Syarikat Neptune Enterprise Sdn. Bhd. v Sabah Medical Centre Sdn. Bhd. (S-02(IM)-1608-08/2018)

There are three appeals before us, namely: a. Civil Appeal No S-02 (IM)-1608-08/2018 [Appeal 1608] is the Appellant’s appeal against the decision of the learned Judicial Commissioner [“JC”], given on 9.7.2018, in dismissing the Appellant’s application to set aside the Interim Award dated 7.3.2018 made by the Arbitrator. b. Civil Appeal No. S-02[(IM)-1606-08/2018 [Appeal 1606] is the Appellant’s appeal against the decision of the learned JC, given on 13.7. 2018, in agreeing to proceed with the Respondent’s Originating Summons application to register the Interim Award dated 7.3.2018 on ex parte basis and in allowing the Respondent’s application for recognition and enforcement of the said Award and granting Consequential Order reliefs in respect thereof. c. Civil Appeal No S-02(C)(A)-136-01/2019 [Appeal 136] is the Appellant’s appeal against the decision of the learned JC, given on 18.12.2018, in dismissing the Appellant’s Originating Summons to set aside the Consequential Order . 3

By consent, the parties have agreed that Appeal 1608 should be heard first followed by Appeal 136 and appeal 1696.

All the three appeals involved the same Appellant, Syarikat Neptune Enterprise Sdn. Bhd [“Neptune”] and the same Respondent, Sabah Medical Centre Sdn. Bhd. [“SMC”]. The parties will be referred to as in the High Court proceeding in this judgment.

Upon hearing the appeals, we have on 26.7.2019 unanimously dismissed all three appeals. Background facts

By the agreement dated 20.5.2003, SMC engaged Neptune as its main contractor to carry out renovation works on a project known as “Cadangan Membeli Tanah Dan Bangunan Medical Centre (SMC), Kota Kinabalu, Sabah” [“the Project”] for a contract sum of

The PAM Form 98 Private Edition (without quantities) was incorporated as the Conditions of Contract. 1 It contained an arbitration clause which specified the Arbitration Act 1952 or any statutory modification or re-enactment thereof for the time being in force and the PAM Arbitration Rules or any modification or revision thereof (clause 34.3).

During the course of the Project, the Project Architect issued 33 interim certificates for a gross value of RM86,392,992.74 as against the lump sum contract of RM91 million. SMC paid Interim 1 Record of appeal vol. 2, pages 159-161. 4 Certificates 1 to 23, and made part payment towards Interim Certificates 24 to 28, but no payment was made for Interim Certificates 29 to 22, which were issued in 2005 & 2006. The unpaid balance payable on the Interim Certificates was RM8,651,062.27. Commencement of arbitration proceedings 8. In early 2003, Neptune commenced arbitral proceedings seeking payment of RM8,651,062.27 on the unpaid Interim Certificates, payment for further works of RM4,138,420.97 which the Project Architect did not certify, extension of time, declaratory order that the contract had been validly terminated by Neptune, order for the release of the retention sum and cash bond amounting to RM2,722,790.00 etc.

SMC claimed a set off and counter claimed for alleged defective works and for RM2,128,000.00 as liquidated ascertained damages [“LAD”].

The arbitral proceedings commenced on 29.7.2008 covering a period of 36 days and the arbitrator published his Interim Final Award on 14.2.2011 and made the following orders:

(a) SMC shall pay Neptune simple interest at 8% per annum on the unpaid sum of RM8,651,062.29 for the balance of the unpaid Interim Certificates No. 24 to 33.

(b) SMC shall pay Neptune within 28 days after the date of the Interim Final Award, the sum of RM8,651,062.27 and 5 interest in full and final settlement of all matters in difference and referred to the Arbitrator in the Interim Final Award; and

(c) SMC shall bear and pay Neptune’s costs in the Interim Final Award including the fees and expenses of the tribunal, to be taxed upon party to party basis, if not agreed.

Subsequently on 8.8.2011, the High Court, upon application by SMC, ordered the termination of the arbitrator on the ground that he was biased.

Thereafter, by mutual consent, Mr Lim Chong Fong was appointed to take over the conduct of the arbitral proceedings. However, the proceeding was terminated sometime in December 2013 upon his appointment as Judicial Commissioner of the High Court of Malaya in early 2014.

Subsequently, the parties mutually agreed to appoint Mr Chong Thaw Sing [“the Arbitrator”], a Chartered Arbitrator from Kuala Lumpur to take over the conduct of the arbitral proceedings. The new Arbitrator issued his first procedural order and provisional time table on 21.3.2014.

The arbitral proceeding then commenced under the new Arbitrator on de novo basis.

After the arbitral proceeding had proceeded for 40 days, SMC’s Solicitors wrote a letter dated 3.11.20172 to the Arbitrator informing that Top Light Medical Supplied Sdn. Bhd. [“Top Light”] has 2 Record of appeal, vol. 2A, pages 298-299. 6 obtained judgment against Neptune on 9.10.2017 under Kota Kinabalu High Court Suit No. BKI-22-NCvC-41/5-2015 in the sum of RM4,665,000.00 with interest thereon and costs, which judgment sum Neptune had refused or failed to pay. As such, SMC is “justifiably” concerned that Neptune may not be in the position to pay the amount of the Counterclaim in the event that SMC is awarded its Counterclaim. In the premise, SMC believed that an interim measure must be taken before the resumption of the hearing and accordingly sought an interim measure order to preserve the assets of Neptune to satisfy the future award of the Tribunal.

On 7.3.2018, the Arbitrator handed down its award in respect of the interim measure [also referred to as Arbitral Order by SMC] [hereinafter referred to as “Interim Award”] whereby the Arbitrator ordered as follows:

Based on the reasons discussed in the preceding paragraphs and pursuant to Section 19 of the Arbitration Act 2005 and the Article 26 of the UNCITRAL Arbitration Rules 2010, the Arbitrator orders as follows:- a. The Claimant shall deposit RM4,000,000.00 with a 3rd party stakeholder, to be jointly appointed by the parties, failing which by the Arbitrator. This sum shall be placed in an interest bearing fixed deposit account with a licensed bank in Kota Kinabalu. The duration of the placement shall 7 commence 30 days from the date of this Order until the publication of the final award. b. The Respondent shall deposit RM1,500,000.00 with a 3rd party stakeholder, appointed by the parties, failing agreement by the Arbitrator. The sum shall be held in interest bearing fixed deposit account with a licensed bank in Kota Kinabalu. The duration of the placement shall commence 30 days from the date of this Order until the publication of the final award. c. The sum ordered under sub-paragraph (a) ad (b) above is inclusive of security of costs. No separate order is made for the security for costs application.

Neptune failed and/or refused to comply with the Interim Award published on 7.3.2018. Instead, Neptune filed an Originating Summons application pursuant to sections 37 and 42 of the Arbitration Act 2005 seeking court’s determination on questions of law arising from the Interim Award and a consequential order to set aside the said Award.

On 12.7.2018, the learned JC dismissed Neptune’s application to set aside Interim Award. The appeal against this decision is under Appeal 1608.

SMC, on the other hand, applied on 24.2.2018 vide Originating Summons No. BKI-24C(ARB)-1/4-2018 seeking recognition and 8 enforcement of the Interim Award as judgment against Neptune. The application was subsequently amended to include consequential order which the Arbitrator did not grant.

On 13.7.2018, the learned JC agreed to proceed with the amended Enforcement Application on an ex-parte basis and allowed the said application in term as prayed for therein [“the Ex Parte Order”].

Neptune’s appeal against the decision of the learned JC to hear the Enforcement Application on ex parte basis and the decision to grant the Ex-Parte Order is under Appeal 1606.

In the wake of the High Court granting the Ex Parte Order dated 17.3.2018, Neptune filed an application to set aside the said Ex-Parte Order. On 18.12.2018, the learned JC dismissed the said application.

The appeal against the learned JC’s decision in dismissing the application by Neptune to set aside the Ex-Parte Order is under Appeal 136. Appeal No. 1608

In Neptune’s application to set aside the Interim Award, it sought, inter alia, the following orders [verbatim]:

(a) That the following questions of law arising out of the order for Interim Measure of Mr Chong Thaw Sing (“the learned 9 Arbitrator”) published on 7.03.2003 (“the said Interim Award”) be decided by the High Court: -

(i) Whether the learned arbitration has erred in law in misconstruing his powers under section 19 of the Arbitration Act, 2005 in granting the said Interim Award.

(b) Consequential order that the said Interim Award be set aside in whole pursuant to section 37(1)(a)(vi) and/or section 37(1)(b)(ii) and/or section 42(1) of the Arbitration Act, 2005 and/or alternative under the inherent juris of the Court. 10

The grounds of the setting aside Interim Award Application are as follows [verbatim]:

(i) The Interim Award is illegal as the learned Arbitrator has no powers under section 19 of the Arbitration Act, 2005 to make such Interim Measure Order;

(v) The said Interim Award is manifestly unlawful and unconscionable. High Court Decision 26. The learned JC identified Questions (i) (ii) and (iii) above as essentially challenges directed at the power of the Arbitrator under section 19 of the Arbitration Act, 2005 and the invocation of Article 26 of the UNCITRAL Arbitration Rules 2010.

The learned JC, after thorough consideration of the reasoning of the Arbitrator, held as follows: 11

That the parties had agreed to adopt UNCITRAL Arbitration Rules 2010 as the governing rules for this proceeding without dissent this is a finding of fact which this Court ought not to interfere.

Having addressed the issue, the arbitrator then went on to analyse whether section 19 of the Act would empower the arbitral Tribunal to order preservation of the parties’ assets to satisfy future award, bearing in mind the more extensive powers in Section 11 of the Act which is accorded to the High Court. In support of his view that the parties could expand the power of the arbitral tribunal by the invocation of UNCITRAL Arbitration Rules 2010, the learned arbitrator had relied on the Federal Court case in Thai-Leo Lignite Company Ltd v Government of Lao People’s Democratic Republic [2017] 9 CLJ 273.

it is also clear that the learned Arbitrator had in arriving at the Decision considered the same points that are before this Court.

In order to determine issue i), ii) and iii), I am in agreement with the learned Arbitrator that the principles as stated in the Federal Court case of Thai-Leo clearly provides the arbitral Tribunal with the power to order preservation of parties’ assets to satisfy future award, despite the provisions of State Secretary 11 of the Act. 12

It is to be noted in Thai-Leo, the Court had stated subject to the provision of the Act, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings (section 21(1) of the Arbitration Act 2005). The arbitration rules provide the framework in which the arbitration proceedings are to take place, however, parties may choose whether to conduct their arbitration under institutional rules (as administered by a specified body or institution) or under ad hoc arbitration.

When the procedure chosen is different to that of the law of the seat of arbitration then the procedure chosen will override the non-mandatory provisions of the seat arbitration. However, a choice of procedure by the parties cannot override the mandatory provisions at the seat of arbitration. Based on the principles stated and the fact that section 19 of the Act are not mandatory provisions, the parties may choose as they did in this case to conduct their arbitration under UNCITRAL Arbitration Rules 2010.

In view of my finding here, the questions of law posed may be answer as follows: i). The Interim Award is illegal as the learned Arbitrator has no powers under Section 19 of the Arbitration Act, 2005 to make such Interim Award. 13 The answer to the questions posed is Interim Award is not illegal. ii) the invocation of Article 26 of the UNCITRAL Arbitration Rules 2010 by the learned Arbitrator is misconceived in law and in fact; the answer to this questions is that the invocation of Article 26 of the UNCITRAL Arbitration Rules 2010 by the learned Arbitrator is not misconceived in law and is supported by the facts of the case. iii) the making of the said Interim Award pursuant to the UNCITRAL Arbitration Rules 2010 is against the public policy of Malaysia as the said Rules is in conflict with Section 19 of the Arbitration Act, 2005 from which the parties cannot derogate. For this issue based on the principles as stated in Thai-Leo (supra), the interim award is not against public policy of Malaysia.

As stated earlier since the findings of the Court that the Interim Award is legal, there are no merits in the two questions posed below. vi) the impugned decision of the learned Arbitrator has substantially affected the rights of the Plaintiff; and v) the said Interim Award is manifestly unlawful and unconscionable. 14 Based on all the above reasons, I dismiss the Plaintiff’s application with costs of RM5000 to be given to the Defendant subject to the payment of the allocator. The Law 28. At this appeal revolved on the interpretation of sections 11 and 19 of the Arbitration Act, 2005 and Article 26 of the UNCITRAL, they are reproduced below for ease of reference and better appreciation of our decision.

Section 11 of the Arbitration Act, 2005 states:

Arbitration agreement and interim measures by High Court

(a) maintain or restore the status quo pending the determination of the dispute;

(b) take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process;

(c) provide a means of preserving assets out of which a subsequent award may be satisfied, 15 whether by way of arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court;

(d) preserve evidence that may be relevant and material to the resolution of the dispute; or

(e) provide security for the costs of the dispute.

Section 19 of the Arbitration Act, 2005 states:

Power of arbitral tribunal to order interim measures

(a) [Deleted by Act A1569]

(b) discovery of documents and interrogatories;

(c) giving of evidence by affidavit;

(d) [Deleted by Act A1569]

(a) maintain or restore the status quo pending the determination of the dispute;

(b) take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process itself;

(c) provide a means of preserving assets out of which a subsequent award may be satisfied;

(d) preserve evidence that may be relevant and material to the resolution of the dispute; or

(e) provide security for the costs of the dispute.

Article 26 of the UNCITRAL Arbitration Rules 2010 states:

The arbitral tribunal may, at the request of a party, grant Interim Measure.

An Interim Measure is any temporary measure by which, at any time prior to the issuance of the award by which the dispute is finally decided, the arbitral tribunal orders a party, for example and without limitation, to: a) Maintain or restore the status quo ending determination of the dispute; 17 b) Take action that would prevent, or refrain from taking action that is likely to cause: i. Current or imminent harm or ii. Prejudice to the arbitral process itself; c) Provide a means of preserving assets out of which a subsequent award may be satisfied; or d) Preserve evidence that may be relevant and material to the resolution of the dispute. [Emphasis added]

Neptune is raising a jurisdictional challenge in Appeal 1608, which is whether the Arbitrator has the jurisdiction to make the Interim Award by invoking the UNCITRAL Arbitration Rules 2010.

As can be seen from the enabling provision of section 19 of the Arbitration Act 2005, it is quite clear that section 19 only empowers the arbitral tribunal to make interim measures orders in respect of the subject matter in dispute between the parties; it does not include the power to order a party to secure the amount in dispute, as sought by SMC and granted by the Arbitrator vide the Interim Award. 18

It can be seen from section 11 of the Arbitration Act 2005 that the more extensive power to order interim measure is conferred upon the Court including the power to secure the amount in dispute under subsection 11(e).

The crux of Neptune’s contention before us and for that matter, before the Arbitrator and the High Court, is that the phrase “unless otherwise agreed by the parties” appearing in section 19 of the Arbitration Act 2005, in their plain and ordinary interpretation, means that the parties can agree among themselves that they will not invoke any of the interim measures listed in paragraphs (a) to (d) of subsection 19(1). That phrase does not give liberty to the parties to adopt other rules of arbitration or change the expressed power stated in paragraph (a) to (d) of subsection 19(1) so as to empower the Arbitrator to order interim measure to secure assets under Article 26 of the UNCITRAL Arbitration Rules 2010. Accordingly, the Arbitrator’s reliance on Article 26 to make the Interim Award is erroneous in law and in fact. In so doing, the Arbitrator had usurped the power of the Court conferred upon the Court under section 11 of the Arbitration Act 2005. Consequently, the Interim Award is manifestly wrong and unconscionable to warrant the appellant intervention.

To support the above contention, Neptune cited the Singapore case of Ting Kah Chung John v Teo Hee Lai Building Construction Pte Ltd

In that case, the High Court considered that the phrase “unless otherwise agreed by the parties” in the context of section 36 of the Singapore Arbitration Act 2001 and held at page 645 of the 3 [2010] 2 SLR 625. 19 judgment that such provision is meant to allow the parties to exclude the court’s power to extend the time. It was submitted that in the same token, the phrase “unless otherwise agreed by the parties” in section 19(1) of the Arbitration Act 2005 means that the parties can mutually agree to waive or exclude the arbitral tribunal’s power to grant the interim measure as listed in paragraph (a) to (d) but it cannot be reads to mean that the parties can mutually expand or increase the power as provided in subsection 19(1).

The Arbitrator, however, was not persuaded by the above submission of Neptune. Instead, he relied on the Federal Court case of Thai-Lao cited by SMC.

On the strength of the high authority of Thai-Lao, the Arbitrator held: “….The Federal Court in Thai-Lao matter clearly articulated the position of law in Malaysia allowing parties to an arbitration the liberty to vary a non-mandatory provisions of the Act. And there is no dispute that those non-mandatory provisions of the statutes are qualified by the use of the phrase, “unless otherwise agreed by the parties or “ the parties are free to agree or phrases to that effect. The parties therefore could by adopting the use of UNCITRAL Arbitration Rules 2010 or any other rules, expand section 19 of the Act. Article 26 of UNCITRAL Arbitration Rules deals with interim measures, it is the tribunals view that Article 26 would be incorporated into Section 19 in so far as it governs the conduct of this arbitral proceedings. 20

The learned JC agreed with the Arbitrator that the legal principles pronounced by the Federal Court in Thai-Lao clearly provides the arbitral tribunal with the power to order preservation of parties’ assets to satisfy future award, despite the provision of Section 11 of the Act.

Neptune submitted that the learned JC was wrong in relying on Thai-Lao, supra and held that parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings pursuant to section 21(1) of the Act. This is because the order for the preservation of the parties’ assets to satisfy a future award is not a procedural in nature and therefore does not come within the ambit of section 21(1) of the Act.

Neptune submitted that the substantive provision of the Arbitration Act 2005 cannot be overridden by an International Convention embodied in the UNCITRAL Arbitration Rules 2010, and that the learned JC erred in holding that section 19 of the Arbitration Act 2005 is not a mandatory provision and that parties may choose other arbitral rules like UNCITRAL Arbitration Rules 2010.

We, with respect, do not agree. In our view, the provisions of Arbitration Act 2005 itself, the local case law as well as from the foreign jurisdiction, and legal commentaries made it abundantly clear that parties are free to choose other arbitral rules.

The Arbitration Act 2005 itself recognises that the parties are free to agree on the procedure to be followed and failing such agreement 21 the Arbitrator is empowered to decide. This is reflected in Section 21 of the Arbitration Act 2005, which provides:

(a) determine the admissibility, relevance, materiality and weight of any evidence;

(b) draw on its own knowledge and expertise;

(c) order the provision of further particulars in a statement of claim or statement of defence;

(d) order the giving of security for costs;

(e) fix and amend time limits within which various steps in the arbitral proceedings must be completed;

(f) order the discovery and production of documents or materials within the possession or power of a party;

(g) order the interrogatories to be answered; 22

(h) order that any evidence be given on oath or affirmation; and

(i) make such other orders as the arbitral tribunal considers appropriate.

In Thai-Lao case, supra, the Court addressed subsection 21(1) of the Arbitration Act 2005 as follows: Choice Of Procedural Rules [159] "Subject to the provisions of this Act, the parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings" (s. 21(1) of the AA 2005). [160] The "arbitration rules provide the framework in which the arbitration proceedings are to take place... parties may choose whether to conduct their arbitration under institutional rules (as administered by a specified body or institution) or under ad hoc arbitration (where the arbitral tribunal has control over all aspects of the proceedings subject to any rules which the parties may agree)" (Arbitration of Commercial Disputes supra at 3.01). "In most international ad hoc arbitrations there will be a reference to, or incorporation of, a set of rules that the parties agree to adopt. These may be best spoke to the particular agreement or those of a body such as 23 UNCITRAL" (Arbitration of Commercial Disputes supra at 3.77). [161] Where the procedure chosen is different to that of the law of the seat of the arbitration then the procedure chosen will override the non-mandatory provisions of the seat of the arbitration. However, a choice of procedure by the parties cannot override the mandatory provisions of at the seat of arbitration (see Arbitration of Commercial Disputes supra at 7.60 read together with Redfern and Hunter on International Arbitration 5th Edn at 3.50).

Section 2 (2)(c) of the Arbitration Act 2005 provides: 2) For the purposes of this Act-

(c) where a provision of this Act refers to the fact that the parties have agreed or that they may agree or in any other way refers to an agreement of the parties, that agreement shall include any arbitration rules referred to in that agreement;

Subsection 19(1) clearly lists down the powers of the arbitral tribunal in paragraphs (a) to (d) “unless otherwise agreed by the parties”. The phrase “unless otherwise agreed by the parties”, in its plain and ordinary meaning, in our view, clearly gives autonomy to the parties to choose or agree otherwise than what have been set out in paragraphs (a) to (d) of subsection 19(1). Accordingly, the powers provided under section 19 may be expressly excluded by agreement 24 of the parties. Conversely they may be extended by agreement of the parties or by the rules of the relevant arbitral institution or otherwise by subsequent agreement.

In Ting Kang Chung John, supra, the High Court’s view on the party autonomy demonstrate that it is the cornerstone of arbitration; it is paramount and it overrides the specific provisions. It held as follows: ….Party autonomy, which was the cornerstone of arbitration, had been emphasised time and again by our highest court. If the parties had chosen to agree to a time limit within which an arbitration had to render his award and that contract or arbitration clause contained no provision to extend time, other than by mutual agreement, then no court was in a position to re-write the contract for the parties (unless there was a statutory provision conferring such a power)…..

In our view, the fact that the parties are given the autonomy to choose the procedure rules for the conduct of the arbitration must necessarily mean that section 19 cannot be a mandatory provision as contended by Neptune.

We find support from Sundra Rajoo and WSW Davidson on “The Arbitration Act 2005 UNCITRAL model Law as applied in Malaysia”, 2007 edition, whose illustration under “Interim measures under the 1952 Act”, shows that the specific powers listed in section 19(1) can be excluded or extended either in arbitration agreement itself or by subsequent agreement. It is written: 25

19.5 Under the present Act, the specific powers listed in section 19(1) are given to the arbitral tribunal except in the unlikely situation that they have been expressly excluded by agreement of the parties either in the arbitration agreement itself or by any subsequent agreement. Conversely the powers of the arbitral tribunal may be extended by the arbitration agreement or by the rules of the relevant arbitral institution or otherwise by any subsequent agreement.

In Sundra Rajoo’s The Malaysia Arbitration Act 2005 (Amended 2011) – A Annotation” , it is written at page 13: …These phrases [such as “unless otherwise agreed by the parties” or “the parties are free to agree”] are pivotal in ensuring the embodiment of the concept of party autonomy and indicate that an agreement made between parties will (in such instances) override the specific provisions of the Act. The same will apply where parties have agreed in their arbitration agreement to abide by the rules of a particular arbitral institution and there is a provision in the rules of that arbitral institution which conflicts with the provisions of the Act. In this case, the provision of the arbitral institution will override, where the section indicates the parties may otherwise agree. Where there 26 are no words indicating the right to otherwise agree, the provision can be consider mandatory. [ emphasis added]

In Law, Practice and Procedure of Arbitration, 2nd edition at page 513, it is states: Section 19 of the Arbitration Act 2005 is subject to the agreement of the parties. Parties can restrict or enlarge the scope of the arbitral tribunal’s powers. Parties could expressly withdraw the power of the arbitral tribunal to order interim measures, or they could agree to confer upon the arbitral tribunal the power to make a freezing order against assets unconnected to the arbitration….”

Of the numerous authorities from Indian jurisdiction cited by SMC, suffice it to mention the Supreme Court of India case of Milkfood Limited v Messrs. GMC Ice Cream (P) Limited [2004] wherein the Supreme Court of India approved the approach taken in Delhi Transport Corporation Limited (2003) 6 SCC 36 in the interpretation of the Indian Arbitration Act 1996 whose observation is reproduced below: Conclusion 3 only reiterates what is provided in various sections of the Arbitration Act, which gives option to the parties to opt for the procedure as per their agreement during the arbitral proceedings before the arbitrator. The phrase “unless otherwise agreed by the parties” used in various Sections, namely 17, 21, 23(3), 24(1), 27 25, 26, 29, 31, 85(2)(a) etc indicates that it is open to the parties to agree otherwise. During the arbitral proceedings, right is given to the parties to decide their own procedure. So if there is agreement between the parties with regard to the procedure to be followed by the arbitrator, the arbitrator is required to follow the said procedure. Reason being, the arbitrator is appointed on the basis of the contract between the parties and is required to act as per the contract

Based on the foregoing cases and commentaries, we are therefore of the firm view that where a provision includes terms such as “unless otherwise agreed by the parties” [see section 19] or “the parties are free to agree” [see section 21], this would indicate that the particular provision may be varied or departed from by the parties either at early stage in the arbitration agreement or at any later stages by subsequent agreement. So if the procedure adopted enlarged the powers of the Arbitrator to grant interim measures, the Arbitrator would then be seized with the power under the adopted procedure. Whether the parties had agreed to adopt UNCITRAL Arbitration Rules 2010

This brings us to the next issue in this appeal, that is, whether the parties had agreed to adopt UNCITRAL Arbitration Rules 2010. 28

Neptune contended that the Arbitrator was wrong to granting the Interim Award by invoking Article 26 of the UNCITRAL Arbitration Rules 2010 on the ground that the parties have agreed to adopt the UNCITRAL Arbitration Rules 2010 for the arbitration proceedings without dissent.

It was contended that in the letter dated 3.11.2017 from the Solicitors of SMC to the Arbitrator, applying for an interim measure order, it did not cite any provision of the law under which the purported application for interim measure was made. Thus, it had contravened the basic requirement of stating in any application the relevant provision of the law upon which the application is premised, citing Cheow Chew Khoon v. Abdul Johari Abdul Rahman.

It was further submitted that in absence of the parties’ express agreement and in not citing Article 26 of the UNCITRAL Arbitration Rules 2010 in SMC’s application for an interim measure order, it clearly showed that it was not within the contemplation of Neptune that to override the “substantive” provisions in the Arbitration Act 2005 with the UNCITRAL Arbitration Rules 2010.

The Arbitrator found as follows: Let me first address the issue, whether the parties have at the preliminary meeting adopted the UNCITRAL Arbitration Rules

From my records and Procedural order No. 1 issued following the preliminary meeting on 14 March 2014, the parties had indeed agreed to adopt UNCITRAL Arbitration 4 [1995] 4 CLJ 127. 29 Rules 2010 as the governing rules for this proceedings without dissent.

It is worth recalling that under section 21 of the Arbitration Act 2005, if the parties failed to agree on the procedure to be followed by the arbitral tribunal in conducting the proceedings, the arbitral tribunal may conduct the arbitration in such manner as it considers appropriate.

Under clause 34.3 of the Condition of contract,5 which deals with the arbitration between Neptune and SMC, the parties agreed that upon appointment the Arbitrator shall, with despatch initiate the arbitration proceedings following the provisions of the Arbitration Act 1952 (Revised 1972) or any statutory modification or re-enactment thereof for the time being in force and the PAM Arbitration Rules or any modification or revision thereof.

In the present case, the Arbitrator had issued the procedure direction vide the “PROCEDRUAL ORDER NO 1 PROVISIONAL TIME-TABLE” 6 prepared by the Arbitrator, which contained the following:

Guidelines 2.1 This arbitration shall be conducted pursuant to:

(a) the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”); 5 Record of appeal, vol. 2, pages 162-198. 6 CB page 75. 30

(b) the law of Malaysia; and

(c) the UNCITRAL Arbitration Rules 2010. [Underline added]

It can be seen from the procedure directions issued by the Arbitrator that the arbitration shall be conducted to, inter alia, the UNCITRAL Arbitration Rules 2010.

It is significant to note that the arbitration proceeding have gone through 23 tranches with an average of 5 days per tranche of hearing before the issue of interim measure arose. During that entire period, Neptune has not raised any objection to the UNCITRAL Arbitration Rules 2010 as stated in the Procedural Order No. 1 until the issue of Interim Award arose. What then is the consequence of failure on the part of Neptune to object to the UNCITRAL Arbitration Rules 2010 stated in the Arbitrator’s procedure direction?

Section 7 of the Arbitration Act 2005, states: A party who knows-

(a) of any provision of this Act from which the parties may derogate; or

(b) that any requirement under the arbitration agreement has not been complied with, and yet proceeds with the arbitration without stating its objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, 31 within that period of time, shall be deemed to have waived its right to object.

Section 7 imposes a duty on the party, like Neptune, to object if there are deviation from the provisions of the arbitration agreement. The doctrine of waiver applies. If the party does not state any objection within the stipulated period of time, he is deemed to have waived the right to complain.

Thus, pursuant to section 7 of the Arbitration Act 2005, the Appellant has clearly forfeited the right to object and is now estopped from denying that the UNCITRAL Arbitration Rules 2010 apply to expand the power of the Arbitrator to make the Interim Award.

Based on the reasons above, we were of the view that the parties had agreed to conduct the arbitral proceedings in accordance with the Arbitration Act 2005 and the UNCITRAL Arbitration Rules 2010 as was found by the Arbitrator. We also agreed that the Interim Award was made pursuant to section 19 of the Arbitration Act 2005 complemented by Article 26 of the UNCITRAL Arbitration Rules 2010.

We had no reason to disagree with the decision of the learned JC for not disturbing the decision of the Arbitrator based on the Federal Court’s decision in Far East Holdings Bhd & Anor v Majlis Ugama Islam Dan Adat Resam Melayu Pahang & Others Appeals7, which held: 7 [[2018] 1 MLJ 1 32 [153] Where it is a question of fact, ‘The arbitrators (remain) the masters of the facts. On an appeal the court must decide any questions of law arising from the award on the basis of full and unqualified acceptance of the findings of fact of the arbitrators. It is irrelevant whether the court considers these findings to be right or wrong. It also does not matter how obvious a mistake by the arbitrators on issues of fact might be or what the scale of the financial correspondences of the mistake of fact might be. That is, of course, an unsurprising position. After all, the very reason why parties conclude an arbitration agreement is because they do not wish to litigate in the courts. Parties who submit their disputes to arbitration bind themselves by agreement to honour the arbitrators’ award on the facts. The principle of party autonomy decrees that a court ought never to question the arbitrators’ findings of fact’ (The ‘Baleares’ at p 228). ‘… on findings of facts an arbitrator is the sole judge. Further, whether he drew the wrong inferences of facts from the evidence itself is not sufficient as a ground to warrant setting aside his award (see GKN Centrax Gears Ltd v Matbro Ltd [1976] 2 Lloyd’s Rep 555)’ (Future Heritage Sdn Bhd v Intelek Timur Sdn Bhd [2003] 1 MLJ 49 per Richard Malunjum JCA, as he then was)….. 33

For the reasons aforesaid, we find no appealable error to warrant the intervention of the appellant Court. APPEAL No. 1606 70. Appeal No. 1606 is Neptune’s appeal against the decision of the learned JC for agreeing to proceed with the hearing of the SMC’s Amended Enforcement Application to register and enforce the Interim Award on an ex parte basis and in granting the following orders against Neptune:

(a) Neptune’s entire claim in the Arbitration shall be permanently stayed; and

(b) Neptune’s shall be debarred from defending SMC’s claim in the Arbitration. [ the “Ex Parte Order”] 34

It is worth pointing out that originally, the SMC’s Enforcement Application was without consequential order. Subsequently SMC vide Notice of Application dated 28.5.2018 [“the Amendment Application”] applied to amend the Enforcement Application by including the following consequential orders which were not given by the Arbitrator:

(v) Alternatively, as a consequence of the Defendant’s [Neptune] failure and/or default in complying with the Arbitral Order, the Defendant [Neptune] be ordered to comply with the Arbitral Order set out in paragraph (ii) above without fourteen (14) days from the date of the Order in default of which: -

(a) the Defendant’s [Neptune] entire claim in the Arbitration be permanently stayed; and

(b) the Defendant [Neptune] be permanently debarred from defending the Plaintiff’s [SMC] claim in the Arbitration.

The High Court on 21.6.2018 allowed the Amendment Application. The Amended Enforcement Application was duly served by the SMC’s Solicitors on Neptune and Neptune duly filed an affidavit in opposition dated 7.5.2018 opposing the said Amended Enforcement Application. 35

Neptune contended that by reason that SMC had served the Amended Enforcement Application on them and they had filed their affidavit in opposition to oppose the application means that the hearing of the application was to be on inter-parte basis. However, during the hearing of the application, notwithstanding the contention by Neptune that the application ought to be proceeded on an inter-parte basis, the learned JC agreed with SMC that the hearing of the application should proceed on an ex-parte basis, and did proceed to hear it ex-parte and allowed the application in terms as prayed for therein.

The learned JC relied on the Federal Court decision in the case of CTI Group Inc. v International Bulk Carriers SPA 8 in deciding that the hearing of the Amended Enforcement Application ought to be conducted ex-parte.9 The learned JC held that “Based on CTI’s case (supra), at the ex-parte hearing, the applicant is only required to produce the Arbitral Award and the Arbitration Agreement in order for the applicant to obtain an order to enforce the Award.”10

Neptune contended that the learned JC had misdirected himself by relying on CTI Group, supra, in holding that the Amended Enforcement Application should be heard ex-parte. It was submitted that CTI Group is distinguishable as the plaintiff in that case filed an ex parte application under section 38 of the Arbitration 8 [2017] 9 CLJ 499. 9 Supplementary Record of appeal, page 1012. 10 Supplementary record of appeal, page 1013. 36 Act 2005 for an order recognising the ICC arbitral award as binding and enforceable as a judgment. Whereas in the present case, SMC had intended the Amended Enforcement Application to be an inter-parte application as it had served the said application on Neptune and SMC did not raise any objection when Neptune filed and served their affidavit in opposition to oppose the Application. It was submitted that SMC should not be allowed to blow hot or cold when it belatedly decided to insist during the hearing of the Amended Enforcement Application for it to be heard ex-parte.

Neptune further contended that the learned JC having been made aware of the inclusion of the consequential relief in the Amended Enforcement Application after the amendment and in holding that he was not required to delve into the merits of the affidavit in opposition filed by Neptune, had effectively deprived Neptune of its right to be heard on the inclusion of the consequential relief which would adversely affect Neptune. There is a clear breach of natural justice and a miscarriage of justice.

It was further submitted that the learned JC had erred in holding that the provision of Order 69 rule 8 of the Rules of Court 2012 and section 38(1) of the Arbitration Act 2005 provided the Court with the power to make the consequential orders sought by SMC vide the Amendment Application.

It was submitted that the learned JC’s reliance on the cases of Richco International Ltd v International Industrial Food Company SAL the Fayrouz III 11 and The State Government of Johore Darul 11 [1989] 1 All ER 613. 37 Tz’zim v Johore Coastal Development Sdn. Bhd. 12 is misplaced. It was submitted that in the two cited cases, the application for security for costs were made directly to the Court and the provisions relied on to make the applications are not Order 69 rule 8 of the Rules of Court 2012 or section 38(1) of the Arbitration Act 2005. It was submitted that the learned JC is not empowered to grant the consequential order which are not contained in the Interim Award.

It was submitted that by reason of the above, the decision of the learned JC in allowing the Amended Enforcement Application to be heard ex parte is clearly erroneous and ought to be set aside. Whether there was breach of natural justice?

We have noted from the Grounds of Decision 13 that Neptune had been afforded an opportunity to submit on the procedure to be adopted before the High Court.

During the hearing on 11.7.2019, the learned JC directed the parties to submit on the following question posed by His Lordship: Whether the Respondent’s Application under OS Enclosure No. 1 should be heard as an ex-parte proceedings in the light of the Appellant having filed an affidavit in opposition and the consequential relief prayed for in the Respondent’s OS? 12 [2015] 1 CLJ 210. 13 Supplementary record of appeal, lines 50-62 at page 1012. 38

SMC duly complied with the directive whereas Neptune refused to do so.

Under the circumstance, it does not lie in the mouth of Neptune to complain of being denied the opportunity to be heard when the learned JC accepted the submission of SMC and decided to hear the Amended Enforcement Application ex parte.

In any event, we are of the view that at the hearing of Appeal No. 1606 before us, Neptune had been afforded the full opportunity to ventilate its case and therefore any complaint of breach of natural justice is whittled to nought. Whether the learned JC had adopted the correct procedure in dealing with the Amended Enforcement Application?

Section 38 of the Arbitration Act 2005, states:

Recognition and enforcement

(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.

The procedure for the purpose of recognition and enforcement of an arbitral award in Malaysia is contained in Order 69 rule 8 of the Rules of Court 2012, which states:

Enforcement of awards (O. 69 r. 8)

(a) state the name and the usual or last known place of abode or business of the applicant, and the respondent against whom it is sought to enforce the award, respectively; and 40

(b) state either that the award has not been complied with or the extent to which it has not been complied with at the date of the application.

(a) be drawn up by the applicant; and

(b) be served on the respondent by

(i) delivering a copy to him personally; or

(a) the respondent may apply to set aside such order; and

(b) the award shall not be enforced until-

(i) after the expiration of that period; or

In CTI Group, supra, 14 the Federal Court, after thorough analysis of section 38 and Order 69 rule 8 of the Rules of Court 2012, clearly pronounced the appropriate procedure to be taken in respect of the registration and enforcement of the Arbitral Order in the following words: [66]Sections 38 and 39 of our Arbitration Act, read with O. 69 rr. 8 and 9 of the Rules of Court 2012, provide for a two-stage process: The first stage is essentially an ex parte proceeding - but subject to the power of the court as stipulated in para. (4) of O. 69 r. 8 to require service of the arbitration claim originating summons on a party to the arbitration. An ex parte order giving permission to enforce an arbitral award is made at this stage. The second stage is an inter partes proceeding during which the court deals with the application to set aside an ex parte order giving leave to enforce an arbitral award. The application must be made within the prescribed time after that order is served on the party against whom the order is made. 14 See Footnote No. 7. 43

On the strength of the above high authority, it is clear that the recognition and enforcement of an arbitral award involves a two-stage process.

The Federal Court in CTI Group, supra, further pronounced that the first stage of the registration and enforcement of the arbitral award is to be conducted on an ex-parte basis, subject to the power of the Court to order service of the cause papers upon a respondent party. This goes to show that mere service of the cause papers of the registration and enforcement application on the respondent party does not thereby turn it into an inter-partes proceeding.

The Federal Court in CTI Group, set down the requirement of the first stage as follows: [87] In our view, the discussion on the differences in the definitions of "agreement in writing" in the various jurisdictions does not detract from the common position taken by all the cases we have referred to above that all that the court is required to do at the first stage of the enforcement proceeding is to satisfy itself that the party seeking enforcement has produced before the court:

(a) the arbitral award sought to be enforced, which prima facie or apparently is a valid award;

(b) the arbitration agreement, which is prima facie or apparently a valid agreement, between the party seeking to enforce the award and the party against 44 whom the award is sought to be enforced, and pursuant to which the award was made. [88] If the parties are named in the arbitration agreement, or if it is obvious on the face of the arbitration agreement that they are parties to the agreement, obviously the "apparently valid" test in Dardana, Lombard-Knight and Dallah, or the "prima facie " test in Attain, is satisfied. There is nothing more to be done. The award creditor applying for enforcement has discharged its evidential burden. Leave must be granted, and the matter must proceed to the second stage if the award debtor seeks to challenge such leave.

Further, in Alami Vegetable Oil Produts Sdn. Bhd. v Hafeez Igbal Oil & Ghee Industries (PVZT) Ltd, 15 this Court held:

Section 38 is a “recognition procedure” to convert an arbitration award to a judgment and can only be done by the person holding an arbitration award. As long as the procedure had been satisfied, 15 [2016] 7 CLJ 19. 45 the award must be recognised. [paragraphs 2, 3 & 7].

In light of the authorities above, it is our firm view that the learned JC was not wrong in law when he decided that SMC’s Amended Enforcement Application ought to be proceeded on an ex parte basis. We also find that the learned JC was correct in holding that at the first stage, all that needs to be done by SMC is to produce the Interim Award and the Arbitration Agreement. At that stage he did not have to delve into the merits of the Interim Award, In other words, no objection or opposition ought to be considered at all by the Court.

Based on the reasons aforesaid, we find that there is no appealable error to warrant the appellate Court’s intervention. APPEAL NO 136 94. In the wake of the granting of the Ex Parte Order dated 13.7.2018, Neptune filed an application dated 2.7.2018 under section 39 of the Arbitration Act 2005 and Order 69 rule 8(7) of the Rules of Court 2012 to set aside the said Order. On 18.12.2018, the learned JC dismissed the said application. The appeal against this dismissal is under Appeal No. 136.

95.

As pointed out by learned counsel for both parties, there is overlapping between Appeal No. 1606 and Appeal 136 in respect of some of the issues raised, in particular on the issue whether there was a breach of natural justice when the learned JC decided to proceed with the hearing of the Amended Enforcement Application on an ex parte basis. Since we have addressed this issue under Appeal No. 1606, it is needless for us to repeat the exercise here.

The other issue which Neptune raised in Appeal 136 is the jurisdiction challenge to the Arbitrator’s invocation of UNCITRAL Arbitration Rules 2010. As we have also dealt with this issue under Appeal No. 1608, we shall not labour ourselves on this point again. Whether the learned JC lacks in jurisdiction to issue consequential order

This left us with only one issue under Appeal 139, that is, whether the learned JC lacks in jurisdiction to issue a consequential order.

Neptune contended that the Ex Parte Order dated 13.7.2018 is a nullity in law as the learned JC has no power or jurisdiction under section 38 of the Arbitration Act 2005 to issue the consequential order under Item (2) of the said Order. It was submitted that under section 38 of the Arbitration Act 2005, the Court can only register the order in terms of the Interim Award but not empowered to make any 47 consequential order which the Arbitrator had not granted in the Interim Award. As such, the consequential order granted was outside the ambit of section 38 of the Arbitration Act 2005 and is therefore a nullity and ought to be set aside in toto.

HIGH COURT DECISION From the Grounds of Decision, 16 the rationale of the learned JC in granting the consequential order can be distilled as follows:

(a) Section 38 of the Arbitration Act 2005 provides for the registration of the Arbitral Order as a judgment of the Court.

(b) Order 69 rule 8 of the Rules of Court 2012 when read together with section 38 of the Arbitration Act 2005 provides that the Arbitral Order would be enforced as a judgment of the Court.

(c) Once it is a judgment of the Court, the Court has the power to enforce the same as if faced with any other judgment.

We agreed with SMC’s submission that the learned JC was correct in holding that once the Interim Award has been registered [referred to as “Arbitral Order” in the Judgment], the Court has the power to make the necessary orders to enforce the same as if faced with any other judgment because it is a judgment of the Court. 16 Pages 11 to 13 …….. 48

In this regard, the Federal Court in Christopher Martin Boyd v Deb Brata Das Gupta, 17 had set a clear distinction between the enforcement of the Interim Award and the enforcement of the judgment of the Court. It was held: [20] The Court of Appeal construed the words "to enforce the award" to mean the execution of the judgment. It is our view that although the words "to enforce an award" is used in s. 6(1)(c) of the Limitation Act 1953, we do not think it applies to both the registration of an arbitration award and enforcement of an arbitration award. In our considered view, there is a clear distinction between "registration of an arbitration award" and "enforcement of a judgment" that arises from the arbitration award that is duly registered as a judgment of the court, which in our present case is the subject matter of the bankruptcy proceedings. The provisions of s. 27 of the Arbitration Act 1952 and s. 38(1) of the Arbitration Act 2005 are simply procedural provisions enabling an award made in consensual arbitration proceedings to be registered. In principle, unlike an order or judgment of the Court, an arbitration award does not immediately entitle a successful party to levy execution against the assets of the unsuccessful party. The arbitration award must first be converted into a judgment or order of the court before the successful party can levy execution. Only upon converting the arbitration award will it be considered as a judgment or order of the court. 17 [2014] 9 CLJ 887. 49 [23] Thus, it is clear from the above that once the arbitration award is registered it will take effect as a judgment of the court. We have laid emphasis to the word "judgment" in both provisions. It is abundantly clear, both provisions refers to procedures before an arbitration award is registered and converted into a judgment of the court. Both provisions had made a clear distinction between an award and a judgment. Under the circumstances, the enforcement of arbitration awards must be viewed in two parts. First is the registration of the arbitration award itself as a judgment of the court, and secondly the enforcement or execution of such a judgment.

In the light of the Federal Court’s decision in Christopher Martin Boyd, supra, it is abundantly clear that once the Interim Award has been registered, it is converted into a judgment which the Court has the power to enforce. Accordingly, the learned JC has the power to make the necessary order to enforce the same as if faced with any other judgment.

For the reasons aforesaid, we find no appealable reasons for the appellant Court’s intervention. 50

For all the reasons stated above, it is our unanimous decision that the three Appeals be dismissed with costs. The decisions of the High Court are affirmed. Cost of RM20,000.00 to SMC subject to the payment of the allocatur. Dated: 14 October 2019 Sgd YEW JEN KIE Court of Appeal Judge Putrajaya For Appellants : Norbert Yapp (Eow Ee Pei with him) [ NORBERT YAPP & ASSOCIATES ] For Respondents: Puan Sri Marina Tiu (Carl Barnabas Malanjum with her) [ YAP CHIN & TIU ] Notice: This copy of the court’s reasons for judgment is subject to editorial revision.