Kasugi Prima Sdn Bhd v Cobrain Holdings Sdn Bhd (WA-24C(ARB)-46-10/2022)

Originating Summons No. WA-24C(ARB)-40-09/2022 (OS 40) is an application by Cobrain Holdings Sdn Bhd (“Cobrain”) to inter alia enforce the Final Award dated 26.8.2022 (Award) together with the Correction to the Final Award No.1 dated 26.8.2022 (“Correction 1”) and the Correction to the Final Award No.2 dated 9.9.2022 (“Correction 2”) awarded in its favour by the Learned Arbitrator, Ar. Menaha Ramanath (“Arbitrator”) as a judgement of the High Court pursuant to proceedings initiated under section 38 of the Arbitration Act 2005 by Cobrain against Kasugi Prima Sdn Bhd (“Kasugi”).

In support of OS 40, Cobrain claims as follows: -

(i)

(ii) A Final Award was published by the Arbitrator Ar. Menaha Ramanath on 22 Ogos 2022.

(iii)

(iv) No payment has been made by the Defendant in relation to the sums awarded under the Final Award.

Alternatively, Originating Summons No. WA-24C(ARB)-46-10/2022 (OS 46) is an application by Kasugi to set aside the Award and Correction 1 and Correction 2 pursuant to section 37 and 50 of the Arbitration Act 2005.

Amongst the grounds in support of OS 46 are: -

The Learned Arbitrator wrongfully and/or prematurely invoked a power which was not conferred upon the Learned Arbitrator;

(ii) The Learned Arbitrator failed to provide parties with a fair and reasonable opportunity to present their cases; and/or

(iii) The Learned Arbitrator failed to expressly determine and/or consider issues which were specifically submitted by the parties.

In light of the prayers in both OS 40 and OS 46 being inter connected, both matters were heard together with the consent of the learned counsels acting for the respective parties, as the decision in OS 46 will eventually decide the outcome of OS 40.

By way of a main contract, one Rakyat Hartanah Sdn Bhd (Bank Rakyat)(“Employer”) had appointed Kasugi as the main contractor in respect of a project known as “Design, Construction and Completion of 2 Office Towers 32 & 38 Storeys, 1 Block of 8 Storey Annexe Comprises of Car parks, Convention / Banquet Hall 1 Basement Car Parks and 1 Unit PPU on Lot 2, 48, 49, 51, 59 and 60, Section 95, Jalan Travers, Kuala Lumpur For Bank Kerjasama Rakyat Malaysia Berhad” (“Main Contract” or “Project”).

Cobrain was subsequently appointed by Kasugi as a sub-contractor to carry out mechanical and electrical works in respect of the Project under terms of the Letter of Award dated 11.1.2010 Ref No.: KPSB/2007/BKRM/F.9&9.11.a-001 (“LOA”), Articles of Agreement from PAM Contract 2006 (Without Quantities) dated 27.12.2010 (“COC”) (collectively knows as the “Contract”). The Contract was for a fixed lump sum price of RM82,200,000.00 (“Contract Sum”).

Cobrain’s scope of works comprised of supply, delivery, installation, testing, commissioning and handling over of all mechanical and electrical works and all other necessary works which is deemed fit for the completion of the works (“M&E Works”).

9.

Notwithstanding that, Cobrain allegedly failed to complete the M&E Works as required under the Contract by 30.9.2013. On 28.10.2013, KPSB issued a Certificate of Non-Completion (“CNC”) to Cobrain. A Certificate of Practical Completion with conditions (“Conditional CPC”) was issued for the whole Project by the Employer to Kasugi, certifying that: -

9.1 the works were practically completed on 3.6.2014;

9.2 the vacant possession of the site was delivered on 4.6.2014; and 9.3 the defect liability period began from 4.6.2014 and will end on 3.6.2016 The excerpt of the Conditional CPC is produced as follows: - “In accordance with Clause 47 of the Conditions of Contract, I/We certify that subject to: i. The Employer Representatives’s Notice Invoking Clause 49 of the Conditions of Contract via the Employer Representative’s letter ref: RHSB/KaSugi/04-13 dated 18 October 2013; ii. The Contractor’s undertaking as contained in their letters ref: KPSB/2007/BKRM/B(S).2.a.2051 dated 29 May 2014; KPSB/2007/BKRM/B(S).2.a-2062 dated 2 June 2014; Completion of the making good of any outstanding items, or of any defects, shrinkages and other faults whatsoever as required under Clause 50 of the Conditions of Contract which may appear during the defects liability period.”

On 7.3.2016, a final CPC was issued by the Employer to Kasugi. Following therefrom, on 16.6.2016, Kasugi also issued a Cobrain in favour of CHSB under the Contract.

Disputes arose between the parties with regards to the Contract. In summary, the disputes between the parties are as follows: -

12.1 Kasugi’s position is that after taking into account the Variation Order approved, the back charges/set off amount (incurred due to Kasugi’s engagement of third party contractors to finish Cobrain’s uncompleted Works in accordance with the Contact and the rectification works carried out on behalf of Cobrain before and/or during the defect liability period) and also the liquidated and ascertained damages, Cobrain owes Kasugi a sum of RM6,367,876.15.

12.2 Cobrain’s position is that Kasugi is not entitle to claim/deduction under the variation order, backcharges / set off and the liquidated and ascertained damages and believes that the sum of RM8,665,079.95 is due and owing from Kasugi to Cobrain under the Contract.

Cobrain then commenced an adjudication proceeding against Kasugi pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) by way of Adjudication Reference No. KLRCA/D/ADJ-0907-2017 for the alleged outstanding amounts for M&E Works done (“Adjudication”). Consequently, the adjudicator issued adjudication decision dated 25.10.2017 (“Adjudication Decision”) awarding Cobrain, amongst others, RM5,477,387.23 and costs of RM102,689.00.

Thereafter, Kasugi referred the disputes pursuant to clause 34.5 of the COC to arbitration by commencing an arbitration proceeding against Cobrain (Arbitration”) by way of Notice of Arbitration dated

18.9.2017. Kasugi is the Claimant and Cobrain is the Respondent in the Arbitration.

In respect of the Adjudication Decision, parties had entered into a consent order dated 15.3.2018 (“Consent Order”) and agreed to, amongst others, the following terms: -

15.1 Kasugi to pay Cobrain a sum of RM1,500,000.00 on or before 29.3.2018; and 15.2 Kasugi to undertake that no dealings or further encumbrances is to be made on a specific property, or further liability on the property as security until the disposal of the Arbitration between the parties. Kasugi has alleged it has complied with the conditions of the Consent Order by paying Cobrain RM1,500,000.00 being part of the adjudicated sum, and providing Cobrain with a pledge of the property valued at RM7,000,000.00 as security for the balance adjudicated sums until the disposal of the Arbitration (ʺProperty Pledge”).

In respect of the Arbitration: -

16.1 Ar. Menaha Ramanath (“Learned Arbitrator”) was appointed as the sole arbitrator by the President of Pertubuhan Arkitek Malaysia (“PAM”) on 2.2.2018. The Learned Arbitrator accepted the appointment on 13.2.2018.

16.2 The Arbitration proceedings were conducted over a total of 24 hearing days from 18.4.2018 to 17.8.2021.

16.3 The Learned Arbitrator issued the Final Award dated 22.8.2022 with two subsequent Final Award Correction dated 26.8.2022 (Correction No. 1) and Final Award Correction dated 9.9.2022 (Correction No. 2) (collectively referred to as the “Final Award”).

16.4 In the Final Award, the Learned Arbitrator directed that Kasugi shall pay Cobrain the sum of RM7,485,867.56 (“Award Sum”) together with costs and interests. Findings of this Court

In essence Kasugi submits that the Arbitrator had committed the following breaches: -

17.1 the Arbitrator had wrongfully and prematurely revoked her powers pursuant to section 21(3)(b) of the Arbitration Act 2005

17.2 the Arbitrator had transgressed her duty by failing to provide the parties a fair and reasonable opportunity of presenting their cases

17.3 the Arbitrator had failed to expressly determine issues which were specifically submitted by the parties

I will take each argument of Kasugi above in delivering my grounds herein and will initially therefore consider the contention that the Arbitrator had wrongfully and prematurely revoked her powers pursuant to section 21(3)(b) of the Arbitration Act 2005 and had specifically referred to paragraph 4.49 (xiii) of the Award.

I have since had the opportunity to read the Award and find that paragraph 4.49 (xiii) of the Award refers to the heading ‘Reliability of Respondent’s expert witnesses’ which expressly states: “Considering all the facts and circumstances available to the Arbitrator for this Arbitration, para 4.50 (iii) and in accordance with clause 34.8 of the Conditions of Contract, I find and hold that due to the qualifications of the fact witnesses presented, the Project Director CW1 not able to remember, the Expert Witnesses CEW and REW2 having conflicting stand throughout and different qualifications, the Arbitrator has studied all the documents and decided based on section 21 (3) (b) of the Arbitration Act 2005”.

From the said paragraph 4.49 (xiii) of the Award, I have thus noted that the Arbitrator had invoked section 21 (3) (b) of the Arbitration Act 2005, which is the power conferred upon the arbitral tribunal draw on her own knowledge and expertise, after she had considered:

all the facts and circumstances available to her

clause 34.8 of the Conditions of Contract

the qualifications of the fact witnesses presented

that the Project Director CW1 not able to remember, the Expert Witnesses CEW and REW2 having conflicting stand throughout and different qualifications

all the documents before her.

Further I find, after reading Notes of Proceedings at the Tribunal, which can be seen in enclosure 50 of OS 46, that the matters referred to at paragraph 4.49 (xiii) of the Award are matters which were in fact raised by Kasugi for determination at the tribunal in that Kasugi had contended that Cobrain’s experts were not credible or independent and were biased and thus the Arbitrator was in fact determining this issue at the said paragraph 4.49 (xiii) of the Award. With respect, this does not mean that the Arbitrator had ignored the evidence or issues raised by the parties when the Arbitrator arrived at her decision.

From the facts before me, the Arbitrator is not a ‘lay arbitrator’ but an Arbitrator with certain expertise and experience being an Architect herself, and therefore the said Arbitrator was entitled to draw on her own expertise and knowledge to decide on the issue of the delay and reject the expert evidence before her pursuant to section 21(3)(b) of the Arbitration Act 2005 which provides: “(3) The power conferred upon the arbitral tribunal under subsection

shall include the power to:

draw on its own knowledge and expertise;”

The decision by the Arbitrator to draw on her own expertise and experience is also in my view fully acceptable when the facts before me show inter alia that: -

23.1 the parties had agreed, via Order for Directions no 20 Status of Documents dated 11.8.2020, stated ‘The Arbitrator will consider the facts drawn from the documents as verified by the respective parties expressed in the Contract Conditions, statutory regulations’ as seen in exhibit A9 of enclosure 60 in OS 46 23.2 Kasugi had agreed to the powers of the Arbitrator under section 21(3)(b) of the Arbitration Act 2005 as mentioned above

In further support of my above decision, I refer to the Federal Court decision of Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd and anor appeal [2021] 1 MLJ 1 where it was held: “[78] It is important to appreciate that a determination under s 21(3)(b) is one of fact and not of law. In form and spirit, the provision clearly allows the arbitral tribunal to draw on its own knowledge and expertise on any fact in issue which it is acquainted with. What the respondent was suggesting in effect was that there must be actual ‘evidence’ before the arbitral tribunal before it could draw on its own expertise and knowledge in arriving at such finding of fact. [79] It must also be appreciated that the power vested in the arbitral tribunal by s 21(3)(b) to ‘draw on its own knowledge and expertise’ is a power that is conferred by statute and not a power that is derived from some common law principles. But of course common law authorities where relevant provide useful guidance in interpreting the provision.”

Here it is worthy to note that Kasugi had also raised in relation to the same issue that section 21(3)(b) of the Arbitration Act 2005 can only be invoked if there is first a failure of the parties to agree on the procedure to be followed and that clause 37.3 of the Conditions of Contract had agreed on the use of the PAM Arbitration rules 2015 for the conduct of the Arbitration.

To this, it was brought to my attention by learned counsel of Cobrain that Kasugi had themselves in their written submissions at the Tribunal tried to convince the Arbitrator to exercise her powers under the said section 21(3)(b) of the Arbitration Act 2005 vis a vis their disagreement on the Part C Documents in the Tribunal; and having read the Award at enclosure 50, I agree that this was what had transpired at the Tribunal. Thus, I hold that the Arbitrator cannot be faulted for exercising her powers under section 21(3)(b) of the Arbitration Act 2005.

I must add that the powers of the Arbitrator must in the circumstances not be given a restrictive interpretation where the Arbitrator has been urged to invoke her powers under section 21(3)(b) of the Arbitration Act 2005 as section 21(2) of the Arbitration Act 2005 provides: “(2) Where the parties fail to agree under subsection (1), the arbitral tribunal may, subject to the provisions of this act, conduct the arbitration in such manner as it considers appropriate.”

From the above, it is my finding that the Arbitrator was thorough in her approach with regards the Arbitrator’s powers pursuant to section 21(3)(b) of the Arbitration Act 2005 as can be seen at paragraph 4.49

(xiii) of the Award referred to above where she had drawn inferences of fact from the evidence before her which was well within the Arbitrator’s right, and thus her findings on the same should not be disturbed. Authority for this can be seen in Hindustan Oil Exploration Co Ltd v Hardy Exploration & Production (India) Inc [2023] 7 MLJ 415.

I therefore find no breach of natural justice occurring on this issue when making the Award.

I will now consider whether the Arbitrator had transgressed her duty by failing to provide the parties a fair and reasonable opportunity of presenting their cases.

The main argument canvassed by Kasugi on this issue is that the Arbitrator had decided to ignore the expert witnesses expert evidence and disregarded their extensive analysis and relied on her own knowledge and expertise to come up with the conclusion that time was set at large. With respect, on this issue I agree with learned counsel for Cobrain that the Arbitrator cannot be faulted if she decided to ignore the experts evidence. In fact, in the matter before me, the Arbitrator had given her reasons as mentioned aforesaid as to why she chose to ignore the experts evidence.

That being said, I hold that the Arbitrator was perfectly entitled to find as she did with regards the experts evidence and come to the conclusions that she did. I rely on the authority of Hindustan Oil Exploration Co Ltd (supra) my learned sister Liza Chan JC (as she then was) had stated, and which I concur and repeat as well as adopt, as follows: - “[44] In dealing with this complaint, I am guided by the approach in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86, where the Singapore Court of Appeal in dealing with the argument of a breach of natural justice raised in an attempt to set aside an arbitral award explained at p 119 as follows: It is almost invariably the case that parties propose diametrically opposite solutions to resolve a dispute. They may expect the arbitrator to select one of these alternative positions. The arbitrators, however, is not bound to adopt an either/or approach. He is perfectly entitled to embrace a middle path (even without appraising the parties of his provisional thinking or analysis) so long as it is based on evidence that is before him. Similarly, an arbitrator is entitled — indeed, it is his obligation, to come to his own conclusions or inferences from the primary facts placed before him. In this context, he is not expected to inexorably accept the conclusions being urged [2023] 7 MLJ 415 at 453upon him by parties, neither is he expected to consult the parties on his thinking process before finalising the award unless it involves a dramatic departure from what has been presented to him. Each case should be decided within its own factual matrix. It must always be borne in mind that it is not the function of the court to assiduously comb an arbitral award microscopically in attempting to determine if there was any blame or fault in the arbitral process; rather an award should be read generously such that only meaningful breaches of the rules of natural justice that have actually caused prejudice are ultimately remedied. (Emphasis added.)”

The decision in paragraph 4.49 of the Award must be read in relation to the entire Award and a perusal of the Award in its entirety will show that the Arbitrator had in fact considered the documents and material before her coming to her decision and findings.

Kasugi had also contended that the Arbitrator was precluded from taking into account evidence or argument extraneous to the hearing without giving the parties further notice and the opportunity to respond. Here I have not been shown that the Arbitrator had acted as such due to a lack of particulars provided and thus I have to also dismiss this argument as being unproven to the satisfaction of this Court.

As to the alleged lack of or absence of a cause and effect delay analysis by the Arbitrator; I hold that the absence thereto is not fatal as the Arbitrator has, as seen in the Award, decided on the issue of delay based on her own thinking process, which I find she is entitled to do, and the mandate before her which is thus within the scope of the Arbitrator’s jurisdiction in the said Arbitration Proceedings. That being so, there is no necessity for the Arbitrator to have appointed an expert to advise her.

I must state that in the Award, I had found that the Arbitrator did apply her own ‘thinking process’ when she had inter alia

36.1 analysed the REW Expert Report on Delay to Completion of Works 17.2.2020 36.2 analysed the CEW Expert Report on Delay to Completion of Works 17.2.2020 36.3 looked at the Sequence of Works 36.4 looked at the Progress Claim and Progress Payment 36.5 looked at and analysed the Scott Schedule provided 36.6 analysed the certification process 36.7 found that the Respondent was deprived of the Master Work Programme 36.8 made a finding with regards the competence of the sub contractor who caused the stop work order 36.9 determined the substantial delay in the structural works 36.10 found the delay in the consultants drawings 36.11 found acts of prevention which impeded Cobrains submissions of shop drawings

The case of Huawei Technologies (Malaysia) Sdn Bhd v Maxbury Communications Sdn Bhd [2019] MLJU 1755 shows that even if there are errors of fact and/or law, they are errors committed within such Arbitrator’s jurisdiction and to hold otherwise is in effect to review or appeal against such Award which is contrary to the Arbitration Act 2005. In that case the Court of Appeal through a judgment delivered by Nallini Pathmanathan JCA (as she then was) had held: “[38] In the textbook by Datuk Professor Sundra Rajoo (special contributor Dr Thomas R Klotzel) entitled ‘UNCITRAL Model Law & Arbitration Rules - The Arbitration Act 2005 (Amended 2011 & 2018) and the AIAC Arbitration Rules 2018’ (Published by Sweet & Maxwell in 2019), the learned author set out the relevant principles in deciding a case under s. 37(1)(a)(iv) as follows (pp. 545 - 551):

37.83 The court will have to ascertain what matters were within the scope of submission to arbitration when exercising its discretion under this section. The court will be guided by the arbitration agreement and other relevant contractual provisions, the notice of request for arbitration, and the pleadings exchanged between the parties. ...

37.85 The Canadian Supreme Court in Desputeaux v. Editions Chouette [1987] Inc58 stated that the mandate of an arbitral tribunal should not be interpreted restrictively limiting it to what is expressly set out in the arbitration agreement but should also cover “everything that is closely connected with that agreement”. ...

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:

(1)an erroneous exercise of the powers available to an arbitral tribunal within its substantive jurisdiction leading to an error of law, which could be appealed under the equivalent of the former section 42 (if applicable) and not under the equivalent of section 37 of the AA 2005; and

(2)cases where the arbitral tribunal had exceeded its substantive powers under the arbitration agreement, terms of reference or the relevant statute, which would be a matter coming under the equivalent of section 37 of the AA 2005. (emphasis added).

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 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 SA75held 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

[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 the scope of the dispute referred to him for arbitration. Conceptually that is not an available avenue for an applicant under s. 37(1)(iv)(a) of the AA

…. [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 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 s. 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.”

For the record, I further hold that the Arbitrator need not have provided her assessment of the EOT to be granted to Cobrain as it is quite irrelevant to the issue of breach of natural justice as the failure to provide the same is an error of law which this court has no jurisdiction to substitute its own interpretation of the law and facts as per Huawei Technologies (Malaysia) Sdn Bhd (supra).

I was also referred by counsel for Cobrain to the Singapore case of Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] SGCA 28 [2007] 3 SLR 86, which I find is of guidance here where in that case, as was in the Tribunal before herein, and which I adopt as part of my reasoning herein, the Arbitrator had not decided on the reasonable time for completion of works after having decided that time was at large, and the Court therein held: “[68] Secondly, given that time is usually set at large when an architect unreasonably fails to extend time under the contract (see Vincent Powell-Smith & David Chappell, A Building Contract Dictionary (Legal Studies & Services (Publishing) Ltd, 2nd Ed, 1990) at p 435), it appears to us that the issues of whether time had been set at large by Fairmount’s acts of prevention and whether time should have been extended under the SIA Conditions because of the acts of prevention by Fairmount are in reality two sides of the same coin. To borrow the terminology adopted by the court in Rotoaira ([55]; supra), they "shade" into each other. The same factual matrix (whether Fairmount caused SBT's delay) is relevant to the determination of both issues.Page 121 Whether the arbitrator should (and could) have decided that time was set at large without fixing the time that SBT was reasonably entitled to is not relevant to whether there has been a breach of the rules of natural justice. If anything, it is pertinent only to whether the Arbitrator had arguably technically committed an error of law - a question well outside the ambit and jurisdiction of this appeal. [69] Thirdly, the concept of time being set at large is not at all alien to construction disputes. It is firmly established that, as mentioned above, time may be set at large due to acts of prevention where there is no contractual provision governing the situation or where the architect fails to properly grant an extension of time under the contract. See also, I N Duncan Wallace QC, Hudson's Building and Engineering Contracts(Sweet and Maxwell, 11th Ed, 1995) vol 2 at para 10.040; Keith Pickavance, Delay and Disruption in Construction Contracts (Lloyd's of London Publishing Ltd, 3rd Ed, 2005) at ch 6. As such, the Arbitrator cannot be accused of using specialist knowledge that the parties could not have contemplated, which would have been contrary to the rules of natural justice: see Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 at 15, wherein Bingham J (as he then was) held that: [T]he rules of natural justice do require, even in an arbitration conducted by an expert, that matters which are likely to form the subject of decision, in so far as they are specific matters, should be exposed for the comments and submissions of the parties.”

Thus, I hold that the above ground of ignoring the expert witnesses evidence and thereby causing the Arbitrator to have allegedly transgressed her duty by failing to provide the parties a fair and reasonable opportunity of presenting their cases is therefore one based on findings of fact of which is not a ground to set aside the Award.

Finally this Court on the issue of the Arbitrator having allegedly failed to expressly determine issues which were specifically submitted by the parties, I have found that Kasugi’s claim for Liquidated Ascertained Damages against Cobrain had been considered in the Award under the heading ‘Claimant’s claim for LAD against the Respondent’ which referred to Kasugi invoking clause 49 of the Main Contract and where the Arbitrator stated that ‘LAD is not automatically imposed on all the Claimant’s subcontractors without assessment by professional architect or engineer for building construction’ and thereafter held that Cobrain was not liable to pay

As to the sum of RM1,500,000 Kasugi had paid pursuant to a Consent Order dated 15.3.2018 which the Arbitrator had allegedly failed to assess in the Award, I hold that this is matter which can and should be ventilated in the application to enforce the Award where this sum can then be taken into consideration. Therefore, in my decision this is not something which will come within the ambit of breach of natural justice which will merit the setting aside of the Award.

Thus, on these issues, I once again find that the Arbitrator had effectively considered and dealt with the same. Accordingly, I hold that these are issues which are not within the purview of section 37 of the Arbitration Act 2005 and will not be accepted as a ground to set aside the Award herein.

As to the law, permit me to quote Mohd Nazlan J (as he then was) in UCSI Group Sdn Bhd v Pembinaan Ikhasas-Merak Sdn Bhd [2018] MJLU 2128 where his Lordship succinctly set out the law as follows: - “[79] Section 37 of the AA has been the subject of much judicial examination, to the extent that there is now a significant body of case law authorities that could usefully guide the interpretation and application of the same. It is no less important to observe that Section 37(1) itself is modelled upon Article 34(2) of the United Nations Commission on International Trade Law on International Commercial Arbitration (“the Model Law?). As such, judicial decisions from other Model Law jurisdictions should be especially persuasive. [80] In considering the instant application before me, I think it is apposite that the following key principles, as distilled from a number of local decisions and from other common law jurisdictions applying the Model Law, presently represent the law on the setting aside of arbitration awards under Section 37 of the AA.

(a)The Courts should be slow in interfering with an arbitral award unless there is patent injustice (see the Court of Appeal decision in Ajwa for Food Industries Co (MIGOP), Egypt v Pacific Inter-Link

(b)Constant judicial interference as was the case in the past will defeat the spirit of the Arbitration Act 2005 to promote one-stop adjudication in line with international practice (see the House of Lords decision in Lesotho Highlands Development Authority v

(c)An arbitration award is final, binding and conclusive; and it can only be challenged in exceptional circumstances. Erroneous drawing of inferences of fact from the evidence in itself is not sufficient for the setting aside of the award (see the Federal Court decision in Intelek Timur Sdn Bhd v Future Heritage Sdn

(d)It is not the function of the Court to examine the correctness of the award on merits (see the Court of Appeal decision of Far East Holdings Bhd & Anor v Majlis Ugama Islam Dan Adat Resam

(e)Section 37 is not an appellate provision; the Court must not sit in appeal over the view of the arbitrator by re-examining and re-assessing the materials before him (see the Court of Appeal case of Antara Steel Mills Sdn Bhd v CIMB Insurance Brokers Sdn

(f)The philosophy of party autonomy and party choice means that a challenge is not permitted to be premised on a party’s change of mind by extricating from its agreement to final and binding arbitration (see the Privy Council opinion in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd [2000] 3 NZLR 338);

(g)The Courts should approach arbitration awards commercially and reasonably and expect no substantial fault in the same (see the judgment of Bingham J (as he then was) in Zermalt Holding SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14);

(h)It is for the plaintiff to establish that the relevant provisions of Section 37(1) has been invoked to warrant a setting aside of the award (see Ajwa for Food Industries Co);

(i)The presence of the clear words ‘provides proof’ in Section 37(1)(a) means that there must be certainty in proof (see the judgment of Mary Lim J (as she then was) in The Government of India v Cairn Energy India Pty Ltd &Ors [2014] 9 MLJ 149);

(j)The language of Section 37(1), specifically on the use of the word “may೦? firmly confers on the Courts the discretion in the exercise of its powers to set aside arbitration awards (see The Government of India v Cairn Energy India Pty Ltd & Ors [2014] 9 MLJ 149);

(k)Given the words ‘only if’ appearing in Section 37(1), the discretion is ‘limited’ in that it can be exercised only and only if the matters complained of are substantiated within the confines of the provisions (see The Government of India v Cairn Energy India Pty

(l)The materiality and seriousness of the infringement complained of vis-a-vis the outcome of arbitration is an important factor in the exercise of the discretion. A non-material error to the outcome is a good basis for the exercise of discretion against setting aside. And it is also for the plaintiff to show prejudice (see Grand Pacific Holdings Ltd v Pacific China Holdings Ltd (in liq) (No. 1) [2012] 4 HKLRD 1);

(m)To succeed in a case under Section 37(1)(a)(iv) and (v) for excess of power or mandate, the correctness of the decision is also not relevant. The applicant must first show the matters which are within the scope of the submission to arbitration. It then must prove that the award deals with a ‘new difference’ which is not within the scope of reference. Thirdly, if shown, whether such ‘new difference’ was irrelevant to the actual issues for determination. Fourthly, if so, whether the ‘new difference’ would have had a material impact on the final outcome as announced in the award. And if it would, finally, whether that part of the award inflicted by the ‘new difference’ may be separated from the other parts of the award to warrant only the part affected to be set aside under Section 37(3) (see The Government of India v Cairn Energy India Pty Ltd & Orsand Tanjung Langsat Port Sdn Bhd v Trafigura Pte Ltd & Another case [2016] 4 CLJ 927);

(n)In respect of Section 37(1)(b)(ii) and Section 37(2)

(b)

and (ii) on breaches of natural justice on grounds of conflict with public policy, the concept of ‘public policy’ is to be construed narrowly, such as only applicable when it is clearly injurious to the public good or where it violates the most basic notion of morality and justice (see the Singapore Court of Appeal decision in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2006] SGCA 41 and the Court of Appeal decision in MTM Millenium Holding Sdn Bhd v Pasukhas Construction Sdn Bhd & Anor [2013] 1 LNS 1325);

(o)To succeed on this ground of breach of natural justice, the plaintiff must show unfairness in the limited circumstances that a reasonable litigant could not have foreseen the possibility of reasoning of the type contained in the award (see the Singapore Court of Appeal decision in Soh Beng Tee & Co Pte Ltd v Fairmont

(p)The four elements to be established by an applicant seeking to set aside an award on account of a breach of natural justice to the satisfaction of the Court are first, to identify the rule alleged to have been violated, secondly, to show in what fashion it had been violated, thirdly, to demonstrate how the violation was connected to the making of the arbitral award, and fourthly to show in what manner the violation prejudiced the rights of the applicant (see Soh Beng Tee & Co Pte Ltd v Fairmont Development Pte

Permit me to also refer to the Federal Court case of Master Mulia Sdn Bhd v Sigur Rtus Sdn Bhd [2020] 9 CLJ 213 where the Apex Court held: “[53] In the light of the above, we think that the guiding principles on the exercise of residual discretion when an application for setting aside an award is grounded on breach of natural justice may be stated as follows: First, the court must consider (a) which rule of natural justice was breached; (b) how it was breached; and (c) in what way the breach was connected to the making of the award; Second, the court must consider the seriousness of the breach in the sense of whether the breach was material to the outcome of the arbitral proceeding; Third, if the breach is relatively immaterial or was not likely to have affected the outcome, discretion will be refused; Fourth, even if the court finds that there is a serious breach, if the fact of the breach would not have any real impact on the result and that the arbitral tribunal would not have reached a different conclusion the court may refuse to set aside the award; Fifth, where the breach is significant and might have affected the outcome, the award may be set aside; Sixth, in some instances, the significance of the breach may be so great that the setting aside of the award is practically automatic, regardless of the effect on the outcome of the award; Seventh, the discretion given to the court was intended to confer a wide discretion dependent on the nature of the breach and its impact. Therefore, the materiality of the breach and the possible effect on the outcome are relevant factors for consideration by the court; and Eighth, whilst materiality and causative factors are necessary to be established, prejudice is not a pre-requisite or requirement to set aside an award for breach of the rules of natural justice.”

I would also like to quote Federal Court in Jan De Nul (M) Sdn Bhd and anor v Vincent Tan Chee Yioun & anor [2019] 2 MLJ 413 where Ramly Ali FCJ in delivering the judgment of the Federal Court held: “[57] The court must evaluate the nature and impact of the particular breach in deciding whether the award should be set aside under s 37. The court must also consider the background policy of encouraging arbitral finality and minimalist intervention approach to be adopted in line with the spirit of UNCITRAL Model Law. The effect of ss 8, 9, 37 and 42 of the AA 2005 is that the court should be slow in interfering with or setting aside an arbitral award. The court must always be reminded that constant interference of arbitral award will defeat the spirit of the AA 2005 which for all intent and purposes, is to promote one-stop adjudication in line with the international practice (see: Ajwa For Food Industries Co (MIGOP), Egypt v Pacific Inter-Link Sdn Bhd & another appeal [2011] MLJU 1537; [2013] 2 CLJ 395; Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2009] MLJU 793; [2010] 5 CLJ 83; and Lesotho Highlands Development Authority v Impregilo SpA and others [2005] UKHL 43). In this regard, the court needs to recognise the autonomy of the arbitral process by encouraging finality; and its advantage as an efficient alternative dispute resolution process should not be undermined.”

Applying all of the aforesaid principles to the matter before me and after analyzing the Award and the issues together with the documents, this court holds that Kasugi has failed to make out a strong case that the Award is in breach of the principles of natural justice and that it conflicts with the public policy of Malaysia.

It is axiomatic to restate that the power of the court to set aside an award under section 37 of the Arbitration Act 2005 is discretionary and will not be exercised automatically in every case. As my findings herein show that there is no breach of natural justice, this Court will not interfere with or set aside the Award herein wherefore I hereby dismiss OS 46 with costs of RM30,000 to be paid by Kasugi to Cobrain.

In the circumstances, I make an Order In Terms for prayers (1), (2) a) and b) (i) and (ii), c), d) and e) of OS 40 and prayer (3) costs of RM5,000 for OS 40 to be paid to Cobrain. Dated: 3rd day of July 2023 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE CONSTRUCTION COURT 1 COUNSEL FOR THE PLAINTIFF: Tatvaruban Subramaniam (Messrs Rajashree (Kuala Lumpur)] COUNSEL FOR THE DEFENDANT: Anilraj Verdamanickam [Messrs The Law Office of Of Anil & Tan (Petaling Jaya)]