Gopal Sri Ram JCA:

Introduction

There are two appeals before us. They concern two arbitration awards relating to a dispute. In the first of these, the arbitrator found liability in favour of the respondents. In the second, he assessed quantum. The first appeal is against refusal by the High Court to set aside the award on liability. The second appeal is directed against the order of the High Court refusing to set aside the award on quantum. The facts relevant to these appeals may be shortly stated.

Facts And Background

The appellant ("Hartela") is a Finnish company. It has considerable experience in the manufacture of pre-cast concrete panels used in the construction of prefabricated houses. Hartela wanted to do business in Malaysia. It identified the second respondent ("Ferrostaal") as a joint venture partner. Hartela then carried out a feasibility study which was reduced into writing. It is a document with a very long title. I will refer to it as "the Techno-Economic Study". The Techno-Economic Study contained various statements about the viability of producing pre-cast concrete panels in Malaysia. It painted a very rosy picture about the profits that could be made. Ferrostaal was impressed by what the Techno-Economic Study said. Indeed, as the arbitrator found, Ferrostaal was induced by and acted upon the Techno-Economic Study on the strength of which it entered into a joint venture agreement with Hartela on 5 March 1983. But, as the arbitrator found, the Techno-Economic Study was fatally flawed. It suggested a central factory concept instead of a readily movable production unit. That, of course, would materially affect transport costs. But the Techno- Economic Study did not take this into account.

A few days later, on 23 March 1983, a circular resolution was passed which materially altered the original basis of the joint venture. The joint venture agreement provided for the obtaining of a contract to construct houses, finance for the project and a suitable factory site before the injection of further capital. The circular resolution changed all this by completely dispensing with these essential pre-requisites. The effect was that the factory would be set up even before a single construction contract had been secured and financing arranged. The arbitrator found that Hartela knew and recognised the danger in the venture failing as a result of this change. Hartela had all the expertise. It was aware of the risks which the change entailed. But it did not advice against the change made by the resolution. As it happened, the change which the circular resolution made was to have disastrous effects.

In the meantime, the parties formed a joint venture company. It is the first respondent ("Hartecon"). There were three shareholders in Hartecon; Ferrostaal which held 70%, Hartela which held 15% and Finnish Fund for Industrial Development Corporation Ltd. ("Finnfund") which held the remaining 15%.

In August 1983 Hartela and Hartecon entered into another agreement. The arbitrator referred to it as "the Purchase Contract". That is because it described Hartela as the seller and Hartecon as the buyer. Under the Purchase Contract Hartela was to supply and install plant and machinery at a site provided by Hartecon. Although Hartela was a joint venture partner of Ferrostaal and a shareholder of Hartecon, it did not expose itself to any liability for the payment of the plant and machinery. Hartecon made part payment of the purchase price. The balance was secured by a bank guarantee obtained by Ferrostaal from Perwira Habib Bank Bhd. If there was a call on the guarantee by Hartela, it would be Ferrostaal alone that would be liable. But Hartela was only entitled to make a call upon the guarantee after the issue of a certificate by Hartela's representative in Hartecon. That representative was a gentleman by the name of Mr. Karenmaa. He was an employee of Hartecon. But he was Hartela's man.

In September 1993, yet another agreement wa