Lavania & Balan Chambers

Introduction

 

The Federal Court in Telekom Malaysia Berhad v. Obnet Sdn Bhd [2024] CLJU 2268 examined the significance and enforceability of oral pronouncements made by an arbitral tribunal in proceedings which have been bifurcated and governed by the Arbitration Act 2005 (“AA 2005”) and the Asian International Arbitration Centre Rules 2021 (“AIAC Arbitration Rules 2021”). Specifically, the court addressed whether an oral decision on liability, as a determination on the substance of the dispute, constitutes a valid decision under the AA 2005.

 

Brief Background Facts

 

In 2003, Obnet Sdn Bhd (“Obnet”) entered into agreements with the Selangor State Government to establish a high-speed broadband network known as the SELNET Project. Subsequently, in 2007, Obnet appointed Telekom Malaysia Berhad (“Telekom”) to design and build a network infrastructure for the SELNET project. Obnet and Telekom thereafter entered in a Metro Ethernet Services Agreement which contained a clause mandating arbitration for dispute resolution.

 

The SELNET Project faced issues that led to the termination of the agreements in 2009. Consequently, Obnet commenced an arbitration against Telekom, in which Telekom mounted a counterclaim. The arbitration proceedings were bifurcated in that the Arbitrator, a former judge, would first determine the issue of liability, and thereafter, in the event liability is established, he will hear and determine the issue of damages in respect of Obnet’s claim and/or Telekom’s counterclaim.

 

In June 2020, the Arbitrator delivered an oral decision on liability, allowing both Obnet’s claim and Telekom’s counterclaim (“Oral Decision”). However, the Arbitrator informed both parties that there was no requirement for him to deliver a written award at that stage. Instead, the Arbitrator informed parties that the practice of the High Court should be followed, where a written judgement is only published at the conclusion of the hearing on quantum.

 

The High Court

 

Dissatisfied with the Arbitrator’s approach, Telekom filed an originating summons in the High Court seeking, among others:

 

1. A declaration that the Oral Decision is invalid; and
   
   
2. An order restraining Obnet from taking further steps to proceed with the arbitration proceedings until the Arbitrator publishes an award on his determination on the issue of liability.

 

The High Court dismissed the originating summons. The High Court held, among others, that:

 

1.  By virtue of Section 21 of the AA 2005, the Arbitrator has the discretion to determine the manner in which the arbitration proceedings are to be conducted. There was no evidence before the court to indicate that when the Arbitrator decided to bifurcate the proceedings, the Arbitrator must deliver a written award after the hearing on liability was complete;
   
   
2. Telekom could not insist on a written award to be delivered on the liability issue as it made no complaints that the decision of the Arbitrator to bifurcate the proceedings breached natural justice; and
   
   
3. The AA 2005 does not require the Arbitrator to immediately publish his award after determining the issue of liability. Therefore, Telekom was found to have been estopped from insisting for a written award in respect of the Oral Decision. The High Court found that estoppel cannot be raised to negate the operation of a statutory provision as the AA 2005 does not prohibit the issuance of one final award at the end of the arbitration proceedings.

 

The Court of Appeal affirmed the High Court’s decision.

 

The decision of the Federal Court

 

Telekom obtained leave to appeal to the Federal Court on the following question of law:

 

“Where an arbitral tribunal directs proceedings be bifurcated (with liability to be heard and decided first followed by determination of quantum, if liability is established), whether an oral pronouncement by the arbitral tribunal on liability is sufficient to (i) amount to a decision on liability and (ii) entitle the arbitral tribunal and parties to proceed with a determination of quantum, in a case where the arbitration is governed by:

 

(a)       the Arbitration Act 2005; and

 

(b)       the AIAC Arbitration Rules 2021.”

 

In answering the said question of law, the Federal Court first considered the definition of “award” in Section 2 of the AA 2005 which provides as follows:

 

“… a decision of the arbitral tribunal on the substance of the dispute and includes any final, interim or partial award and any award on costs or interest but does not include interlocutory orders…”

 

In considering Section 2 of the AA 2005, the Federal Court held that there can only be two types of decision that can be delivered by an arbitral tribunal, namely:

 

1. A decision on the substance of the dispute (which constitutes an award and must be delivered in the form prescribed for an award); and.
   
   
2. A decision on procedural or interlocutory matters.

 

The Federal Court then went on to consider whether the Oral Decision was a decision on the substance of the dispute. In doing so, the Federal Court discussed the meaning of “interlocutory orders”, which it found to refer to orders made by an arbitral tribunal dealing with procedural issues such as scheduling hearings, security for costs and discovery.

 

In view of this, the Federal Court found that the Oral Decision was clearly not an interlocutory order but was a final determination on liability in the dispute between the parties. In other words, the Oral Decision was a decision on the substance of the dispute and was thus an award within the meaning prescribed in the AA 2005.

 

Therefore, being a decision on the substance of the dispute, the Oral Decision must be published in the form of an award as mandatorily required under Sections 2 and 33 of the AA 2005. Section 33 of the AA 2005, among others, mandates that an award must be in writing.

 

The Federal Court found that Section 33 of the AA 2005 excludes the possibility of the Arbitrator making an oral award as any award in any other form than that prescribed in Section 33 will necessarily be invalid. As such, the Federal Court held that the AA 2005 does not recognise an oral award as being an award under the Act as there is no express provision enabling an arbitrator to give an oral decision on matters which are the substance of the dispute.

 

Further, the Federal Court also found that the AA 2005 did not grant the Arbitrator a discretion to defer or delay the publication of an award, given that the Arbitrator becomes functus officio on the issue of liability upon delivering his decision on liability.

 

The Federal Court concluded by finding that the High Court and Court of Appeal had erred in holding that the AA 2005 does not prescribe a timeline for an award to be published, and that the Arbitrator can publish an award on liability at the end of the arbitral proceedings. Therefore, the Federal Court held that given that the Oral Decision made by the Arbitrator on liability is a final determination on liability, he must comply with the requirements of the AA 2005 and must publish a written award.

  

Comments

 

While it may be tempting to adopt court procedures in arbitration proceedings, this case clarifies that it is not prudent to do so. Unlike court proceedings, arbitration proceedings are governed by the AA 2025. It is therefore essential for arbitrators and arbitration practitioners alike to adhere strictly to the provisions of the AA 2005 and the applicable arbitration rules when conducting their arbitrations.

 

In this regard, this case clarifies that where an arbitral tribunal decides on an issue dealing with the substantive rights of the parties which is essential to the substance of the dispute, such decision will amount to an “award” within the meaning of the AA 2005 capable of enforcement. Therefore, pursuant to Section 33 AA 2005, a written award must be issued by the tribunal adhering to the requirements thereunder.

 

This article is authored by Balan Nair Thamodaran (Partner) and Reuben Raphael Joseph (Senior Associate) of the Construction, Arbitration and Adjudication Practice of Lavania & Balan Chambers. It contains general information only. The contents are not intended to constitute legal advice on any specific matter nor is it an expression of legal opinion and should not be relied upon as such.