Scenario Analysis: Business Disputes taken to Arbitration

Question

A is large property developer who is listed on the Kuala Lumpur Stock Exchange. B is a building contractor. A employed B in 2008 to build a large office complex comprising 3 towers on a piece of land in the heart of Kuala Lumpur. C is a wealthy individual who owns many pieces of property in Kuala Lumpur and Singapore. C is also a shareholder in A but is not involved in its management. The Building contract between A and B states that, "Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be decided by arbitration in accordance with the Rules for Arbitration of the Regional Centre for Arbitration Kuala Lumpur by three Arbitrators appointed in accordance with the rules.". The dispute involves the “installation of a chilled water system which serves the air-conditioning systems of all 3 buildings”. The main material used in this system are pipes which are sourced from one specialist supplier known as D. D is a company based in Singapore. C and her family are majority shareholders in D. The main dispute is in respect of the type and quality of pipes supplied by D. The payment mechanism between B and D is that “D will only be paid for supplying the pipes if B is paid by A for the installation of the pipes”. The pipes have been installed by B but A refuses to pay for the pipes because the Architect for the project says that the pipes are not in accordance with specification and are inferior. B has issued a notice of arbitration to resolve this dispute. D has an interest in the dispute as it will only be paid if an award in given in B’s favor. Advise as to whether there is any Conflict of Interest in respect of the Arbitrators based on the aforesaid facts given the following situations.

1.    A has appointed Mr Green as arbitrator. Mr Green is an Architect by profession and has been appointed by Company A as architect for its projects. There are currently no projects for which Mr Green acts as architect for A. The last time Mr Green was appointed as architect for one of A’s projects was in 2008 which was fully completed in 2009.

2.    Mr Green is also a close friend of Company A’s Managing Director and they meet at least once every week for dinner. Their children attend the same school together. However, as a rule, both A’s Managing Director and Mr Green do not speak of Company A’s business during their weekly dinners.

3.    The senior most partner in Mr Green’s firm (in which he is a junior partner) has direct shareholding in Company D, the pipe specialist, and is also an executive director. A’s Managing Director was aware of this at the time of Mr Green’s appointment.

4.    Company B has appointed Mr Brown as arbitrator. Mr Brown is an engineer by profession. Mr Brown is a minority shareholder in B but plays no part in its management. He only attends the annual general meetings of Company B and draws a small annual dividend.

5.    Mr Brown is currently involved in another project (which is unrelated to this dispute) where his engineering company (in which he is currently the managing director) has been appointed as engineers for B. The project is very lucrative for Mr Brown and he hopes to gain other appointments with B for future projects.

6.    Mr Brown has investments in various mutual funds in Singapore which in turn owns shares in both A and D. A and D are two of many other companies in which his funds are invested. These investments are passive investments in that Mr Brown has no control over. However, he does have knowledge of his funds’ investments in A and D through annual reports. He draws dividends every quarter from these mutual fund investments.

7.    Mr Green and Mr Brown propose to appoint Ms April as the third presiding arbitrator. Ms April is a lawyer by profession and carries on an active litigation practice in a large partnership in Kuala Lumpur. Ms April is C’s granddaughter and Ms April regularly represents C in her legal matters. She is also the principal beneficiary named in C’s will.

8.    Ms April’s partners also regularly acts for both A and C and both their subsidiaries in respect of their corporate deals. Ms April does not involve herself in these corporate matters and has no direct knowledge in the deals. However, as a partner of the firm, she derives income from fees earned from these corporate matters.

9.    Another partner in Ms April’s firm is an arbitrator in another unrelated dispute involving a company which is part owned by Company B.

10.    Both A and C have approached Ms April on separate occasions before, seeking to appoint her as sole arbitrator on another dispute which is not related to this dispute. She declined the request on both occasions.

When answering the above, explain the grounds and the process by which an arbitrator may be removed under the Arbitration Act, 2005. Make reference to relevant cases and guidelines. (ie: IBA Guidelines; Green List, Red List, Orange List)

Summary

The question belongs to Law, particularly dealing with business law. The question is about a dispute between parties of interest in a building which include the contractor, the contracted and a third party material contractor. A dispute regarding the quality of the material used in the installation leads to arbitration.

Total Word Count 2190

 

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