Kerajaan Malaysia v Syarikat Ismail Ibrahim Sdn Bhd & 2 Lagi (W-01(C)(A)-395-11/2017)

1 IN THE COURT OF APPEAL OF MALAYSIA IN THE FEDERAL TERRITORY OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO: W-01(C)(A)-395-11/2017 BETWEEN GOVERNMENT OF MALAYSIA … APPELLANT AND

1. SYARIKAT ISMAIL IBRAHIM SDN BHD (Company No. 124320-M)

2. GEMA DESA SDN BHD (Company No. 232743-P)

3. AMAN SELAMA SDN BHD (Company No. 93260-D) (Trading under joint venture in the Name of “SIGMA CONSORTIUM” … RESPONDENTS (In the High Court of Malaya at Kuala Lumpur In the Federal Territory of Kuala Lumpur, Malaysia Civil Suit No. WA-24C(ARB)-32-11/2016 Between

1. Syarikat Ismail Ibrahim Sdn Bhd (Company No. 124320-M) 2

2. Gema Desa Sdn Bhd (Company No. 232743-P)

3. Aman Selama Sdn Bhd (Company No. 93260-D) (Trading under joint venture in the Name of “SIGMA CONSORTIUM” … Plaintiffs And Government of Malaysia …Defendant CORAM: HAMID SULTAN ABU BACKER, JCA AHMADI ASNAWI, JCA HANIPAH FARIKULLAH, JCA JUDGMENT OF JUSTICE HANIPAH FARIKULLAH

1. This is an appeal by the appellant, the Government of Malaysia against an order made by the learned High Court Judge whereby he allowed the application of the respondents for an order to vary the award dated 18.8.2016 of an arbitral tribunal, under section 42 of the Arbitration Act 2005 (the Act).

2. The arbitration concerned the domestic arbitration in relation to a claim for payment of RM235,081,519.72 in a design and built construction contract where the Government of Malaysia was the employer and the respondents were the contractors. 3 3. This appeal raises issues concerning the powers of the arbitral tribunal and their relationship with the supervisory powers of the Court particularly the powers of the Court to set aside an arbitral tribunal.

4. The respondents were the Claimants in an arbitration proceeding against the appellant in respect of a contract for works relating to “merekabentuk, membina dan menyiapkan kerja-kerja menaikkan taraf laluan persekutuan 76 dari Kuala Kangsar ke Gerik Perak Darul Ridzuan Pakej 2 : Dari Lenggong ke Sauk” (“the Project”).

5. We heard the appeal and after considering the respective submissions of counsel, the appeal was allowed and I now give my reasons. BACKGROUND FACTS

6. The appellant and the respondents entered into a formal contract dated 10.12.2001 modelled on the standard terms of PWD Form, Design Build and Turnkey Project (PWD) Form DB/T) and Conditions of Contracts. The Contract was for a fixed sum of RM235,081,519.72 and subject to the terms and Condition of the Contract. 4 7. It is not disputed that the description of works for the project includes for the construction of one main bridge and 13 minor bridges. Subsequently, Bridges 6, 7, 10 and 11 were converted into construction of box culvert and Bridge 9 was converted to rockfill. This is reflected through the issuance of Variation Orders by the appellant via APK No: 12, 13, 14, 15 and 16.

8. The appellant had adjusted the Contract sum and made payments to the respondents for all the actual works done, in which there were changes in the design of the initial proposal (from bridges to box culvert and rockfill).

9. The respondents' claims, among others, for the sum of RM8,708,438.24 for the “wrongful omission and alteration of the Contract Sum of the Lump Sum” by the appellant, which now forms the subject matter of this appeal.

10. The appellant has denied this claim.

11. The questions before the learned Arbitrator was whether there has been a lawful variation made pursuant to the terms of the contract, and 5 following that, whether the lump sum stated in the contract documents signed between the parties had been lawfully altered or varied.

12. The parties had agreed that the only relevant sections of the contract documents are the following sections in the conditions of contract (“COC”) which can be found on pages 286 to 289 of the Record of Appeal (Part C) Jilid 3/1:

13. The respondents' contention during the Arbitration hearing was that:

14. The appellant, on the other hand, only advanced one argument, which was that the contract sum was lawfully varied under clause 27.3 of the Conditions of Contract.

15. At the hearing of Arbitration proceedings, the parties mutually agreed to invite the learned Arbitrator to determine the issues of liability first and to issue an interim award (“the Interim Award”) in respect of issues of liability. The learned Arbitrator had duly done so on 16/12/2013.

16. In the Interim Award, the learned Arbitrator held that Clauses 27.2 and 27.3 of the Conditions of Contract did not apply and there was an invalid alteration of the Contract Sum. 7 17. However, in the Final Award dated 18.08.2016 (“the Final Award”) which was for the determination of quantum, the respondents contended that the Learned Arbitrator had contradicted herself when she held that there was a variation under Clause 27 of the Conditions of Contract and proceed to dismiss the respondents’ claim for the balance Contract Sum not paid in the sum of RM8,708,438.24 during the Final Award based on Clause 28.8 of the Conditions of Contract even though Clause 28.8 of the Conditions of Contract was never pleaded or submitted on or referred to by either party during the arbitration proceeding.

18. There were other issues and headings of the awarded sum by the Arbitrator. However, for the purpose of this appeal, it is confined to the issue pertaining to the omission and alteration of the contract sum for the Bridges 6, 7, 9, 10 and 11. THE AWARD

19. To better understand the respondents’ complaint against the Arbitrator’s decision, it is necessary to set out in some details the reasoning of the Arbitrator: “(1) In my Interim Award as to Liability of 16th December 2013, I had concluded that: 8 a) the variation was not properly effected by the respondents under Clause 27.2, and the valuation provisions of Clause 27.2 do not apply; and b) changes do not fall to be determined under Clause 27.3, therefore the valuation provisions of Clause 27.3 also do not apply.

(2) Further that parties had not led evidence or canvassed any other “express provision of the Conditions” for the adjustment of the alteration of the Contract Sum. That being the case, there is no evidence before this tribunal as to an applicable express provision for adjustment or alteration of the Contract Sum.

(3) Therefore applying the provisions of the Contract as agreed between the parties, in particular, Clause 30.1 that: “The Contract Sum shall not be adjusted or altered in anyway whatsoever otherwise than in accordance with the express provision of the Conditions.” I therefore found that the Contract Sum had not been adjusted or altered in accordance with the express provision of the COC, and therefore found on the issue of liability, there has been an invalid alteration by the respondents of the Contract Sum in reliance of Clause 27.3 of the COC. 9

(4) However, the quantum of the Claimant’s entitlement following from this finding on liability was left to be considered in the hearing on quantum, which I now consider.

(5) Briefly put, the Claimant’s case is that the respondents did not manage to point out any other provision of the Contract which would allow the respondents to adjust or alter the Contract Sum. Therefore, based on “The Contract Sum for the 5 bridges minus (-) whatever that has been paid by the respondents to the Claimant for the 5 bridges = balance sum payable”. That is to say, RM14,125,857.32 – RM5,417,419.08 = RM8,708,438.24.

(6) The respondents’ case on the other hand is that since the said 5 bridges were not constructed by the Claimant, therefore the Claimant is not entitled to be paid.

(7) It is not in dispute that Bridges No. 6, 7, 9, 10 and 11 were not constructed in the manner originally intended. Instead: a) Bridges 6,7,10 and 11 were converted into construction of box culvert; and b) Bridge 9 was converted into rockfill. It is not disputed that the Claimant had been paid for the box culvert and rockfill works actually carried out. 10

(8) The parties agree that the change of Bridges 6, 7, 10 and 11 to box culvert and the change of Bridge 9 to rockfill is a “change of design”. It is also not in dispute that this was a change under Clause 27 of the COC.

(9) The issue is what the Claimant is entitled to be paid as a result of that change.

(10) The parties agreed that the Contract was a lump sum fixed price contract and the contract sum shall not be adjusted or altered in anyway whatsoever other than in accordance with the express provision of the Contract (Clause 30.1 of the COC AB(A)1 – 128).

(11) I had found on the issue of liability that the valuation provisions of Clause 27.2 and Clause 27.3 of the COC do not apply.

(12) The Claimant puts forward a simple case that since the respondents did not point out any other provision of the Contract which would allow the respondents to adjust or alter the Contract Sum, therefore the full Contract Sum should be payable regardless the work done was altered, and regardless that the work done as altered had been paid for.

(13) The respondents disagreed with such a case and state that the work done was paid for and the Claimant should not be paid any more for work not done. The respondents further 11 rely on the Claimant having signed the relevant APK (Arahan Perubahan Kerja) for each bridge, which loosely translated, means Variation of Work.

(14) In view that the parties agree that the change to the 5 bridges is a “change of design” which is a change under Clause 27 of the COC, I find it necessary to consider Clause 28 of the COC “Valuation of Variations”.

(15) The contents of Clause 28 are such that it is an express condition of the COC which goes to alter the Contract Sum in case of Variations, especially by Clause 28.8 which states: “Effect shall be given to Clause 28 by addition to or deduction from the Contract Sum.”

(16) I am not persuaded by the Claimant’s argument that the full Contract Sum should be payable regardless that the work done was altered, and regardless that the work done as altered had been paid for.

(17) Neither am I persuaded by the Claimant’s submission at the Claimant’s Written Submission in Reply dated 4th September 2015 / paragraph 3 – that in the interim Award, the Tribunal had ruled that the respondents’ variation of price in respect of the 5 bridges were made without complying with the contract requirement and therefore the respondents remain liable to pay for the 5 bridges as per contract. 12 A plain reading of the Interim Award on Liability at paragraphs 114 and 115 will show such submissions to be incorrect. The Interim Award on Liability merely concluded that there had been invalid alteration by the respondents of the Contract Sum in reliance of Clause 27.3 of the COC. The Interim Award did not decide that the respondents remained liable to pay for the 5 bridges as per contract. On the contrary, the Interim Award concluded that the quantum of the Claimant’s entitlement is left to be considered in the hearing on quantum. The Claimant went on the premise of res judicata on this. As I have said that a plain reading of the Interim Award on Liability at paragraphs 114 and 115 will show such submissions to be incorrect, the issue of res judicata does not arise.

(18) In considering the quantum of the Claimant’s entitlement, I am also not persuaded by the respondents’ submission at Respondents’ Reply to the Claimant’s Written Submissions in Reply dated 19th October 2015 / paragraph 7, that the Claimant in signing the APK (Arahan Perubahan Kerja) accepted the work instruction as well as the provisional price for the work instruction.

(19) In fact, the respondents by that same submission acknowledge that the APK merely sets out the “provisional price”, and also in the earlier respondents’ Reply to the 13 Claimant’s Written Submissions dated 3rd August 2015 / paragraph 3 places reliance on Clause 50.1 of the COC for the proposition that payment shall be made based on the monthly valuation of the Works properly executed.

(20) Therefore, it falls for me to consider what adjustment is to be made to the Contract Sum by the Variation on the 5 bridges, and the quantum of such adjustment.

(21) It is unfortunate that the only evidence of adjustment that is available in these proceedings are those of the respondents with no competing valuation by the Claimant. In the premise, the only valuation of the adjustment is that of the respondents vide their PHK.

(22) The respondents further argued that by virtue of the valuations carried out pursuant to Clauses 50 and 51 of the COC, the respondents had properly valued the works carried out which in turn represents the adjustment or alteration to the Contract Sum, which in this case is a reduction.

(23) Considering the respondents’ stand, together with the provisions of the Contract as a whole including Clauses 27, 28 and 30 of the COC, together with the lack of alternative valuation by the Claimant of any adjustment or alteration to the Contract Sum despite agreeing that the 5 bridges were the subject of change under Clause 27, I am compelled to decide in favour of the respondents. 14

(24) I therefore hold that the Claimant is not entitled to any further payments in addition to what they have been certified and paid for the 5 bridges. The Claimant’s claim for the sum of RM8,708,438.24 is dismissed.” The High Court Proceedings

20. Dissatisfied, the respondents referred the learned Arbitrator’s Final Award to the High Court at Kuala Lumpur under section 42 of AA 2005 for review and variation.

21. The respondents had referred three (3) questions of law for the Court to decide as follows:

(1) Whether the learned Arbitrator had erred by referring to Clause 28 of the Contract and in particular Clause 28.8 when the said Clause 28.8 was not pleaded and was not an issue raised by the appellant in their Defence;

(2) Whether the learned Arbitrator had erred when deciding that Clause 28.8 of the Contract is applicable even though the Arbitrator had decided that the Variation works to the 5 bridges under Clauses 27.2 and 27.3 are invalid and that Clause 28.8 is not applicable when there is no valid variation effected on the 5 bridges under Clause 27 of the Contract; and 15

(3) Whether the learned Arbitrator erred when she decided in a manner contradicting her Interim Award as to Liability where she had decided that the Variation to the 5 bridges under Clause 27.2 and 27.3 of the Contract is invalid and as such, the Contract Sum shall not be adjusted or altered as held in paragraph 112 of the Interim Award and that the appellant ought to pay the respondents for the Works done in the 5 bridges in accordance with the Contract Sum.

22. As appear in particular from paragraph [83] of his judgment, the learned High Court Judge had made his findings that there were questions of law under section 42 of the AA 2005 on the premise that:

23. This was said to have arisen from the fact that the dispute between the parties was in reference only to Clause 27 and Clause 30 of the COC and no reference was made by either party to Clause 28.

24. The learned High Court judge held that since the change of the 5 bridges to box culvert and rockfill did not fall under Clause 27.2 and 27.3 of the Contract, the learned Arbitrator is not at liberty to conclude that there is 16 a change under Clause 27 of the Contract in the Final Award. Having held that there was an invalid alteration of the Contract Sum, the only logical and inexorable consequence is to restore the Contract Sum and to make an award for the payment of the balance Contract Sum.

25. The learned Judge explained his decision as follows: “[72] I agree with learned counsel for the Claimant that there had been a breach of natural justice here in that Clause 28 COC was not pleaded and in play before the learned Arbitrator. In Petronas Penapisan (Melaka) Sdn Bhd v Ahmani Sdn Bhd [2016] 3 CLJ 403, the Court of Appeal at page 427 held that a point that was not raised in the counterclaim and thereby depriving the plaintiff of an opportunity to address the tribunal is a complaint under section 42 AA 2005: “[39] In our present case we agree with the finding of the learned judge that the point of inflation being a gauge for work done in the counterclaim and summarily fixing the rate at 20% was not a point raised during the proceedings depriving the plaintiff of an opportunity to address the Arbitral Tribunal on that point which formed the basis of the award on the counterclaim, the learned judge in our view was correct to find a complaint under s. 42 had been made out.” (emphasis added) [73] I can appreciate the Claimant’s position when it was argued on its behalf that if Clause 28 was raised during the Arbitration (which was not), the Claimant would have had the chance to be 17 heard and would, amongst others, state that Clause 28 “Valuation of Variation” (page 127 Exhibit “SIB-1” Affidavit In Support dated 01.11.2016) must be read together with Clause 27 which is on “Variations” (page 126 Exhibit “SIB-1” Affidavit In Support dated 01.11.2016) and as the Arbitrator had decided that Clause 27 relied on by the defendant is invalid, therefore Clause 28 cannot be relied upon. [74] In the Interim Award as to liability at page 929 the learned Arbitrator had unequivocally decided as follows: “114. I therefore find on the issue of liability, that there has been an invalid alteration by the respondents of the Contract Sum in reliance of Clause 27.3 of the COC.” (emphasis added) [75] It goes without saying that the learned Arbitrator must not detract from her findings of fact made during the Interim Award in arriving at the sum to be paid by the Government of Malaysia to the Claimant. The Final Arbitral Award must be consistent with and not in conflict with the Interim Award and that the Final Award must have an internal coherence. [76] The learned Arbitrator cannot afford to contradict herself in her Final Award. Having held that the change of the 5 bridges to box culverts and rockfill did not fall under Clause 27.2 and 27.3 of the COC, she is not at liberty to conclude that there is a change under Clause 27 of the COC in the Final Award. 18 [77] The fact that the learned Arbitrator did not single out under which sub-clause of Clause 27 that the change was made which entitled the Government to vary the contract sum is disquieting. It cannot be Clause 27.1 for that is a definition clause on the meaning of “Variation” and it is not disputed that the change in the design is “Variation” within the meaning of Clause 27.1 COC. It cannot be Clause 27.2 or 27.3 because the learned Arbitrator had held that these sub-clauses are not applicable. [78] Logically and reasonably, Clause 28 cannot apply to value the work done and to make an adjustment to the Contract Sum accordingly. [83] I agree with learned counsel for the Claimant that the issues raised herein are not disputed on facts but are questions of law

27. Before I proceed to analyse these issues, I shall first outline the relevant legal principles as to this Court’s power to set aside and/or to vary the award under AA 2005. It is important to note that the High Court judgment was delivered prior to the amendment of AA 2005 which section 42 now has been repealed (PU(B) 265/2018). The Relevant Principles

28. By enacting AA 2005, our Parliament like those of United Kingdom, Australia, and Singapore has chosen to favour finality, certainty and party autonomy. It intended to encourage arbitration as a dispute resolution mechanism.

29. AA 2005 is clear that “No court shall intervene in matters governed by this Act, except where so provided in this Act”. Pertinent to “where so 20 provided in this Act”, AA 2005 provides for court intervention in the matters stated in ss. 10, 11, 13 (7), 15(3), 18(8), 29, 37, 41, 42 44(1), 45, and 46 of AA 2005. “Where a party seeks intervention in one of those situations, the court is permitted to intervene only in the manner prescribed by the Model Law. In the absence of any express provision, the court must not intervene at all. By contrast, where the situation is not of a type to which the Model Law is addressed, the court may intervene or decline to intervene in accordance with the provisions of the relevant domestic arbitration law” (A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary by Howard M. Holtzmann & Joseph E. Neuhaus, published 1994 at 224). Accordingly, s. 8 “would …. not exclude court intervention in any matter not regulated by [AA 2005]” (The Arbitration Act 2005 supra at 8.17); matters which are not governed by the Model Law include the following areas: the inherent jurisdiction of the court to grant an injunction to stay arbitral proceedings; and the whole topic of confidentially of arbitral proceedings (for a non-exhaustive list of matter not governed by the Model Law. (see: Far East Holdings Bhd & Anor v. Majlis Ugama Islam dan Adat Resam Melayu Pahang & Other Appeals [2018] 1 CLJ 693). 21 30. By enacting a statute with the express purpose of redefining and clarifying the limits of court’s review of arbitral awards, Parliament has made clear its intention that parties should be made to accept the arbitral decision where they have chosen to submit their dispute to resolution in such manner. It plainly intended a strict limitation where this choice has been made.

31. Arbitration is a contractual method of resolving disputes. By their contract the parties agree to entrust the differences between them to the decision of an arbitrator or panel of arbitrators, to the exclusion of the Courts and then bind themselves to accept that decision, once made, whether or not they think it is right. In prospect, this method often seems attractive. In retrospect, this is not always so. Having agreed at the outset to take his disputes away from the Court, the losing party may afterward be tempted to ask the Court to interfere because the arbitrator has misunderstood the issues, believed an unconvincing witness, decided against the weight of the evidence, or otherwise arrived at a wrong conclusion. All developed systems of arbitration law have in principle set their face against accommodating such a change of mind. The parties have made a choice and must abide by it. This general principle is, however, applied in different ways under different systems, according to the nature of the complaint. 22 32. Where the criticism is that the arbitrator has made an error of fact, it is an almost invariable rule that the Court will not interfere. Subject to the most limited exceptions, not relevant here, the findings of fact by the arbitrator are impregnable, however flawed they may appear. On occasion, losing parties find this hard to accept, or even understand.

33. At the other extreme are complaints that the decision has been reached by methods which are unfair, contrary to natural justice, in breach of due process, or whatever other term is preferred. With very few exceptions all systems of law permit the injured party some means of recourse. (see: Gold & Resource Developments (NZ) Ltd v Doug Hood Ltd [2003] NZLR 318) DECISION

34. Recently, the Federal Court in Far East (supra) had considered “the question of law” and the test for the question of law under s.42 of AA 2005. The Federal Court decided that the test under s 42 is as follows: “[118]…whether there is a question of law arising out of the award that substantially affects the rights of one or more of the parties. Under section 42, that is the only ground for the court to intervene. Perverse, unconscionable, unreasonable, and the like are not tests for the setting aside of an award.” 23 35. Under s 42(1) of AA 2005, any party may refer to the High Court any question of law arising out of an award and under s 42(1A)of AA 2005, the High Court shall dismiss a reference made under sub-s. (1) unless the question of law substantially affects the rights of one or more of the parties. Therefore, there are two requirements for a reference; that the question of law must not only arise out of the award but must substantially affect the rights of one or more of the parties. It has been held that short of one and the reference shall be dismissed. (see: Far East (supra), Konsortium Lord-Saberkat Sdn Bhd v. RP Chemicals (Malaysia) Sdn Bhd & Another Appeal [2019] 1 CLJ 741)

36. The Federal Court in Far East, has given guidance on the application of s 42 of the Act. The relevant principles which assist me in the present appeal is as stated in paragraph 150 as follows: “The question of law must be one of law and not fact” (The Arbitration Act 2005 supra at p. 198). “An error of fact alone is insufficient” (Dept of Education v. Azmitia [2015] WASCA 246 per Mazza JA). But there is no universal definition of ‘question of law’. Nonetheless, from our survey of the authorities, we would conclude that one of the following, which is not an exhaustive list, would meet the paradigm of ‘any question of law’ in s. 42: (a) a question of law in relation to matters falling within (2) of Mustill J’s three-stage test; (b) a question as to whether the decision of the tribunal was wrong (The Chrysalis); (c) a question as to whether there was an error of 24 law, and not an error of fact (Micoperi): error of law in the sense of an erroneous application of law; (d) a question as to whether the correct application of the law inevitably leads to one answer and the tribunal has given another (MRI Trading); (e) a question as to the correctness of the law applied; (f) a question as to the correctness of the tests applied (Canada v. Southam); (g) a question concerning the legal effect to be given to an undisputed set of facts (Carrier Lumber); (h) a question as to whether the tribunal has jurisdiction to determine a particular matter (Premiums Brands): this may also come under s. 37 of AA 2005; (i) a question of construction of a document (Intelek).”

37. At paragraph 155, the Federal Court states that: “s. 42 only permits a reference on a discrete question of law. Under s. 42, there is no jurisdiction to deal with questions of fact. As Steyn LJ put it in The Baleares, “on an appeal the court must decide any question of law arising from the award based on a full and unqualified acceptance of the findings of fact of the arbitrators”. The question of law must accept the findings of facts. Hence, all argument or debate on the findings of fact of the arbitrator, on the inferences drawn by the arbitrator from his findings of fact and or from the evidence could not and would not be entertained.”

38. Learned Senior Federal counsel for the appellant, contended that the respondents’ complaint in relation to the Arbitrator’s decision before the High Court should have been addressed by way of an application under section 37 of the Act and not section 42 of AA 2005. 25 39. In support of the appellant’s contention learned senior federal counsel referred us to the recent Federal Court’s decision in Jan De Nul (Malaysia) Sdn. Bhd Anor [2019] 1 CLJ 1 (Jan De Nul).

40. On the contrary, learned counsel for the respondents contended that the learned High Court Judge had fully considered the applicable law and correctly held that there had been a breach of natural justice because Clause 28 of the COC was not pleaded and in play before the learned Arbitrator and the respondents were deprived of the right to be heard in respect of Clause 28, COC. Relying on this court’s decision in Petronas Penapisan (Melaka) Sdn Bhd (supra), learned counsel for the respondents submitted that the learned High Court Judge has correctly held that the respondents had fulfilled the tests under section 42 of the AA 2005.

41. Before I consider the respective parties’ arguments, I should first set out the scope of sections 37 and 42 of AA 2005 as stated in the recent Federal Court case in Jan De Nul (supra).

42. The main thrust of the appeal in Jan De Nul (supra) was two fold (i) that the award was made in excess of jurisdiction in that it contained decisions on matters not submitted to them for arbitration or beyond the scope of submissions to arbitration under s. 37(1)(a)(v) of the AA 2005; and 26

(ii) that the tribunal did not or had failed to provide an opportunity to be heard for the parties to submit on the basis upon which the tribunal had decided the case, thereby breaching the rules of natural justice, which was an instance that the award may be contrary to the public policy of Malaysia.

43. On the scope of section 37 and section 42 of AA 505, the Federal Court in Jan De Nul explained as follows: “We have read the whole judgment of the Court of Appeal. We found that the only part of the judgment where the words ‘patent injustice’ and ‘manifestly unlawful and unconscionable’ were mentioned, was in para 8 thereof. From the plain reading of that paragraph, we cannot find any clear finding or determination by the Court of Appeal that the said test was accepted and applied to the facts and circumstances of the present case. The Court of Appeal cited the passage from another case of Petronas Penapisan in appreciating the distinction between our ss 37 and 42 of the AA 2005 in relation of the English Arbitration Act 1996 (‘the EAA 1996’). The said passage was in relation to the provision of s 42 and not s 37 of the AA

2005. Both these sections relate to different purposes and different tests for consideration. They are not the same. The consideration by the court in dealing with the applications under the sections varies. The cited test applicable in establishing an application under the s 42 may not be the same with and not applicable to an application under s 37 of the Act.” [emphasis added]

44. Referring to this court’s decision in Petronas Penapisan (Melaka) Sdn Bhd (supra), the Federal Court said: 27 “An application to set aside an award under s 37 largely deals with issues relating to the award making process and has nothing to do with error of facts and/or law on the face of record unless the exception applies; such as public policy. An application under s 42 has nothing to do with the award making process but has everything to do with the award per se and error of law on the face of record which error substantially affects the rights of one or more of the parties. The distinction between ss 37 and 42 is that like of an apple and an orange.”

45. As I have said earlier, the learned High Court Judge had made his findings that there were questions of law under section 42 of the AA 2005 on the premise that the principle of the right to be heard had been breached and the learned Arbitrator had gone beyond her scope of reference.

46. This was said to have arisen from the fact that the dispute between the parties was in reference only to Clause 27 and Clause 30 of the COC and no reference was made by either party to Clause 28.

47. Learned counsel for the respondents argued that during the hearing and submission stage at the Arbitration, clause 28 of COC was never raised or addressed by both parties. It must be noted that the Arbitrator relied on Clause 28, in particular clause 28.8 as the basis to reject the Claimant’s claims for the reason that: 28 “Effect shall be given to Clause 28 by addition to or deduction from the Contract Sum”.

48. It is not disputed that parties had both relied on Clause 27 specifically Clause 27.2 and 27.3 to support their contention during the arbitration proceeding to prove to the arbitrator tribunal that there was a variation and that there was an alteration of Contract Sum.

49. I accept the submission of learned senior federal counsel that Clause 27 and 28 of the Agreement must be read conjunctively and not independently wherein the term “Variation” in Clause 27 of the Agreement must be shown to exist before Clause 28 of the Agreement can be relied upon. However, these Clauses must be read together.

50. Further, it cannot be argued that the respondents could not reasonably anticipate or foresee that the Arbitrator may rely on Clause 28 of the COC entitled “Valuation of Variation”, especially so when the respondents did not dispute that the change of the five (5) disputed bridges to box culvert and rockfill is a “change of design”. This finding of fact was established and duly recorded by the learned Arbitrator in her Interim Award at paragraphs 61, 62 and 70: 29 “61. The parties agree that the change of Bridges 6, 7, 10 and 11 to box culvert and the change of Bridge 9 to rockfill is a “change of design”.

62. It is also not in dispute that this was a change under Clause 27. …

70. Parties also agree that these are Variations under Clause 27.”

51. The same fact was also established and duly recorded by the learned Arbitrator in her Final Award at paragraphs 79, 80, 86 and 95: “79. It is not in dispute that Bridges No. 6, 7, 9, 10 and 11 were not constructed in the manner originally intended. Instead: a) Bridges 6, 7, 10 and 11 were converted into construction of box culvert; and b) Bridge 9 was converted into rockfill. It is not in dispute that the Claimant had been paid for the box culvert and rockfill works actually carried out.

80. The parties agree that the change of Bridges 6, 7, 10 and 11 to box culvert and the change of Bridge 9 to rockfill is a “change of design”. It is also not in dispute that this was a change under Clause 27 of the COC. …

86. In view that the parties agree that the change to the 5 bridges is a “change of design” which is a change under Clause 27 of the COC. I 30 find it necessary to consider Clause 28 of the COC “Valuation of Variations”. …

95. Considering the respondents’ stand, together with the provisions of the Contract as a whole including Clauses 27, 28 and 30 of the COC, together with the lack of alternative valuation by the Claimant of any adjustment or alteration to the Contract Sum despite agreeing that the 5 bridges were the subject of change under Clause 27, I am compelled to decide in favour of the respondents.”

52. Therefore, in my view, the issue of wrongful omission and alteration of the Contract Sum by the appellant amounting to RM8,708,438.24 is related to the issue of variation under Clause 27 and thereafter will be related to Clause 28 of the COC.

53. Coming back to the facts of the present case, in my view “the question of law” submitted by the respondents in this case actually sought to go around the finding of fact by the learned Arbitrator that parties had agreed that the change to the 5 bridges is a “change of design” under Clause 27 of the COC. These are questions of mixed law and fact which the courts have made clear in various authorities that they are not to answer. In Awangku Dewa Pgn Momin & Ors v. Superintendent of Lands and Surveys, Limbang Division [2015] 3 CLJ 1 this Court held as follows: 31 “[22] In our judgment the eight ‘questions of law’ referred to the High Court are not genuine questions of law but rather an attempt to appeal against the decision of the arbitrator. If it had been a genuine move to refer questions of law to the High Court, then, the questions of law would have been concisely and clearly framed; and the questions posed need not have to be as many as eight. Instead, what we find in the originating summons, are not concisely and clearly framed questions of law, but rather criticisms of the decisions of the learned arbitrator drafted in the manner that one normally finds in the ‘grounds’ of a memorandum (or petition) of appeal (note the repeated usage of the phrase ‘erred in law’ in every ‘question’ that was posed). In other words, we find the ‘reference’ to be an attempt to appeal against the award (which the Act does not allow) but disguised as a ‘reference on questions of law’ under s. 42.”

54. In Huawei Technologies (Malaysia) Sdn. Bhd v Maxbury Communications Sdn. Bhd. & Anor Appeals [2019] 6 CLJ 588, this Court referred to the textbook by Datuk Professor Sundra Rajoo (special contributor Dr Thomas R Klotzel) entitled ‘UNCITRAL Model Law & Arbitrartion Rules – The Arbitration Act 2005 (Amended 2011 & 2018) and the AIAC Arbitration Rules 2018’ where the learned author set out the relevant principles in deciding a case under s. 37(1)(a)(iv) as follows: “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. 32 ...

37.85 The Canadian Supreme Court in Desputeaux v. Editions Chouette [1987] Inc 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 SpA 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. 33 ...

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 SA 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. 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 2005.”

55. The question of law submitted by the respondents in this case actually sought to go around the finding of fact by the learned Arbitrator that parties had agreed that the change to the 5 bridges is a “change of design” under Clause 27 of the COC. These are questions of mixed law and fact which the courts have made clear in various authorities that they are not to answer.

56. It seems to me the reference by the respondents to the High Court is an attempt to appeal a finding of fact by “dressing it up as an issue of law”. 34 The respondents could perhaps have relied on section 37(1)(9)(iv), (2)(b), and (3) of AA 2005. In Awangku Dewa Pgn Momin & Ors v. Superintendent of Lands and Surveys, Limbang Division [2015] 3 CLJ 1 this Court held as follows: “[22] In our judgment the eight ‘questions of law’ referred to the High Court are not genuine questions of law but rather an attempt to appeal against the decision of the arbitrator. If it had been a genuine move to refer questions of law to the High Court, then, the questions of law would have been concisely and clearly framed; and the questions posed need not have to be as many as eight. Instead, what we find in the originating summons, are not concisely and clearly framed questions of law, but rather criticisms of the decisions of the learned arbitrator drafted in the manner that one normally finds in the ‘grounds’ of a memorandum (or petition) of appeal (note the repeated usage of the phrase ‘erred in law’ in every ‘question’ that was posed). In other words, we find the ‘reference’ to be an attempt to appeal against the award (which the Act does not allow) but disguised as a ‘reference on questions of law’ under s. 42.”

57. In considering whether an arbitrator has addressed his mind to an issue, the court must be wary of its natural inclination to be drawn to the various arguments in relation to the substantive merits of the underlying dispute between the parties. In the context of a setting-aside application, it is crucial for the courts to recognise that these substantive merits are beyond its remit notwithstanding its natural inclinations. Put simply, there is no right 35 of recourse to the courts where an arbitrator has simply made an error of law and/or fact. A fortiori, the courts should guard against attempts by a disgruntled party to fault an arbitrator for failing to consider arguments or points which were never before him. The setting aside application is not to be abused by a party who, with the benefit of hindsight, wished he had pleaded or presented his case in a different way before the arbitrator. 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. (see: Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86. Conclusion

58. For the reasons set out above, the appeal is allowed with costs of RM30,000.00 here and below subject to the payment of allocator fee. Accordingly, the Award by the learned Arbitrator in relation to this appeal only and the order of the High Court is set aside. 36 AHMADI BIN HAJI ASNAWI, JCA:

59. I agree that the appeal should be allowed for the reasons given by my learned sister Hanipah Binti Farikullah, JCA. Dated 7th February 2020 Signed HANIPAH BINTI FARIKULLAH Judge Court of Appeal Malaysia Putrajaya Counsel/Solicitors: For the Appellant : Puan Shamsurryati Shamsudin [with Puan Azza Azmi dan Tuan Mohd Arif Ahmad Zamanhuri] Peguam Kanan Persekutuan Jabatan Peguam Negara Unit Timbangtara & ADR Bahagian Guaman Aras 6, No. 45, Persiaran Perdana Present 4, 62100 Putrajaya [Ref: PN/WKL/HQ/29/07/1/2017(16)] For the Respondents : Mr. Joseph Ting [with Mr. Alan Tan Fu Seng] Messrs. Joseph Ting & Co. Suite 10-14, 6th Floor, IOI Business Park No. 1, Persiaran Puchong Jaya Selatan Bandar Puchong Jaya 47170 Selangor Darul Ehsan [Ref: JTC/J/L/SC-JKR/2953/5Z/10]