Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd (W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017)

Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 1 DALAM MAHKAMAH RAYUAN MALAYSIA [BIDANG KUASA RAYUAN] RAYUAN SIVIL NO: W-02(C)(A)-4-01/2017 ANTARA PANCARAN PRIMA SDN BHD (No. Syarikat: 483605-H) …PERAYU DAN ISWARABENA SDN BHD (No. Syarikat: 454984-U) …RESPONDEN [Dalam Mahkamah Tinggi Malaya di Kuala Lumpur Dalam Wilayah Persekutuan, Malaysia (Bahagian Sivil) Saman Pemula No.: WA-24C(ARB)-4-02/2016 Dalam perkara timbangtara antara Pancaran Prima Sdn Bhd dan Iswarabena Sdn Bhd Dan Dalam perkara Awad Muktamad bertarikh 11hb Januari 2016 oleh Penimbangtara, Chong Thaw Sing Dan Dalam perkara Seksyen 37 Akta Timbangtara 2005 Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 2 Dan Dalam perkara Seksyen 37 dan Seksyen 42 Akta Timbangtara 2005 Dan Dalam perkara mengenai Aturan 7 Kaedah-Kaedah Mahkamah 2012 Antara Iswarabena Sdn Bhd …Plaintif (No. Syarikat: 454984-U) Dan Pancaran Prima Sdn Bhd (No. Syarikat: 483605-H) …Defendan Diputuskan oleh Hakim Mahkamah Tinggi Malaya Yang Arif Dato’ Lee Swee Seng pada 22hb November 2016] HEARD TOGETHER WITH DALAM MAHKAMAH RAYUAN MALAYSIA [BIDANG KUASA RAYUAN] RAYUAN SIVIL NO: W-02(C)(A)-5-01/2017 ANTARA PANCARAN PRIMA SDN BHD (No. Syarikat: 483605-H) …PERAYU DAN ISWARABENA SDN BHD (No. Syarikat: 454984-U) …RESPONDEN Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 3 [Dalam Mahkamah Tinggi Malaya di Kuala Lumpur (Bahagian Mahkamah Pembinaan) Guaman No.: WA-24C(ARB)-3-02/2016 Dalam perkara timbangtara antara Pancaran Prima Sdn Bhd dan Iswarabena Sdn Bhd Dan Dalam perkara Awad Akhir yang dibuat dan diumumkan pada 11.1.2016 oleh En. Chong Thaw Sing Dan Dalam perkara Seksyen 38 dan 50 Akta Timbangtara 2005 (semakan 2011) Dan Dalam perkara Aturan 7 dan 69 Kaedah-kaedah Mahkamah 2012 Dan Dalam Perkara Bidang Kuasa Sedia Ada Mahkamah Yang Mulia ini Antara Pancaran Prima Sdn Bhd (No. Syarikat: 483605-H) …Plaintif Dan Iswarabena Sdn Bhd …Defendan (No. Syarikat: 454984-U) Yang diputuskan oleh Yang Arif Hakim Tuan Lee Swee Seng pada 22hb November 2016] Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 4 CORAM: ABANG ISKANDAR BIN ABANG HASHIM, HMR KAMARDIN BIN HASHIM, HMR HASNAH BINTI DATO’ MOHAMMED HASHIM, HMR JUDGMENT OF THE COURT Introduction [1] There are two appeals brought before us, both by the Appellant. In the first appeal (‘appeal No. 4’), the Appellant appealed against the whole decision of the High Court Judge (‘presiding Judge’) in allowing the Respondent’s claim in part in Originating Summons No. WA-24(ARB)-4- 02/2016 with costs. The second appeal (‘appeal No. 5’) by the same Appellant is against the dismissal of the Appellant’s claim in Originating Summons No. WA-24C(ARB)-3-02/2016 with costs. There is a cross-appeal by the Respondent in appeal No. 4 against the decision of the presiding Judge in affirming the decision of the learned Arbitrator on the issue of value of the completed works done by the Appellant. [2] These appeals and cross-appeal had eminated from the arbitration award dated 11.1.2016 issued by Mr. Chong Thaw Sing (‘the learned Arbitrator’) in respect of an arbitration between the Appellant and the Respondent. The appeals and cross-appeal are against the presiding Judge’s decision delivered on 22.11.2016 in partially allowing the Respondent’s Originating Summons by setting aside a portion of the arbitration award and remitting certain parts of the arbitration award back to the learned Arbitrator for his reconsideration. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 5 [3] We heard the Appellant’s appeal No. 4 first. And as agreed by both parties, the outcome of that appeal will finally determine the Appellant’s appeal No. 5 and as well as the Respondent’s cross-appeal. Having heard submissions for appeal No. 4, we reserved our decision for deliberation (CAV). We now deliver our decision, which is unanimous. Background Facts [4] Iswarabena Sdn Bhd (‘Respondent’) was employed by Projek Lebuhraya Utara Selatan (PLUS) as the main contractor to construct the Sungai Buaya Interchange and Toll Plaza at the North South Highway (‘the Project’). [5] The Respondent appointed Pancaran Prima Sdn Bhd (‘Appellant’) as its domestic subcontractor in respect of vehicular box culvert and drainage works (‘VBC works’ and ‘Drainage works’ respectively, and ‘Works’ collectively) vide a Letter of Appointment dated 18.7.2011 (‘the Subcontract’). [6] The Respondent exercised its right to terminate the Subcontract on the ground that Works had been delayed more than 20% financially by issuing a notice of intention to terminate on 26.3.2012. It followed by a termination notice dated 12.4.2012. [7] On or about the date of termination, the parties conducted a joint measurement and signed a joint measurement sheet agreeing to the quantities of Works done under the Subcontract. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 6 [8] Aggrieved, the Appellant commenced arbitration against the Respondent before a sole arbitrator. The main issue at the arbitration was whether the termination was wrongful. [9] On 11.1.2016, the learned Arbitrator issued a Final Award (‘the Award’) and held that the termination was wrongful as the condition in the termination clause i.e. Clause 12 of the Subcontract which requires the Works delay more than 20% financially had not been met as at the date of the termination (‘Termination Ruling’). As a result, the learned Arbitrator awarded inter-alia the following to the Appellant:

Pursuant to section 37(1)(a)(v) and section 37(2)(b) of the Arbitration Act 2005 (‘the Act’), the learned Arbitrator had Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 7 breached the rules of natural justice and/or had exceeded his jurisdiction (‘Section 37 Application’) which challenges the Loss of Profits Ruling; and/or in the alternative,

Pursuant to section 42 of the Act which challenges all the three rulings (Termination Ruling, Value of Completed Works Ruling and Loss of Profit Ruling) on the ground that the learned Arbitrator had committed errors of law (‘Section 42 Application’). [11] There are 4 questions of law arising out of the Award posed by the Respondent to be determined by the learned presiding Judge, as follows: 1st Question of Law [on Liability]: Whether Clause 12 of the Contract, read in its entirely and within the context of the Contract itself, allows physical progress of the Defendant (as opposed to its financial progress) to be applied as the contractual benchmark for termination. 2nd Question of Law [on Liability]: Whether on a true construction of Clause 12 within the context of the Contract, 28% could have been applied as the financial progress of the Defendant at the time of termination. 3rd Question of Law [on Quantum]: Whether the Learned Arbitrator has misconstrued Clauses 2 and 12 in the context of the Contract to award the costs of completed works based on the percentage of 28%. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 8 4th Question of Law [on Quantum]: Whether the Learned Arbitrator is entitled to make assumptions or apply his own perception of industry standards on profit margins to award loss of profit in the absence of evidence by the Defendant on such loss. At the High Court [12] At the High Court, the learned presiding Judge heard both the Originating Summons and ruled in favour of the Respondent in respect of the Termination Ruling and Value of Completed Works Ruling. The learned presiding Judge held that the learned Arbitrator did not have a basis when concluding that the delay threshold of 20% financially had not been met. The quantities of Works done as at the date of termination cannot be disputed as the parties had conducted a joint measurement and had jointly signed a measurement sheet with agreed-quantities. [13] On the learned Arbitrator’s finding that the actual financial progress was 28% when the termination occurred, the learned presiding Judge held that based on the agreed quantities, the actual financial progress as at 12.4.2012 i.e. the date of termination is only 9% or that as pleaded by the Respondent i.e. 11.37%. The learned presiding Judge found that the figures used by the learned Arbitrator refers to physical progress instead of financial progress. [14] Therefore, the learned presiding Judge found that there was no basis for awarding the appellant the Loss of Profits Ruling which would only arise in case of wrongful termination. The court set aside the learned Arbitrator’s Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 9 decision and held that the termination of the Appellant is lawful and set aside the Loss of Profits Ruling as assessed by the learned Arbitrator for the Appellant. [15] On the issue of Value of the Completed Works Ruling, the court further found that the questions of what is fair and reasonable method of compensating the Appellant for Works done before the termination is a mixed question of law and of fact. Therefore, it does not fall within section 42 of the Act. The court found that Clause 2 of the Subcontract states that the lump sum figure would remained and there shall be no variation in the lump sum figure arising either out of under estimation or error on the part of the Appellant. The early termination does not change the character to a measurement contract or a provisional quantities contract. Therefore, there is no ground for a judicial intervention, and the reasons given by the learned Arbitrator in awarding the Appellant for the Works done was sensible and sound. [16] In short, the learned presiding Judge allowed partly the section 42 Application and held inter alia as follows:

(1) That the learned presiding Judge had erred in law and/or fact in: was not given a chance to address; Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 12 and

(2) That the learned presiding Judge had erred in law and/or fact in: Arbitrator himself, on the basis of his own assumptions or his own perception of industry standards on profit margin without any evidence by the parties on such basis; and

(3) That the learned presiding Judge had erred in law and/or fact in: Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 13 Subcontract by evaluation of Works completed at 28% of the total contract sum; and [21] Learned counsel for the Respondent concluded that all the four issues above stated should be resolved in favour of the Respondent. Premised on the above, learned counsel urged upon us to dismiss the Appellant’s appeals with costs and that the Respondent’s cross-appeal be allowed with costs, with the relevant consequential orders. Our Decision [22] The issue for the determination before the learned Arbitrator was an issue on termination of the Subcontract which is relevant to determine the quantum of compensation to be paid, if any to the Appellant, the Subcontractor. This issue of termination is embedded in Clause 12 of the Subcontract agreement which we reproduce below: “12. Termination Iswarabena Sdn Bhd reserves the right to terminate this arrangement by giving the Sub-Contractor fourteen (14) days prior written notice if the works is delay more than 20% financially. Thereafter, the Sub-Contractor shall have no further claims against Iswarabena Sdn Bhd as the Main Contractor, subject to the Sub-Contractor’s right under contract and tort. Notwithstanding above, should the Sub-Contractor withdraw from the services, the Sub-Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 14 Contractor will not be entitled to payment for works done and unless and except for reasons not occasioned by default of the Sub-Contractor, the Sub-Contractor shall be liable for all direct costs, losses and expenses incurred by Iswarabena Sdn Bhd as a result thereof including but not limited to the cost of selection and appointment of new consultant to provide the Services.”. [23] We note that the learned Arbitrator wrote a very lengthy Award comprising of 89 pages before making the following Award: THE AWARD For all the reasons above, I, accordingly, FIND, DECLARE, DETERMINE, AND AWARD as follows:

1. That the Claimant’s drainage subcontract had been unlawfully terminated by the Respondent.

2. That the Respondent pays the Claimant the net principal sum of RM2,351,264.27 within two weeks from the date of this award. Failing this the Claimant is entitled to impose a further interest at a rate of 5% per annum until the sums are paid.

3. That the Respondent pays the Claimant pre-award interests on the principal sums awarded, RM440,862.02 within two weeks from the date of this award. Failing this the Claimant is entitled to impose a further interest at 5% per annum until the sums paid.

4. That the Respondent pays the Claimant reasonable cost of the reference (party and party cost) agreed between the parties of Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 15 RM50,000.00. Failing payment within two weeks from the date of this award, the Claimant is entitled to impose a 5% per annum simple interest until payment.

5. That the Respondent shall bear in full the cost of the award which I have taxed as RM119,250.00 and the Claimant shall be entitled to immediate recovery of any sum it had earlier advanced towards payment for any part of the cost award.

6. All other claims and counterclaims are dismissed. This Final Award is made and published under my hand on 11th January 2016 sgd sgd CHONG Thaw Sing, FCIArb witnessed by: Mdm. CHAM Soong Lin NRIC: 520527105984 [24] The approach taken by the learned Arbitrator on the issue of termination is as stated in his deliberation at paragraph 64, which is as follows: “64. By way of preliminary view, two key questions should be answered ahead of the determination of this issue; (i) who is to certify the 20% financial delay has been breached, (ii) what is the formulae to be used in the computation of the delay? In its submission, the Claimant sought to discredit the Respondent’s action in terminating the subcontract as wrongful because as the Employer, the Respondent had prevented the Claimant from fulfilling its contractual obligations by its failure to grant Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 16 sufficient access to the work site. This act of prevention by the Employer is the ‘elephant in the room’, so to say. The question is, should the ‘act of prevention’, if proven, operates to deny the Respondent the right to exercise Clause 12. In view of its far reaching impact, it would be pertinent that the Tribunal deal with this issue before other connected issues.”. [25] At paragraph 81 of the Award, the learned Arbitrator recognised that there was glaring inconsistency between the Respondent’s allegation of a massive delay of 52% in March 2012 which was reported to the Employer as a mere 7.0%. Even at the end of April 2012, the Works was only delayed by 19.0%. It is therefore, preposterous for the Respondent to allege on 26 March 2012 that the Works has been delayed by 52%. The learned Arbitrator noted that in this case, the Respondent is acting as a self-certifier and under the law, the certifier duty is to act impartially. At the end of the deliberation, the learned Arbitrator concluded: “92. But nonetheless, the Claimant had put on record the areas unavailable to them to work. The probative value of such evidence will have to be weighed against other evidence. The evidence from the main contract progress report that recorded delay to the drainage work of 7.0% at the end of March 2012 and 19% by 30th April 2012 militate against the delay of 52% computed by the Respondent. The contention that the progress recorded in the main contract progress report are physical progress not financial progress contradicts their own computation of financial progress of 26% at 26.3.2012 as opposed to 28% at end of March 2012 extracted from the records in the main contract progress report. Taking all above reasons into consideration, I cannot but conclude that all evidence lean toward an incorrect exercise of the right of termination provided in Clause 12. It would be unsafe for this Tribunal to find that the subcontract had been (sic) lawfully terminated. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 17

93. In the circumstances, I find the Claimant’s drainage and VBC subcontract had been unlawfully terminated.”. [26] Whether the Award was supported by evidence or supported by an inferences from the facts, to us is obviously not a question of law per se. The question of law must arises from the Award itself. The learned presiding Judge in his decision considered it as an error of law where section 42 of the Act is applicable. The learned presiding Judge said: “[35] However, the figures used by the learned Arbitrator from these reports refer to physical progress and NOT financial progress. This is expressly and specifically stated to be so in the reports themselves. [36] Clearly, the learned Arbitrator took figures expressly stated to be in respect of physical progress of works between the Main Contractor and the Employer and then confused them to be financial progress at paragraph 80 of his Award, and then fit them into the terms of the Termination Clause to arrive at the conclusion that the Termination was wrongful as financial delay had not reached 20%. This is bizarre and amounts to an error of law producing the opposite effect flowing from what was held to be an unlawful termination of the Subcontract. The wrong premise that the learned Arbitrator proceeded from had led to the perverse conclusion as can be seen from paragraphs 80-82 of the Award set out below: Date of Meeting Scheduled Financial progress, % Actual Financial progress, % Delay in Financial progress, % Comments 31.10.2011 1.72 3.29 +1.57 CBD8/255 30.11.2011 2.84 8.35 +5.51 CBD8/323 31.1.2012 18.12 19.15 +1.04 CBD8/485 29.2.2013 27.70 27.20 -0.5 CBD2/42 31.3.2012 35.02 27.90 -7.0 CBD2/46 30.4.2012 47.49 28.48 -19.0 CBD9/708 Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 18 “The Claimant is understandably livid with the Respondent’s records showing its progress of work deteriorated from 1.05% delay on 14.3.2012 to a massive 73.6% delay, within a period of some three weeks. In fact, a reference to the report of progress of drainage work made by the Respondent in the Main contract to the Employer showed the inconsistency of the computation of the progress of the drainage work in the main and the subcontract. The main contractor’s report financial progress of drainage work computed from the main contract minutes of meeting endorsed by the Respondent’s Project Manager 1, the Resident Engineer and the Opus construction manage are: The Glaring inconsistency between the Respondent’s allegation of a massive delay of 52% in March 2012 was report to the Employer as a mere 7.0% delay. This assertion is clearly wrong because the Respondent reported to the Employer that by the end of March the drainage work was delayed 70%. Even by end of April 2012 (the subcontract was terminated on 12.4.2012) the drainage work was only delayed by 19% in financial progress term. It is therefore, preposterous for the Respondent to allege on 26 March 2012 that the Claimant’s drainage work has been delayed by 52%. It must be noted that the Respondent had subcontracted the entire drainage work for this main contract to the Claimant, hence the progress of work reported in the main contract progress report is that entirely that of the Claimant’s work and nobody else’s. The inconsistent computation of delay in financial progress reported in the main contract progress of work report and the subcontract technical meeting is of a great cause of concern to the Claimant. It is a settled law that the court will construe any forfeiture clause strictly with the full rigor of the contra preferentum rule. And Clause 12 is obviously a forfeiture clause…” (emphasis added) Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 19 [37] I agree with the inevitable conclusion of learned counsel for the Plaintiff that the decision of the learned Arbitrator was perverse especially taking into account that there can only be one undisputable and mathematically calculated financial progress i.e. 9% or that pleaded by the Subcontractor which is 11.37%.”. [27] The learned presiding Judge made the following pronouncements: “[73] Having disposed of the Question of Law under the section 42 reference, there is no necessity to continue further with the section 37 application to set aside the whole of the Award and indeed the issue raised in the section 37 application has become rather academic. It remains for this Court to make the necessary directions and orders under section 43 of the Act. As I have held that the termination of the Subcontract was lawful in answer to Questions 1 and 2 of the reference, I shall set aside that part of the Award at paragraph 158 item 5 where the loss of profit claimed by the Subcontractor is concerned. [74] In answer to Question 3 of the reference, having held that the learned Arbitrator was entitled to assess the value of the Works done by Subcontractor at the date of termination based on stage completion, the Award of the learned Arbitrator at Item 4 paragraph 158 is confirmed. The rest of the Award shall be set aside and be remitted together with the above determinations and direction to the learned Arbitrator for the reconsideration of the Main Contractor’s/Respondent’s counterclaim in that Items 2, 3, 5 and 6 of paragraph 158 of the Award be set aside to be substituted by an appropriately award after such reconsideration with respect to Items 2, 3 and 6. [75] I shall also extend the time frame under S 42(6) of the Act to 120 days for the Arbitrator to make his fresh award. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 20 [76] As a corollary the Subcontractor’s/Claimant’s application for enforcement of the Award is dismissed accordingly.”. [28] We agree with the learned counsel for the Respondent that there are four main issues to be decided in order to dispose of the whole appeals including the cross-appeal before us. We will later address the issues in turn. The four main issues were:

(1) Whether the learned Arbitrator had acted in breach of the rules of natural justice by relying on extraneous evidence thought up by the learned Arbitrator himself which was not tendered by the parties, not submitted upon and for which the parties was not given a chance to address and for which no evidence or allegation had been tendered? If so whether the whole Award ought to be set aside? (1st issue). If the 1st issue is answered in the affirmative, it will dispose of the whole appeals and there will be no need to deal with any other issues;

(2) Whether the Subcontract was lawfully terminated? (2nd issue);

(3) Whether the learned Arbitrator is entitled to make assumptions or apply his own perception of industry standards on profit margin to award loss of profit in the absence of evidence by the Appellant on such loss? If the answer is in the negative, whether the learned Arbitrator has committed an error of law? (3rd issue); and

(4) Whether the learned Arbitrator has misconstrued Clauses 2 and 12 in the context of the Contract to award the Value of Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 21 Completed Works Ruling based on physical progress at 28%? If yes, whether the learned Arbitrator has committed an error of law? (4th issue). The section 37 application – breach of the rules of natural justice [29] Any party dissatisfied with an arbitral award may file an application for setting aside the award under section 37 and/or section 42 of the Act as was done here by the Respondent. Sections 37 and 42 of the Act provides: “37.

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of Malaysia;

(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;

(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 Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 22 derogate, or, failing such agreement, was not in accordance with the Act; or

(ii) the award is in conflict with the public policy of Malaysia.

(ii) in connection with the making of the award. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 23 allow the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal’s opinion will eliminate the grounds for setting aside. Court may order that any money made payable by the award shall be brought into the High Court or otherwise secured pending the determination of the application.”. “42.

Whereas the normal rate for a ‘profit and attendance’ for having to manage a nominated subcontractor is between 2%-4%. Furthermore, this is not a case of nominated subcontractor, but rather an appointed subcontractor. The learned Arbitrator rejected parties’ submissions and position, and instead used his own computation at the rate of between 10%-15% by presuming that these margins are reasonable and represent what an industry perceived as a safe “no risk profit margin”. This finding certainly in our considered opinion is perverse and prejudicial to the Respondent, which amounts to a breach of the rules of natural justice. [38] We note that if there is a breach of the rules of natural justice, the discretion not to set aside the Award is a very narrow one, and that too if the breaches are not material. In the present case before us, we are of the view that the extraneous evidences relied by the learned Arbitrator were indeed relevant and material for his ruling on the Loss of Profit Ruling. The evidence invented by the learned Arbitrator was never indicated to the parties and without giving the parties an opportunity to respond as required by section 20 of the Act. This certainly would render the Award liable to be set aside under section 37(I)(a) of the Act (see Kerajaan Malaysia v. Perwira Bintang Holdings Sdn Bhd [2015] 1 CLJ 617, Sigur Ros Sdn Bhd v. Master Mulia Sdn Bhd, supra). [39] In the present appeal, as we had alluded to earlier, the learned presiding Judge did not even consider the section 37 Application and did Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 33 not at all discuss the issue on a breach of the rules of natural justice. Had the learned presiding Judge correctly directed himself, bearing in mind that the section 37 Application was the main prayer of the Respondent rather than proceeding on the alternative prayer on the section 42 Application, the learned presiding Judge would have come to the correct decision, without warranting an appellate intervention. [40] In Sigur Ros, supra, this Court had set aside the arbitral Award on similar ground as at paragraph 94-97 of the judgment: “[94] Confronted with the two pieces of critical evidence, the arbitrator was obliged to revert to the parties for directions, clarifications or even further evidence or submissions. When he failed to do that, he obviously was in breach of the rules of natural justice. Such breaches were neither technical, casual nor occasional but were of “significant surprise” that it is “reasonable to assume procedural prejudice in the absence of indications to the contrary”. As we have seen, the magnitude of the two breaches had real and substantial impact on the outcome of the arbitration and the eventual award that was rendered. The cause of the damage was pivotal to the whole claim, whether for the extended hire or for the costs of repair simpliciter. Such breaches by the arbitrator are plainly in conflict with the public policy of Malaysia. [95] An Award made in such circumstances is consequently liable to be set aside. It would be wholly untenable to refrain from doing so because of the minimalist judicial intervention approach thus far adopted by the Court; minimalist does not equal no intervention at all. Neither does it mean that arbitral awards are any less final and binding or that parties are no longer autonomous. On the contrary, section 8 of Act 646 requires intervention where it has been so prescribed and in the appropriate cases. This is an appropriate case for judicial intervention. To resist intervention and not exercise discretion in the circumstances of this appeal would be Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 34 to deny the course of justice, a position which is never advocated under the UNCITRAL Model Law regime. [96] Under these circumstances, while the learned JC was correct when he found that there were extraneous evidence taken into account by the arbitrator for which there were violations of sections 20 and 37 of Act 646, his lordship was in error when he applied the wrong principles and failed to exercise discretion to set aside the Award. Such demonstrated error in the exercise of discretion requires appellate intervention - see ECM Libra Investment Bank Berhad v Foo Ai Meng & Ors [2013] 1 LNS 99. As deliberated earlier, it is the whole Award which is set aside and not parts of the Award. Conclusion [97] For all the reasons discussed above, we unanimously allow the appeal. The decision of the High Court is set aside with costs. The Award is accordingly set aside.”. [41] We note that the position taken by our Court is similar with that taken in other jurisdictions. In Handley v. Nationwide Anglia Building Society [1992] 2 EGLR 113, the Queen’s Bench Division, through the judgment of Gatehouse J said: “The last matter is this. It is clear that the arbitrator took account of factors which he saw in his own detailed and expert view of the whole area and he held that the Broad Street property was in a less favourable trading area than 83 and 85, because they apparently had the benefit of a substantial residential area close to them, and on that account he made a further reduction of 10% in the prima facie rent of £25 a week in each case. Here again, it is clear that the arbitrator acted on his own initiative. He, so to speak, gave evidence to himself and I agree with Mr Fancourt that this is not a matter on which a professional arbitrator is entitled to come to his conclusion in the absence of any evidence and without giving Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 35 the parties an opportunity to comment. So on that ground, too, I think the arbitrator was mistaken. I say this at once: it may very well be that the figures that he came up with are the right figures, but in the circumstances it seems to me that this case is very much on all fours with the decision of Bingham J in this court in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14. He took the applicant, in other words, by surprise. The first the applicant knew of the figures that would be suggested for these reductions was when the award was published. The other matter is this. It has been said time after time in this court that the jurisdiction under section 23 of the Act is in respect of “misconduct”, a word which has now been hallowed by statute for I think over a century but certainly for a very long time. It is an inappropriate word because it has a pejorative overtone. In almost every case, as in this case, the applicant disavows any intention to criticise the integrity and fair-mindedness of the arbitrator, so “misconduct” is an inappropriate word to use for what is, in fact, a technical breach of the rules of natural justice. I am quite certain that the arbitrator in this case did his best to come to a fair conclusion and I come to the conclusion with reluctance that his award must be set aside only because he did not give the applicant an opportunity to comment on the figures which the arbitrator pulled out of his own experience and his own perception of the rental values. With great reluctant, because it puts the parties to further expense and further delay, I have come to the conclusion that the award will have to be set aside on the two grounds which I have mentioned – namely the reduction on account of repairing and insurance covenants, the extra reduction in respect of return frontage and the general reduction of 10% on account of the unfavourable trading area in respect of the subject premises.”. The Loss of Profit Ruling [42] The issue of whether the learned Arbitrator is entitled to make an assumption or apply his own perception of industry standards on profit Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 36 margin to award loss of profit in the absence of evidence by the Appellant on such loss should be answered in the negative as rightly decided by the learned presiding Judge. [43] It is trite that the burden is on the Claimant to prove damages he claimed for. Otherwise nominal damages will be awarded if liability is proven (see Tan Sri Khoo Teck Puat & Anor v. Plenitude Holdings Sdn Bhd [1994] 3 MLJ 777 and Popular Industries Ltd v. Eastern Garment Manufacturing Sdn Bhd [1989] 3 MLJ 360). In Telekom Malaysia Bhd v. Eastcoast Technique (M) Sdn Bhd and another summons [2014] 11 MLJ 525, Nallini Pathmanathan J (now JCA) held that: “[42] Finally in relation to the issue of damages which is also the subject matter of Eastcoast’s challenge in its suit. Again it is apparent from a reading of the arbitration award that the learned arbitrator failed to apply the principles of law relating to damages namely s 74 as well as the need for a party seeking damages to establish its entitlement to the same by clear and sound proof of such damages. In the instant case, while acknowledging that no documents were tendered in relation to the essential elements required to compute loss of profit, the learned arbitrator nonetheless concluded, seemingly with no evidential basis whatsoever, that 15% appeared to be a ‘reasonable’ sum to be awarded to Eastcoast. The foregoing amounts to an error of law in relation to the assessment of damages in terms of the principles of law relating to damages. There was moreover no application whatsoever of the correct principles of law to the factual matrix. Additionally there was no evidence whatsoever to support the learned arbitrator’s finding in relation to damages. As such these comprise clear instances of a failure under stage

(2) of an arbitrator’s process of reasoning. In other words, these matters also comprise an error of law.”. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 37 [44] The learned Arbitrator made a wrong finding in allowing the substantial sums for the loss of profit. The learned Arbitrator rightly held that the Appellant had failed to prove the losses. Instead of giving a nominal damages, the learned Arbitrator went on to award exorbitant amount of damages as loss of profits based on extraneous factors. The learned Arbitrator cannot substitute his own findings based on the ‘no risk profit margin’ thought up by his own which is highly disputed and controversial as well as inconsistent with the Appellant’s pleaded case. At paragraph 145 of the Award, the learned Arbitrator said: “145. The Claimant has produced computation by way of substituting in the BQ quantities, his anticipated costs to execute each of the items and arrived at a conclusion, had this subcontract not been terminated prematurely, he would have been able to make a profit of RM2,471,599.79 or approximate margin of 18.5%. CW-1 claimed that he found more savings from VBC-2 that increased his profit to RM3,300,911.32 or a margin of approximately 25%. After he has net off the 28% of value of work done at termination, the loss of profit CW-1 seeks to recover is RM2,635,936.26. A notable and crucial assumption that CW-1 had made in arriving at his anticipated loss of profit of RM2,635,936.26 or a margin of 25% is his un-waivered belief that the as-built quantities is lower than his priced BQ 4. The net result of this anomaly in the BQ and drawings quantities is the ‘saving’ of costs for the work he deemed that he need not build but yet will have to be paid by the Respondent under the lump sum contract. All these savings will by his reasoning contributed to the higher profit in this subcontract. These computations in Annexures 2, 3 and 4 are detailed attempt to work out a profit margin on paper with certain allowance given to wastages etc. I have no doubt that the Claimant would be able to achieve the profit he thinks he should obtain if the subcontract is executed from beginning to the end with clockwork precision in cost control for materials, resources and machinery. To achieve this, the world has to behave exactly the way the Claimant think it should behave. No Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 38 unforeseen events or external shocks that can throw his plan off balance should be allowed to occur. But in the real world such is not true, unforeseen would events ranging from climate change, oil price shock, forex market turmoil, geopolitical developments around all corners of the world impact our everyday lives and with it the costs of doing business. Otherwise, on paper there should not be any contractor in a construction contracts that suffer losses, after all no reasonably competent contractor would undertake a project knowing full well at commencement that he will make a loss on paper. The question the Tribunal have to ask is, has the Claimant proved his loss of profit in the legal sense of on the balance of probability? My answer is yes, but the Tribunal is unconvinced the amount sought is a fair and reasonable figure. By not allowing for contingencies such as potential delays by the Claimant, inclement weather, LAD, spike in materials and manpower costs, shortage of materials and manpower, or simply mismanagement of the project, the Claimant is seeking to recover risk free profit. In Tan Sri Khoo Teck Puat, the Federal Court urged the court assessing damages to take all contingencies foreseeable into consideration, this advice is similarly applicable to this Tribunal. However, I should not penalize the Claimant for not having considered these contingent facts in its prayer for loss of profit as he obviously does not have a crystal ball to look into what holds for the future. At the same time the Tribunal cannot be fait accomplice to the Claimant’s windfall to award this amount sought.”. [45] We are of the considered view that the learned Arbitrator had misapplied the principle of law relating to damages by using extraneous evidence to arrive at his conclusion thereby constituting an error of law. Therefore, the learned presiding Judge had erred in failing to make a finding that Question 4 of the section 42 Application ought to be answer in the negative. In Telekom Malaysia Bhd v. Eascoast Technique (M) Sdn Bhd and another summons, supra, the court held: Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 39 “[42] Finally in relation to the issue of damages which is also the subject matter of Eastcoast’s challenge in its suit. Again it is apparent from a reading of the arbitration award that the learned arbitrator failed to apply the principles of law relating to damages namely s 74 as well as the need for a party seeking damages to establish its entitlement to the same by clear and sound proof of such damages. In the instant case, while acknowledging that no documents were tendered in relation to the essential elements required to compute loss of profit, the learned arbitrator nonetheless concluded, seemingly with no evidential basis whatsoever, that 15% appeared to be a ‘reasonable’ sum to be awarded to Eastcoast. The foregoing amounts to an error of law in relation to the assessment of damages in terms of the principles of law relating to damages. There was moreover no application whatsoever of the correct principles of law to the factual matrix. Additionally there was no evidence whatsoever to support the learned arbitrator’s finding in relation to damages. As such these comprise clear instances of a failure under stage

(2) of an arbitrator’s process of reasoning. In other words, these matters also comprise an error of law. [43] In the entirety of the circumstances as set out above Telekom’s application under s 42 in its suit is thereby allowed. Applying s 42(4) of the Arbitration Act 2005, the award is set aside in its entirety.”. Value of Completed Works Ruling [46] Question 3 of the section 42 Application read as whether the learned Arbitrator has misconstrued Clauses 2 and 12 of the subcontract in the context of the Award by the learned Arbitrator in awarding the costs of completed works based on the percentage of 28% should be answered in the affirmative. At the arbitration, the Appellant claimed that the value of works done as at the date of termination should be based on physical progress at 28%. The Respondent on the other hand stated that it should Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 40 be based on financial progress of 11.37% which is based on the agreed quantities multiplied by the Bill of Quantities (‘BQ’) rates. The learned Arbitrator agreed with the Appellant’s argument on the ground that the Subcontract did not state the mode of how such value should be calculated when there was premature termination. The learned Arbitrator adopted the Appellant’s mode of calculation. [47] Under section 42 Application, the test to be applied had been clearly stated in The Chrysalis’s case as follows: “….Starting therefore with the proposition that the court is concerned to decide on the hearing of the appeal whether the award can be shown to be wrong in law, how is this question to be tackled? In a case such as the present, the answer is to be found by dividing the arbitrator’s process of reasoning into three stages: (1) The arbitrator ascertains the facts. This process include the making of findings on any facts which are in dispute.

(2) The arbitrator ascertains the law. This process comprises not only the identification of all material rules of statute and common law, but also the identification and interpretation of the relevant parts of the contract, and the identification of those facts which must be taken into account when the decision is reached. (3) In the light of the facts and the law so ascertained, the arbitrator reaches his decision. In some cases, stage (3) will be purely mechanical. Once the law is correctly ascertained, the decision follows inevitably from the application of it to the facts found. In other instances, however, stage (3) involves an element of judgment on the part of the arbitrator. There is no uniquely ‘right’ answer to be derived from marrying the facts and the law, merely a choice of answer, none of which can be described as wrong. Stage (2) of the process is the proper subject matter of an appeal under the Act of 1979. In some cases an error of law can be demonstrated by Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 41 studying the way in which the arbitrator has stated the law in his reasons. It is, however, also possible to infer an error of law in those cases where a correct application of the law to the facts would lead inevitably to one answer, whereas the arbitrator has arrived at another; and this can be so even if the arbitrator has stated the law in his reasons in a manner which appears to be correct, for the court is then driven to assume that he did not properly understand the principles which he had stated. Whether stage (3) can ever be the proper subject of an appeal, in those cases where the making of the decision does not follow automatically from the ascertainment of the facts and the law, is not a matter upon which it is necessary to express a view in the present case. Pioneer Shipping Ltd v BTP Tioxide Ltd [1982] AC 724 and Kodros Shipping Corporation v Empresa Cubana de Fletes (No 2) [1983] 1 AC 736, show that where the Issue is one of commercial frustration, the court will not intervene, save only to the extent that it will have to form its own view, in order to see whether the arbitrator’s decision is out of conformity with the only correct answer or (as the case may be) lies outside the range of correct answer. This is part of the process of investigating whether the arbitrator has gone wrong at the second stage. But once the court has concluded that a tribunal which correctly understood the law could have arrived at the same answer as the one reached by the arbitrator, the fact that the individual judge himself would have come to a different conclusion is no ground for disturbing the award.”. [48] The learned presiding Judge handled this issue in this manner “that the question of what is a fair and reasonable method of compensating the Subcontractor for work done before termination is at best a question of mixed law and fact and so does not fall within the purview of section 42 of the Act.” The learned presiding Judge concluded that the learned Arbitrator was not wrong in arriving at the Value of the Completed Works Ruling. We agree with the Respondent’s contention that the learned presiding Judge Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 42 had erred in his finding. The fact that there were two methods of calculation based on both parties submissions does not necessarily mean that there is a possible range of answer from applying the law to the facts as per the view of the learned presiding Judge. [49] We observed that the learned presiding Judge had acknowledged that Clause 2 of the Subcontract provides that the Subcontract was a lump sum contract and that there shall be no variation in the lump sum figure arising out of under-estimation or error on the part of the Respondent. Clause 2 of the said Subcontract provides that: “2. The quantities, prices and rates in the attached BQ are deemed to include all the necessary works required by you to complete the whole of the said works, no fluctuation any additional quantity will be allowed. Any discrepancy with regards to drawings and quantities shall be deemed to have been taken into consideration. All quantities are Lump Sum. The following Bill of Quantities (BQ) Appendix A shall be the basis of the works.”. [50] The correct approach as suggested by learned counsel for the Respondent to which we agree, was that in the light of lump sum contract as envisaged under Clause 2 of the Subcontract, the calculation should be based on financial progress and not on physical progress. The lump sum contract must be accepted even if the BQ was in error. Therefore, the question of fairness does not arise and not relevant at all in calculating the Value of Completed Works Ruling made by the learned Arbitrator. [51] We note that the learned presiding Judge had accepted that the financial progress of the Works done at the date of termination was 9% or the pleaded figure of 11.37%, and the figure was unchallenged and cannot Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 43 be disputed. Applying the law to the facts, there will be only one conclusion that the percentage of Works done as at the time of termination should be at the financial progress of 9% or the pleaded figure of 11.37%. [52] We accepted the Respondent’s argument that the learned presiding Judge ought to have answered Question 3 of the section 42 Application in the affirmative. [53] As we had alluded to earlier in respect of the breach of rules of natural justice under section 37 of the Act on the part of the learned Arbitrator, there is no necessity for us to deliberate on the second issue regarding the section 42 application. This Court in Ahmani Sdn Bhd, supra, had observed: “[14] The threshold to satisfy under s. 37 is very low (though the courts are slow in setting aside the award) and upon proof if successful, the court has an option to send back the matter to the arbitral tribunal to eliminate the grounds for setting aside, as set out in s. 37(6). This was not done in this case. To put it in another way when a party to the arbitration complains of breach related to s. 37(1)(a)(iv) and or (v) etc, he must invite the courts attention to s. 37(6) and cannot rely on s. 42 as it will be an abuse of process, as he is relying on omission or excess of jurisdiction which is covered under s. 37 and not s. 42 of the AA 2005.”. Conclusion [54] For the above reasons, we unanimously dismiss the Appellant’s appeal with costs and we allow the Respondent’s cross-appeal with costs. Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 44 [55] We are mindful of our power under section 37(6) of the Act, but due to clear errors committed by the learned presiding Judge where this is a fit and proper case for an appellate intervention, we exercise our discretion as provided for under section 37(1) of the Act. We are of the considered view that the Respondent had made out a case to set aside the award under section 37(1)(a)(v) and section 37(2)(b) of the Act. Therefore, we set aside the order of the learned High Court Judge and we order the Award be set aside in its entirety. [56] We shall now invite parties to address us on costs. Dated: 25th July 2018 signed (KAMARDIN BIN HASHIM) Judge Court of Appeal Malaysia Counsel For the Appellant: Mr. Robert Lazar (Mr. Felix Dorairaj and Miss Annette Rachel Edwin, with him) Messrs Dorairaj, Low & Teh 3rd Floor, Wisma Maran 28 Medan Pasar 50050 Kuala Lumpur (ref. 16.FD.PPSB.018 (ARE)) Rayuan Sivil No: W-02(C)(A)-4-01/2017 & W-02(C)(A)-5-01/2017 45 For the Respondent: Mr. Chang Wei Mun (Mr. Foo Joon Liang, with him) Messrs Gan Partnership D-32-02 Menara SuezCap 1 KL Gateway, No. 2, Jalan Kerinchi Gerbang Kerinchi Lestari 59200 Kuala Lumpur (ref. FJL/LXD/30975/12)