International Arbitration 2020

Last Updated August 18, 2020

Malaysia

Law and Practice

Authors



Shearn Delamore & Co is one of the largest award-winning full-service law firms in Malaysia, with more than 100 lawyers and 280 support staff. The firm has the resources to manage complex cross-border transactions, projects and matters. It acts for MNCs, private equity, international organisations, government institutions and private clients; it is frequently instructed by international law firms. Shearn Delamore & Co's international resources and reach include its membership of the World Law Group, World Services Group, Employment Law Alliance and, in 2020, Drew Network Asia (DNA) – a regional platform to serve clients seeking legal advice within the ASEAN region. The firm's diverse experience and interdisciplinary collaborations enables it to provide clients with a complementary range of skills to meet their needs.

Litigation continues to be the primary method of resolving disputes in Malaysia, for both domestic and international disputes. This is not expected to change in the near future.

Nevertheless, based on statistics from the Asian International Arbitration Centre (AIAC), domestic arbitrations appear to be on the rise with 80 registered domestic arbitrations in 2018 and 117 domestic arbitrations in 2019. 

On the other hand, there has been a marginal decrease in international arbitration registrations at the AIAC. In 2018, the AIAC registered ten international arbitration cases; in 2019, the AIAC registered a total of eight international arbitration cases.

The COVID-19 pandemic has affected the use and conduct of international arbitration in Malaysia. As a result, more domestic and international arbitrations are being conducted virtually, as opposed to at in-person hearings.

We are aware of instances where parties have sought deferment of hearing dates until later in 2020 or early 2021 preferring an in-person hearing as opposed to a virtual hearing.

The reasons given are generally tied to the complexity of the subject matter of the dispute causing some parties to opt for an in-person hearing despite the COVID-19 pandemic.

In accordance with the requirement of social distancing dictated by Malaysia's Ministry of Health, the attendees at an in-person hearing are closely monitored to ensure the minimum distance is maintained. As a result, most of the larger meeting/hearing rooms at the various arbitration venues are booked out well in advance.

AIAC statistics indicate that the majority of arbitrations registered in 2019 relate to construction contracts. The second most popular category was disputes arising from concession agreements. This is largely consistent with the trend in previous years.

The arbitral institution most used for international arbitration in Malaysia is the Asian International Arbitration Centre (AIAC). 

The AIAC was previously known as the Kuala Lumpur Regional Centre for Arbitration, and was first established in 1978 under the Asian-African Legal Consultative Organisation as a not-for-profit, non-governmental international organisation aimed at promoting alternative dispute resolution in the Asian region. It was subsequently rebranded as AIAC on 7 February 2018.

AIAC’s Initiatives

The AIAC maintains its own rules of arbitration, known as the AIAC Arbitration Rules. Furthermore, the AIAC actively takes the initiative to modernise the AIAC Arbitration Rules in accordance with international trends in alternative dispute resolution proceedings in order to compete with the best arbitral institutions that Asia has to offer, contributing to its popularity in Malaysia. 

For instance, the AIAC had released the AIAC Arbitration Rules 2018 in light of the recent trends on costs and length optimisation of arbitration proceedings, and included provisions pertaining to the appointment of emergency arbitrators. It revised its Fast Track Arbitration Rules in 2018, which enable parties to obtain an award in a more efficacious and cost-effective manner. 

The AIAC i-Arbitration Rules offer a practical solution for the settling of disputes arising out of or in connection with Shari'a-based commercial transactions, enabling the arbitral tribunal to refer a matter to the relevant Shari'a Advisory Council or Shari'a expert in respect of opinions on matters related to Shari'a principles.

Following the onset of the COVID-19 pandemic, AIAC initiated a series of webinars on a multitude of areas relating to arbitration and other alternative dispute resolution processes. These webinars have been well attended and have been instrumental in bringing together local and international speakers.

The Arbitration Act 2005 governs international arbitration in Malaysia. Parts I, II and IV of the Arbitration Act 2005, comprising sections 1 to 5, sections 6 to 39 and sections 47 to 51, are of mandatory application in respect of international arbitration. Part III of the Arbitration Act 2005, comprising sections 40 to 46, does not apply to international arbitration unless the parties agree to opt in, in writing. 

Comparison with UNCITRAL Model Law

The Arbitration Act 2005 is based closely on the UNCITRAL Model Law. Part II of the Arbitration Act 2005 – containing sections 6 to 39 governing general provisions, provisions relating to arbitration agreements, the composition of arbitrators, the jurisdiction of the arbitral tribunal, conduct of arbitral proceedings, the making of awards and termination of proceedings, recourse against awards and the recognition and enforcement of awards – closely mirrors the subject headings and sequence of articles 3 to 36 of the UNCITRAL Model Law. 

In the context of international arbitration, there are no significant differences between the Arbitration Act 2005 and the UNCITRAL Model Law. However, specific powers are provided to arbitrators in several sections of the Arbitration Act 2005, which are not found in the UNCITRAL Model Law. 

For instance, the Arbitration Act 2005 empowers the arbitral tribunal to grant security for costs as an interim measure (see Section 19E of the Arbitration Act 2005) and to give directions for the speedy determination of a claim if the claimant fails to proceed with the claim (see Section 27(d) of the Arbitration Act 2005).

The Arbitration Act 2005 also provides for specific powers of the arbitral tribunal in conducting the arbitration, which includes drawing on its own knowledge and expertise, ordering for the provision of further particulars, the granting of security for costs, fixing and amending time limits in which various steps in arbitral proceedings must be completed, ordering the discovery and production of documents or material within the possession or power of a party, ordering interrogatories to be answered, and ordering that any evidence be given on oath or affirmation (see Section 21 of the Arbitration Act 2005).

There have not been amendments to the Arbitration Act 2005 since the 2018 amendments to the Arbitration Act 2005. The 2018 amendments brought the Arbitration Act 2005 further in line with the UNCITRAL Model Law, such as:

  • clarification of the definition of an arbitration agreement that is “in writing”;
  • the recognition that the requirement that an arbitration agreement is made in writing can be met by any electronic communication;
  • the introduction of provisions dealing with the arbitral tribunal’s powers to grant interim measures; and
  • the reinstatement of parties’ rights to choose any law or rules of law applicable to the substance of a dispute and the arbitral tribunal’s right to decide according to equity and conscience if so authorised by the parties.

The said amendments, amongst others, allowed the parties the right to choose representation by any representative and not merely a lawyer, further it expanded the definition of “arbitral tribunal” to include emergency arbitrators.

Developments in 2020

The Legal Affairs Division of the Prime Minister’s Department announced in late May 2020 that the Malaysian government is currently co-ordinating the drafting of a Temporary Measures Bill (the “proposed Bill”) to mitigate and alleviate the economic and social impact of the COVID-19 pandemic in various sectors. The Alternative Dispute Resolution (ADR) industry’s views have been sought in respect of this initiative.

There is also talk that legislation in relation to third-party funding in arbitration may be introduced.

As at 3 August 2020, the AIAC does not have a director. A new director of the AIAC is expected to be announced shortly.

An arbitration agreement must be an agreement by the parties to submit to arbitration all or certain disputes which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not (see Section 9 of the Arbitration Act 2005).

Forms of Arbitration Agreement

An arbitration agreement may be in a form of an arbitration clause contained in an agreement, in a standalone agreement or reference to another agreement that contains an arbitration clause. 

Recently, in Pandan Etika Sdn Bhd v Liang Builders Sdn Bhd [2019] MLJU 1907, the High Court gave effect to an arbitration clause that had been incorporated by reference.

Arbitration Agreement Must be in Writing

The arbitration agreement must be in writing (see Section 9 of the Arbitration Act 2005). This requirement of a written agreement may be met if its content is recorded in any form, including situations where the initial arbitration agreement or contract has been concluded orally, by conduct, or by other means. The requirement can also be met if the existence of an agreement is alleged by one party and not denied by the other in an exchange of statement of claim and defence.

An arbitration agreement is deemed to be in writing if it is evidenced by any electronic communication that the parties make by means of data message, if the information contained therein is accessible so as to be useable for future reference. The signature of the parties is not a prerequisite to an arbitration agreement being enforced.

No Specific Words or Form Required

No specific words or form are required to be used to constitute an arbitration clause or an arbitration agreement; an electronic transmission referring to or implying the parties’ intention to submit to arbitration suffices, as long as there is an agreement to refer disputes to arbitration and the parties’ intention to arbitrate is clear and unequivocal (see the Malaysian Court of Appeal’s decision in Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd [2010] 3 MLJ 656).

Any dispute the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration, unless the arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia (see Section 4 of the Arbitration Act 2005). The fact that any written law confers jurisdiction in respect of a matter on any court of law but does not refer to the determination of that matter by arbitration does not indicate that a dispute about that matter is not capable of determination by arbitration. 

Public Policy

There is no universally accepted test on what is public policy; different courts and different tribunals may have different views as to the enforceability of contracts on the ground of public policy (see the Federal Court judgment in Arch Reinsurance Ltd v Akay Holdings Sdn Bhd [2019] 1 CLJ 305).

The Arbitration Act 2005 does not name any specific subject matter that cannot be referred to arbitration.

The question of whether a subject matter is arbitrable is not determined by jurisdictional limitations on the relief that may be granted (see the UK Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards and another [2011] EWCA Civ 855). Matters that may have public interest elements have been approved as being non-arbitrable in the Singapore courts, such as citizenship, the legitimacy of a marriage, grants of statutory licences, the validity of the registration of trade marks or patents, copyrights, the winding up of companies, the bankruptcy of debtors and the administration of estates (see the Singapore Court of Appeal decision in Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2015] SGCA 57). In our view, the Malaysian courts would find such judicial findings to be persuasive.

In Arch Reinsurance Ltd v Akay Holdings Sdn Bhd [2019] 1 CLJ 305, the Federal Court held that the provisions of the National Land Code setting out the rights and remedies of parties under statutory charge over land are exhaustive and exclusive and any attempt to contract out of these rights are void as being contrary to public policy; and hence a dispute triggered by a statutory notice of demand under the National Land Code is not arbitrable under the Arbitration Act 2005. Based on this decision, the Malaysian Courts have taken the position where there are statutory provisions that exhaustively set out procedures involving the rights and remedies of parties, then that subject matter will most likely not be arbitrable.

The Tribunal’s Powers to Determine Arbitrability

If the issue of whether a dispute is arbitrable or not is raised by any party, the arbitral tribunal has the power to rule on its own jurisdiction, which includes deciding whether a dispute is arbitrable. Within 30 days of receiving notice of the arbitral tribunal’s ruling that there is jurisdiction, then any party may appeal to the High Court to decide the matter. 

Arbitration agreements are frequently enforced by the Malaysian courts. Where court proceedings are brought in respect of a matter that is the subject of an arbitration agreement and a party makes an application to stay the court proceedings, in view of the existence of a valid agreement to arbitrate, it is mandatory for the court to do so (see the Malaysian Federal Court’s decision in Press Metal Sarawak Sdn Bhd v Etika Takaful Sdn Bhd [2016] 5 MLJ 417). There is no discretion for the Malaysian courts to refuse enforcement of an arbitration agreement when the arbitration agreement is not null and void, inoperative or incapable of being performed. 

This was emphasised recently in the case of Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd & Another Appeal [2020] MLJU 232. There the issue before the Federal Court was whether a judgment in default may be sustained when the plaintiff who obtained the judgment in default is bound by a valid arbitration agreement. The defendant raised disputes to be ventilated in arbitration pursuant to the arbitration clause. The Federal Court held that a judgment in default cannot act as a bar to arbitration and, as such, set aside the judgment in default and granted a stay pending reference to arbitration.

Malaysia applies the rule of separability of arbitration clauses contained in invalid agreements. An arbitration clause that forms part of an agreement shall be treated as an agreement independent of the other terms of the agreement in which it is contained. A decision by an arbitral tribunal that the agreement is null and void does not invalidate the agreement to arbitrate (see Standard Chartered Bank Malaysia Bhd v City Properties Sdn Bhd & Anor [2008] 1 MLJ 233 – High Court).

This position has also been applied in the recent case of Pandan Etika Sdn Bhd v Liang Builders Sdn Bhd [2019] MLJU 1907 where the High Court gave effect to an arbitration clause that had been referentially incorporated into an agreement, regardless of the fact that the remaining aspects of the agreement could potentially be void for uncertainty.

There are no limits set by the Arbitration Act 2005 on the parties’ autonomy to select arbitrators in Malaysia. It is explicitly provided in Section 13 of the Arbitration Act 2005 that no person shall be precluded by reason of nationality from acting as an arbitrator, unless the parties agree otherwise. 

Where the parties’ chosen method for selecting arbitrators fails, the default procedure depends on the number of arbitrators appointed – ie, one or three. In the context of international arbitration, where parties fail to determine the number of arbitrators, the default position is three arbitrators in an international arbitration and one in a domestic arbitration (see Section 12 of the Arbitration Act 2005).

Where the arbitration consists of three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator as the presiding arbitrator. If a party fails to appoint an arbitrator within 30 days of receiving a request in writing to do so from the other party, or if the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment or within such extended period as the parties may agree, either party may apply to the director of the AIAC for such appointment.

Where the arbitration consists of a sole arbitrator and the parties fail to agree on the arbitrator, either party may apply to the director of the AIAC for the appointment of the sole arbitrator. The decision of the director of the AIAC is final and non-appealable (see Section 13 of the Arbitration Act 2005).

Multi-Party Arbitrations

Where there are multiple parties in an arbitration, where the arbitration consists of a sole arbitrator and the parties fail to agree on the arbitrator, any party may apply to the director of the AIAC for the appointment of the sole arbitrator. The decision of the AIAC is final and non-appealable.

There is currently no default procedure governing multi-party arbitrations where the number of arbitrators is three, as the Arbitration Act only states “each party shall appoint one arbitrator”. However, it is a common practice for multiple parties on the same side (whether as joint claimants or respondents) to jointly appoint a single arbitrator.

Where the director of the AIAC is unable to act or fails to act within 30 days when any party applies to him or her for the appointment of an arbitrator, any party may apply to the High Court for the appointment of the arbitrator (see Section 13(7) of the Arbitration Act 2005). If such an application is made, the High Court is required to have due regard to any qualifications required of the arbitrator by the agreement of the parties, other considerations that are likely to secure the appointment of an independent and impartial arbitrator, and the advisability of appointing an arbitrator of a nationality other than those of the parties. The appointment of the arbitrator by the High Court in this manner is final and non-appealable.

The Malaysian High Court does not have any power under the Arbitration Act 2005 to intervene in the selection of arbitrators in any other manner. 

Grounds for Challenge of Arbitrators

An arbitrator may be challenged in two situations: if the circumstances give rise to justifiable doubts as to their impartiality or independence; or if they do not possess the qualifications agreed by the parties (see Section 14 of the Arbitration Act 2005).

Challenge Procedure

Under the default procedure governing the challenge or removal of arbitrators, any party who intends to challenge the appointment of an arbitrator shall send a written statement of the reasons for the challenge to the arbitral tribunal, within 15 days of becoming aware of the constitution of the arbitral tribunal or of any of the reasons referred to above (see Section 15 of the Arbitration Act 2005).

Unless the challenged arbitrator withdraws from office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. Where the challenge is not successful, the challenging party may apply to the High Court to make a decision on the challenge, within 30 days of receiving notice of the decision rejecting the challenge. The High Court’s decision on the matter is final and non-appealable.

It is a requirement that there should be no justifiable doubt as to an arbitrator’s impartiality and independence. A person who is approached in connection with a possible appointment as arbitrator is required to disclose any circumstances that are likely to give rise to justifiable doubts as to his or her impartiality or independence under the Arbitration Act 2005.

This requirement is also captured in the AIAC Rules, pursuant to which an arbitrator – from the time of his or her appointment and throughout the arbitral proceedings – is required to disclose any circumstances that are likely to give rise to justifiable doubts as to his or her impartiality or independence to the parties and other arbitrators without delay.

There are no specific subject matters that may not be referred to arbitration under the Arbitration Act 2005. Section 4 of the Arbitration Act 2005 provides that any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia.

The wide construction of what is arbitrable was also affirmed in Renault SA v Inokom Corp Sdn Bhd & Anor and other appeals [2010] 5 MLJ 394, where in addition to conventional commercial disputes, the Court of Appeal held that tortious disputes are arbitrable.

Case Law

While there is no universally accepted test on public policy, matters that are naturally contrary to public policy and not capable of settlement by arbitration would include criminal proceedings, citizenship, legitimacy of a marriage, validity of a matter where the court is conferred sole jurisdiction to make specific orders or declarations such as grants of statutory licences, validity of the registration of trade marks or patents, copyrights, winding up of companies, bankruptcy of debtors and administration of estates (see the Singapore Court of Appeal decision in Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2015] SGCA 57).

In general, the question of whether the subject matter is arbitrable is not determined by the jurisdictional limitations on the relief that may be granted (see Section 4(2) of the Arbitration Act 2005 and the UK Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards and another [2011] EWCA Civ 855).

This principle appears to have been circumscribed by the Malaysian courts. In Pendaftar Pertubuhan Malaysia v Establishmen Tribunal Timbangtara Malaysia & Ors [2011] 6 CLJ 684, the High Court held that disputes relating to any act, duty or functions carried out by a statutory body in the exercise of its statutory powers are not subject to arbitration. Recently, the Federal Court in Arch Reinsurance Ltd v Akay Holdings Sdn Bhd [2019] 1 CLJ 305 held that subject matter concerning a statutory notice of demand for order for sale of a charged property under the National Land Code 1965 is not arbitrable. This was endorsed by the High Court in FMC Petroleum Equipment (Malaysia) Sdn Bhd v FMC Wellhead Equipment Sdn Bhd [2019] MLJU 473.

The principle of competence-competence is applicable in Malaysia with the enactment of Section 18(1) of the Arbitration Act 2005 – ie, an arbitral tribunal can rule on a party’s challenge to the tribunal’s own jurisdiction. This is affirmed in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417, where the Federal Court held that the court must acknowledge the competency of an arbitral tribunal to decide on its own jurisdiction without interference.

Pursuant to Section 18(7) of the Arbitration Act 2005, the arbitral tribunal may rule on a plea that it does not have jurisdiction or is exceeding the scope of its authority either as a preliminary question or in an award on the merits.

Positive Rulings on Jurisdiction

Where the arbitral tribunal rules on such a plea as a preliminary question that it has jurisdiction, any party may appeal to the High Court within 30 days of receiving a notice of that ruling (see Section 18(8) of the Arbitration Act 2005). A decision of the High Court herein is final and non-appealable (see Section 18(10) of the Arbitration Act 2005).

On the other hand, if the arbitral tribunal decides to address such plea in the award stage, then the parties may apply to the High Court under Section 37 of the Arbitration Act 2005 to set aside such award made by the arbitral tribunal.

The courts generally show a reluctance to intervene in issues regarding the jurisdiction of an arbitral tribunal. In Capping Corp Ltd & Ors v Aquawalk Sdn Bhd & Ors [2013] 6 MLJ 579, the Court of Appeal held that under the Arbitration Act 2005, the courts are dictated to take a minimal interference approach and such approach is reflected in Section 18 of the Arbitration Act 2005, where the arbitrator is empowered to rule on his or her own jurisdiction.

Negative Rulings on Jurisdiction

The Arbitration Act 2005 provides for an appeal against an arbitral ruling that it has jurisdiction. The converse (ie, a negative ruling on jurisdiction) is not referenced as a ground for appeal under Section 18(8).

In PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA[2007] 1 SLR(R) 597, the Singapore Court of Appeal accepted that pursuant to Article 16(3) of the UNCITRAL Model Law, a negative jurisdictional ruling by a tribunal is intended to be a final and binding decision between the parties, and is not appealable. Whilst the Singapore International Arbitration Act was amended in 2012 to allow appeals to the High Court on a negative jurisdictional ruling, no such amendment has been made to the Arbitration Act 2005.

Pursuant to Section 18(8) of the Arbitration Act 2005, if the arbitral tribunal rules on the plea against its jurisdiction as a preliminary question, parties have the right to go to court to challenge the jurisdiction of the arbitral tribunal within 30 days of receiving a notice of the arbitral tribunal’s ruling on the issue. 

If the arbitral tribunal determines such plea in an award on the merits, the parties may, within 90 days from the date of receipt of the award, make an application to the High Court set aside such award (see Section 37(4) of the Arbitration Act 2005).

In Malaysia, the standard of review by the courts on questions of arbitral jurisdiction is generally de novo. It was upheld by the High Court in Usahasama SPNB-LTAT Sdn Bhd v ABI Construction Sdn Bhd [2016] 7 CLJ 275 that an appeal under Section 18(8) of the Arbitration Act 2005 involves a full rehearing of all issues afresh and uninfluenced by the prior decision of the arbitrator.

When there are court proceedings brought in breach of an arbitration agreement, it is mandatory for the Malaysian courts to stay such proceedings in favour of arbitration, unless it finds that the agreement is null and void, inoperative or incapable of being performed (see Section 10 of the Arbitration Act 2005).

This was confirmed by the Federal Court in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417 where it was held that in granting a stay under Section 10 of the Arbitration Act 2005, the court only needs to consider whether there is in existence a binding arbitration agreement or clause between the parties, which agreement is not null and void, inoperative or incapable of being performed. Referring to the Court of Appeal’s decision in TNB Fuel Services Bhd v China National Coal Group Corp [2013] 4 MLJ 857, the Federal Court held that the question as to whether there is a dispute in existence is not a requirement to be considered as it is an issue to be decided by the arbitral tribunal.

This was reinforced in the recent case of Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd [2020] MLJU 232, where the Federal Court set aside a judgment in default over disputes that were contractually bound to be resolved by arbitration.

The arbitral tribunal cannot assume jurisdiction over individuals or entities that are neither party to an arbitration agreement nor signatories to the contract containing the arbitration agreement. The Arbitration Act 2005 does not apply to non-parties to an arbitration agreement (see the Federal Court decision in Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd & Ors [2019] MLJU 523). 

Pursuant to Section 19(1) of the Arbitration Act 2005, an arbitral tribunal is permitted to grant interim measures at the request of either party to the arbitration agreement. The 2018 amendments to the Arbitration Act 2005 confer power upon the arbitral tribunal under Section 19(2)(a) to (e) of the Arbitration Act 2005 to grant the following interim reliefs:

  • to order a party to maintain or restore the status quo pending determination of the dispute;
  • to take action that would prevent current or imminent harm or prejudice to the arbitral process itself, or to refrain from taking action that is likely to cause such harm or prejudice;
  • to provide a means of preserving assets out of which a subsequent award may be satisfied;
  • to preserve evidence that may be relevant and material to the resolution of the dispute; or
  • to provide security for the costs of the dispute. 

An interim measure issued by an arbitral tribunal shall be recognised as binding and, unless otherwise provided by the arbitral tribunal, enforced upon application to the court, irrespective of the country in which it was issued (see Section 19H of the Arbitration Act 2005). 

The High Court has the power to issue interim relief before or during arbitration proceedings, irrespective of whether the seat of arbitration is in Malaysia. 

Pursuant to Section 11 of the Arbitration Act 2005, the High Court may make the following orders:

  • to maintain or restore status quo pending the determination of the dispute;
  • to take action that would prevent current or imminent harm or prejudice to the arbitral process, or to refrain from taking action that is likely to cause such harm or prejudice;
  • to provide a means of preserving assets out of which a subsequent award may be satisfied, whether by way of arrest of property or bail or other security, pursuant to the admiralty jurisdiction of the High Court;
  • to preserve evidence that may be relevant and material to the resolution of the dispute; or
  • to provide security for the costs of the dispute. 

It should be noted that the powers of the court to grant interim relief are slightly wider than the powers of an arbitral tribunal. In considering an order to provide a means of preserving assets out of which a subsequent award may be satisfied, the High Court has the power to order an arrest of property or bail or other security, pursuant to the admiralty jurisdiction of the High Court. 

Emergency Arbitrators

Pursuant to the 2018 Amendments, the Arbitration Act 2005 recognises the use of emergency arbitrators, and the definition of “arbitral tribunal” under the Act has been defined to include an emergency arbitrator. 

Emergency arbitrators are prescribed with the same powers as the arbitral tribunal. The decisions of emergency arbitrators are recognised as binding, and can be enforced upon application to the court, irrespective of the country in which it is issued. 

The Malaysian courts do not have the power to intervene in arbitration proceedings once an emergency arbitrator has been appointed, except in situations specifically provided by the Arbitration Act 2005, such as determination of an appeal against the emergency arbitrator’s ruling of an unsuccessful challenge to the arbitral tribunal.

Interim relief by the courts is permissible both before and after an emergency arbitrator has been appointed. 

Malaysian law confers concurrent jurisdiction to both courts and arbitral tribunals to make an order for security for costs as an interim measure upon an application for such. 

The parties are free to agree on the procedure to be followed by the arbitral tribunal in conducting the arbitration (see Section 21 of the Arbitration Act 2005). Such procedural rules can be ad hoc or institutional. The most commonly adopted institutional rules in Malaysia is the AIAC Arbitration Rules. 

If parties fail to agree on the procedural rules, the arbitral tribunal will become the master of the proceedings, upon which it will be empowered to determine matters such as the time and place of proceedings, time limits for pleadings and written submissions as well as taking of evidence.

Regardless of the applicable procedural rules, the claimant is in law required to submit a statement of claim containing the facts supporting his or her claim, the points in issue and the relief or remedy sought from the arbitration after the commencement of arbitration and within the period of time agreed by the parties or determined by the arbitral tribunal. The respondent to the arbitration shall then state his or her defence in respect of the particulars set out by the claimant. 

Together with the submissions of the parties’ statement of claim and defence, the parties may further submit any document they consider relevant or add a reference to the documents or other evidence that they may submit. 

The arbitral tribunal will then decide whether to hold oral hearings for the presentation of evidence or oral arguments, or to conduct the proceedings on the basis of documents and other materials. If any party applies for the arbitral tribunal to hold oral hearings at an appropriate stage of the proceedings, it is mandatory for the arbitral tribunal to hold such oral hearings (see Section 26 of the Arbitration Act 2005). 

Powers of arbitrators

In Malaysia, arbitrators are conferred with the following powers:

  • to rule on their own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement; 
  • to order interim measures as described in 6.1 Types of Relief;
  • to conduct the arbitration in such manner as they consider appropriate if no procedure is agreed upon by the parties, which includes the powers to
    1. determine the admissibility, relevance, materiality and weight of any evidence,
    2. draw on their own knowledge and expertise,
    3. order for the provision of further particulars in a statement of claim or statement of defence,
    4. order for the provision of security for costs,
    5. fix and amend the time limits within which various steps in the arbitral proceedings must be completed,
    6. order the discovery and production of documents or materials within the possession or power of a party,
    7. order the interrogatories to be answered,
    8. order that any evidence be given on oath or affirmation, and
    9. make any such orders as the arbitral tribunal considers appropriate; 
  • to determine the seat of arbitration, the language to be used in arbitration proceedings and the timeline to submit pleadings, submissions, etc, where the parties fail to agree on these points; and
  • to appoint one or more experts to report on specific issues to be determined by the arbitral tribunal, and to require a party to give the expert any relevant information or to produce or provide access to any relevant documents, goods or other property for the expert’s inspection. 

Duties of Arbitrators

When a potential arbitrator is approached in connection with their possible appointment as an arbitrator, that person has a duty to disclose any circumstances that are likely to give rise to justifiable doubts as to their impartiality or independence. 

Once the person is appointed as an arbitrator, they have the duty to treat the parties with equality, and to give the parties a fair and reasonable opportunity to present their case. The arbitrator is also under a duty to act in good faith at all times of the arbitration. In making an award, arbitrators are also duty-bound to state the reasons upon which the award is based, unless the parties have agreed that no reasons are to be given, or if the award is on agreed terms pursuant to a settlement. 

Generally, parties to arbitral proceedings are permitted to be represented in arbitral proceedings by any representative appointed by the party. Section 37A of the Legal Profession Act 1976 provides that the restrictions on non-Malaysian qualified lawyers to practise in Malaysia shall not apply to any person representing any party in arbitral proceedings.

However, it must be noted that the above principle is only applicable to arbitrations taking place in West Malaysia. In respect of arbitration proceedings in East Malaysia (Sabah & Sarawak), Sabah and Sarawak advocates are conferred exclusive right to practise in East Malaysia and such exclusivity includes representation in arbitration proceedings (see Samsuri bin Baharuddin & Ors v Mohamed Azahari bin Matiasin and another appeal [2017] 2 MLJ 141 (Federal Court)).

In arbitration, the parties are free to agree on the procedure to be followed by the arbitral tribunal, including the approach to the collection and submission of evidence. In the submission of the statement of claim and the defence, the parties are free to submit with their statements any document that they consider to be relevant, or to add a reference to the documents or other evidence that they may submit. 

Unless otherwise agreed by the parties, the arbitral tribunal retains the power to decide whether to hold oral hearings for the presentation of evidence or oral arguments, or to conduct the proceedings on the basis of documents and other materials. However, if there is an application to hold oral hearings at an appropriate stage of the proceedings, it is mandatory for the arbitral tribunal to do so.

The rules of evidence that apply to arbitral proceedings seated in Malaysia would depend on the applicable rules of evidence agreed between the parties. Where the parties fail to agree on the applicable rules of evidence, the arbitral tribunal may determine the rules of evidence regarding admissibility, relevance, materiality and weight in such manner as it considers appropriate. 

In respect of the application of the rules of evidence in court, it is statutorily stipulated that the Evidence Act 1950 does not apply to proceedings before an arbitrator.

With the approval of the arbitral tribunal, the parties are empowered to make an application under Section 29(2) of the Arbitration Act 2005 to the High Court for assistance in taking evidence. The High Court has the power to order the attendance of a witness to give evidence or, where applicable, to produce documents on oath or before an officer of the High Court or any other person, including the arbitral tribunal. 

Pursuant to the AIAC Arbitration Rules, the arbitral tribunal may order any party to produce any documents in its possession or control which the arbitral tribunal deems relevant to the case, and to supply these documents and/or copies thereof to the arbitral tribunal and the other parties.

The 2018 Amendments introduced Section 41A of the Arbitration Act 2005, to reinforce the confidentiality of arbitration proceedings, which provides that no party may publish, disclose or communicate any information relating to the arbitral proceedings under the arbitration agreement or an award made in those arbitral proceedings. This would include all pleadings, evidence, documents and the award, which will remain confidential and cannot be disclosed in subsequent proceedings.

There are three exceptions to this rule:

  • where the publication, disclosure or communication is made to protect or pursue a legal right or interest of the party, or to enforce or challenge the award in legal proceedings before a court or other judicial authority;
  • if the publication, disclosure or communication is made to any government body, regulatory body, court or tribunal and the party is obliged by law to make the publication, disclosure or communication; or
  • if the publication, disclosure or communication is made to a professional or any other adviser of any of the parties. 

The exceptions under the AIAC Rules are where disclosure is necessary for the implementation and enforcement of the award or to the extent that disclosure may be required of a party by a legal duty, or to protect or pursue a legal right, or to challenge an award in bona fide legal proceedings before a court or other judicial authority. Unlike the Arbitration Act, the exceptions pursuant to the AIAC Rules do not extend to a professional or any other adviser of any of the parties. 

The arbitral award must be made in writing, signed by the arbitrator or a majority of all the members of the arbitral tribunal, state its date and seat of arbitration and, unless the parties have agreed otherwise or it is an award pursuant to a settlement, the award must also state the reasons upon which it is based (see Section 33 of the Arbitration Act 2005). 

There is no time limit provided by Malaysian law on the delivery of the award, but the time for making an award may be limited by the arbitration agreement entered into between the parties. If there is a time limit, the High Court may extend that time, unless otherwise agreed by the parties. 

Pursuant to the AIAC Rules, the arbitral tribunal is required to submit a draft of the final award to the director of the AIAC within three months after the proceedings are declared to be closed for a technical review.

The types of remedies that an arbitral tribunal may award are not limited by the Arbitration Act or the AIAC Rules. However, the type of remedies awarded are necessarily confined to the powers conferred on the arbitral tribunal by the parties in the agreement to arbitrate.

Reliefs that form part of the exclusive jurisdiction of the court pursuant to statute may not be granted by an arbitral tribunal, even if the arbitral tribunal may decide on the subject matter of the dispute (see the UK Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards and another [2011] EWCA Civ 855).

Parties are entitled to recover interest and legal costs in an arbitration, especially where doing so is provided for in the arbitration agreement. The arbitral tribunal has the discretion to award simple or compound interest from such date, rate and rest as the arbitral tribunal considers appropriate.

The interest granted may also be for any period, ending no later than the date of payment of the whole or any part of sums awarded by the arbitral tribunal, sums paid before the date of the award, or costs awarded or ordered by the arbitral tribunal in the arbitral proceedings. 

The 2018 amendments to the Arbitration Act 2005 make it possible for both pre-award and post-award interest to be claimed. The Arbitration Act 2005 does not limit the grant to simple interest or compound interest. This is dealt with in accordance with underlying contract and the substantive law. 

The general principle in relation to the award of costs is for the arbitral tribunal to order costs in favour of the successful party and to award all reasonable costs incurred by that party during the arbitration. This would generally include legal fees and disbursements reasonably incurred by the party in respect of the arbitration.

An arbitral award made by an arbitral tribunal pursuant to an arbitration agreement is final, binding and conclusive, and is not appealable based on questions of fact or law. This is because the arbitrator is master of the facts, and the courts should not review the arbitral award on its merits (see the Court of Appeal decision in Asean Bintulu Fertilizer Sdn Bhd v Wekajaya Sdn Bhd and another appeal [2018] 4 MLJ 799). 

The limited circumstances in which an arbitral award may be set aside, or its recognition and enforcement may be opposed, are on the following grounds:

  • a party to the arbitration agreement was under any incapacity;
  • the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the laws of Malaysia;
  • the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings, or was otherwise unable to present their case;
  • the award deals with a dispute that is not contemplated by or does not fall within the terms of the submission to arbitration;
  • the award contains decisions on matters that are beyond the scope of the submission to arbitration; 
  • the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties;
  • the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia; or
  • the award is in conflict with the public policy of Malaysia.

(See sections 37 and 39 of the Arbitration Act 2005.)

There is no provision for parties to agree to exclude or expand the scope of challenge to the decision of the arbitral tribunal under the Arbitration Act 2005. 

Judicial review of an arbitral award is not intended to review the merits of the case but instead to confine itself to the limited grounds in the Arbitration Act. The standard of review is intended to be deferential rather than de novo. Having said that, in the Government of the Lao People’s Democratic Republic v Thai-Lao Lignite Co Ltd, A Thai Co and Anor [2013] 3 MLJ 409, the Federal Court equally held that its role was not to rubber-stamp arbitral awards.

Malaysia has been a signatory to the New York Convention on the Recognition of Foreign Arbitral Awards 1958 since 1985. This requires courts of contracting states to recognise and enforce arbitral awards made in other contracting states.

The commitment to the New York Convention is reflected in the provisions of the Arbitration Act 2005. 

The party seeking to enforce an arbitral award may make an application to the High Court in Malaysia. Upon such an application, the award will be recognised as binding and will be enforced by entry as a judgment in terms of the award. The award to be enforced may be made in respect of an arbitration where the seat of arbitration is in Malaysia or a foreign state. 

The only legal requirement for the enforcement of an arbitral award is the production of a duly authenticated original award or a duly certified copy of the award, and the original arbitration agreement or a duly certified copy of the agreement. As long as this formal requirement is complied with, the court must grant recognition and enforcement of an arbitration award upon such an application being made (see the Court of Appeal’s decision in Tune Talk Sdn Bhd v Padda Gurtaj Singh [2019] 1 LNS 85). 

Nevertheless, if the party against whom the enforcement of the award is invoked provides proof that the arbitral award has been set aside or suspended by a court of the country in which the award was made or under the law under which the award was made, the High Court may refuse the recognition or enforcement of the award. 

The provisions of the Arbitration Act 2005, including the provisions of the enforcement of arbitral awards, bind the federal government or the government of any component state of Malaysia that are parties to an arbitration. Therefore, no defence of sovereign immunity can be raised by a state or state entity at the enforcement stage of arbitration. 

The public policy considerations that domestic courts apply in refusing to enforce foreign arbitral awards are based not on domestic public policy, but on international norms; public policy is defined as violating the most basic notions of morality and justice, or as that which would shock the public conscience or be injurious to the public good. Thus, instances such as "patent injustice", "manifestly unlawful and unconscionable", "substantial injustice", "serious irregularity" and other similar serious flaws in the arbitral process and award, would fall within the applicable concept of public policy (Jan De Nul (Malaysia) Sdn Bhd v Vincent Tan Chee Yioun [2019] 2 MLJ 413).

The possibility of class-action arbitration or group arbitration remains untested in Malaysia. 

It is implicit in the Arbitration Act 2005 that an arbitrator must be impartial; the requirement to disclose any circumstances that are likely to give rise to justifiable doubts regarding that person’s impartiality or independence makes this clear. Good faith requirements are also mandated by the Arbitration Act 2005. Arbitrations pursuant to the Asian International Arbitration Centre are bound by the Asian International Arbitration Centre’s Code of Conduct for Arbitrators, which references the International Bar Association Guidelines on Conflict of Interest in International Arbitration. 

Advocates and solicitors in Malaysia who act as counsel in arbitration proceedings remain bound by the ethical codes and professional standards governing advocates and solicitors contained in the Legal Profession Act 1976.

The Arbitration Act 2005 is silent on whether third-party funding or champerty is permissible in Malaysia; there are currently no explicit rules enabling either. 

There is a restriction on champerty or third-party funding in the Legal Profession Act 1976, which expressly prohibits advocates and solicitors in Malaysia from purchasing or agreeing to purchase an interest that is the subject matter of a client in a contentious proceeding, or from entering into any agreement that stipulates or contemplates payment only in the event of success in such suit, action or proceeding. 

The Common Law Position

There is also a common law restriction on champertous agreements as being against public policy – see the UK Court of Appeal case of Re Trepca Mines Ltd (No 2) [1962] 3 All ER 351, and Otech Pakistan Ltd v Clough Engineering Ltd [2007] 1 SLR 989, where the Singapore Court of Appeal held that champerty applied to agreements to assist litigants in arbitration proceedings in the same way it applied when the proceedings concerned were before the court.

As such, whilst there are no express rules or restrictions on third-party funders, the common law position on champertous agreements suggests that express regulation is recommended before third-party funding is accepted in international arbitrations with a Malaysian seat. 

An arbitral tribunal may consolidate separate arbitral proceedings, provided that the parties agree to confer such power on the arbitral tribunal. Section 40 of the Arbitration Act confers express power on the arbitrator to consolidate proceedings in such circumstances. 

The AIAC Rules provide for consolidation in wider circumstances, with it being permitted even where there is no agreement by the parties, if all claims in the arbitration are made under the same arbitration agreement, or, where the claims are made under more than one arbitration agreement, the disputes arise in connection with the same legal relationship and the director deems the arbitration agreements to be compatible.

Generally, an arbitral award pursuant to an arbitration agreement is only binding on the parties to the arbitration agreement. The national court does not have the ability to bind foreign third parties. There is a provision for the reciprocal enforcement of foreign judgments with some Commonwealth jurisdictions, but this relates only to monetary judgments.

Shearn Delamore & Co

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Shearn Delamore & Co is one of the largest award-winning full-service law firms in Malaysia, with more than 100 lawyers and 280 support staff. The firm has the resources to manage complex cross-border transactions, projects and matters. It acts for MNCs, private equity, international organisations, government institutions and private clients; it is frequently instructed by international law firms. Shearn Delamore & Co's international resources and reach include its membership of the World Law Group, World Services Group, Employment Law Alliance and, in 2020, Drew Network Asia (DNA) – a regional platform to serve clients seeking legal advice within the ASEAN region. The firm's diverse experience and interdisciplinary collaborations enables it to provide clients with a complementary range of skills to meet their needs.

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