Wednesday, March 26, 2014

Court of Appeal to decide on Malaysian construction dispute

By Habhajan Singh

The Court of Appeal is today scheduled to hear an appeal on arbitration matters in a case between a unit of SP Setia Bhd and a wholly owned subsidiary of German-listed Bauer Group.

The decision, legal and arbitration experts said, would have some impact on the construction and engineering sector, which tends to turn to arbitration to resolve disputes when they arise.

At the heart of today’s Court of Appeal hearing is whether questions raised in the appeal are questions of law or merely questions of facts.

The arbitration award under dispute is between Exceljade Sdn Bhd, the SP Setia unit that is developing the luxury-serviced Setia Sky Residences, and piling contractor Bauer (M) Sdn Bhd. Exceljade is the developer of Setia Sky Residences, the luxury- serviced residences at the intersection of Jalan Tun Razak and Jalan Raja Muda Abdul Aziz, about 1km from the Petronas Twin Towers.

The dispute centred on additional claims of RM2.3 million made by Bauer for a piling contract awarded in 2009 with an original value of RM19.6 million.

Bauer claimed that it had to use more powerful drilling rigs and needed more time as the requirements had changed from the original scope of works. Arbitrator Harbans Singh KS, who adjudicated the matter, made an arbitration award on Nov 23, 2012, in favour of Bauer.

“It was quite a comprehensive work,” said one construction industry executive familiar with the case. The award judgment, available only to parties involved in the arbitration, is understood to be some 200 pages long.

Exceljade then took the matter to the High Court. On Nov 29, 2013, High Court (Commercial Division) judge Justice P Nallini dismissed the application with costs.

The judge had ruled that Exceljade had failed to establish that the questions it posed amount to questions of law warranting either the setting aside, variation or remission of the award by the arbitrator.

Exceljade, as the applicant in the High Court proceeding, was seeking to refer to the court three questions of law supposedly arising out of the arbitration award, made pursuant to Section 42 of the Arbitration Act 2005.

Bauer, as the respondent in the High Court proceeding, opposed the application, contending the questions posed were not questions of law but instead was an attempt to review findings of fact and evidence made by the arbitrator.

“A perusal of sections 42(1) and (1A) indicate ex facie that any party to an arbitration award may refer to the Court for its determination a question of law arising out of the arbitration. However, unless that question of law substantially affects the rights of one or more of the parties, the Court is constrained or must dismiss the same,” she ruled in a 59-page judgment.

Section 42 (1) states that any party may refer to the High Court any question of law arising out of an award.

In an amendment vide the Arbitration (Amendment) Act 2011, Section 1A was added, which states: The High Court shall dismiss a reference made under subsection (1) unless the question of law substantially affects the rights of one or more of the parties.

In her judgment, Justice Nallini had discussed in detail the tests to be applied when allowing arbitration awards to be contested in the court of law. The judge had also invited an amicus curiae (friend of the court) to assist given the “importance of formulating the correct test for the interpretation of Section 42”, she added.

The Arbitration Act 2005, which came in force in March 2006, is based substantially on the United Nations Commission on International Trade Law (UNCITRAL) model law, designed to meet concerns relating to the current state of national laws on arbitration.

However Section 42 is one of the few sections that has no parallel in the Model Law, noted Justice Nallini.

In jurisdictions like the UK, Singapore, Australia and New Zealand, Justice Nallini said there was a filtering process which a prospective litigant had to “pass” prior to being accorded an opportunity of being heard on, inter alia, questions or errors of law.

“It is pertinent that there is no such ‘filter’ in our act,” she said. On the issue of test, she concluded that the tests set out in a number of cited cases were “eminently suitable to be utilised in determining the approach or test to be utilised by the High Court in determining a reference under Section 42.”

In the High Court case, Sanjay Mohanasundram and Lee Leong Soon from Kadir, Andri & Partners had represented Bauer while Exceljade was represented by Lim Chong Fong and Kenny Chan from Azman Davidson & Co.
[The original article, entitled Court of Appeal to decide on dispute, appeared in THE MALAYSIAN RESERVE on 27 March 2014]