Kejuruteraan Bintai Kindenko Sdn Bhd v Serdang Baru Properties Sdn Bhd (WA-24C(ARB)-9-04/2017 & WA-24C(ARB)-12-04/2017)

Kejuruteraan Bintai Kindenko Sdn Bhd shall be at liberty to lodge a prohibitory order and private caveat against the said land referred to in the Affidavit of Serdang Baru Properties Sdn Bhd except that Kejuruteraan Bintai Kindenko Sdn Bhd shall not proceed further with a writ of seizure and sale by way of a public auction of the said land until the disposal of the appeal filed herein by Serdang Baru Properties Sdn Bhd;

Serdang Baru Properties Sdn Bhd shall file an affidavit within 7 days hereof disclosing that there are no creditors to the combined sum of RM1 million or more;

Liberty to apply;

No order as to costs.” [16] With the recording of the above consent order, learned counsel for the Defendant withdrew OS 24C(ARB)-16-05/2017 and so that OS opposing the enforcement of the Arbitral Award was withdrawn and so struck out with no order as to costs. 11 Principles Whether the party against whom an Arbitral Award is given may oppose recognition and enforcement of the Award at the enforcement stage where the element of pre-award interest is concerned when it had not applied to set aside or vary the Award where that element is concerned [17] The grounds for refusing recognition or enforcement of an Award under section 39(1) of the AA 2005 follow closely the grounds for setting aside an Award under section 37(1) of the AA 2005. Section 39(1) of the AA 2005 reads as follows:

“Grounds for refusing recognition or enforcement

Recognition or enforcement of an award, irrespective of the State in which it was made, may be refused only at the request of the party against whom it is invoked—

where that party provides to the High Court proof that—

a party to the arbitration agreement was under any incapacity;

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication 12 thereon, under the laws of the State where the award was made;

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

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

subject to subsection (3), the award contains decisions on matters beyond the scope of the submission to arbitration;

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

(vii) the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made; or 13

if the High Court finds that—

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

(ii) the award is in conflict with the public policy of Malaysia.” (emphasis added) [18] There is no good reason why a party that has not applied to set aside an Award under section 37 or refer a question of law under section 42 may not at the stage of enforcement of the Award raise the grounds listed under section 39(1) to oppose enforcement of the Award. [19] As the Award was against the Defendant as Claimant in the arbitration, the Claimant was well entitled to apply to set aside the Award under section 37 or refer a question of law under section 42 at least with respect to pre-award interest but it did not do so. [20] The Plaintiff as Respondent in the arbitration did apply to vary the Award under section 42 but that was not on the point of the power of the Arbitrator to award pre-award interest but rather on the Award of LAD without the need to prove loss but by applying the agreed formula for the LAD. Indeed it is not for the Plaintiff to raise the issue of pre-award interest as it is a point in favour of the Plaintiff whether on the smaller 14 sum as awarded by the learned Arbitrator or the much bigger sum as varied by this Court. [21] The question then is whether the Defendant as Claimant in the arbitration may raise this now in opposing the recognition and enforcement of the Award. [22] The fact that Parliament had allowed the same grounds under a setting aside of an Award under section 37(1) to be repeated in an application to oppose recognition and enforcement under section 39(1) would mean that Parliament does not consider the same grounds to be redundant. [23] Granted, in a domestic arbitration, both an application for setting aside under section 37 and also a corresponding application under s 38 of the AA 2005 to recognize and enforce the Award, generally the Court would hear both applications together as one would be a flip side of the other in that if the Award is set aside than correspondingly it will not be enforced and conversely if not set aside it would generally be enforced. [24] However, in the case of an international arbitration, the setting aside is at the Court where the seat of arbitration is. In the case of an international arbitration the seat of arbitration may well be different from the jurisdiction where a party may want to enforce an Award in its favor. 15 An Award for instance may be against the public policy of the State where the Award is sought to be enforced though the same Award is not successfully set aside by the Court where the seat of arbitration is. [25] Likewise whilst an application for setting aside may not be made after the expiry of ninety days from the date on which the party making the application had received the award as provided under section 37(4) of the AA 2005 there is no such time frame for the enforcement of an award by way of registering it as a judgment of the Court under section 38 of the AA 2005. This is understandable and the enforcement would normally be applied for in the State where the award debtor has assets to be attached. [26] As both sections 37 and 38 of the AA 2005 are applicable to domestic as well as international arbitration it is difficult to say that a ground that could be raised in a setting aside of an Award if not raised, cannot be so raised for the first time in opposing an application for recognition and enforcement of the Award. [27] Our Supreme Court in State Government of Sarawak v Chin Hwa Engineering Development Company [1995] 3 MLJ 237 had recognized passive remedy even under the old Arbitration Act 1952. His Lordship Edgar Joseph Jr FCJ observed at page 245 as follows: 16 “We agree, that in certain circumstances, a party may avail himself of a passive remedy by which is meant he does not take the initiative to attack an award, but simply waits until his opponent seeks to enforce the award by action or summary process, when he resists enforcement. Mustill and Boyd on Commercial Arbitration (2nd Ed) at p 546 have instanced two situations when the passive remedy would be available; namely: (1) where the award is so defective in form or substance that it is incapable of enforcement; (2) where the whole or part of the award is ineffective, on the ground that the relief granted lies outside the jurisdiction of the arbitrator.” [28] The Singapore Court of Appeal wrestled with this issue of “passive remedy” in PT First Media TBK v Astro Nusantara International BV and Ors [2013] SGCA 57; [2014] 1 SLR 372. “Active remedy” is understood to mean an award debtor applying to set aside an Award and “passive remedy” as in a award debtor resisting or opposing an application by an award creditor to recognize and enforce the Award. It was explained thus in the award by Sundaresh Menon CJ as follows: “38 Thus, under the 1950 EAA, an award debtor had two options to avoid the consequences of an award: (a) the active remedy of setting aside under s 23; or (b) the passive remedy of resisting 17 enforcement under s 26. This is buttressed by Sir Michael Mustill and Stewart Boyd, The Law and Practice of Commercial Arbitration in England (Butterworths, 1982) ("Mustill & Boyd"), where the authors recognised that there are two categories of remedies available after an award has been released. They termed these two categories as "passive remedies" and "active remedies" and described their operation in the following terms (at p 489): A party avails himself of a passive remedy when he does not himself take any initiative to attack the award, but simply waits until his opponent seeks to enforce the award by action or summary process, and then relies upon his matter of complaint as a ground why the Court should refuse enforcement. [emphasis added in italics and bold italics] 39 The authors' commentary (at p 488) on the options available to parties with jurisdictional objections is remarkably on point: Jurisdictional problems If concerned with the existence or continued validity of the arbitration agreement, the validity of the notice to arbitrate or the qualifications of the arbitrator, [a party may] issue an 18 originating summons or a declaration. Alternatively, [that party may] wait until after the award [has been published] and then set aside the award or raise the objection as a ground for resisting enforcement. [emphasis added in italics and bold italics] 40 If the system of "choice of remedies" is to be interpreted as one which permits parties to defend against an award passively by seeking to resist its recognition and enforcement in the enforcing court even though no active attack had been taken against the award, which is exactly how both Mr Landau and Mr Joseph understood it and how we saw it, it is evident that the features of this system were already part of English arbitration law by the 1970s at the latest.” [29] In Singapore international arbitration is governed by the International Arbitration Act (Cap 143A,2002 Rev Ed) (“IAA”) wherein section 3 provides as follows: “3.—(1) Subject to this Act, the Model Law, with the exception of Chapter VIII thereof, shall have the force of law in Singapore.” [30] The “Model Law” referred to is the Model Law on International Commercial Arbitration adopted by the United Nations Commission on 19 International Trade Law ("the Model Law"). Chapter VIII of the Model Law is where the various grounds for refusing recognition or enforcement of the arbitral award are set out in Article 36 thereof which is reproduced in our section 39 of the AA 2005. [31] Their section 19 on the enforcement of awards merely states that leave of the High Court is required for its enforcement as a judgment of the Court. It is the same as our section 27 of our old Arbitration Act 1952 and section 26 of the English Arbitration Act 1950. It reads:

“Enforcement of awards An award on an arbitration agreement may, by leave of the High Court or a Judge thereof, be enforced in the same manner as a judgment or an order to the same effect and, where leave is so given, judgment may be entered in terms of the award.” [32] The Singapore Court of Appeal had to delve and dig deeply into the legislative history of the IAA and the rationale for excluding the application of Chapter VIII of the Model Law in coming to the conclusion that the Courts there would still refer to the grounds for resisting an enforcement of an award as set out in Article 36 of the Model Law in deciding whether or not leave to enforce the award as a judgment of the Court ought to be given. The Chief Justice of Singapore Sundaresh Menon CJ concluded as follows: 20 “84 As we have held, the content of the power to refuse enforcement under s 19 must be construed in accordance with the purpose of the IAA which, as we have stated, is to embrace the Model Law. Given that de-emphasising the seat of arbitration by maintaining the award debtor's "choice of remedies" and alignment with the grounds under the New York Convention are the pervading themes under the enforcement regime of the Model Law, the most efficacious method of giving full effect to the Model Law philosophy would, in our view, be to recognise that the same grounds for resisting enforcement under Art 36(1) are equally available to a party resisting enforcement under s 19 of the IAA.” [33] Quite obviously we do not have this problem as the whole of Article 36 of the Model Law is reproduced in our section 39 of the AA

The reproduction in section 39 following the same grounds in a setting aside of an award under section 37 cannot be for decorative purposes but for the deliberate design of permitting the same grounds not raised because there was no previous application to set aside under section 37 to be raised in resisting or opposing an application under section 39 of the AA 2005. The repetition of the same grounds has nothing to do with it being redundant but everything to do with reiteration 21 as in making those same grounds available in resisting an enforcement application under section 39 of the AA 2005. [34] One can appreciate that if a ground has been argued in a setting aside application under section 37 and the same ground is sought to be argued under a subsequent section 38 application in opposing an enforcement of an Award, then res judicata might well apply to prevent the same ground from being ventilated again. [35] In this case the matter of pre-award interest is not a matter that may be submitted for arbitration as section 33(6) of the AA 2005 as interpreted by the Court of Appeal in Far East Holdings Bhd & Anor v Majlis Ugama Islam Dan Adat Resam Melayu Pahang and another appeal [2015] 4 MLJ 766 simply does not allow an Arbitrator to make an Award covering pre-award interest. [36] Thus if the Award contains a decision on pre-award interest it is an Award which contains a decision on a matter beyond the scope of the submission to Arbitration under section 39(1)(a)(v) of the AA 2005. That is so even though both parties had wanted the Arbitrator to grant pre-award interest as in their respective Claims and Counterclaims. 22 Whether the effect of Far East Holdings (supra) as decided by the Court of Appeal is such that this Court shall give effect to it and separate the pre-award interest from the enforcement of the Award [37] The Court of Appeal in Far East Holdings Bhd & Anor v Majlis Ugama Islam Dan Adat Resam Melayu Pahang and another appeal [2015] 4 MLJ 766 Court of Appeal held that notwithstanding that interest was not pleaded, the Arbitrator granted the pre-award interest based on the common-law rights and under section 11 Civil Law Act, 1956. The Court of Appeal held that the Arbitrator has erred in law in granting the interest: "[98] On the issue of interests, we agree with the learned judge that the Arbitrator has erred in law in awarding pre and post-award interests. Having considered the Act, we find that under s33(6), the Act has made specific provision for post award interest, but does not provide for pre-award interest. Clearly, the Act does not contemplate the awarding of pre-award interest. We agree with the submissions by learned counsel for FEH and KAOP that when the Act specifically provides for post award interest but is silent on pre-award interest, then implicitly the legislature did not intend to confer on an arbitrator the power to award pre-award interest. Therefore, we agree with the learned judge that the 23 award of pre-award interest ought to be set aside." (emphasis added) [38] Section 33(6) of the AA 2005 provides that: "Unless otherwise provided in the arbitration agreement, the arbitral tribunal may –

award interest on any sum of money ordered to be paid by the award from the date of the award to the date of realization; and

determine the rate of interest." [39] The above said decision was followed in the High Court cases of Kerajaan Malaysia v Tasja Sdn Bhd [2016] MLJU 371 and Kerajaan Malaysia (Kementerian Sumber Asli Dan Alam Sekitar) v Kumpulan Sakata Sdn Bhd [2016] 7 CLJ 412. I had stated for the reasons set out the two cases just referred to, my personal preference for the awarding of pre-award interest, but respecting the doctrine of stare decisis or binding precedent, any High Court would be bound by a decision on the same issue given by a Court of Appeal that is the ratio of the case and not a mere obiter. In Kerajaan Malaysia (Kementerian Sumber Asli Dan Alam Sekitar) (supra) it was observed as follows: 24 “[27] However for the time being, the position of the law on pre-award interest is as declared by the Court of Appeal in the Far East Holdings’ (supra) case. Irrespective of my personal predilection and preference, the position of the law on pre-award interest as may be awarded by an arbitrator is as propounded authoritatively by the Court of Appeal in the Far East Holdings' case (supra). To put it pointedly and plainly, an arbitrator has no jurisdiction to award pre-award interest but only post-award interest if provided for in the arbitration agreement. [28] The law will have the opportunity to develop as the cases from which the principle is derived, go through to the apex court. In the meanwhile, the doctrine of stare decisis or binding precedent, applies to the High Court. [29] Both judicial deference and discipline would demand of a High Court to follow the decision of a Court of Appeal on a point of law already decided. Whilst one may be at liberty to state the persuasive arguments to the contrary, one is not at liberty to disregard an authoritative pronouncement of the law of a court higher up in hierarchy. The following reminder of the Federal Court in Metramac Corporation Sdn Bhd v. Fawziah Holdings Sdn Bhd 25 [2006] 3 CLJ 177; [2006] 4 MLJ 113 would resonate with all who respect the rules of binding precedent: [45]... In order to appreciate the importance of adhering to the doctrine of stare decisis useful references may be made to Cassell & Co Ltd v. Broome & Anor [1972] 1 All ER 801 where Lord Hailsham said at p 809: The fact is, and I hope it will never be necessary to say so again, that, in the hierarchical system of courts which exists in this country, it is necessary for each lower tier, including the Court of Appeal, to accept loyally the decisions of the higher tiers. Where decisions manifestly conflict, the decision in Young v. Bristol Aeroplane Co Ltd [1944] 2 All ER 293 offers guidance to each tier in matters affecting its own decisions. It does not entitle it to question considered decisions in the upper tiers with the same freedom. Even this House, since it has taken freedom to review its own decisions, will do so cautiously. That this is so is apparent from the terms of the declaration of 1966 itself where Lord Gardiner LC said: Their Lordships regard the use of precedent as an indispensable foundation upon which to decide what is 26 the law and its application to individual cases. It provides at least some degree of certainty upon which individuals can rely in the conduct of their affairs, as well as a basis for orderly development of legal rules. [30] Ever so often, an admonishment along the lines spelt out in Periasamy Sinnappan v. Public Prosecutor [1996] 3 CLJ 187 at pp. 213-214; [1996] 2 MLJ 557 at p. 582 has been repeated to rein in respect for the authority of a higher court: Lastly, the learned appellate judge did not sufficiently address his mind to the decision in Khoo Hi Chiang. We find the cavalier fashion in which he approached the judgment of a five-member bench of the Supreme Court in a case which was an authority binding upon him to be quite appalling. We are convinced that the learned appellate judge ought not to have brushed it aside as he did. We may add that it does not augur well for judicial discipline when a High Court Judge treats the decision of the Supreme Court with little or no respect in disobedience to the well-entrenched doctrine of stare 27 decisis. We trust that the occasion will never arise again when we have to remind High Court judges that they are bound by all judgments of this court and of the Federal Court and they must, despite any misgivings a judge may entertain as to the correctness of a particular judgment of either court, apply the law as stated therein.” (emphasis added) [40] However there is no need to set aside the whole of the Award as the saving provision in section 39(3) AA 2005 allows the matter not submitted as in could not be submitted to arbitration to be excised from and separated from the matters submitted to Arbitration. [41] Section 39(3) further provides as follows: “39(3) Where the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters submitted to arbitration may be recognized and enforced.” [42] The part that is affected and infected with respect to the pre-award interest can be clearly and clinically severed or excised from the part of the Award that is intact, which integrity has not been compromised or contaminated in any way by the pre-award interest element. 28 [43] The consequence is that the part containing the pre-award interest at the rate of 5% per annum on the Arbitral Sum of RM28,220,284.44 from 3.6.2008 up to 9.3.2016 be removed from the recognition and the enforcement of the Award. Pronouncement [44] The part of the Award enforced as a judgment of the Court is the Arbitral Sum of RM28,220,284.44 and interest at the rate of 5% per annum from 9.3.2016 (date of the Award) to the date of realization. [45] I had therefore allowed judgment to entered accordingly for the above part of the Award together with agreed costs of RM5,000.00 to be paid by the Defendant to the Plaintiff. Dated: 28 August 2017. - signed - Y.A. LEE SWEE SENG Judge Construction Court Kuala Lumpur For the Plaintiff : Sanjay Mohan together with Adam Lee (Messrs Mohanadass Partnership) 29 For the Defendant : Felix Dorairaj (Messrs Dorairaj, Low & Teh) Date of Decision : 2 May 2017