Pembinaan Jaya Zira Sdn Bhd v Sungai Lui Construction & Development Sdn Bhd (WA-24C(ARB)-57-08/2024)

In Originating Summons No. WA-24C(ARB)-37-06/2024 (OS 37) Sungai Lui Construction Sdn Bhd (“SLC”) had applied to enforce the Award dated 31.5.2024 (“Award”) in its favour pursuant to inter alia section 38 of the Arbitration Act 2005.

2.

2.1 the Letter of Award/ Total Sub Contract is in conflict with the public policy of Malaysia as it is tainted with illegality;

2.2 the Arbitrator has breached the rules of natural justice when the Arbitrator failed to take into account the relevant and pertinent facts in determining the existence of the Addendum;

2.3 the Award is in conflict with the public policy of Malaysia as its sets a dangerous precedent in relation to the issue of termination;

2.4 the Award is in conflict with the public policy of Malaysia as the Arbitrator’s findings in respect of Category 1 and Category 5 2 claims are against the fundamental principles of law and justice.

Pursuant a Letter of Award dated 18.7.2019, SLC was appointed by PJZ as the total sub-contractor for a project known as the Central Spine Road, Pakej 3: Gua Musang, Kelantan ke Kg. Relong, Pahang, Seksyen 3D: Bulatan Gua Musang ke Mentara (No Kontrak: JKR/IP/CKUB/44/2018) (“Project”).

Due to non-payment of fees and the wrongful termination by PJZ, SLC initiated the suit in the High Court of Kuala Lumpur Suit No. WA-22C-106-11/2020. By consent of the parties, Justice Lim Chong Fong on 26.2.2021 ordered that the said suit be tried before an arbitrator Mr IR Oon Chee Kheng pursuant to s.24A of the Court of Adjudicator Act 1964 (“Consent Judgment”).

On 31.5.2024, the arbitrator Mr IR Oon Chee Kheng delivered his final award in favour of SLC as follows (“Final Award”): a) PJZ is required to pay SLC a sum of RM13,647,485.47; b) PJZ is required to pay SLC simple interest at the rate of 5% p.a on the sum of RM13,647,485.47 from 5.3.2020 until 31.5.2024; c) PJZ is required to pay SLC simple interest at the rate of 5% p.a on the award of RM13,647,485.47 commencing the day after the Award date, i.e. 1.6.2024 until full settlement; d) SLC’s alternative claim for Quantum Meriut is not allowed; e) PJZ’s counterclaim for backcharge is not allowed; f) PJZ is required to pay SLC costs of RM236,621.39; and g) Except for the claims allowed above, all other claims of SLC and PJZ are disallowed.

It is submitted by PJZ that the Letter of Award/Total Sub Contract amounts to an ‘Ali Baba’ arrangement as the entire works were subcontracted to SLC and as such were contrary to section 24(a) of the Contracts Act 1950.

Under section 24(a) of the Contracts Act 1950 it is provided that: The consideration or object of an agreement is lawful, unless:

it is forbidden by a law;

it is of such a nature that, if permitted, it would defeat any law;

it is fraudulent;

it involves or implies injury to the person or property of another; or

the court regards it as immoral, or opposed to public policy. In each of the above cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

In essence the aforesaid section provides that the consideration or object of the agreement becomes unlawful when it is inter alia immoral or opposed to public policy.

I have since read the Letter of Award/Total Sub Contract dated 18.7.2019 at enclosure 3 exhibit AS-4 in the matter before me, and note that PJZ had sub-contracted to SLC “...to execute and complete the whole of the Main Contract Works...”

SLC submits that PJZ had never raised this issue before the Tribunal and that it was unconscionable for them to raise this after the Award was granted in favour of SLC.

With respect, even after reading the letter of Award/ Contract dated 20.3.2018 between PJZ and the government in enclosure 39, I have not been able to find any evidence before this Court that JKR had awarded the Project to PJZ due to the New Economic Policy (“NEP”) and I am therefore not satisfied on a balance of probabilities that PJZ has proved this point of the ‘Ali Baba’ arrangement existing.

I agree with learned counsel for SLC that in the matter before the Tribunal, JKR had not raised any concerns or objected to SLC’s involvement in the Project which in my view further corroborates the fact that the Letter of Award/Total Sub Contract from PJZ to SLC is not an ‘Ali Baba’ arrangement.

My decision in this respect is also due to my reading of the cases of inter alia Norman Disney & Young v Affifi Hj Hassan [2010] MLJU 543; [2011] 1 CLJ 210, Kondaputam Raghuram v Soo Peng @ Yew Soo Peng [2006] 7 MLJ 510, Cosmos Infratech Sdn Bhd v Melati Evergreen Sdn Bhd submitted by PJZ which I find can be distinguished from the facts before me today as demonstrated below:-

13.1 In Norman Disney & Young, the facts therein were that local shareholders were holding shares as proxies for the Plaintiff to which the Defendant contended that this arrangement where the registered shareholders are Malaysian citizens or permanent residents holding shares on behalf of the Plaintiff being a foreigner fall foul of and is in clear contravention of and indeed covertly circumventing the provisions of Section 7A(3) and Section 10(4) of the Registration of Engineers Act 1967.

13.2 As to Kondaputam Raghuram (Supra) , Ramly Ali J (as he then was) had found that the facts there was an ‘Ali-Baba’ arrangement’ vis-à-vis the application of Section 21(e) Contracts Act 1950 where the respondents were alleging that the petition was tainted with illegality and against the public policy in the sense that the petitioner in parking his shares in the company with the 2nd respondent was trying to deceive the licensing board, namely the Pusat Khidmat Kontraktor and ultimately the government into according the company an untrue "bumiputra status" company, thus enabling the company opportunity to secure special contracts;

13.3

It is trite that there must be ‘minimal curial intervention in arbitral awards, see for example the Federal Court in Pancaran Prima Sdn Bhd v Izwarabena Sdn Bhd & Anor Appeal [2020] 6 MLRA 124.

Case law is also replete with authorities which show that total sub contracts are valid and enforceable and I only need to refer to Sungei Lui Construction & Development Sdn Bhd v Jati Estetika Sdn Bhd [2016] MLRHU 1008 as an example thereof.

I therefore dismiss PLZ’s argument on the issue of public policy being contrary to section 24 (a) of the Contracts Act 1950 as being wholly untenable.

I will now deal the issue of whether the Arbitrator had breached the rules of natural justice when the Arbitrator allegedly failed to take into account the relevant and pertinent facts in determining the existence of the Addendum to which it is alleged by PLZ that the Arbitrator held that the Addendum forms part of the documents constituting the Total Sub Contract and is to be construed together with the Letter of Award.

In essence PLZ submitted inter alia that: a. it was not disputed between the parties that the Letter of Award was executed by PLZ and as such a contract between the parties had been formed; b. PLZ’s letter of 1.8.2019 was subsequent to PLZ’s execution of the Letter of Award which meant that the Arbitrator should have determined whether the Addendum had varied the terms of the Letter of Award; c. The sole purpose of the Addendum was to assist PLZ in obtaining financing from HLKBB which was expressly stated in SLC’s letter of 5.11.2019.

A reading of the Award shows that the Arbitrator read and considered the Letter of Award and the documents before him and held inter alia:

19.1 SLC wrote on 1.8.2019 to convey its acceptance of the Letter of Award which signaled its acceptance of the Total Sub

19.2 that PLZ then wrote back to state that ‘…the attached addendum shall not form part of the Conditions of Total Sub Contract until it is accepted by both parties”;

19.3 there was an earlier counter offer which was rejected by PLZ and that with the unconditional acceptance and confirmation by SLC of PLZ’s latest offer, the Total Sub Contract was formed with the Letter of Award and the Addendum forming part of the documents constituting the Total Sub Contract;

19.4 the Addendum played no part in assisting SLC to secure the financing from HLBB.

After a careful consideration of the arguments put forth by learned counsel for PFZ and the submissions by learned counsel for SLC on this issue of the Arbitrator’s alleged failure to take into account the relevant and pertinent facts in determining the existence of the Addendum, I have concluded that the issues raised by PLZ is a challenge towards the Arbitrator’s findings and conclusions and is akin to an appeal of review of the Award.

In the circumstances, this Court will not intervene with the Arbitrator’s decision on the ‘Addendum” and I again dismiss PLZ’s contentions therein as being misconceived and I thus hold that there has been no breach of natural justice occasioned herein as alleged.

With regards PLZ’s contention that the Award is in conflict with the public policy of Malaysia as its sets a dangerous precedent in relation to the issue of termination, I again find no merit in this argument.

In support of the above contention it was argued by PJZ inter alia that the Arbitrator’s decision was not premised on the positions put forth by either party in the arbitration proceedings and that the arbitrator failed to appreciate the various notices of delay and reminders issued by PJZ in relation to SLC’s slow progress of works.

My decision on this issue is based on the fact that the Arbitrator had in fact considered the various notice of delay and reminders issued by PJZ and that in the Award the Arbitrator had found amongst others that:

24.1 the Letter of Award follows a 2 stage process toward termination of the contract i.e a default notice and there after a formal termination letter;

24.2 the Notice of Default lacked validity as it only gave a 7 day period to rectify the defaults instead of the 14 days as in the Addendum; therefore there cannot be any validity of the termination of the Total Sub Contract;

24.3 never the less the Arbitrator considered to examine the substantive aspects of the termination of the Total Sub Contract and found that PLZ did not list which specified default SLC had not rectified which led to the termination of the Total Sub Contract.

Once again I hold that the arguments raised by PJZ on this issue is in fact an appeal or review of the Award and therefore such contentions cannot be upheld by this Court. The Appellate Courts have time and again reiterated that the substantive merits of an arbitrators findings cannot be challenged as it would constitute an appeal on the Award, see Tune Group Sdn Bhd & Ors v Padda Gurtaj Singh and another appeal [2023] 6 MLJ 345.

Finally, it is contended by PJZ that the Arbitrator’s findings in respect of Category 1 and Category 2 claims are against the fundamental principles of law and justice.

In this aspect PJZ contends that the Arbitrator took into account Interim Payment certificate no 22 which is premised on valuation works done prior to SLC’s appointment in respect of the Category 1 Claim and that for the Category 2 Claim, the arbitrator’s findings were premised on his own assumptions of the value of works purportedly carried out.

After reading the Award, I am satisfied that the Arbitrator did consider rather extensively the Category 1 Claims in the Award at paragraphs 6.1 to 6.23 and after looking at and considering inter alia the pleaded claims and defence, the testimonies of witness, the relevant documents before the Tribunal including but not limited to the Total Sub Contract, including the Addendum, the Arbitrator came to decide that the Category 1 Claim is in accordance to what the parties have agreed in the Letter of Award and the Addendum.

I note that the Arbitrator did consider the Category 2 Claims in the Award at paragraphs 7.1 to 7.50 of the Award and again without going through each and every intricate detail of the Award, it is clear to me that the Arbitrator had duly looked at the entire Category 2 Claim and the supporting documents and evidence as well as the testimonies before the Tribunal before approving the sum of RM3,075,

867.50 which consisted of the value of uncertified works, under valuation of earth works and additional works.

I have also noted that the Arbitrator did not allow each and every one of SLC’s claims for Additional Works after doing his assessment of the issues and respective contentions before him on this point.

I again find no merit in PJZ’s arguments with regards Category 1 and Category 2 claims as being against the fundamental principles of law and justice as it is my findings that there has been no occasion of the Arbitrator ignoring and/or failing to appreciate the evidence when awarding the sum of RM3,075, 867.50.

It is settled law that the Court should thus wherever possible uphold the party autonomy principle in arbitration and must also exercise minimal curial intervention in arbitration matters as held in Government Of India, The v Cairn Energy India Pty Ltd & Anor [2011] 6 MLJ 441; [2011] 6 AMR 573; [2012] 3 CLJ 423 where the Federal Court held: “[53] And as Scrutton LJ put it '… if you refer a matter expressly to the arbitrator and he makes an error of law you must take the consequences; you have gone to an arbitrator and if the arbitrator whom you choose makes a mistake in law that is your look-out for choosing the wrong arbitrator; if you choose to go to Caesar you must take Caesar's judgment' (see African & Eastern (Malaya), Ltd v White, Palmer & Co, Ltd (1930) 36 LI L REP 113; cited with approval by the Court of Appeal in Dato' Teong Teck Kim & Ors v Dato' Teong Teck

I have after thus due consideration of OS 57 and my grounds above on the same, hold that the Award is to be recognized and binding and to be enforced as a judgment.

I further find that the requirements of the award being made in respect of an arbitration where the seat of arbitration is in Malaysia and the procedural requirements of (a) the duly authenticated original award or a duly certified copy of the award; and (b) the original arbitration agreement or a duly certified copy of the agreement under section 38 of the Arbitration Act 2005 has been fulfilled in the matter before me by SLC.

It is my view that the issues raised by PJZ in these proceedings are done in the guise of either a breach of public policy or a breach of natural justice when in fact the issues are more towards the fact that PJZ is unhappy with the findings and the merits or decision of the Arbitrator. I therefore in the circumstances dismiss OS 57 with costs.

Accordingly, I will allow OS 37 prayer (a) (i) to (viii) and prayer b of enclosure 1 therein. Dated: 10th day of March 2025 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE CONSTRUCTION COURT 1 COUNSEL FOR PLAINTIFF (OS 37) / DEFENDANT (OS57): Irwin Lo (Messrs Lo Chambers] COUNSEL FOR DEFENDANT (OS37) / PLANTIFF (OS57): Sanjay Mohan, Siew Suet Mey and Muhammad Naazraj (Messrs Sanjay Mohan]