10 December 2021

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T Kuhendran, Daniel Lau and Jasmeet Kaur from Zul Rafique & Partners’ Construction Dispute Resolution Practice Group, representing SJIC Bina Sdn Bhd (“Respondent”), succeeded in the Court of Appeal in opposing an appeal by Iskandar Regional Development Authority (“Appellant”) against the decision of the High Court in Iskandar Regional Development Authority v. SJIC Bina Sdn Bhd and another appeal [2020] MLJU 2391

The Respondent had initiated arbitration proceedings against the Appellant and obtained an award in the Respondent’s favour. The core issue in dispute determined in the arbitration was the interpretation of the contract, the Respondent arguing that it was a lump sum contract whilst the Appellant contended to the contrary that the contract was a cost plus model and therefore entitled the Appellant to unilaterally adjust the contract sum. The arbitrator agreed with the Respondent and found that as the contract was a lump sum, the contractor takes the risk in pricing. Accordingly, the Appellant’s adjustments to the contract sum were deemed a breach of contract and damages for the under-certified deductions was awarded to the Respondent in the sum of over MYR 16 million.

Dissatisfied, the Appellant filed an application in the High Court to set aside the arbitration award under section 37 of the Arbitration Act 2005 on the grounds that the Respondent was pocketing a “windfall” and unjustly enriching itself from the government’s coffers, which was purportedly contrary to public policy.

The High Court had dismissed the Appellant’s application and held that:-

there was no breach of the rules of natural justice amounting to a conflict with the public policy of Malaysia during the arbitral proceedings or in the making of the Award; and

whilst the Appellant had stated what constituted public policy, it had failed to show what exactly was in conflict with public policy; and

it is in the nature of a lump sum that the contractor takes both the risk of deviations in quantities where he makes a loss or as in here where quantities are less and the contractor gets a windfall profit. Where the concept of public policy is to be construed narrowly, there is nothing within the meaning of Jan De Nul that would shock the conscience. It does not amount to being injurious to the public good although public funds are involved.

The Appellant thereafter appealed against the judgment of the High Court, which was heard before the Court of Appeal on 25.11.2021. The Court of Appeal unanimously held that it found no error on the part of the High Court in dismissing the Appellant’s application as the Appellant had shown neither a public policy issue nor breach of natural justice to set aside the arbitration award. The Court of Appeal in its oral grounds stated that the issue is purely one of contractual interpretation and as the Arbitrator had found the contract to be a lump sum contract, that finding is not in breach of public policy.

For more insight into this area of law, please contact our Partners in the Construction Dispute Resolution Practice Group:
Kuhendran Thanapalasingam
Susan Tan Shu Shuen

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