Malaysia

In recent years, Malaysia has made great strides in cultivating a positive domestic environment for arbitration, bolstered by three broad areas of change.

The first is legislative reform. The Malaysian Arbitration Act (the 2005 Act), which came into force on 15 March 2006, repealed the Arbitration Act 1952 (the 1952 Act) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985 (the CREFAA Act). The 2005 Act was subsequently complemented by the Arbitration (Amendment) Act 2011 (the 2011 Amendment Act) which removed various teething issues of ambiguities associated with the 2005 Act. More recently, from 3 June 2014, as a result of amendments to the Legal Profession Act, non-Malaysian qualified lawyers may appear in arbitral proceedings in the jurisdiction, as either counsel or arbitrator. As a result, Malaysia now enjoys a statutory framework which is generally in line with modern principles of international arbitration practice.

The second is an increasing judicial receptiveness and familiarity with the arbitration process. While lower courts have occasionally reverted to a more parochial approach towards arbitration, recent decisions by the Court of Appeal reveal the judiciary’s strong commitment to the principle of minimal curial intervention, in line with the modern statutory framework.

The third is the revitalisation of the Kuala Lumpur Centre for Arbitration (KLRCA). Under the leadership of its new management, the KLRCA has implemented a slew of innovative initiatives that are potentially game-changing, including the first-of-its-kind KLRCA i-Arbitration Rules in 2013. The KLRCA offers administrative fees significantly lower than that of its competitors in the region and newly refurbished physical premises incorporating state-of-the-art video conferencing technology.

While the impact of these developments has yet to be fully evaluated, there are early indications of resurgence in Malaysia’s profile as a venue of international arbitration. In this update, the authors discuss general principles of Malaysian law on international arbitration alongside recent developments relating to arbitration practice in the jurisdiction.

An overview of arbitration in Malaysia

Prior to the 2005 Act, which came into force on 15 March 2006, arbitration in Malaysia was governed by the 1952 Act and the CREFAA Act.

The time when proceedings are commenced would determine the question of which arbitration act applies. For arbitral proceedings commenced before 15 March 2006, the 1952 Act would apply. The 2005 Act applies to any arbitral proceedings commenced thereafter.1 As with all new legislation, the implementation of the 2005 Act saw some initial teething difficulties and uncertainty which have since been addressed by the 2011 Amendment Act.

In previous years, we discussed the difficulties that arose in the application of the 1952 Act, as well as the differences between the 1952 Act and the 2005 Act. In summary, we highlighted that a key difference between the 1952 Act and the 2005 Act lies in the distinction between domestic and international arbitrations, and how this distinction affects the applicability of various sections of the 2005 Act.

The 2005 Act is divided into four parts:

  • part I (sections 1 to 5) addresses preliminary matters such as key definitions, the commencement of arbitral proceedings, and the arbitrability of the subject matter in dispute;
  • part II (sections 6 to 39), the essence of the 2005 Act, covers the material aspects of the arbitral proceedings, such as the arbitration agreement, composition of the arbitral tribunal, jurisdiction of the arbitral tribunal, the making of arbitral awards, the enforcement of arbitral awards, and the available recourse in respect of such awards;
  • part III (sections 40 to 46) deals chiefly with judicial control over arbitral proceedings, such as the determination of preliminary points of law by the courts, the extension of time for commencing arbitral proceedings, and the making of arbitral awards; and
  • part IV (sections 47 to 51) covers miscellaneous issues such as the liability of the arbitrators and the immunity of arbitral institutions.

In terms of the distinction between domestic arbitrations and international arbitrations, section 2 (found in part I) of the 2005 Act provides that ‘international arbitration’ means an arbitration where:

  • one of the parties has its place of business outside Malaysia;
  • the seat of arbitration is outside Malaysia;
  • the substantial part of the commercial obligations are to be performed outside Malaysia;
  • the subject matter of the dispute is most closely connected to a state outside Malaysia; or
  • the parties have agreed that the subject matter of the arbitration agreement relates to more than one state.

Under the same section 2 of the 2005 Act, ‘domestic arbitration’ refers to any arbitration which is not an international arbitration. In a domestic arbitration, part III of the 2005 Act applies by default unless the parties to the arbitral proceedings take steps to exclude its application in writing. On the other hand, in an international arbitration, the default position is reversed and part III of the 2005 Act does not apply unless the parties to the arbitral proceedings agree otherwise in writing. Part III of the 2005 Act allows for greater intervention by the court by allowing any party to the arbitral proceedings to refer to it any question of law arising out of an arbitral award,2 and allowing the court to extend the time imposed for the commencement of arbitral proceedings3 or the delivery of an arbitral award.4

The distinction between domestic and international arbitrations also determines the applicability of section 12(2) (found in part II) of the 2005 Act. Section 12(2) provides that in the event that the parties to the arbitral proceedings fail to determine the number of arbitrators, the arbitral tribunal shall consist of three arbitrators in the case of an international arbitration and a single arbitrator in the case of a domestic arbitration.

In relation to domestic arbitrations, section 30 of the 2005 Act provides that the applicable substantive laws shall be those of Malaysia, unless the parties to the arbitral proceedings agree otherwise. With regard to international arbitrations, the applicable substantive laws shall be decided by the parties to the arbitral proceedings. In the event that the parties to an international arbitration fail to agree on the applicable substantive laws, the arbitral tribunal shall apply the law determined by the conflict of laws rules.

The distinction between domestic arbitrations and international arbitrations also affects the recognisability and enforceability of the arbitral award as an arbitral award made pursuant to an international arbitration in Malaysia would not fall within the ambit of sections 38 and 39 of the 2005 Act. This is because section 38 of the 2005 Act is silent on whether it applies to awards of international arbitrations in Malaysia, whereas it expressly states that on an application in writing, a domestic arbitration award or an arbitration award from a foreign state may be enforced by the High Court as a judgment thereof. As a signatory to the 1958 New York Convention (the New York Convention), arbitral awards made in Malaysia may be enforced in other New York Convention countries. This ease of enforceability between signatories to the New York Convention is reciprocal, which significantly contributes to the high regard held for arbitral awards made in Malaysia.

Lastly, conducting arbitration proceedings in Malaysia is also said to be significantly cheaper when measured against other major arbitration jurisdictions in the region, due to the lower costs of the KLRCA and the more modest logistical costs of accommodation and transport.

Arbitral tribunals

Appointment

Both the 1952 Act and the 2005 Act allow party autonomy in relation to the appointment of arbitrator or establishment of the arbitral tribunal. In this regard, the parties may agree on the number of arbitrators to decide the case.5 The default procedures for the appointment of arbitrators are provided for under section 13 of the 2005 Act. Parties are however free to determine the procedures that are to be adopted with regard to the appointment of arbitrators. In the event that the parties are unable to agree on the appointment of arbitrators, either party may apply to the director of the KLRCA to appoint the arbitrators.6 In the event that the director similarly fails to appoint the arbitrators, either party may then apply to the High Court for assistance in the appointments.7 Arbitrators are expected to disclose circumstances that may result in a conflict of interest, as provided in section 14 of the 2005 Act.

The KLRCA Arbitration Rules were amended in 2013 to allow for the appointment of an emergency arbitrator who would be empowered to grant emergency interim relief prior to the constitution of the arbitral tribunal. Schedule 2 of the KLRCA Arbitration Rules sets out the manner of appointment, powers and time limits on the interim relief provided by the emergency arbitrator.

Jurisdiction

Regardless of the process by which the tribunal is appointed, the importance of the doctrine of Kompetenz-Kompetenz remains and is expressly recognised by section 18 of the 2005 Act. This grants the arbitral tribunal power to rule on its own jurisdiction, and is recognised as an integral component of modern arbitration. Nevertheless, parties retain the option of appealing the tribunal’s decision on jurisdiction to the High Court. The Malaysian courts have long recognised the importance of Kompetenz-Kompetenz.8 In Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor,9 the High Court said of the extent to which the doctrine of Kompetenz-Kompetenz is applicable in Malaysia:10

Parliament has clearly given the arbitral tribunal much wider jurisdiction and powers. And, such powers would extend to cases even when its own jurisdiction or competence or scope of its authority, or the existence or validity of the arbitration agreement is challenged [...] Most noteworthy is that even where its own jurisdiction or competence or its scope of authority is challenged, it may rule on such plea either as a preliminary question or in an award on the merits.

Evolving roles of arbitrators

Last year, we discussed the decision in Sundra Rajoo v Mohamed Abd Majed and Persatuan Penapis Minyak Sawit Malaysia (Poram),11 which highlights the potentially evolving role of an arbitrator, that is, in demonstrating that appointment challenges may be submitted by an arbitrator against a fellow arbitrator sitting on the same tribunal. In this case, the High Court recognised the locus standi of the applicant and ordered the first respondent to make certain disclosures within seven days or be removed and disqualified.12

This novel application to the High Court raised questions on when challenges can be made and, significantly, by whom. Conventionally, only the parties to the arbitration (as opposed to the arbitrators) possess the right to submit challenges. In this case, the High Court recognised the locus standi of the applicant by overcoming the hurdle in section 2 of the 2005 Act, which defines ‘party’ as party to an arbitration agreement. The High Court relied on two English cases; citing first Hobhouse J that ‘all parties to the arbitration are as a matter of contract bound by the terms of the arbitration contract’,13 and second Browne-Wilkinson V-C in Norjarl v Hyundai, where ‘on appointment, the arbitrator becomes a third party to that arbitration agreement, which becomes a trilateral agreement’.14

Corruption: a strong response

On 23 June 2013, the KLRCA demonstrated its support for greater transparency in arbitral proceedings by signing the Corporate Integrity Pledge (CIP) along with 40 other multinational corporations, committing to impartial tribunal proceedings and combating corruption in the field of arbitration.15

On 25 June 2013, Yusof Holmes Abdullah, a chartered arbitrator of British nationality, was charged with bribery in the Penang Malaysian Sessions Court. Abdullah was accused of soliciting US$2 million from the director of a local company, JMR Construction, to rule in its favour in arbitration proceedings against a Chinese-owned dredging company, Syarikat Nanjing Changjiang Waterway Engineering Bureau.16 This was the first time an arbitrator had been charged with corruption in Malaysia.17 The KLRCA promptly removed Abdullah from its list of arbitrators upon the revelation of these allegations. The government’s and KLRCA’s swift response emphasises the administration’s determination to protect its status as a dependable forum for arbitration.

Arbitral awards

Section 2(1) of the 2005 Act defines an arbitral award as a decision of the arbitral tribunal on the substance of the dispute, including any final, interim or partial award, and any award on costs or interests. Section 17 of the 1952 Act and section 36(1) of the 2005 Act further provide that all arbitral awards are final and binding.

Sections 37 to 39 (found in part II) of the 2005 Act deal with the recognition and enforcement of, and also challenges against, an arbitral award. Section 37 sets out the exhaustive grounds for setting aside an arbitral award in the High Court. However, it should be noted that the grounds given under section 37 of the 2005 Act for setting aside an arbitral award do not relate to the merits of the case. Section 42 of the 2005 Act, on the other hand, allows the court to set aside an arbitral award to which a question of law has been referred for its determination.

Section 38 of the 2005 Act deals with the procedure for recognition and enforcement of arbitral awards, whereas section 39 sets out the grounds for refusal of recognition and enforcement. These grounds are essentially similar to the grounds listed in article V of the New York Convention.

Setting aside arbitral awards

Parties who are dissatisfied with the arbitral awards rendered against them have the option of setting aside the awards under the 1952 Act or the 2005 Act, whichever is relevant and applicable.

Under the 1952 Act

Section 24(2) of the 1952 Act states that an arbitral award may be set aside if the arbitrator or umpire has misconducted himself or if the arbitral award has been improperly procured. Setting aside of arbitral awards, however, is difficult as the courts are increasingly accepting of the finality of arbitral awards.

In The Government of India v Cairn Energy India Pty Ltd & Anor,18 a case dealing with the 1952 Act, the Federal Court held that, where a specific question was referred to arbitration for consideration, the arbitral tribunal’s decision on it should be respected, in that no judicial interference was possible on the basis that the tribunal’s decision upon the question of law had been an erroneous one.19 The exception to this non-interference rule is ‘if the matter is a general reference, interference may be possible ‘if and when any error appears on the face of the award’’.20 The Federal Court further held that a question of construction of an agreement was a question of law,21 and if the question was the sole issue that parties had referred for arbitration, the court would generally not set aside the findings of the arbitrator unless the award was tainted with illegality.22 The extent to which the Federal Court leaned towards a pro-arbitration stance can be seen from the court’s judgment when it said:23

if you refer a matter expressly to the arbitrator and he makes an error of law you must take the consequences; you have gone to an arbitrator and if the arbitrator whom you choose makes a mistake in law that is your look-out for choosing the wrong arbitrator; if you choose to go to Caesar you must take Caesar’s judgment.

It is also worth noting that the 1952 Act expressly excludes the court’s jurisdiction in dealing with certain arbitrations. Such was the case in Asia Control Systems Impac (M) Sdn Bhd v PNE PCB Bhd and another appeal,24 where the Court of Appeal dismissed the appellant’s appeal to set aside the arbitral award pursuant to section 34 of the 1952 Act. Section 34 excluded the application of the 1952 Act or other written law to any arbitration held under the United Nations Commission on International Trade Law Arbitration Rules 1976 (the UNCITRAL Arbitration Rules) and the KLRCA Arbitration Rules. Following an analysis of the relevant judgments, the Court held that:

the preponderance of authorities reveals a consistent pattern under s 34(1) ie the Act or other written law shall not apply to an arbitration held under, as in the instant-appeal, the UNCITRAL Arbitration and the Rules of the KLRCA. This exclusionary principle is predominant and prevails, particularly where s 34(1) begins with the words ‘Notwithstanding anything contrary in this Act or any other written law.’

Under the 2005 Act

The position under the 2005 Act is broadly consistent with that under the 1952 Act. In Tan Kau Tiah v Tetuan Teh Kim Teh, Salina & Co & Anor,25 the first respondent had given written undertakings to release the documents of title to the appellant pursuant to a decision by an arbitrator or the court or both. After the arbitrator had rendered an arbitral award in favour of the appellant, the first respondent refused to hand over the documents and, instead, filed a summons seeking interpleader reliefs. The High Court allowed the first respondent’s interpleader application and decided that the first respondent ought to continue to hold the documents pending the proceedings by the second respondent to remove or restrain the arbitrator as well as to have the arbitral award set aside. In addition, the first respondent should continue to hold the documents pending the proceedings by the appellant for leave to enforce the arbitral award against the second respondent.

The appellant appealed. Abdul Malik Ishak JCA, delivering the decision of the Court of Appeal, ordered the immediate return of the documents of title, as the arbitral award was final and binding, irrespective of whether or not there was any pending application to have the order set aside. Accordingly, once the arbitral order was handed down by the arbitrator, the undertaking of the first respondent would come into play and must be given effect.26 Further, as the first respondent had, in his affidavit, employed the disjunctive word ‘or’ in regard to what had to be complied with (namely, that the first respondent would ‘comply with the directions in the arbitration award or a court order’), and the dispute between the parties ended with an arbitral award, the first respondent must by its own admission comply with it.

In SDA Architects v Metro Millennium Sdn Bhd,27 the respondent had filed an originating summons to the High Court seeking direction as to whether the appellant should have been awarded the full costs of the arbitration when it was only partially successful. The High Court had allowed the respondent’s application. However, the Court of Appeal, following the case of Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd,28 said that ‘the Scheme of AA 2005 is to almost prohibit the intervention of court relating to Arbitration Award unless the Act specifically gives jurisdiction and power to intervene’.29 The Court of Appeal concluded that there was no ground to support the respondent’s contention and dismissed the appeal, thereby leaving the arbitral award unchanged.

In The Government of India v Cairn Energy India Pty Ltd & Ors,30 the High Court favoured the view that only where the court is satisfied that there is evidence certain of the matters alleged under section 37 of the 2005 Act, will the court exercise its discretion to intervene for the purposes of setting aside the arbitral award.

In relation to section 38, the Malaysian courts, in adopting a pro-arbitration stance, have applied a narrow interpretation to the twin concepts of public policy and natural justice. In the case of Open Type Joint Stock Co Efirnoye (EFKO) v Alfa Trading Ltd,31 the court had the opportunity to consider these grounds when there were two arbitral awards (one from Russia and the other from Ukraine) rendered over two disputes arising from the same contract. The plaintiff wished to enforce the Russian award, whereas the defendant argued it would be contrary to public policy to enforce contradictory awards, as well as a breach of natural justice as the two tribunals had ‘ignored all propriety and established practice and determined the same issue, effectively twice’.32 Both arguments were rejected by the High Court, which stated that to fall within the public policy ground, the defendant would have to show that enforcement would be ‘wholly offensive to the ordinary, reasonable and fully informed members of the public’.33 Thus, a party wishing to invoke the public policy exception has to overcome a high threshold:34

The thread running through the authorities is that the extent to which the enforcement of the foreign judgment is contrary to public policy must be of a high order to establish a defence. A number of the cases involved questions of moral and ethical policy, fairness of procedure, and illegality of a fundamental nature.

As for the argument on natural justice, it was rejected because the court found that both parties had an equal opportunity to be heard within the relevant arbitration proceeding.35

Enforcement of arbitral awards

The effect of the CREFAA Act36

Although the CREFAA Act was repealed by the 2005 Act, it remains relevant as being a precursor to the now-amended section 38(1) of the 2005 Act.

Prior to the amendment of section 38(1) of the 2005 Act, a declaration in the form of a gazette notification by His Majesty Yang di-Pertuan Agong was held to be a prerequisite to the enforcement of an arbitral award by a party to the New York Convention.37 However, in late 2009, the Federal Court, in Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd38 reversed the decision of the Court of Appeal:

The critical issue is whether a declaration in the Gazette notification by the Yang Di Pertuan Agong is a condition precedent before an award made in a state, who is a party to the NYC, could be regarded as a convention award under the CREFA. In my view, the answer to this question does not depend on whether the word ‘may’ appearing in s 2(2) of the CREFA has to be read to mean ‘must’ or otherwise.39

Prior to the reversal of its decision, the Court of Appeal in Sri Lanka Cricket v World Sports Nimbus Pte Ltd construed the word ‘may’ as ‘must’, rendering it mandatory for His Majesty Yang di-Pertuan Agong to extend the benefit under the CREFAA Act to foreign arbitral awards in order for the same to be enforceable. In Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd, the Federal Court elected to construe the word ‘may’ as simply conferring a power and proceeded to examine whether or not a duty to exercise the power is imposed. The Federal Court’s holding effectively extended the ambit of the word ‘may’ and exemplified the court’s pro-arbitration stance by construing the test in a manner that lowers the required threshold.

In addition, pursuant to the now-amended section 38(1) of the 2005 Act, upon an application in writing, an arbitral award may be enforced by the High Court as a judgment thereof regardless of the arbitral seat. Prior to this, the 2005 Act was silent in this respect. However, with regard to arbitral awards from a foreign state, section 38(1) read with section 38(4) of the 2005 Act specifies that only arbitral awards from countries that are party to the New York Convention are recognised. Thus, it appears that arbitral awards from countries which are not signatories to the New York Convention would not be recognised and cannot be enforced under the 2005 Act.

Interim Relief and Enforcement

Both the 1952 Act and the 2005 Act allow for judicial intervention in specific instances, such as the staying of proceedings,40 granting of interim measures of protection such as security for costs and interrogatories,41 and the enforcement of arbitral awards.42 In 2011, section 11 of the 2005 Act was amended to clarify that the court may also order the preservation of property or other security before or during the arbitral proceedings. In particular, section 11(3) of the 2005 Act now empowers the court to make orders for any interim measures even if the seat of arbitration is outside Malaysia.

There have also been cases considering whether the courts may, pursuant to order 92, rule 4 of the Rules of High Court, use their inherent powers to make orders outside of the circumstances specified. In 2011, however, section 8 of the 2005 Act was amended to read ‘[n]o court shall intervene in matters governed by this Act, except where so provided in this Act’; a change from ‘[u]nless otherwise provided, no court shall intervene in any of the matters governed by this Act’. The explanatory note for this change in the Arbitration (Amendment) Bill 2010 was to limit court intervention to situations specifically covered by the principal Act and to discourage the indiscriminate expansion of the court’s inherent powers

This restriction on the court’s powers can be seen in SDA Architects v Metro Millennium Sdn Bhd,43 where the Court of Appeal held that section 8, read with section 44 of the 2005 Act, prohibited the court from intervening with regard to the arbitral tribunal’s apportionment of costs in an arbitration. In another case, Twin Advance (M) Sdn Bhd v Polar Electro Europe BV,44 the plaintiff tried to argue that the court had inherent jurisdiction to set aside a Singapore-made award. This was rejected by the High Court, which stated that the effect of section 8 of the 2005 Act excluded its inherent powers to modify the substantive provisions of the 2005 Act:45

I am of the view that our s 8 of the AA 2005 which is akin to article 5 of the Model Law as adopted by the AA 2005 should similarly be interpreted in line with the Model Law that the court should exclude its general or residual powers or its inherent jurisdiction to indirectly vary the substantive provisions of AA 2005 which does not categorically provide or intend so.

The judiciary’s commitment to facilitating enforcement of arbitral awards is exemplified in the recent Court of Appeal decision of Agrovenus LLP v Pacific Inter-Link Sdn Bhd and another appeal.46 In this case, the award debtor sought to resist enforcement of the award on the allegation that the tribunal had no jurisdiction to hear the dispute between the parties by relying on various sub-sections of section 39 of the 2005 Act. The opposing party argued that as the award debtor had not raised any objection to the tribunal’s jurisdiction throughout the arbitration proceedings, the award debtor was now estopped from raising such objections to the court. The court of first instance relied on the English decision of Dallah Real Estate and Tourism Co v Ministry of Religious Affairs, Government of Pakistan,47 holding that it had the ability to evaluate the tribunal’s jurisdiction despite the jurisdictional issue having not been raised at an earlier time.

The Court of Appeal, however, overturned the High Court’s decision, holding that the award debtor was effectively estopped from challenging the tribunal’s jurisdiction after the award had already been rendered. In doing so, the Court of Appeal cited Rustall Trading Ltd v Gill & Duffus SA,48 that:

a party to an arbitration must act promptly if he considered that there were grounds on which he could challenge the effectiveness of the proceedings; if he failed to do so and continued to take party in the proceedings, he would be precluded from making a challenge at a later date.

These recent decisions suggest that there is indeed an increasing harmonisation of Malaysia’s arbitration laws with the non-interventionist approach under the Model Law, under the supervision of the Malaysian courts, and in particular the Court of Appeal.

Stay of legal proceedings

Section 10 of the 2005 Act allows a party to apply to the High Court for a stay of legal proceedings if the subject matter of the dispute is subject to an arbitration agreement. Unlike section 6 of the 1952 Act, section 10 of the 2005 Act makes it mandatory for the High Court to grant a stay unless the arbitration agreement is null and void, inoperative or incapable of being performed.49

The courts have continued a pro-arbitration stance by interpreting this provision narrowly;50 as stated by Azahar Mohamed J of the High Court in AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd:51

the provisions of s 10 make it mandatory for the court before which the proceeding is brought in respect of a matter which is the subject of an arbitration agreement to make an order for stay of proceedings and refer the parties to arbitration. The word ‘shall’ that appears in s 10 imposes a mandatory obligation to stay the proceedings and refer the parties to arbitration in respect of matter which is the subject of an arbitration agreement.

Even if there is some doubt as to the validity of the arbitration agreement, the court would lean towards granting a stay for the arbitral tribunal to determine its jurisdiction.52 In TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857, the Court of Appeal ordered a stay of court proceedings in favour of arbitration proceedings pursuant to section 10 of the 2005 Act. The Court of Appeal noted that a court is no longer required to delve into the facts of the dispute when considering an application for stay, so long as the arbitration agreement is not null and void or impossible of performance. This is in accordance with the doctrine of Kompetenz-Kompetenz which provides that the tribunal is able to determine its own jurisdiction.

In KNM Process Systems Sdn Bhd v Mission Biofuels Sdn Bhd,53 the plaintiff had commenced a court action against the defendant in respect of payment for various palm oil products. The defendant sought an application to stay the proceedings under section 10 of the Arbitration Act 2005. The plaintiff in turn argued that section 10 could not apply on the basis that there was allegedly no ‘dispute’, and that it was evident that the defendant was liable to the plaintiff in this regard. The High Court held that under section 10, as amended by the 2011 Amendment Act, it was no longer possible for parties to argue that there was no ‘dispute’ between the parties as a means of escaping an arbitration agreement in favour of court proceedings. The court further provided that the relevant question was whether the matter before the court is encompassed by the arbitration agreement.

Nevertheless, parties wishing to enforce arbitration agreements should still be watchful not to take a step in court proceedings.54 In Lau King Kieng v AXA Affin General Insurance Bhd,55the defendants had requested an extension of time from the plaintiff. The High Court considered the defendants’ request to be an intimation of the defendants’ intention to deliver a statement of defence, which would constitute a step in the proceedings. As such, Stephen Chung JC held that the defendants, by requesting from the plaintiff extension of time for them to file their defence, had in fact abandoned their right to arbitration.56

The KLRCA

The KLRCA was established in 1978 under the auspices of the Asian-African Legal Consultative Organisation (AALCO),57 to provide a forum for the settlement of trade, commerce and investment disputes within the Asia-Pacific region. It was the first of its kind in the region.58 While the KLRCA has the support of the Malaysian government, it is a non-profit organisation and is neither a government branch nor agency.

Despite being the first arbitral institution to be established in the region, up until recently, the KLRCA’s caseload was trailing far behind newer arbitral centres in Singapore, Hong Kong and Australia.59 Its recent efforts, however, has resulted in a resurgence in KLRCA’s regional and global profile. Rejuvenation efforts have also seen a push for arbitration clauses referring disputes to the KLRCA to be included in contracts by government agencies and government-linked companies, marking the increased confidence in and prominence of the KLRCA.60 Under its present management, the ambitions of the KLRCA have taken on an increasingly international flavour. According to Datuk Sundra Rajoo, director of the KLRCA, negotiations with the Permanent Court of Arbitration (PCA) are ongoing, which could see the KLRCA become an alternative venue for PCA cases. Additionally, the KLRCA has also inked a deal with the International Council of Arbitration for Sports, making the KLRCA an alternative hearing centre for international sports disputes. The KLRCA is now aiming for a caseload of 300 cases by 2016.

Currently, about half of the arbitrations conducted under the auspices of the KLRCA originate from the construction sector, while the rest are made up of a mix of commercial, intellectual property, insurance and technology-related disputes. Among these arbitrations, about 20 per cent of the hearings in the KLRCA are international in nature.61 Recognising this demographic, the KLRCA now also functions as the adjudication authority to provide adjudication of construction cases. On 15 April 2014, the Malaysian Construction Industry Payment and Adjudication Act (CIPAA), first passed in June 2012, came into effect.62 Section 32 of the CIPAA empowers the KLRCA to be the adjudication authority responsible for, among others:

  • setting competency standards and criteria of an adjudicator;
  • determining the standard terms of appointment of an adjudicator and fees for the services of an adjudicator;
  • being the administrative support for the conduct of adjudication under the CIPAA; and
  • fulfilling any functions as may be required for the efficient conduct of adjudication under the CIPAA.63

The KLRCA Arbitration Rules

In 2013, the KLRCA revised the KLRCA Arbitration Rules,64 which came into force on 24 October 2013. The new rules apply automatically to all KLRCA arbitrations commenced after 24 October 2013, unless otherwise agreed by the parties.65

Of the many changes made to the KLRCA Arbitration Rules,66 five significant amendments bear highlighting. The first is the introduction of a set of provisions for the appointment of an emergency arbitrator who would have the power to grant emergency interim relief prior to the constitution of the tribunal.67 The appointment procedure of an emergency arbitrator under schedule 2 covers, among others, the time in which the emergency arbitrator is to act, the time within which an award or order should be made by the emergency arbitrator, and the maximum period or periods of time within which such order or award will be binding. This revision serves to ‘provide an option for parties to apply where they require urgent interim relief, increasing party autonomy, providing certainty and minimising judicial intervention’.68

Second, rule 11(8)(a) now empowers the tribunal to award interest both before and after the award. In this regard, rule 11(8)(a) provides that the arbitral tribunal may ‘award interest on any sum of money ordered to be paid by the award on the whole or any part of the period between the date on which the cause of action arose and to the date of realisation of the award’.

Third, for the purposes of ‘strengthen[ing] confidentiality requirements in order to enhance the privacy of any proceedings’,69 rule 15(1) now provides that:

[the] arbitral tribunal, the parties, all experts, all witnesses and the KLRCA shall keep confidential all matters relating to the arbitral proceedings including any award except where disclosure is necessary for purposes of implementation and enforcement or to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right or to challenge an award in bona fide legal proceedings before a state court or other judicial authority.

The ambit of rule 15(1) is wide in that ‘matters related to the proceedings’ encompass pleadings, evidence and other material in the arbitration proceedings, all documents produced by another party, and the award.70

Fourth, rule 13(5) now provides for the director of the KLRCA to fix separate deposits on costs for claims and counterclaims. When the director of the KLRCA has fixed separate advance preliminary deposits on costs, each of the parties shall pay the advance preliminary deposit corresponding to its claims.

The fifth amendment is reflected in the revised schedule of fees and administrative costs. The purpose of the fees and costs revision is to make KLRCA arbitrations ‘more attractive, suitable and competitive [...] maintaining a 20% cost advantage with respect to other institutions’.71

Although these revisions are not unique to the KLRCA Arbitration Rules, they evidence the KLRCA’s efforts in enhancing and streamlining the KLRCA Arbitration Rules to be on par with its international counterparts.

The KLRCA Fast Track Rules

In 2010, the KLRCA launched the KLRCA Fast Track Rules for parties who wish to arbitrate speedily with minimal costs. The KLRCA Fast Track Rules have undergone two revisions, with the most recent revision in 2013.

There have been several changes to the timelines for arbitration commencing under the KLRCA Fast Track Rules. In this regard, the timelines in rule 4 on appointment of arbitral tribunal and in rule 6 have been shortened to provide greater expediency. Rule 11(4) has also been amended to reduce the duration for completion of substantive oral hearings from 40 days to 30 days. As regards fees and administrative costs, rule 19(1) empowers the director of the KLRCA to fix the arbitral tribunal’s fees in accordance with the Schedule of Fees. Rule 19(5) also empowers the director of the KLRCA to determine the appropriate value for a claim or counterclaim in consultation with the arbitral tribunal and the parties for the purpose of computing the arbitrator’s fees and the administrative costs. Finally, rules 21 and 22 of the old KLRCA Fast Track Rules have been removed to give finality to an arbitral award.

The KLRCA i-Arbitration Rules

Since the inception of the KLRCA i-Arbitration Rules in September 2012, the KLRCA remains the only institution in the region to offer resolution of disputes based on shariah principles. Under rule 11, whenever the arbitral tribunal has to form an opinion on a point related to shariah principles or decide on a dispute arising from the shariah aspect of the contract, the arbitral tribunal may refer the matter to the relevant Shariah Advisory Council or shariah expert for its ruling. Rule 13 of the KLRCA i-Arbitration Rules is now modified from the KLRCA Rules, providing that the arbitration costs shall include ‘expenses reasonably incurred by the arbitral tribunal in connection with the reference to a Shariah Advisory Council or Shariah expert under Rule 11’.

The KLRCA’s efforts in integrating shariah-based laws in its rules are an innovative method to fulfil the specialised needs of parties in the region. It should be observed that common law courts are traditionally resistant to classifying shariah principles as an applicable system of law. In the English Court of Appeal case of Shamil Bank of Bahrain v Beximoco Pharmaceuticals Ltd & Ord,72 the court referred to shariah principles as ‘not simply principles of law but principles which apply to other aspects of life and behaviour’. The parties’ own expert witnesses also observed some degree of uncertainty in relation to banking jurisprudence under shariah law. Ultimately, the English Court of Appeal refused to adjudicate the matter under shariah law.

Parties engaged in disputes over shariah-based transactions may be compelled to seek adjudication fora offering recognition of such principles, which would lead to a greater degree of certainty and assurance of due process for the parties. With the promulgation of the KLRCA i-Arbitration Rules, the KLRCA’s enjoys a distinct competitive advantage in this regard.

Outlook and conclusions

Malaysia continues its rapid ascension as a regional centre for international arbitration. The 2005 Act, alongside the 2011 Amendment Act, provides a coherent legislative framework. The liberalisation of the legal market via amendments of the Legal Profession Act ensures the attractiveness of Malaysia as a venue for resolving cross-border disputes. With its unique initiatives, the KLRCA is also poised to capture a significant market in the region. In light of the judiciary’s increasing receptiveness and familiarity with international arbitration practice, Malaysia now enjoys the necessary infrastructure to serve as a cost-efficient centre for effective dispute resolution in the region. With continuing support from the government, the courts and the bold stewardship of the KLRCA, arbitration in Malaysia is set to grow from strength to strength.

Notes

  1. Section 51(2) of the 2005 Act. While there was initially some controversy on the application of the Acts, see: Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd [2008] 7 MLJ 757; followed in Hiap-Taih Welding & Construction Sdn Bhd v Bousted Pelita Tinjar Sdn Bhd (formerly known as Loagan Benut Plantations Sdn Bhd) [2008] 8 MLJ 471. Cf. Majlis Ugama Islam Dan Adat Resam Melayu Pahang v Far East Holdings Bhd & Anor [2007] 10 CLJ 318; Total Safe Sdn Bhd v Tenaga Nasional Bhd & TNB Generation Sdn Bhd [2009] 1 LNS 420, this was resolved by the 2011 amendment to the Bahasa Malaysia text.
  2. Section 42 Arbitration Act 2005.
  3. Section 45 Arbitration Act 2005.
  4. Section 46 Arbitration Act 2005.
  5. Section 12 Arbitration Act 2005.
  6. Section 13(4), (5), (6) Arbitration Act 2005.
  7. Section 13(7) Arbitration Act 2005.
  8. See Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor [2008] 1 MLJ 233, Chut Nyak Isham bin Nyak Ariff v Malaysian Technology Development Corp Sdn Bhd & Ors [2009] 9 CLJ 32, TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 1 LNS 288.
  9. [2008] 1 MLJ 233.
  10. Ibid, per Vincent Ng J paragraph [13].
  11. D-24NCC(ARB)-13 OF 2010.
  12. Derived from Tibor Várady’s ‘On Shifting Players and Roles in the Process of Challenging Arbitrators: A Comment on Sundra Rajoo v Mohammed Abd Majed and Persuatan Penapis Minyak Swait Malaysia (Poram)’. The Practice of Arbitration: Essays in Honour of Hans Van Houtte. Edited by Patrick Wautelet, Thalia Kruger, and Govert Coppens (Oxford: Hart Publishing, 2012). pp37–44.
  13. Companie Européenne de Céreales SA v Tradax Export SA (1986) QB (Comm Ct) 301.
  14. K/S Norjarl A/S v Hyunday Heavy Industries Co Ltd [1992] Q.B. 863 at 885.
  15. ‘KLRCA declares war on corruption’ – Invest KL, www.investkl.gov.my/v1/[email protected]_declares_war_on_corruption.aspx (accessed 22 April 2015).
  16. Sebastian Perry, ‘UK arbitrator charged with bribery in Malaysia’, Global Arbitration Review, 28 June 2013, www.globalarbitrationreview.com/news/article/31692/ (accessed 13 June 2014).  
  17. ‘Bribery probe began late last year, says MACC’, The Star Online, 27 June 2013, www.thestar.com.my/News/Nation/2013/06/27/Bribery-probe-began-late-last-year-says-MACC.aspx (accessed 22 April 2013).
  18. [2011] 6 MLJ 441.
  19. Ibid, at paragraph [30].
  20. Ibid, at paragraph [30].
  21. Ibid, at paragraph [36].
  22.  Ibid, at paragraph [36].
  23.  Ibid, at paragraph [53].
  24.  [2010] 4 MLJ 332.
  25.  [2010] 4 CLJ 914.
  26. On further appeal on a separate question, the Federal Court set aside the Court of Appeal’s decision, albeit on a separate question and separate basis. See Tetuan Teh Kim Teh, Salina & Co (Satu Firma) v Tan Kau Tiah @ Tan Ching Hai & Anor [2013] MLJU 500. Importantly, the Federal Court, while eventually setting aside the Court of Appeal’s ruling, did not disagree with the Court of Appeal’s holding that an arbitral award is final and binding.
  27.  [2014] MLJU 28.
  28.  [2010] 5 CLJ 83.
  29.  Ibid, at paragraph 10(a).
  30.  [2014] 9 MLJ 149.
  31.  [2012] 1 MLJ 685.
  32.  Ibid, at paragraph [38].
  33.  Ibid, at paragraph [39].
  34. Ibid, at paragraph [40].
  35.  Ibid, at paragraph [38].
  36.  Also known as the New York Convention.
  37. [2006] 3 MLJ 117. This decision was reaffirmed by the Court of Appeal in Alami Vegetable Oil Products Sdn Bhd v Lombard Commodities Ltd [2009] 3 MLJ 289.
  38.  [2010] 2 MLJ 23.
  39. Ibid, at paragraph [21].
  40. Section 6 Arbitration Act 1952 and Section 10 Arbitration Act 2005.
  41. Section 13 Arbitration Act 1952 and Section 11 Arbitration Act 2005.
  42. Section 27 Arbitration Act 1952 and Section 38 Arbitration Act 2005.
  43.  [2014] MLJU 28 at paragraph [10].
  44.  [2013]7 MLJ 811 at paragraph [39].
  45.  Ibid, at paragraph [39].
  46. [2014] 3 MLJ 648.
  47.  [2009] EWCA 755.
  48.  [2000] 1 Lloyd’s Rep 14.
  49. In the 2011 Amendments, section 10(1) was amended to remove the ground to resist a stay of proceedings if ‘there is in fact no dispute between the parties’. Sections 10(4) and 11(3) were also added to clarify that a stay of proceedings may be ordered even if the seat of arbitration is not in Malaysia.
  50. See Chut Nyak Hisham Nyak Ariff v Malaysian Technology Development Corporation Sdn Bhd [2009] 9 CLJ 32; Renault Sa v Inokom Corporation Sdn Bhd & Anor and Other Applications [2010] 5 CLJ 32; Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd [2010] 7 CLJ 785; and AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd [2011] 8 MLJ 792.
  51. [2011] 8 MLJ 792 at paragraph [4].
  52. See, eg, TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857.
  53. [2012] MLJU 1218.
  54. Winsin Enterprise Sdn Bhd v Oxford Talent (M) Bhd [2010] 3 CLJ 634.
  55. [2014] 8 MLJ 883.
  56. Ibid, at paragraphs [34] to [35].
  57. The AALCO is currently made up of 47 member countries and has to date five regional centres: in Cairo, Lagos, Tehran, Nairobi, and of course Kuala Lumpur. See ‘Member States’, AALCO, www.aalco.int/scripts/view-posting.asp?recordid=3 (accessed 13 June 2014).
  58. ‘About KLRCA’, Kuala Lumpur Regional Centre for Arbitration, http://klrca.org.my/about/ (accessed 13 June 2014).
  59. Risen Jayaseelan, ‘New Life for Arbitration’, The Star Online, 1 January 2011, www.thestar.com.my/story.aspx?sec=prodit&file=%2f2011%2f1%2f1%2fbusiness%2f7719437 (accessed 22 April 2015).
  60. Ibid.
  61. Datuk Sundra Rajoo’s Speech at the launch of KLRCA’s Revised Rules 2013: http://klrca.org.my/speeches/datuk-sundra-rajoos-speech-at-the-launch-of-klrcas-revised-rules-2013/ (accessed 2 May 2014).
  62. KLRCA, http://klrca.org.my/rules/adjudication/#PartV-AdjudicationAuthority (accessed 18 June 2014).
  63. Ibid.
  64. Newsletter of Kuala Lumpur Regional Centre for Arbitration, Jul–Sept 2013: www.klrca.org. my/userfiles/File/KLRCA_Newsletter_JulSept_2013_Web.pdf (at 2 May 2014), at p7.
  65. Rule 1(2) of the 2013 KLRCA Arbitration Rules.
  66. Other revisions not covered herein are: rule 6(1) making Malaysia the seat of arbitration in default of agreement; rule 4 refining the KLRCA Director’s role in the appointment of arbitrators; rule 8 introducing consolidation of proceedings and concurrent hearings; and rule 12(9) allowing for the arbitral tribunal to apportion fees and costs relative to the parties’ claim and counterclaim.
  67. Rule 7(2) read with schedule 2 of the 2013 KLRCA Arbitration Rules.
  68. KLRCA, http://klrca.org.my/wp-content/uploads/2013/11/2013Q3newsletter4.pdf at p7.
  69. Ibid, at p9.
  70. Rule 15(2) of the KLRCA Arbitration Rules.
  71. KLRCA, http://klrca.org.my/wp-content/uploads/2013/11/2013Q3newsletter4.pdf, page 10.
  72.  [2004] EWCA Civ 19.

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