An Arbitrator's Mandate – Recent Development

In Gumusut-Kakap Semi-Floating Production System (Labuan) Ltd v. Sabah Shell Petroleum Co Ltd & Another Appeal [2026] 2 CLJ 510 the Malaysian Court of Appeal addressed the issue of whether an arbitral tribunal can make an award in excess of a contractually stipulated limitation of liability clause, or whether such an award exceeds the tribunal’s jurisdiction. The said clause in this appeal limited the liability of the contractor (“GKL”) to the respondent (“SSPC”)  to USD200 million in aggregate.

The tribunal awarded a sum of USD324,695,970.59 for work done claims, liquidated damages and overpayment; USD84,844,226.64 for interest; and USD12,746.570.70 in costs against GKL pursuant to SSPC’s counterclaim. The High Court granted an order to enforce the award, and dismissed GKL’s application to set aside the award.

At the appellate stage the Court of Appeal held by majority that a business common sense approach should apply to the construction of the liability limitation clause. As such the clause limiting GKL’s liability to USD200 million in aggregate applied as the said clause was agreed after extensive negotiations at arms length through legal counsel taking into consideration the high risks involved in extracting crude oil from the seabed. In doing so the majority also held that Section 25(1) of the Arbitration Act 2005 was mandatory and applied in determining whether the award dealt with a matter not contemplated by or not falling within the terms of the submission to arbitration. In the premises, the award was severed, with GKL being required to pay a sum of USD200 million (representing the capped liability) with interest.

The law report contained a robust dissent, in that the dissenting judgment said:

(a) There was no evidence that the parties had agreed under the principle of party autonomy that the arbitral tribunal’s jurisdiction to award damages could not exceed USD200 million;

(b) To the contrary, the parties had expressly submitted the interpretation, scope and the application of the limitation of liability clause to the arbitral tribunal for its determination;

(c) Therefore, once the parties put the limitation of liability clause in issue, its meaning and effect were part of the matters submitted to the arbitration;

(d) As such, the tribunal’s ruling was in exercise of jurisdiction and not in excess of it.

This now appears to be a matter which warrants determination by the Malaysian Federal Court, being the apex court.

[Note, for context Section 25(1) of the Arbitration Act 2005 provides:

(1) Within the period of time agreed by the parties or, failing such agreement, as determined by the arbitral tribunal, the claimant shall state-

(a) the facts supporting his claim;

(b) the points at issue; and

(c) the relief or remedy sought, and the respondent shall state his defence in respect of the particulars set out in this subsection, unless the parties have otherwise agreed to the required elements of such statements.]