Of Ali Baba schemes and Section 24A of the Courts of Judicature Act 1964 (Case Analysis of Pembinaan Jaya Zira, CA)

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Practice rarely disappoints. One never goes a day without learning something new. 

In Pembinaan Jaya Zira v Sungai Lui Construction [CIVIL APPEAL NO: W-02(C)(A)-538-04/2025], I discovered a “parallel” legal system (parallel is in inverted commas as, as one shall see, it is actually a continuation of the legal process).

The facts

Pembinaan Jaya Zira Sdn Bhd JV Iscorp Sdn Bhd (a JV company and Main Contractor) was issued a Project by Jabatan Kerja Raya.

The Project was then subcontracted to Pembinaan Jaya Zira Sdn Bhd (PJZ, Subcontractor). PJZ effected a total subcontract of the works to Sungai Lui (sub-sub contractor).

Due to non-payment of fees and alleged wrongful termination, Sungai Lui initiated a civil suit in the High Court in Malaya in Kuala Lumpur against PJZ.

With the parties’ consent, the matter was referred to an arbitrator pursuant to Section 24A of the Courts of Judicature Act 1964.

Crucial distinction between arbitration and Court-ordered reference to arbitration

One must draw a careful distinction here between arbitration and Court-ordered reference to arbitration.

In a regular arbitration, the parties have an agreement. The agreement generally contains an arbitration clause.

The parties can then opt to issue a Notice to Arbitrate, should a dispute arise. If they file the matter in Court, a party aggrieved may apply to stay the Court proceedings and to refer it to arbitration pursuant to Section 10 of the Arbitration Act 2005 (before taking a step in the proceedings).

Section 24A CJA 1964 is, however, a completely different framework.

Section 24A of the Courts of Judicature Act 1964

S. 24A CJA 1964 reads:

Reference under order of Court 24A.

(1) The High Court may refer any question arising in any cause or matter, other than a criminal proceeding by the Public Prosecutor, for inquiry or report to any special referee. The report of a special referee may be adopted wholly or partially by the High Court and enforced as a decree, judgment or order to the same effect.

(2) In any cause or matter other than a criminal proceeding by the Public Prosecutor—

(a) if all the parties interested who are not under disability consent;

(b) if the cause or matter requires any prolonged examination of documents or any scientific or local investigation which cannot, in the opinion of the High Court, conveniently be conducted by the Court through its ordinary officers; or

(c) if the question in dispute consists wholly or in part of matters of account, the High Court may at any time order the whole cause or matter or any question or issue of fact arising therein to be tried before a special referee or arbitrator respectively agreed on by the parties or before an officer of the Court.

(3) (a) In all cases of reference to a special referee or arbitrator under an order of the High Court in any cause or matter, the special referee or arbitrator shall be deemed to be an officer of the Court and shall have such authority and shall conduct the reference in such manner as is prescribed by rules of court, and subject thereto as the High Court may direct.

(b) The report or award of any special referee or arbitrator on any such reference shall, unless set aside by the High Court, be equivalent to the decree, judgment or order of the Court.

(c) The remuneration to be paid to any special referee or arbitrator to whom any matter is referred under order of the High Court shall be determined by the Court. (4) The High Court shall, as to references under order of the Court, have all the powers which are by the *Arbitration Act 2005 [Act 646], conferred on the High Court as to references by consent out of Court. 

The parties referred the matter to Court-ordered arbitration under S. 24A CJA 1964 (please see the CA’s excellent distillation at paragraphs 20-30 for the distinction between Court-ordered referral to arbitration as opposed to a submission to arbitration). 

In a Court-ordered arbitraton, the arbitrator will be a Court officer (Section 24A(3) CJA 1964). 

The outcome of the Court-ordered referral to arbitration

 The Arbitrator determined the matter in favour of Sungai Lui. 

Sungai Lui applied to enforce the Arbitration Award under Section 37 of the Arbitration Act 2005. In contrast, PJZ applied to set-aside the Arbitration Award under Section 38 of the Arbitration Act 2005. 

One may stop and ask this question: why were both parties utilising the Arbitration Act 2005 framework when they were operating under the Court-ordered framework? 

The Court noted the same. However, the learned panel held that what’s sauce for the goose is sauce for the gander: 

[49] The Respondent contended that the Appellant was estopped from arguing that the Arbitration Act did not apply to the enforcement of the award, as the Appellant itself had invoked section 37 of the Arbitration Act in seeking to set aside the Final Award.

[50] While it was true that the Appellant had relied on section 37 of the Arbitration Act, we were of the view that it had no real alternative but to do so, since the Respondent had first invoked section 38 of the same Act. Accordingly, the Respondent’s argument on estoppel was unsustainable.   

The CA then noted that the procedural framework for a S. 24A Court-ordered referral was very different from the scheme under submission to arbitration (paras. 40-53).

Specifically, the grounds for setting-aside a submission to arbitration would be very limited (Sections 37 and 39 of the Arbitration Act 2005), as opposed to a Court-ordered arbitration (where the Court, ultimately, controls the process and final outcome). 

The Ali Baba scheme 

Having settled the framework surrounding the appeal, the Court held that the “Ali Baba” scheme that underlay the contract was bound to fail for illegality.

Citing Agasta v Autopulence (together with several other cases), the Court held that the total subcontract was a breach of the National Economic Policy and as such, would be struck down under Section 24 of the Contract Act 1950: 

[57] In fact, the Respondent itself acknowledged that it had been appointed as the total subcontractor, which is distinct from an ordinary subcontractor, as it was tasked with executing “all works, including the responsibilities under the main contract conditions for all works.”

[58] In our view, the arrangement plainly constituted an “Ali Baba” arrangement, and consistent with established case law, such arrangements are contrary to public policy and therefore void.

[61] As the arrangement amounted to an Ali Baba scheme, we took the view that the agreement contravened public policy, particularly as it was inconsistent with the objectives of the National Economic Policy. Accordingly, it was void under section 24 of the Contracts Act 1950…

In the upshot, the CA allowed both appeals with costs. 

Analysis 

One may see from the facts above that: 

1. PJZ was the “bad boy”. It refused to remit monies (allegedly) due and further (allegedly) breached the contract; 

2. PJZ then relief on the illegality to torpedo the entire affair. 

However, this would be consistent with a line of authorities where the parties have refused to allow either party (be it the instigator or beneficiary of illegality) to profit [Lau Kok Loon [2023] MLJU 1366; Singma Sawmill [1980] 1 MLJ 21 (FC)].

One could just as easily argue that Sungai Lui should never have participated in this transaction.  

Sungai Lui drew the short end of the stick on this deal. Or perhaps, it was a matter of contractual semantics. Que sera, sera. 

GAVIN JAYAPAL

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