Schedule
Schedule H Agreement was a mandatory provision and therefore there was no requirement for the purchaser to prove its losses pursuant to section 75 of the Contracts Act 1950. [73] I am not unaware of what was clearly the industry's reaction to Selva Kumar's decision by the redrafting the LAD clauses in Standard Form Contracts like Clause 40.3 of the PWD Form 203 & 203A (Rev 1/2010), Clause 45.3 of PWD Form DB (Rev 1/2010) and Clause 22.2 of PAM Contract 2006. Some of these were referred to be the learned Arbitrator at paragraphs 437- 439 of his Award. These were attempts to circumvent the ramifications and fall-out from Selva Kumar's case. [74] Thus Clause 40.3 of the PWD Forms 203 & 203A reads as follows: "The Liquidated and Ascertained Damages stated in Appendix 1 shall be deemed to be a reasonable amount of the loss which the Government will suffer in the event that the Contractor is in breach of this clause. The Contractor by entering into this Contract agrees to pay the Government the same amount(s) if the same became due without the need of the Government to prove his actual damage or loss." (emphasis added) 38 [75] Clause 22.2 of the PAM Contract 2006 (With Quantities) and (Without Quantities) reads: "Agreed Liquidated Damages amount The Liquidated Damages stated in the Appendix is a genuine pre-estimate of the loss and/or damage which the Employer will suffer in the event that the Contractor is in breach of Clauses 21.0 and 22.0. The parties agree that by entering into the Contract, the Contractor shall pay to the Employer the said amount, if the same became due without the need for the Employer to prove his loss and/or damage unless the contrary is proven by the Contractor." (emphasis added) [76] To the credit of the learned Arbitrator, though he had erroneously stated that he could proceed on the basis that the parties had dispensed with the need of proof when agreeing to the LAD sums, he had nevertheless went on to find the sum of RM6,233,659.55 as an alternative method of assessing damages. In paragraph 484 (page 103) of his Award the Arbitrator states: “484. Similarly, the LAD clause in cl.5.8 and 5.10 formulated by the parties have dispensed with the requirement of proof of actual loss. In the event the LAD clause in cl.5.8 and 5.10 39 is not given effect by the courts, I am prepared to accept the alternative method of assessing damages (method 1) below”. (emphasis added) [77] It needs only be said that the learned Arbitrator has no liberty and certainly no license to decide based on his own preference of the law with respect to how to interpret section 75 with respect to assessment of damages when there is an agreed LAD sum that seems to dispense with the need for proof. He must apply the law as pronounced by the Federal Court whatever his misgivings may be. The law as pronounced by the apex court gives certainty and predictability and surely the result on the same issue cannot be dependent on which Arbitrator is hearing the issue but rather what the law is as propounded and not as preferred by Arbitrators hearing the issue. [78] In other words by applying the 3-tier test in The Chrysalis (supra) as set out by Lord Mustill, this is a case where only one result can be arrived at which is the actual loss suffered by the Claimant assessed at RM6,233,659.55. [79] Reverting to the question of law posed: 40 Given that the arbitrator had assessed the damages suffered by the Defendant to be RM 6,233,659.55 can he as a matter of law award the Defendant a higher sum?; the answer is a resounding and resolute "NO."! Whether the Questions of Law were questions specifically referred to the learned Arbitrator for decision such that it falls within the Absalom's exception and that this Court should not interfere [80] The Defendant submitted that the questions are not amenable to curial intervention, relying on the principle that has come to be known as the Absalom exception that was referred to in the decision of the Federal Court in The Government of India v Cairn Energy India Pty Ltd & Anor [2011] 6 MLJ 441 which in turn cites the judgment of Raja Azlan Shah J (as His Royal Highness then was) in Syarikat Pemborong Pertanian & Perumahan v Federal Land Development Authority [1971] 2 MLJ 210 as follows: “[29] This court in Intelek Timur Sdn Bhd v Future Heritage Sdn Bhd [2004] 1 CLJ 743 upheld the distinction that was made in Sharikat Pemborong in the following terms — 'As to the determination of whether the award has been improperly procured, this must depend on the issues or the questions that have been 41 referred to the arbitrator. It is from these issues or questions that the arbitrator has to make findings of fact on the evidence adduced before him and more often than not, questions of law arise from his findings of fact. It is under these circumstances that Raja Azlan Shah J in Sharikat Pemborong sounded a warning that reads as follows — ‘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 the 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’. [30] With respect we are not persuaded that we should depart from the long line of authorities holding such a distinction. Thus, where a specific matter is referred to arbitration for consideration, it ought to be respected in that ‘no such interference is possible upon the ground that the decision upon the question of law is an erroneous one’. However, if the matter is a general reference, 42 interference may be possible ‘if and when any error appears on the face of the award’ (see Sharikat Pemborong Pertanian & 210. Perumahan v Federal Land Development Authority [1971] 2 MLJ (See also King v Duveen [1913] 2 KB 32, Absalom Ltd v Great Western (London) Garden Village Society, Ltd [1933] AC 592). [81] In Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority (supra), Raja Azlan Shah J. (as His Royal Highness then was) said at pages 210-211 as follows: "The key question before the arbitrator was whether the plaintiffs were justified in abandoning the contract before completion. In order to decide this question the arbitrator had to consider from the evidence before him whether the 5 specific allegations enumerated above had been proved. Those were findings of fact. From those findings of fact a question of law became material. The present case bears no resemblance to the case where a specific question of law is referred to the arbitrator. 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 43 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 others [1922] 1 AC 268 281 PC. Government of Kelantan v Duff Development Co Ltd [1923] AC 395 411, and In re King and Duveen [1913] 2 KB 32 are instances of the latter. In the present case I have on consideration come on 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 and fact. The court can therefore review the 44 award if and when there is error apparent on the face of the award.” (emphasis added). [82] The Court of Appeal in Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 MLJ 681 affirmed at page 699 that: “[32] ... the Absalom exception was still necessary and relevant even in a s. 42 of the Arbitration Act scenario as well. This was so in order that the “reference on question of law” under that provision was not turned into a wholesale “appeal” against the arbitral tribunal’s decision or ruling. The court had to guard against the proceedings brought to court related to arbitrations; especially post-award, were not in substance and effect on appeal or a re-hearing, or like here, providing an opportunity for regurgitation of the competing arguments on that specific issue of law that had by agreement of the parties been chosen and referred to the arbitral tribunal for determination conclusively”. [83] The Defendant submitted that the above questions now posed were in fact the very same issues that were before the Arbitrator for his decision as can be seen paragraph 109(2) of the Award. It was further argued that whether the Arbitrator arrived at a correct or erroneous interpretation on this issue is not amenable to curial intervention and as such this Court must decline to intervene. 45 [84] I have scrutinized paragraph 109(2) of the Award. It reads as follows: "THE ISSUES FOR DETERMINATION 108 AS A RESULT OF THE EVENTS, THE ISSUES WHICH ARISE ARE: (1) ... (2) WHETHER THE CLAIMANT IS ENTITLED TO LIQUIDATED AND ASCERTAINED DAMAGES (LAD)? Sub-issues: (a) Is the Liquidated and Ascertained Damages (LAD) provision enforceable?" [85] As can be seen, the questions of law posed in this reference is different from the one that was stated as issues for the Arbitrator to decide which is whether the Claimant was entitled to LAD. It was a question that arose from the issue that the parties wanted the Arbitrator to decide. In determining whether LAD was payable and if so how much, the Arbitrator had to decide on whether the LAD provision was enforceable. 46 [86] The LAD provision was of course enforceable if the termination was properly done as it was held to be. The question posed was not what was posed here which is: Given that the arbitrator had assessed the damages suffered by the Defendant to be RM6,233,659.55 can he as a matter of law award the Defendant a higher sum? [87] I must say that it was more a question that arose for decision in the course of the Arbitrator deciding on the broader issue of whether the claimant was entitled to LAD. I am inclined to this view after giving careful consideration to the following as highlighted by the Plaintiff in its submission as follows: (a) It is only at paragraph 2.2.5 of the Points of Claim that the LAD clauses are referred to, and even then it sets out the clause verbatim. (b) The Defence does not specifically raise a question of law pertaining to the validity of the LAD clause. (c) The issues that the Arbitrator had to decide were essentially whether there was a breach of contract, and if so the quantum of compensation. 47 (d) It is in that context that the discussion on the validity of the LAD clause in the context of Selva Kumar took place in the submissions made to the Arbitrator. [88] To sustain the point that a specific question on the validity of the LAD clauses were not referred to the Arbitrator, learned counsel for the Plaintiff referred to the following paragraphs in the Final Award dated 7.4.2016 where it could be seen that it was the Arbitrator himself who had requested for submissions on this point at paragraphs 35-37 of the Award as follows: “Further Submissions 35. On 9/1/15, I requested the Respondent’s counsel to provide a further submission on its position together with authorities, whether s.75 of the Contracts Act 1950 may be contracted out, in response to para 10.2.2 of the Claimant’s Written Submission. 36. After the authorities were submitted by the Respondent’s counsel on 28/1/15, in support of the Respondent’s submissions in reply, I wrote to the Claimants counsel on 28/7/15 for its views. 37. The Claimant submitted its clarification together with a bundle of authorities on 27/2/15.” 48 [89] In the Award at paragraphs 89-95 at page 025 the dispute extant between the parties was described as follows: “THE DISPUTES 89. … According to the Amended Points of Claim dated 16/8/11, the following reliefs are claimed: 90. A declaration that the employment of the Respondent has been determined on 2/6/08. 91. A finding that the Claimant is entitled to the sum of RM11,445,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete a Section of the Works from 2/7/05 to 2/8/07 at RM15,000.00 per day. 92. A finding that the Claimant is entitled to the sum of RM9,950,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete the Main Building Works from 2/7/06 to 2/8/07 at RM25,000.00. This claim is for RM25,000.00 and not RM40,000.00 per day because the delay is concurrent with the delay of the completion of the Section. 93. A finding that the Claimant is entitled to the sum of RM12,160,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete the Section and Main Building Works from 49 3/8/07 to 2/6/08 (date of determination of the contract) at RM40,000.00 per day. 94. Alternatively, the sum of RM6,233,659.55 as loss and damages for escalated costs required to complete the Works as provided for in cl.53.3 of the contract (V.8, p.3169) (CER-2/11 paras 11.3 to 11.7). This claim is the difference between the original anticipated cost to complete the project and the total cost to complete the project as of November 2010 (excluding the 15% turnkey factor). 95. Alternatively, general damages in the form of monetary compensation for delayed receipt of 8% per annum development profit on a development profit of RM67,518,522.00, which is RM14,798.58 per day from 2/6/08 to the date of the Final Award (CER-1/22 para 10.00).” [90] The following paragraphs of the Award are also relevant to show that there was no specific questions of law referred to the Arbitrator but rather that the questions have arisen for determination in the course of the submission on whether the Claimant was entitled to the LAD claim. 50 111. “The gist of the Respondent’s submission The Respondent’s position is pressed on five (5) fronts. In its written submissions, counsel contends: (v) LAD is not proven and is unlawful” ... 116. Introduction There was a thorough response and a myriad of issues raised by the Respondent. Counsel identified several defences why Liquidated and Ascertained Damages (LAD) cannot be imposed, which can be categorised as follows: (i) is the LAD proven?” ... THE PARTIES’ SUBMISSIONS 361. The Respondent The Counsel’s argument that LAD is not payable is pressed on 2 fronts: (a) Counsel alleges the Claimant is not entitled to LAD as it failed to prove actual damages as Section 75 of the 51 Contracts Act 1950 cannot be contracted out and cites Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817.” [91] I am persuaded that there was no specific question in the validity of the LAD clauses that were referred to the Arbitrator with respect to dispensing with proof of the agreed LAD sum in the relevant clauses. It was more a case where the question of construction of the LAD clauses arise as being material in the decision of the matter which has been referred to Arbitration. [92] Such was the case in Absalom v GW Garden Village [1933] AC 592 pages 610-612, where the dicta of Lord Russell in the House of Lords case is relevant and reproduced below: . "... This is a question of some difficulty, as indeed it was in the Kelantan case [1923] A.C. 395. In that case Lord Cave seems to have thought that a specific question of law had been submitted. Lord Trevethin thought not. Lord Parmoor thought it unnecessary to decide that point. In the present case I have on consideration come to the conclusion that no specific question of law was referred. The primary quarrel between the parties was whether, if the value of work executed and materials on site up to and including March 11, 1929, had been truly assessed, the net value 52 available for certification on that date was in excess of (as the contractor alleged) or less than (as the employer contended) the amount which had actually been certified up to and including that date - namely, 9434l. Those were the disputes which were the foundation of the suspension of work on the one hand and the service of the notice on the other. Those were the disputes "in regard to the issue of certificates and the validity of the notice" which were in general terms submitted to the arbitrator. No specific question of construction or of law was submitted. The parties had, however, been ordered to deliver pleadings, and by their statement of claim the contractor had claimed that the arbitrator should under his powers revise the last certificate issued so as to include therein the excess net value which they had alleged and which the arbitrator has found (though for a reduced amount) to have existed on March 11, 1929. It is at this point that the question of the construction of condition 30 arose as a question of law, not specifically submitted, but material in the decision of the matters which had been submitted. This question of law the arbitrator has decided; but if upon the face of the award he has decided it wrongly his decision is in my opinion open to review by the Court. 53 Is his decision erroneous? In my opinion it is. He has construed condition 30 as though the reference therein to actual work to the value of 1000. In some way affected or qualified the contractor's right to receive payment of the full 90 per cent. of the value of the work executed and materials actually on the site on the relevant date - namely, March 11, 1929. In my opinion this is wrong. The words "when in the opinion of the architect actual work to the value of 1000, has been executed in accordance with the contract" merely refer to and define the point of time before which no certificate can be given. After that point of time has arrived, if and when a certificate is given in regard to any particular date, the contractor is entitled to receive a certificate covering the true value of the work executed in accordance with the contract on the building and materials actually on the site for use on the works up to and including that date. In certificates subsequent to the first certificate, the value of work executed will only be the value of work executed since the date in reference to which the last preceding certificate was given. The result is that the arbitrator has misconstrued condition 30 and has thereby erred in law. He should have revised the certificate which was given in relation to March 11, 1929, in such a way as to 54 entitle the contractor to payment thereunder of an additional sum of 793l. 17s. 10d. From this it would follow that paras. 3, 4 and 5 could no longer stand. There still remains the question whether this error of law is apparent on the face of the award. I think it is. The award recites the contract and refers in terms to the provisions of condition 30. Condition 30 accordingly is incorporated into and forms part of the award just as if the arbitrator had set it out verbatim and had then proceeded to state the construction which he placed upon it. The Court can look at it just as it looked at the answers of the Divisional Court in the British Westinghouse Co.'s case [1912] A.C. 673, at the contract in Landauer v. Asser [1905] 2 KB 184 and at the pleadings in the Kelantan case [1923] AC 395. In my opinion this appeal should succeed and an order should be made sending the award back to the arbitrator for him to reconsider and amend so as to bring it into consonance with the true construction of condition 30. The respondents should pay the costs of the appellants of this appeal and of the proceedings in the Courts below." (emphasis added) [93] Even if a specific question of law was referred to an arbitrator, his finding could still be set aside if he had proceeded on principles on 55 construction not countenanced by the law. The position was succinctly set out by Barakbah SCJ in Ganda Edible Oils Sdn Bhd v Transgrain BV [1988] 1 MLJ 428: “If a specific question of law is submitted to the arbitrator for his decision and he decides it, the fact that the decision is erroneous does not make the award bad on its face so as to permit its being set aside; and where the question referred for arbitration is a question of construction, which is, generally speaking, a question of law, the arbitrator’s decision cannot be set aside only because the court would itself have come to a different conclusion; but if it appears on the face of the award that the arbitrator has proceeded illegally, as, for instance, by deciding on evidence which was not admissible, or on principles of construction which the law does not countenance, there is error in law which may be ground for setting aside the award.” (emphasis added) [94] Granted the above case was decided under the old regime but it appears to be consistent with section 42 Arbitration Act 2005 where the Court is entitled to vary or set aside an Award. 56 Pronouncement [95] The Court, in a reference on questions of law, may under section 42(b) vary the award or under section 42(d) set aside the award, in whole or in part. [96] For the reasons given above, I had therefore varied the Award as follows: That paragraph 954 of the Award dated 9.3.2016 and paragraph 5 of the corrective Award dated 4.5.2016 be set aside and the entitlement for payment as set out therein be set aside and it was further ordered that the Claimant/Defendant shall pay the Respondent/Plaintiff the sum of RM28,220.284.44 as set out in the table above instead of the sum awarded of RM1,718,943.99. [97] That paragraph 966, 967 and 968 of the Award dated 9.3.2016 and paragraph 6 of the corrective award dated 4.5.2016 be set aside and it was ordered as follows: a) that the Claimant/Defendant shall pay the Respondent/Plaintiff simple interest at the rate of 5% per annum on the sum of RM28,220,284.44 from 3.6.2008 up to 9.3.2016. 57 (b) that the Claimant/Defendant shall pay the Respondent/Plaintiff simple interest at the rate of 5% per annum on the sum of RM28,220,284.44 from the date of the award until the actual realisation of the said payment by the Claimant/Defendant. [98] I had also ordered the Defendant to pay the Plaintiff costs of RM20,000.00 for this application. Dated: 21 April 2017. - signed - Y.A. LEE SWEE SENG Judge Construction Court Kuala Lumpur For the Plaintiff : Robert Lazar together with Sanjay Mohan and Adam Lee (Messrs Mohanadass Partnership) For the Defendant : Felix Dorairaj (Messrs Dorairaj, Low & Teh) Date of Decision : 8 December 2016