Malaysia

Malaysia’s continuing efforts to promote its international arbitration credentials have been widely recognised and applauded. In this update of the chapter on the jurisdiction, we continue to chart its progress through enhancements made to the legislative, regulatory and institutional frameworks.

Recent initiatives

A number of factors promoting Malaysia’s attractiveness as a hub for international arbitration have been in place for some time.

As a signatory to the 1958 New York Convention (the New York Convention), arbitral awards made in Malaysia may be enforced in countries that are similarly signatories to the New York Convention. 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.

Another major factor lies in the fact that arbitration costs in Malaysia, in terms of fees relating to the proceedings, as well as logistical costs such as those of accommodation and transport, are also comparatively lower when measured against the costs of other major arbitration hubs in the region.

Nonetheless, these factors would not, on their own, have successfully propelled Malaysia into the arbitration spotlight without the driving force that is the Kuala Lumpur Regional Centre for Arbitration (KLRCA). The KLRCA has been embarking on a number of initiatives to position itself as a leading venue for arbitration. For instance, the KLRCA i-Arbitration and Fast Track Arbitration Rules were implemented in the past two years to complement the KLRCA Arbitration Rules in further encouraging arbitrations.

Recently, the KLRCA hosted the KLRCA International Arbitration Conference 2014, themed ‘Reflecting the Past, Building the Future’, from 19 to 21 June 2014. The conference brought together eminent arbitration experts from across the globe to deliberate on the foundations of arbitration, examine the current state of the practice and develop a road map for the future.

In terms of physical infrastructure, refurbishment works have been undertaken to improve the KLRCA’s premises and facilities. As noted on its web page, these improvements, once completed, are part of the KLRCA’s roadmap towards establishing state-of-the-art facilities to better the KLRCA’s services, and to promote its use and attractiveness.1

These are but a few examples of how the KLRCA has been taking active steps to position itself as a leading arbitral institution in the region. Together with the requisite government and judicial support, the country is hopeful that arbitration in Malaysia will grow in prominence in this region.

An overview of arbitration in Malaysia

Prior to the Malaysian Arbitration Act 2005 (the 2005 Act), which came into force on 15 March 2006, arbitration in Malaysia was governed by the Arbitration Act 1952 (the 1952 Act) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985.

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.2

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 Arbitration (Amendment) Act 2011 (the 2011 Amendment Act).

Last year, 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.

To recapitulate, 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,3 and allowing the court to extend the time imposed for the commencement of arbitral proceedings4 or the delivery of an arbitral award.5

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.

Lastly, 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.

Arbitral tribunals

Jurisdiction

Both the 1952 Act and the 2005 Act allow the expression of party autonomy in relation to the appointment of arbitrator or establishment of the arbitral tribunal. In this regard, the parties may expressly agree on the number of arbitrators to decide the case.6 In cases where the parties cannot reach an agreement, the 2005 Act provides that a sole arbitrator would be appointed for domestic arbitrations, while three arbitrators would be appointed for international arbitrations.

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, which will typically be governed by the rules earlier agreed upon to govern the conduct of the arbitration. In the event that the parties are unable to come to an agreement on the appointment of arbitrators or come to a stall by failing to make the necessary appointments, either party may apply to the director of the KLRCA to appoint the arbitrators.7 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.8 Naturally, arbitrators are expected to disclose circumstances that may result in a conflict of interests, and this is expressly stated in section 14 of the 2005 Act.

As a recent development, 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.

Regardless of the manner in which the arbitrator, the arbitral tribunal and the emergency arbitrator is appointed, the importance of the doctrine of Kompetenz-Kompetenz remains and is expressly recognised by section 18 of the 2005 Act, which grants the arbitral tribunal the power to rule on its own jurisdiction. Despite the foregoing, parties still retain the option to appeal to the final decision of the High Court against the arbitral tribunal’s ruling on its own jurisdiction. However, the courts have given considerable recognition to the importance of the doctrine and have taken on a strong pro-arbitration stance in several recent cases.9 In Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor,10 the High Court said of the extent to which the doctrine of Kompetenz-Kompetenz is applicable in Malaysia:11

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

The decision in Sundra Rajoo v Mohamed Abd Majed and Persatuan Penapis Minyak Sawit Malaysia (Poram)12 highlights the changing role of an arbitrator, in demonstrating that challenges could be submitted by an arbitrator against a fellow arbitrator in the same case. In this case, the applicant brought an action against the first respondent (who was appointed by Virgoz Oil as one of three arbitrators) in the proceedings involving Virgoz Oil and Fats Pte Ltd within Poram (an arbitral institution) at the High Court in Kuala Lumpur. The basis of the applicant’s action was that the first respondent had previously been nominated and appointed as the representative for Virgoz Oil and Fats Pte Ltd. Presumably, the applicant felt that this would hinder the proceedings as a result of conflict of interests and requested in the present case that the first respondent to disclose all previous appointments of the first respondent by Virgoz Oil and Fats Pte Ltd. Eventually, the High Court decided to recognise the locus standi of the applicant and ordered the first respondent to make the disclosures within seven days or be removed and disqualified.13

This novel request to the High Court raises questions on when challenges can be made and, significantly, by whom. Conventionally, only the parties to the arbitration possessed the right to submit challenges and it is uncommon to think of the arbitrator as a party to the same arbitration. 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. 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’,14 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’.15 Evidently, the court was scrupulous to interpret section 2 in accordance with English dicta so that it could permit the applicant 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 Haji 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.16

The ‘natural justice’ justification is not without criticism. As one commentator believes, relying on such justification may be slightly far-fetched, although it is also suggested that it may be relied on as a check and balance to ensure impartiality.17 In this sense, the ‘natural justice’ justification matches rather closely the General Standard 7, section (c) IBA Guidelines on Conflicts of Interest in International Arbitration, where it states that an arbitrator is under a duty to make reasonable inquiries to investigate potential conflicts of interests. 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.

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 arbitration field.18

On 25 June 2013, Yusof Holmes Abdullah, a UK arbitrator in the KLRCA, 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.19 This was the first time an arbitrator had been charged with corruption in Malaysia.20 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. However, the KLRCA’s pledge to stamp out corruption, along with its swift removal of Abdullah from its panel, is assurance that the KLRCA is serious about 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. These include cases where the arbitration agreement was not valid or the dispute did not fall within such agreement;21 when the dispute is not capable of being settled by arbitration by Malaysian Law or if it is contrary to public policy; or if there was fraud or corruption or other breaches of natural justice.

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. However, section 42 of the 2005 Act 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.

Of interest would be the courts’ consideration of circumstances, which would contravene public policy or natural justice. The courts have applied a narrow interpretation to both concepts. In the recent case of Open Type Joint Stock Co Efirnoye (EFKO) v Alfa Trading Ltd,22 the court had the opportunity to consider these grounds when there were two arbitral awards (one from Russia and the other from Ukraine) rendered for 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’.23 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’.24 Thus, a party wishing to invoke the public policy exception has to overcome a high threshold:25

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.26

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. As there remains no appeal procedure against arbitral awards, provisions relating to setting aside under the 1952 Act and the 2005 Act are applicable and the cases applying these provisions are instructive.

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 a bleak recourse as the courts are increasingly less inclined to upset the finality of arbitral awards.

In The Government of India v Cairn Energy India Pty Ltd & Anor,27 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.28 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”’.29The Federal Court further held that a question of construction of an agreement was a question of law,30 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.31 The extent to which the Federal Court leaned towards a pro-arbitration stance can be seen from the court’s judgment when it said:32

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,33 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 consistent with that under the 1952 Act. In Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd,34 Haji Hamid Sultan bin Abu Backer JC of the High Court held that the 2005 Act ‘makes it compulsory for the courts to respect the decision of the arbitrators’ and that ‘real proof is required to be shown before the court can meddle with the award.’ In SDA Architects v Metro Millennium Sdn Bhd,35the Court of Appeal, following the case of Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd, 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’.36 In The Government of India v Cairn Energy India Pty Ltd & Ors,37 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 Tan Kau Tiah v Tetuan Teh Kim Teh, Salina & Co & Anor,38the Court of Appeal similarly adopted a pro-arbitration stance. 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.39 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.

The finality of an arbitral award was similarly observed in Ngo Chew Hong Oils & Fats (M) Sdn Bhd v Karya Rumpun Sdn Bhd40 where a mere filing of an affidavit to oppose registration, instead of making an application, is deemed insufficient to set aside an arbitral award.

Enforcement of arbitral awards

The effect of the CREFAA Act41

Although the Convention on the Recognition and Enforcement of Foreign Arbitral Award (CREFAA) Act was repealed by the 2005 Act, it remains relevant as being a pre-cursor to the now-amended section 38(1) of the 2005 Act.

Prior to the amendment of section 38(1) of the 2005 Act, it was held by the Court of Appeal in Sri Lanka Cricket v World Sports Nimbus Pte Ltd42that a declaration in the form of a gazette notification by His Majesty Yang di-Pertuan Agong was a prerequisite to the enforcement of an arbitral award by a party to the New York Convention. However, in late 2009, the Federal Court, in Lombard Commodities Ltd v Alami Vegetable Oil Products Sdn Bhd43 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.44

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. This direction in making the recourse to foreign arbitrations more accessible in Malaysia came, not unexpectedly, as a welcome gesture.

Pursuant to the amendment to 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.

The courts’ assistance

Given the trend in various other jurisdictions, Malaysian courts have similarly moved towards providing wider support for arbitration.

Under the 1952 Act, all arbitrations under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States 1965 (the ICSID Convention), the UNCITRAL Arbitration Rules or the KLRCA Arbitration Rules were governed by section 34 of the 1952 Act. Arbitrations governed by this section were not subject to judicial intervention, except for the purpose of enforcement of arbitral awards.45 This was considered problematic, as ouster of judicial assistance could wane and undermine the efficacy of arbitral proceedings. Furthermore, the enforcement of domestic arbitral awards applying either the UNCITRAL Arbitration Rules or KLRCA Arbitration Rules was not without its difficulties, as section 34 of the 1952 Act stated that such arbitral awards, though domestic, would not be enforced in the same manner as a judgment.46 As the ICSID Convention or the New York Convention only applied to arbitral awards made with a foreign element, enforcement under those instruments was not available to such domestic arbitral awards either.

These difficulties have since been eradicated by the coming into force of the 2005 Act. Indeed, the 2005 Act has gone beyond resolving these issues and has extended the reach of the court in certain situations. This is evident in the court’s role with respect to 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.

Both the 1952 Act and the 2005 Act allow for judicial intervention in specific instances, such as the staying of proceedings,47granting of interim measures of protection such as security for costs and interrogatories,48 and the enforcement of arbitral awards.49 In terms of recent changes, section 11 of the 2005 Act was amended in 2011 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 use their inherent powers to make orders outside of the specified instances, pursuant to order 92, rule 4 of the Rules of High Court. 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 use of inherent powers.

It remains to be seen whether the change will affect the usage of inherent powers by the judiciary. In the case of Plaza Rakyat Sdn Bhd v Datuk Bandar Kuala Lumpur,50 the court held that injunctions do not amount to court intervention and serve to preserve the subject matter referred to arbitration. In SDA Architects v Metro Millennium Sdn Bhd,51 the Court of Appeal also recently 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,52 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:53

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.

These recent decisions suggest that there is indeed a growing tendency and increasing harmonisation of Malaysia’s arbitration laws with the non-interventionist approach under the Model Law. Undoubtedly, the court’s assistance to facilitate the effective and efficient conduct of arbitral proceedings is indispensable, although a careful balance must be struck to ensure arbitrations are not stifled by an excessively interventionist judiciary. It is hopeful that the continuation of this trend would allay concerns on the same.

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.54

The courts have continued a pro-arbitration stance by interpreting this provision narrowly;55 as stated by Azahar Mohamed J of the High Court in AV Asia Sdn Bhd v Measat Broadcast Network Systems Sdn Bhd:56

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, in line with the doctrine of Kompetenz-Kompetenz as discussed earlier.57

That said, parties who wish to arbitrate should still be watchful not to take a step in court proceedings.58 In Lau King Kieng v AXA Affin General Insurance Bhd,59 the 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.60

The KLRCA

The KLRCA was established in 1978 under the auspices of the Asian-African Legal Consultative Organisation (AALCO),61 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.62

While the KLRCA has the support of the Malaysian government, it is a non-profit organisation and is neither a government branch nor agency. It is the policy of both the 1952 Act and the 2005 Act that the KLRCA should operate as an independent arbitral institution for domestic and international arbitrations.

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.63 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.64Section 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.65

The KLRCA Arbitration Rules 2013

In 2013, the KLRCA revised the KLRCA Arbitration Rules,66 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.67

Of the many changes made to the KLRCA Arbitration Rules,68 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.69 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’.70

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’,71 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.72

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’.73

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 2013

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 2013

Since the inception of the KLRCA i-Arbitration Rules in September 2012, the KLRCA remains the only institution to offer resolution of disputes based on shariah principles.

Under the revised 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.

Another slight modification, compared with the conventional KLRCA rules, refers to the cost of reference. The new rule 13 now 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 under Rule 11’.

The KLRCA’s efforts in revolutionising arbitration by integrating shariah-based laws in its rules are commendable. These efforts would certainly give the KLRCA headway in Islamic arbitration, prompting other Islamic jurisdictions to perhaps adopt similar models within their regions.

Spurring the KLRCA’s continued growth

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.74 Its recent efforts, however, have seen the KLRCA continue to steadily elevate its international position.

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.75 Foreign lawyers are allowed to represent and appear in arbitral proceedings, and there is a large panel of experienced domestic and international arbitrators from diverse fields of expertise. On 24 September 2013, the Legal Profession Act was amended to introduce a new section 37A to allow both foreign lawyers and foreign arbitrators to enter into Malaysia to participate in arbitration proceedings without being subject to immigration approval and to the restriction of 60-day entrance limit. This amendment is intended to facilitate arbitration proceedings in Malaysia.

So why Malaysia?

The rise of international arbitration in Asia may undoubtedly be observed in Hong Kong and Singapore, with both countries exhibiting themselves as impressive arbitration hubs at the forefront of pro-arbitration regimes. Not to be overlooked, Malaysia has been striving to narrow the gap between itself and Singapore and Hong Kong, to be Asia-Pacific’s arbitral forum of choice.

In a similar vein to 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,76 which streamlined the procedures (eg, through the shortening of time limits, referring disputes to a sole arbitrator, and holding proceedings on the basis of documentary evidence) 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).

In addition, notable features of the 2005 Act are comparable to the newest Arbitration Ordinance of Hong Kong (the Hong Kong Arbitration Ordinance). This includes provisions that 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 legislation, the 2005 Act has helped to bring Malaysia closer in line to the approach taken by Hong Kong, in unifying its domestic and international regimes. In contrast, Singapore still maintains separate legislation for domestic arbitrations (which are governed by the Arbitration Act) and international arbitrations (which are governed by the International Arbitration Act). The move in unifying and harmonising the laws of arbitration in Malaysia is intended to usher in a more accessible arbitral regime.

As discussed above, the courts have also been taking a strong pro-arbitration stance and have readily enforced arbitration agreements as well as awards. Furthermore, legislative changes have made it easier to seek the court’s assistance in obtaining interim protection such as security for costs, which increases the pragmatic feasibility of arbitration as well.

Notes

  1. http://klrca.org.my/facilities/klrca-new-building/ (accessed 17 June 2014).
  2. 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.
  3. Section 42 Arbitration Act 2005.
  4. Section 45 Arbitration Act 2005.
  5. Section 46 Arbitration Act 2005.
  6. Section 12 Arbitration Act 2005.
  7. Section 13(4), (5), (6) Arbitration Act 2005.
  8. Section 13(7) Arbitration Act 2005.
  9. 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
  10. [2008] 1 MLJ 233.
  11. Ibid, per Vincent Ng J paragraph [13].
  12. D-24NCC(ARB)-13 OF 2010.
  13. 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.
  14. Companie Européenne de Céreales SA v Tradax Export SA (1986) QB (Comm Ct) 301.
  15. K/S Norjarl A/S v Hyunday Heavy Industries Co Ltd [1992] Q.B. 863 at 885.
  16. D-24NCC(ARB)-13 OF 2010 at paragraph [8].
  17. 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.
  18. ‘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 13 June 2014).
  19. 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).
  20. ‘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).
  21. 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.
  22. [2012] 1 MLJ 685.
  23. Ibid, at paragraph [38].
  24. Ibid, at paragraph [39].
  25. Ibid, at paragraph [40].
  26. Ibid, at paragraph [38].
  27. [2011] 6 MLJ 441.
  28. Ibid, at paragraph [30].
  29. Ibid, at paragraph [30].
  30. Ibid, at paragraph [36].
  31. Ibid, at paragraph [36].
  32. Ibid, at paragraph [53].
  33. [2010] 4 MLJ 332.
  34. [2010] 5 CLJ 83.
  35. [2014] MLJU 28.
  36. Ibid, at paragraph 10(a).
  37. [2014] 9 MLJ 149.
  38. [2010] 4 CLJ 914.
  39. 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.
  40. [2009] 1 LNS 1321.
  41. Also known as the New York Convention.
  42. [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.
  43. [2010] 2 MLJ 23.
  44. Ibid, at paragraph [21]. .
  45. Section 34(1) Arbitration Act 1952
  46. Section 27 Arbitration Act 1952.
  47. Section 6 Arbitration Act 1952 and Section 10 Arbitration Act 2005.
  48. Section 13 Arbitration Act 1952 and Section 11 Arbitration Act 2005.
  49. Section 27 Arbitration Act 1952 and Section 38 Arbitration Act 2005.
  50. [2012] 7 MLJ 36, at paragraph [45].
  51. [2014] MLJU 28 at paragraph [10].
  52. [2013]7 MLJ 811 at paragraph [39].
  53. Ibid, at paragraph [39].
  54. 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.
  55. 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.
  56. [2011] 8 MLJ 792 at paragraph [4].
  57. See, eg, TNB Fuel Services Sdn Bhd v China National Coal Group Corp [2013] 4 MLJ 857.
  58. Winsin Enterprise Sdn Bhd v Oxford Talent (M) Bhd [2010] 3 CLJ 634.
  59. [2014] 8 MLJ 883.
  60. Ibid, at paragraphs [34] to [35].
  61. 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).
  62. ‘About KLRCA’, Kuala Lumpur Regional Centre for Arbitration, http://klrca.org.my/about/ (accessed 13 June 2014).
  63. 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).
  64. KLRCA, http://klrca.org.my/rules/adjudication/#PartV-AdjudicationAuthority (accessed 18 June 2014).
  65. Ibid.
  66. 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 p. 7.
  67. Rule 1(2) of the 2013 KLRCA Arbitration Rules.
  68. 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.
  69. Rule 7(2) read with schedule 2 of the 2013 KLRCA Arbitration Rules.
  70. KLRCA, http://klrca.org.my/wp-content/uploads/2013/11/2013Q3newsletter4.pdf at page 7.
  71. Ibid, at page 9.
  72. Rule 15(2) of the KLRCA Arbitration Rules.
  73. KLRCA, http://klrca.org.my/wp-content/uploads/2013/11/2013Q3newsletter4.pdf, page 10.
  74. 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) .
  75. Ibid.
  76. Rule 5 of the Arbitration Rules of the Singapore International Arbitration Centre, 2013 Edition.

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