This article attempt to demonstrate how a scenario requiring a ‘legal advice’. The scenario given is fictional, but the application of law mirrored real event. Any resemblance of the character in this scenario, to anyone alive or dead or any institution existed or non-existent, is purely coincidental.
 
[SCENARIO]: ‘Sure-win’ and ‘Must-win’ enter into a contract issued by ‘Malu-Usia’ Society of Project-Managers (“MSPM”), hereinafter ‘MSPM-Form’. The form contains an exclusion clause fine-printed, “parties are held to rely on their judgement when using this form of contract and MSPM takes no liability whatsoever to anyone in connection with the usage of the form”. The dispute clause contained therein, state “Any dispute[1], arising out of or relating[2] to this contract, shall be finally determined[3] by arbitration, by applying to the President of Malu-Usia’ Society of Project-Managers (“MSPM”) to appoint an Arbitrator, in accordance with the MSPM Arbitration Rules in force at the time of the commencement of the arbitration.”
 
Parties went into dispute. Sure-win commence arbitration by an application to MSPM President, as they cannot agreed to one another on the candidate of the arbitrator. The parties foresee that an ‘institutionalize administered arbitration’ would be fair and just. An arbitrator was appointed and the proceeding went on as usual. The counsel of ‘Must-win’ found out that the constitution of incorporation of MSPM in accordance with the Society Act of Malu-Usia, does not contain any provision that MSPM can accord any services of alternative dispute resolution (‘ADR’). In fact, all statutes of Malu-Usia mirrored those of the Malaysian Law. The counsel pose a challenge that due to the alleged dysfunctional of the dispute clause, his client Sure-win’s position has now been prejudiced on the basis that he has been misled fraudulently by MSPM through the use of the MSPM-Form. ‘Sure-win’ is contemplating to sue MSPM.
 
You are appointed by MSPM. Discuss on the point of law, the legal implications of both your client and Sure-win.
 
To consider the legal implications of both Sure-win and MSPM, [THE ISSUES] are: foremost, whether MSPM has the jurisdiction to provide services beyond what has been incorporated in its object of incorporation in accordance to the law? If so, whether MSPM breaches the law? If so, whether the MSPM President has the power to appoint arbitrator for the parties as in accordance to the provision of the dispute clause? If so, whether the President is acting on its personal capacity in such an appointment or in the office of the MSPM President? If so, whether the President has acted in ‘ultra vires’ against the object of the society he represented? If so, whether the dispute clause is dysfunctional due to the illegality of the dispute clause itself on the context of the severe lack of inherent jurisdiction of the society to provide such services? Is it not an ad-hoc arbitration that the MSPM President is at liberty to choose who he wishes? If so, whether the party has been fraudulently misled? Ultimately, who is liable?
 
[THE LAW] holds that: foremost, a society cannot provide any means of services that is not prescribed in its objects of incorporation.[4] Further, the law also provided that, a President is an individual who acted in its capacity as representative of the society as an ‘office-bearer’ in accordance to the Act.[5] In addition, the law provides that ‘misrepresentation’ is, being an unambiguous ‘false statement of facts’[6], addressed to the party misled[7], inducing the ‘victim’ into entering a contract.[8] However, the law[9] assumes that one commits fraudulent[10] misrepresentation, which is a criminal offence[11], and the burden of proof is vested upon the defendant[12]. As for the ‘fine-prints’, the law allows that terms can be incorporated by notice, where it must be given before the time of concluding the contract[13], terms must be contained/referred in the document[14] i.e. contractual[15], reasonable steps be taken to bring the term[16] to the party’s attention[17] i.e. a ticket[18] must be explicit[19], with a clause not in-front of ticket (not incorporated)[20], reference to clause is obliterated (not incorporated)[21], reference to a website (incorporated)[22], and ‘more unusual and unreasonable’ is the clause, higher degree of notice is required[23]. Finally, the issue of illegality in contract law, it holds that illegality comes in different ‘sizes and shapes’ and it is difficult to categorise. Generally, it covers ‘commissioning of a legal wrong’ or ‘contracts against public policy’[24].[25] Illegality affect the contract in two ways, ab-intitio as to its formation[26] and ‘in the performance’[27], i.e. whether a party entitle to sue to recover losses despite the illegality[28], on such basis he was unaware of the illegality[29]? What if the party has knowledge about the illegality, he is unable to sue.[30] The subject of the contract is made illegal ab-intitio, i.e. against the law[31].
 
[THE EVIDENCE] shows that: MSPM’s object of incorporation, does not contain any provision that MSPM can accord any ADR services. If so, whether the President is acting on its personal capacity in such an appointment or in the office of the MSPM President? By the act of the MSPM President, he in his capacity as an office-bearer, not representing himself, but the society[32] and has acted ‘ultra-vires’ against the object of the society[33]. Thus, whether MSPM has the jurisdiction to provide services beyond what has been incorporated in its object of incorporation in accordance to the law? The short answer is, ‘no’ as the law forbade it. [34] If so, whether MSPM breaches the law? MSPM has not only crossed the law, the society is tantamount to be deregistered.
 
If so, whether the MSPM President has the power to appoint arbitrator for the parties as in accordance to the provision of the dispute clause? Although the dispute clause require the President to appoint arbitrator, it is evidence that MSPM itself has no provision to accord ADR services. As such an illegal act cannot be contracted. [35]
 
If so, whether the President has acted in ‘ultra vires’ against the object of the society he represented? The President of MSPM has taken unto his own hand to perform an illegal act, on behalves of the society, knowing well that he has not accorded with the jurisdiction to do so. The powers [jurisdiction] has to be laid down from the constitution to the office-bearer.[36] In its absent, where is the power to act?
 
If so, whether the dispute clause is dysfunctional due to the illegality of the dispute clause itself on the context of the severe lack of inherent jurisdiction of the society to provide such services? The original intent and purpose of the dispute clause is not dysfunctional. But arising from the illegality of performance by the President of MSPM, in breaching the very fundamental Act of the incorporation of the society, the dispute-clause, which is by itself a formal contract. The question of is severability[37] in this case is irrelevant. Thus the object of a contract [dispute resolution services] cannot be illegal. Such consistent with the recent ruling that holds the dispute clause is governed by the law of contract, not the seat.[38] Thus, the question how can such dispute clause, drafted so carefully to avoid any ‘pathological defects’ can be dysfunctional? The short answer, is the ‘act of appointing the arbitrator’ itself is made illegal, given this context.     
 
Is it not an ad-hoc arbitration that the MSPM President is at liberty to choose who he wishes? The evidence shows that foremost, parties cannot agreed to one another on the candidate of the arbitrator, so they went to MSPM for institution administered arbitration. The parties foresee that an ‘institutionalize administered arbitration’ would be fair and just. This consideration, in itself, is res ipsa loquitur[39] that arbitration is to be held as an instruction administered arbitration, not ad-hoc.
 
The evidence shows that the constitution of incorporation of MSPM does not accord any ADR services to be rendered. This lead to the next question, if so, whether the party has been fraudulently misled? It is undoubtedly, a contract exist between the user of the form and MSPM. The law holds that ‘misrepresentation’ is, being an unambiguous ‘false statement of facts’[40], addressed to the party misled[41] and the law[42] assumes that one commits fraudulent[43] misrepresentation, which is a criminal offence[44], and the burden of proof is vested upon the defendant[45]. Has the President aware of such false statement? Has he not aware of the constitution of the society he holds as office-bearer? Obviously, he has committed a crime.
 
Ultimately, who is liable? The evidence shows that ‘Sure-win’ position has now been prejudiced on the basis that he has been misled fraudulently by MSPM by virtue of the MSPM-Form. In the said form, it was fine-printed, “parties are held to rely on their judgement when using this form of contract and MSPM takes no liability whatsoever to anyone in connection with the usage of the form”. Can this be said to be an ‘exclusion clause’ for liabilities against MSPM? The law holds that terms can be incorporated by notice, where it must be given before the time of concluding the contract[46] and ‘more unusual and unreasonable’ is the clause, higher degree of notice is required[47]. Since the exclusion term is incorporated in the document[48], although as a fine print, it is legible and constitute a valid exclusion clause. In other words, contract advisors who does not strike out the dispute clause and replace with another more legitimate arbitrator appointing institution, had the greater chances to be liable. Notwithstanding such the MSPM with its entire retinue of office-bearer are criminally liable as to the effect of the breaches to the Act. Criminal offences cannot be contracted out.
 
[Concluding]: The fundamental breach is where the office-bearer, has been contracted to act illegally against the Act. The legal impacts are not only the dispute clause made dysfunctional, but include therein criminal offences and contractual liabilities to the contract advisors, namely Project Managers, Architects and QSes. Thus, caveat emptor.[49]
 
POSTSCRIPT: Upon reading this article, Contract Advisors will have a field day of striking off and amending the dispute clauses, by making sure the institutionalize arbitrations are legitimate in accordance to the law, while lawyers with adverse award, will be lining up in court to set aside due to unenforceability and the police will start knocking at the door of the ‘illegal society’.

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[1] Asia International Arbitration (‘AIAC’) model dispute-clause: ‘any dispute, controversy, difference or claim arising […], including the performance, breach, termination or invalidity thereof, as well as any non-contractual claims’
[2] International Commercial Court (‘ICC’) model dispute-clause: ‘or in connection with’
[3] ICC model dispute-clause: ‘settled’
[4] S. 13.(1)(c)(iii) Societies Act 1966 (‘SA1966’): ‘[the Registrar] may, in the following cases, cancel the registration of any society registered […] (c) if the Registrar is satisfied – (iii) that the society is pursuing objects other than the objects with which the society is registered;’
[5] S.2 SA1966: ‘office-bearer: means any person who is the president […]’
[6] Kleinwort Benson v LincolnCC.[1999]2AC349
[7] Brennon v Bolt[2004]EXCACiv1017
[8] Renault v Fletpro[2007]EWCH2541
[9] Hedley Byrne v Heller[1964]AC465
[10] Derry v Peek(1889)14AppCas337
[11] Barclays Bank v O’Brien[1994]1AC180
[12] Esso v Mardon[1976]QB801
[13] Olley v Marlborough Cort[1949]1KB532
[14] Chapleton v BarryUDC[1940]1KB532
[15] Taylor v GlasgowCorp.(1952)SC440.21
[16] Wilkes v Jessop(2007)CLY795
[17] Parker v SE.Railway(1877)2CPD461; Thompson v LMS. Railway[1930]1KB41:exclusion clause incorporated even if claimant was illiterate; Richardson,Spence v Rowntree[1894]AC217:in contrast if defendant knows claimant is illiterate
[18] Thompson v LMS.Railway[1930]1KB41 and Thornton v ShoeLane Parking[1971]2QB163:not given notice, not incorporated.
[19] Interfoto v Stiletto[1988]QB433
[20] Handerson v Stevenson(1875)LR2Sc&Div470
[21] Sugar v LMS Railway[1941]1AllER172
[22] Impala Warehouse v Wanxiang[2015]EWHC25(Comm)
[23] J.Spurling v Bradshaw[1956]1WLR461
[24] Johnson v Driefontein[1902]AC484
[25] Treitel(2015)
[26] Re Mahmoud and Ispahani[1921]2KB716
[27] St.John Shipping v Joseph Rank[1957]1QB267
[28] Shaw v Groom[1970]2QB504
[29] Marles v Philip Trant[1954]1QB29
[30] Asmore Benson v AV.Dawson[1973]1WLR828
[31] St.John Shipping v Joseph Rank(1957)1QB267
[32] S.2 SA1966
[33] S. 13.(1)(c)(iii) SA1966
[34] Ibid
[35] Re Mahmoud and Ispahani[1921]2KB716
[36] S.49 SA1966
[37] Arbitration agreement is severable from the contract in which it is contained. Any challenge relating to the validity of the underlying contract will generally not affect the validity of the arbitration agreement.
[38] Enka v Chubb [2020] UKSC 38
[39] Latin for "the thing speaks for itself."
[40] Kleinwort Benson v LincolnCC.[1999]2AC349
[41] Brennon v Bolt[2004]EXCACiv1017
[42] Hedley Byrne v Heller[1964]AC465
[43] Derry v Peek(1889)14AppCas337
[44] Barclays Bank v O’Brien[1994]1AC180
[45] Esso v Mardon[1976]QB801
[46] Olley v Marlborough Cort[1949]1KB532
[47] J.Spurling v Bradshaw[1956]1WLR461
[48] Chapleton v BarryUDC[1940]1KB532
[49] Let the buyer beware

This article attempts to address a ‘celebration of diversity’ in our Malaysia-Day, where even the law seems to be given a different interpretation to achieve unity in diversity by the Federal Court in the recent judgement of Masenang Sdn Bhd v Sabanilam Enterprise Sdn Bhd [2020][1], that has resulted in a tug-of-war of conflicting judgements between the HC in Kuala Lumpur and that of the HC of Borneo (“the conundrum”). To resolve this issue once and for all, the Federal Court holds that foremost, “The seat of a domestic arbitration cannot simply be said to be Malaysia. The seat is usually specified to be, for example, Kuala Lumpur, Malaysia, or Kota Kinabalu, Malaysia, or Penang, Malaysia, as the parties see fit to choose in their arbitration agreement or as determined by the arbitral tribunal pursuant to section 22 AA[2]”[3]; second, “the regulation and supervision of domestic arbitration is NOT governed by the law governing civil disputes such as the CJA which determines jurisdiction by ascertaining where the cause of action arose.[4] It is the AA and arbitral law that governs this issue even in domestic arbitrations”[5]; third, “the theory of the juridical seat is in point of fact directly relevant and essential in domestic arbitrations”[6]; and fourth, “[…]the seat of a domestic arbitration is in Kuala Lumpur [falls within] the jurisdiction of the High Court in Malaya, the High Court in Sabah and Sarawak enjoys concurrent jurisdiction to regulate that proceeding […] would not be the correct position in law [the AA] recognises that the supervisory court is the court at the seat of the arbitration. No such contravention or conflict with Art 121 of the Federal Constitution[7] can arise”[8].

In a nutshell, the finding of the court consistent with the arbitration law adopted by the ADR-community, that court will find in favour the ‘supervisory-court’ that follows the ‘judicial-seat of arbitration’ (‘seat’) agreed by the parties[9] or determined by the arbitrator, when the seat is not determine. However, the novelty of the findings of the FC in contrast with that of the Court of Appeal, is that the seat applied to domestic arbitration has to be clearly stated as to the ‘place of arbitration’ i.e., Kuala Lumpur, Sabah or Sarawak. This imply that the application of ‘private international law (‘PIL’)[10] in international commercial arbitration and to some extend of ‘forum non conveniens’[11] is applicable, a basis that the Appeal Court denounce the issue of the seat as irrelevant in domestic arbitration, as both the states of Malaya and Borneo, are under Malaysia and both share the same jurisdiction, including that of AA 2005. On the onset, this may look like ‘hair-splitting’ legal arguments to the minute-details that defied logic, but the intention is noble, that is to avoid a repeat of such conundrum.

Unlike the jurisdiction of the United Kingdom (‘UK’), Scotland is an entirely different jurisdiction, adopting the civil-law approach, as compared to England and Wales (‘EW’), with its common-law approach. Therefore, a domestic arbitration seated in Scotland is entirely different from one that is seated in EW. Both jurisdictions employed a different set of arbitration law, namely, Scotland with its Arbitration (Scotland) Act 2010, adopted the UNCITRAL Model-Law, while EW, the Arbitration Act 1996 (of England), that has more provision compared to the Model-Law. Thereupon, it makes sense as to state the actual place of arbitration in the English context, but for Malaysia, as a jurisdiction, that will be a novelty.
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As it is, the finding and judgement of the Federal Court is binding. I can’t help to acknowledge myself as Malaysian yet is different from my counterpart in Sabah and Sarawak. Perhaps such is what it meant by ‘unity in diversity’. Happy Malaysia-Day, we are One ‘Diverse-Family’.

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[1] Federal Court Civil Appeal No.: 02(i)-20-03/2020(S)
[2] Arbitration Act 2005: Seat of Arbitration
[3] Op-cit, para 185
[4] Ibid, para 140: “Applying the well- known Latin maxim of generalia specialibus non derogant, a special law prevails over a general law”
[5] Ibid, para 170
[6] Ibid, para 169
[7] Article 121: […] (a) one of the States of Malaya, which shall be known as the High Court in Malaya and shall have its principle registry in Kuala Lumpur; and (b) one in the States of Sabah and Sarawak, which shall be known as the High Court in Borneo and shall have its principle registry at such place in the States of Sabah and Sarawak […].
[8] Federal Court Civil Appeal No.: 02(i)-20-03/2020(S), para 136
[9] Conforming to the principle of party autonomy.
[10] Conflict of laws
[11] Another forum or court is more appropriate to hear the case