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[2000] Part 4 Case 13 [HCM] |
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www.ipsofactoJ.com/highcourt/index.htm
[2000] Part 4 Case 13 [HCM] |
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HIGH COURT OF MALAYA |
Sum-Projects (Brothers) Sdn Bhd
- vs -
Bina
Jati Sdn Bhd
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Coram FAIZA TAMBY CHIK J |
18
JANUARY 2000 |
Judgment
Faiza
Tamby Chik, J
This case arises out of a building contract in PAM Form between the plaintiff as employer and the defendant as main contractor for a hotel and hotel apartment project in Port Dickson. The articles of agreement and conditions of contract are set out in Exh S1 to Sum Weng Kuan's affidavit of September 8, 1999. The conditions of contract contain an arbitration Clause 34(1), which states that all disputes shall be referred to arbitration.
The defendant applied to the President of PAM for the appointment of an arbitrator. The arbitrator, Mr. Khoo Choong Keow was appointed by the President of PAM. The plaintiff has to date not signed the letter of appointment of the arbitrator.
On March 10, 1998, the defendant determined its employment as contractor pursuant to Clause 26(1)(a) without prejudice to its other remedies for non payment of certified sums amounting to RM6,992,831.95.
On March 11, 1998, the defendant served a statutory notice under s 218 of the Companies Act on the plaintiff in respect of the certified sums of RM6,992,831.95. The plaintiff contested the validity of the defendant's termination notice by letter dated March 12, 1998 and urged the defendant to continue and complete the works. However the plaintiff by letter dated April 8, 1998 gave their own notice terminating the defendant's employment under Clause 25(1)(b) of the conditions of contract.
Thereafter,
the plaintiff in Kuala Lumpur High Court (Commersail Division) O.S. No
D2-24-129-98, took steps to restrain the defendant from bringing a
winding-up petition based on the statutory demand. Finally the Judge in
those proceedings found for the plaintiff on the basis that there were
grounds for contesting liability as at the date of the statutory demand, and
issued the restraining order. The Judge's judgment dated November 12, 1998
gives the full grounds of decision.
Both before and after the first set of High Court proceedings, the plaintiff always insisted that the arbitration clause should be honoured and all disputes referred to arbitration, viz:
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Mac 20, 1998 |
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Plaintiff's letter to defendant's solicitors', 'your clients is bound by the arbitration agreement'. |
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Mac 20, 1998 |
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Plaintiff gives arbitration notice referring all disputes. |
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Mac 25, 1998 |
: |
Plaintiffs solicitors raise UOL issue, and still insists on arbitration. |
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Dec 02, 1998 |
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Plaintiff's solicitors refer to their arbitration notice and proposes arbitrators' names. |
By
their letter dated December 18, 1998, the defendant's solicitors agreed to
refer all issues to arbitration and proposed names of arbitrators.
Thereafter as the parties were unable to agree on the appointment of
arbitrator, the defendant applied on January 5, 1999 at the plaintiffs
suggestion to the Kuala Lumpur Regional Centre for Arbitration (KLRCA) for
appointment of arbitrator pursuant to the arbitration clause. It should be
stressed that at this stage, the parties were fully ad idem
that all disputes arising out of the contract should be dealt with by
arbitration. On January 22, 1999, the KLRCA appointed Mr. Khoo Choong Keow
as arbitrator, and his first preliminary meeting was held on March 30, 1999.
At this meeting a detailed 'case management' programme was mapped out by the
arbitrator. There was absolutely no suggestion of any limitation on the
arbitrator's authority, or of any intention of referring matters back to
court. The statement of claim (S/C) was filed by the defendant (as claimed
in the arbitration) on April 23, 1999. This claim raised inter alia
the following issues which are summarized at p 41 of the S/C:
a
claim for RM8,799,995.77 in respect of architect's certificate of
payment under certificates 14-19.
a
claim for RM3,791,713.94 being the balance of work carried out by
defendant but uncertified as at date of termination (including
RM1,345,500 retention money);
a
claim for extension of time (EOT) for Package A up to December 3, 1997,
or that the claimant had completed Package A within a reasonable time;
that
the claimant is entitled to reasonable EOT to complete Package B;
claim
for reimbursement of RM808,000 liquidated damages (LAD) wrongfully
deducted;
the
sum of RM510,000 acceleration costs, resulting from acceleration at
plaintiffs request;
the
sum of RM2,834,313.30 being 'direct loss and expense' claims made
pursuant to Clauses 11 (6) and / or 24(1) as a result of variations
ordered by the architect and delay and / or disruptions;
the
sum of RM40,000 being loss of profits claimed under Clause 26(2) of the
contract;
interest;
general
damages; and
costs.
On May 21, 1999, Messrs Skrine & Co who had hitherto been the plaintiffs solicitors gave notification that they were discharging themselves as the plaintiffs solicitors. Subsequent to this the arbitrator called a second preliminary meeting, on June 10, 1999. At that meeting, where the plaintiff was unrepresented, they were given an extended time until August 9, 1999 to file their defence and counterclaim.
On July 1, 1999, the plaintiff's current solicitors gave notice to the arbitrator that they would be making an application to the High Court to revoke the authority of the arbitrator on grounds that they wished to raise issues which would "not be suitable for arbitration and would certainly be out of the ambit of arbitration", and hence any further steps in the arbitration would be under protest and without prejudice. It should be noted that this is the first occasion that the plaintiff ever gave any indication that they did not agree to all disputes to be dealt with by arbitration in accordance with the contract.
On
August 9, 1999, the plaintiff filed their defence and counterclaim in the
arbitration proceedings. As regards the defendant's claims for payment under
certificates 14-19 (see para [7].a above), the plaintiff pleaded that these
moneys were not payable to the defendant but to UOL Factoring Sdn Bhd (UOL)
by virtue of the undertaking given by the plaintiff to UOL dated May 20,
1997 and the letter from UOL to the plaintiff dated June 12, 1997. In
addition to their defence to the S/C the plaintiff has raised a large number
of issues by way of counterclaim which are summarised in paragraph 178 of
the defence and counterclaim. These include inter alia:
a
declaration that the claimant had wrongfully terminated the contract;
a
declaration that the claimant had procured the contract by means of
fraud;
a
declaration that the claimant had negligently performed its obligations
under the contract;
a
declaration that the architect's certificate was false and fraudulently
made and not conclusive;
quantified
claims arising out of defendant's alleged wrongful termination
consisting of:
cost
of completion of work by new contractor;
increased
cost of scope of work undertaken by new contractor;
interest;
LAD
for packages A and B;
Loss
of revenue;
quantified
claims arising from the defendant's alleged defective work and the need
to rectify the same;
damages
for fraud and fraudulent misrepresentation by the defendant architect
engineer;
damages
for negligence by the defendant / engineer;
interest;
and
costs.
On
August 30, 1999, the defendant filed their reply and defence to counterclaim
in the arbitration proceedings. On September 8, 1999, the plaintiff filed
the OS in these proceedings, accompanied by the affidavit of Sum Weng Kuan
(Sum affidavit No 1), asking for the following relief:
a
declaration that the disputes between the plaintiff and the defendant
under the building contract are not arbitrable;
an
injunction to restrain the defendant from proceeding with arbitration;
the
authority of the arbitrator be revoked;
arbitration
proceedings be stayed pending the decision of the court.
It
should be noted that prayers (a), (b) and (c) effectively represent the
final orders sought in the OS while (d) deals with interim relief.
The
OS was served on the defendant on September 29, 1999 and on the arbitrator
on October 4, 1999. Meanwhile on October 1, 1999, the plaintiff filed their
reply to the defence to counterclaim in the arbitration, thus bringing the
pleadings to close. On October 8, 1999, the arbitrator held the third
preliminary meeting. At this meeting the plaintiff proposed that in the
light of the court proceedings, which were fixed for hearing on November 25,
1999, the arbitration proceedings should be stayed. The arbitrator indicated
he would give a ruling on this application but in the meanwhile, the
arbitration proceedings should continue. He then fixed a revised 'case
management' or 'gearing up' programme for the months of October, November
and December which included directions on:
documents;
statements
of agreed facts;
Scott
schedule (statement of issues);
witness
statements.
This
programme was to be completed by December 29, 1999, preparatory to the first
hearing date of the arbitration due to take place on January 12, 2000.
On
October 15, 1999, the arbitrator notified the parties of his decision that
the 'gearing up' programme should continue for the time being unless
otherwise ordered by the court; he further indicated that he would then
reconsider the matter at a further pre-hearing review scheduled for December
30, 1999, when he would reconsider the matter if the court had not made a
decision by that date. Since then, the plaintiff has not complied with the
arbitrator's directions on 'gearing up' but instead filed the
summons-in-chambers in these proceedings pending the hearing of the OS on
November 25, 1999. The summons-in-chambers (SIC) was then heard by the High
Court on November 13, 1999 and a temporary stay granted to stay the
arbitration proceedings until the hearing of the OS on November, 25 1999.
The SIC was supported by Sum Weng Kuan's affidavit affirmed on October 22,
1999 (Sum affidavit No 2).
In
the OS, the plaintiff is firstly seeking a declaration that the disputes
between the plaintiff and the defendant under the building contract are not
arbitrable. This raises the issue of the arbitrator's jurisdiction. Sum
affidavits No 1 and No 2 clarify the plaintiffs stand that the arbitrator
has no jurisdiction to deal with the following issues:
the
issue raised by the defence that payment of certified sums are due to
UOL and not the defendant (the 'UOL issue');
allegations
of fraud and fraudulent misrepresentation;
allegations
of negligence against the defendant;
claims
for declaratory relief;
claims
for injunctive relief; and
joinder
of the architect and engineer as defendants.
The defendant has raised s 34(2) which excludes the jurisdiction of this court under the Arbitration Act 1952. However, it is observed that s 34 of the Arbitration Act has not been referred to in the defendant's affidavits. Section 34(2) of the Arbitration Act does not apply. In order to exclude the jurisdiction of this court there must be strict compliance i.e. the arbitration must be "under the rules of the Regional Centre". These words do not appear in Clause 34(1) of the contract. Under the conditions of contract at Clause 34(1) - only the second paragraph for appointment by PAM was deleted and substituted for appointment by KLRCA (the Centre). Paragraph 3 for arbitration under the Arbitration Act 1952 remains. Clause 34(1) merely says that the Centre will be appointed for use of the facilities and assistance of the centre. The rules of the centre have not been incorporated.
Anyone can be appointed by the Centre and the parties accept the appointment only. Parties are not bound by the rules of the Arbitration Centre. The appointment of the arbitrator makes no reference to the KLRCA rules. It is also observed that at the first preliminary meeting, the parties have agreed that the arbitration is not under the KLRCA rules. It is the Arbitration Act that applies. The clause in the case of Sarawak Shell Bhd v PPES Oil & Gas Sdn Bhd [1998] 2 AMR 1914 referred to by the defendant is different; it incorporated the rules of the KLRCA.
In
Klockner lndustries-Anlagen GmbH v Kien Tat Sdn Bhd [1990]
3 MLJ 183, a dispute arose between the parties, and according to Clause 37
of the contract the dispute has to be settled by arbitration in accordance
with the rules for arbitration of the Regional Centre for Arbitration in
Kuala Lumpur ('the arbitration centre'). In Soilchem Sdn Bhd v
Standard-Elektrik Lorenz AG [1993] 3 MLJ 68 the court held, allowing the
respondent's application and ordering that the proceedings commenced by the
applicant be struck out: The policy of s 34(1) of the Act was obviously to
exclude cases that are before the Regional Centre for Arbitration from
intervention by the court. Section 34(1) was meant to and does exclude the
jurisdiction of the court, including the jurisdiction to quash by way of certiorari.
It is noted here that from the enclosures filed herein many issues have arisen which are outside the jurisdiction of the arbitrator, for example payments on architects certificates & assignment, fraud & collusion of defendant and others and allegations of misconduct against the architect and engineer. This can be perused from the detailed counter claim filed by the plaintiff. The fact that the defendant disputes these allegations is irrelevant. The allegations have to be tried and the question is who should or can try them: the court or the arbitrator?
The plaintiff however maintains that these matters are outside the arbitrator's jurisdiction. The plaintiff also contends that the authority of the arbitrator should be revoked and the arbitration clause should cease to have effect.
After the present OS was filed and a copy delivered to the arbitrator, the plaintiff at the preliminary meeting No 3 held on October 8, 1999 ruled that he would proceed with the arbitration minus the issues outside his "purview". Exh S 25 in Encl 3 p 51 is a letter from the arbitrator dated October 5, 1999 which reads as follows:
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KHOO
Choong Keow, Chartered Arbitrator 2B, Jalan Mesra2, Taman Mesra, 40150 Shah Alam, Selangor,
Malaysia
Tel:603-5591855 Fax:603-5592362 E-mail: wmksb(S)..po.iaring.my My
Ref: KCK/A/ARB/66
15th October 1999
Dear
Sirs, IN THE MATTER OF AN ARBITRATION BETWEEN BINA JATI AND
SUM-PROJECTS (BROTHERS) SDN
BHD Order
for Directions: Continuation of Arbitral
Proceedings With
reference to Preliminary Meeting No.3 held on 8 October 1999 I am to
make a ruling on the question of the continuation of the arbitral
proceedings. This
question has arisen due to Respondent having filed an application to
the Court to have the disputes referred to the Court instead of
having them arbitrated. During
Preliminary Meeting No.3 the Parties' oral submissions (on whether
to continue with arbitration) dealt with issues of jurisdiction and
arbitrability (fraud, assignment and joinders) balance of
convenience, estoppel and delay to the arbitral proceedings. The
first two issues now lie at Court by virtue of respondent's
application to Court and therefore it is not within my purview to
consider these issues. The remaining issues may also very likely be
argued at Court it is only necessary and open to me to consider
whether continuation of the arbitral proceedings could lead to much
abortive work in the event the arbitration proceedings are to be
terminated and the disputes referred to Court. To-date
the pleadings are completed and the revised schedule issued at
Preliminary Meeting No.3 sets out the schedule for pre-hearing
preparatory work including Discovery, Exchange of Lists of
Documents, Bundles of Documents, Statement of Agreed Facts, Scott
Schedules and Witnesses' Statements. All these are scheduled to be
completed in stages between the present time and 29 December 1999. Respondent
submitted that all proceedings should be held in abeyance pending
the outcome of Court hearing on their application scheduled for 25
November 1999. Claimant opposed the motion, staling that none of the
pre-hearing preparatory work will be wasted as the same would still
need to be done by the Parties if the disputes should go to Court. I
have perused the pleadings and found that included therein are
numerous issues of fact which will require proof, much of this in
documentary form consisting of the contract, certificates,
valuations, correspondence and expert reports on defects. Therefore
I am in favour of Claimant's argument that the preparatory work will
not be wasted, whatever the outcome of Respondent's application. In
view of the above I hereby order that all pre-hearing preparatory
work shall continue up to 29 December 1999 unless otherwise ordered
by the Court on or after 25 November 1999. As
for the continuation of the arbitral proceedings into the hearing
stage, scheduled to commence in January 2000, I will consider the
matter closer to the hearing date if by then the Court shall not
have issued any order. In that event Parties should prepare
themselves to submit on this matter at the Pre-Hearing Review
scheduled on 30 December 1999. Yours
faithfully, Sgd: C.K.
Khoo Arbitrator |
I am of the opinion that the High Court has jurisdiction to entertain this application. Section 25(2) of the Arbitration Act 1952 provides:
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Where an agreement between any parties provides that disputes which may arise in the future between them shall be referred to arbitration, and a dispute which so arises involves the question whether any such party has been guilty of fraud, the High Court shall, so far as may be necessary to enable that question to be determined by the High Court, have power to order that the agreement shall cease to have effect and power to give leave to revoke the authority of any arbitrator or umpire appointed by or by virtue of the agreement. |
Paragraph
11 of the Schedule to the Courts of Judicature Act 1964 provides additional
power to the High Court to dismiss or stay proceedings where by reason of
multiplicity of proceedings, the proceedings ought not to be continued. In
any event the High Court can invoke its inherent powers under Order 92 r 4
to make any order as may be necessary to prevent injustice. In the instant
case the plaintiff should not be harassed by succession of proceedings as
they have the threat of a winding-up.
In Compagnie Europene de Cereale SA v Tradox Export SA [1986] 2 Lloyd's Rep 301, at pp 304 and 305 Hobhouse J said:
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To
examine first the res judicata argument. If what Tradax are
seeking to do is to litigate or arbitrate a second time before a
different forum a matter already decided between the parties in this
court, CEC has an equitable right to have the further proceedings
restrained. The aggrieved party has an equitable right not to be
harassed by successive proceedings; it is unconscionable (Castanho
v Brown & Root (UK) Ltd [1981] Lloyd's Rep 112; [1981] AC
557, British Airways Board v Laker Airways Ltd [1984]
3 AII ER39). ...... CEC are accordingly able to say that the procedure they have adopted is appropriate. They have, it is true, run two strands together; in one action they have both raised the relevant issue for determination by the court and simultaneously asked for an injunction to prevent the arbitrators from deciding it. This is a questionable practice but nevertheless the remedy of Tradax was clear. They could have applied for a stay of the action in so far as it attempted to litigate an issue which the parties had agreed to refer to arbitration. They never made any application for a stay. The time has passed when it was open for them to do so. They cannot now make any complaint about the court deciding the matter and granting CEC appropriate relief. |
In the instant case it must be borne in mind that the plaintiff took all steps under protest. In the plaintiffs solicitors' letter dated June 25, 1999 it is stated inter alia;
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We write to request that this meeting be deferred to the 5th, 6th or 9th of July instead. This is due to the fact that the Counsel who shall be conducting this matter, Mr. RR Sethu will be engaged in East Malaysia on the 30.6.99 and subsequently on the 2.7.99. The Respondent intends to raise a few preliminary matters which shall require the attention of the Tribunal. |
It
must be remembered that even appearing without protest and participating
does not preclude a challenge to jurisdiction. In the instant case the
plaintiff has not even signed the letter of appointment of the arbitrator.
Arbitration should be consensual.
In Bauer (M) Sdn Bhd v Daewoo Corporation [1999] 4 AMR 4557 at p 4577, the Court of Appeal stated:
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To begin with, it is important to recognize that the foundation of an arbitrator's jurisdiction is the agreement entered into between the disputants. Absent such an agreement, there is no jurisdiction. And as a general rule mere participation in proceedings before an arbitrator does not cure any jurisdictional defect. Accordingly, a party who appears with or without protest and takes part in proceedings before an arbitrator is not precluded from later challenging the award of such arbitrator on the ground of lack of jurisdiction. |
In
the circumstances of this case, I am of the view that the courts have
inherent jurisdiction to restrain the arbitral proceedings. It is not a case
of meddling. The court is acting consistently with the ruling of the
arbitrator. The arbitrator has himself ruled that part of the dispute is
outside his purview. And that ruling is binding on the parties. Any ruling
made at any stage is binding.
In Hartecon JV Sdn Bhd v Hartela Contractors Ltd [1996] 2 AMR 1457, the Court of Appeal said at p 1466:
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Although that was a decision made on an interlocutory matter which was purely procedural in nature it was nevertheless binding on the court and on all parties to the lis until its reversal on appeal. In our judgment the decision of the learned Judge overruling the respondent's preliminary objection rendered the point taken res judicata. |
In Tan Lay Soon v Kam Mah Theatres Sdn Bhd [1992] 1 AMR 30 at p 37, the court stated:
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... it is trite law that a decision given by a court at one stage on a particular matter or issue is binding on it at a later stage in the same suit or in a subsequent suit. (See Peareth v Marriott, Hook v Administrator-General of Bengal, In the matter of trusts of the will of Tan Lye (deceased); Yap Liang New v Tan Yew Ghee) Nor may parties raise for a second time in the suit an issue that has already been determined expressly or by necessary implication. (See Louis Drefus v Arunanchala Ayya.) |
The arbitrator has considered that he cannot deal with all the issues as some are not within his purview. The defendant is bound. It was clear that the arbitrator would not even deal with the issue of fraud. The defendant cannot now say that it is within the arbitrator's jurisdiction. The defendant had not challenged that ruling in any proceeding. The present application by the plaintiff complies with the ruling. Third parties involved in the dispute are not subjected to the arbitration clause. Hence the entire dispute ought to be dealt with in one proceeding before one tribunal and that is the High Court. In Beaufort Developments Ltd v Gilbert-Ash Ltd [1998] 2 WLR 860 at p 878 Lord Hope of Graighead said:
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In
Taunton-Collins v Cromie [1964] 1 WLR 633, 636 Pearson LJ
said that in that case there was a conflict between two well
established principles. One was that parties should normally be held
to their contractual agreements. Where the parties have agreed that
any dispute or difference between them should be referred to
arbitration the court should be willing to say by its decision what
the parties have already said by their contract. The other principle
was that a multiplicity of proceedings was highly undesirable. In
that case it was the principle of avoiding a multiplicity of
proceedings which prevailed. The effect of the decision of the Court
of Appeal in the Crouch case has been to reverse the result
of balancing these two principles. But that case also, it may be
said, involved the application of two well established principles.
The first is that which was expressed in these terms by
Browne-Wilkinson LJ [1984] QB 644, 667: In principle, in an action based on contract the court can only enforce the agreement between the parties; it has no power to modify that agreement in any way. |
Moreover disputes between parties cannot be divided so that part is dealt with by arbitration and another part in court. In Turnock v Sartoris (1889) 43 Ch D 150, the Court of Appeal held that:
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.. .that it would not be right to split up the action by referring to arbitration the matters arising under the lease, leaving the action to proceed as to the other matters, and that even if the arbitration clause could be construed so widely as to cover all the matters in respect of which damages were claimed, it would not be proper to refer them to an arbitrator, as he would have no power to determine the construction of the agreement and its effect upon the provisions of the lease: |
and at 156 Cotton LJ said:
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Then it was contended that at all events the question arising under the lease was the principal matter in dispute, and that it ought to be referred, leaving the action to proceed only as to matters not arising under the lease. I think that such a course would not be right. It cannot be right to cut up this litigation into two actions, one to be tried before the arbitrator, and the other to be tried elsewhere. Even if the arbitration clause should be construed so as to include all matters in respect of which damages are claimed by the plaintiff, yet I should not think it right to refer the case to arbitration, because there are questions arising as to the construction of the agreement and its effect on the provisions of the previous lease, and these questions would not come within the powers of the arbitrators. I think it would not be reasonable to refer the case to an arbitrator who could only deal with the questions arising under the lease, and would not be competent to deal with other questions which might arise under a reference referring to him all matters which are in difference between the parties. Whether or not it will be reasonable, when the plaintiff knows what the defence put in by the defendants is, to refer the whole matter, is another question. |
That is precisely the position in the instant case. The same applies where some are parties and others are not parties to the arbitration. All must consent to arbitration. In Oxford Shipping Co Ltd v Nippon Yasen Kaisha (The Eastern Saga) [1984] 3 All ER 835, it is stated that:
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Since arbitration is a private procedure it is an implied term of an arbitration agreement that strangers to the agreement are excluded from the hearing and conduct of an arbitration under the agreement. In the absence of the consent of all parties an arbitrator has no power to order that a dispute referred to arbitration under the agreement be heard or determined with another dispute involving a stranger which has been referred to arbitration under a different agreement, even though the two disputes are closely related and a consolidated hearing would be convenient. Accordingly, an arbitrator cannot, unless all parties consent, order that the arbitration of a dispute between a ship owner and related dispute between the charterer and sub-charterer arising out of a sub-charter under the charter be heard together, see p 842 n to d, post. |
And at p 841 Leggatt J made the following observations and held:
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In
the subsequent case of Abu Dhabi Gas Liquefacyion Co Ltd v
Eastern Bechtel Corp [1982] 2 Lloyd's Rep 425 at 427-428 Watkins
LJ made some comments that bear on the point now before me. He said: But
there can be no doubt, it seems to me, that, having regard to the
submission which impugns the holding of two separate arbitrations
and to the merits of there being only one, a wide discretion as to
the conduct of the arbitrations should be granted to the single
arbitrator by the parties or insisted upon by himself. The ideal
solution to the manner of resolving the issues involved here would
have been a proceeding by way of arbitration which closely resembles
our civil action in which plaintiff and defendant and third and
other parties litigate all disputes between them in a single
hearing. Unhappily the parties to this vast dispute are unable to
agree (sic) a procedure of that kind. That
comment clearly proceeds on an assumption that in default of
agreement between the parties, the imposition of the procedure would
not be possible. In
lnterbiilk Ltd v Aiden Shipping Co Ltd, The Vimeira [1984] 2
Lloyd's Rep 66 at 75 in the Court of Appeal Robert Goff LJ concluded
his judgment by making observations about the desirability of there
being a power to order consolidation. He said: It
is, I believe, well known that related arbitrations can arise out of
the same factual dispute. Indeed, disputes between owners and
charterers on the one hand and charterers and sub-charterers on the
other hand with regard to damage suffered by the ship at a loading
or discharging port provide a classic instance of such a situation.
Yet English law provides at present no power either to arbitrators
or the court to ensure that both arbitrations will be considered by
the same tribunal either at the same hearing or at immediately
succeeding hearings to avoid the danger of inconsistent awards.
There is for example, no means of ordering consolidation of two such
related arbitrations. A solution to this problem is, I believe, to
be found in the arbitration law of Hong Kong, but not in the English
Arbitration Acts. I have no doubt that those who are responsible for
proposing and formulating amendments to our arbitration laws have
this point well in mind, but the present case will, I trust, provide
an additional impetus and urgency to the efforts now being made to
fill this gap in our law. I
am told that there is, or may be, a Bill now before Parliament which
would make provision of the kind contemplated by Robert Goff LJ.
That, however, is of no avail to the parties to the present
proceedings. Finally,
and even more recently, in World Pride Shipping Ltd v Daiichi Chu
Kisen Kaisha (6 February 1984, unreported), Lloyd J in a
judgment of which only a draft is available said this: The
inconvenience of, multiple arbitrations though it exists can be
exaggerated. The problem is not a new one and London arbitrators
have evolved ways of reducing the inconvenience, and limiting the
risk of conflicting decisions by hearing arbitrations together, or
one immediately after the other. True, this presupposes cooperation
between the parties. It
seems to me that, as is graven on the heart of any commercial
lawyer, arbitrators in the position of these arbitrators enjoy no
power to order concurrent hearings, or anything of that nature,
without the consent of the parties. The concept of private
arbitrations derives simply from the fact that the parties have
agreed to submit to arbitration particular disputes arising between
them and only between them. It is implicit in this that strangers
shall be excluded from the hearing and conduct of the arbitration
and that neither the tribunal nor any of the parties can insist that
the dispute shall be heard or determined concurrently with, or even
in consonance with another dispute, however convenient that course
may be to the party seeking it and however closely associated the
disputes in which he had been appointed. They cannot be extended
merely because a similar dispute exists which is capable of being
and is referred separately to arbitration under a different
agreement. For
these reasons, in my judgment the plaintiffs are right and I shall
grant the order sought, namely that the arbitrators' order of March
5, 1983 that the hearing of the arbitration between the plaintiffs
and the defendants take place concurrently with that between the
defendants and Sanko be set aside. If arbitration proceeds on the limited issues then there is a likelihood of separate and inconsistent findings. The court may find that the certificates had been assigned or that the certificates were fraudulent and invalid while the arbitrator might order payment. |
In Taunton-Collins v Cromie [1964] 1 WLR 633 the Court of Appeal held:
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Held,
dismissing the appeal, that in view of the undesirability of
separate proceedings, the official referee had properly exercised
the discretion given by s 4 of the Arbitration Act, 1950, to refuse
to stay the claim against the contractors. Per
Lord Denning MR. If the two proceedings should go on independently,
there might be inconsistent findings. The decision of the official
referee might conflict with the decision of the arbitrator. Per Pearson LJ. In this case there is a conflict of two well-established and important principles. One is that the parties should normally be held to their contractual agreements. The other principle is that a multiplicity of proceedings is highly undesirable. |
And at p 637 Lord Denning MR. said:
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In this case there is a conflict of two well established and important principles. One is that parties should normally be held to their contractual agreements. The present parties, the employer and the building contractors, have agreed that any dispute or difference between them shall be referred to arbitration. It can be said in support of the application there that that is what the parties have agreed, and when the question is brought before the court the court should be willing to say by its decision what the parties have already said by their own contract. That is one principle. The other principle is that a multiplicity of proceedings is highly undesirable for the reasons which have been given. It is obvious that there may be different decisions on the same question and a great confusion may arise. Mr. Finer also was able to point out the serious procedural difficulties which might arise if there was an arbitration between two parties and an action between different pa-ties. It would be difficult to know who should call the third party as a witness in either of the proceedings concerned. Moreover, this is not a case in which an employer wishing really to sue the contractor and primarily interested in suing the contractor adds the architect as a second defendant in order to avoid the arbitration clause. This is not a case of that character at all. This is a case in which the primary action is against the architect. The employer sued only the architect in the first instance, and would have continued to sue only the architect but for the fact that the architect in his defence put the blame for certain matters on the building contractors. When that had happened, the only reasonable course for the employer to pursue was to add the contractor as a second defendant. That is a very well-established practice in other classes of litigation, and was the reasonable thing to do. |
The above case shows the undesirability of multiplicity of proceedings.
In The Eschersheim [1976] 1 Lloyd's Rep 210, there was a salvage operations off the coast of Spain following a collision between a Sudanese ship and a West German ship - the Sudanese ship beached on the Spanish coast and became a total loss and caused subsequent pollution - action in Spain pending against owners of the Sudanese ship and salvors - whether claims within jurisdiction of Admiralty Court - whether by the terms of LIoyd's salvage agreement claims should be decided by arbitration - whether court should exercise its discretion and stay proceedings in England - Arbitration Act 1950, s 4(1), where the decision of Brandon J was affirmed by the Court of Appeal, where before him motions to set aside or stay proceedings in two related actions in rem and held as to (b) on multiplicity of proceedings, the fact that there had to be proceedings both in Spain and England did not seem to be any reason for duplicating proceedings in Spain and England - the decisive factor was the need to avoid duplication of proceedings in England with all the, consequences with regard to delay, additional costs and the risk of conflicting decisions which such duplication would involve; accordingly, the court would exercise its discretion by refusing a stay in either action. The Court of Appeal held:
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(3) |
there
were no grounds for interfering with the Judge's decision that the
application for a stay should be refused for he had exercised his
discretion in the proper way (see p 89, col 2; p 90, col 1; p 92,
col 2). Appeal dismissed. Leave to appeal to the House of Lords refused. |
In
the instant case, the defendant had assigned the proceeds of the
certificates to UOLF as from certificate No 8. The defendant then issued a s
218 notice as a step to wind-up the plaintiff for non-payment of a debt for
payments allegedly due on the architect's certificates. The plaintiff
challenged that notice and obtained an injunction restraining the
presentation of any winding-up petition. Abdul Aziz J granted the
injunction. The defendant then lodged an appeal to the Court of Appeal.
However, on December 16, 1999 at the end of submissions by both parties,
counsel for the defendant, Mr. Davidson submitted that the defendant is
abandoning their said appeal against Aziz J's decision in the Court of
Appeal.
I am of the opinion that the findings of Abdul Aziz J are material. In his judgment he said inter alia that:
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The
architects started to issue their interim certificates in July 1996. To go by the date in the caption of a letter at p 165 of the defendant's affidavit dated April 8, 1998, on November 22, 1996 a factoring agreement was entered into. It was between the defendants and UOL Factoring Sdn Bhd ("UOLF") and involved an assignment which was affected payments under the interim certificates. It is common ground that the effect of the assignment on payments under the interim certificates started with payment under interim certificate No 9 issued on April 28, 1997, five months after the date of the factoring agreement. ..... Now as their first ground for disputing the defendants' claim, the plaintiffs say that at the date of service of the statutory demand, March 11, 1998, they were not liable to pay the defendants any amount under interim certificates Nos 15 to 18 because all sums due under those interim certificates, as was also the case with those under previous interim certificates Nos 9 to 14, had been assigned to UOLF. If at all they were liable for any sum under interim certificates Nos 15 to 18, it would be to UOLF and not the defendants. ..... The plaintiffs have also exhibited UOLF's statements of account in respect of the plaintiffs which show that UOLF claimed the entire amounts of interim certificates Nos. 15 and 16 as having been assigned to them by the defendants and as debts payable by the plaintiffs. Learned counsel for the defendants admitted that he had no answer to those pieces of evidence. ..... The other point to note about UOLF's letter dated April 8, 1998 to the defendants is that in the second paragraph of that letter UOLF confirmed that payment under interim certificates Nos 17 and 18 (issued on December 23, 1997 and January 1887 respectively) and all other subsequent certificates "were not assigned by you to us". The meaning of the clause is ambiguous. If it was intended as a statement of the scope of the assignment according to the factoring arrangement, it was contrary to what has been seen about the scope in the three letters mentioned earlier, which had in mind all receivables due presently or in the future. The clause could also mean to say that the assignment was to cease and had ceased from interim certificate No 17. If that was the intention, the clause would have no legal effect on the position under the factoring arrangement because, according to the indications given by the three letters, the plaintiffs were to continue bound to pay UOLF until UOLF notified the plaintiffs to the contrary, and the letter dated April 8, 1998 was not such a notification to the plaintiffs and at any rate was written way after the date of the statutory demand. |
It
must be noted that in a dispute involving payments on certificates, the
assignee is a necessary and proper party; if there was the assignment, the
defendant cannot claim any sum from the plaintiff. If any sum is claimed,
then the validity of the assignment is in issue. It is observed that despite
being challenged the defendant did not produce the assignment. In the
instant case, the assignee, UOLF is not and cannot be made a party to the
arbitration because UOLF is not a party to the arbitration clause, and
arbitration is consensual, and third party proceedings are inapplicable to
arbitration proceedings.
The fraud alleged here is falsity of the certificates for payment and fraudulent misrepresentation by the defendant that work was done when in fact was not done. This is dishonesty. See Paragraph 28 of the affidavit of Sum Weng Kuan affirmed on September 8, 1999. It states:
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Pursuant to the above, the plaintiff without prejudice to its right to make the present application had submitted a counterclaim to the statement of claim alleging, amongst others: |
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(a) |
issues on fraud and misrepresentation by the defendant in their attempt to falsify their claims for payment from the plaintiff; |
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(b) |
that the defendant had intentionally and fraudulently colluded with the then Architect, M/S Zone Architect in their attempt to falsify the defendant's claims for payment from the plaintiff by issuing false Architect's Certificates; |
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(c) |
the plaintiff is also counter claiming for damages and loss for negligence against the defendant, the Architect-M/S Zone Architect and the then Engineer M/S L&W Perunding arising from the collapse of the roof of the main building of the set Works on 27.5.99. |
The
fact that the certificate was issued by the architect, does not render as
true what is false. The court clearly has a discretion to refer to a stay of
proceedings in court where there are allegations of fraud. The principle
also applies where one seeks to revoke the arbitrator's authority.
In Camilla Cotton Oil Co v Granadex [1976] 2 Lloyd's Rep 20, the House of Lords held:
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(2) |
since the dispute involved the question whether any party had been guilty of fraud, the matter ought to be heard in the High Court rather than by arbitrators and s 24(2) of the Arbitration Act 1950 applied. |
In Markholm v AM Bisley & Lotus [1970] NZLR 1042 Beattie J held:
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Held,
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where
fraud is not denied it involves moral obliquity.
In Eagle v NIMU Insurance Co [1967] NZLR 698, where if a question of fraud on the part of one of the parties is likely to arise as a relevant and material issue in a submission to arbitration it is appropriate for the court to order on the application of the party accused of fraud that the submission shall cease to have effect so far as may be necessary to decide whether the party accused is guilty of fraud and on p 703 Richmond J said:
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The first question then is whether the present dispute involves the question whether the appellant has been guilty of "fraud". In my opinion this requirement will be satisfied if a question of fraud on the part of the appellant is likely to arise as a relevant and material issue. "Fraud" is not defined in the Act. The question whether the appellant had any honest belief in the answers given by him in the claim form is a question of "fraud" in the ordinary meaning of that word. As a finding of fact on the information disclosed by the affidavits in the circumstances of this particular case I think it likely that the respondent will endeavour to establish that false answers were given either knowing them to be false or without honest belief in their truth, and thereby to bring the case within the requirement of "moral obliquity" stipulated in FAME Insurance Co Ltd v McFadyen (supra). In saying this I am not expressing any opinion as to whether or not that case was correctly decided. I go no further than to say that the existence of that decision renders it probable that the respondent will endeavour to establish facts bringing the case within the law as stated by the learned Chief Justice. |
In
the instant case, the arbitrator has himself recognised in his ruling at p
51, Encl (3) that he cannot deal with those allegations hereinbefore
mentioned.
Allegations have also been made against the consultants. They are not parties to the arbitration. Even if the arbitration clause applied, the courts have consistently ruled that allegations of professional incompetence, negligence and misconduct are to be dealt with in court. Such allegations are akin to fraud. In Radford v Hair [1971] 2 All ER 1089 Pennycuick VC held:
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The defendants' application for a stay would be dismissed and the action allowed to proceed because the defendants' allegations, by imputing to the plaintiff actual dishonesty and impugning his professional reputation, were akin to have his case tried by a judge in open court (see p 1092 b, e and j and p 1093 b, c and f post). |
and said at p 1093:
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Turning back to the present case it seems to me that the allegation summarised in paragraph 4(d) of the affidavit does certainly impute to the plaintiff actual dishonesty. It alleges, first, that he has been engaged on behalf of clients one of whom was merely a private company in which he had an interest; secondly, that he made a false statement as to the anticipated profit of the branch; and thirdly, that he made a false statement concerning a certain arrangement with Essex and Suffolk Properties Ltd. Those are all contentions involving actual dishonesty. They also necessarily involve his professional reputation as any charge of dishonesty must do. It is quite true that fraud is not specifically mentioned in that sub-paragraph, but it seems to me to bring the case within the principle on which an allegation of fraud is to be regarded as sufficient reason for taking the case away from arbitration and letting it be decided by the court. The principle must be equally applicable in a case where actual dishonesty is alleged, even though the word ' fraud' is not mentioned, and that be at least as much so, in the case where professional reputation is involved, as in any other case. |
That
case expresses a proposition in definite terms that false statements are
fraud involving actual dishonesty.
In Turner v Fenton [1986] 1 WLR 52 where attacks on professional reputation requires a trial in open court, the Chancery Division held:
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(2) |
That where allegations of incompetence, negligence and impropriety were made so that a man's professional reputation was at stake, he ought to have the benefit of a trial in the High Court, even though no allegations of actual fraud or dishonesty were involved; further, that questions of the construction of a partnership agreement were also justification for retaining a case in the High Court despite an arbitration agreement, and, accordingly, the stay of proceedings would be refused and the action allowed to proceed in the High Court (post, p 63C-D, H-64D). |
On pp 55, 61, 62 and 64 Warner J said:
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The
plaintiff accepts that there is here a relevant arbitration clause
in the partnership agreement, and that the dispute between himself
and the defendants is within the scope of that clause. But he
contends that there are a number of grounds on which I should be
satisfied that there is sufficient reason why the matter should not
be referred to arbitration in accordance with the partnership
agreement, but should proceed in the High Court. He therefore
contends that I should exercise my discretion under s 4 of the Act
and refuse to stay the proceedings. He relies on two main grounds
and some subsidiary grounds. His first main ground, as formulated by Mr. Bishop, is that charges are being made by the defendants against the plaintiff of a personal character, alleging fraud and / or dishonesty and / or incompetence which reflect on him as a solicitor. That entitles the plaintiff, says Mr. Bishop, to trial in public before a High Court Judge, and also to have an opportunity to appeal on fact. There is, indeed, clear authority that if allegations of fraud or dishonesty are made against a plaintiff, the matter ought to be allowed to proceed in the High Court. ..... It
will be sufficient to say that,
in the present case, the allegation of unfaithfulness is of
such a character that to my mind it does clearly involve an
allegation of dishonesty. I do not think one can escape from the
principle laid down in the cases of which I have cited merely by
saying that because the allegation is, on the face of it, an
allegation of breach of contract it is not an allegation of fraud or
dishonesty. I conclude that the plaintiff is entitled to have this case tried by a judge in open court so that he can meet these allegations of dishonesty against him. |
Viscount Maugham said, at p 141:
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My Lords, in my view this is a somewhat special case, and I think that it ought not to be regarded as an encouragement to litigants to appeal in ordinary cases from such an order as we are now considering. Your Lordships have carefully perused the pleadings, from which the fact emerges that the case is one which involves serious allegations of personal negligence, and in particular of gross dereliction of professional duty, against a firm of estate agents and surveyors. The vital importance of this circumstance arises from the fact that since the Administration of Justice Act 1932 came into force no decision of an official referee can be called in question by appeal or otherwise except on a point of law. If the official referee should decide against the appellants, unless indeed he should wrongly decide a point of law, they will be helpless in the matter, and may have their professional reputation and prospects completely ruined. |
In Radford v Hair [1971] Ch 758, after referring to that case and citing the passage where Viscount Simon LC said [1942] AC 130, 137:
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The
allegations here are not of incidental negligence by servants for
whom the defendants must be regarded as responsible; what is
involved is the professional reputation of the partners themselves.
It has often been recognised that where a charge of fraud is
involved, the transfer of the decision from the High Court to an
arbitrator appointed under the terms of the contract, may properly
be resisted. ..... It seems to me that, in a case like the present, allegations of incompetence, negligence, impropriety and dishonesty, can shade into one another. I agree, of course, with Mr. Thomas's submission that there is no rule that an allegation of negligence against a professional man precludes arbitration. There is, however, a clear indication in Charles Osenton & Co v Johnston [1942] AC 130 that, where a professional man's reputation is at stake, he ought to have the benefit of a trial in the High Court. It is, at the end of the day, a matter of discretion, and I have come to the conclusion that in this case the plaintiff ought to be allowed to proceed with his action in this court. |
In
these circumstances I have come to the conclusion that I allow order in
terms of the plaintiffs application in Originating Summons dated September
8, 1999 in Encl (1).
Cases
Bauer (M) Sdn Bhd v Daewoo Corporation [1999] 4 AMR 4557; Tan Lay Soon v Kam Mah
Theatres Sdn Bhd [1992] 1 AMR 30;
Beaufort Developments Ltd v Gilbert-Ash Ltd [1998] 2 WLR 860; Camilla Cotton Oil
Co v Granadex [1976] 2 Lloyd's Rep 20; Compagnie Europenede Cereale SA v Tradax
Export SA [1986] 2 Lloyd's Rep 301; Eagle vNIMU Insurance Co [1967] NZLR 698;
"Eschersheim", The [1976] 1 Lloyd's Rep 210; Hartecon JV Sdn Bhd v Hartela Contractors Ltd [1996] 2 AMR 1457; Klockner Industries-Anlagen
GmbH v Kien Tat Sdn Bhd [1990] 3 MLJ 183; Markholm v AM Bisley &
Lotus [1970] NZLR 1042; Oxford Shipping Co Ltd v Nippon Yusen Kaisha (The
Eastern Saga) [1984] 3 All ER 835; Radford v Hair [1971] 2 All ER
1089; Sarawak Shell Bhd v PPE Soil & Gas Sdn Bhd [1998] 2 AMR
1914; Soilchem Sdn Bhd v Standard-Elektrik Lorenz AG [1993] 3 MLJ 68;
Taunton-Collins v Cromie [1964] 1 WLR 633; Turner v Fenton
[1986] 1 WLR 52; Turnock v Sartoris (1889) 43 Ch D 150.
Legislations
Malaysia
Arbitration
Act 1952: s.25(2), s.34(2)
Companies
Act 1965: s.218
Courts
of Judicature Act 1964: para.11 of Sch.
Rules
of the High Court 1980: Ord.92 r 4
United
Kingdom
Arbitration
Act 1950: s.4(1)
Representation
RR
Sethu and YS Leong (Low Hop Bing, Koh Kong & Associates) for Appellant
Bill
Davidson, PY Hoh and Steven Seah (PY Hoh & Tai) for Respondent
Notes:-
This decision is also reported at [2000] 3 AMR 3352
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