2009] 6 MLJ 795 ; (d) the decision of Varghese George JCA in the case of Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 CLJ 218. 8 [14] This is underscored by section 8 of the Act (amended in July 2011) with the proviso “except so provided by this Act” and by section 42 (1A) of the Act (introduced in July 2011) which qualifies intervention on a question of law with reference to the expression “shall dismiss” unless the question of law “substantially affects the rights”. [15] The limited intervention is only for curing a perverse or corrupt finding basically under two broad grounds namely (a) challenges on serious grounds of the likes of jurisdiction, public policy and breach of rule of natural justice within the framework of section 37 of the Act and [16] As parties had agreed that disputes be determined through arbitration, the Act does not permit the court to engage on the facts as the same belong to the parties’ contracted forum, namely the arbitral tribunal. By way of example reference is made to the case of Geogas S.A v Trammo Gas Ltd.; The Baleares [1993] 1 LLR 215 (The “Baleares”) where the English Court of Appeal through Steyn LJ stated “[t] the arbitrators are the masters of the facts” and there is a need for the Court to be constantly vigilant to ensure that attempts to question or qualify the arbitrator’s findings of fact, or to dress up questions of fact on question of law are carefully identified and firmly discouraged”. 9 [17] The dictum in The Baleares has been embraced by our Courts in for instance, the decision in the High Court (Nallini, J, now JCA) in the case of Exceljade Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2013] 1 LNS 1470, the decision of the Court of Appeal in the case of Brunsfield Project Management Sdn Bhd v Igeniur Bersekutu Consulting Engineers (W-02(C)(A)-1786-10/2014). Even drawing different reasonable inferences of fact from that of the Arbitrator is prohibited. In the case of Geogas S.A. v Trammo Gas Ltd.; The Baleares [1993] 1 LLR 215; the English Court of Appeal (Steyn LJ) was also mindful of attempts by an unsuccessful party to invite the Court, in an oblique way, to challenge the facts by suggesting that a court could engage in some form or another on the facts to “draw reasonable inferences from the arbitrator’s findings of fact”. [18] In a section 42 application there must be not a hint of any reference or reliance to disputed facts. As held by our Court of Appeal (Mohd Hishamudin JCA) in the case of Awangku Dewa bin Pgn Momin & Ors v Superintendent of Lands and Surveys, Limbang Division [2015] 3 MLJ 161: “... there should not be any suggestion in the affidavits of parties … of facts being disputed or of any disagreement on the part of the applicants/appellants with the evaluation of the evidence by the arbitrator”. 10 [19] Even when a limited challenge of an Award is allowed through a question of law posed under section 42 there is the strict requirement to be fulfilled in that the answer to the question referred must substantially affects the rights of one or more of the parties as contained in section 42(1A). [20] As legal ingenuity and innovativeness know no bounds, the Court “must always be” vigilant to ensure section 42 is not utilized “as a backdoor avenue for appealing against the decision of an arbitral tribunal” and “must summarily dismiss … without even attempting to answer the ‘question of law’ posed” (see the case of Awangku Dewa bin Pgn Momin & Ors v Superintendent of Lands and Surveys, Limbang Division [2015] 3 MLJ 161. [21] In the Court of Appeal in the case of Kerajaan Malaysia v Perwira Bintang Holdings Sdn Bhd [2015] 6 MLJ 126 at paras. 57(e) and 57 (g) it was stated that the question of law must be a legitimate question of law and the jurisdiction under section 42 is “not to be likely exercised and should be exercised in clear and exceptional cases” A Court will not entertain a challenge of an award under section 42 when the very legal issue has been specifically referred to an arbitral tribunal, for example a dispute specifically calling for an interpretation of a contract. Such questions of law are not considered by the courts as 11 legitimate questions of law to be revisited under section 42. See The Government of India v Cairn Energy India Pty Ltd & Anor [2012] 3 CLJ 423 (paras. 29-30); Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 CLJ 218 (paras. 26-33). [22] It is evident from the case of Exceljade (supra) such questions of law will only be entertained in limited circumstances. First, such questions cannot be entertained on the ground that the court may come to a different conclusion from that reached by the arbitral tribunal. Second, such questions will only be entertained if there is only one possible answer to the question. In other words, a question will only be entertained if the conclusion that the arbitral tribunal had come to on the question was one that no reasonable person, applying the test of reasonableness, could have reached the conclusion that the arbitral tribunal did. It has to be shown that the arbitral tribunal’s conclusion on the proposed question was necessarily inconsistent with the application of the right test. Whether the Termination Ruling was an Error of Law - The Section 42 Application in Questions 1 and 2 [23] Questions 1 and 2 of the section 42 Application read as follows: 12 Question 1: Whether Clause 12 of the Contract, read in its entirety and within the context of the Contract itself, allows physical progress of the Defendant to be applied as the contractual benchmark for termination? Question 2: Whether on a true construction of Clause 12 within the context of the Contract, 28% could have been applied as the financial progress of the Defendant at the time of termination? [24] The Termination Clause provides inter-alia as follows: “Iswarabena Sdn Bhd reserves the right to terminate this agreement by giving the Subcontractor fourteen (14) days prior written notice if the works is delay (sic) more than 20% financially” (emphasis added) [25] Learned counsel for the Plaintiff submitted that although the learned Arbitrator had correctly interpreted clause 12 in the sense that the Delay Threshold justifying Termination must be based on financial delay, he had committed errors of law by misapplying this legal test to the facts arising out of his misunderstanding of this legal test and applying the wrong law to the facts and arriving at his conclusion which is perverse and/or unsupported by any evidence. The learned Arbitrator had instead applied the physical delay test. 13 [26] In Telekom Malaysia Bhd v Eastcoast Technique (M) Sdn Bhd and another summons [2014] 11 MLJ 525, the Court adopted the test set out in Finelvet AG v Vinava Shipping Co Ltd, The Chrysalis, as the test to be applied to our section 42 application as follows: “[38] ... Starting therefore with the proposition that the court is concerned to decide on the hearing of the appeal whether the award can be shown to be wrong in law, how is this question to be tackled? In a case such as the present, the answer is to be found by dividing the arbitrator's process of reasoning into three stages: … Stage (2) of the process is the proper subject matter of an appeal under the Act of 1979. In some cases an error of law can be 14 demonstrated by studying the way in which the arbitrator has stated the law in his reasons. It is, however, also possible to infer an error of law in those cases where a correct application of the law to the facts would lead inevitably to one answer, whereas the arbitrator has arrived at another; and this can be so even if the arbitrator has stated the law in his reasons in a manner which appears to be correct, for the court is then driven to assume that he did not properly understand the principles which he had stated. Whether stage (3) can ever be the proper subject of an appeal, in those cases where the making of the decision does not follow automatically from the ascertainment of the facts and the law, is not a matter upon which it is necessary to express a view in the present case. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 and Kodros Shipping Corporation v Empresa Cubana de Fletes (No 2) [1983] 1 AC 736, show that where the issue is one of commercial frustration, the court will not intervene, save only to the extent that it will have to form its own view, in order to see whether the arbitrator's decision is out of conformity with the only correct answer or (as the case may be) lies outside the range of correct answers. 15 … [39] The foregoing to my mind succinctly and comprehensively sets out the test to be adopted by a court in applying s 42. … [40] I have set out in the material background facts the specific findings of the arbitrator in relation to undue influence. A perusal of the award, more particularly at p 12 to the first half of p 17 makes it clear that: Eastcoast had been able to show in evidence that specific terms in the six agreements were obtained by undue influence. However there is absolutely no evidence to support this bare finding. In other words, the conclusion appears to be arrived at with absolutely no evidence to support it; Sinnadurai's Law of Contract, there was no application or nor proper application of such law to the factual matrix of the case. Again after citing the law correctly, the arbitrator simply made a conclusion that as Eastcoast was a 16 bumiputra company operating under a programme to assist bumiputras, it was 'at the mercy' of Telekom 'in respect of any bargaining power'. This, to my mind amounts to an erroneous application of the law to the bare facts of the identity of Eastcoast and Telekom. Put another way, the fact that Eastcoast is a bumiputra company under the EDP programme and Telekom is a government linked company does not in itself warrant a conclusion law that undue influence is thereby established. This, as stated in Finelvet AG v Vinava Shipping Co Ltd, The Chrysalis, amounts to an error of law because the arbitrator, while stating the law correctly has misapplied the same or misunderstood the law. If the arbitrator had applied the law correctly the only answer he could plausibly have arrived at would have been that undue influence did not arise as a consequence of the relationship between the parties. Neither was there any evidence of dominance of will to enable an application of the principles of law relating to undue influence;” (emphasis added) 17 [27] Telekom’s case (supra) at page 536 also states that a perverse decision will amount to an error of law for the purposes of a section 42 application in that: “It is, however, also possible to infer an error of law in those cases where a correct application of the law to the facts would lead inevitably to one answer, whereas the arbitrator has arrived at another; and this can be so even if the arbitrator has stated the law in his reasons in a manner which appears to be correct, for the court is then driven to assume that he did not properly understand the principles which he had stated. ... The court will not intervene, save only to the extent that it will have to form its own view, in order to see whether the arbitrator's decision is out of conformity with the only correct answer or (as the case may be) lies outside the range of correct answers.” (emphasis added) [28] The learned Arbitrator found (and the Main Contractor accepts) that the Threshold Delay is calculated by way of the following formula: % of Scheduled Financial progress - % Actual Financial progress = Threshold Delay 18 [29] What the Main Contractor disputes is the learned Arbitrator’s finding at paragraph 80 and 92 of the Award that the Actual Financial Progress was in fact 28% when Termination occurred. [30] Learned counsel for the Plaintiff submitted that the error of law relied upon in respect of this finding is as follows: When the test under the Termination clause is applied properly i.e. using financial delay as the proper basis, there is only one inevitable answer that can be arrived at when calculating the Actual Financial Progress as at the date of Termination and that figure is 9%. Learned counsel was however prepared to accept the Subcontractor's pleaded financial progress of 11.37%. The learned Arbitrator's decision that this figure should be 28% instead is perverse. [31] The calculation of financial delay is a mathematical calculation yielding only one objective answer. Financial delay as at Termination is calculated using the following formula: Quantity of work done on Termination date x BQ rates/Subcontract Sum (expressed as a percentage %) 19 [32] As can be seen from this formula, the only uncertain variable is Quantity of work done on Termination date; the BQ rates and Subcontract Sum being stated in the Subcontract. [33] The Quantities of work done as at the date of Termination cannot be disputed since the parties conducted a joint measurement and jointly signed a measurement sheet with Agreed Quantities. Based on the Agreed Quantities the Actual Financial progress as at 12.4.2012 i.e. the date of Termination is only 9%. I agree with learned counsel for the Plaintiff that "This is simple mathematics, leading to only one inevitable conclusion and cannot be disputed." According to this indisputable figure the Delayed Threshold of 20% has been reached and the Termination must be valid. [34] How then did the learned Arbitrator come to the finding that the Actual Financial progress is 28% as contained in the table found at paragraph 80 of the Award? In unraveling this mystery, learned counsel for the Plaintiff found the source of the error to be the following: According to paragraph 80 of the Award, these figures (including those as at 31.3.2012 and 30.4.2012 being the relevant ones for the purposes of the Termination) are extracted and calculated from the Main Contractors progress reports submitted to the Owner. 20 [35] However, the figures used by the learned Arbitrator from these reports refer to physical progress and NOT financial progress. This is expressly and specifically stated to be so in the reports themselves. [36] Clearly, the learned Arbitrator took figures expressly stated to be in respect of physical progress of works between the Main Contractor and the Employer and then confused them to be financial progress at paragraph 80 of his Award, and then fit them into the terms of the Termination Clause to arrive at the conclusion that the Termination was wrongful as financial delay had not reached 20%. This is bizarre and amounts to an error of law producing the opposite effect flowing from what was held to be an unlawful termination of the Subcontract. The wrong premise that the learned Arbitrator proceeded from had led to the perverse conclusion as can be seen from paragraphs 80-82 of the Award set out below: Date of Meeting Scheduled Financial progress, % Actual Financial progress, % Delay in Financial progress, % Comments 31.10.2011 1.72 3.29 +1.57 CBD8/255 30.11.2011 2.84 8.35 +5.51 CBD8/323 31.1.2012 18.12 19.15 +1.04 CBD8/485 29.2.2013 27.70 27.20 -0.5 CBD2/42 21 31.3.2012 35.02 27.90 -7.0 CBD2/46 30.4.2012 47.49 28.48 -19.0 CBD9/708 "The Claimant is understandably livid with the Respondent’s records showing its progress of work deteriorated from 1.05% delay on 14.3.2012 to a massive 73.6% delay, within a period of some three weeks. In fact, a reference to the report of progress of drainage work made by the Respondent in the Main contract to the Employer showed the inconsistency of the computation of the progress of the drainage work in the main and the subcontract. The main contractor’s reported financial progress of drainage work computed from the main contract minutes of meeting endorsed by the Respondent’s Project Manager 1, the Resident Engineer and the Opus construction manage are: The glaring inconsistency between the Respondent’s allegation of a massive delay of 52% in March 2012 was reported to the Employer as a mere 7.0% delay. This assertion is clearly wrong because the Respondent reported to the Employer that by the end of March the drainage work was delayed 7.0%. Even by end of April 2012 (the subcontract was terminated on 12.4.2012) the drainage work 22 was only delayed by 19.0% in financial progress term. It is therefore, preposterous for the Respondent to allege on 26 March 2012 that the Claimant’s drainage work has been delayed by 52%. It must be noted that the Respondent had subcontracted the entire drainage work for this main contract to the Claimant, hence the progress of work reported in the main contract progress report is that entirely that of the Claimant’s work and nobody else’s. The inconsistent computation of delay in financial progress reported in the main contract progress of work report and the subcontract technical meeting is of a great cause of concern to the Claimant. It is a settled law that the court will construe any forfeiture clause strictly with the full rigor of the contra preferentum rule. And Clause 12 is obviously a forfeiture clause..." (emphasis added) [37] I agree with the inevitable conclusion of learned counsel for the Plaintiff that the decision of the learned Arbitrator was perverse especially taking into account that there can only be one undisputable and mathematically calculated financial progress i.e. 9% or that pleaded by the Subcontractor which is 11.37%. 23 [38] The learned Arbitrator seemed to have been influenced by other erroneous and extraneous considerations. The learned Arbitrator tried to justify his conclusion by referring to the figure of 26% of financial progress stated in the notice of termination but he must have forgotten that this was actually corrected in writing a week later to reflect physical completion instead of financial completion. [39] The learned Arbitrator, at paragraph 78 of the Award, also referred to the inconsistencies of work progress stated in the minutes of meetings. But when one looks at these minutes there is no indication whether the progress was measured physically or financially. Moreover even the learned Arbitrator accepted, at paragraphs 55, 59, 77 and 78 of the Award, that these discrepancies arose as a result of using original or revised work programmes due to the Subcontractors application for 162 days of extensions of time where 42 days were granted. [40] One must ask why is there such a large discrepancy between physical progress (28%) and financial progress (11.37%) as at the date of Termination? The explanation was actually provided by the Subcontractor himself. According to the Subcontractor there are errors in the BQ in that the rates in the Subcontract BQ (which were filled in by the Subcontractor) were deliberately low and that Subcontract BQ quantities are higher than the as-built quantities. If the BQ quantities are 24 higher than as-built quantities than physical progress will always be higher than financial progress. In fact this was the stand taken by the Subcontractor which was actually reflected in the Award. See: Award at paragraphs 110 and 145. [41] The mystery that manifested itself lies in the misreading by the learned Arbitrator in relying on progress reports reporting physical progress of 28% as if the figure of 28% represented financial progress instead. The learned Arbitrator appeared to have misapplied the contra preferentum rule. This will amount to an error of law since this rule is meant to be used to interpret ambiguous contracts and not facts. There is nothing ambiguous about the Delayed Threshold before the termination clause may be activated by the Main Contractor. [42] The learned Arbitrator purported to use the contra preferentum rule to interpret clause 12. This is totally misplaced considering that (a) clause 12 which is the Termination Clause is clear and (b) the interpretation of clause 12 was not even disputed by the parties who accepted that the Delay Threshold is based on Financial Delay and not Physical Delay. The only dispute was regarding the percentage of financial delay and not whether financial delay applied to clause 12. [43] At the end of paragraph 82, the learned Arbitrator after discussing this rule at length began to discuss the facts. He mentioned the main 25 contract progress reports and in the same breath concluded that the figures therein refer to financial delay when these reports expressly refer to its figures as representing physical delay. I agree with learned counsel for the Plaintiff that in applying the contra preferentum rule to come to the factual conclusion that the 28% mentioned in the progress reports is in fact financial delay when reported to be physical delay is a gross misapplication of the law. [44] Learned counsel for the Subcontractor argued that it is the learned Arbitrator's finding of fact that the Subcontract had been validly terminated when he found at paragraph 93 of the Award as follows: “Taking all the above reason (sic) (we have underscored) into consideration, I cannot but conclude that all evidence lean towards an incorrect exercise of the right of termination provided in Clause [45] It was a finding of fact arrived at not based on Clause 12 which the learned Arbitrator correctly stated but based instead on a disparity in the physical progress of 20% instead of financial progress. The learned Arbitrator cannot rewrite the terms of the Subcontract where Clause 12 is concerned in spite of his misgivings. He must apply Clause 12 as it is worded and not as he would like it to be worded. The learned Arbitrator 26 was on spot when he made the following observation of Clause 12: “this clause included a definite threshold of delay in progress of work exceeding 20% in financial term before the right to terminate accrues …” (emphasis added) [46] However the learned Arbitrator ventured to find ambiguity when there was none. He appeared to be perturbed by the input parameters necessary to compute the financial progress. He listed in paragraph 88 of his Award the following: "...For example, the appropriate work programme to be used in the computation, the EOT the Claimant is entitled to receive at any point in time particularly before the notice of intention to terminate, the appropriate method of computation of the financial progress etc...." [47] To resolve the ambiguity he invoked the contra proferentum rule and found as follows: “...There is no dispute that Clause 12 was drafted and inserted into the subcontract by the Respondent. It is settled law that in the event of ambiguity in the terms of contract drafted and inserted by the Respondent, the ambiguous term must be construed strictly 27 against the party who had drafted it and who now wish to rely on it to its advantage” (para. 89). [48] The Arbitrator found at paragraph 89 of his Award as follows: “...According to the rules of contra proferentum, the ambiguity in Clause 12, as to the correct work programme to be used in the computation of work progress must be construed in favour of the Claimants’ interpretation that the latest work programme incorporating all EOTs right up to the date in question should be used.” (page 45-46 of Award). [49] Under the Subcontract it is the Subcontractor who is to furnish the Work Programme and it was not an issue before the Arbitrator that the proper Work Programme had not been furnished. The complaint of the Subcontractor was that they should have been given the EOT applied for because there was delay in giving them the site possession necessary for them to commence the Drainage Works. [50] The learned Arbitrator was of the view that the Main Contractor was the self-certifier and that the Main Contractor “... is not entitled to rely on his own position as the main contractor to certify the subcontractor’s default without giving due consideration to the Claimant’s plead of not been given access to the site. By so doing, the 28 Respondent has assumed a greater power than even a Court has in an application for summary judgment where arguable defence is raised before its decision to terminate the subcontractor." (paragraph 87 of Award) [51] The learned Arbitrator appeared to have contradicted himself here as he had earlier held in paragraph 64 that the delay was not caused by the Main Contractor's agent but by an independent contractor. This has not been challenged in a reference under section 42 of the Act and this matter must be deemed res. In fact he described this issue as a major issue raised by the Subcontractor and likened it to the “Elephant in the Room”. The learned Arbitrator expressly decided in favour of the Main Contractor at paragraphs 74 and 75 of the Award where the Arbitrator held as follows: “I find and hold that the prevention principle would not operate against the Respondent because of any delay by the earthwork subcontractor to hand over sites for drainage work. The Claimant has neither demonstrated that the contract has no provision for extension of time nor that the delay to the drainage works was caused by the employer or its agents”. [52] In so finding, the Arbitrator must also have at least impliedly agreed that the Subcontractor cannot be entitled to 162 days EOT 29 applied for based on lack of possession of site. The learned Arbitrator cannot then make a round-about turn to then hold that the delay in site possession was the cause of the delay and hence taking a leap of logic that the termination was unlawful. [53] In coming to the “Scheduled Financial progress %” as at 31.3.2012, the Arbitrator had used the figure of 35.02% which is in fact the exact figure put forward by the Subcontractor as stated in his work program on the basis that he is entitled to EOT of 162 days (see PCB Vol 2/page 4 – 9 at page 9). [54] I agree with learned counsel for the Plaintiff that the figure of 35.02% is a very generous figure since, according to the Subcontractor, it is based on the assumption of EOT entitlement of 162 days (which the Arbitrator already held in paragraph 75 of the Award to be unjustified). The alternative figures put forward by the Main Contractor of 46.15% based on an assumed EOT of 162 days and 77.91% based on the actual EOT granted of 46 days (see Vol 3 of supporting affidavit at page 920) was obviously rejected by the Arbitrator. [55] In any event the Main Contractor is not challenging this figure of 35.02% being the “scheduled financial progress” although it is generous in favour of the Subcontractor and it is taking the position that there are good grounds for such challenge. 30 [56] The figure being questioned is the “actual financial progress” where the mathematically unchallengeable figure based on agreed quantities as at the date of termination, contractual rates and the contract sum is 9% based on PCB tab 5A derived by dividing RM1,183,301.36 by RM13,300.000 and multiplying by 100%. However the Main Contractor was agreeable to be bound by the Subcontractor's pleaded figure of 11.37% since both figures will lead to rightful termination as follows: Date of Meeting 31.3.2012 31.3.2012 3.3.2012 % Scheduled Financial progress (Using the figure supplied by the