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2025 MarsdenLR 1149
COURT OF APPEAL PUTRAJAYA
ENG HAN ENGINEERING SDN BHD – Appellant
Versus
TOSHIBA ELEVATOR (M) SDN BHD & OTHER APPEALS – Respondent
[Civil Appeal Nos: W-02(C)(A)-1082-07-2023 W-02(C)(A)-1083-07-2023 & W-02(IM)(C)-1084-07-2023]
The arbitrator's failure to notify and allow submissions on new matters constitutes a breach of natural justice, prompting the court to set aside the award entirely.
Headnote:(A) Arbitration Act, 2005 - Section 8, 21, 33(3), 36(1), 37 - Dispute between contractor and subcontractor regarding delay in construction works - Breach of natural justice found due to arbitrator not notifying parties of reliance on new matters not presented - Award set aside due to significant procedural error affecting the outcome. (Paras 1, 19, 27, 35, 48)
(B) Natural justice - Requirements for fair hearing in arbitration - Arbitrator must provide reasonable notice and opportunity to present submissions on auxiliary matters relied upon in decision-making - Failure to do so constitutes a breach of the second rule of natural justice. (Paras 30, 33)
(C) Arbitral award - Requirements for completeness and robustness - An award must state reasons for decisions; however, omission of details in award does not automatically mean it is unfair or violates public policy without proving material impact. (Paras 41, 44)
Key Points: - An award may be set aside only if the High Court finds a breach of natural justice that occurred in connection with making the award (!) (!) . - The second rule of natural justice requires parties to be given reasonable notice and opportunity to submit on new matters relied upon by the arbitrator (!) (!) (!) . - Failure to provide such notice and opportunity constitutes a breach of natural justice and may lead to the award being set aside (!) (!) (!) . - The court has a discretion to set aside an award even if a breach is established, and this discretion must be exercised based on the seriousness of the breach and its impact on the outcome (!) (!) (!) . - A breach of natural justice that is material and could affect the award outcome warrants setting aside the award (!) (!) (!) . - The mere omission to state reasons does not automatically mean the award is in conflict with public policy unless the Jan De Nul test is satisfied (!) (!) (!) . - Party autonomy and finality of awards are key considerations, and courts should intervene only exceptionally (!) (!) (!) .
What are the grounds for setting aside an arbitral award under the Arbitration Act?
How to determine whether a breach of natural justice occurred in arbitration?
What is the effect of a breach of natural justice on the enforceability of an arbitral award?
| Table of Content |
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| 1. background of contractual obligations and disputes. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10) |
A. Background
[1] Capital Avenue Development Sdn Bhd (Employer) had appointed the appellant company (Appellant) as the replacement main contractor (Replacement Main Contractor) for a project known as "Cadangan Pembinaan 2 Blok... di atas Lot 37,... Sembulan, Jalan Pantai Baru, Kota Kinabalu, Sabah (Sutera Avenue)" (Project).
[2] Prior to the Employer's appointment of the Appellant as the Replacement Main Contractor, the respondent company (Respondent) had already been appointed as a nominated subcontractor for, among others, the supply, delivery, installation, testing, commissioning and maintenance of lift and escalator services in the Project (Sub-Contract Works).
[3] The Sub-Contract Works were originally divided into two sections [2 Original Sections (Sub-Contract Works)], namely, "OC1" (Block A of the Project) [Works (OC1)] and "OC2" (Block B and the Pedestrian Mall of the Project) [Works (OC2)].
[4] By way of a "Letter of Acceptance" dated 13 July 2015 (LA), the Appellant formally appointed the Respondent for the Sub-Contract Works.
[5] The 2 Original Sections (Sub-Contract Works) could not be completed within the agreed time periods [Delay (Works)].
[6] There was a dispute between the Appellant and Respondent regarding the causes for the Delay (Works) [Causes (Delay)].
[7] In view of the Delay (Works), the Project's architect (Architect) issued two "Certificates of Non-Completion" (CNCs) to the Appellant with regard to the 2 Original Sections (Sub-Contract Works) {Architect's 2 CNCs [2 Original Sections (Sub-Contract Works)]}. Consequently, the Appellant also issued two CNCs to the Respondent for the non-completion of the 2 Original Sections (Sub-Contract Works) {Appellant's 2 CNCs [2 Original Sections (Sub-Contract Works)]}.
[8] The Appellant applied for an extension of time (EOT) from the Architect to complete the 2 Original Sections (Sub-Contract Works). By way of a letter dated 9 August 2017, the Architect granted an EOT for the Appellant to complete the 2 Original Sections (Sub-Contract Works) by 12 June 2017.
[9] The Respondent did not apply for an EOT to complete the 2 Original Sections (Sub-Contract Works).
[10] The Employer and Appellant entered into a "Supplementary Agreement' dated 28 June 2017 [Supplementary Agreement (Employer-Appellant)]. According to the Supplementary Agreement (Employer-Appellant), among others-
(1) instead of the 2 Original Sections (Sub-Contract Works), the SubContract Works were divided into five sections [5 New Sections (Sub-Contract Works)], namely OC1, OC2A, OC2B, OC3 and OC4 ["Works (OC1)", "Works (OC2A)", "Works (OC2B)", "Works (OC3)" and "Works (OC4)"]; and
(2) the new completion dates (New Completion Dates) and "liquidated damages" (LD) for the 5 New Sections (Sub- Contract Works) were as follows-
[11] On 21 October 2017, the Appellant sent a draft supplementary agreement to the Respondent regarding the New Completion Dates and LD sums for the 5 New Sections (Sub-Contract Works) [Draft Supplementary Agreement (Appellant-Respondent)]
[12] The Respondent did not accept the Draft Supplementary Agreement (Appellant-Respondent) because, according to the Respondent-
(1) when the Respondent received the Draft Supplementary Agreement (Appellant-Respondent) on 21 October 2017-
(a) the completion date for the Works (OC1), Works (OC2A) and Works (OC2A), ie., 12 June 2017, had lapsed; and
(b) the New Completion Date for the Works (OC3) and Works (OC3), namely, 31 October 2017, would expire in 10 days [from the date of the Respondent's receipt of the Draft Supplementary Agreement (Appellant-Respondent)];
(2) it was "impossible" for the Respondent to meet the New Completion Date for Works (OC1), Works (OC2A) and Works (OC2A) because-
(a) permanent power supply to the development site (Site) was only made available on 29 May 2017; and
(b) the Respondent required three we
