The case of Telekom Malaysia Bhd v Obnet Sdn Bhd [2024] 6 MLJ 293 presents a significant ruling by theFederal Court of Malaysia regarding arbitration procedures. It focuses onwhether an oral decision delivered by an arbitrator on liability constitutes avalid award under the Arbitration Act 2005 (AA 2005). The Federal Court ultimately held that awards rendered orally are invalid, as the Act mandates that awards on substantive matters must be in writing.

This decision has far-reaching implicationsfor arbitration in Malaysia, particularly in ensuring procedural compliance, protecting parties' rights, and upholding the integrity of arbitral awards. 

Background

The dispute arose from a project awarded by the Selangor State Government to Obnet Sdn Bhd (Obnet) in 2003, known as the SELNET project, which aimed to connect government agencies via high-speed broadband.

In 2007, Obnet appointed Telekom Malaysia Bhd (Telekom) as an independent contractor to design and build the necessary network infrastructure. This was formalised through a Metro Ethernet Services Agreement (Metro-E Agreement), which contained an arbitration clause referring disputes to the Kuala Lumpur Regional Centre for Arbitration (now the Asian International Arbitration Centre).

In 2009, both the SELNET Agreements and Metro-E Agreement were terminated following disputes between Obnet and the state government.

In 2016, Obnet initiated arbitration proceedings against Telekom, alleging that Telekom misused confidential information from the SELNET project to provide its own network services to the state government. Telekom counterclaimed for outstanding payments under the Metro-E Agreement.

The arbitration proceedings

The arbitrator decided to bifurcate the proceedings, meaning he would first determine liability and only then proceed to quantum (damages).

On 26 June 2020, the arbitrator delivered an oral decision, ruling in favour of both Obnet’s claim and Telekom’scounterclaim. The arbitrator, however, refused to issue a written award at that stage, stating that he would only provide a written decision after the quantum assessment was completed.

Telekom objected, arguing that under Sections 2 and 33 of the AA 2005, an arbitrator must issue a written award for any decision on the substance of the dispute.

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High Court Decision

Telekom applied to the High Court for,among others a declaration that the oral decision was invalid and an order restraining Obnet from proceeding with the arbitration until a written award on liability was issued.

The High Court dismissed Telekom’s application, holding that:

1. The AA 2005 did not explicitly require an immediate written award on liability. The arbitrator had discretion to structure proceedings as he deemed fit.
2. The oral decision was not an award but an interlocutory ruling, meaning it did not need to be in writing.
3. Telekom could not demand a written award at this stage as there was no breach of natural justice.

Court of Appeal Decision

Dissatisfied with the High Court decision,Telekom appealed to the Court of Appeal. The Court of Appeal upheld the HighCourt’s ruling, agreeing that:

1. The arbitrator was not legally obligated to issue a written award before completing the quantum stage.
2. The arbitration process should be allowed to continue without judicial intervention.

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However, the Court of Appeal granted an interim injunction, preventing Obnet from proceeding further in arbitrationuntil Telekom’s appeal to the Federal Court was resolved.

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Federal Court Decision

The Federal Court reversed the decisions ofthe lower courts, ruling that:

1. The oral decision on liability was invalid under Sections 2 and 33 of the AA 2005, as an award on substantive matters must be in writing.
2. The arbitrator had no discretion to bypass the requirement for a written award before proceeding to quantum.
3. Without a valid decision on liability, the arbitration process could not move forward, as liability forms the foundation for assessing     damages.
4. The arbitrator’s decision to bifurcate proceedings did not absolve him from statutory requirements.

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Consequently, the Federal Court grantedTelekom’s application, setting aside the decisions of the lower courts and ordering:

• Obnet to be restrained from taking further steps in the arbitration.
• The arbitration to be stayed until the arbitrator issued a written award on liability. 

Key Legal Issues and Analysis

The Requirement for Written Awards in Arbitration

A central issue in this case was whether an oral decision on liability could qualify as an "award" under the Arbitration Act 2005. The Federal Court ruled decisively that it could not.

Section 2 of the AA 2005 defines an award as:

"A decision of the arbitral tribunalon the substance of the dispute and includes any final, interim or partial award..."

Section 33 of the AA 2005 states:

"An award shall be made in writing andshall state the reasons upon which it is based..."

The Federal Court confirmed that these provisions exclude the possibility of an oral award, as an award must be inwriting to be enforceable, set aside, or referred to in legal proceedings.

This decision reinforces the integrity of arbitration by ensuring that awards meet proper formalities, including written reasoning for transparency and accountability.

Bifurcation of Arbitration Proceedings and Its Limitations

Bifurcation is a common arbitration practice where liability is decided first, followed by a separate hearing onquantum. However, the Federal Court clarified that bifurcation does not allow an arbitrator to ignore statutory requirements.

It is important to note that:

• The arbitrator’s decision on liability was a final determination on a substantive issue, not a procedural ruling.
• Once a substantive decision is made, a written award is required before proceeding to the next stage.
• Failure to issue a written award could lead to uncertainty and procedural unfairness.

Judicial Intervention in Arbitration

While courts generally avoid intervening inarbitration, the Federal Court ruled that intervention was necessary to upholdstatutory compliance. The case aligns with previous decisions where courtsintervened to correct procedural irregularities in arbitration.

The ruling underscores that:

• Courts will intervene if arbitration rules are not followed.
• Minimal intervention does not mean absolute     non-intervention—the law must still be enforced. 

Implications and Future Considerations

The Telekom Malaysia v Obnet case establishes a precedent for arbitration procedures in Malaysia, clarifying that:

1. All arbitral awards on substantive matters must be in writing, as required by the AA 2005.
2. Oral decisions on liability are not legally valid and cannot form the basis for further proceedings.
3. Bifurcation does not excuse an arbitrator from issuing a written award at the liability stage.
4. Failure to issue a written award may justify judicial intervention to prevent procedural injustice.

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This ruling strengthens Malaysia’s arbitration framework by ensuring that awards are properly documented, legally enforceable, and procedurally sound.

However, it remains to be seen how this decision will impact future arbitration proceedings and whether it will lead to amendments in the AA 2005 or AIAC Arbitration Rules. Should an appeal or legislative reform follow, it could further refine the balance between procedural flexibility and statutory compliance in arbitration.

This articleis written by Raja Nadhil Aqran (Partner) and Vishnu Vijandran (Partner). Itonly contains general information. It does not constitute legal advice nor anexpression of legal opinion and should not be relied upon as such.

For more information, contact us at info@aqranvijandran.com.