SQA Builders Sdn Bhd Case: Repeal Of Section 42 & Taxation Of Arbitration Costs
In the recent case of SQA Builders Sdn Bhd v Luxor Holdings Sdn Bhd & Anor and other cases [2023] MLJU 459, the High Court determined the following issues:
a)SQA Builders’ application to enforce the arbitration award.
b)Luxor Holdings and Luxor YRM’s application to refer questions of law to the High Court via Section 42 of the Arbitration Act 2005 (AA 2005).
c)Luxor Holdings and Luxor YRM’s application to set aside the arbitration award.
d)SQA Builders’ application for taxation of arbitration costs.
The High Court considered whether the repeal of Section 42 applied retrospectively to all arbitral proceedings that commenced before 8 May 2018 but where the awards have yet to be delivered as of that date. The repealed Section 42 allowed parties to challenge an arbitral award by referring questions of law arising from the award to the High Court, provided that the questions of law substantially affect the rights of the parties.
Section 42 was repealed by the Arbitration (Amendment) (No. 2) Act 2018, which came into force on 8 May 2018. The repeal of Section 42 was done to limit judicial intervention and to promote finality in arbitral proceedings. This minimal intervention approach is in line with UNCITRAL Model Law.
Brief Facts
The arbitral proceedings in the SQA Builders case was commenced on 26 September 2017. However, the award was only delivered after the coming into force of the 2018 Amendment Act i.e. on 30 July 2021. Luxor Holdings and Luxor YRM filed their application pursuant to Section 42 on 6 September 2021. The question then arose as to whether the High Court has the jurisdiction to determine the application under Section 42.
The Law
In AMDAC (M) Sdn Bhd v BYD Auto Industry Co Ltd [2020] 11 MLJ 281, the High Court recognised that the 2018 Amendment Act did not expressly state if the repeal affected arbitrations still pending as at 8 May 2018, when the 2018 Amendment Act came into force. However, the court held that the repeal applied retrospectively to all arbitrations pending as at 8 May 2018. It was Parliament’s legislative intention to shut the door on Section 42 challenges in order to promote Malaysia’s profile as a safe-seat and arbitration-friendly jurisdiction and to adhere to international arbitration standards. The Court of Appeal affirmed the ruling in AMDAC However, there are no written grounds of judgment from the Court of Appeal.
The High Court in Tokio Marine Insurans (M) Berhad v Hi-Poly Industries Sdn Bhd [2020] MLJU 1446 referred to AMDAC and subsequently held that the right to invoke Section 42 vests only when the award was made and not when the arbitration was initiated.
Meanwhile, in Pembinaan Limbongan Setia Berhad v Josu Engineering Construction Sdn Bhd [2020] MLJU 192, the High Court held that the repeal of Section 42 applied prospectively. Where a repeal of written law affects substantive rights if applied retrospectively, prima facie that law must be construed to apply prospectively only.
In Johawaki Development Sdn Bhd v Majlis Agama Islam Wilayah Persekutuan and another Summon [2020] MLJU 660, the High Court held that an award must have been awarded before 8 May 2018 for Section 42 to apply. When the award in question was published on 14 December 2018, there was no award that Section 42 could apply to.
In Mammoth Empire Construction Sdn Bhd v Kenwise Sdn Bhd and another summons [2020] MLJU 1473, the High Court declined to follow the AMDAC case. The court held that the plaintiff’s right and the remedy under a Section 42 challenge vested upon the commencement of the arbitral proceedings.
Back To The SQA Builders Case
The High Court in SQA Builders held that the other High Court cases did not account for the effect of Section 23 of the AA 2005 read with Sections 30(1)(b) and 30(1)(d) of the Interpretation Acts 1948 and 1967 (IA 1948 & 1967). Section 23 provides that unless otherwise agreed by the parties, arbitral proceedings shall commence on the date on which a written request for the dispute to be referred to arbitration is received by the respondent. Essentially, Sections 30(1)(b) and 30(1)(d) provide that the repeal of written law shall not affect any rights accrued under the repealed law or affect remedies in respect of such rights.
The vested right and the remedy under Section 42 to refer questions of law to the High Court arises from the award. If Parliament intended for the repeal of Section 42 to apply retrospectively, Parliament would have expressly legislated to that effect in the 2018 Amendment Act. The wordings of Section 42(1) only suggest when a party may refer questions of law to the High Court. Therefore, the High Court had the jurisdiction to hear the application under Section 42.
Nevertheless, the High Court dismissed Luxor Holdings and Luxor YRM’s Section 42 application on the premise that some of the questions posed were not purely questions of law arising from the award. Pursuant to the Federal Court decision of Far East Holdings Bhd & Anor v Majlis Ugama Islam dan Adat Resam Melayu Pahang and other appeals [2018] 1 MLJ 1, Section 42 only permits the court to decide on questions of law. The court is not empowered to entertain questions of fact or questions of mixed fact and law.
Further, the court added that Luxor Holdings and Luxor YRM failed to satisfy the threshold requirement in Section 42(1A) for the questions of law arising from the award to substantially affect the rights of the parties. The High Court accepted SQA Builders’ contention that the Section 42 application by Luxor Holdings and Luxor YRM was an appeal in disguise.
The High Court dismissed Luxor Holdings and Luxor YRM’s application to set aside the award as the arbitrator had not decided on a matter which was beyond the scope of the terms submitted to arbitration. The High Court recognised the award in SQA Builders’ favour as binding and enforceable by entering a judgment in terms of the award.
Moreover, the arbitrator did not tax arbitration costs in the award. SQA Builders requested for the arbitrator to ta costs but did not do so within 30 days of receipt of the award pursuant to Section 35(4) of AA 2005. Luxor Holdings and Luxor YRM objected to the request for taxation, claiming that the arbitrator was functus officio after the award was delivered. SQA Builders did not request for taxation within the prescribed 30 days and by then, Luxor Holdings and Luxor YRM had filed their application to set aside the award. In response, the Arbitrator urged the parties to apply to the High Court for taxation of arbitration costs as the application to set aside the award would render the arbitrator’s taxation “impractical”.
The High Court held that the arbitral tribunal has a statutory discretion pursuant to Section 44(1) of the AA 2005 to tax costs, unless otherwise agreed by the parties. The arbitrator’s refusal to tax costs was an abdication of his statutory discretion and an unnecessary burden on the court. In the absence of the parties' agreement, the doctrine of functus officio does not bar the arbitrator's statutory power to tax arbitration costs. The court taxed arbitration costs on a “standard basis” according to Order 59 rule 16(3) of the Rules of Court 2012 i.e. a “reasonable amount in respect of all costs reasonably incurred” by SQA Builders in the arbitration.
Commentary
The SQA Builders case illustrates the divergence of judicial approaches to the applicability of Section 42 following its repeal. Cases such as AMDAC, Tokio Marine Insurans and Johawaki Development were of the view that the repeal of Section 42 was retrospective. This school of thought contends that it was Parliament’s intention for the repeal to apply retrospectively. The right and remedy under Section 42 accrues when the award is delivered. Therefore, so long as the award is delivered after 8 May 2018, parties are unable to rely on Section 42.
On the other hand, the cases like Pembinaan Limbongan Setia, Mammoth Empire Construction and SQA Builders suggest that the repeal of Section 42 does not affect arbitral proceedings commenced prior to 8 May 2018. These cases take this view because Parliament did not expressly provide for a retrospective application of the repeal. The right and remedy pursuant to Section 42 is vested when the arbitration proceedings commence.
As pointed out in SQA Builders, one High Court is not bound by another High Court’s decision. The Court of Appeal’s affirmation of AMDAC also has no written grounds and is therefore, not binding precedent. This divergence of authorities causes uncertainty on this point of law. Parties who commenced arbitral proceedings prior to 8 May 2018 but only receive their awards after that date may face some difficulty enforcing their awards.
The SQA Builders case further emphasises that statutory powers are not ceded by doctrines based on case law. Unless otherwise agreed by the parties, arbitrators have a statutory discretion to tax arbitration costs. Arbitrators are not precluded from their statutory discretion to tax arbitration costs by the doctrine of functus officio. The High Court further highlighted that leaving the taxation of costs to the court was an unnecessary burden on the court.
12 June 2023