Under section 33(3) of the Malaysian Arbitration Act 2005 (“Act”), an arbitral award must be in writing and “state the reasons upon which it is based”.
What is a “reasoned award”? How much reasoning is required? If the reasons provided in the Arbitration Award are not lengthy enough, or not detailed enough, can the arbitral award be set aside?
Recently, our firm acted for the winning party in two arbitrations, which was seeking to enforce the arbitral awards in their favour. The losing party attempted to set aside the awards because the awards were allegedly not properly reasoned. The High Court’s grounds of judgment on this matter can be read in JY Creative Sdn Bhd v Meacs Construction Sdn Bhd and Another Case [2022] MLJU 941.
Brief Facts
- JY Creative Sdn Bhd (“Claimant”) was appointed by MEACS Construction Sdn Bhd (“Respondent”) as a sub-contractor for two construction projects.
- The Claimant initiated two arbitrations against the Respondent for payments allegedly due for work done. The Respondent counterclaimed, claiming liquidated damages for delay, refund of amounts paid due to over-certification of works, and damages for defective work.
- The arbitrator dismissed the Claimant’s claim and allowed the Respondent’s counterclaim, in both arbitrations.
- In one arbitration, the arbitrator had unintentionally duplicated a “Summary of Findings” from the other arbitration, in the arbitral award. Upon request by the Respondent, the arbitrator issued a corrective award to rectify this error (“Corrective Award”)
- The Respondent applied to the High Court for registration and enforcement of the arbitral awards (“Awards”). In parallel, the Claimant applied to have the Awards set aside.
- In the setting aside application, the Claimant alleged that the arbitrator breached natural justice in failing to state her reasons and grounds for her decision in the Awards. It was alleged that the arbitrator did not state her reasons for allowing liquidated damages for delay, and failed to explain her reasons for awarding the counterclaim sum to the Respondent.
- The Claimant also alleged that the arbitrator acted in excess of jurisdiction or in breach of natural justice when she issued the Corrective Award because she was already functus officio.
- The High Court dismissed the setting aside applications, and allowed the application to register the arbitral awards.
High Court’s findings
Duty to give adequate reasons
The High Court agreed that an arbitrator must provide reasons in their arbitral awards, unless parties have exempted the arbitrator from providing reasons. The real issue is whether such reasons are “adequate”.
The Court referred to Stevely-Cole (In Their Capacity as Trustee Of The Mangahewa Trust) v Dillworth Trust Board [2020] NZHC 2843 which held that there is no minimum criterion so long as the award is coherent and complies with the elementary level of logic of adequate substance to enable parties to understand how and why the arbitrator decided. The Court will use its best endeavours to comprehend the award contextually and purposively, and not be overzealous to condemn the award.
In reviewing the Awards, the High Court was satisfied that the Awards were adequately reasoned as they set out preambles and preliminaries, the parties’ contentions and evidence, the findings, and dealt with costs and interests in specific paragraphs of the Awards.
The Awards also included this paragraph:
“I have carefully considered the evidence adduced as a whole and based on the submissions received from the parties, I have isolated and narrowed the issues of fact and crystallised the issues of law that are to be decided by me to the following. Where the issues are related, I have taken them together and dealt with them accordingly.”
The High Court construed this to mean that the arbitrator had considered all the parties’ submissions in her findings. Even if the reasons are not explicitly expressed in the findings, they are deem inferred and incorporated into the findings from the relevant submissions of either party in support of the findings.
If the Claimant had doubt as to how the arbitrator made her findings, or if the reasons were allegedly not sufficiently particular, the Claimant should have sought the arbitrator to interpret the Awards under section 35(1)(b) of the Act. Having chosen not to do so, it is premature and fatal for the Claimant to challenge that the Awards are inadequately reasoned.
The High Court also followed the earlier decision of Tanjung Langsat Port Sdn Bhd v Trafigura Pte Ltd & Another case [2016] 4 CLJ 927, which held that the duty to give reasons is not part of the rules of natural justice, and it is not a ground on which an arbitral award may be set aside.
Ultimately, the High Court found that the Claimant’s complaints were in reality complaints about issues of fact and/or law. These are not permissible grounds to set aside the Awards. They were complaints on the substantive merits of the findings and not about procedural irregularities committed by the arbitrator that led to breaches of natural justice. Having agreed to arbitration, the Claimant must accept and live with the Awards.
Corrective Award
Regarding the Corrective Award, the High Court found that the arbitrator accidentally duplicated one paragraph of one award, as a paragraph to another award. The High Court found this was “understandable” because the arbitrator was then simultaneously writing both Awards. This error was a “clerical or typographical error” that can be corrected under section 35 of the Act. Further, the corrections were only regarding the Summary of Findings, which did not alter the findings themselves.
Key Takeaways
Arbitrations often involve complex issues and numerous documents. It would be impossible for arbitrators to comprehensively deal with every possible argument and highlight every piece of evidence adduced, when writing their awards. What is a “reasoned award” should be liberally interpreted and not construed too narrowly to avoid creating an impossible standard for arbitrators.
In TMM Division Maritima SA de CV v Pacific Richfield Marine Pte Ltd [2013] SGHC 186, which was referred to by the High Court here, the Singapore High Court explained the danger of setting a high threshold for what amounts to a “reasoned award”, when taken to its logical extreme:
“There will be a challengeable deficit of reasons and explanations in most if not all arbitral awards because counsel can always come up with a further “why” question to any reason given for a conclusion. For instance, even if the arbitral tribunal states in its award that it considered a specific witness more credible than another because of their respective demeanour and confidence when responding to questions, it may then be queried in what way the former’s demeanour and confidence was more persuasive than the latter; even if that were the case, why does that justify believing the former’s evidence over the latter; did the arbitral tribunal compare and weigh the documentary evidence against the oral testimony, and if not, why not; and so on and so forth […] it would also encourage counsel to do precisely what Bingham J in Zermalt cautioned courts against doing, viz casting a meticulous legal eye and endeavouring to pick holes, inconsistencies and faults in awards …”
Ultimately, every arbitrator is entitled to craft the award in his or her own way so long as the award is complete, certain, cogent and enforceable. The arbitrator does not have to address every position put forward by the parties, but can choose the argument the arbitrator deems necessary for consideration.
***
This article was written by Donovan Cheah (Partner) and Lim Zi-Han (Senior Associate). Donovan has been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific for 2017-2022, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.
