Malaysia

In the competition to become Asia’s leading arbitration hub, some might view Malaysia as the underdog. The country would not compare itself to Singapore and Hong Kong; rather, it views itself in a league of its own. Malaysia retains certain key attractions that makes it a promising contender to become a major arbitration hub in the region. Such grandiose titles are not earned in a day, however, and Malaysia is continuously developing and recasting its rules and laws on arbitration, which makes it a place worth watching. This article is based on the Malaysia chapter in this book’s 2013 edition,1 and introduces the major changes and significant developments in international arbitration undergone by both these jurisdictions since 2011.

There have been several key developments in Malaysia. The Kuala Lumpur Regional Centre for Arbitration (KLRCA) has continued to innovate and set ambitious goals to develop the country as a premier arbitration hub. Not only has the KLRCA updated its Arbitration Rules, it has also broken new ground by introducing new rules to deal with Islamic disputes. In addition, despite recent news concerning bribery charges against an arbitrator, the prompt and efficient response from the arbitration community and institutions in Malaysia demonstrates its continued efforts to stand strong against corruption and bribery.

Arbitration in Malaysia is governed by the Arbitration Act 2005 (the 2005 Act) and, to some extent, the Arbitration Act 1952 (the 1952 Act). As will be discussed in this chapter, the provisions of the 2005 Act and the 1952 Act remain, to a certain extent, interestingly at odds. In addition, parties are at liberty to turn to institutional support such as choosing to have their arbitrations conducted in accordance with the arbitration rules under the KLRCA. This chapter will also trace and discuss the history and progress of the KLRCA in promoting Malaysia as an arbitration-friendly country.

The appeal of Malaysia as an arbitration hub

Malaysia has been rigorously taking steps to develop itself into the preferred country for arbitration and is now fast becoming one of the key arbitration hubs in the Asia-Pacific region. Progress is further enhanced by a supportive government and arbitration-friendly courts in Malaysia, which, coupled with the aggressive marketing of the KLRCA as the preferred arbitral institution, will see the country soar to greater heights.

Apart from the robust push by the various establishments, one of the many advantages in choosing Malaysia as an arbitral forum is the savings in costs and expenditure. Taking the KLRCA as a prime example, it has a very transparent fee structure and the cost of conducting arbitral proceedings in the centre is only about 60 per cent of what it would cost in Singapore. In addition, ancillary costs and expenses such as food, accommodation and transport are significantly lower in Malaysia. Having arbitral proceedings conducted in Malaysia is therefore affordable and accessible.

Rise of arbitration: pre–19522

Prior to the formation of the Federation of Malaya on 31 January 1948, and the subsequent enactment of the 1952 Act, the Arbitration Ordinance XIII of 1809 of the Straits Settlements was British Malaya’s first piece of arbitral legislation. The acceptance of the Arbitration Ordinance XIII of 1809 came as a result of the many treaty arrangements that the sultans of the Malay states had entered into with the British, thereby introducing the British legal system into the country.3 The Arbitration Ordinance XIII of 1809 was subsequently replaced in the states of Penang and Malacca by the Arbitration Ordinance 1890.4 Thereafter, in 1950, the Arbitration Ordinance 1950 replaced the Arbitration Ordinance 1890 for all the states of the Federation of Malaya. The Arbitration Ordinance 1950 was based on the English Arbitration Act of 1889.

In 1952, British North Borneo and Sarawak adopted the English Arbitration Act of 1950 as their legislation. Pursuant to North Borneo and Sarawak joining the Federation of Malaysia in 1963, Malaysia adopted the prevailing arbitration laws in Sabah and Sarawak on 1 November 1972, which became known as the Arbitration Act 1952. This was based on the English Arbitration Act 1950 and initially enacted as the Sarawak Ordinance No. 5 of 1952.5 The 1952 Act governed arbitrations in Malaysia for over half a century, contributing to a substantial pool of arbitral authorities and decisions.

Out with the old: the Malaysian Arbitration Act 1952

In 2005, the Malaysian arbitration scene underwent an interesting phase during which the long-standing 1952 Act was repealed by the current 2005 Act, making Malaysia ‘the last major jurisdiction in the common law world to embark on a wholesale revision of its arbitration law.’6 Prior to its repeal, the regime under the 1952 Act was central to the evolution and advancement of the arbitral scene in Malaysia. However, the 1952 Act was also plagued with certain shortcomings that ultimately led to its legal demise.

The discussion below on the 2005 Act will address some of the problems encountered by the judiciary when applying and interpreting the 1952 Act, which has now been superseded by the provisions of the 2005 Act. Notwithstanding the issues with the 1952 Act, the discussion on the 2005 Act will also highlight the need for additional clarification in terms of certain provisions of the 2005 Act.

In with the new: the Malaysian Arbitration Act 2005

The 2005 Act was enacted on 30 December 2005 and came into force on 15 March 2006. The 2005 Act, which is largely modelled after the UNCITRAL Model Law and the New Zealand Arbitration Act 1969, applies to all arbitral proceedings commenced on or after 15 March 2006. The application of either the 2005 Act or the 1952 Act to arbitral proceedings commenced before 15 March 2006 remains, albeit to a lesser extent, in flux as learned judges differ in their legal views.

To say that the 2005 Act simply repealed the 1952 Act would not give enough credit to the extensive work undertaken to not only replace the 1952 Act, but also improve upon the old regime. Given that the aim of the 2005 Act was to harmonise the laws governing arbitrations in Malaysia with other leading arbitration centres, the implementation of the provisions of the 2005 Act have proven very successful.

The 2005 Act or the 1952 Act?

Despite the improvements created by the provisions of the 2005 Act, its entry into force nonetheless generated some confusion and ambiguity with regard to arbitrations in Malaysia that commenced after 15 March 2006, but which arose from contracts and agreements entered into before this date.

This was observed in the case of Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd.7 In arriving at its decision,8 the court considered the fact that the arbitration agreement – particularly clause 63.5, which made explicit reference to the 1952 Act – granted parties rights under the 1952 Act should any dispute arise between them. The court also took into consideration the different wording used in the Malaysian-language version of the 2005 Act, which clearly states that the Act does not apply to arbitral proceedings arising out of an arbitration agreement entered into before 15 March 2006 or to arbitral proceedings commenced before 15 March 2006. Although the English-language version of the 2005 Act provided that the 2005 Act applies to all arbitral proceedings commenced on or after 15 March 2006 (without making distinctions on when the arbitration agreement was entered into) and Section 117 of the Interpretation Acts 1948 and 1967 clearly provides that in the event of any conflict or discrepancy, the English version will prevail, the court felt that this was ‘not a situation where there is a conflict or inconsistency between the wordings in the English text and the [Malay] text but is a correlative by the [Malay] text to the interpretation of the defective provision in the English text by applying the purposive approach’.9 This decision has been followed in the case of Hiap-Taih Welding & Construction Sdn Bhd v Boustead Pelita Tinjar Sdn Bhd (formerly known as Loagan Benut Plantations Sdn Bhd).10

However, before the decision of Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd was delivered, the High Court in the case of Majlis Ugama Islam Dan Adat Resam Melayu Pahang v Far East Holdings Bhd & Anor,11 in deciding which statute was applicable to a dispute arising out of an agreement entered into by the parties in 1992, held that since the arbitral proceedings had commenced on 16 October 2006, the 2005 Act and not the 1952 Act would be applicable.

Further, in the case of Total Safe Sdn Bhd v Tenaga Nasional Bhd & TNB Generation Sdn Bhd,12 a decision made after the case of Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd, the court also held that the statute applicable to a dispute arising out of an agreement dated 5 July 2002 should be the 2005 Act as the arbitral proceedings had commenced subsequent to the 2005 Act coming into force.

It is also interesting to note Segamat Parking Services Sdn Bhd v Majlis Daerah Segamat Utara & Anor Case.13 In this case, the arbitral proceedings, which were governed by the 1952 Act, had ended. The parties to the arbitral proceedings, being dissatisfied with the arbitral award given, commenced separate judicial proceedings against each other. One party had referred certain questions of law to the court under the 2005 Act while the other challenged the arbitral award pursuant to the provisions under the 1952 Act. The High Court ruled that the applicable statute was the 2005 Act as all proceedings (arbitration and court) relating to the final arbitral award were instituted after the effective date of the 2005 Act.

As to the issue in Segamat Parking Services Sdn Bhd v Majlis Daerah Segamat Utara & Anor Case, the Arbitration (Amendment) Act 2011, with the insertion of section 51(4), had clearly taken notice. Section 51(4) of the 2005 Act now provides for the 2005 Act to apply to any court proceedings relating to arbitration that began after the commencement of the 2005 Act. In light of these decisions, the difficulty in reconciling the application of the 2005 Act and the 1952 Act in relation to arbitral proceedings commenced prior to, or after, the 2005 Act has been reduced. However, there still appears to be ambiguity and inconsistency as to which Act would apply to arbitral proceedings commenced on or after 15 March 2006, but which arise out of arbitration agreements entered into before the said date. It will be interesting to see how the courts in Malaysia will address this aspect of the law.

The 2005 Act – better than the 1952 Act?

There are quite a number of differences between the 2005 Act and the 1952 Act, and these differences, as briefly mentioned above, are necessary to enhance the reliability of the laws on arbitration in Malaysia. This chapter will not attempt to analyse in depth each provision of the 2005 Act and the 1952 Act. Instead, this chapter seeks to address the more prominent and noteworthy improvements introduced and implemented under the 2005 Act.

The 2005 Act is divided into four parts. Part I (sections 1 to 5) deals with preliminary issues such as key definitions, the commencement of arbitral proceedings and the arbitrability of the subject matter in dispute. Part II (sections 6 to 39) is where the essence of the 2005 Act lies. It covers the important 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 as well as the recourse against and enforcement of arbitral awards. Part III (sections 40 to 46) deals chiefly with judicial control over the arbitral proceedings such as the determination of preliminary points of law by the courts, extensions of time for commencing arbitral proceedings and making of arbitral awards. Part IV (sections 47 to 51) covers miscellaneous issues such as the liability of the arbitrators and the immunity of arbitral institutions.

Court’s assistance

Under the 1952 Act, all arbitrations held in accordance with the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the ICSID Convention), the United Nations Commission on International Trade Law Arbitration Rules 1976 (the UNCITRAL Arbitration Rules) or the KLRCA Arbitration Rules were governed by section 34.14 As such, arbitrations governed by section 34 were not subject to judicial intervention, except for the purposes of enforcement of arbitral awards, as it was expressly provided that the provisions under the 1952 Act would not be applicable.15

The problems created by section 34 of the 1952 Act raised some serious doubts as to its purpose, since removing certain arbitrations from the reach and assistance of the judiciary could halt, and possibly set back, the progress made thus far. One of the difficulties in adhering to section 34 of the 1952 Act was in the enforcement of domestic arbitral awards which applied either the UNCITRAL Arbitration Rules or the KLRCA Arbitration Rules. Section 34 provided that such domestic arbitral awards would not be enforced in the same manner as a judgment or order to the same effect.16 On the other hand, such domestic arbitral awards would not be capable of enforcement under the ICSID Convention or the Convention on the Recognition and Enforcement of Foreign Awards (the New York Convention) as these conventions are only applicable to arbitral awards made with a foreign element.

In this regard, where the 1952 Act stumbles the 2005 Act picks up the baton and, as such, does away with the exclusion of judicial assistance in international arbitrations. The 2005 Act does not seek to oust international arbitrations from the court’s assistance. On the contrary, it expressly extends the reach of the court in certain situations; for instance, interim support for the arbitral proceedings, the consideration of the arbitrability of the subject matter of the dispute and the determination of public policy in relation to the arbitral awards.

The distinction between international and domestic arbitrations

Whereas the 1952 Act makes no distinction between domestic arbitrations and international arbitrations and applies to both, it is now necessary under the 2005 Act to make the distinction in order to determine the applicability of the relevant sections of the 2005 Act.

Firstly, pursuant to section 3 of the 2005 Act, the applicability of part III hinges upon the question of whether or not an arbitration is ‘international’ or ‘domestic’. In a domestic arbitration, part III of the 2005 Act applies by default unless the parties to the arbitral proceedings 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, notwithstanding any limitations imposed by the arbitration agreement; for instance, by allowing any party to the arbitral proceedings to refer to it any question of law arising out of an arbitral award17 and allowing the court to extend the time imposed for the commencement of arbitral proceedings18 or the delivery of an arbitral award.19

Secondly, the distinction between domestic arbitrations and international arbitrations also goes towards deciding the outcome of the application of section 12(2) of the 2005 Act. Section 12(2) provides that in the event that 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.

Thirdly, section 30 of the 2005 Act provides that in respect of domestic arbitrations, 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.

Finally, the characterisation of arbitral proceedings as either domestic or international is also necessary in order to determine the recognisability and enforceability of the arbitral award. An arbitral award made pursuant to an international arbitration in Malaysia does not fall within the ambit of sections 38 and 39 of the 2005 Act, as will be explained below.

The arbitral tribunal

Both the 1952 Act and the 2005 Act recognise the principle of party autonomy. Section 8 of the 1952 Act provides that, unless a contrary intention is expressed, an arbitration agreement is deemed to include a provision that the arbitral panel shall consist of a sole arbitrator. The 1952 Act also provides that in the event that the arbitration agreement makes reference to two or three arbitrators, there shall be an umpire appointed by the arbitrators chosen by both parties to the arbitral proceedings. Failing that, or any agreement between the parties, section 12 of the 1952 Act provides that the High Court may appoint the same.

Although there are no specific provisions in the 1952 Act similar to those in the 2005 Act, it is advisable for an appointed arbitrator to disclose any interest which he or she might have in the outcome of the arbitration or circumstances that would cast doubt on his impartiality and independence. Otherwise, under section 25 of the 1952 Act, the court may grant relief to a party to the arbitral proceedings in the event that an arbitrator is found not to be impartial. Such relief includes the granting of an injunction to restrain the arbitrator in question from proceeding with the arbitration.

Like section 12 of the 1952 Act, the same section under the 2005 Act states that parties to the arbitral proceedings are free to determine and decide on the number of arbitrators to preside over the arbitral proceedings. Section 12 of the 2005 Act also provides for instances where the parties to the arbitral proceedings are unable to agree on the number of arbitrators. As mentioned above, depending on whether it is a domestic arbitration or an international arbitration, the 2005 Act prescribes that a sole arbitrator shall be appointed for domestic arbitrations, while three arbitrators shall be appointed for international arbitrations.

The procedures for the appointment of arbitrators are provided for under section 13 of the 2005 Act. Section 13 of the 2005 Act gives ample liberty to parties to determine the procedures that are to be adopted with regard to the appointment of arbitrators. Section 13 of the 2005 Act further provides for resolution mechanisms in the event that parties to the arbitral proceedings are unable to come to an agreement. For example, pursuant to section 13(7) of the 2005 Act, should the director of the KLRCA fail to appoint the relevant number of arbitrators under sections 13(4) and (5) of the 2005 Act, either party to the arbitral proceedings may then apply to the High Court for such an appointment.20

Section 14 of the 2005 Act makes it mandatory for a person who is appointed as an arbitrator to disclose any circumstances that are likely to give rise to justifiable doubts as to his impartiality or independence as this is a ground for challenging arbitrators. Section 14 of the 2005 Act also states that an arbitrator may be challenged if he does not possess the requisite qualifications agreed to by the parties.

Section 15 of the 2005 Act goes a step further and provides for the procedures that are to be adopted when challenging an arbitrator. Section 16 of the 2005 Act deals with when an appointed arbitrator fails to act or when it becomes impossible for the arbitrator to act whereas section 17 of the 2005 Act provides for matters relating to the appointment of a substitute arbitrator in the foregoing event.

Unlike the 1952 Act, which does not allow the arbitral tribunal to determine its own jurisdiction, the 2005 Act, by virtue of section 18, grants the arbitral tribunal the authority to rule on its own jurisdiction, that is, the concept of Kompetenz-Kompetenz. This includes matters relating to the validity of the arbitration agreement. Section 18 of the 2005 Act also provides for the procedures and time limits for raising objections to the arbitral tribunal’s jurisdiction. It also provides for appeal to the court, which shall have the final say, with regard to the arbitral tribunal’s ruling on its jurisdiction. The courts in the cases of Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor21 and CMS Energy Sdn Bhd v Poscon Corp21 have all observed that under the 2005 Act, an arbitral tribunal may determine its own jurisdiction.

Unlike the 1952 Act, section 19 of the 2005 Act allows arbitral tribunals to grant interim measures, which, inter alia, include security for costs and discovery of documents. However, the 2005 Act is silent on whether or not an arbitral tribunal can grant any of the interim measures on an ex parte application.

The procedure for arbitration

Unlike the 1952 Act, the adoption of arbitration procedures is provided for under sections 20 to 29 of the 2005 Act. Section 21(1) of the 2005 Act provides that parties to the arbitral proceedings are free to agree on the procedures to be followed by the arbitral tribunal in conducting the arbitral proceedings. Section 21(2) of the 2005 Act provides that the arbitral tribunal may conduct the arbitral proceedings in the manner that it considers appropriate if parties to the arbitral proceedings are unable to come to an agreement. These include powers of the arbitral tribunal to determine the admissibility, relevance, and materiality of any evidence as well as fixing and amending time limits.

Judicial intervention

Both the 1952 Act and the 2005 Act allow for the intervention of the judiciary in certain instances. Such intervention includes, inter alia, the staying of proceedings,22 granting of interim measures of protection such as security for costs and interrogatories,24 and the enforcement of arbitral awards.25 In terms of the changes introduced by the Arbitration (Amendment) Act 2011, section 11 of the 2005 Act has been amended to clarify that in order to secure the amount in dispute, the court may order the arrest of property, bail 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. This clarification in law will be of particular interest to parties involved in disputes relating to assets in Malaysia, but which are being arbitrated in other jurisdictions, such as Singapore.

It is necessary to consider whether limitations placed on the intervention by the court can be circumvented by the court invoking its inherent powers. Prior to the commencement of the 2005 Act, there were two conflicting decisions of the Court of Appeal. In the case of Sarawak Shell Bhd v PPES Oil and Gas Sdn Bhd,23 the court held that it had no power to intervene unless it was statutorily empowered to do so. In contrast, in the case of Bina Jati Sdn Bhd v Sum Projects (Bros) Sdn Bhd,24 the Court of Appeal was of the view that the courts had a supervisory jurisdiction over arbitrations and arbitrators, and that the court may invoke Order 92, Rule 4 of the Rules of High Court 1980 to make any order that may be necessary to prevent injustice.

The issue has been given significant consideration in the case of Aras Jalinan Sdn Bhd v Tipco Asphalt Public Company Ltd & Ors,25 where it was held that the High Court in Malaysia ‘has no jurisdiction, statutory or inherent or by the exercise of residual powers to grant injunctive relief in matters where the seat of arbitration is outside Malaysia’.26 In reaching his decision, Badariah Sahamid JC compared section 8 of the 2005 Act to article 5 of the UNCITRAL Model Law and found that the rationale behind both provisions is to ‘bring certainty to arbitration proceedings by setting out the specific parameters of court assistance or supervision in respect of such proceedings’.30 Given that the 2005 Act did not expressly adopt article 1(2) of the UNCITRAL Model Law when it incorporated the other provisions, it cannot be said that the intention of the Parliament was to confer express jurisdiction to the courts where the seat of arbitration is not Malaysia. It remains to be seen how much further the courts will apply section 8 of the 2005 Act and whether its powers to intervene in arbitral proceedings would be limited to those that are specifically provided for under the Act.

Section 22 of the 1952 Act provides that the arbitrator or umpire may submit any question of law arising in the course of arbitration or from an arbitral award or any part thereof to the High Court. Similarly, section 41 of the 2005 Act provides that a party to the arbitral proceedings may apply to the High Court for the determination of any question of law arising in the course of arbitration with the consent of the arbitrator or all parties to the arbitral proceedings. Additionally, section 42 of the 2005 Act, which provides that any party to the arbitral proceedings may refer any question of law arising out of an arbitral award to the High Court, also states that one of the options available to the High Court after determining the question submitted is to set aside the arbitral award in whole or in part. However, the High Court shall dismiss such a reference if the question of law does not affect the rights of one or more of the parties to the arbitral proceedings.27 It should be noted that both these provisions are contained in Part III of the 2005 Act, which, by default, applies only to domestic arbitrations but not to international arbitrations unless the parties expressly choose to exclude or include them respectively.

Views have persisted that intervention remain crucial when there is a ‘patent injustice’28 or if the court exercises its ‘inherent jurisdiction’.29 The amendment of section 8 may curtail these circumstances as it now restates the provision to read: ‘No Court shall intervene in matters governed by this Act, except where so provided in this Act.’ 30

However, on the matter of granting injunctions, in the more recent case of Plaza Rakyat Sdn Bhd v Datuk Bandar Kuala Lumpur31 which came after the amendments, the court held that injunctions do not amount to court intervention and serve to preserve the subject matter referred to arbitration. Indeed, the court did grant an injunction in the case in order to maintain the status quo.

Arbitral awards

Although there is no definition of ‘award’ in the 1952 Act, section 15 states that a reference to ‘award’ in the 1952 Act includes a reference to interim awards as well. Section 2(1) of the 2005 Act defines an arbitral award as a decision of the arbitral tribunal on the substance of the dispute and that it includes 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.

Unlike the 1952 Act, section 33 of the 2005 Act provides that an arbitral award should be in writing and signed by the arbitral tribunal. If there is more than one arbitrator, the signatures of the majority would be sufficient provided that the reason for any omission is stated. Section 33 further provides that the arbitral award should state the reasons upon which it is based unless the parties to the arbitral proceedings had agreed otherwise or if the arbitral award is on agreed terms. The arbitral award shall also state the date and the seat of the arbitration.

Both section 18 of the 1952 Act and section 35 of the 2005 Act allow the arbitrator or umpire to correct any clerical error, accidental slip or omission in an arbitral award. Additionally, section 35 of the 2005 Act allows a party to request the arbitral tribunal to give an interpretation of a specific point or part of the arbitral award.

Section 37 of the 2005 Act provides two bases on which an arbitral award may be set aside. The first is when a party making the setting-aside application proves one of the limited instances that justify the setting aside of the arbitral award. Such instances include proving that the other party to the arbitral proceedings did not have the capacity to enter into the arbitration agreement, the arbitration agreement was invalid under the laws of Malaysia, proper notice of the appointment or constitution of the arbitral tribunal or arbitral proceedings was not given, or that the arbitral award deals with a dispute not falling within the terms of the submission of arbitration.32 The second basis for setting aside the arbitral award is a finding by the court that the dispute is not capable of being settled by arbitration under the laws of Malaysia or that the arbitral award is in conflict with the public policy of Malaysia. It is to 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. In addition, as mentioned earlier, section 42 of the 2005 Act allows the court to set aside an arbitral award to which a question has been referred for its determination.

Enforcement of arbitral awards is dealt with under section 27 of the 1952 Act and sections 38 and 39 of the 2005 Act. Section 38 of the 2005 Act also provides for the procedures that a party to the arbitral proceedings needs to comply with when seeking to enforce an arbitral award. Section 39 of the 2005 Act sets out the grounds on which the recognition or enforcement of an arbitral award shall be refused.

It is also to be noted that the 2005 Act does not repeal the Reciprocal Enforcement of Judgments Act 1958 (REJA 1958), which provides for the enforcement of an arbitral award from Commonwealth countries and scheduled countries as if it were a foreign judgment, provided that it is first registered in the courts of the country in which the arbitral award was given.

Pro-arbitration: 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 or if there exists no dispute between the parties with regard to the matters to be referred to arbitration.

In Chut Nyak Hisham Nyak Ariff v Malaysian Technology Development Corporation Sdn Bhd,33 the court took the occasion to restate the desire of the legislature to reform the law relating to arbitration and to give primacy to arbitral proceedings over court proceedings in circumstances where parties have agreed to resolve their disputes by arbitration. The High Court stated that it would be rare for a court not to grant a stay of legal proceedings under the 2005 Act. This is reaffirmed in both Renault Sa v Inokom Corporation Sdn Bhd & Anor and Other Applications34 and Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd.35 In the latter case, Abdul Malik Ishak JCA further emphasised the desirability of arbitration regardless of parties’ motives in favouring arbitration over litigation. In coming to his decision, the learned judge held that the contract in dispute ‘must be referred to arbitration. There are no two ways about it.’36

Similarly, in the case of Winsin Enterprise Sdn Bhd v Oxford Talent (M) Bhd37 the court noted that under the 1952 Act, the court would not grant a stay of court proceedings unless the applicant had demonstrated that he was ready and willing to arbitrate the dispute. While that is the position under the 1952 Act, there is no such similar requirement under the 2005 Act. The court held that in both the 1952 Act and the 2005 Act, a stay of court proceedings will not be granted if the applicant has taken part in the court proceedings.

In addition to the two instances provided for under section 10 of the 2005 Act, the decision in Lembaga Pelabuhan Kelang v Kuala Dimensi Sdn Bhd & Another Appeal38 seems to give rise to a further ground for not granting a stay of court proceedings in rare circumstances where estoppels will arise. Although the general rule under section 10 of the 2005 Act still stands, when parties to the arbitral proceedings have subsequently displaced their original discretion to refer their disputes to arbitration by expressly submitting to the jurisdiction of the courts, the doctrine of estoppel may be invoked to prevent a party from asserting otherwise.

All in all, the approach taken by the Malaysian courts in terms of their inclination towards arbitrations can be summed up by the words in the case of CMS Energy Sdn Bhd v Poscon Corp39 that ‘there is unmistakable intention of the legislature that the court should lean towards arbitration proceedings’.

Appeal against arbitral awards

There is no appeal procedure against an arbitral award in both the 1952 Act and the 2005 Act. However, there exists under both Acts, provisions relating to the setting aside of an arbitral award. 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. In Cairn Energy India Pty Ltd v the Government of India,40 the Court of Appeal held that, under the 1952 Act, an arbitral award is ordinarily final and conclusive unless a contrary intention is provided for in the arbitration agreement. Accordingly, civil courts have no appellate jurisdiction over the arbitrator’s decision if it has been fairly reached. However, the court may still decide to set aside an arbitral award if there was an error of law on the face of the arbitral award. This is based on common law principles. Jeffery Tan JCA stated:

The remedy of ‘error of law on the face of the award’ was not provided in the Arbitration Act 1952. But Malaysian law was not and is not limited to the Arbitration Act alone.… Courts in Malaysia have regularly considered arbitration applications on the basis that error of law on the face of the award is available for consideration under our law.41

The Court of Appeal, however, stressed that this was a limited exception and would be applied only if the court found in the arbitral award, or any documents actually incorporated into it, some legal proposition that formed the basis of the arbitral award and which was erroneous. The Court of Appeal was of the view that a question of construction was a question of law and if the question of construction itself was the very thing that had been referred to the arbitrator for determination, the court would not set aside the findings of the arbitrator only because the court would have come to a different conclusion. Further, the Court of Appeal also stated that an erroneous decision of an arbitrator on a specific question of construction did not in itself render the award capable of being set aside.

A similar position was adopted in Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd42 where the court held, inter alia, that the 2005 Act makes it compulsory for the courts to respect the decision of the arbitrator and that real proof is required before the courts would meddle with the recognition and enforcement of an arbitral award. The finality of an arbitral award is again observed in Ngo Chew Hong Oils & Fats (M) Sdn Bhd v Karya Rumpun Sdn Bhd43 where a mere filing of an affidavit to oppose registration, instead of making an application, is deemed insufficient to set aside an arbitral award.

In Asia Control Systems Impac (M) Sdn Bhd v PNE PCB Bhd and another appeal,44 it is apparent that the Malaysian courts have adopted a pro-arbitration stance by endorsing the UNCITRAL Arbitration Rules. The appellant had attempted to set aside an arbitral award made pursuant to the UNCITRAL Arbitration Rules and the KLRCA Arbitration Rules. The High Court dismissed the appellant’s application and allowed the respondent’s application for leave to enforce the arbitral award. On appeal, the Court of Appeal dismissed the appellant’s appeal and held that section 34 of the 1952 Act excluded the application of the 1952 Act or other written law to any arbitration held under the UNCITRAL Arbitration Rules and the KLRCA Arbitration Rules.

Further, in Tan Kau Tiah v Tetuan Teh Kim Teh, Salina & Co & Anor,45 the first respondent had given written undertakings to release the documents of title to the appellant when the matter was decided by an arbitrator or the court or both. The arbitrator handed down an arbitral award in favour of the appellant, but the first respondent refused to hand over the documents and 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 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 against the decision of the High Court.

It was held by the Court of Appeal that the order for the immediate return of the documents of title was final and binding, irrespective of whether or not there was any pending appeal to have the order set aside. 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. Further, as the first respondent had, in his affidavit, employed the disjunctive word ‘or’ in regard to what had to be complied with (namely either an arbitral award ‘or’ a court order). Thus, the dispute between the parties ended with an arbitral award, the first respondent must by its own admission comply with it.

Arbitration developments: CREFAA Act46

The Convention on the Recognition and Enforcement of Foreign Arbitral Award (CREFAA) Act, though repealed by the 2005 Act, is still relevant as it had, prior to the amendment of section 38(1) of the 2005 Act, provided for the enforcement of arbitral awards pursuant to arbitration agreements under the New York Convention or arbitrations held outside Malaysia in states that are party to the New York Convention.

In Sri Lanka Cricket v World Sports Nimbus Pte Ltd,47 the Court of Appeal held that a gazette notification by His Majesty Yang Di-pertuan Agong was a prerequisite before enforcement of an arbitral award from a state is allowed under the New York Convention. This was required despite the fact that the state was indeed a signatory to the New York Convention. This decision was reaffirmed by the Court of Appeal in Alami Vegetable Oil Products Sdn Bhd v Lombard Commodities Ltd.48 However, in late 2009, the Federal Court reversed the decision of the Court of Appeal in the latter case49 and held that a gazette notification pursuant to section 2(2) of the CREFAA Act is evidentiary in nature and not a precondition for the purposes of enforcing an arbitral award from a state that is a signatory to the New York Convention. If His Majesty Yang Di-pertuan Agong had issued a gazette notification declaring a particular state to be a signatory to the New York Convention, then the notification merely formed conclusive evidence that that state was a signatory. Therefore the issue of whether or not a state is a signatory to the New York Convention can be proved by adducing other evidence as may be appropriate.

The court, in demonstrating its willingness to depart from the previous authority of Sri Lanka Cricket v World Sports Nimbus Pte Ltd, opined that:

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.

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. However, in Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd, the 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. This effectively extended the ambit of the word ‘may’ and exemplified the court’s pro-arbitration stance by construing the test in a manner which lowers the required threshold. The direction came as a welcome gesture making the recourse to foreign arbitrations more accessible in Malaysia.

There are no similar provisions in the 2005 Act which pertain to the gazette notification above. Section 38(1) of the 2005 Act states that on 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 the Arbitration (Amendment) Act 2011, section 38(1) of the 2005 Act was silent on whether or not it applied to arbitral awards of international arbitrations in Malaysia. With regard to arbitral awards from a foreign state, section 38(1) of the 2005 Act specifies that only arbitral awards from countries that are party to the New York Convention adopted by the United Nations Conference on International Commercial Arbitration in 1958 are recognised. Thus, it appears that arbitral awards from countries which are not signatories to the Convention would not be recognised and cannot be enforced under the 2005 Act.

The KLRCA

There are a number of professional bodies in Malaysia, such as the Malaysian Institute of Architects,50 the Royal Institution of Surveyors Malaysia,51 the Malaysian International Chambers of Commerce,52 the Institute of Engineers Malaysia53 and the Malaysian Rubber Board,54 which administer and handle arbitral proceedings. However, this chapter will focus on the KLRCA as the main arbitral institution in Malaysia and its contributions to the ever-changing arbitral landscape.

The KLRCA was established in 1978 under the auspices of the Asian-African Legal Consultative Organisation (AALCO) to provide a forum for the settlement of trade, commerce and investment disputes within the Asia-Pacific region, which it continues to do. The KLRCA was the first regional centre established by the AALCO in Asia, which aimed to provide institutional support for the conduct of domestic and international arbitral proceedings in Asia.55 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.

Governments of the countries with regional centres recognise the independent status of the regional centres and, as such, have accorded them privileges and immunities. The immense support given by the respective governments allow the regional centres to function as autonomous international organisations.56 While the KLRCA has the support of the Malaysian government, the KLRCA is a non-profit organisation and is neither a government branch nor agency. The status of the KLRCA as an independent arbitral institution for both domestic and international arbitrations is a clear policy under both the 1952 Act and the 2005 Act.

A recent statement by the KLRCA director, Datuk Sundra Rajoo, indicates that the KLRCA aims to arbitrate 250 cases per year by 2016, an ambitious goal given its previous 100 cases in 2012.57 In fact, the rise of arbitrations from 73 in 2010 to 85 in 2011 demonstrates the continuous growth the KLRCA wishes to embody as a significant competitor to its Singapore and Hong Kong counterparts. Half of the arbitrations in 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. Additionally, the KLRCA introduced the i-Abitration Rules in 2012. These are based on shariah laws and are ‘the first set of rules that adopts the UNCITRAL Arbitration Rules, while allowing for the resolution of disputes arising from any contract that may contain Shariah (Islamic Law) issues’. 58

Adoption of the revised UNCITRAL Arbitration Rules 2010

It was decided in 2006 that the UNCITRAL Arbitration Rules should be revised to meet the changes in arbitral practice that have occurred over the past 30 years. On 25 June 2010, the revised UNCITRAL Arbitration Rules were adopted, and were effective as of 15 August 2010, by the KLRCA, making it the first arbitral institution in the world to do so. With the KLRCA adopting the revised UNCITRAL Arbitration Rules, all changes made therein are relevant to and affect arbitrations being held by the KLRCA and under the KLRCA Arbitration Rules.

The revised UNCITRAL Arbitration Rules saw more provisions being added, with the aim of filling gaps that had become apparent over the years. The revision of article 2 of the UNCITRAL Arbitration Rules shows the rules taking into account modern technology with regard to issuing and serving notices of arbitration and other communications as well as the conducting of hearings. A point to note is that when communications are conducted via e-mail or fax, a designated or authorised address must be used. The revision also includes the addition of article 28(4), which provides that witnesses may ‘be examined through means of telecommunication that do not require their physical presence at the hearing’, with the example of teleconferencing being given.

Article 6 of the UNCITRAL Arbitration Rules has also been revised to reduce the time a party to the arbitral proceedings needs to wait before making a request to the secretary general of the Permanent Court of Arbitration at The Hague (PCA) with regard to disputes relating to the appointment of an appointing authority from 60 to 30 days. In addition, it is also now expressly stated that the PCA may be requested by the parties to the arbitral proceedings to act as an appointing authority. These changes are reflected in Malaysia under section 13 of the 2005 Act, which provides for the request for appointment to be made to the director of the KLRCA.

Among the significant additions to the revised UNCITRAL Arbitration Rules relating to the conduct of arbitral proceedings are articles 17(1) and (2) where it is provided that the arbitral tribunal ‘shall conduct the proceedings so as to avoid unnecessary delay and expense and to provide a fair and efficient process for resolving the parties’ dispute’ and the arbitral tribunal shall as soon as practicable establish a provisional timetable of the arbitration. There are also now additional provisions dealing with the issue of an arbitrator’s conflict of interest, whereby model statements of independence pursuant to a new article 11 are annexed to the revised UNCITRAL Arbitration Rules. Further, article 16 of the UNCITRAL Arbitration Rules provides a clause excluding liability of the arbitral tribunal save for intentional wrongdoing. This would most certainly guarantee that the arbitrators are able to proceed with the arbitration without fear of any negative repercussions from the parties.

Excessive tribunal remuneration would also not be possible now that article 41 of the UNCITRAL Arbitration Rules states that the fees shall be reasonable in amount. The revised UNCITRAL Arbitration Rules also require the arbitral tribunal to inform the parties of how it proposes to determine its fees at the soonest after the arbitral tribunal has been constituted. The parties may refer the proposal or the determination of the fees of the arbitral tribunal to the appointing authority, such as the director of the KLRCA, for review.

The revised UNCITRAL Arbitration Rules have also seen additional provisions dealing with multiparty arbitration and joinder, objections to experts appointed by the arbitral tribunal, which, as a whole, aim to enhance procedural efficiency and uphold reasonableness in the conduct of arbitrations. With a view to propelling its status in the arbitration community, the KLRCA Arbitration Rules were revised, with certain modifications and adaptations, in line with the updated UNCITRAL Arbitration Rules.

Adoption of the revised UNCITRAL Arbitration Rules in KCLRA

In 2012, the KLRCA saw further development in its rules by enacting the KLRCA Rules for Arbitration 2012, which consolidated and updated several provisions based on the UNCITRAL Arbitration Rules 2010. It came into force on 2 July 2012, shortly after the new Arbitration (Amendment) Act 2011 was enacted, presumably to further emphasise and synchronise with the judiciary’s non-interventionist and pro-enforcement stance. The latest rules see several key changes, among which are the following:59

  • A new Rule 2 specifying the information, documents and fee required to register an arbitration with the KLRCA. Previously, the Rules only required that the party initiating the arbitration to send notice of arbitration to the KLRCA. It was then left to the KLRCA to follow up and request further information. The aim of this revision was to reduce the time usually taken by the initiating party in submitting the necessary documentation for the KLRCA’s verification.
  • Arbitrators appointed by the parties or any appointed authorities will now be treated as nominations of arbitrators, not an agreement to appoint.60
  • The time for the appointment of arbitrators is now reduced to 30 days in line with the requirements under the Malaysian Arbitration Act 2005.
  • A new Rule 5 providing for challenges to arbitrators. Such challenges will be administered by the KLRCA and the Director will determine those challenges.
  • Parties and the arbitral tribunal have 30 days to agree on a schedule of fees from the time of the appointment of the tribunal, and to inform the KLRCA of such, failing which the KLRCA Schedule of Fees shall apply.

Thus we can see the KLRCA striving to ensure that its rules are on par with international standards. This demonstrates its motivation and positive effort to remain as a strong contender as an arbitration destination within Asia.

The KLRCA’s helping hand

Following on from the improvements made to its Arbitration Rules, the KLRCA saw further support, in particular, from the government of Malaysia in driving the centre forward. This resulted in the commissioning and appointing of an advisory board by the prime minister’s Department of Malaysia with effect from 15 August 2011. The advisory board is currently chaired by Tan Sri Abdul Gani Patail, the attorney general of Malaysia since 2002. The board comprises a total of six renowned and respected arbitrators who are active not just in Malaysia, but internationally as well. The main function of the advisory board is to advise the KLRCA on the centre’s strategic direction in its aim to be the preferred arbitral institution in the Asia-Pacific region as well as positioning Malaysia as an arbitration-friendly destination.61

On 27 February 2012, the KLRCA launched its revised KLRCA Fast Track Rules. The KLRCA Fast Track Rules were revised after its 2010 predecessor delivered a much sought-after option to resolving commercial and transactional disputes in Malaysia.62 The revision was needed given that the 2005 Act was due for its own amendment, namely the Arbitration (Amendment) Act 2011 and the coming of the Construction Industry Payment and Adjudication Bill 2011. Similar to the KLRCA Arbitration Rules, the KLRCA Fast Track Rules have been modified with the adoption of the articles of the revised UNCITRAL Arbitration Rules.

The success enjoyed thus far and the force behind the global ambition of the KLRCA can be attributed to its current director, Datuk Sundra Rajoo, the KLRCA’s fifth director (with effect from 1 March 2010). Mr Rajoo was also appointed as the president of the Asia Pacific Regional Arbitration Group (APRAG) on 8 July 2011. In addition, Mr Rajoo is serving on the panel of numerous international arbitral institutions and organisations and had earlier practised as an architect and town planner. Prior to March 2010, and despite being the first regional arbitral institution to be established, the KLRCA was trailing far behind the newer arbitral centres in Singapore, Hong Kong and Australia.63 Addressing the situation at the time, Mr Rajoo openly admitted that ‘even disputes which involved only Malaysian parties were going offshore to arbitral centres around the world’.64 However, through Mr Rajoo’s vision and striving for the betterment of the KLRCA’s repute and standing, the KLRCA has progressed and grown speedily within just a few years. Mr Rajoo now heads a larger management team, exceeding 20 members, compared to a four-member team in 2009. Furthermore, the KLRCA had 556 arbitrators on its panel (mostly foreign arbitrators) as of 2011.

With the right people steering the course of the centre, submitting disputes to arbitrations under the KLRCA and its Arbitration Rules comes with it a multitude of advantages for the parties involved. 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.65 Among the various factors in the KLRCA’s appeal in relation to conducting arbitral proceedings, the biggest draw can be credited to the centre’s stand in keeping costs to parties low, such as by capping arbitrators’ fees under the KLRCA fee schedule.66 Other benefits in choosing the KLRCA as the preferred forum include the fact that foreign lawyers are allowed to represent and appear in arbitral proceedings, the availability of a panel of experienced domestic and international arbitrators from diverse fields of expertise, the administration and assistance of the KLRCA in the enforcement of arbitral awards, and, importantly, the final and binding nature of arbitral awards rendered by the KLRCA. The final and binding nature of the KLRCA’s arbitral awards, coupled with Malaysia being a signatory to the New York Convention, enable the KLRCA’s arbitral awards to be enforceable in countries which are also signatories.

Being ahead of the market – the KLRCA i-Arbitration Rules 2012

The KLRCA’s i-Arbitration Rules are a very recent attempt to provide a unique forum for Islamic arbitration, particularly in jurisdictions such as Bahrain, Indonesia, Hong Kong, the Philippines, Qatar and the UAE, which also embrace shariah principles. The KLRCA was accorded Global Arbitration Review’s 2012 Award for Innovation by an Individual or Organisation at the 3rd Annual GAR Awards in Bogota, Colombia.67 This accolade may attract foreign disputes based in shariah principles to flock to this distinctive forum that is currently provided by the KLRCA only.

The i-Arbitration Rules supersede the 2007 KLRCA Rules for Islamic Banking and Financial Services Arbitration. Arbitral awards under the KLRCA i-Arbitration Rules are enforceable in the 149 countries68 that are signatories to the New York Convention which recognise and enforce such an award. Malaysia possesses its own Shariah Advisory Councils, where tribunals under the new provision in rule 8 must refer the matter to one of the two Councils currently in place.69 This obliges tribunals to outsource shariah issues to the specialist council or expert agreed by the parties, reinforcing the idea that shariah law is at the heart of the arbitration resolutions. The specialist advice referral is undoubtedly important and will probably be used frequently to resolve disputes where the oil and gas, maritime, and construction sectors are influential, creating links with many pan-Asian and Middle Eastern nations. Another slight modification, compared with the conventional KLRCA rules, refers to the cost of reference. Insertion of a new Rule 10 provides 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’.70

The KLRCA should be applauded for its efforts in revolutionising arbitration by integrating shariah-based laws in its rules. It will also familiarise different jurisdictions with how this new system would work and would demystify the complexity of shariah law as perceived internationally. It will certainly make a headway in Islamic arbitration, prompting other Islamic jurisdictions to perhaps adopt similar models within their regions. On top of its many ‘products’, the KLRCA is becoming increasingly attractive as an arbitral seat.

Why Malaysia as an arbitration seat?

As Malaysia strives to narrow the gap between itself and Singapore and Hong Kong as an Asia-Pacific arbitral forum, there is no doubt that it has been zealously following the trend and manner in which both prominent arbitral nations have been advancing.

Like the introduction in the fourth edition of the Arbitration Rules of the Singapore International Arbitration Centre (the SIAC Arbitration Rules) on the availability of the expedited procedure prior to the constitution of the arbitral tribunal,71 which streamlined the procedures for limited-value disputes of S$5 million or less, the KLRCA has also introduced its own new ‘products’, such as the KLRCA Fast Track Rules (as discussed above), which were created in collaboration with the Malaysian Institute of Arbitrators.

Similarly, notable features of the 2005 Act are comparable to the newest Arbitration Ordinance of Hong Kong (the Hong Kong Arbitration Ordinance). This includes provisions which give arbitral tribunals the power to grant interim measures, such as to preserve assets or evidence or to maintain or restore the status quo.

In terms of national legislations and its significance to both the 1952 Act and the 2005 Act, the 2005 Act is more in line with the approach taken by Hong Kong in unifying both its domestic and international regimes in the Hong Kong Arbitration Ordinance of 1 June 2011. On the contrary, Singapore still maintains separate legislations for domestic arbitrations, which are governed by the Arbitration Act (chapter 10), and international arbitrations, which are governed by the International Arbitration Act (chapter 143A). The move in unifying and harmonising the laws of arbitration in Malaysia is indicative of a less complex and more accessible arbitral regime in its future.

Evolving roles in arbitration

The case of Sundra Rajoo v Mohamed Abd Majed and Persatuan Penapis Minyak Sawit Malaysia (Poram)72 highlights the changing role in arbitration. This case demonstrates that challenges could be submitted by an arbitrator against another arbitrator in the same case. In this case, Mr Rajoo brought an action against Mr Majed who was to be on the panel of co-arbitrators in the proceeding involving Virgoz Oil and Fats Pte Ltd within Poram (arbitral institution) at the High Court at Kuala Lumpur. This was because Mr Majed had previously been appointed and nominated as the representative for Virgoz. Presumably, Mr Rajoo felt that this would hinder the proceedings as a result of conflict of interests and requested in the present case for Mr Majed to disclose all previous appointments of Mr Majed by Virgoz. This request to the court was unusual because it was the first of its kind, and raises questions on when challenges can be made, and by whom. Eventually, the court decided to recognise the locus standi of Mr Rajoo and ordered Mr Majed to make the disclosures within seven days or he would be removed and disqualified.73

Conventionally, the right to submit challenges is vested only in parties to arbitration and it can be unusual to think of the arbitrator as a party to an arbitration. To overcome this, the court recognised the locus standi of Mr Rajoo by overcoming the hurdle in article 2 of the Malaysian Arbitration Act, which defines ‘party’ as party to an arbitration agreement. It cited 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’,74 and second Sir Browne-Wilkinson in Norjarl v Hyunday where ‘on appointment, the arbitrator becomes a third party to that arbitration agreement, which becomes a trilateral agreement’.75 Evidently, the court was scrupulous to interpret the article in accordance with English dicta so that it could permit Mr Rajoo to initiate the challenge.

But perhaps a second and more interesting justification for the grant of locus standi is grounded in principles of natural justice, which YA Datuk Dr Haj Hamid Sultan Bin Abu Backer explains thus:

The requirement of impartiality is a principle of natural justice, and in consequence the court has an inherent jurisdiction to check its breach or purported breach ‘in limine’ when the complaint comes from any interested party involved.76

Tibor Várady believes that relying on the ‘natural justice’ justification may be slightly far-fetched but also suggests that it may be good as a check and balance for impartiality.77 He concludes that it matches rather closely the General Standard 7, section (c) IBA Guidelines on Conflicts of Interest in International Arbitration that an arbitrator is under a duty to make reasonable inquiries to investigate potential conflicts of interest. A similar provision can be found in the Canon I 2004 American Bar Association (ABA) Code of Ethics, which states: ‘An arbitrator should uphold the integrity and fairness of the arbitration process.’ Thus the outcome of the present case should not take anyone by surprise, since the preservation of the integrity of the tribunal should be upheld. However, it must be noted that a dispute between co-arbitrators could diminish the appeal of arbitration as an alternative dispute forum.

A strong response against bribery

On 23 June 2013, the KLRCA signed the Corporate Integrity Pledge (CIP) along with 40 other multinational corporations, committing to impartial tribunal proceedings and combatting corruption in the arbitration field.78 It demonstrates the willingness of the KLRCA to promote transparent proceedings in its tribunals.

On 25 June 2013, Yusof Holmes Abdullah, a UK arbitrator in the KLRCA, was charged with bribery in the Penang Malaysian Sessions Court. Abdullah is accused of soliciting US$2 million from the director of a local company, JMR Construction, to rule in favour of JMR in an arbitration with a Chinese-owned dredging company, Syarikat Nanjing Changjiang Waterway Engineering Bureau.79 Abdullah’s charge is the first time an arbitrator has been charged with corruption in Malaysia.80 The KLRCA removed Abdullah from its list of arbitrators when it first learned of the allegations against the arbitrator in late 2012.

Many may speculate that this recent development could tarnish the reputation that Malaysia has built thus far if it appears that arbitrators are more susceptible to bribery and play in favour of gains. However, given that the KLRCA has maintained its pledge in the cracking down of corruption, along with the swift removal of Abdullah after the incident was revealed, there should be no concerns about the KLRCA’s status as a dependable forum for arbitration, and the matter should not deter future arbitrations from taking place there.

Prepare to make space for your competitor

The KLRCA and Malaysia’s arbitration landscape have seen a positive and much-needed change to empower it as another major forum for arbitration. The recent bribery charge demonstrates the vigilance of the arbitration community to stand firm against corruption and to project Malaysia as a fair and neutral jurisdiction. Additionally, the KLRCA’s revised arbitration and fast-track rules suggest that the KLRCA has taken steps to improve the rules, ensuring smoother implementation and process. Its fast-track rules will appeal to parties who are keen to seek resolutions when issues need to be resolved urgently or simply because it still provides an overall shorter time period for the arbitration award to be handed out. Furthermore, the new i-Arbitration rules are worth keeping an eye on as there are many countries employing shariah law that may choose to conduct their disputes in a forum catering specifically for businesses in the Islamic world. In this regard, the KLRCA has the lead over the other arbitral contenders in Asia. The revamped ‘products’ within the KLRCA have readied it as a formidable opponent to the SIAC and HKIAC.

  1. This article is an update of the Malaysia chapter in The Asia-Pacific Arbitration Review 2013, published by Global Arbitration Review.
  2. Michael J Moser, Arbitration in Asia (Release No. 1, JurisNet, LLC 2009) MAL-3.
  3. Michael J Moser, Arbitration in Asia (second edition, published by Juris Publishing 2008), chapter 14; www.jurispub.com/cart.php?m=product_detail&p=2754 (accessed 14 March 2012).
  4. Tan Sri Cecil Abraham, ‘Malaysia’, National Report – World Arbitration Reporter (second edition, Juris Publishing, 2011).
  5. Grace Xavier, Law and Practice of Arbitration in Malaysia (Sweet & Maxwell Asia 2008), pp 6–7.
  6. W S W Davidson, ‘The Malaysian Arbitration Scene: The Relationship between the Courts and the Arbitral Tribunals in the 21st Century’ (Speech given on 16 November 2005), www.malaysianbar.org.my/adr_arbitration_mediation/the_malaysian_arbitration_scene_the_relationship_between_the_courts_and_the_arbitral_tribunal_in_the_21st_century.html (accessed 14 March 2012).
  7. [2008] 7 MLJ 757.
  8. The plaintiff and the defendant had entered into a building contract in 2002, which contained an arbitration clause making reference to the 1952 Act. In July 2007, legal proceedings in the High Court were commenced and an application was made under Section 10 of the 2005 Act for a stay of proceedings. In view of the fact that the building contract between the parties were entered into prior to the commencement of the 2005 Act and the existence of the aforementioned express reference to the 1952 Act, the court took the view that the 1952 Act would apply.
  9. [2008] 7 MLJ 757 at [56].
  10. [2008] 8 MLJ 471.
  11. [2007] 10 CLJ 318.
  12. [2009] 1 LNS 420.
  13. [2009] 1 CLJ 942.
  14. Section 34 provides for the Act not to apply to certain arbitrations.
  15. Section 34(1) Arbitration Act 1952.
  16. Section 27 Arbitration Act 1952.
  17. Section 42 Arbitration Act 2005.
  18. Section 45 Arbitration Act 2005.
  19. Section 46 Arbitration Act 2005.
  20. Section 13(7) Arbitration Act 2005.
  21. [2008] 1 MLJ 233.
  22. [2008] 6 MLJ 561.
  23. Section 6 Arbitration Act 1952 and Section 10 Arbitration Act 2005.
  24. Section 13 Arbitration Act 1952 and Section 11 Arbitration Act 2005.
  25. Section 27 Arbitration Act 1952 and Section 38 Arbitration Act 2005.
  26. [1998] 2 MLJ 20.
  27. [2002] 1 CLJ 433.
  28. [2008] 5 CLJ 654.
  29. [2008] 5 CLJ 654 at [10].
  30. [2008] 5 CLJ 654 at [26].
  31. Section 42(1A) Arbitration Act 2005.
  32. Per Hamid Sultan, JC in Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2010] 5 CLJ 83, 98.
  33. Per Abdul Malik Ishak, JCA in Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd [2010] 7 CLJ 785, 799 to 804.
  34. See also AV Asia Sdn Bhd v Pengarah Kuala Lumpur Regional Centre For Arbitration & Anor [2013] MLJU 183 at 11.
  35. [2012] 7 MLJ 36.
  36. See also Government of the Lao People’s Democratic Republic v Thai-Lao Lignite Co Ltd (TLL), a Thai Co & Anor [2013] MLJU 165 at 70–86.
  37. [2009] 9 CLJ 32.
  38. [2010] 5 CLJ 32.
  39. [2010] 7 CLJ 785.
  40. [2010] 7 CLJ 785 at [56].
  41. [2010] 3 CLJ 634.
  42. [2010] 9 CLJ 532.
  43. [2008] 6 MLJ 561.
  44. [2010] 2 CLJ 420.
  45. [2010] 2 CLJ 420 at p440.
  46. [2010] 5 CLJ 83.
  47. [2009] 1 LNS 1321.
  48. [2010] 4 MLJ 332.
  49. [2010] 4 CLJ 914.
  50. Also known as the New York Convention.
  51. [2006] 3 MLJ 117.
  52. [2009] 3 MLJ 289.
  53. [2010] 1 CLJ 137.
  54. Pertubuhan Akitek Malaysia, www.pam.org.my.
  55. Royal Institution of Surveyors Malaysia, www.rism.org.my/.
  56. ICC Malaysia, www.iccmalaysia.org.my/.
  57. The Institution of Engineers Malaysia, www.myiem.org.my/.
  58. Lembaga Getah Malaysia, www.lgm.gov.my/.
  59. ‘Corporate Info’, Kuala Lumpur Regional Centre for Arbitration, www.klrca.org.my/scripts/view-anchor.asp?cat=2 (accessed 8 March 2012).
  60. Ibid.
  61. ‘The Sun Daily – KLRCA aims to arbitrate 250 cases in 3 years’, Kuala Lumpur Regional Centre for Arbitration. www.klrca.org.my/scripts/list-posting.asp?recordid=364 (accessed 9 July 2013).
  62. ‘KLRCA i-Arbitration Rules’, Kuala Lumpur Regional Centre for Arbitration, www.klrca.org.my/scripts/list-posting.asp?recordid=288 (accessed 12 July 2013).
  63. ‘Launch of the Revised KLRCA Arbitration Rules’, ,Kuala Lumpur Regional Centre for Arbitration http://www.klrca.org.my/scripts/list-posting.asp?recordid=271 (accessed 9 July 2013).
  64. ‘Revised KLRCA arbitration rules’, LexisNexis Dispute Resolution, www.lexisnexis.com/uk/lexispsl/disputeresolution/document/393745/55WK-8NN1-F18B-4107-00000-00/Revised%20KLRCA%20arbitration%20rules (accessed 9 July 2013).
  65. Supra n. 59.
  66. ‘The Launch of the KLRCA Fast Track Rules 2nd Edition 2012’, Kuala Lumpur Regional Centre for Arbitration, www.klrca.org.my/scripts/list-posting.asp?recordid=236(accessed 10 March 2012).
  67. 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 13 March 2012).
  68. Ibid.
  69. Ibid.
  70. ‘KLRCA Arbitration Rules (2010)’, Kuala Lumpur Regional Centre for Arbitration. See ‘Fee Structure’ www.klrca.org.my/scripts/view-anchor.asp?cat=10#16 (accessed 10 March 2012).
  71. ‘Highlighting the KLRCA Islamic Arbitration rules’, The Commercial, Shipping & Investment – Arbitration Watch, www.arbitrationwatch.com/highlighting-the-klrca-islamic-arbitration-rules/.
  72. ‘Status 1958 - Convention on the Recognition and Enforcement of Foreign Arbitral Awards’. United Nations Commission on International Trade Law. www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html. Accessed 16 July 2013.
  73. Rule 8, KLRCA i-Arbitration Rules.
  74. Rule 10, KLRCA i-Arbitration Rules.
  75. Rule 5 of the Arbitration Rules of the Singapore International Arbitration Centre, fourth edition.
  76. D-24NCC(ARB)-13 OF 2010.
  77. 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). pp.37–44.
  78. Companie Européenne de Céreales SA v Tradax Export SA (1986) QB (Comm Ct) 301.
  79. K/S Norjarl A/S v Hyunday Heavy Industries Co Ltd [1992] Q.B. 863 at 885.
  80. Judgment of the KL court, D-24NCC(ARB)-13 OF 2010, para 8, sub-s’d’.
  81. T Várady, ‘On Shifting Players and Roles in Process of Challenging Arbitrators’. The Practice of Arbitration: Essays in Honour of Hans van Houtte. Edited by Patrick Wautelet, Thalia Kruger, and Govert Coppens (Oxford: Hart Publishing, 2012). p.43.
  82. ‘KLRCA declares war on corruption Arbitration centre collaborates with MACC, Pemandu and Bar Council’, The Star Online – Press Release 23 Jun 2013, www.thestar.com.my/News/Nation/2013/06/23/KLRCA-declares-war-on-corruption.aspx (accessed 9 July 2013).
  83. Sebastian Perry, ‘UK arbitrator charged with bribery in Malaysia’. Global Arbitration Review, 28 June 2013, globalarbitrationreview.com/news/article/31692/ (accessed 9 July 2013).
  84. ‘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 9 July 2013).

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