Federal Court in the Case of Telekom Malaysia Berhad v. Obnet Sdn Bhd: Significance of Written Arbitral Awards

Federal Court in the Case of Telekom Malaysia Berhad v. Obnet Sdn Bhd: Significance of Written Arbitral Awards

Introduction

In Telekom Malaysia Berhad v. Obnet Sdn Bhd,[1] the Federal Court addressed the issue of whether an arbitrator’s oral pronouncement on liability in a bifurcated arbitration constitutes a valid award under the Arbitration Act 2005 (“Act”). This decision reaffirms the essential requirement that any decision on the substance of a dispute must be made in writing and adhere to the formal requirements set out in the Act.

The ruling essentially clarifies that oral determinations on liability are invalid unless and until they are formalized in a written award. Below is an overview of the facts, the court’s findings, and the broader implications for arbitral practice.

Background

Agreements

In 2003, the Selangor State Government awarded Obnet Sdn Bhd (“Obnet”) a contract to provide high-speed broadband connectivity (“SELNET Project”). Seeking network infrastructure expertise, Obnet engaged Telekom Malaysia Berhad (“Telekom”) under a Metro Ethernet Services Agreement (“Metro-E Agreement”) on 19 April 2007. This Metro-E Agreement included a clause referring disputes between the parties to arbitration under the then KLRCA (now AIAC) Rules.

Dispute

A dispute arose in 2008 between Obnet and the Selangor State Government, ultimately resulting in the termination of the SELNET agreements in September 2009. The Metro-E Agreement with Telekom was also in turn terminated. Alleging that Telekom’s actions had interfered with its contractual rights, Obnet initiated arbitration proceedings. Telekom counterclaimed for outstanding sums under the Metro-E Agreement.

Arbitration Proceedings

During the arbitration, the arbitrator decided to bifurcate the proceedings. The first phase would determine liability, and only if liability were established would the matter proceed to assessing quantum (damages).

Following a hearing on liability, the arbitrator orally pronounced on 26 June 2020 that Obnet’s claim and Telekom’s counterclaim were both allowed, effectively finding each side liable to the other.

However, the arbitrator declined to issue a written award, instead intending to finalize a single written award after determining quantum. Telekom objected, insisting that under the Act, a written award on liability was immediately required.

Court Proceedings

Telekom then filed an Originating Summons in the High Court, seeking (a) a declaration that the arbitrator’s oral decision on liability was invalid; and (b) an order restraining Obnet from proceeding with the quantum phase until a written award on liability was published. The High Court dismissed Telekom’s application, holding that the arbitrator was within his discretion to issue a single final award at the end of the arbitration.

On appeal, the Court of Appeal affirmed the High Court’s dismissal. Telekom subsequently obtained leave to appeal to the Federal Court following the key question of law:

“Where an arbitral tribunal directs proceedings be bifurcated (with liability to be heard and decided first followed by determination of quantum), whether an oral pronouncement on liability is sufficient to (i) amount to a decision on liability and (ii) entitle the arbitral tribunal and parties to proceed with a determination of quantum, in a case where the arbitration is governed by the Act and the AIAC/KLRCA Arbitration Rules?”

Key Issue Before the Federal Court

Whether an arbitrator’s oral pronouncement on liability in bifurcated proceedings constitutes a valid “award” under Section 2 and Section 33 of the Arbitration Act 2005, thereby allowing the arbitration to proceed to the quantum stage without first issuing a written award.

Findings of the Federal Court

The Federal Court ruled that an arbitral award must be in writing, emphasizing that any decision resolving the substance of the dispute cannot simply be given orally.

First, under Section 2 of the Act, an award is defined as a “decision of the arbitral tribunal on the substance of the dispute.” The Federal Court clarified that a ruling on liability—such as the arbitrator’s oral pronouncement in this case—falls squarely within this definition. Citing paragraph [44] of the judgment, the Court stressed that because the arbitrator’s liability decision addressed the very core of the parties’ dispute, it had to be published in the form of an award. Any oral pronouncement without a written award, the Court found, has no legal effect under the Act.

Further, the Court explained that Section 2 must be read in tandem with Section 33 of the Act, which mandates both the form (written) and content (reasons, signatures, and date) of an award. In particular, Section 33(1) provides that “an award shall be made in writing and … shall be signed by the arbitrator.” In short, these provisions require every arbitral decision on substantive issues to be memorialized in a written document, not merely declared orally.

The Federal Court also dispelled the notion that bifurcation—splitting the arbitration into separate liability and quantum phases—alters the requirement for a written partial award. Referencing paragraph [54] of the judgment, the Court held that an oral ruling on liability remains a ‘decision on the substance of the dispute’ and thus must be written down before the proceedings move to the damages stage. The arbitrator cannot proceed to the quantum phase on the strength of an oral determination alone.

Accordingly, the Federal Court concluded that the High Court and the Court of Appeal had erred by suggesting the arbitrator could withhold issuing a written award until the end of the entire arbitration. The Court underscored that, for the decision on liability to have validity and legal effect, it must be published in writing as an award under Sections 2 and 33 of the Act.

Significance and Implications of the Federal Court Ruling

The Federal Court ruled that an arbitral award must be in writing to be legally valid, emphasizing that an oral pronouncement on liability does not constitute an enforceable award under the Act.

This decision ensures procedural clarity and safeguards parties’ rights under Sections 37 and 38, which allow for setting aside or enforcing of arbitral awards. Without a written award, parties cannot exercise these rights, reinforcing the requirement for a formal record of the arbitrator’s decision. The ruling aligns Malaysian arbitration practice with the UNCITRAL Model Law, which prioritizes procedural rigor while maintaining minimal court interference.

In cases where arbitration proceedings are bifurcated, the Federal Court further clarified that a decision on liability constitutes a partial award and must be issued in writing before proceeding to the quantum stage. This prevents procedural uncertainty, ensuring that liability is formally and conclusively determined before damages are assessed.

In practical terms, arbitrators who choose to bifurcate must treat a finding on liability as a partial award, rendered in writing before proceeding to quantum. This prevents uncertainty by requiring a formal determination before assessing damages.

Conclusion

The Federal Court’s decision leaves no doubt that oral pronouncements on liability in bifurcated arbitrations lack legal effect under the Act. By mandating that all decisions on the substance of a dispute—particularly liability—be rendered in a written award, the Court has reaffirmed the fundamental principles of clarity, finality, and procedural rigor in arbitration proceedings as required by the Act. This ruling not only protects parties’ rights to challenge or enforce awards but also aligns Malaysia’s arbitration framework with prevailing international standards.

For businesses embroiled in similar disputes or navigating complex arbitration processes, this case highlights the importance of adhering to statutory procedures. If your organization is facing uncertainty about the proper steps to take—whether in drafting arbitration clauses, bifurcating proceedings, or challenging an oral decision—seeking experienced legal counsel can help you safeguard your position and ensure full compliance with the law.

If you have any questions, please contact our Projects & Infrastructure Partner, Mr. Kevin Richard Nathan (kevin@nzchambers.com), or our Pupil-in-Chambers, Mr. Alif Mustaqim.

Authors:

  1. Kevin Richard Nathan
  2. Alif Mustaqim

References:

[1] [2024] MLJU 2661.