KEJURUTERAAN BINTAI KINDENKO SDN BHD v SERDANG BARU PROPERTIES SDN BHD

HIGH COURT, KUALA LUMPUR

(CIVIL DIVISION)
ORIGINATING SUMMONS NO: WA-24C(ARB)-9-04/2016

COUNSEL

For the Plaintiff – Robert Lazar together with Sanjay Mohan and Adam Lee (Messrs Mohanadass
Partnership)
For the Defendant – Felix Dorairaj (Messrs Dorairaj, Low & Teh)

JUDGMENT

[1] This is the Plaintiff's application under section 42 of the Arbitration Act 2005 to vary an
Arbitration Award granted in its favour. The Plaintiff, had been appointed as a turnkey contractor by the
Defendant here who was the Claimant in the Arbitration. The Plaintiff was the Respondent in the
Arbitration.

[2] The Plaintiff's appointment was via a Letter of Acceptance dated 5.6.2000 wherein it agreed to
design, construct and complete the development which comprises a 19 storey retail commercial centre
with residential apartments. The parties subsequently entered into a formal contract based on the JKR
Conditions of Contract for Design and Build and Turnkey Projects 1999 edition subject to certain
modifications.

[3] Under Clause 4.1 of the Letter of Acceptance the contract was estimated at RM95,700,000.00. It
was provided under Clause 5.9 that the date of completion was to be 37 months from the date possession
of the site was delivered to the Plaintiff.

[4] The parties subsequently entered into a Revised Supplementary Agreement on 27.4.2004
wherein the development was scaled down to a 16 storey retail commercial centre with residential
apartments and 2 storey basements.

[5] Clause 5.8 of the Letter of Acceptance on Liquidated and Ascertained Damages (LAD) has now
come to the fore and is the focus of this application of the Plaintiff for the Award to be varied. As an LAD
clause it seems to be drafted in a language designed to bypass the application of section 75 of the
Contracts Act 1950 and the position of the law as declared in Selva Kumar A/L Murugiah v Thiagarajah
A/L Retnasamy [1995] 1 MLJ 817. The parties agreed that liquidated damages may be imposed if there
were delays to the completion of the works. Clause 5.8 of the Letter of Acceptance provides as follows:

“The liquidated and ascertained damages (LAD) shall be at the rate of RM40,000.00 per day. The
LAD is deemed to be as actual loss which the Employer will suffer and the contractor shall be
liable to pay the same without the need for the Employer to prove the actual damages or loss.”
(emphasis added)
[6] The parties had agreed for the works to be undertaken in sections and had agreed to a sectional
completion date for part of the works which are specifically defined. Clause 5.10.3 of the letter of
acceptance dated 5.6.2000 deals with the imposition of liquidated damages in respect of sectional
completion, which provides as follows:

“Liquidated and ascertained damages in respect of the section shall be at the rate of
RM15,000.00 per day.”

[7] There is a significant difference in the manner in which the liquidated damages clause for the
completion of all of the works and for sectional completion was drafted. In Clause 5.10.3, which relates
to sectional completion, it is not provided that the LAD amounted to the actual loss that will be suffered
by the Defendant or that there is no need to prove the said loss.

[8] Apart from the clauses in the Letter of Acceptance, the conditions of contract also contain a
contractual provision in relation to liquidated damages for delay in completing the works. Clause 41 of
the conditions of contract reads:

“If the Contractor fails to complete the Works by the Date of the Completion stated in Appendix
1 or within any extended time under Clause 41 hereof, the Contractor shall pay the Employer a
sum calculated at the rate stated in Appendix 1 as Liquidated and Ascertained Damages for the
period during which the said works shall so remain and have remained incomplete and the ER
may deduct such damages from any money due to the Contractor under this Contract and failing
which such damages shall be recovered from the Performance Bond or as a stipulated demand
in money and the ER shall inform the Contractor in writing of such deduction”.

[9] In relation to sectional completion, Clause 42 of the conditions of contract addresses the impact
of delay to the completion of the work and the right of the Employer to impose liquidated damages in
the event of such delay. The LAD for sectional completion has a different rate for each day of delay and
is treated differently from the completion of the main works.

Problem

[10] Disputes and differences arose between the parties. The Plaintiff did not complete the works by
the completion date. The Defendant terminated the Plaintiff's employment by a letter of termination
dated 2.6.2008.

[11] This was after the Defendant through its Solicitors issued a notice of default on 30.4.2008 which
stated that the Plaintiff had suspended the construction of the Works, failed to proceed regularly and
diligently in the performance of its obligations under the contract and that it had failed to execute work
in accordance with the contract or persistently neglected to carry out its obligations under the contract.
The Defendant terminated the employment of the Plaintiff on 2.6.2008 when the Plaintiff failed to
remedy the default.

[12] One of the Employer's claims as Claimant in the Arbitration was the issue of the right of the
Employer to impose LAD on the Plaintiff. On 19.5.2003, the Defendant had issued a notice to the Plaintiff
to take site possession. Based on the terms of the contract, the Plaintiff would have to complete the
sectional works by 2.7.2005 and the whole of the works by 2.7.2006. It was alleged that the Plaintiff had
delayed the completion of the works and that the Plaintiff did not meet the sectional completion and the
main works completion dates.

[13] The project architect issued a Certificate of Non Completion for the sectional works contending
that LAD of RM15,000.00 per day was deductible for the period between 2.7.2005 and 2.8.2007. This
amounted to the sum of RM11,445,000.00.
[14] In relation to the main building works, the project architect issued a Certificate of Non-
Completion contending that the works should have been completed by 2.7.2006. The project architect in
the Certificate of Non-Completion was of the view that LAD of RM40,000.00 per day for the period
between 2.7.2006 until 2.8.2007 (398 days). This amounted to RM9,950,000.00.

[15] The Defendant sought to impose further LAD at the rate of RM40,000.00 per day from 3.8.2007
to 2.6.2008 (the date the contract was terminated by the Defendant). This amounted to
RM12,160,000.00.

[16] As such, the total amount of LAD claimed by the Defendant as Claimant in the arbitration was
RM33,555,000.00 made up as follows :

a. RM11,445,000.00

b. RM 9,950,000.00

c. RM12.160.000.00

RM33.555.000.00

[17] The Arbitrator decided that the Employer was so entitled and there was no need for the Employer
to prove its loss.

[18] The Arbitrator however, was of the view that the Plaintiff was entitled to some extension of time
and therefore only awarded the Defendant the sum of RM32,235,000.00 as liquidated damages.

[19] The Plaintiff as Respondent in the arbitration had counterclaimed for a declaration that the Letter
of Acceptance and the Revised Supplementary Terms had been superseded and rendered null and void
by virtue of a restructuring agreement contained in the Respondent's letter of 6.11.2006. The Plaintiff
prayed for specific performance of the restructuring agreement and alternatively for the sum of
RM25,525,624.87 being the value of works carried out by them as of 29.5.2007 together with a turnkey
factor of 15%. The Respondent also claimed for a return of the Advances made and monies paid to the
Claimant.

[20] The Arbitrator found that there was no concluded restructuring agreement and granted the
Respondent's counterclaim for the value of work done including a 15% turnkey factor and also for the
return of the Advances made and payment back of the monies paid to the Claimant. The nett sum payable
by the Claimant to the Respondent was RM1,718,943.99. The learned Arbitrator also awarded simple
interest at 5% per annum from 3.6.2008 (a day after termination date) up to 9.3.2016 (date of Award)
and thereafter at 5% simple interest per annum until realisation.

[21] The learned Arbitrator also made some apportionment on costs of the Award and of the
Arbitration which is not the subject matter of challenge in this application.

Prayers

[22] The focus of this application is whether the Defendant was entitled to deduct LAD from the work
which the Plaintiff had carried out. It is not a disputed fact that the Plaintiff had carried out works
amounting to RM25,525,624.87. This valuation was carried on or about the time of termination by the
Defendant of the Plaintiff’s contract.
[23] In this section 42 application the Plaintiff here as Respondent in the arbitration had prayed
that paragraph 954 of the Award dated 9.3.2016 and paragraph 5 of the corrective award dated
7.4.2016 be set aside and the entitlement for payment as set out therein be set aside and that it be
substituted as follows:

Item Description Claimant/ Respondent/

Defendant Plaintiff
(a) Total value of work done by RM25,525,624.87
Respondent on 2/6/08 - at termination
[including the 15% turnkey factor
(RM3,266,222,25) to the Respondent]
(Exhibit RW2D)
(b) Return of advances to Respondent RM8,428,319.12
(c) Money paid to Respondent RM500,000.00

(d) Sub-total due to Respondent RM34,453,943.99

(e) LESS LAD due to Claimant RM32,235,000.00

RM6,233,659.55
(f) Payment due to Respondent RM28,220,288.44

[24] Briefly, the learned Arbitrator was of the view that:

a. That Section 75 of the Contracts Act 1950 did not apply in the case as the parties
according to the arbitrator had agreed to contract out of the Contracts Act.

b. That despite the fact that the Employer’s Representative had not given the necessary
notice as required by the terms of the conditions of contract, the Defendant was still
nevertheless entitled to impose LAD.

c. That despite the fact that the Arbitrator had assessed damages to the Defendant to be
RM6,233,659.55 the Defendant was still entitled to impose LAD amounting
RM32,235,000.00.

[25] The Plaintiff contended that the decision by the learned Arbitrator to award LAD was wrong in
law for the following reasons:

a. That as a matter of law, parties cannot contract out of Section 75 of the Contracts Act
1950.

b. That a reading of the relevant clauses makes it clear that the parties did not intend to
contract out of Section 75 of the Contracts Act 1950.

c. That as a matter of law, the Certificate of Non Completion issued by the architect is
defective and void in law and therefore the Defendant was not entitled to impose
liquidated damages.

d. That as a matter of law, as the Arbitrator had assessed damages to be RM6,233,659.55

 the Arbitrator should not have awarded LAD amounting to RM32,235,000.00.

Principles

[26] The questions of law that the Plaintiff had referred to this Court pursuant to an application filed
under section 42 of the Arbitration Act 2005 are set out in Annexure A to this Originating Summons. For
the purposes of this application only the Second and Third Questions of Law are relevant as follows:

Second Question of Law:

Given that the Arbitrator has assessed the damages suffered by the Defendant to be
RM6,233,659.55, can he as a matter of law award the Defendant a higher sum?

Third Question of Law:

a. Whether there must be an express provision to state that parties are contracting out of
Section 75 of the Contracts Act 1950 in the light of Clause 56 of the Conditions of
Contract.

b. Whether as a matter of law given that Section 75 of the Contracts Act 1950 deals with
the award of damages parties can agree to contract out of the Contracts Act 1950.

c. Whether upon a reading of Clause 5.8 and/or Clause 5.10 of the Main Contract, parties
had in fact contracted out Section 75 of the Contract 1950.

[27] The broad requirements of section 42 of the Arbitration Act 2005 are as follows and they have
been fulfilled:

a. That the question of law must arise out of the award.

b. That the question of law must substantially affect the rights of the parties.
c.
[28] Section 42 of the Arbitration Act 2005 reads:

"Reference on questions of law

42. (1) Any party may refer to the High Court any question of law
arising out of an award.

(1A) The High Court shall dismiss a reference made under subsection (1) unless the question of
law substantially affects the rights of one or more of the parties.

(2) A reference shall be filed within forty-two days of the publication and receipt of the
award, and shall identify the question of law to be determined and state the grounds on which
the reference is sought.

(3) The High Court may order the arbitral tribunal to state the reasons for its award where
the award—
 (a) does not contain the arbitral tribunal’s reasons; or

(b) does not set out the arbitral tribunal’s reasons in sufficient detail.

(4) The High Court may, on the determination of a reference—

(a) confirm the award;

(b) vary the award;
(c) remit the award in whole or in part, together with the High Court’s
determination on the question of law to the arbitral tribunal for reconsideration;
or
(d) set aside the award, in whole or in part.

(5) Where the award is varied by the High Court, the variation shall have effect as part of
the arbitral tribunal’s award.

(6) Where the award is remitted in whole or in part for reconsideration, the arbitral tribunal
shall make a fresh award in respect of the matters remitted within ninety days of the date of the
order for remission or such other period as the High Court may direct.

(7) Where the High Court makes an order under subsection (3), it may make such further
order as it thinks fit with respect to any additional costs of the arbitration resulting from that
order.

(8) On a reference under subsection (1) the High Court may—

(a) order the applicant to provide security for costs; or

(b) order that any money payable under the award shall be brought into the High
Court or otherwise secured pending the determination of the reference."

[29] In the recent decision of Petronas Penapisan (Melaka) Sdn Bhd v Ahmani Sdn Bhd [2016] 2 MLJ
697, the Court of Appeal was of the following view at paragraph 6:

“We agree with the approach of the learned judge that the court must intervene where the
award is manifestly unlawful and unconscionable. Section 42 has no equivalent in the model law
or in parallel jurisdictions. Section 42 is not a provision as to appeals but a reference on a
question of law. There has been a line of authorities with regards to the limiting of judicial
intervention in arbitration awards and we set out the following decisions on the point ie
intervention should only be exercised in clear and exceptional circumstances (see Chain Cycle
Sdn Bhd v Kerajaan Malaysia [2016] 1 MLJ 681; [2015] AMEJ 1479. We are of the opinion that
with the pre requirements of s 42, it followed there would be no danger of ‘opening the flood
gates’ in respect of review of arbitral awards”.

[30] In Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 MLJ 681, the Court of Appeal at paragraphs
20 and 21 of the judgment agreed with the views set out in the decision of High Court in Exceljade v Bauer
(Malaysia) Sdn Bhd [2014] 1 AMR 253. In Exceljade at paragraph [17], the learned Judge considered the
decision of Finelvet AG v Vinava Shipping Co Ltd, The Chrysalis [1983] 1 WLR 1469, which set out a 3 stage
test when considering a question of law.
[31] With reference to the 3 stage tests, the relevant test is at 2nd stage, which is as follows:
“Stage (2) of the process is the proper subject matter of an appeal under the Act 1979. In some
cases an error of law can be demonstrated by studying the way in which the arbitrator has stated
the law in his reasons. It is, however also possible to infer an error of law in those cases where a
correct application of the law to the facts would lead to inevitably to one answer, whereas the
arbitrator has stated the law in his reasons in a manner which appears to be correct, for the court
is then driven to assume that he did not properly understand the principles which he had stated.”
(emphasis added)

[32] This approach was also adopted in the decision of the Court of Appeal in Kerajaan Malaysia v
Perwira Bintang Holdings Sdn Bhd [2015] 6 MLJ 126. At paragraph 60 of the judgment, the Court of Appeal
was of the following view:

“In practical terms, we are persuaded that we should be looking at stage (2) of the process of
reasoning as the proper focus of the inquiry under s 42, which will mean ascertaining not so
much a clear position of the ‘law’ without regard to the underlying facts, but as analysed, the
arbitrator will be ascertaining the ‘law’ as a process comprising ‘not only the identification of all
material rules of statute and common law, but also the identification and interpretation of the
relevant parts of the contract, and the identification of those facts which must be taken into
account when the decision is reached’. Typically, this process will involve a mixed consideration
of relevant statutory rules, case laws and legal principles, and an identification of the relevant
facts on which to apply the ‘law’.”

[33] The Plaintiff submitted that based on the above authorities it is clear that when the Arbitrator
has failed to properly appreciate or apply the law, this Court is at liberty to set aside or vary the Award
as deemed appropriate.

Whether the learned Arbitrator had failed to apply the law on section 75 of the Contracts Act 1950 as
pronounced in Selva Kumar's case

[34] Section 75 of the Contracts Act 1950 provides:

"Compensation for breach of contract where penalty stipulated for

When a contract has been broken, if a sum is named in the contract as the amount to be paid in
case of such breach, or if the contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or loss is proved to have
been caused thereby, to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be, the penalty stipulated
for." (emphasis added)

[35] The Arbitrator found that parties had contractually agreed to exclude the application of Section
75 of the Contracts Act 1950 and that therefore the amounts stipulated as liquidated damages will apply
as the agreed measure of damages. The Plaintiff stated that the decision of the Arbitrator is in error and
inconsistent with the existing principles of law.

[36] The Plaintiff submitted that the above-mentioned questions of law address the failure of the
Arbitrator to correctly analyse and apply the correct principles of law. The question is whether the
learned Arbitrator can ignore and disregard the position of the law under section 75 of the Contracts Act
1950 as declared by the Federal Court in Selva Kumar's case.
[37] The decision of the Federal Court in Selva Kumar A/L Murugiah v Thiagarajah A/L Retnasamy
[1995] 1 MLJ 817 makes it clear that there is no distinction between liquidated damages and penalties
and further provides that the Defendant would have to prove actual damages. At page 827 of the
judgment, the Federal Court declared as follows:

“Secondly, we therefore further hold that the words in question, viz ‘whether or not actual
damages was proved to have been caused thereby, are limited or restricted to those cases where
the court would find it difficult to assess damages for the actual damage or loss, as distinct from
or opposed to all other cases, when a plaintiff in each of them will have to prove the damages or
the reasonable compensation for the actual damage or loss in the usual ways.” (emphasis added)

[38] In Johor Coastal Development Sdn Bhd v Constrajaya Sdn Bhd [2009] 4 MLJ 445, the Federal Court
was of the view that pursuant to section 75 of the Contracts Act 1950, a party claiming liquidated
damages is legally obliged to prove its damages in accordance with the principles set out in Hadley v
Baxendale (1854) 9 Exch 341. As such, the Federal Court has decided that the Defendant could not simply
rely on the amount stipulated as liquidated damages as damages but instead has to prove its damages.

[39] It must not be forgotten that in Johor Coastal a valiant attempt was made to dislodge the position
of the law as propounded in Selva Kumar's case with respect to section 75 of the Contracts Act 1950. The
first question posed for the Federal Court was:

"Whether that part of the decision in Selva Kumar a/l Murugiah v Thiagarajah a/l Retnasamy
[1995] 1 MLJ 817 which obliges a party having the benefit of a liquidated damages clause to prove
its losses, notwithstanding the words in s 75 of the Contracts Act 1950 ‘whether or not actual
damage or loss is proved to have been caused thereby’, is correct."

[40] The relevant dicta of the majority is set out below:

"[32] Reverting to the first question posed to us, based on the authorities considered above, it is
my view that the legal position may be summarised as follows:

The appellant/vendor cannot recover or retain without proof by evidence of the loss or
damage suffered as a result of the breach of the agreements. This is because s 75 of the
Act provides that in every case, the court must determine what is reasonable
compensation, ‘whether or not actual damage or loss is proved to have been caused
thereby.’

[33] And as was held in Selva Kumar actual damages or reasonable compensation must be proved
in accordance with the principles set out in Hadley v Baxendale (1854) 9 Exch 341.

[34] The appellant urged this court to depart from Selva Kumar and the long series of
decisions on s 75 relying on a recent two bench decision of the Supreme Court of India in Oil &
Natural Gas Corp Ltd v Saw Pipes Ltd [2003] LR 1 348.

[35] Upon close examination, I find that Oil & Natural Gas falls in the category of cases where
the loss suffered is incapable of assessment. Hence, the amount stipulated may be regarded as
a genuine pre-estimate of damages and therefore it is recoverable. Further in Selva Kumar itself
the court recognised that where the court finds it difficult to assess damages as there is no known
measure of damages employable, the stipulated sum may be recoverable. It should also be noted
that no where in Oil & Natural Gas the Indian Supreme Court stated that the provisions of the
Indian Contracts Act can be contracted out.
 [36] In view of the above, I am of the view that Selva Kumar is still good law.

[37] For the above reasons, I would therefore answer the first question in the affirmative."
(emphasis added)

[41] The learned Arbitrator in this case simply relied on the rates stipulated as liquidated damages
and therefore when he ruled that the Defendant was entitled to damages amounting to RM32 million
this was not done in accordance with the principles set out in Hadley v Baxendale (supra). In fact the
assessment of damages was done in complete disregard of the principle set out in Selva Kumar which
requires the proof of actual loss.

[42] It may fairly be said that the Federal Court had the opportunity to answer the question that many
in the construction industry have been awaiting. However the apex court does not answer hypothetical
question unless it has arisen from the facts as found by the Court. As the Federal Court had held that
section 75 had not been expressly excluded by the relevant clause in the contract, the need to answer
the second question of law posed did not arise.

[43] It would be presumptuous to then say, as the learned Arbitrator seemed to have understood,
that had there been a clear exclusion of section 75 by contract, then the sum stated in the LAD would
automatically apply. The Federal Court did not answer the question as to whether section 75 can be
excluded by consent of parties. The position of the law then on section 75 is as declared in Selva Kumar's
case, whatever one's misgivings may be. It is not for the learned Arbitrator to prefer his own position
which may even have the support of the stakeholders in the construction industry as can be seen in the
relevant amendments made to the various standard form contracts like PAM and PWD Contracts.

[44] The position of the Federal Court with respect to the second question of law posed is clearly
stated below:

"[38] Moving on to the second question, I must say that whether or not this court should answer
this question would depend firstly on whether, on the proper construction of the agreements,
the parties had in effect excluded the application of s 75 of the Act. This issue was raised for the
first time in the Court of Appeal. This, in my view, is nothing more than an attempt to salvage
what is otherwise a weak case. In this regard, I am in agreement with the view expressed by the
Court of Appeal, which is found at p 925 of the judgment of Gopal Sri Ram JCA which reads:

In our judgment, when these agreements are read as a whole, what cl 16.2 means is that
the 10% or 12% which is to be forfeited by the appellant is not to be challenged by the
respondent as not being fair and reasonable compensation. If you look at the objective aim
of the transaction you will see why cl 16.2 was put in. Mark you, both parties knew that this
was not a straightforward sale and purchase of land. As earlier rehearsed, there was other
consideration here. The appellant as vendor of the land obviously did not want to face a
challenge that it ought not to keep any of the sums it had received from the respondent on
the ground that this was not an outright sale and purchase. That is why cl 16.2 is crafted in
the way we find it. Hence, cl 16.2 does not produce the effect that Mr Pradhan’s ingenious
argument says it does.

Alternatively; and this is the second obstacle; if there is any conflict or contradiction
between cll 8.2 and 16.2, then there arises an ambiguity as to what the joint effect of these
two clauses is. Since it is the appellant who relies on cl 16.2 to justify the forfeiture, that
clause should be read contra proferentum the appellant and the resulting ambiguity
between it and cl 8.2 must be resolved in the respondent’s favour.What that means is that
it is not open for the appellant to keep all the monies.
 [39] In short there is no clear provision in the agreements which excludes the application of s
75 of the Act.

[40] For the above reasons, I agree with the Court of Appeal that, in the circumstances of this
case, the second question does not therefore arise." (emphasis added)

[45] When one looks at the relevant contractual clause that was considered by the Federal Court in
Johor Coastal, one would find that it is as clear if not clearer than Clause 5.8 in the present case. The
clause on reasonable compensation is reproduced below:

“16.2 Reasonable Compensation

Both parties hereby unconditionally and irrevocably acknowledge that the sums stipulated in this
Agreement to be payable by the defaulting party would constitute reasonable compensation to
the non-defaulting party and each party hereto hereby waives any objection it may now or
hereafter have that those sums would be otherwise than fair and reasonable compensation.”

[46] The Federal Court ruled that the parties had not excluded the application of section 75. By the
same token the learned Arbitrator in the present case should have ruled the same in that the parties had
not excluded the application of section 75 of the Contracts Act 1950.

[47] Even assuming that this Court should not disturb his interpretation of Clause 5.8 in that parties
had intended to exclude the application of section 75 of the Contracts Act 1950, the learned Arbitrator
would still have to apply the position of the law as propounded in Selva Kumar's case.

[48] The Plaintiff further contended that a party cannot by agreement contract out of section 75 of
the Contracts Act 1950. It was argued that section 75 regulates the obligations of parties and the
compensation for breach of contract. It was submitted that as a matter of law given that section 75
regulates the basis on which damages are awarded parties should not be permitted to as a matter of
policy contract out of section 75 of the Contracts Act 1975.

[49] The Courts have always been concerned that what is exacted from a defaulting party in the event
of breach is reasonable compensation and not a penalty. Therefore irrespective of a sum stated as agreed
liquidated damages, the Courts' hands are never tied such that it is always required to enquire into and
assess what is reasonable compensation based on the evidence adduced by the innocent party. The
rationale is obvious for even a non-defaulting party should not take advantage of a defaulting party and
to capitalise on the default and reap a windfall at the expense of the defaulting party.

[50] Granted there will be that category where it is difficult if not impossible to assess damages though
substantial damage has been suffered by the innocent party. Such an exception is addressed in Selva
Kumar's (supra) case as follows at the headnotes at page 818:

"(3) However, for cases where the court finds it difficult to assess damages for the actual damage
as there is no known measure of damages employable, and yet the evidence clearly shows some
real loss inherently which is not too remote, the words in question will apply. The court ought to
award substantial damages as opposed to nominal damages which are reasonable and fair
according to the court’s good sense and fair play. In any event, the damages awarded must not
exceed the sum so named in the contractual provision."

[51] The learned author IR Harbans Singh KS opined in his book Harban's Engineering and Construction
Contracts Management - Commencement and Administration, Second Edition, 2014, LexisNexis at page
945 as follows:
 "Legally, it has been accepted that the liquidated damages for public sector contracts fall within
the category of contracts where loss and damage is incapable of proper assessment by settled
legal principles. Hence, following the Selvakumar and Johor Coastal decisions, the courts would
be prepared to regard the liquidated damages stipulated in the contract as a genuine pre-
estimate of the loss or damage suffered and allow its recovery. See Keen Builders Sdn Bhd v Utara
Dua (Malaysia) Sdn Bhd (Samudra (Malaysia) Sdn Bhd)(Garnishee) [1998] 2 CLJ Supp 256. This is
reinforced by Lim Chong Fong's following statement in The Malaysian PWD Form of Construction
Contract (2nd End) p 93:

... be that as it may, it is submitted that whatever approach is adopted, the Government
being a non-commercial and nonprofit-making entity should be entitled to recover the
Liquidated and Ascertained Damages simpliciter as reasonable compensation simply by
reason that the actual damage or loss is unlikely to be truly quantifiable in pecuniary terms."

[52] The learned author IR Harbans Singh KS had earlier referred to the case of Multiplex
Constructions Pty Ltd v Abagarus Pty Ltd [1992] 33 NSWLR 504 as support for the above proposition.

[53] Here the learned Arbitrator had no difficulties assessing the damage suffered by the
Claimant/Defendant to be RM6,233,659.55 based on the evidence adduced by the Claimant. For the
Arbitrator then to allow the Defendant’s claim for LAD amounting to RM32,235,000.00 would be to allow
a penalty claim rather than reasonable compensation.
[54] In Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79,
Lord Dunedin explained the term 'penalty' as:

"The essence of a penalty is the payment of money stipulated as in terrorem of the offending
party ... If the sum is 'extravagant and unconscionable in amount in comparison with the greatest
loss that could conceivably be proved to have followed the breach', it will be regarded as a
penalty and unenforceable..."

[55] That is not a principle countenanced in law where section 75 of the Contracts Act 1950 is
concerned. I would agree with the Plaintiff that this award of damages by the Arbitrator is contrary to all
recognized principles of law and as such should be set aside.

[56] I agree with the Plaintiff that as a matter of a general principle of law, where a party sustains a
loss by reason of a breach of contract, that party, so far as money can do, is to be placed in the same
situation with respect to damages as if the contract had been performed.

[57] The damages awarded by the Arbitrator were far in excess of the sum which he assessed to be
the losses suffered by the Defendant. The decision of the Arbitrator was in effect relieving the Defendant
from having to satisfy the fundamental requirement of having to prove their loss arising from those
breaches. One must hearken to the principle propounded by the Federal Court in Tan Sri Khoo Teck Puat
v Plenitude Holdings Sdn Bhd [1994] 3 MLJ 777 at page 788 as follows:

“It goes without saying that if the effect of allowing a plaintiff’s claim is to put him in a better
position than he would have been if there had been no breach, then this would be contrary to
the principles enunciated in the cases cited above. This means that any profit which he stands to
make because of the breach must be deducted from the damages awarded- a point aptly put by
Mr Hugh Beale in his most useful book on Remedies for Breach of Contract:

The basis of assessment

... These deductions are made in accordance with the general principle that an award of damages
should not put the victim in a better position that if the contract had been performed; he should
 recover no more than he had lost”. (emphasis added)

[58] The decision of the Arbitrator in awarding the Defendant the sum of RM32,235,000.00 amounts
to a windfall for the Defendant. It is a decision that is contrary to all acceptable and recognized legal
principles in relation to assessment of damages. It ought to be set aside and replaced with the amount
actually assessed based on actual loss of RM6,233,659.55.

[59] Clearly this is not a case falling under the exception envisaged in Selva Kumar's where it is difficult
to assess the loss as there is no known formula. The fact that it can be easily calculated based on the
report of the Claimant's expert Sr Saw Soon Kooi, a Quantity Surveyor, which the learned Arbitrator was
able to accept as a reasonable amount of the actual loss to complete the balance of the works, goes to
confirm that this is not a case falling within the exception envisaged in Selva Kumar's case where proof
may be dispensed of and the LAD sum as agreed be accepted without the need for proof.

[60] Much has been touted about the freedom to contract which the Court should uphold and
promote. Whilst the Courts would generally give effect to the intention of the parties, the Courts are also
mindful of the fact that there are many standard form contracts where the party with the project is able
to dictate terms to the party desiring to perform the works with the hope of making some profits, the so-
called preagreed LAD sum on a "take it or leave it" basis. The employer and the contractor are hardly on
an equal bargaining power with the balance tilting in favour of the stronger party, the employer. The
imbalance become more acute when there is no cap on the LAD.

[61] It is settled law that even though parties are entitled to contract out of the Contracts Act 1950,
parties cannot do so if it is inconsistent with the Contracts Act 1950. (Isito Electronics Sdn Bhd v Teh Ah
Kiam & Anor [2004] 7 MLJ 513 and PT Vision Renewable Fuels v Export- Import Bank of Malaysia Bhd
[2015] 8 MLJ 706).

[62] In Isito Electronics Sdn Bhd's case, his Lordship Ramly Ali J (now FCJ) observed as follows:

"43 In the present case, the exclusion of liability of the defendant was clearly stipulated in the
letters dated 6 March 1995 and 11 April 1995. The clause is clear and unambiguous and the clear
words should be given effect to. The exclusion clause has been agreed to by the plaintiff and the
said clause clearly states that the receiver is not accepting any personal liability under the
contract he signed as an agent. This would include contractual and tortious liability in
negligence.In this respect, the Court is in full agreement with Abdul Malek Hj Ahmad J (as he
then was) in Robert Bosch (SEA) Pte Ltd v Goh Ban Huat Bhd [1996] 1 AMR 714 when he cited
the House of Lords' case of Photo Production Ltd v Sucuricor Transport Ltd [1980] AC 827 where
it was held as follows:

... that the question whether and to what extent an exclusion clause was to be applied
to any breach of contract was a matter of construction of the contract and normally
when parties were bargaining on equal terms they should be free to apportion the risks
as they thought fit, making provision for their respective risks according to the terms
they chose to agree..." (emphasis added)
[63] The decision of the Privy Council in Ooi Boon Leong v Citibank NA [1984] 1 MLJ 222 relates to the
whether parties can contract out of Sections 86, 92 and 94 of the Contracts Act 1950. The decision of Ooi
Boon Leong does not deal with general principles of law but rather deals with the contractual relationship
between the parties.

[64] Section 86 reads:

 "Discharge of surety by variance in terms of contract

86. Any variance, made without the surety's consent, in the terms of the contract between the
principal debtor and the creditor, discharges the surety as to transactions subsequent to the
variance."

[65] There was of course nothing wrong for the surety to have given his prior consent to any variance
that the lender may make to the contract. That is nothing inconsistent with the Contracts Act 1950.

[66] Section 92 provides as follows:

"92. If the creditor does any act which is inconsistent with the rights of the surety, or omits to
do any act which his duty to the surety requires him to do, and the eventual remedy of the surety
himself against the principal debtor is thereby impaired, the surety is discharged."

[67] Section 94 reads:

"Surety's right to benefit of creditor's securities

94. A surety is entitled to the benefit of every security which the creditor has against the
principal debtor at the time when the contract of suretyship is entered into, whether the surety
knows of the existence of such security or not; and, if the creditor loses or, without the consent
of the surety, parts with the security, the surety is discharged to the extent of the value of the
security."

[68] The surety may give his prior consent for the creditor to act even in a manner that may be
inconsistent with the surety's rights or to give his prior consent to the creditor to part with the security.

[69] Little wonder when the Government wanted to impose a sum as agreed liquidated damages for
breach of scholarship contracts it introduced the Contracts (Amendment) Act 1976. Section 5 on "Remedy
in the event of breach" reads as follows:
"5. Remedy in the event of breach.

Where a scholarship agreement has been broken by the scholar -

(a) if a sum is named in the agreement as the amount to be paid in case of such breach,
notwithstanding anything to the contrary contained in the principal Act, the scholar and
the surety shall be liable jointly and severally to pay and the appropriate authority shall
be entitled to be paid the whole of such named sum whether or not actual damage or
loss has been caused by such breach, and no deduction shall be made from the said
named sum on account of any partial period of service performed by the scholar on
completion of his course of study; or

(b) if no such sum is mentioned in the scholarship agreement, the scholar and the surety
shall be jointly and severally liable to pay and the appropriate authority shall be entitled
to be paid -

(i) the whole amount expended by the appropriate authority under the
agreement; and

(ii) the whole of such further amount as it will cost the appropriate authority or
 another authority designated
by it to engage a person with qualifications and experience similar to those
which were to be obtained by the scholar to perform the services required of
the scholar on the completion of his course of study for the period specified in
the scholarship agreement." (emphasis added)

[70] One can surmise that the introduction of a separate legislation was necessary as otherwise any
sum named as agreed liquidated damages would be subject to section 75 of the Contracts Act 1950 where
there is a need for the Government to prove its loss.

[71] Likewise in cases involving claim for damages for late delivery of houses by purchasers under the
Standard Form Sale and Purchase Agreement under Schedule G and H of the relevant Housing
Development (Control and Licensing) Regulations 1989 made under the Housing Development (Control
and Licensing) Act 1966, it has been held the relevant clauses on damages for late delivery in the
prescribed Schedules would prevail over the Contracts Act 1950. See the cases of Tai Kim Yew & Ors v
Sentul Raya Sdn Bhd [2004] 4 MLJ 227.

[72] In Brisdale Resources Sdn Bhd v Law Kim [2004] 6 MLJ 76, the Sale and Purchase Agreement was
in accordance with Schedule H which is a statutory contract and it was held that that the agreed
liquidated damages for late delivery of vacant possession as in the Schedule H Agreement was a
mandatory provision and therefore there was no requirement for the purchaser to prove its losses
pursuant to section 75 of the Contracts Act 1950.

[73] I am not unaware of what was clearly the industry's reaction to Selva Kumar's decision by the
redrafting the LAD clauses in Standard Form Contracts like Clause 40.3 of the PWD Form 203 & 203A (Rev
1/2010), Clause 45.3 of PWD Form DB (Rev 1/2010) and Clause 22.2 of PAM Contract 2006. Some of these
were referred to be the learned Arbitrator at paragraphs 437- 439 of his Award. These were attempts to
circumvent the ramifications and fall-out from Selva Kumar's case.

[74] Thus Clause 40.3 of the PWD Forms 203 & 203A reads as follows:

"The Liquidated and Ascertained Damages stated in Appendix 1 shall be deemed to be a

reasonable amount of the loss which the Government will suffer in the event that the Contractor
is in breach of this clause. The Contractor by entering into this Contract agrees to pay the
Government the same amount(s) if the same became due without the need of the Government
to prove his actual damage or loss." (emphasis added)
[75] Clause 22.2 of the PAM Contract 2006 (With Quantities) and (Without Quantities) reads:

"Agreed Liquidated Damages amount

The Liquidated Damages stated in the Appendix is a genuine preestimate of the loss and/or
damage which the Employer will suffer in the event that the Contractor is in breach of Clauses
21.0 and 22.0. The parties agree that by entering into the Contract, the Contractor shall pay to
the Employer the said amount, if the same became due without the need for the Employer to
prove his loss and/or damage unless the contrary is proven by the Contractor." (emphasis added)

[76] To the credit of the learned Arbitrator, though he had erroneously stated that he could proceed
on the basis that the parties had dispensed with the need of proof when agreeing to the LAD sums, he
had nevertheless went on to find the sum of RM6,233,659.55 as an alternative method of assessing
damages. In paragraph 484 (page 103) of his Award the Arbitrator states:

“484. Similarly, the LAD clause in cl.5.8 and 5.10 formulated by the parties have dispensed with
 the requirement of proof of actual loss. In the event the LAD clause in cl.5.8 and 5.10 is
not given effect by the courts, I am prepared to accept the alternative method of
assessing damages (method 1) below”. (emphasis added)

[77] It needs only be said that the learned Arbitrator has no liberty and certainly no license to decide
based on his own preference of the law with respect to how to interpret section 75 with respect to
assessment of damages when there is an agreed LAD sum that seems to dispense with the need for proof.
He must apply the law as pronounced by the Federal Court whatever his misgivings may be. The law as
pronounced by the apex court gives certainty and predictability and surely the result on the same issue
cannot be dependent on which Arbitrator is hearing the issue but rather what the law is as propounded
and not as preferred by Arbitrators hearing the issue.

[78] In other words by applying the 3-tier test in The Chrysalis (supra) as set out by Lord Mustill, this
is a case where only one result can be arrived at which is the actual loss suffered by the Claimant assessed
at RM6,233,659.55.

[79] Reverting to the question of law posed:

Given that the arbitrator had assessed the damages suffered by the Defendant to be RM
6,233,659.55 can he as a matter of law award the Defendant a higher sum?;

the answer is a resounding and resolute "NO."!

Whether the Questions of Law were questions specifically referred to the learned Arbitrator for decision
such that it falls within the Absalom's exception and that this Court should not interfere

[80] The Defendant submitted that the questions are not amenable to curial intervention, relying on
the principle that has come to be known as the Absalom exception that was referred to in the decision
of the Federal Court in The Government of India v Cairn Energy India Pty Ltd & Anor [2011] 6 MLJ 441
which in turn cites the judgment of Raja Azlan Shah J (as His Royal Highness then was) in Syarikat
Pemborong Pertanian & Perumahan v Federal Land Development Authority [1971] 2 MLJ 210 as follows:

“[29] This court in Intelek Timur Sdn Bhd v Future Heritage Sdn Bhd [2004] 1 CLJ 743 upheld the
distinction that was made in Sharikat Pemborong in the following terms — 'As to the
determination of whether the award has been improperly procured, this must depend on the
issues or the questions that have been referred to the arbitrator. It is from these issues or
questions that the arbitrator has to make findings of fact on the evidence adduced before him
and more often than not, questions of law arise from his findings of fact. It is under these
circumstances that Raja Azlan Shah J in Sharikat Pemborong sounded a warning that reads as
follows — ‘It is essential to keep the distinction between a case where a dispute is referred to an
arbitrator in the decision of which a question of law becomes material, from the case in which a
specific question of law has been referred to him. The wealth of authorities make a clear
distinction between the two classes of cases and they decide that in the former case the Court
can interfere if and when any error appears on the face of the award but in the latter case no
such interference is possible upon the ground that the decision upon the question of law is an
erroneous one’.

[30] With respect we are not persuaded that we should depart from the long line of authorities
holding such a distinction. Thus, where a specific matter is referred to arbitration for
consideration, it ought to be respected in that ‘no such interference is possible upon the ground
that the decision upon the question of law is an erroneous one’. However, if the matter is a
general reference, interference may be possible ‘if and when any error appears on the face of
 the award’ (see Sharikat Pemborong Pertanian & Perumahan v Federal Land Development
Authority [1971] 2 MLJ 210. (See also King v Duveen [1913] 2 KB 32, Absalom Ltd v Great Western
(London) Garden Village Society, Ltd [1933] AC 592).

[81] In Sharikat Pemborong Pertanian & Perumahan v Federal Land Development Authority (supra),
Raja Azlan Shah J. (as His Royal Highness then was) said at pages 210-211 as follows:

"The key question before the arbitrator was whether the plaintiffs were justified in abandoning
the contract before completion. In order to decide this question the arbitrator had to consider
from the evidence before him whether the 5 specific allegations enumerated above had been
proved. Those were findings of fact. From those findings of fact a question of law became
material. The present case bears no resemblance to the case where a specific question of law is
referred to the arbitrator.

It is essential to keep the distinction between a case where a dispute is referred to an arbitrator
in the decision of which a question of law becomes material from the case in which a specific
question of law has been referred to him. The wealth of authorities make a clear distinction
between these two classes of cases and they decide that in the former case the court can
interfere if and when any error appears on the face of the award but in the latter case no such
interference is possible upon the ground that the decision upon the question of law is an
erroneous one. Instances of the former are afforded by Absalom Ltd v Great Western (London)
Garden Village Society Ltd [1933] AC 592, British Westinghouse Electric & Manufacturing Co Ltd
v Underground Railways Co of London Ltd [1912] AC 673 Hodgkinson v Fernie 3 CB (NS) 189; 140
ER 712, and Attorney- General for Manitoba v Kelly and others [1922] 1 AC 268 281 PC.
Government of Kelantan v Duff Development Co Ltd [1923] AC 395 411, and In re King and Duveen
[1913] 2 KB 32 are instances of the latter.

In the present case I have on consideration come on the conclusion that no question of law was
referred. What was submitted to the arbitrator was a question of law which incidentally, and
indeed necessarily, arose in applying ascertained facts. The reference involved both composite
questions of law and fact. The court can therefore review the award if and when there is error
apparent on the face of the award.” (emphasis added).

[82] The Court of Appeal in Chain Cycle Sdn Bhd v Kerajaan Malaysia [2016] 1 MLJ 681 affirmed at
page 699 that:

“[32] ... the Absalom exception was still necessary and relevant even in a s. 42 of the Arbitration
Act scenario as well. This was so in order that the “reference on question of law” under that
provision was not turned into a wholesale “appeal” against the arbitral tribunal’s decision or
ruling. The court had to guard against the proceedings brought to court related to arbitrations;
especially post-award, were not in substance and effect on appeal or a rehearing, or like here,
providing an opportunity for regurgitation of the competing arguments on that specific issue of
law that had by agreement of the parties been chosen and referred to the arbitral tribunal for
determination conclusively”.

[83] The Defendant submitted that the above questions now posed were in fact the very same issues
that were before the Arbitrator for his decision as can be seen paragraph 109(2) of the Award. It was
further argued that whether the Arbitrator arrived at a correct or erroneous interpretation on this issue
is not amenable to curial intervention and as such this Court must decline to intervene.

[84] I have scrutinized paragraph 109(2) of the Award. It reads as follows:

"THE ISSUES FOR DETERMINATION

 108 AS A RESULT OF THE EVENTS, THE ISSUES WHICH

ARISE ARE:

(1) ...

(2) WHETHER THE CLAIMANT IS ENTITLED TO LIQUIDATED

AND ASCERTAINED DAMAGES (LAD)?
Sub-issues:
(a) Is the Liquidated and Ascertained Damages (LAD) provision enforceable?"

[85] As can be seen, the questions of law posed in this reference is different from the one that was
stated as issues for the Arbitrator to decide which is whether the Claimant was entitled to LAD. It was a
question that arose from the issue that the parties wanted the Arbitrator to decide. In determining
whether LAD was payable and if so how much, the Arbitrator had to decide on whether the LAD provision
was enforceable.

[86] The LAD provision was of course enforceable if the termination was properly done as it was held
to be. The question posed was not what was posed here which is: Given that the arbitrator had assessed
the damages suffered by the Defendant to be RM6,233,659.55 can he as a matter of law award the
Defendant a higher sum?

[87] I must say that it was more a question that arose for decision in the course of the Arbitrator
deciding on the broader issue of whether the claimant was entitled to LAD. I am inclined to this view after
giving careful consideration to the following as highlighted by the Plaintiff in its submission as follows:

(a) It is only at paragraph 2.2.5 of the Points of Claim that the LAD clauses are referred to,
and even then it sets out the clause verbatim.

(b) The Defence does not specifically raise a question of law pertaining to the validity of the
LAD clause.

(c) The issues that the Arbitrator had to decide were essentially whether there was a breach
of contract, and if so the quantum of compensation.
(d) It is in that context that the discussion on the validity of the LAD clause in the context of
Selva Kumar took place in the submissions made to the Arbitrator.

[88] To sustain the point that a specific question on the validity of the LAD clauses were not referred
to the Arbitrator, learned counsel for the Plaintiff referred to the following paragraphs in the Final Award
dated 7.4.2016 where it could be seen that it was the Arbitrator himself who had requested for
submissions on this point at paragraphs 35-37 of the Award as follows:

“Further Submissions

35. On 9/1/15, I requested the Respondent’s counsel to provide a further submission on its
position together with authorities, whether s.75 of the Contracts Act 1950 may be contracted
out, in response to para 10.2.2 of the Claimant’s Written Submission.

36. After the authorities were submitted by the Respondent’s counsel on 28/1/15, in
support of the Respondent’s submissions in reply, I wrote to the Claimants counsel on 28/7/15
 for its views.

37. The Claimant submitted its clarification together with a bundle of authorities on
27/2/15.”

[89] In the Award at paragraphs 89-95 at page 025 the dispute extant between the parties was
described as follows:

“THE DISPUTES

89. ... According to the Amended Points of Claim dated 16/8/11, the following reliefs are
claimed:

90. A declaration that the employment of the Respondent has been determined on 2/6/08.

91. A finding that the Claimant is entitled to the sum of

RM11,445,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete a Section
of the Works from 2/7/05 to 2/8/07 at RM15,000.00 per day.

92. A finding that the Claimant is entitled to the sum of

RM9,950,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete the Main
Building Works from 2/7/06 to 2/8/07 at RM25,000.00. This claim is for RM25,000.00 and not
RM40,000.00 per day because the delay is concurrent with the delay of the completion of the
Section.

93. A finding that the Claimant is entitled to the sum of

RM12,160,000.00 as Liquidated and Ascertained Damages (LAD) for failure to complete the
Section and Main Building Works from 3/8/07 to 2/6/08 (date of determination of the contract)
at RM40,000.00 per day.
94. Alternatively, the sum of RM6,233,659.55 as loss and damages for escalated costs
required to complete the Works as provided for in cl.53.3 of the contract (V.8, p.3169) (CER-2/11
paras 11.3 to 11.7). This claim is the difference between the original anticipated cost to complete
the project and the total cost to complete the project as of November 2010 (excluding the 15%
turnkey factor).

95. Alternatively, general damages in the form of monetary compensation for delayed
receipt of 8% per annum development profit on a development profit of RM67,518,522.00,
which is RM14,798.58 per day from 2/6/08 to the date of the Final Award (CER-1/22 para 10.00).”

[90] The following paragraphs of the Award are also relevant to show that there was no specific
questions of law referred to the Arbitrator but rather that the questions have arisen for determination in
the course of the submission on whether the Claimant was entitled to the LAD claim.

The gist of the Respondent’s submission 111. The Respondent’s position is pressed on five (5)
fronts. In its written submissions, counsel contends:

(v) LAD is not proven and is unlawful”

 Introduction

116. There was a thorough response and a myriad of issues raised by the Respondent. Counsel
identified several defences why Liquidated and Ascertained Damages (LAD) cannot be imposed,
which can be categorised as follows:

(i) is the LAD proven?”

THE PARTIES’ SUBMISSIONS The Respondent

361. The Counsel’s argument that LAD is not payable is pressed on 2 fronts:

(a) Counsel alleges the Claimant is not entitled to LAD as it failed to prove actual damages
as Section 75 of the Contracts Act 1950 cannot be contracted out and cites Selva Kumar
a/l Murugiah v Thiagarajah a/l Retnasamy [1995] 1 MLJ 817.”

[91] I am persuaded that there was no specific question in the validity of the LAD clauses that were
referred to the Arbitrator with respect to dispensing with proof of the agreed LAD sum in the relevant
clauses. It was more a case where the question of construction of the LAD clauses arise as being material
in the decision of the matter which has been referred to Arbitration.

[92] Such was the case in Absalom v GW Garden Village [1933] AC 592 pages 610-612, where the dicta
of Lord Russell in the House of Lords case is relevant and reproduced below: .

"... This is a question of some difficulty, as indeed it was in the Kelantan case [1923] A.C. 395. In
that case Lord Cave seems to have thought that a specific question of law had been submitted.
Lord Trevethin thought not. Lord Parmoor thought it unnecessary to decide that point. In the
present case I have on consideration come to the conclusion that no specific question of law was
referred. The primary quarrel between the parties was whether, if the value of work executed
and materials on site up to and including March 11, 1929, had been truly assessed, the net value
available for certification on that date was in excess of (as the contractor alleged) or less than
(as the employer contended) the amount which had actually been certified up to and including
that date - namely, 9434l. Those were the disputes which were the foundation of the suspension
of work on the one hand and the service of the notice on the other. Those were the disputes "in
regard to the issue of certificates and the validity of the notice" which were in general terms
submitted to the arbitrator. No specific question of construction or of law was submitted. The
parties had, however, been ordered to deliver pleadings, and by their statement of claim the
contractor had claimed that the arbitrator should under his powers revise the last certificate
issued so as to include therein the excess net value which they had alleged and which the
arbitrator has found (though for a reduced amount) to have existed on March 11, 1929. It is at
this point that the question of the construction of condition 30 arose as a question of law, not
specifically submitted, but material in the decision of the matters which had been submitted.
This question of law the arbitrator has decided; but if upon the face of the award he has decided
it wrongly his decision is in my opinion open to review by the Court.

Is his decision erroneous? In my opinion it is. He has construed condition 30 as though the
reference therein to actual work to the value of 1000. In some way affected or qualified the
contractor's right to receive payment of the full 90 per cent. of the value of the work executed
and materials actually on the site on the relevant date - namely, March 11, 1929. In my opinion
this is wrong. The words "when in the opinion of the architect actual work to the value of 1000,
has been executed in accordance with the contract" merely refer to and define the point of time
before which no certificate can be given. After that point of time has arrived, if and when a
certificate is given in regard to any particular date, the contractor is entitled to receive a
 certificate covering the true value of the work executed in accordance with the contract on the
building and materials actually on the site for use on the works up to and including that date. In
certificates subsequent to the first certificate, the value of work executed will only be the value
of work executed since the date in reference to which the last preceding certificate was given.

The result is that the arbitrator has misconstrued condition 30 and has thereby erred in law. He
should have revised the certificate which was given in relation to March 11, 1929, in such a way
as to entitle the contractor to payment thereunder of an additional sum of 793l. 17s. 10d. From
this it would follow that paras. 3, 4 and 5 could no longer stand.

There still remains the question whether this error of law is apparent on the face of the award. I
think it is. The award recites the contract and refers in terms to the provisions of condition 30.
Condition 30 accordingly is incorporated into and forms part of the award just as if the arbitrator
had set it out verbatim and had then proceeded to state the construction which he placed upon
it. The Court can look at it just as it looked at the answers of the Divisional Court in the British
Westinghouse Co.'s case [1912] A.C. 673, at the contract in Landauer v. Asser [1905] 2 KB 184
and at the pleadings in the Kelantan case [1923] AC 395.

In my opinion this appeal should succeed and an order should be made sending the award back
to the arbitrator for him to reconsider and amend so as to bring it into consonance with the true
construction of condition 30. The respondents should pay the costs of the appellants of this
appeal and of the proceedings in the Courts below." (emphasis added)

[93] Even if a specific question of law was referred to an arbitrator, his finding could still be set aside
if he had proceeded on principles on construction not countenanced by the law. The position was
succinctly set out by Barakbah SCJ in Ganda Edible Oils Sdn Bhd v Transgrain BV [1988] 1 MLJ 428:

“If a specific question of law is submitted to the arbitrator for his decision and he decides it, the
fact that the decision is erroneous does not make the award bad on its face so as to permit its
being set aside; and where the question referred for arbitration is a question of construction,
which is, generally speaking, a question of law, the arbitrator’s decision cannot be set aside only
because the court would itself have come to a different conclusion; but if it appears on the face
of the award that the arbitrator has proceeded illegally, as, for instance, by deciding on evidence
which was not admissible, or on principles of construction which the law does not countenance,
there is error in law which may be ground for setting aside the award.” (emphasis added)

[94] Granted the above case was decided under the old regime but it appears to be consistent with
section 42 Arbitration Act 2005 where the Court is entitled to vary or set aside an Award.

Pronouncement

[95] The Court, in a reference on questions of law, may under section 42(b) vary the award or under
section 42(d) set aside the award, in whole or in part.

[96] For the reasons given above, I had therefore varied the Award as follows:

That paragraph 954 of the Award dated 9.3.2016 and paragraph 5 of the corrective Award dated
4.5.2016 be set aside and the entitlement for payment as set out therein be set aside and it was
further ordered that the Claimant/Defendant shall pay the Respondent/Plaintiff the sum of
RM28,220.284.44 as set out in the table above instead of the sum awarded of RM1,718,943.99.

[97] That paragraph 966, 967 and 968 of the Award dated 9.3.2016 and paragraph 6 of the corrective
award dated 4.5.2016 be set aside and it was ordered as follows:
 a) that the Claimant/Defendant shall pay the Respondent/Plaintiff simple interest at the
rate of 5% per annum on the sum of RM28,220,284.44 from 3.6.2008 up to 9.3.2016.

(b) that the Claimant/Defendant shall pay the Respondent/Plaintiff simple interest at the
rate of 5% per annum on the sum of RM28,220,284.44 from the date of the award until
the actual realisation of the said payment by the Claimant/Defendant.

[98] I had also ordered the Defendant to pay the Plaintiff costs of RM20,000.00 for this application.

LEE SWEE SENG

Judge, Construction Court
Kuala Lumpur

Dated: 21 April 2017