by MH Law | October 31, 2024 | Case Spotlight
Overview
The Federal Court ruled that arbitration decisions made by judges must be documented in writing, not merely delivered orally. This important decision underscores the value of written rulings, which offer clarity, enhance transparency, enforeability and ensure that cases are handled with fairness and precision.
Case Background
In 2003, the Selangor State Government started the SELNET Project to connect government offices with fast internet. Obnet Sdn Bhd was chosen to carry out the project, with clear agreements setting out its goals.
In 2007, Obnet worked with Telekom Malaysia Berhad to handle the technical work through a special agreement, which included a clause to resolve problems through arbitration.
However, in 2008, problems with setting up the sites caused both agreements to end. This led to a legal dispute where Obnet accused Telekom of not paying properly and using its private data without permission.
Arbitration Proceedings
In arbitration, Obnet accused Telekom of using confidential project information wrongly, which caused the SELNET Agreements to end. Telekom responded by claiming Obnet owed them money under the Metro-E Agreement.
The arbitrator decided to handle the case in two parts—first deciding who was at fault (liability), and then figuring out how much money should be paid (quantum). In June 2020, the arbitrator said both sides had good claims, but delayed giving the final written decision until after the second part. Telekom disagreed with this delay.
Judicial Escalation
High Court
Telekom asked the High Court to cancel the arbitrator’s verbal decision and stop the case because there was no written award. The High Court disagreed, saying the arbitrator could wait until the end to issue a written decision.
Court of Appeal
Telekom appealed, but the Court of Appeal rejected it without giving a written explanation.
Federal Court
The Federal Court agreed to hear the case to decide if a verbal decision on who was at fault followed the rules of the Arbitration Act 2005 and whether the arbitrator could move on to the next part of the case without a written award.
Federal Court's Ruling
Requirement for Written Awards
The Federal Court ruled that, according to Section 33 of the Arbitration Act 2005 (AA 2005), all decisions (awards) must be written down, explained, and signed by the arbitrator. This ensures that the decision can be enforced and follows the law.
Issues with Oral Pronouncements
The Court found that verbal decisions are not valid for several reasons:
Section 33 clearly bans oral awards.
Written decisions are needed to make sure the award can be enforced.
Written decisions provide transparency, finality, and proper jurisdiction.
Consequences in Bifurcated Cases
In cases where the arbitration is divided into phases, like in this case (liability and quantum), a written decision for the first phase (liability) must be made before moving on to the next phase (quantum). If not, the case could be invalid.
Final Ruling
The Federal Court ruled in Telekom’s favor, saying the verbal decision on liability was invalid and that written awards are required to maintain the fairness and integrity of the arbitration process.
Comments
The Federal Court’s decision reinforces fundamental principles of arbitration but also introduces broader implications for arbitration practitioners and institutions:
Preserving Party Autonomy vs. Statutory Mandates
While arbitration champions party autonomy, this ruling highlights that such autonomy is not limitless. Arbitrators and parties must operate within statutory frameworks to uphold the enforceability of outcomes. This serves as a reminder that arbitration, although flexible, is not exempt from basic procedural safeguards.
Operational Implications for Arbitrators
Arbitrators must carefully manage bifurcated proceedings, ensuring compliance with statutory requirements at every stage. This includes issuing timely written awards where necessary. Non-compliance risks not only invalidation of awards but also challenges to the arbitrator’s competence and impartiality.
Balancing Efficiency and Legitimacy
The rationale for bifurcation often stems from a desire to streamline arbitration. However, this decision underscores that efficiency cannot come at the expense of procedural legitimacy. Written awards at each stage may introduce delays, but they safeguard the process’s integrity and enforceability.
Implications for Contract Drafting
Parties drafting arbitration clauses should consider explicitly addressing requirements for interim and final awards. Clear stipulations in agreements can mitigate ambiguities and preempt procedural disputes.
Key Takeaways
The Federal Court’s decision in Telekom Malaysia Berhad v. Obnet Sdn Bhd clarifies the critical importance of written awards in arbitration. It underscores that following statutory requirements is essential for ensuring fair, transparent, and enforceable arbitration. This ruling will shape future arbitration practices by reinforcing the need to uphold both efficiency and the rule of law, reminding all parties of their responsibilities in maintaining procedural integrity.
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