Malaysia | Case Note: EK Integrated Construction Sdn Bhd v Rimbunan Melati Sdn Bhd

In EK Integrated Construction Sdn Bhd v Rimbunan Melati Sdn Bhd (Originating Summons No. WA-24C(ARB)-3-01/2020), the High Court had the opportunity to consider an application pursuant to section 41 of the Arbitration Act 2005 (“AA”). 

Section 41 provides for any party to make an application to the High Court to determine any question of law arising in the course of the arbitration with the consent of the arbitral tribunal or the consent of every other party.

Background Facts

The Defendant, Rimbunan Melati Sdn Bhd (“Rimbunan”), is the owner of a housing project. Rimbunan appointed the Plaintiff, EK Integrated Construction Sdn Bhd (“EK”), as its contractor to carry out piling, pile caps and column stumps for the said housing project. Rimbunan alleged that it discovered cracks in the houses in February 2011, and subsequently discovered in September 2011 that the cracks were caused by EK’s fraudulent concealment that the pilings driven by EK did not reach the prescribed depth. 

Rimbunan subsequently brought arbitration proceedings against EK to recover costs incurred by Rimbunan in carrying out rectification works. The arbitration was ongoing at the time of the filing of EK’s Originating Summons. 

EK’s Originating Summons sought an order for the issue of whether Rimbunan’s claims and/or causes of action as disclosed in the Statement of Claim are barred by limitation and ought to be dismissed in limine (“Proposed Question”) be referred to the High Court and, consequent thereto, for the Arbitrator to be directed to dismiss Rimbunan’s claims against EK.

Findings of the High Court

The High Court considered the Court of Appeal’s decision in

Bauer (M) Sdn Bhd v Kukdong Engineering & Construction Co Ltd [2016] MLJU 1779 which held that the High Court’s jurisdiction under section 41 of the AA is derived only when the question framed relates to a pure question of law arising in the course of arbitration. The High Court found that this principle is applicable notwithstanding the fact that both parties consented to the reference of the Proposed Question to Court under section 41(1)(b) of the AA. 

In examining the Proposed Question, the High Court considered the parties’ pleadings and found that since Rimbunan pleaded section 29 of the Limitatation Act 1953, the question as to when Rimbunan’s cause of action accrued depends on the finding of fact on whether EK had fraudulently concealed the fact that the pilings did not reach the required depth. As such, it is not a pure question of law as the material facts to be established are heavily disputed. 

The High Court proceeded to consider whether the Proposed Question arose in the course of the arbitration. The High Court held that the words “in the course of the arbitration” simply means that the question of law emanated during the arbitration proceedings at any point of time between commencement of arbitral proceedings until the date the Award is published. As the issue of limitation was first raised in the Statement of Defence after arbitration had commenced, the issue can be said to have arisen in the course of arbitration.

The High Court proceeded to consider section 41(2) of the AA which provides that the Court shall not consider an application under section 41(1) of the AA unless it is satisfied that the determination is likely to produce substantial savings in costs and substantially affects the rights of one or more of the parties. The High Court found that there were no averments on the matters stated in section 41(2) of the AA and in view of the express stipulation of section 41(2) of the AA, it was incumbent on EK to aver to these matters in its affidavits, which EK has failed to do so. 

Notwithstanding the High Court’s findings above, the High Court proceeded to consider the commencement date of arbitration proceedings and found that the commencement date was between 9 May 2016 and 6 June 2016 when EK received the Notice of Arbitration, and not 15 December 2017 as contended by EK where Rimbunan requested Ar. Lim Fang Keong to be the arbitrator as the PAM Rules did not apply. As such, the High Court found that in any event, Rimbunan’s claim was not time barred.  

As EK had failed to establish the Proposed Question is a question of law as required under section 41(1) of the AA and the requirements in section 41(2) of the AA have not been fulfilled, the High Court dismissed EK’s application. In any event, the Proposed Question is answered in the negative as EK has failed to prove on a balance of probabilities that Rimbunan’s claims and/or the causes of action are barred by limitation.

Conclusion

The decision by the High Court affirms the Court of Appeal decision in Bauer (M) Sdn Bhd v Kukdong Engineering & Construction Co Ltd [2016] MLJU 1779 that the High Court’s jurisdiction under section 41 of the AA is derived only when the question framed relates to a pure question of law arising in the course of arbitration. The decision also emphasises the necessity for a party making an application under section 41 of the AA to also comply with the provisions of section 41(2) of the AA by establishing through affidavit evidence that the determination is likely to produce substantial savings in costs and substantially affects the rights of one or more of the parties.