Huawei Technologies (Malaysia) Sdn Bhd v Maxbury Communications Sdn Bhd (W-02(NCVC)(A)-776-04/2017)

(a) A sum of RM1.2 million to be paid after the Settlement Agreement being signed; and

(b) The balance sum of RM2.14 million to be recouped and recovered through the subsequent award of contract for planning and design works pursuant to the Settlement Agreement. [17] Maxbury pointed to clause 4 of the Settlement Agreement in support of its contention that there was a representation that Maxbury would be entitled to a further RM2.14 million. For ease of reference, clause 4 of the settlement agreement is set out below: “4. In consideration of the term of settlement in this Settlement Agreement, in particular as set out in clause 2, Maxbury agrees as follows:

(i) Maxbury shall offer services for planning and design of fiber optic cable network to Huawei in the Asia Pacific region for work of up to Ringgit Malaysia Two Million One Hundred Forty Thousand (RM2,140,000) in value, which offer(s) shall be evaluated according to Huawei standard procurement process, and where accepted shall be subject to terms and conditions to be agreed between both parties;

(a) The terms of the Settlement Agreement did not impose any obligation or liability upon Huawei to pay Maxbury an additional RM2.14 million since pursuant to clause 2 and clause 3 of the Settlement Agreement, payment of RM1.2 million was in full and final settlement of all Huawei’s liabilities, payments and obligations;

(b) The additional RM2.14 million would only arise if Maxbury offered the services mentioned in clause 4(i) of the Settlement Agreement;

(c) There were no further services or projects offered by Maxbury at the material time;

(d) Even if there were, it would still be subject to approval from Huawei in accordance with its standard procurement process. 9 [19] The learned arbitrator Dato’ Kang Hwee Gee ruled that on a balance of probabilities, Maxbury failed to prove the alleged collateral agreement. The learned arbitrator held that by virtue of clause 3 of the Settlement Agreement, the Settlement Agreement settles all disputes pertaining to the Purchase Agreement. Therefore Maxbury’s claim for specific performance of the collateral agreement and compensation in lieu of the same was dismissed with costs. [20] The learned arbitrator stated that Maxbury’s claim was premised on the purported collateral agreement and it was not based in the alternative on clause 4 of the settlement agreement. In other words, Maxbury had failed to plead an alternative claim in breach of contract premised on the basis of clause 4. [21] Therefore he held that the arbitral tribunal had to be confined to the issue of whether the collateral agreement as pleaded existed. [22] Maxbury filed the present originating summons before the High Court seeking to set aside the arbitration award under section 37 and / or section 42 of the AA 2005. For ease of reference, section 37 of the AA 2005 is reproduced below: “s 37 Application for setting aside

(a) the party making the application provides proof that- ….

(b) the High Court finds that- 10

(i) the subject-matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia; or

(b) a breach of the rules of natural justice occurred-

(i) during the arbitral proceedings; or

(a) The award dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration within the meaning of section 37(1)(a)(iv) of the AA 2005 which made it liable to be set aside;

(b) The present case does not fall within the purview of section 37(3) of the AA 2005 and the only option is for the court to set aside the award in its entirety;

(c) Having regard to section 30(5) of the Limitation Act 1953, the period between 17 February 2015 (which was the date 11 of the stay granted in Suit No. 16) and the date of the High Court order setting aside the arbitration award is to be excluded for the purposes of computation of the limitation period. [25] Her Ladyship did not eludicate her reasons for so deciding. It appeared from the brief grounds of judgment that Her Ladyship’s decision was made because she disagreed with the defendant’s contentions and agreed with the plaintiff’s contentions. [26] Dissatisfied with the High Court decision, Huawei appealed. Parties’ Submissions before the Court of Appeal [27] Contrary to the finding by the learned arbitrator that clause 4 of the Settlement Agreement was not pleaded, Maxbury’s counsel pointed to all the references made to clause 4 in the statement of claim for Suit No. 16 and Maxbury’s submissions. Maxbury submitted that it had raised clause 4 of the Settlement Agreement and therefore the learned arbitrator was wrong to say that its claim was premised “entirely” on the allegation of a collateral agreement between the parties, the existence of which Maxbury had failed to prove. [28] Maxbury’s counsel claimed that an injustice had been done to it because the learned arbitrator stated that “the Settlement Agreement settles all the disputes encountered by the parties pertaining to the Purchase Agreement but left in its wake an entirely new one under clause 4.” He contended that this finding left Maxbury “in the lurch” and “in the state of uncertainty” as to its position under the Settlement Agreement. He also raised his 12 dissatisfaction that having expended much resources on the arbitration proceedings, Maxbury did not get an answer to the issue of whether there was a breach of clause 4 despite the fact that this issue “was in play or in the arena in the proceeding”. Maxbury is further prejudiced by the possibility of Huawei raising the bar of res judicata in resisting other litigation or arbitration proceedings premised on the same issue. [29] Huawei argued that if Maxbury intended to plead an alternative cause of action premised on clause 4, it had to plead the particulars of the breach under clause 4 in clear terms, independently of the facts which it relied on to support its claim under the collateral agreement. Huawei submitted as Maxbury failed to do so, the learned arbitrator had not erred in his decision. Assistance from amicus curiae [30] We sought assistance from amicus curiae, largely by reason of the fact that, with respect, the submissions before us did not comprehensively consider or deal with the correct test or approach to be adopted when considering the setting aside of an arbitration award under section 37 (as well as the now repealed section 42) of the AA

It is trite that an application to set aside an award is NOT an appeal and an approach akin to that utilised in an appeal is fundamentally erroneous. [31] The relevant issue before us was whether the High Court had arrived at a correct decision in determining that the arbitrator had dealt with a dispute not contemplated by or not falling within the terms of 13 the submission to arbitration within the meaning of section 37(1)(a)(iv) of the AA 2005. We required assistance from amicus curiae on the approach to be adopted in relation to determining whether a particular dispute did fall within or outside of the scope of arbitration. While the generally accepted test is that of a ‘new difference’ we wanted further elucidation on this aspect. The submissions from the parties did not address this issue sufficiently or at all. If in fact Maxbury’s complaint is studied, the complaint is that the learned Judge failed to consider an issue that he ought to have, and that was material and before him. Such a complaint is directly at odds with section 37(1)(iv)(a) which contemplates a situation where the arbitrator goes outside of the scope of matters falling for consideration in the arbitration, where the arbitrator strays from the purview of the dispute before him. In the instant case the essence of the complaint is the reverse. [32] The other matter of concern to us was the use of section 37 to procure an examination of the award on its merits, which is barred and runs contrary to the underlying object of AA 2005. Again we required assistance from amicus curiae as there was insufficient material in the submissions to assist us. [33] We are grateful to amicus curiae for the following elucidation of section 37 of the AA 2005: 1) The various limbs under sections 37(1) and (2) set out specific categories or pigeon holes by which an applicant can challenge an arbitration award. 14 These categories or pigeon holes limit the scope of enquiry in an application to set aside the arbitrator’s decision. 2) The categories for challenge under section 37 involve either pure questions of fact or questions of mixed law and fact. 3) The matters dealt with under section 37 fall into the following broad groups:

(i) The validity of the arbitration agreement;

37.85 The Canadian Supreme Court in Desputeaux v Editions Chouette

37.96 The House of Lords in Lesotho Highlands Development Authority v Impregilo SpA65 had to interpret section 68(2) of the English Arbitration Act 1996, that is whether the arbitral tribunal had exceeded its powers in expressing the award in a currency other than that stipulated in the contract and in the matter of award of interest.

37.97 The court made a distinction between:

37.98 The House of Lords held that the alleged errors, in that case, came under the first category. It reasoned that the ethics of the 17 English Arbitration Act 1996 was an entirely new approach as regards the need for judicial restraint. …..

37.109 Applications for setting aside purportedly founded on erroneous interpretations of law and fact do not fall within the purview of section 37(1)(a)(iv) and (v) of the AA 2005. The Singapore Court of Appeal in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA75 held that an arbitral tribunal, which erroneously declines jurisdiction, does not exceed its mandate in the meaning of Article 34(2)(a)(iii) of the UNCITRAL Model Law. The mere fact that the decision is wrong does not justify its setting aside under Article 34(2)(a)(iii). …..

37.111 However erroneous the reasons in the judgment may be, the courts have no jurisdiction to subsequently substitute its own interpretation of the law and facts.77 The Bombay High Court in India in Laxmi Mathur v Chief General Manager MTNL78 held that it was trite that the parties constituting the arbitral tribunal bind themselves to accept the award as final and conclusive. Thus, the award cannot be set aside on the grounds that it is erroneous, the scope of which is beyond the setting-aside provisions of the AA

________________________ 58 [2003] 1 SCR 178; 2003 SCC 17. 65 [2005] 3 WLR 129. 75 [2006] SGCA 41. 77 Francis Klein Pvt Ltd v Union of India (1995) 2 Arb LR 298. 78 (2000) (2) Arb LR 684 (Bom). …..” [39] It is therefore apparent that the fact that the arbitrator is accused of having failed to consider a material issue comprising an integral part of the dispute referred to arbitration does not form the basis for the contention that the arbitrator has exceeded 18 the scope of the dispute referred to him for arbitration. Conceptually that is not an available avenue for an applicant under section 37(1)(iv)(a) of the AA 2005. [40] In any event, from the content of the award referred to earlier, it is apparent that the learned arbitrator did indeed consider this issue in the context in which the dispute was put and pleaded before him. The claim, he found, was premised on clause 4 of the Settlement Agreement which provided no cause of action for the monies claimed by Maxbury. It is clear from the foregoing that the arbitrator complied with the terms of reference of the arbitration given to him. He answered the issue and gave his reasons for it. There was no question of the award dealing with a dispute that was not contemplated by or not falling within the terms of the submission to arbitration. To that extent, the decision making process of the arbitrator, which is the true subject of consideration under section 37(1)(iv)(a), cannot be faulted. [41] Shorn of its trimmings, Maxbury’s claim was really an attempt to have the court review its claim on the substantive merits relating to the existence or otherwise of a collateral agreement. That is not a basis for seeking to set aside an award under section 37(1)(a)(iv). Any error or perceived error in the adjudication of the dispute in the award cannot and ought not to be relied upon by the losing party to set aside the award. [42] It is a fallacy to label the failure to accept the existence of a collateral agreement, or even an incorrect application of the law by the arbitrator, as amounting to a transgression of the arbitrator, such 19 that it can be said that the award handed down deals with a dispute not contemplated by or not falling within the terms of submission to arbitration. Errors, such as those sought to be put forward by the applicants, even if they had merit, have no nexus with section 37(1)(a)(iv) which deals with the issue of jurisdiction and not errors of law. If at all they are errors of fact and/or law, they are errors committed within the scope of his jurisdiction or mandate. Indeed to hold otherwise would result in every award being subject to review, and in effect, appeal by the courts. That is precisely what the AA 2005 seeks to preclude. [43] In summary therefore, the alleged failure to address an issue referred to him, fails in two aspects. Firstly the learned arbitrator did in fact consider the issue, and for the reasons stated in his award, found that it fell outside the purview of the scope of reference to him. Therefore it cannot be said that he did not consider the issue. Secondly this application to set aside premised on section 37(1)(a)(iv) cannot and ought not be utilised to review an award on its merits. WHAT IS THE APPROACH TO BE ADPOTED BY THE COURTS WHEN DETERMINING THE SCOPE OF AN ARBITRATOR’S AUTHORITY? [44] When dealing with the scope of the arbitrator’s authority and thereby jurisdiction, it remains a useful reminder that the provisions for recognition and setting aside an arbitration award under our AA 2005 are premised on the UNCITRAL Model Law, which in turn is based on the New York Convention, more particularly Article V. The 20 grounds in our Model Law are relevant therefore to all international commercial arbitration. It follows therefore that arbitration awards ought not to be set aside lightly as is the position adopted in most other jurisdictions utilising or adopting the UNCITRAL Model Law. [45] In the text entitled ‘Transgression of the Arbitrators’ Authority: Article V(1)(c) of the New York Convention, the learned authors Mercedeh Azeredo da Silveira and Laurent Levy2 commented as follows at pages 668 – 669: “4.1.2. Examination of the Substance of the Award for the Sole Purpose of Determining Whether the Arbitrators Have Transgressed the Limits of Their Authority The fundamental rule according to which a court is prohibited from reviewing the substance of an arbitral award does not imply that the court before which enforcement is sought may not examine the award for the specific purpose of determining whether the arbitrators have exceeded the limits of their jurisdiction or their mandate. To determine whether, under Article V(1)(c) of the New York Convention, the arbitral tribunal has ruled on a difference not contemplated by the arbitration agreement or has awarded more than, or something different from, what was claimed, the court may have to look into the substance of the award. Such investigation is permitted to the extent that its purpose is limited to the determination of the scope of the arbitration agreement: ‘the court’s scrutiny of the award is strictly limited to ascertaining whether the award contains things which may give rise to a refusal of enforcement on [the ground] mentioned in Article V[(1)(c)]; it does not involve an evaluation by the court of the 93 Found at https://lk-k.com/wp-content/uploads/L%C3%A9vy-Transgression-of-the-Arbitrators%E2%80%99-Authority-Article-V1c-of-the-1958-New-York-Convention.pdf (accessed on 6.03.2019). Footnote 93 reads - van den Berg, The New York Arbitration Convention of 1958, supra note 2, at 271. [Note: note 2 of the text reads “….Albert Jan van den Berg, The New York Arbitration Convention of 1958: Towards a Uniform Judicial Interpretation 312, Kluwer (1981)”]. 21 arbitrator’s findings’93 and may not lead to a determination, by the national court, on such findings. Thus, the issue examined by the courts is not whether the decision reached by the arbitral tribunal is well-founded or even how the arbitral tribunal has reached its decisions, but merely whether this decision transgresses the scope of the arbitrators’ jurisdiction or mandate. In other words, the court must limit its investigations to what is strictly necessary for the interpretation of the scope of the arbitration agreement and the arbitrators’ mandate.” [46] Although the above passage relates to enforcement of the arbitral award rather than setting aside, the principle stated is still relevant to the present case because the passage relates to the rule to be applied when determining the scope or ambit of the arbitrators’ authority. The learned authors make it clear that the court should look not at the merits of the award, but instead consider whether the arbitrator had exceeded the scope of the mandate referred to them. This issue of exceeding the scope of the mandate goes to the issue of jurisdiction. [47] We have read the pleadings and the award and it appears to us that the learned Judge erred in her approach and her application of section 37(1)(a)(iv). In such an application, it is our view that the court should undertake a scrutiny of the reference to arbitration and other relevant documents (in this case the pleadings are relevant) to ascertain whether the arbitrator has gone well outside the scope of the subject matter of reference to arbitration. The court should not however usurp the position of the arbitrator in determining the merits of the dispute. In other words it ought to be patently clear on such a scrutiny that the dispute falls outside the scope of the submission warranting the intervention of the court. 22 [48] As we understand the award, the learned arbitrator cannot be said to have failed or refused to consider a matter referred to him for determination. He has considered clause 4 and determined that it did not afford a cause of action as there were no particulars of the alleged breach. In short, he concluded that that cause of action had not been made out. In our view, it cannot be said that this amounts to a ‘new difference’ or “a dispute not contemplated or not falling within the terms of submission to arbitration”. CONCLUSION [49] There appears to be no factual basis for the complaint under section 37(2)(b) namely a breach of natural justice. We are therefore not persuaded that the threshold requirements for this section have been met. Therefore the appeal is allowed with costs. Costs of RM24,000-00 here and below to the Appellant subject to allocatur. The deposit is refunded. Nallini Pathmanathan Judge Court of Appeal Malaysia Dated : 14.3.2019 Signed 23 For the Appellant : K.F. Eee Tetuan K.F.Ee & Co Peguambela & Peguamcara N-1-2 Pusat Perdagangan Kuchai Jalan 1/127 Off Jalan Kuchai Lama 58200 Kuala Lumpur For the Respondent : Dato’ Lee Chan Leong (Siew Ee Mei with him) Tetuan Chan Leong & Co Peguambela & Peguamcara No. 304B Jalan Anggerik Vanilla N31/N Kota Kemuning Seksyen 31 40460 Shah Alam Selangor Darul Ehsan Amicus curiae : Nahendran Navaratnam (R Jayasingam & Wong Wye Wah with him) Navaratnam Chambers Mont Kiara 60000 Kuala Lumpur