Q.
Could you give a general introduction to International Arbitration in Malaysia?
A.
Extracted from
Rahmat Lim & Partners, Malaysia, July 15 2022
Introduction
Malaysia is widely recognised as an arbitration-friendly destination. A comprehensive legal framework governing the arbitration laws in Malaysia under the Malaysian Arbitration Act 2005 (2005 Act) and a judiciary that is impartial, efficient and pro-arbitration have contributed much to the cause.
Statistics from the leading arbitration institution in Malaysia, the Asia International Arbitration Centre (AIAC), are reflective of the efforts that have been put in by the relevant stakeholders. The caseload at the AIAC began to rise since 2011, peaking in 2014 with 226 cases registered as at July 2014 alone. In the most recent years, the number of new cases referred to the AIAC seems to have steadied. In 2020, the AIAC recorded a collective total of 225 new arbitrations as well as 211 appointments and confirmations of arbitrators.2
This chapter outlines the general legal principles of international arbitration in Malaysia and recent developments in this area of law.
i Legal framework
The legal framework for international arbitration in Malaysia is governed by the 2005 Act. In addition, Order 69 of the Rules of Court 2012 (ROC 2012) sets out the procedural requirements as regards arbitration-related suits such as applications for the appointment of arbitrators and the enforcement of awards.
The 2005 Act was enacted to cater to the increasing need for a modernised and global approach in arbitration law in Malaysia, and in consequence repealed the Arbitration Act 1952 and the Convention on the Recognition and Enforcement of Foreign Arbitral Award Act 1985. This can be seen in the long title of the 2005 Act, which reads that it was intended to 'reform the law relating to domestic arbitration, provided for international arbitration, the recognition and enforcement of awards and for related matters'. Further, the provisions of the 2005 Act were intended to be user friendly for parties involved in arbitral disputes and to facilitate the resolution of international disputes by way of arbitration in Malaysia.3
There are four parts to the 2005 Act. The first part sets out preliminary matters such as the applicability of the 2005 Act and definitions of key terms including international arbitration and arbitral award. Part II deals with the general provisions of arbitration, and chiefly follows the structure and headings of the UNCITRAL Model Law on International Commercial Arbitration 1985 (UNCITRAL Model Law). Among other things, it provides for the appointment of arbitrators, the powers of the Malaysian High Court in relation to the stay of proceedings and interim measures, the conduct of arbitral proceedings, the termination of arbitral proceedings, and the recognition and enforcement of arbitral awards. Part III provides for additional powers of the Malaysian High Court to intervene in arbitral proceedings and the confidentiality of information relating to arbitral proceedings and awards. Part IV covers miscellaneous issues such as the liability of arbitrators and arbitral institutions and the enforceability of arbitration agreements against bankrupts.
2011 and 2018 amendments
The 2005 Act underwent two major amendments in 20114 and 20185 to enhance Malaysia's profile as an arbitration-friendly jurisdiction. The amendments also brought the 2005 Act in line with international arbitration jurisprudence under the UNCITRAL Model Law, which was amended in 2006.
One relevant amendment is the introduction of Section 8, whereby court intervention is limited only to matters expressly provided for under the 2005 Act. The Federal Court in Far East Holdings Bhd v. Majlis Ugama Islam dan Adat Resam Melayu Pahang6 confirmed that this Section provides for a policy of minimal intervention, which is consonant with the underlying policy of the UNCITRAL Model Law, more recently affirmed by the Federal Court in Master Mulia Sdn Bhd v. Sigur Rus Sdn Bhd.7 Further, provisions on the jurisdiction and powers of the courts have been amended to follow the UNCITRAL Model Law. With regard to the courts' powers to grant interim measures in aid of arbitration proceedings, Section 11 has been amended to adopt the language of the UNCITRAL Model Law. Prior to the 2018 amendment, under Section 42, any party could refer to the High Court any question of law arising out of an award. On the determination of a reference, the High Court may confirm or vary the award, remit the award in whole or in part to the tribunal for reconsideration, or set aside the award in whole or in part. Section 42 has since been deleted.
The scope and enforceability of the arbitral tribunals' powers have also been considerably expanded by the 2011 and 2018 amendments. Section 19(2) now allows an arbitral tribunal to issue interim measures in the form of an arbitral award or any other form including restoring the status quo of parties pending the determination of a dispute. Section 19B permits parties to apply for preliminary orders to prevent the frustration of any interim measures. Additionally, under Section 19H, an interim measure issued by a tribunal is recognised as binding and may be enforced irrespective of the country in which it was issued. More recently, the High Court clarified that, while the Court's powers under Section 11 were limited only as against parties under the arbitration agreement, the remit of Section 19J was much wider and conferred upon the Court's jurisdiction to grant interim relief against non-parties outside of the arbitration agreement.8
The amendments introduced in 2011 and 2018 also seek to encourage the use of arbitration to settle disputes. Emergency arbitration proceedings are recognised under the 2005 Act, in tandem with the revised AIAC Arbitration Rules 2021. Further, the definition of an arbitration agreement in writing has been broadened to cover agreements recorded in any form, including electronic communications. Confidentiality elements of arbitral proceedings are also protected. Unless agreed otherwise, parties are prohibited from publishing, disclosing or communicating any information relating to said proceedings or an award under Section 41A. Section 41B further provides that court proceedings under the 2005 Act shall not be heard in open court, unless otherwise ordered by the court upon the application of a party.
The amendments introduced in 2018 also clarified the position on the tribunal's power to grant both pre-award and post-award interest. It is now clear from the amendments to Section 33 of the 2005 Act that an arbitral tribunal has the authority to grant both pre-award and post-award interest.
Judicial assistance and intervention
Where court proceedings are brought in respect of the subject of an arbitration agreement, parties may apply to the said court to stay proceedings and refer the parties to arbitration pursuant to Section 10 of the 2005 Act. Courts will consider whether the arbitration agreement is null and void, inoperative or incapable of being performed. If all these requirements are fulfilled, a stay of legal proceedings in favour of the arbitration proceedings is mandatory.9 This applies to both domestic and international arbitrations.
The issue of whether a particular dispute falls within an agreement to arbitrate is construed based on the commercial purpose of the arbitration agreement.10 The Federal Court in Press Metal Sarawak Sdn Bhd v. Etiqa Takaful Bhd also considered that courts should interpret the clause widely and lean more towards granting a stay pending arbitration, even if there are some doubts as to the validity of an arbitration clause or whether the subject matter of a dispute falls within the ambit of an arbitration agreement predicated upon the 'Kompetenz-Kompetenz' doctrine.11 In a recent case where a judgment in default was obtained in court proceedings notwithstanding the existence of an arbitration agreement, the Federal Court in Tindak Murni Sdn Bhd v. Juang Setia Sdn Bhd12 decided that the arbitration should take precedence as there was a valid arbitration agreement, and that the judgment in default obtained ought to have been set aside and the matter referred to arbitration in accordance with the statutory requirements of Section 10 of the 2005 Act.
Sections 11 and 19 of the 2005 Act empower Malaysian courts to grant interim reliefs in aid of arbitration. These interim reliefs include maintaining the status quo pending arbitration, preventing any action likely to prejudice to the arbitral process, providing means for asset preservation, and preserving material evidence. Pursuant to Section 11(3), Section 11 has extraterritorial jurisdiction and extends to international arbitrations seated out of Malaysia.
Consistent with the minimal intervention principle, courts have adopted a restrictive construction of Section 11's application warranting judicial intervention.13 Consequently, courts will decline to exercise their power to grant interim relief where it would deprive parties of their freedom to contract and resolve a dispute by arbitration, or where it would usurp the role and function of an arbitral tribunal. It has been further clarified by the Court of Appeal in Obnet Sdn Bhd v. Telekom Malaysia Bhd14 that the powers under Section 11 must be read as intending to support and facilitate the arbitration proceedings, and not to displace or to exercise a supervisory role over the arbitration proceedings.15
It may be worth noting with specific reference to the test for the grant of interim injunctions under the 2005 Act, judicial attitudes16 have recently indicated a shift away from the traditional principles laid down in American Cyanamid.17 Courts have reasoned that there is no necessity to determine whether there is a 'serious issue to be tried' given that, the fact that the matter has been brought before the arbitral tribunal is premised on the existence of a 'dispute' in and of itself. Even so, it may be wholly inappropriate for a court to determine whether there is a 'serious issue to be tried' as to do so may be tantamount to usurping an issue that properly belongs to the jurisdictional ambit of arbitral tribunal.
Notwithstanding the limits placed on court powers by the amendments in 2011 and 2018, courts are not ousted from exercising jurisdiction on matters relating to arbitration and still retain inherent jurisdiction to decide on matters not specifically regulated under the 2005 Act.18
Enforcement and setting aside of arbitral awards
The recognition and enforcement of arbitral awards in Malaysia is governed by Sections 38 and 39 of the 2005 Act. A party may apply to the High Court for an arbitral award to be recognised as binding and subsequently enforced as a judgment in Malaysia. For a non-Malaysian arbitral award, Section 38 requires the award to be from a state that is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Recognition or enforcement of an award may only be refused on the specific grounds set out in Section 39.
An arbitral award may be set aside by the High Court under Section 37 of the 2005 Act. Generally, an arbitral award is deemed to be 'final, binding and conclusive and can only be challenged in exceptional circumstances'.19 The Federal Court in Jan De Nul (Malaysia) Sdn Bhd & Anor v. Vincent Tan Chee Yioun & Anor20 held that, premised upon the jurisprudential policy of encouraging arbitral finality and minimalist intervention, courts must be slow in interfering with or setting aside arbitral awards, as constant interference would defeat the spirit and raison d'être of the 2005 Act.21 To succeed, the party applying to set aside the arbitral award pursuant to Section 37 must show that the award-making process itself was compromised, as opposed to being tainted by any error of facts, law, or both.22
International and domestic arbitration
An international arbitration is defined under Section 2 of the 2005 Act as an arbitration where the place of business of one of the parties is outside of Malaysia, where the seat of arbitration or a substantial part of the obligations or subject matter is outside Malaysia, or where there is an express agreement that the subject matter of the arbitration agreement relates to more than one state. If none of these is fulfilled, the arbitration is deemed to be a domestic arbitration.
Whether an arbitration is considered to be an international or domestic arbitration has significant implications for parties. Section 3 of the 2005 Act distinguishes the applicability of the 2005 Act to domestic and international arbitrations where the seat of arbitration is in Malaysia. Unless parties to a domestic arbitration expressly opt out in an arbitration agreement, parties are subject to a more interventionist regime under Part III of the 2005 Act such as the court's determination of a preliminary point of law or an extension of time to commence arbitration proceedings, upon the application by a party. On the other hand, parties to an international arbitration will have to expressly agree to opt in if they intend for Part III of the 2005 Act to be applicable to their disputes.
The Federal Court in Tan Sri Dato' Seri Vincent Tan Chee Yioun & Anor v. Jan De Nul (Malaysia) Sdn Bhd & Anor Appeal23 clarified that the only relevant consideration in determining the application of Part III of the 2005 Act is whether a foreign party, such as a party having its place of business outside of Malaysia, is a party to an arbitration agreement. Courts will not consider the law governing the arbitration agreement. Similarly, an agreement to adopt Malaysian law as the law governing a contract will not be interpreted as an agreement to apply Part III of the 2005 Act.
ii Local institutions
There are several arbitral institutions in Malaysia, including the Institute of Engineers Malaysia, the Malaysian Rubber Exchange, the Palm Oil Refiners Association of Malaysia and the Malaysian Institute of Architects. However, the main arbitral institution in Malaysia is the AIAC. Formerly known as the Kuala Lumpur Regional Centre for Arbitration, the AIAC was established in 1978 to provide for a system to settle disputes pertaining to international commercial transactions. Today, it has grown from being a regional arbitration centre to a multi-service hub for alternative dispute resolution including adjudication and mediation.
As an international arbitration institution, the AIAC provides for its own arbitration rules. While both ad hoc and institutional arbitration are recognised in Malaysia, the most popular type of institutional arbitration in Malaysia is governed by the AIAC. The revised AIAC Arbitration Rules 2021 expressly incorporate the provisions of the UNCITRAL Arbitration Rules 2013 and provide for, among other things, the expeditious appointment of emergency arbitrators, joinder of parties and consolidation of disputes.
The AIAC also provides for the AIAC i-Arbitration Rules introduced in 2012 and revised in 2021 to facilitate both Islamic and non-Islamic Shariah-based arbitrations. As such, it provides a set of Shariah-complaint rules that include a procedure for the referral of questions to a Shariah advisory council or Shariah expert.
In recent years, the AIAC has also launched a suite of standard form building contracts and sub-contracts, as well as a standard form software development contract. The dispute resolution sections of standard form contracts incorporate the AIAC Arbitration Rules 2021 and the 2005 Act.24
Notably, both the AIAC Arbitration Rules 2021 and the i-Arbitration Rules 2021 provide model arbitration clauses which specifically include reference to the law governing the arbitration clause itself, overcoming the issues arising from non-specification of the governing law of the arbitration as was the case in Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb.25 This is also reflected in the AIAC's standard form for software development contracts.
In order to continue upholding its reputation of impartiality, the AIAC formed a Conflicts Resolution Panel on 26 November 2018. In the event that the Director of the AIAC has to make a decision where there exists a conflict of interest on his or her part, the Director may call upon at least two members of the Conflicts Resolution Panel to enable a decision to be implemented by him or her.
Ref:
Rahmat Lim & Partners - Bryan Wang, Lilian Saw, Prabjit Dev Singh, Tan Yan Yan and Yap Yeow Han