LIZIZ STANDACO SDN BHD v Kerajaan Malaysia (WA-24NCC(ARB)-14-04/2025)

Enclosure 1 is the Originating Summons dated 18.4.2025 by the applicant, Liziz Standaco Sdn Bhd (“LSSB”) to set aside the arbitration award dated 20.1.2025 (“the Award”) in Arbitration No AIAC/D/ADM-1022-2021 (“the Arbitration") pursuant to Sections 37(1)(a) (vi) and/or 37(1)(b) (ii) and/or 37(2)(b) (i) and/or 37(2)(b) (ii) of the Arbitration Act 2005.

I have allowed Enclosure 1 for LSSB to set aside the Award pursuant to Section 37(1)(b) (ii) of the Arbitration Act 2005 on the ground that the Award is in conflict with the public policy of Malaysia where a breach of the rules of natural justice occurred during the Arbitration.

The dispute revolves around a development known as Perumahan Penjawat Awam 1 Malaysia (“the Development”). The Development is an affordable housing scheme launched by the respondent, the Government of Malaysia (“GoM”) to assist civil servants in purchasing houses.

By a Facilitation Fund Agreement dated 2.8.2017 (“the Agreement”) made between the GoM, LSSB and Bank Pembangunan Malaysia Berhad (“the Bank”), LSSB has undertook the construction of the Development, which consists of six (6) blocks of apartment in Kota Bharu, Kelantan (“the Project”).

To support the Project, GoM has committed to provide financial assistance to LSSB, in the form of a grant (“the Grant”). The Grant is in the form of a subsidy for eligible civil servants to purchase the homes in the Project. The Grant was to be disbursed progressively, based on the progress of the Project and the number of units sold to the civil servants.

LSSB encountered various problems during the construction period, leading to a dispute with GoM. One of the issues raised by LSSB was GoM’s delay to disburse the Grant.

There was also a delay in the completion of the Project within the designated time frame. The parties also disagreed on the legal interpretation of their contractual obligations. There is also a question of whether GoM has breached its duty to nominate buyers to sign the sale and purchase agreements with LSSB and/or to promptly disburse the Grant.

Due to these disputes, LSSB seeks compensation for losses and damages.

GoM had agreed to provide financial assistance in the form of the Grant to facilitate the development of the Project. The Agreement was signed with the Bank, whereby the Bank will disburse the Grant to LSSB.

There are five (5) agreed payment tranches for the disbursement of the Grant. In 2020, LSSB submitted a drawdown notice for the disbursement of the first tranche of the Grant (“the 1st Tranche”). However, there was a delay in the payment of the 1st Tranche. The 1st Tranche was eventually disbursed in 2022. There was a delay of 764 days.

The dispute in the Arbitration (“the Dispute”) was that there as a delay of 764 days in the release of the 1st Tranche. Following the delay, LSSB suffered damages as a result of the wrongful deprivation of the 1st Tranche.

LSSB also explained that the Project was only intended to be sold to civil servants and that GoM was responsible to nominate purchasers for the Project. LSSB pointed out that, at the material time, physical works for the Project was already at the stage of 65% but GoM had only nominated 15.9% of the purchasers. Accordingly, GoM’s failure to nominate purchasers have caused LSSB to suffer damages.

The issues to be determined by the sole arbitrator (“the Arbitrator”) were: -

Whether GoM bears the contractual duty to provide for the nomination of purchasers (“Question No 1”);

If yes, whether the disbursement of the Grant is based on physical development progress or the sale of units (“Question

If so, the determination of the quantum of damages (“Question No 3”);

The quantum of damages for the delay in releasing the 1st Tranche (“Question No 4”). Experts witness’ evidence given during the Arbitration [14] During the proceedings of the Arbitration, LSSB’s expert witness (“LSSB’s Expert Witness”) had presented different scenarios in respect of the issue of quantum of damages. The first scenario put forth was that, if GoM was responsible for the failure to disburse the Grant and to nominate purchasers, then 100% of the damages should be attributable to GoM (“the 1st Scenario”). [15] The second scenario presented by the LSSB’s Expert Witness was that, if GoM failed to disburse the Grant in a timely manner (which was the dominant cause of delay), then 100% of the damages should also be attributable to GoM (“the 2nd Scenario”). And the last scenario presented was that, if GoM failed to disburse the Grant in a timely manner (which is not the dominant cause of delay), then only 83.33% of the damages would be attributable to GoM (“the 3rd Scenario”). [16] For each of the scenarios presented by LSSB’s Expert Witness, LSSB intends to seek damages in five (5) specific heads, namely: -

Liquidated damages for delay in delivering vacant possession;

Additional financing cost;

Loss of opportunity (to reinvest in adjacent projects);

Loss of business profits (from adjacent projects);

Escalation of construction costs. [17] However, the Arbitrator, on his own accord, directed parties to provide expert evidence on what the cost of borrowings would be in the event LSSB were to borrow funds due to the deprivation of the 1st Tranche (“the Cost of Borrowings”). Following the directions by the Arbitrator, LSSB’s Expert Witness had identified the Cost of Borrowings at 12% per annum. On the other hand, the expert witness for GoM (“GoM’s Expert Witness”) had identified the Cost of Borrowings at 2.20% per annum. The Award [18] In delivering the Award, the Arbitrator had made the following findings: -

That GoM bears no contractual duty or obligation to provide for the nomination of purchasers for the Project;

That GoM has breached its obligations under the Agreement by delaying the disbursement of the 1st Tranche for a period of 764 days;

That LSSB should be compensated for the loss incurred during the period of late disbursement, and that the award shall be simple pre-award interest on the 1st Tranche at the rate of 5% per annum over 764 days. [19] The Arbitrator then delivered the Award in favour of LSSB as follows: -

That GoM pay to LSSB the sum of RM 3,347,251.64 as compensation for the 764 days delay in the disbursement of the 1st Tranche;

That GoM pay LSSB the costs in the sum of RM 324,812.28;

That GoM pay LSSB interest on all sums due under the Award, including costs, at the rate of 5% per annum from the date of the Award to the date of full and final settlement. Summary of LSSB’s case (in supporting Enclosure 1) The Arbitrator awarding interest at the rate of 5% per annum on the 1st Tranche [20] LSSB said that the Arbitrator had heard both parties’ expert witnesses providing their opinions in respect of the interest rate on the Cost of Borrowings. However, the Arbitrator proceeded to award the rate of 5% per annum without giving any notice or opportunity to either party to address on the reasonableness of such a rate. The Arbitrator’s decision to award 5% per annum was not based on the positions advanced by either LSSB’s Expert Witness or GoM’s Expert Witness. [21] LSSB argues that there is a legitimate expectation that the Arbitrator would consider the expert witness’ opinions. If the Arbitrator intends to deviate from the experts’ assessment, it would be expected for the Arbitrator to provide his reasoning thereto. LSSB argues that the approach taken by the Arbitrator was arbitrary and could not be reasonably anticipated and foreseen. The Arbitrator’s finding (on whether the GoM has a contractual duty to provide for the nomination of purchasers) is incoherent / irrational / inconsistent / cannot be reconciled / in breach of fair hearing principle [22] LSSB points out that the Arbitrator had made several inconsistent findings in respect of the recital clauses in the Agreement (“the Recital Clauses”). In the pleadings and submissions during the Arbitration, GoM had expressly admitted that the Recital Clauses amounted to a “statement of fact”. However, the Arbitrator found Recital D of the Agreement to be “legally binding”. The Arbitrator then observed that Recital D was merely to “… provide context and background information”. Later, the Arbitrator determined that Recital D “… lacks clarity regarding the requirement for nomination”. [23] LSSB argues that the Arbitrator had not made any attempts to reconcile the contrasting findings in respect of the Recital Clauses. The Arbitrator also failed to take into account the parties’ respective positions, given the fact that GoM had already admitted that the Recital Clauses amounted to a “statement of fact”. The Arbitrator’s failure to consider important issues that had been pleaded [24] LSSB argues that certain pleaded issues were not considered by the Arbitrator. For instance, LSSB had specifically pleaded that the conduct of the parties was a factor to be considered when construing and deciding whether GoM bears any contractual duty or obligation for the nomination of purchasers. However, the Arbitrator failed to consider and make such findings in the Award. [25] LSSB had also invoked the operation of the doctrine of estoppel against GoM (following GoM’s concession that Recital D is a statement of fact). However, the Arbitrator also failed to consider this issue and make any findings in the Award. [26] The Arbitrator had also failed to make any specific findings or explain his reasoning in rejecting the evidence given by LSSB’s Expert Witness, despite having acknowledged the existence of the 2nd Scenario and the 3rd Scenario, as well as the claim for escalation of construction costs. [27] Accordingly, LSSB submits that these omissions and failures by the Arbitrator to consider pleaded issues and key arguments (whether on liability or quantum) constituted a breach of natural justice. The Arbitrator’s failure to consider with a fair and open mind in respect of the award of interest on the 1st Tranche [28] LSSB argues that the Arbitrator had already formed an early view and had already pre-determined that the award of interest at 5% per annum on the 1st Tranche was an appropriate measure of LSSB’s loss and damage. [29] The Arbitrator had, on his own accord and without any request by either party, directed the expert witnesses to address him on the Cost of Borrowings. The Arbitrator then decided award 5% per annum on the 1st Tranche. The Arbitrator did not explain in the Award as to why this particular approach was preferred and why the views made by the expert witnesses was not followed. [30] LSSB argues that, had the Arbitrator kept a fair and open mind in respect of the appropriate measure of the LSSB’s loss and damage, the Arbitrator may have arrived at a different quantum determination, instead of proceeding to award interest at 5% on the 1st Tranche and concluding that the 5% constitutes an appropriate measure. The Award contains findings and / or application of legal principles that are in conflict with judicial precedents or high authorities [31] LSSB argues that the Award contains findings and / or application of legal principles that are in conflict will judicial precedents or high authorities. LSSB points out that the Arbitrator had stated that the Arbitration Act 2005 “expressly empowers” him to grant pre-award interest. The Arbitrator had also stated that the decision in Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang and other appeals [2018] 1 MLJ 1 is “no longer applicable". The Award does not fulfill the statutorily mandated form [32] LSSB argues that the Award does not fulfill the statutorily mandated form and contents. LSSB says that the Arbitrator is required to deliver a final award that is in compliance with the form mandated in Section 2 and 33 of the Arbitration Act 2005. However, in this instance, the Arbitrator has failed to state the seat of the arbitration. Therefore, LSSB argues that the failure by the Arbitrator to state the seat of the arbitration as part of the dispositive portion of the Award renders the Award invalid. The Arbitrator’s failure to treat each party equally [33] LSSB submits that the Arbitrator is under a duty to treat each party equally and to give each party a fair hearing pursuant to Section 20 of the Arbitration Act 2005 and Rule 13.1 of the AIAC Arbitration Rules 2021. However, the Arbitrator breached these duties when he awarded interest at the rate of 5% without giving the parties an opportunity to address. The Award is not a reasoned award [34] LSSB argues that the Arbitrator has failed to make proper findings and reasonings; and has thus failed to make a reasoned award in respect of the following matters: -

Failed to explain as to why the rate of 5% per annum was preferred and awarded over that of the opinion of both parties’ expert witnesses;

Failed to explain the appropriateness of such an award;

Failed to take into account the conduct of parties in relation to the nomination of the purchasers;

Failed to invoke the doctrine of estoppel;

Failed to take into consideration LSSB’s claim for damages pursuant to the 2nd Scenario and the 3rd Scenario. Summary of GoM’s case (in opposing Enclosure 1) [35] GoM argues that the Award should not be set aside as LSSB’s grounds for challenging the Award is merely an attempt to re-open and re-argue the merits of the dispute. GoM points out that both parties were afforded the opportunity to present their case through documentary evidence, oral testimony (including both factual and expert witnesses) and written submissions. LSSB’s counsels were also given the opportunity to cross-examine GoM’s factual witness and expert witness. [36] GoM states that the Arbitrator had addressed and dealt with all the issues in dispute and had rendered his findings through reasoned analysis of the pleadings, contractual provisions, legal principles, evidence and submission. The Arbitrator awarding interest at the rate of 5% per annum on the 1st Tranche [37] GoM argues that the award of interest was clearly within the scope of the arbitral reference. The Arbitrator was entitled to award interest on the late disbursed amount as compensatory damages for breach of contract under Section 74 of the Contract Act 1950. [38] GoM also avers that the Arbitrator had exercised his discretion to award interest at 5% per annum as a fair and reasonable measure of compensation after weighing both positions. The rate of 5% was not arbitrarily selected but it was a principled assessment. GoM submits that the Arbitrator was not bound to accept either LSSB’s suggested rate of 12% per annum or GoM’s suggested rate of 2.2%. The Arbitrator’s finding (on whether the GoM has a contractual duty to provide for the nomination of purchasers) is incoherent / irrational / inconsistent / cannot be reconciled / in breach of fair hearing principle [39] GoM argues that the issue is not whether Recital D of the Agreement is binding or not, but rather, whether the GoM bears the contractual duty or obligation to provide for the nomination of purchasers. This question has to be answered by the reading of the Agreement as a whole, and not just on the sole construction of Recital D alone. [40] Although the Arbitrator has stated that Recital D is legally binding, this does not necessarily mean that Recital D imposes an obligation on GoM to nominate purchasers. Failure to consider important issues that had been pleaded [41] GoM submits that the Arbitrator did not fail to consider the conduct of the parties in relation to the obligation to nominate purchasers, stating that the Arbitrator has already done so, particularly when the Arbitrator considered GoM’s role and involvement in the Project. GoM submits that LSSB is merely challenging the merits of the Award and to re-litigate the matters. [42] On the issue of invoking the doctrine of estoppel against GoM (following GoM’s concession that Recital D is a statement of fact), GoM argues that, while the Arbitrator may not have expressly engaged in a detailed estoppel analysis, a fair reading of the Award would show that he had dealt with the issue when he considered the nature, effect and legal consequences of Recital D. Therefore, GoM argues that, the Arbitrator, by concluding that Recital D could not be interpreted as giving rise to legal consequences, the Arbitrator had implicitly rejected the basis of estoppel. [43] On the issue of the Arbitrator failing to make any specific findings or explain his reasoning in rejecting the evidence given by LSSB’s Expert Witness (despite acknowledging the existence of the 2nd Scenario and the 3rd Scenario, as well as the claim for escalation of construction costs), GoM argues that a fair reading of the Award confirms that the Arbitrator had rejected the entire foundation upon which those scenarios were constructed. The expert witness’ assessment on the escalation of construction costs was also not ignored, but was subsumed within the overall rejection of the expert witness’ evidence. The Arbitrator’s failure to consider with a fair and open mind in respect of the award of interest on the 1st Tranche [44] GoM argues that the Arbitrator had already invited the parties to submit on the Cost of Borrowings, but ultimately rejected LSSB’s Expert Witness. Therefore, there is no basis to suggest that the Arbitrator had pre-judged the matter. Accordingly, GoM submits that the Arbitrator’s adoption of a methodology or quantum not expressly advanced by either party does not constitute a breach of natural justice, provided that the decision is based on evidentiary record and does not involve reliance on extraneous or undisputed material. The Award contains findings and / or application of legal principles that are in conflict with judicial precedents or high authorities [45] GoM argues that the Arbitrator’s award of pre-award interest is not a conflict with any judicial precedent or high authorities. On the contrary, it is consistent with established principles of contract law and arbitral discretion recognized under Malaysian jurisprudence. The Award does not fulfill the statutorily mandated form [46] GoM argues that neither Section 2 and Section 33 of the Arbitration Act 2025 mandates that the seat of arbitration must be expressly stated in the dispositive portion of the Award. It is sufficient that the seat of arbitration is clearly stated somewhere in the Award, such as in the introductory or background sections. In the present case, the Award clearly identifies “Kuala Lumpur, Malaysia” as the seat of arbitration (at paragraph 23 of the Award). Accordingly, the Award, read as a whole, complies with all the statutory elements and does not suffer from any formal defects. The Arbitrator’s failure to treat each party equally [47] GoM argues that both parties were given ample opportunity throughout the arbitral proceedings to adduce evidence and make submissions on the issue of pre-award interest. The Award is not a reasoned award [48] GoM argues that the Award is a reasoned and valid award which had dealt with all the key issues raised in the Arbitration. The Arbitrator has made findings on all material issues in dispute, namely: -

Determination of ownership of the Project;

Determination of GoM’s obligation to nominate purchasers;

Determination of GoM’s breach of the Agreement by delaying the release of the 1st Tranche;

Rejection of LSSB’s primary and alternative claim for damages;

The basis and reasoning of awarding interest. Finding by the Court [49] LSSB is applying to set aside the Award pursuant to Section 37(1)(a) (vi), Section 37(1)(b) (ii), Section 37(2)(b) (i) and Section 37(2)(b) (ii) of the Arbitration Act 2005. [50] Section 37(1)(a) (vi) of the Arbitration Act 2005 states that an award may be set aside by the High Court only if the party making the application provides proof that: - “(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” [51] Section 37(1)(b) (ii) of the Arbitration Act 2005 states that an award may be set aside by the High Court only if the High Court finds that: “(ii) the award is in conflict with the public policy of Malaysia.” [52] Section 37(2)(b) (i) and (ii) of the Arbitration Act 2005 states that an award is in conflict with the public policy of Malaysia where a breach of the rules of natural justice occurred: - “(i) during the arbitral proceedings; or

(ii) in connection with the making of the award.” LSSB’s grounds for challenging the Award [53] LSSB is challenging the Award on two grounds, namely: - (a) that the Award is in conflict with the public policy of Malaysia, in that a breach of the rules of natural justice had occurred during the Arbitration; (b) that the arbitral procedure was not in accordance with the agreement of the parties and / or not in accordance with the Arbitration Act 2005. [54] LSSB argues that the Award can be challenged on the grounds of public policy and breach of natural justice, in that the Arbitrator’s finding that GoM bears no contractual duty or obligation to provide nomination of purchasers is manifestly in breach of the fair hearing principle. In this respect, LSSB argued that the Arbitrator had failed to consider the following issues: -

The conduct of parties in relation to the nomination of the purchasers;

The doctrine of estoppel (as GoM had admitted that Recital D of the Agreement is a statement of fact);

LSSB’s Expert Witness’ opinion on the three scenarios;

The head of damages (on the issue of escalation of construction costs);

To consider with a fair and open mind on whether the award of interest on the 1st Tranche was an appropriate measure of loss or damage;

Awarding interest at the rate of 5% per annum without giving the parties notice and without affording an opportunity to address;

Awarding pre-award interest pursuant to section 33(6) of the Arbitration Act 2005 in the absence of an express agreement between the parties. [55] LSSB had also argued that the Award can be challenged on the ground that the arbitral procedure was not in accordance with the Arbitration Act 2005, in that the Arbitrator had failed to ensure that the Award fulfills the statutory mandated form and contents. [56] LSSB also argued that the Arbitrator had failed to ensure that each party is being treated equally and given a fair and reasonable opportunity to present before awarding the interest on the 1st Tranche at 5% per annum. The Arbitrator had also failed to make a finding or provide reasons in respect of: -

The award of interest on the 1st Tranche at 5% per annum;

The conduct of the parties in relation to the nomination purchasers;

Invocation of the doctrine of estoppel in respect of Recital D of the Agreement;

The issue of quantum presented in the 2nd Scenario and the 3rd Scenario. Findings [57] I have allowed Enclosure 1 for LSSB to set aside the Award pursuant to Section 37(1)(b) (ii) of the Arbitration Act 2005 on one

ground only, which is that the Award is in conflict with the public policy of Malaysia where a breach of the rules of natural justice occurred during the Arbitration when the Arbitrator awarded interest at the rate of 5% per annum without giving the parties notice and without an opportunity to address and failing to consider with a fair and open mind on whether the award of interest on the 1st Tranche was an appropriate measure of loss or damage. [58] As for the other grounds put forth by LSSB, I do not find those grounds cogent enough to warrant the setting aside of the Award, on the reasonings which I shall explain hereafter. The Arbitrator awarding interest at the rate of 5% per annum on the 1st Tranche [59] GoM had painstakingly pointed out that the Arbitrator had carefully considered the expert evidence adduced by both parties on the appropriate interest rate, namely, LSSB’s Expert Witness suggesting a 12% per annum for the Cost of Borrowings, while GoM’s Expert Witness indicating a lower rate of 2.2% per annum. After weighing both positions, the Arbitrator exercised his discretion to award interest at 5% per annum as a fair and reasonable compensation to LSSB for the delay in receiving the 1st Tranche over a period of 764 days (at paragraphs 223 to 228 of the Award). Therefore, it was suggested by GoM, that the rate of 5% per annum was not arbitrarily selected. [60] GoM had also argued that the Arbitrator was not bound to accept either LSSB’s Expert Witness’ suggested rate of 12% per annum or GoM’s Expert Witness’ suggested rate of 2.2% per annum, relying on the authority of Hindustan Oil Exploration Co Ltd v Hardy Exploration & Production (India) Inc [2023] 4 MLJ 113. Accordingly, GoM contends that the Arbitrator’s award of interest at 5% per annum was a lawful, fair and reasoned exercise of discretion. [61] However, I find that the issue here is not about the Arbitrator exercising his discretion to award interest at 5% per annum. The Arbitrator had recognized that both parties’ expert witnesses had provided their respective expert opinions on the applicable interest rate (at paragraphs 224 and 225 of the Award). However, the Arbitrator (at paragraph 226 of the Award) proceeded to award the rate of 5% per annum without giving parties notice or the opportunity to address him on the reasonableness of the rate or test each other’s position in respect of the rate. Hence, the Arbitrator’s decision was not based on positions advanced by either party, nor does it reflect positions taken by parties based on evidence available. [62] A similar situation arose in Kebabangan Petroleum Operating Co Sdn Bhd v Malaysia Marine and Heavy Engineering Sdn Bhd and another appeal [2025] 4 MLJ 214, where Wan Ahmad Farid bin Wan Salleh JCA (as His Lordship then was) observed as follows: - “[16] As to the first ground, we take note that the tribunal did not make any attempt to appreciate any of the arguments with respect to the sum of RM 27,241,178.02 being the component of subclaims. What was more glaring was there was no explanation from the tribunal as to how did it arrive at the claimed amount of RM 27,241,178.02 when Kebabangan’s expert witness had assessed and valued Kebabangan’s claim at RM 14,162,655. [17] While we agree that the tribunal is not bound to accept the position advanced by either expert, as pointed out by the learned judge, it would only be fair to expect the tribunal to discuss each subclaim under claim 1. The subclaims in claim 1 are based on their own respective set of evidence, supporting documents and computation. [18] In the circumstances of the case, we respectfully agree with the learned judge that the tribunal was in breach of the rules of natural justice in connection in concluding of the award since it had disregarded the opinion of the parties’ experts and the submissions made by the parties on the issues in respect of each of the subclaim in claim 1. As stated by the Singapore Court of Appeal in Pacific Recreation Pte Ltd v SY Technology Inc [2008] 2 SLR(R) 491 (CA), a breach of natural justice occurs if, in the course of reaching its decision, the tribunal disregarded the submissions and arguments made by the parties on the issues without considering the merits thereof. As correctly pointed out by the learned judge, had the tribunal considered and made known its findings on each of the subclaims, it may well be that the tribunal would not have awarded the full amount as claimed by Kebabangan” … [30] Make no mistake. It is trite that a tribunal, just like a court, is not bound to accept expert evidence. However, if an expert opinion is accepted or rejected, a tribunal must give a cogent reason for doing so: see United Asian Bank Bhd v Tai Soon Heng Construction Sdn Bhd [1993] 1 MLJ 182 (SC). In the instant appeal, the arbitral tribunal did not assign any reason, let alone a cogent one, in awarding a sum much higher than the assessment made by Kebabangan’s own expert witness.” [63] The High Court (whose decision was affirmed by the Court of Appeal) in Kebabangan Petroleum Operating Company Sdn Bhd v Malaysia Marine and Heavy Engineering Sdn Bhd and another case [2023] MLJU 1995 had earlier observed that: - “[75] In the arbitration, the parties were at pains to appoint their experts, who thereafter produced JS-1, and to also make submissions on the experts’ opinions. It is fair to say that there is a legitimate expectation that the Tribunal would consider the contents of the experts’ reports and JS-1, and the parties’ submissions on these documents in arriving at a decision on the quantum for Claim

… [79] Applying the legal principles in the cases of high authority as alluded to previously, it is my considered view that the Tribunal is in breach of the rules of natural justice in connection with the making of the Award as the Tribunal had, regretfully, in the course of reaching its decision, disregarded the opinion of the parties’ experts and the submissions made by the parties on the issues in respect of each of the sub-claim under Claim 1. [80] This breach is indeed serious because, had the Tribunal considered and made known its findings on each of the sub-claim, it may well be that the Tribunal would not have awarded the full amount as claimed by KPOC, despite accepting the methodology advanced by KPOC. There is no doubt in my mind that the breach of the rules of natural justice in this case is significant and has a real impact on the outcome of the arbitral proceedings. [81] Further, as per the test laid down in Jan De Nul (supra), MMHE has established that this is a deserving case for the Award to be set aside on the ground of it being in conflict with the public policy of Malaysia as the basic notions of morality and justice was violated. Upholding the Award in the circumstances of this case would be injurious to the public good or wholly offensive to the ordinary reasonable and fully informed member of the public in the light of the failure of the Tribunal to fully address the submissions of the parties in relation to each of the sub-claim under Claim 1 and to justify the quantum awarded in the sum as claimed by KPOC and the rejection of the assessment made by PB and CEH.” [64] Having engaged expert witnesses to deal with matters concerning quantum of LSSB’s claim, and, further, with the Arbitrator himself having directed the expert witnesses to provide their respective expert opinion in respect of the applicable interest rate, there is a legitimate expectation that the Arbitrator would consider the expert’s assessment in determining the applicable rate to be applied, if any, in arriving at his decision and to provide his chain of reasoning in the event he wishes to deviate from the experts’ assessment. [65] In Ahmani Sdn Bhd v Petronas Penapisan (Melaka) Sdn Bhd [2015] 11 MLJ 32, where the complaint was that there was a breach of natural justice during the arbitral proceedings or in connection with the making of the award, when the tribunal dealt with the factor of inflation without first inviting the parties to submit or address on the factor, the High Court had observed that: - “[43] In general, the parties have a right to be heard effectively on every issue that may be relevant to the resolution of the dispute. The overriding concern is fairness and the opportunity to be heard before the pronouncement or decision is made. Therefore, in keeping with that rule, the arbitral tribunal should not base its decision on matters that the parties have not submitted on. Although the arbitral tribunal is not required to select any one of the arguments or approaches articulated by the parties, it is perfectly entitled to steer a middle course through all the arguments made in order to reach its own conclusions or findings; any conclusion or finding reached nevertheless must be based on evidence placed before the arbitral tribunal. While the arbitral tribunal does not have to consult the parties on its thinking process before finalising its award, it must consult the parties where the argument by which it reaches its decision is one which does not reasonably flow from any of the already argued or submitted premises — see Soh Beng Tee & Co Ltd v Fairmount Development Pte Ltd [2007] SGCA 28; [2007] 3 SLR (R) 86, discussed in The Government of India v Cairns Energy & Anor [2014] 9 MLJ 149. Where the arbitral tribunal has done so, as is alleged here, then a case of a breach of natural justice is made out. … [49] With respect, this is where the arbitral tribunal has exceeded its jurisdiction. Where the arbitral tribunal wants to do more, which it obviously wanted in this case, including introducing the matter or element of inflation, as well as offer its views as to the value of that factor of inflation; the arbitral tribunal was obliged to go back to the parties. There, it may sound out its concerns, bring up this matter of inflation and even offer its view as to the value of the inflation as well as the source or evidence of that value and then, invite views or submissions of the parties on the matter. The arbitral tribunal is obliged to do so because it takes its jurisdiction from the submission of the parties. Although the parties may have submitted the matter of the counterclaim for the arbitral tribunal’s determination, it was only within the terms as found in the points of claim, defence etc. The evidence was entirely of the parties’ making and responsibility; not the arbitral tribunal’s. The arbitral tribunal does not have inherent or residual powers or jurisdiction in these matters which are almost entirely dictated by the parties. [50] Hence, the arbitral tribunal ought to have invited the parties to address or make further submissions first before it proceeded to consider and to make this particular item of award. It is this failure that gives merit to Ahmani’s complaint that the award contains a decision on a matter beyond the scope of the submission to arbitration under sub-para 37(1)(a) (v).” [66] Therefore, I accept LSSB’s contention that the Arbitrator’s approach in respect of the 5% rate was arbitrary and could not have been reasonably anticipated. The reasoning cannot be deduced due to the absence of such reasoning in the Award, as well as from the arguments and evidence presented during the Arbitration. Had the parties been alerted that the Arbitrator intended to proceed as he did, or invited parties’ views, LSSB could possibly have persuaded the Arbitrator to reach a result in LSSB’s favour, or if not a result less adverse to LSSB and, thus, will have a material impact to the Arbitrator’s determination or outcome of the Arbitration. [67] Accordingly, I find that LSSB has successfully established, on this ground (in respect of the award of interest at the rate of 5% per annum on the 1st Tranche), that the Award is in conflict with the public policy of Malaysia where a breach of the rules of natural justice occurred during the Arbitration. Other grounds relied by LSSB [68] As I have allowed the application to set aside the Award solely on the first ground, I do not wish to discuss each of the other grounds individually and separately. Instead, I wish to canvass these other following grounds and issues collectively: -

The Arbitrator’s finding (on whether the GoM has a contractual duty to provide for the nomination of purchasers) is incoherent / irrational / inconsistent / cannot be reconciled / in breach of fair hearing principle;

The Arbitrator’s failure to consider important issues that had been pleaded;

The Award contains findings and / or application of legal principles that are in conflict with judicial precedents or high authorities;

The Award does not fulfill the statutorily mandated form;

The Award is not a reasoned award (with the exception of the issue of why the rate of 5% per annum was preferred and awarded over that of the opinion of both parties’ expert witnesses). [69] In this respect, Section 37(1)(b) (ii) of the Arbitration Act 2005 states that an award may be set aside by the High Court only if the High Court finds that the award is in conflict with the public policy of Malaysia. [70] The words “may be set aside” in Section 37(1) allow the court to retain a residual discretion not to set aside an arbitral award even if the ground for setting aside is established. There must be minimal judicial intervention in arbitral awards in order to uphold the principle of finality in arbitration. [71] In Jan De Nul (M) Sdn Bhd & Anor v Vincent Tan Chee Yioun & Anor [2019] 2 MLJ 413, the Federal Court held that even though the court finds that a breach of the rules of natural justice has been established or that an arbitral award is in conflict with the public policy under section 37 of the Arbitration Act 2005, it does not necessarily mean that the award must be set aside as a matter of course. The power of the court to set aside an award under section 37 is discretionary and will not be exercised automatically in every case where the complaints are established. [72] The guiding principles on the exercise of the court’s residual discretion when confronted with an application to set aside an award grounded on breach of natural justice was stated in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd [2020] 12 MLJ 198 where the Federal Court lay down the following considerations: -

First, the court had to consider:

which rule of natural justice was breached;

(ii) how it was breached;

(iii) 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 was relatively immaterial or was not likely to have affected the outcome of the arbitration, the application to set aside would be refused;

Fourth, even if the court found that there as a serious breach, if the breach would not have had any real impact on the result and the arbitral tribunal would not have reached a different conclusion, the court might refuse to set aside the award;

Fifth, where the breach was significant and might have affected the outcome, the award might be set aside;

Sixth, in some instances, the significance of the breach might be so great that the setting aside of the award was practically automatic, regardless of the effect on the outcome of the award;

Seventh, the discretion given 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 were relevant factors for consideration by the court; and

Eight, whilst materiality and causative factors were necessary to be established, prejudice was not a pre-requisite or requirement to set aside an award for breach of the rules of natural justice. [73] I have considered the seriousness of the breaches contained in these other grounds relied on by LSSB [namely: - (a) The Arbitrator’s finding (on whether the GoM has a contractual duty to provide for the nomination of purchasers) is incoherent / irrational / inconsistent / cannot be reconciled / in breach of fair hearing principle; (b) The Arbitrator’s failure to consider important issues that had been pleaded; (c) The Award contains findings and / or application of legal principles that are in conflict with judicial precedents or high authorities; (d) The Award does not fulfill the statutorily mandated form; (e) The Award is not a reasoned award (with the exception of the issue of why the rate of 5% per annum was preferred and awarded over that of the opinion of both parties’ expert witnesses)], and conclude that there are no serious breaches and that the breaches are minor, insignificant and inconsequential in nature and has no material or substance to affect the outcome and result of the arbitral proceedings. [74] As such, I shall be retaining the discretion allowed under Section 37(1) and pursuant to the legal principles set by the Federal Court in Jan De Nul (M) Sdn Bhd. & Anor v Vincent Tan Chee Yioun & Anor [2019] 2 MLJ 413 and Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd [2020] 12 MLJ 198, I conclude that these other grounds are not serious enough to warrant the setting aside of the Award. Similar and overlapping grounds relied by LSSB [75] The remaining two (2) grounds relied by LSSB (as stated below) appears to share similar and overlapping issues as the first ground (namely, the Arbitrator awarding interest at the rate of 5% per annum on the 1st Tranche): -

The Arbitrator’s failure to consider with a fair and open mind in respect of the award of interest on the 1st Tranche;

The Arbitrator’s failure to treat each party equally. [76] As the issues in these remaining two (2) grounds are similar and overlapping, and considering that I have allowed LSSB’s application on the first ground, I do not wish to discuss and cover these two grounds. Conclusion [77] Accordingly, for the reasons above, Enclosure 1 is allowed with costs fixed at RM 10,000.00 subject to allocator. Dated the 8th day of December 2025 …………………………………….. DR. SEOW HOCK PENG Judicial Commissioner High Court (Commercial Division Ncc2 & Admiralty) High Court of Kuala Lumpur In the Federal Territory, Malaysia Counsel for Plaintiff: Mr Mohanadass Kanagasabai together with Miss Kalashini Sandrasegaran, Mr Ahmad Taqiyuddin Mohd Radzi (PDK); and Mr Aaron Aiman (Messrs. Shukor Baljit & Partners) Counsel for Defendant: Puan Zureen Elina binti Mohd Dom (SFC) together with Tuan Howlette Teng Wei Yip (FC) and Tuan Nasaa'i Muhammad bin Bkhtiyar (FC) (Jabatan Peguam Negara)

Jan De Nul (M) Sdn. Bhd. & Anor v Vincent Tan Chee Yioun & Anor [2019] 2 MLJ 413 2. Master Mulia Sdn. Bhd. v Sigur Rus Sdn. Bhd. [2020] 12 MLJ 198 3. Hindustan Oil Exploration Co Ltd v Hardy Exploration & Production (India) Inc [2023] 4 MLJ 113 4. Kebabangan Petroleum Operating Co Sdn Bhd v Malaysia Marine and Heavy Engineering Sdn Bhd and another appeal [2025] 4 MLJ 214 5. Kebabangan Petroleum Operating Company Sdn Bhd v Malaysia Marine and Heavy Engineering Sdn Bhd and another case [2023] MLJU 1995 6. Ahmani Sdn Bhd v Petronas Penapisan (Melaka) Sdn Bhd [2015]

Sections 2; 20; 33; 37(1)(a)(vi) and/or 37(1)(b)(ii) and/or 37(2)(b)(i) and/or 37(2)(b)(ii) of the Arbitration Act 2005 2.

Rule 13.1 of the AIAC Arbitration Rules 2021