LIZIZ STANDACO SDN BHD v Kerajaan Malaysia

Case Significance

Confirms that an arbitrator who fixes a rate of interest without notice to, or hearing from, the parties and without fairly weighing its reasonableness breaches the rules of natural justice, rendering the award contrary to the public policy of Malaysia and liable to be set aside under section 37(1)(b)(ii) of the Arbitration Act 2005.

This High Court decision at Kuala Lumpur concerns an application to set aside an arbitration award under section 37 of the Arbitration Act 2005, and turns on a breach of the rules of natural justice in the way the arbitrator dealt with interest. The applicant, Liziz Standaco Sdn Bhd, had undertaken the construction of an affordable housing development for civil servants under a facilitation fund agreement with the Government of Malaysia and a development bank, by which the Government was to provide a grant, disbursed progressively as units were sold. Disputes arose over delays in disbursing the grant, delays in completing the project, the interpretation of the parties' obligations, and whether the Government had breached duties to nominate buyers to sign sale and purchase agreements and to disburse the grant promptly; the applicant claimed compensation for its losses. The arbitrator issued an award, and the applicant sought to set it aside on several grounds under section 37, including that it conflicted with the public policy of Malaysia. The court focused on the arbitrator's award of interest at 5% per annum on the first tranche: it found that the arbitrator had fixed that rate without giving the parties notice, without hearing them on it, and without fairly considering the reasonableness of the rate despite expert opinion having been tendered. Applying the principles in Jan De Nul (M) Sdn Bhd v Vincent Tan Chee Yioun and Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd, the court held that this amounted to a breach of the rules of natural justice, so that the award was in conflict with the public policy of Malaysia within section 37(1)(b)(ii). Having allowed the application on that ground, the court considered it unnecessary to decide the remaining overlapping grounds. It allowed the setting aside of the award with costs fixed at RM10,000.