Pembinaan Jaya Zira Sdn Bhd v Sungai Lui Construction & Development [2025] MLJU 4705
by Foo Joon Liang & Ong Hui Yin.
In Pembinaan Jaya Zira Sdn Bhd v Sungai Lui Construction & Development [2025] MLJU 4705, the Court of Appeal found the Arbitration Act 2005 inapplicable to a court-ordered arbitration under Section 24A of the Courts of Judicature Act 1964 (Revised 1972) (CJA). Unlike an arbitration commenced on the parties’ agreement pursuant to the Arbitration Act 2005, a statutory reference is court-directed and forms part of the judicial process.
Background Facts
The Respondent in this case, Sungai Liu Construction & Development Sdn Bhd (Sungai Liu) was appointed as the total subcontractor for a Jabatan Kerja Raya project by the Appellant, Pembinaan Jaya Zira Sdn Bhd (Pembinaan Jaya Zira).
Disputes arose concerning alleged non-payment of fees and wrongful termination of Sungai Liu’s contractual agreement by Pembinaan Jaya Zira.
In the absence of an arbitration agreement, an action was commenced at the High Court. The High Court then invoked Section 24A of the CJA to refer the dispute to arbitration. An arbitration award was granted in favour of Sungai Liu, who then sought to enforce the award under Section 38 of the Arbitration Act 2005. Pembinaan Jaya Zira then applied to set aside the award under Section 37 of the Arbitration Act 2005.
The High Court allowed Sungai Liu’s enforcement application and dismissed Pembinaan Jaya Zira’s setting aside application, which led to this appeal by Pembinaan Jaya Zira.
Two issues arose before the Court of Appeal:
- Whether the High Court Judge was correct in allowing enforcement under Section 38 of the Arbitration Act 2005 of an arbitral award arising from a court-ordered arbitration pursuant to Section 24A of the CJA.
- Whether the contract constitutes an “Ali Baba” arrangement and is therefore illegal for being contrary to public policy.
The Court of Appeal’s Key Findings
Issue 1: Applicability of enforcement proceedings brought under Section 38 of the Arbitration Act on Section 24A CJA court-ordered arbitrations.
The Court of Appeal held that arbitration commenced pursuant to Section 24A of the CJA is fundamentally distinct from one commenced on the agreement of parties in terms of the arbitrator’s authority and permissible supervisory jurisdiction by the court. A court-ordered arbitration forms part of a continuous judicial process and remains subject to the court’s supervisory jurisdiction and overarching controls. In this context, such an arbitral award can only be regarded as a report submitted by the arbitrator in his or her capacity as an officer of the court.
Accordingly, the High Court ought to have set a post-arbitration hearing and invited submissions from the parties as to whether the Award ought to be accepted, varied, rejected, or remitted to the arbitrator. Should the court intend to accept the Award, the adoption would be effected through a formal court order made pursuant to Section 24A(4) of the CJA at the post-arbitration hearing. Unlike an arbitral award delivered in an arbitration governed by the Arbitration Act 2005, the High Court is empowered to adopt a court-ordered arbitral award without the need for a separate originating summons to enforce the same.
Further, the court is vested with the power to rehear the dispute on its merits and may rectify errors of law, address procedural irregularities or erroneous arbitrator decisions, and set aside an arbitral award as though it were a court judgment or order.
This suggests wider powers to supervise and intervene than those provided for under the Arbitration Act 2005, or indeed the UNCITRAL Model Law. An award arising therefrom may only be enforced by way of a fresh originating summons pursuant to section 38 of the Arbitration Act 2005, and the court’s power to set aside such an arbitral award is confined to the limited grounds prescribed under section 37 of the Arbitration Act 2005.
Section 38 of the Arbitration Act 2005 is a procedural provision which enables an arbitral award to be converted to the status of a judgment or order of the court for the successful party to take advantage of the court processes to enforce the fruits of its litigation. A court-ordered arbitration cannot be enforced under Section 38 of the Arbitration Act 2005, given that it lacks the prerequisite of a pre-existing arbitration agreement required under Section 38 of the Arbitration Act 2005.
Accordingly, the Court of Appeal concluded that Sungai Liu had erroneously invoked section 38 of the Arbitration Act 2005 to enforce its arbitral award, and cannot rely on an estoppel argument against Pembinaan Jaya Zira for pursuing its setting aside application under Section 37 Arbitration Act 2005. The Court of Appeal was of the view that Pembinaan Jaya Zira would not have resorted to section 37 of the Arbitration Act 2005 had Sungai Liu adopted the appropriate enforcement procedure under section 24A of the CJA instead.
Issue 2: Whether the contract is an “Alibaba contract”
Pembinaan Jaya Zira raised an issue of illegality of the contractual arrangement between parties, contending that the contract was contrary to public policy as it amounted to an “Ali Baba” arrangement. Such an arrangement typically involves a Bumiputera entity lending its name or license to a non-Bumiputera party to obtain contracts or benefits reserved for Bumiputera participation, without any genuine involvement in the project. Agreements of this nature are contrary to public policy and liable to be declared void under section 24 of the Contracts Act 1950.
Having considered the all-encompassing nature of Sungai Liu’s employment under the contractual agreement and the Bumiputera status of Pembinaan Jaya Zira, the Court of Appeal determined that the contractual arrangement was indeed an “Ali Baba” arrangement. Regardless of whether the enforcement under Section 38 of the Arbitration Act 2005 is correct, the High Court decision would have contravened public policy and is not allowed under Section 39 of the Arbitration Act 2005.
Observations
In a court-ordered arbitration, parties to the dispute may find themselves confronted with multiple battles to be fought, after having exhausted time, cost and energy on the initial arbitration.
Arbitrators who are appointed under Section 24A of the CJA are susceptible to having their factual findings and conclusions revisited upon by the courts. The notion that arbitrators are the masters of fact (see the Federal Court’s decision in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd[1]) and the finality of arbitrations is of less significance to a court-ordered arbitration under Section 24A of the CJA.
In Mega Sasa Sdn Bhd v Government of Malaysia (Public Works Department)[2], the High Court adopted a similar reasoning towards court-ordered arbitrations under Section 24A CJA and had dismissed the arbitral award on merits. The revisit of factual findings would generally not be permitted under a setting aside application brought under Section 37 of the Arbitration Act 2005.
It is noted that in Mega Sasa, the High Court held that a successful party in a court-ordered arbitration must file a separate application to enforce the arbitral award.
If the intention of parties to a contract is to resolve their disputes with finality and to draw upon the benefits of an arbitration, parties ought to consider entering into an arbitration agreement to bring themselves within the Arbitration Act 2005 regime, instead of leaving it to a court-ordered arbitration under Section 24A of the CJA. The former gives parties the finality and certainty of established arbitration caselaw.
[1] [2016] 5 MLJ 417
[2] [2025] MLJU 3087
DISCLAIMER:
This article is for general information only and should not be relied upon as legal advice.
The position stated herein is as at the date of publication on 3/3/2026