KEBABANGAN PETROLEUM OPERATING COMPANY SDN. BHD. v Malaysia Marine And Heavy Engineering Sdn. Bhd.

w-02ca-1836-09-2022 Court of Appeal (Mahkamah Rayuan) 23 January 2025 • W-02(C)(A)-1836-09/2022 • 14 min read

3 cases cited (1 SG, 2 foreign)

Catchwords

Arbitration – Arbitration Act 2005 (“AA”) – Award – Recognition and enforcement of award Arbitration – Respondent was allegedly in breach of express and implied terms of contract in respect of supply of cost-plus valves and that Appellant suffered substantial loss and damages – Whether respondent was in breach of express terms of contract – Whether valves supplied did not correspond with its description and were not of merchantable quality – Whether Appellant suffered substantial loss and damage in respect of valves which had been replaced Arbitration - Whether breach of rules of natural justice occurred during arbitration and in connection with making award — Arbitral Tribunal addressed on issue not raised or addressed by parties — Tribunal failed to address issues specifically raised in the pleadings by the parties — Whether breach of natural justice — Whether award was in conflict with public policy of Malaysia Arbitration — Arbitral Tribunal — Expert evidence rejected by the Tribunal — Whether Tribunal bound to accept expert evidence — Whether Tribunal must give cogent reason in accepting or rejecting expert evidence — Whether s 33(3)(b) of AA is breached.

Practice Areas

Arbitration Administrative Law

Judges (4)

Azimah binti Omar Coram Mariana binti Haji Yahya Coram Utama Wan Ahmad Farid bin Wan Salleh Delivered Wan Ahmad Farid bin Wan Salleh Delivered

Counsel (7)

Mohanadass Partnership Firm Zul Rafique & Partners Firm Agesh Jeyaratnam Counsel Appellant Kalashini Sandrasegaran Counsel Respondent Mohanadass Kanagasabai Counsel Respondent Thomas Shaun Mathews Counsel Respondent Wilfred Abraham Counsel Appellant

Parties (2)

KEBABANGAN PETROLEUM OPERATING COMPANY Sdn Bhd Appellant Malaysia Marine And Heavy Engineering Sdn Bhd Respondent

Case Significance

Confirms that an arbitral award may be set aside and refused enforcement under the Arbitration Act 2005 where the tribunal fails to make a reasoned award, decides matters outside the pleadings or leaves pleaded issues undetermined, in breach of natural justice and section 37.

This Court of Appeal decision, arising from two appeals heard together, concerns the grounds on which an arbitral award may be set aside, and refused enforcement, under the Arbitration Act 2005. The appellant company had sought to recognise and enforce a final award as a judgment, while the respondent had applied to set the award aside. The High Court dismissed the enforcement application and set the award aside, and the appellant appealed both decisions. The dispute underlying the arbitration concerned alleged breaches of a fabrication contract, including whether the valves supplied corresponded with their description and were of merchantable quality, and the loss said to flow from their replacement. On appeal, the Court examined whether the arbitral tribunal had breached the rules of natural justice, in that it was said to have decided an issue not raised or addressed by the parties while failing to deal with issues specifically raised in the pleadings, and whether the award conflicted with the public policy of Malaysia. It also considered whether the tribunal was bound to accept expert evidence and whether it had to give cogent reasons for accepting or rejecting such evidence, engaging the requirement of a reasoned award and section 33(3)(b) of the Act. The Court found that the tribunal had failed to make a reasoned award on a principal claim and had not determined pleaded issues including the quantification of damages, waiver, acquiescence, estoppel and mitigation, and that the arbitral procedure was not in accordance with the parties' agreement under section 37(1)(a)(vi). Finding no appealable error in the High Court's decision, it dismissed both appeals with costs. The judgment is significant for its treatment of the reasoned-award requirement and the natural-justice grounds for setting aside an arbitral award. The decision confirms that, while the grounds for setting aside an award are narrow, an award that fails to determine the pleaded issues or to give reasons on a principal claim cannot stand, and that the supervising court will decline to enforce it and will refuse to treat the defects as mere irregularities.

Summary

Kebabangan Petroleum Operating Company appealed against the High Court's refusal to enforce an arbitral award and its setting aside of the award in favour of Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE), arising from a dispute over supply of non-OMB manual ball valves of unknown origin. The Court of Appeal dismissed both appeals, finding that the arbitral tribunal had breached natural justice by failing to address MMHE's arguments on damages quantification, waiver and estoppel, and mitigation of loss.

On what grounds was the arbitral award set aside?

The Court held that the tribunal had failed to make a reasoned award on a principal claim and had not addressed pleaded issues such as the quantification of damages, waiver, estoppel and mitigation, and that the arbitral procedure was not in accordance with the parties' agreement under section 37(1)(a)(vi) of the Arbitration Act 2005.

Must an arbitral tribunal give reasons for its treatment of expert evidence?

The Court treated the giving of cogent reasons and the making of a reasoned award as central, holding that the tribunal's failure to reason its decision on a principal claim was a ground for setting the award aside.

Statutes Cited

Arbitration Act 2005 (Cap 646)

s 37

Cases Cited (3)

SLR (1)

[2008] 2 SLR(R) 491

MY (2)

[1993] 1 MLJ 182 [2019] 2 MLJ 413

Judgment

Read the full judgment on the official Malaysia Courts portal.

Read on eJudgment

Source: eJudgment (w-02ca-1836-09-2022)