PEMBINAAN JAYA ZIRA SDN BHD v SUNGAI LUI CONSTRUCTION AND DEVELOPMENT SDN BHD

Case Significance

Illustrates the distinction between a court-ordered reference and a consensual submission to arbitration for enforcement purposes, and confirms that an "Ali Baba" arrangement, in which one party fronts a contract for another, is illegal and void as contrary to public policy under section 24 of the Contracts Act 1950.

This Court of Appeal decision determined two related appeals arising from a construction subcontract and the enforcement of an arbitration award. One appeal concerned the High Court's decision allowing the respondent's application to enforce the arbitration award, and the other concerned a related decision of the High Court. Two questions of principle arose. The first was whether an award obtained pursuant to a court-ordered reference to arbitration differs from an award made on a consensual submission to arbitration, and whether such an award may be enforced under the Arbitration Act or should instead be enforced under section 24A of the Courts of Judicature Act 1964, which governs the enforcement of an award on a court-ordered reference. The second concerned the legality of the subcontract itself: whether the arrangement between the appellant and the respondent was an "Ali Baba" arrangement, in which a party holding a contract or licence fronts for another who actually carries out the work, and, if so, whether it was illegal as contrary to public policy under section 24 of the Contracts Act 1950. The Court of Appeal, having considered the evidence, the parties' submissions and the grounds of the High Court, held that the parties' arrangement was void as conflicting with public policy, a conclusion that reinforced its view that the appeals should succeed. It unanimously allowed the appeals with costs. The court's reasoning shows that an arrangement by which a licensed or contracted party lends its status to another to perform work it is not itself entitled or intended to carry out strikes at the integrity of the contracting regime, and that a court will not lend its aid to enforce, or to enforce an award arising from, a contract so tainted. The judgment is a useful illustration of the distinction between a court-ordered reference and a consensual submission to arbitration for enforcement purposes, and of the illegality of an "Ali Baba" arrangement as contrary to public policy under section 24 of the Contracts Act 1950.