The Court of Appeal’s decision in Kasugi Prima Sdn Bhd v Cobrain Holdings Sdn Bhd (Civil Appeal Nos. W-02(C)(A)-1146 & 1147-07/2023) marks a significant reaffirmation of the principles governing arbitral discretion and the scope of natural justice in arbitration. This case primarily revolved around two key legal questions: (1) whether the arbitrator improperly relied on her own knowledge and expertise in determining the award, and (2) whether such reliance constituted a breach of natural justice. The Court of Appeal’s findings not only provide clarity on the interpretation of Section 21(3)(b) of the Arbitration Act 2005 (“AA 2005“), but also underscore the importance of a purposive, rather than overly literal, construction of statutory arbitration powers.
Background Facts
Kasugi Prima Sdn Bhd (“Kasugi“) was the main contractor engaged for the construction of Bank Rakyat’s new headquarters in Kuala Lumpur. Cobrain Holdings Sdn Bhd (“Cobrain“) was appointed as the subcontractor for the mechanical and electrical works through a Letter of Award dated 11 January 2010. The contract value was RM82.2 million. Initially, the contractual completion date was 31 December 2012, but due to various delays, the practical completion was only achieved in June 2014.
Kasugi claimed that Cobrain was responsible for the delays to the project and, in response, issued multiple set-offs, variation orders, debit notes, and imposed liquidated and ascertained damages (LAD). Based on these deductions, Kasugi asserted that Cobrain owed it a total of RM6.37 million. Cobrain, however, took the opposite view — it contended that the delays were not attributable to its performance, that time had become at large, and that Kasugi remained liable to pay a balance of RM8.99 million for completed works.
Cobrain initiated adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) and succeeded in obtaining an adjudication award of RM5.47 million. Kasugi’s attempt to set aside the award was unsuccessful. The dispute then proceeded to arbitration, which culminated in a 24-day evidentiary hearing. Subsequently, the arbitrator issued a final award in favour of Cobrain in the sum of RM7.49 million.
Kasugi then applied to the High Court to set aside the final award, claiming there had been procedural unfairness and a breach of natural justice. Cobrain, in turn, filed an applied to enforce the final award. The High Court dismissed Kasugi’s setting aside application and allowed Cobrain’s application. Dissatisfied with the High Court’s decision, Kasugi appealed.
Findings of the High Court
In dismissing Kasugi’s setting aside application, the High Court found no procedural impropriety in the arbitrator’s conduct. The High Court noted that Kasugi’s core complaint was that the arbitrator had impermissibly relied on her own technical expertise and had breached the principles of natural justice.
However, the High Court held that:
1. The arbitrator acted within the permissible limits of her authority in evaluating the expert evidence before her.
2. There was no indication that she introduced any external or undisclosed evidence into the decision-making process.
3. Her reference to her own knowledge did not amount to a breach of natural justice.
4. Kasugi’s reliance on Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd [2020] 12 MLJ 198 was misplaced, as the facts in that case were materially different.
The High Court found that the arbitrator was entitled to analyse and assess the expert evidence before her using her own expertise, as permitted under section 21(3)(b) of the Arbitration Act 2005. It agreed that the arbitrator had not introduced any new or extraneous evidence, and that her conclusions were derived from the materials adduced by the parties. Kasugi’s disagreement with the arbitrator’s findings did not, in itself, amount to a breach of natural justice warranting the setting aside of the award.
Findings of the Court of Appeal
The Court of Appeal, in a unanimous decision, affirmed the High Court’s findings and dismissed both appeals by Kasugi. The Court dealt with the issues under three primary headings:
Scope of Section 21(3)(b)
The Court was asked to determine whether Section 21(3)(b) of the AA 2005 permits an arbitrator to apply his or her own knowledge and expertise to substantive issues. The Court rejected the narrow interpretation proposed by Kasugi that the provision only relates to procedural matters.
Applying Section 17A of the Interpretation Acts 1967, the Court adopted a purposive construction. It cited with approval the Federal Court’s approach in Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd [2021] 1 MLJ 1, which emphasised the importance of interpreting legislation in a manner that advances its object and purpose.
The Court concluded that Section 21(3)(b) authorises an arbitrator to apply personal expertise when analysing technical evidence, including the evaluation of quantum and disruption claims. As long as the arbitrator’s expertise is used to assess the evidence already adduced and not to introduce new, extrinsic evidence, such use is legitimate.
Prematurity of Invocation
Kasugi argued that the arbitrator prematurely invoked Section 21(3)(b), particularly during the expert witness phase. However, the Court found that Kasugi had itself invited the arbitrator to rely on her expertise during submissions, particularly in relation to the classification and valuation of documents in Part C.
The procedural disagreements between the parties during arbitration did not preclude the arbitrator from exercising her discretion. The Court found that the arbitrator’s reliance on her own analysis did not go beyond the bounds of what was appropriate in the circumstances.
Breach of Natural Justice
Kasugi argued that the arbitrator’s use of her expertise resulted in a denial of the right to be heard. In particular, it argued that there was an element of surprise in the award which rendered it liable to be set aside under Section 37 of the AA 2005.
The Court, however, distinguished this case from Master Mulia, where the arbitrator had introduced two external documents into the record without disclosing them to the parties. In the present case, the arbitrator relied solely on materials that were already in evidence.
The Court referred to the Singapore Court of Appeal’s decision in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86, affirming that an arbitrator is not bound to adopt either of the parties’ positions in full and is entitled to exercise independent judgment, provided the decision is based on the evidence and arguments presented.
The Court also noted that the arbitrator provided reasons for preferring one expert’s analysis over another, and that her conclusions were grounded in the evidence presented. There was no procedural unfairness that would justify the setting aside of the award.
Comments
This case stands as a strong affirmation of the principles underpinning arbitral independence and the scope of an arbitrator’s discretion in Malaysia. It clarifies that under Section 21(3)(b) of the AA 2005, arbitrators are entitled to apply their own knowledge and experience not just to procedural matters but also in evaluating substantive issues—a particularly important point in technical disputes such as those in construction and engineering.
The Court’s reasoning reflects a purposive approach to statutory interpretation, demonstrating the judiciary’s commitment to promoting efficiency, autonomy, and finality in arbitration. It cautions against a rigid or literal reading of arbitration provisions that would otherwise hinder the effective resolution of complex disputes.
The decision also helps clarify when a party can challenge an arbitral award on the grounds of natural justice. It makes clear that simply being unhappy with the arbitrator’s conclusions is not enough — there must be real unfairness or some form of prejudice in the way the arbitration was conducted. The bar for setting aside an award remains high. The Court also explained why this case is different from Master Mulia, a well-known case where the arbitrator relied on outside evidence without telling the parties. In contrast, the arbitrator in Kasugi based her decision entirely on evidence that was properly presented during the proceedings.
Conclusion
The Kasugi decision highlights how Malaysian courts continue to support arbitration and are hesitant to overturn arbitral awards unless there are serious procedural problems. It confirms that arbitrators can use their own knowledge and judgment when assessing the evidence, as long as they act fairly and openly. This case reminds parties that arbitrators are not just referees who simply pick one expert’s opinion over another. Instead, they are expected to carefully consider all the evidence and make their own independent decisions.
Drawing the Line: When Does Arbitrator Expertise Go Too Far?
Introduction
The Court of Appeal’s decision in Kasugi Prima Sdn Bhd v Cobrain Holdings Sdn Bhd (Civil Appeal Nos. W-02(C)(A)-1146 & 1147-07/2023) marks a significant reaffirmation of the principles governing arbitral discretion and the scope of natural justice in arbitration. This case primarily revolved around two key legal questions: (1) whether the arbitrator improperly relied on her own knowledge and expertise in determining the award, and (2) whether such reliance constituted a breach of natural justice. The Court of Appeal’s findings not only provide clarity on the interpretation of Section 21(3)(b) of the Arbitration Act 2005 (“AA 2005“), but also underscore the importance of a purposive, rather than overly literal, construction of statutory arbitration powers.
Background Facts
Kasugi Prima Sdn Bhd (“Kasugi“) was the main contractor engaged for the construction of Bank Rakyat’s new headquarters in Kuala Lumpur. Cobrain Holdings Sdn Bhd (“Cobrain“) was appointed as the subcontractor for the mechanical and electrical works through a Letter of Award dated 11 January 2010. The contract value was RM82.2 million. Initially, the contractual completion date was 31 December 2012, but due to various delays, the practical completion was only achieved in June 2014.
Kasugi claimed that Cobrain was responsible for the delays to the project and, in response, issued multiple set-offs, variation orders, debit notes, and imposed liquidated and ascertained damages (LAD). Based on these deductions, Kasugi asserted that Cobrain owed it a total of RM6.37 million. Cobrain, however, took the opposite view — it contended that the delays were not attributable to its performance, that time had become at large, and that Kasugi remained liable to pay a balance of RM8.99 million for completed works.
Cobrain initiated adjudication proceedings under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”) and succeeded in obtaining an adjudication award of RM5.47 million. Kasugi’s attempt to set aside the award was unsuccessful. The dispute then proceeded to arbitration, which culminated in a 24-day evidentiary hearing. Subsequently, the arbitrator issued a final award in favour of Cobrain in the sum of RM7.49 million.
Kasugi then applied to the High Court to set aside the final award, claiming there had been procedural unfairness and a breach of natural justice. Cobrain, in turn, filed an applied to enforce the final award. The High Court dismissed Kasugi’s setting aside application and allowed Cobrain’s application. Dissatisfied with the High Court’s decision, Kasugi appealed.
Findings of the High Court
In dismissing Kasugi’s setting aside application, the High Court found no procedural impropriety in the arbitrator’s conduct. The High Court noted that Kasugi’s core complaint was that the arbitrator had impermissibly relied on her own technical expertise and had breached the principles of natural justice.
However, the High Court held that:
The High Court found that the arbitrator was entitled to analyse and assess the expert evidence before her using her own expertise, as permitted under section 21(3)(b) of the Arbitration Act 2005. It agreed that the arbitrator had not introduced any new or extraneous evidence, and that her conclusions were derived from the materials adduced by the parties. Kasugi’s disagreement with the arbitrator’s findings did not, in itself, amount to a breach of natural justice warranting the setting aside of the award.
Findings of the Court of Appeal
The Court of Appeal, in a unanimous decision, affirmed the High Court’s findings and dismissed both appeals by Kasugi. The Court dealt with the issues under three primary headings:
Scope of Section 21(3)(b)
The Court was asked to determine whether Section 21(3)(b) of the AA 2005 permits an arbitrator to apply his or her own knowledge and expertise to substantive issues. The Court rejected the narrow interpretation proposed by Kasugi that the provision only relates to procedural matters.
Applying Section 17A of the Interpretation Acts 1967, the Court adopted a purposive construction. It cited with approval the Federal Court’s approach in Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd [2021] 1 MLJ 1, which emphasised the importance of interpreting legislation in a manner that advances its object and purpose.
The Court concluded that Section 21(3)(b) authorises an arbitrator to apply personal expertise when analysing technical evidence, including the evaluation of quantum and disruption claims. As long as the arbitrator’s expertise is used to assess the evidence already adduced and not to introduce new, extrinsic evidence, such use is legitimate.
Prematurity of Invocation
Kasugi argued that the arbitrator prematurely invoked Section 21(3)(b), particularly during the expert witness phase. However, the Court found that Kasugi had itself invited the arbitrator to rely on her expertise during submissions, particularly in relation to the classification and valuation of documents in Part C.
The procedural disagreements between the parties during arbitration did not preclude the arbitrator from exercising her discretion. The Court found that the arbitrator’s reliance on her own analysis did not go beyond the bounds of what was appropriate in the circumstances.
Breach of Natural Justice
Kasugi argued that the arbitrator’s use of her expertise resulted in a denial of the right to be heard. In particular, it argued that there was an element of surprise in the award which rendered it liable to be set aside under Section 37 of the AA 2005.
The Court, however, distinguished this case from Master Mulia, where the arbitrator had introduced two external documents into the record without disclosing them to the parties. In the present case, the arbitrator relied solely on materials that were already in evidence.
The Court referred to the Singapore Court of Appeal’s decision in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR 86, affirming that an arbitrator is not bound to adopt either of the parties’ positions in full and is entitled to exercise independent judgment, provided the decision is based on the evidence and arguments presented.
The Court also noted that the arbitrator provided reasons for preferring one expert’s analysis over another, and that her conclusions were grounded in the evidence presented. There was no procedural unfairness that would justify the setting aside of the award.
Comments
This case stands as a strong affirmation of the principles underpinning arbitral independence and the scope of an arbitrator’s discretion in Malaysia. It clarifies that under Section 21(3)(b) of the AA 2005, arbitrators are entitled to apply their own knowledge and experience not just to procedural matters but also in evaluating substantive issues—a particularly important point in technical disputes such as those in construction and engineering.
The Court’s reasoning reflects a purposive approach to statutory interpretation, demonstrating the judiciary’s commitment to promoting efficiency, autonomy, and finality in arbitration. It cautions against a rigid or literal reading of arbitration provisions that would otherwise hinder the effective resolution of complex disputes.
The decision also helps clarify when a party can challenge an arbitral award on the grounds of natural justice. It makes clear that simply being unhappy with the arbitrator’s conclusions is not enough — there must be real unfairness or some form of prejudice in the way the arbitration was conducted. The bar for setting aside an award remains high. The Court also explained why this case is different from Master Mulia, a well-known case where the arbitrator relied on outside evidence without telling the parties. In contrast, the arbitrator in Kasugi based her decision entirely on evidence that was properly presented during the proceedings.
Conclusion
The Kasugi decision highlights how Malaysian courts continue to support arbitration and are hesitant to overturn arbitral awards unless there are serious procedural problems. It confirms that arbitrators can use their own knowledge and judgment when assessing the evidence, as long as they act fairly and openly. This case reminds parties that arbitrators are not just referees who simply pick one expert’s opinion over another. Instead, they are expected to carefully consider all the evidence and make their own independent decisions.
About the authors
Ooi Hui Ying
Partner
Dispute Resolution
Harold & Lam Partnership
[email protected]
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