MMC Engineering Group Bhd & Anor v Wayss & Freytag (Malaysia) Sdn Bhd

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1 CIDB Construction Law Report 2015 MMC Engineering Group Bhd & Anor v Wayss & Freytag (Malaysia) Sdn Bhd HIGH COURT, KUALA LUMPUR ORIGINATING SUMMONS NO: 24C(ARB) 2 05/2013 MARY LIM THIAM SUAN J 11 MAY 2015 [2016] 1 CIDB-CLR 110 The Plaintiffs had entered into a contract with the Defendant for the construction of tunnel ( the Contract ). The parties however fell into dispute and they each terminated the Contract. The Defendant referred some outstanding claims it had and a further claim for losses and damages associated with the termination of the Contract to a Dispute Adjudication Board ( DAB ). The Plaintiffs also referred a claim to the DAB seeking to recover its losses and damages as well as the extra costs for completing the Works. The DAB subsequently issued its decision on liability for the Defendant s claim, largely in favour of the Defendant whereas it later rejected the Plaintiffs claim and issued its decision on quantum in relation to the Defendant s claim. The Plaintiffs filed the requisite notices of dissatisfaction with the DAB s decisions. Both parties later commenced arbitration proceedings at the Kuala Lumpur Regional Centre for Arbitration ( KLRCA ). The matters were heard before the same Arbitral Tribunal. On 16 April 2013, the Tribunal issued the Second Interim Award, which was corrected and reissued as the Corrective Award on 30 May 2013 ( the Award ). The Plaintiffs applied under s 42 of the Arbitration Act 2005 ( the Act ) read together with O 69 r 2(1)(h) and 6 of the Rules of Court 2012 to refer four questions of law said to have arisen in the Award. The Defendant opposed the application. Held, dismissing the application with costs: (1) Section 42 of the Act is peculiar to the Malaysian arbitration scene. The recourse of referring questions of law to Court under s 42 of the Act is not unusual as other jurisdictions do similarly allow questions of law to be posed, but through an appeals mechanism. (2) The Court s jurisdiction under s 42 is discretionary, save for where the preconditions under subsection 42(1A) are not met. In order to properly invoke the discretion of the Court under s 42, an applicant will have to identify or formulate the questions of law to be determined; show how these questions of law arise out of or from the arbitral award; show how its rights are substantially affected by these questions of law; and set out the grounds upon which the reference is sought. These requirements must be met before the Court will even begin to address and determine 110

2 MMC Engineering Group Bhd & Anor v Wayss & Freytag (Malaysia) Sdn Bhd the questions of law presented. In a sense, these pre-qualifications and conditions are thresholds that any applicant must cross and cross successfully before s 42 is properly invoked. (3) In order for a proper invocation of the Court s powers under s 42, the question of law identified or presented must refer to a point of law in controversy which requires the opinion, resolution or determination of the Court. Such opinion or determination can only be arrived at after opposing views and arguments have been considered. The question will include an error of law that involves an incorrect interpretation of the applicable law but will not include any question as to whether the award or any part of the award was supported by any evidence or any sufficient or substantial evidence; or whether the arbitral tribunal drew the correct factual inferences from the relevant primary facts. (4) The identified question of law must be a real and legitimate question of law and not a question of fact dressed up as a question of law. Arbitrators are the masters of the facts and their findings of fact are conclusive. The Courts must be constantly vigilant of the catalogue of challenges to arbitrators findings of fact, ensuring that attempts to circumvent this rule by dressing up questions of fact as questions of law are carefully identified and firmly discouraged. It is irrelevant how obviously wrong the findings of facts are (except where it is truly beyond rational argument), or the scale of the financial consequences of the mistake of fact might be. 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. (5) The questions before the Court must necessarily be questions of law which emanate from the award and not, from the arbitration or the arbitral proceedings. The questions of law now identified for determination of this Court cannot be the same or be re-hatched questions that the parties had already referred to arbitration in the first place. This is apparent from a reading of subsection 42(2) which is couched in mandatory language requiring the applicant or the Plaintiffs to identify the question of law to be determined, that is, to be determined by the Court in the present proceedings. This is regardless of the Court s powers to inter alia remit the award in whole or in part, together with the Court s determination on the question of law to the arbitral tribunal for reconsideration. The question of law cannot include the specific question that was posed for determination by the arbitral tribunal in the first instance. In that scenario, the question, albeit a question of law, remained one which the Court ought not to intervene and determine. (6) Although the Court s powers under s 42 is discretionary, this discretion is curtailed when one of the conditions for intervention of the Court is 111

3 CIDB Construction Law Report 2015 not fulfilled, and that is where the Plaintiffs are unable to show how the question of law substantially affects the rights of one or more of the parties as mandated by subsection 42(1A). (7) It cannot be overlooked that the choice of the term refer as opposed to appeal is deliberate in as much as the manner in which the whole substantive provision is put together is entirely peculiar to Malaysia. It calls for amongst others, the restrictive and narrow approach. Unlike an appeal where there is already a decision on the question of law and the Court is asked to invoke its appellate powers in reviewing that decision, a reference of a question of law arising out of an award under s 42 does not have that same character or benefit, especially since the question of law now before the Court cannot be the same question that was posed before the Arbitral Tribunal in the first place. (8) The Court was unable to conclude that the Award merits intervention of the Court for the reasons submitted by the Plaintiffs. The Court in fact, agrees almost entirely with the submissions of the Defendant. The questions posed do not meet the requirements of s 42, be it under the existing test of the Award containing an error of law on its face as reflected by the questions posed; or that the reasoning process of the Arbitral Tribunal reveals errors of law which merit intervention of the Court. (9) In the face of unchallenged facts and findings of issues, it could not be said that the rights of the Plaintiffs were affected substantially, or at all. Real and genuine questions of law must at the same time, accommodate and be consistent with key findings of fact. When it cannot change or affect those other key findings, it can only be said that the questions do not affect the rights of the Plaintiffs in any way since the Plaintiffs rights remain unaffected by those other unchallenged findings. (10) The Court agrees with the Defendant that the requirements of s 42 have not been satisfied for the reasons offered by the Defendant. As the test in s 42 is somewhat narrow and restrictive primarily because of the scheme of the whole Act (sections 8, 37, 38, 39 and 42), the Court must be convinced that this is a suitable case for intervention. The Court was not at all convinced. 112

4 MMC Engineering Group Bhd & Anor v Wayss & Freytag (Malaysia) Sdn Bhd COMMENTARY by T Kuhendran Partner at Zul Rafique & Partners Section 42 of The Arbitration Act 2005 Introduction The High Court in MMC Engineering Group Bhd & Anor v Wayss & Freytag (M) Sdn Bhd provided a detailed discussion on the interpretation of s 42 of the Arbitration Act 2005 (the "Act"). The Plaintiffs in the case were an unincorporated joint venture formed to carry out the Stormwater Management and Road Tunnel ("SMART") Project in Kuala Lumpur. They entered into a contract with the Defendants for the construction of the North Tunnel Drive section of the Project. The time for completion of the works was not met by the Plaintiffs and various Defendants claims were rejected. This led to both parties terminating the contract and referring their respective claims to an Arbitral Tribunal which allowed the Defendants claims and dismissed the Plaintiffs claims. The Plaintiffs applied under s 42 of the Act to refer to the High Court questions of law said to have arisen out of the Tribunal s award. The Defendant opposed the application. Issues arising from the case The main issue arising from the case surrounds the requirements and the application of s 42 of the Act. The Court held that its jurisdiction under s 42 was discretionary save where the preconditions under subsection 42(1A) of the Act were not met i.e. where the Plaintiffs were unable to show how the question of law substantially affected the rights of the parties. The Court then went on to consider the applicable test under s 42. The Plaintiffs relied on the error of law on the face of the award test applied in Majlis Amanah Rakyat v Kausar Corporation [2009] 1 LNS 1766 and several other decisions including the learned High Court judge s own previous decision. The Defendant urged the Court to discard that test as it was relevant only for challenges under the old arbitration regime and not for challenges under s 42. In its place, the Defendant advocated the process of reasoning test as provided in the English case of The Chrysalis [1983] 1 WLR 1469 which had found favour with another High Court case of Exceljade Sdn Bhd v Bauer (Malaysia) Sdn Bhd [2014] 1 AMR

5 CIDB Construction Law Report 2015 The learned High Court judge held that she was not bound by her own previous decision. However, the learned High Court judge then went on to consider whether there was any distinction between the terms "refer" appearing in s 42 and "appeal" as found in other arbitration legislation. Her ladyship held that the choice of the term "refer" as opposed to "appeal" was peculiar to Malaysia, which called for a restrictive and narrow approach as taken by her in her previous decision. The Court also took into consideration the origins of s 42 and its relationship with ss 37 and 39 of the Act. The Court held that s 42 was narrower and was only available where it could be shown that the contents of the award yielded questions of law which needed the Court s determination whereas ss 37 and 39 allowed for challenges on grounds which were broader. The Court then held that in deciding questions of law, it would examine to see if there was any error committed by the Arbitral Tribunal as gleaned from the award, in that, the Tribunal had got it so obviously wrong in law, or the question of law reflected a decision that could not be reasonably reached by any other tribunal such that the award warranted intervention by the Court. The Court agreed with the Defendant that the requirements of s 42 had not been satisfied. The Court further held that as the test in s 42 was narrow and restrictive, the Court must be convinced that this was a suitable case for intervention. In this case the Court was not at all convinced. The Court in coming to its decision embarked on a thorough examination of s 42 of the Act. The learned High Court judge held that there was still room left for the continued application of the error of law on the face of the award test. According to her ladyship, the preponderance of the test led to deliberate legislative intervention in other jurisdictions unlike the case in Malaysia where there is no express provision in the Act on the removal of jurisdiction and power in respect of error of law on the face of the award. In relation to the difference between the term "appeal" and "refer", the Court held that unlike an appeal where there was already a decision on the question of law and the Court is asked to review that decision, a reference of a question of law arising out of an award under s 42 did not have that same character or benefit. 114

6 MMC Engineering Group Bhd & Anor v Wayss & Freytag (Malaysia) Sdn Bhd When discussing the origins of s 42, the Court referred to the parties submission that s 42 (which only applied to domestic arbitrations unless the parties have agreed otherwise) must have been intended to reflect the desirability of greater judicial intervention for domestic arbitrations as opposed to international arbitrations. Having stated that the Court also noted the different basis of recourse under s 42 as compared to ss 37 and 39 of the Act, the former being narrower and only available where it could be shown that the award raised questions of law which needed the Court s determination. Based on all these factors the Court found favour with the error of law on the face of the award test. Suggested best practices to be adopted Although the Court found favour with the error of law on the face of the award test, it should be noted that the Court of Appeal in Kerajaan Malaysia v Perwira Bintang Holdings Sdn Bhd [2015] 1 CLJ 617 preferred the Exceljade position as opposed to the Majlis Amanah Rakyat case. However the issues raised in this case were not canvassed there. Perhaps an opportunity may arise for the apex court to provide some guidance soon. Pending that opportunity perhaps it is best if the guidance given by the Court of Appeal be followed. 115

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