Delayed Arbitral Award – Can it be set aside?

by Karen Ng Yueh Ying , Partner of Azman Davidson & Co.

It is always the case, if not all, that the losing party of an arbitration will make its attempt to set aside the arbitration award by making an application to the High Court.

Question: Whether an undue delay in delivering an arbitral award is a ground to set aside the award?

The following are the brief facts in the High Court case of Sunway Creative Stones Sdn Bhd v Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd [2020] MLJU 658:

1. Syarikat Pembenaan Yeoh Tiong Lay Sdn Bhd (“YTL”) was the main contractor for the Palazzio condominiums project (“the Project”).
2. Sunway Creative Stones Sdn Bhd (“Sunway”) was appointed by YTL as one of its nominated sub-contractors under the Project.
3. The main contract was terminated and hence Sunway’s employment under the nominated sub-contract was automatically determined pursuant to clause 21.1 of the PAM Sub-Contract 1998.
4. Disputes and differences arose between YTL and Sunway in relation to the termination of contract. Sunway issued a Notice of Arbitration and the parties proceeded with arbitration proceedings.
5. The arbitration was conducted in accordance with the PAM Arbitration Rules [2002 Edition] (“the PAM Arbitration Rules”).
6. The hearing was conducted over a period of 20 days and ended on 20.8.2014. Thereafter, both parties submitted their final written submissions to the Arbitrator on 29.1.2015. The final submissions in reply was submitted by YTL on 1.6.2015.
7. Sunway’s solicitors sent reminders dated 4.2.2016, 4.1.2017, 22.11.2017 and 5.12.2018 to the Arbitrator on the need to deliver his Award in a timely manner. These reminders were copied to YTL’s solicitors.
8. Via a letter dated 14.12.2018 , the Arbitrator informed the solicitors for YTL and Sunway that his Award would be delivered in the first week of January 2019.
9. Subsequently, via a letter dated 27.1.2019 addressed again to both parties’ solicitors, the Arbitrator informed the parties that each party would have to deposit the sum of RM45,000.00 as further security for the Award before the release of the Award by PAM to the parties.
10. YTL did not pay the additional security deposit requested by the Arbitrator. Sunway paid PAM its share of the security deposit as well as YTL’s share in order to obtain the Award.
11. The Award was made available to the parties on 18.3.2019. YTL’s counterclaim was dismissed.
12. YTL then applied to the High Court to set aside the Award relying on section 37(1)(a)(iv), 37(1)(a)(v), 37(1)(a)(vi), 37(1)(b)(ii), and/or 37(2)(b) of the Arbitration Act 2005.

The main issues raised by YTL in its setting aside application are as follows:

1. the Award was liable to be set aside for non-compliance with the agreed arbitral procedure, namely Article 21.3 PAM Arbitration Rules which governs the time frame for delivery of the Award;
2. the Award should be set aside on the ground of public policy due to the Arbitrator’s delay in publishing the Award.

Article 21.3 of the PAM Arbitration Rules reads as follows:

“The Arbitrator shall deliver his award as soon as practical but not later than three (3) months from his receipt of the last closing statement from the parties. Such time frame for delivery of the award may be extended by notification to the parties, if the Arbitrator considers that extended time is required for the preparation of the award. The Arbitrator may exercise his lien over the award until the Cost of the Arbitration has been fully paid.”

In gist, YTL claimed that the Arbitrator’s jurisdiction automatically came to an end after he allegedly failed to comply with Article 21.3 of the PAM Arbitration Rules by failing to deliver his Award within three months after receiving both parties’ final submissions. Accordingly, YTL claimed that the waiver provisions in Article 20.1 of the PAM Arbitration Rules and Section 7 of the Arbitration Act 2005 have no relevance to the facts.

With regard to the first issue of the Arbitrator’s non-compliance with the agreed arbitral procedure raised by YTL, the Court had to decide on the following questions:

1. whether the Arbitrator had breached Article 21.3 of the PAM Arbitration Rules so as to render the Award susceptible to being set aside under S37(1)(a)(vi) of the Arbitration Act 2005;
2. whether such breach had deprived the Arbitrator of the requisite jurisdiction to deliver his Award; and
3. whether YTL was entitled to challenge the Award pursuant to S37(1)(a)(iv) and (v) of the Arbitration Act 2005 on the ground that the Award was made in excess of the Arbitrator’s jurisdiction.

The Court referred to the Federal Court case of Thai-Lignite Co. Ltd. & Anor v Government of the Lao’s People’s Democratic Republic [2017] 9 CLJ 273 and held that by remaining silent and taking a gamble in not raising any objection pertaining to the Arbitrator’s non-compliance with Article 21.3 of the PAM Arbitration Rules in the hope that its counterclaim against Sunway would be allowed by the Arbitrator, YTL must be deemed to have waived its right to object to the Arbitrator’s non-compliance with the time frame in delivering the Award pursuant to s7(b) of the Arbitration Act 2005 and Article 20.1 of PAM Arbitration Rules. In other words, the doctrine of waiver applied under the circumstances.

The Court held further that YTL was not entitled to challenge the Award as it had failed to raise a plea to the Arbitrator that he lacked jurisdiction to deliver his Award soon after 1.9.2015 in accordance with S18(5) of the Arbitration Act 2005. S18(5) makes it mandatory that any plea that the Arbitrator has exceeded his jurisdiction during the course of the arbitral proceedings must be brought to his attention as soon as the matter is raised during the arbitral proceedings.

With regard to YTL’s argument that the Award should be set aside on the ground of public policy due to the Arbitrator’s delay in publishing the Award, the Court agreed with Sunway’s submission that the Arbitrator’s delay in publishing the Award, cannot on its own, amount to a breach of public policy as it did not violate the basic notions of substantive or procedural justice in the sense as explicated in the Federal Court case of Jan De Nul (Malaysia) Sdn Bhd & Anor v Vincent Tan Chee Yioun & Anor [2019] 2 MLJ 413, which held as follows:

“…

The scope of public policy ground for setting aside an arbitral award could only be invoked in deserving case ie in instances where it appears a violation of the most basic notions of morality and justice. It covers fundamental principles of law and justice in substantive as well as procedural respect. … The terms ‘patent injustice’ or ‘substantial injustice’ or ‘manifestly unlawful and unconscionable’ as often used by the court in setting aside arbitral awards, do not mean injustice which is more then de minimis; what is required is that the injustice had real effect and had prejudiced the basic right of applicant.

…”

In summary, in the event that a party wishes to object to an arbitrator’s delay in delivering an award, the party should raise its objection as soon as practicable and cannot remain silent. Any purported claim that the arbitrator’s mandate automatically expired if the arbitrator failed to deliver his or her award within the timeframe set in the agreed arbitral procedure would not be likely to succeed in view of the recent High Court case of Sunway Creative Stones. See also the Court of Appeal case of Asean Bintulu Fertilizer Sdn Bhd v Wekajaya Sdn Bhd and anor [2018] 4 MLJ 799 which was referred to in this High Court case.

Further, by virtue of S18 of the Arbitration Act 2005, if an arbitrator exceeds his jurisdiction, the arbitrating party must raise the issue of his lack of jurisdiction with the arbitrator and ask him to rule on it. If any arbitrating party is not happy with the arbitrator’s ruling, then the party must apply to the High Court to challenge his jurisdiction. It cannot remain silent and claim that the arbitrator’s mandate automatically ends.