1. EXECUTIVE SUMMARY
1.1 What are the advantages and disadvantages relevant to arbitrating or bringing arbitration related proceedings in your jurisdiction?
- Malaysia is a signatory to the 1958 Convention on Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). As such, an arbitral award from Malaysia is enforceable in more than 148 countries.
- The Malaysian Arbitration Act 2005 (AA) is modelled on the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) (Model Law) and the New Zealand Arbitration Act 1996.
- Malaysia is a common law jurisdiction, and the Malaysian courts regard decisions by Commonwealth courts as highly persuasive, particularly in commercial matters.
- Sections 11 and 19 of the AA give the courts and arbitral tribunals, respectively, the power to order interim measures. Pursuant to section 19 of the AA, arbitral tribunals have the power to order security for costs, discovery of documents and interrogatories, giving of evidence by affi davit, and the preservation, interim custody or sale of any property which is the subject matter of the dispute.
- Arbitral immunity: section 47 of the AA expressly provides that an arbitrator shall not be liable for any act or omission in respect of anything done or omitted to be done in the discharge of his or her functions as an arbitrator unless the act or omission is shown to have been in bad faith.
- Unless otherwise agreed by the parties, no person shall be precluded by reason of nationality from acting as an arbitrator: section 13 of the AA.
- In applying to set aside an arbitral award, the members of the arbitral tribunal are not named as a party to the application.
- Foreign lawyers are allowed to appear in arbitral proceedings both as counsel and as arbitrator.
- According to the website of the Kuala Lumpur Regional Centre for Arbitration, there is no withholding tax imposed on arbitrators (see http://klrca.org/about/).
- Cost effectiveness: arbitrations are cheaper to hold in Malaysia than in neighbouring countries.
- According to the website of the Kuala Lumpur Regional Centre for Arbitration, foreign arbitrators do not need a work permit or a professional visit pass when conducting an arbitration in Malaysia for a short duration (see http://klrca.org/about/).
- There is minimal judicial intervention with respect to arbitral proceedings. Section 8 of the AA expressly states that "No court shall intervene in matters governed by this Act, except where so provided in this Act". Pursuant to section 10 of the AA, a court must stay proceedings that are the subject matter of an arbitration unless the parties have already taken steps in the court proceedings, or the arbitration agreement is null and void, inoperative or incapable of being performed.
- An award shall be final and binding on the parties, and it may be relied upon by any party by way of defence, set-off or otherwise in any proceedings in any court (section 36 (1), AA).
- An arbitral award can only be set aside in exceptional circumstances. This is discussed in Section 5.1 below.
- The Malaysian courts have repeatedly held that an arbitral award is conclusive and can only be challenged in exceptional circumstances. In particular, international awards (which include any award where one party is not Malaysian) can only be challenged on the grounds set out in the New York Convention. An award will not be set aside merely because of the failure of an arbitrator to draw correct inferences of fact.
- The Kuala Lumpur Regional Centre for Arbitration (KLRCA) is the
primary venue for international arbitration proceedings held in
Malaysia. The KLRCA has excellent modern facilities, including (http://klrca.org):
- 3 large hearing rooms (up to 22 persons);
- 10 medium hearing rooms (up to 14 persons);
- 5 small hearing rooms (up to 10 persons);
- 15 breakout rooms;
- seminar room;
- auditorium (up to 182 persons);
- business centre;
- arbitrator's lounge;
- specialised alternative dispute resolution & construction law library;
- advanced video conferencing equipment;
- ultramodern court recording & transcription system;
- private dining room;
- outdoor cafeteria; and
- library and resource centre.
1.2 How would you rate the supportiveness of your jurisdiction to arbitration on a scale of 1 to 5, with the number 5 being highly supportive and 1 being unsupportive of arbitration? Where your jurisdiction is in the process of reform, please add a + sign after the number.
Malaysia has become an arbitration-friendly jurisdiction and we would rate it as a 5.
2. GENERAL OVERVIEW AND NEW DEVELOPMENTS
2.1 How popular is arbitration as a method of settling disputes? What are the general trends and recent developments in your jurisdiction?
Arbitration has been increasingly used as a method of dispute resolution in Malaysia. Originally used in construction disputes, it is becoming increasingly popular for commercial dispute resolution. The enactment of the Model Law in the form of the 2005 Arbitration Act, which replaced the outdated 1952 Arbitration Act, has increased public confidence in, and adoption of, the arbitral process.
Consistent with the experience in other jurisdictions, we anticipate that the mandating of adjudication in construction disputes by the Construction Industry Payment and Adjudication Act 2012 will lead to a reduction in construction-related disputes being referred to arbitration.
2.2 Are there any unique jurisdictional attributes or particular aspects of the approach to arbitration in your jurisdiction that bear special mention?
Due to the colonial heritage and the large number of students who receive their tertiary education in England and Australia, English is the main language of both law and business in Malaysia, and most commercial arbitrations are conducted in English. However, Malaysia is a multiracial country and its arbitrators can converse in English, Malay, Tamil, Mandarin and/or Chinese dialects. Translators and interpreters are also widely available. Pursuant to section 24 of the AA, the parties are free to agree on the language to be used in the arbitral proceedings.
2.3 Principal laws and institutions
2.3.1 What are the principal sources of law and regulation relating to international and domestic arbitration in your jurisdiction?
The principal source of law and regulation relating to international and domestic arbitration is the AA. The AA is based on the Model Law. Malaysia is a signatory to the New York Convention, key provisions of which have been adopted in the AA.
Unless the parties to an international arbitration agree, Part III of the AA (further explained below) shall not apply to that arbitration. Conversely, unless the parties to a domestic arbitration otherwise agree, Part III shall apply to the domestic arbitration. The parties may agree to apply or exclude the application of Part III of the AA in whole or in part.
Part III of the AA comprises seven sections (sections 40– 46) of the AA, which deal with:
- Consolidation of proceedings and concurrent hearings.
- Determination of preliminary points of law by the High Court in the course of the arbitration with the consent of the arbitral tribunal or every other party to the arbitration.
- Reference to the High Court of any question of law arising out of the arbitral award.
- Appeal against the decision of the High Court on the question of law arising out of the arbitral award.
- Costs and expenses of the arbitration.
- Extension of time for the commencement of arbitral proceedings.
- Extension of time for the making of an arbitral award.
Malaysia is a party to the ICSID Convention.
2.3.2 Which are the principal institutions that are commonly used and/or government agencies that assist in the administration or oversight of international and domestic arbitrations?
The principal institution that both administers and commonly provides a venue for commercial arbitrations in Malaysia is the KLRCA. The KLRCA maintains its own rules of arbitration, which are a modification of the UNCITRAL. Rules of Arbitration. The KLRCA also maintains, amongst others, the following rules:
- i-Arbitration rules, for arbitration of disputes arising from commercial transactions premised on Islamic principles. The rules incorporate a reference procedure to a Shariah Advisory Council or Shariah expert whenever the arbitral tribunal has to form an opinion on a point related to Shariah principles.
- Fast track arbitration rules, designed for parties who wish to obtain an award in the fastest way with minimal costs.
The KLRCA was established in 1978 under the auspices of the Asian-African Legal Consultative Organization. The KLRCA was the first regional centre established in Asia to provide institutional support as a neutral and independent venue for the conduct of domestic and international arbitration proceedings in Asia. It was also the first centre in the world to adopt the UNCITRAL Arbitration Rules as revised in 2010. The KLRCA has developed new rules to cater for the growing demands of the global business community, such as the KLRCA i-Arbitration Rules and the KLRCA Fast Track Rules, as well as Mediation and Conciliation Rules. The KLRCA has won several awards, including the prestigious Global Arbitration Review Award for 'innovation by an individual or organisation in 2012'. KLRCA has a panel of over 700 experienced domestic and international arbitrators.
Besides the KLRCA, arbitrations are also administered by a number of other bodies, including the Institute of Engineers Malaysia, Kuala Lumpur and Selangor Chinese Chambers of Commerce, Malaysian Rubber Board, Palm Oil Refiners Association of Malaysia, Institution of Surveyors, the Malaysian International Chambers of Commerce and the Malaysia Institute of Architects.
2.3.3 Which courts or other bodies have judicial oversight or supervision of the arbitral process?
The High Court has judicial oversight and supervision of the arbitral process in Malaysia. An arbitral award that is made in West Malaysia falls under the jurisdiction of the High Court of Malaya. An arbitral award that is made in East Malaysia falls under the jurisdiction of the High Court of Sabah & Sarawak. An appeal from either of the courts would be made to the Court of Appeal. The Federal Court, the highest court, has the jurisdiction to hear an appeal from the Court of Appeal, but only when leave has been granted. Leave to appeal to the Federal Court will only be granted if the decision of the Court of Appeal raises questions of general principle on which the Federal Court has not previously decided or questions of importance upon which further argument and a decision of the Federal Court would be to the public's advantage.
3. ARBITRATION IN YOUR JURISDICTION — KEY FEATURES
3.1 The appointment of an arbitral tribunal
3.1.1 Are there any restrictions on the parties' freedom to choose arbitrators?
The parties are free to choose the arbitrators. However, pursuant to section 14 of the AA, an arbitrator's appointment may be challenged if there are circumstances likely to give rise to justifiable doubts as to that person's impartiality or independence, or if that person does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by the same party, or in whose appointment that party has participated, only for reasons of which that party becomes aware after the appointment has been made.
Foreign lawyers are allowed to appear in arbitral proceedings both as counsel and arbitrators. Pursuant to section 13 of the AA, unless otherwise agreed by the parties, no person shall be precluded by reason of nationality from acting as an arbitrator. There is no requirement that an arbitrator must be a member of the local Bar.
3.1.2 Are there specific provisions of law regulating the appointment of arbitrators?
Pursuant to section 12(1) of the AA, the parties are free to determine the number of arbitrators. Pursuant to section 13 of the AA, the parties are free to agree on a procedure for appointing the arbitrator or the presiding arbitrator.
3.1.3 Are there alternative procedures for appointing an arbitral tribunal in the absence of agreement by the parties?
Either party may apply to the Director of the KLRCA for appointment of the party-appointed arbitrator(s), presiding arbitrator and/or sole arbitrator pursuant to section 13 of the AA. Should the Director of the KLRCA fail to act within 30 days from the application, any party may apply to the High Court for such appointment. Pursuant to section 12(2) of the AA, should the parties fail to determine the number of arbitrators, the arbitral tribunal shall consist of three arbitrators (in the case of an international arbitration) or a single arbitrator (in the case of a domestic arbitration).
3.1.4 Are there requirements (including disclosure) for "impartiality" and/or "independence", and do such requirements differ as between domestic and international arbitrations?
Pursuant to section 14(1) of the AA, a person who is approached in connection with that person's possible appointment as an arbitrator shall disclose any circumstances likely to give rise to justifiable doubts as to that person's impartiality or independence. This duty to disclose shall continue until the final award is rendered. In this regard, section 14(2) of the AA places the duty on the arbitrator to disclose to the parties, without delay, from the time of appointment and throughout the arbitral proceedings, any circumstances that are likely to give rise to justifiable doubts as to his or her impartiality or independence, unless the parties have already been informed of such circumstances by the arbitrator.
These requirements do not differ between domestic and international arbitrations.
3.1.5 Are there provisions of law governing the challenge or removal of arbitrators?
Yes, sections 14–17 of the AA govern challenges to, and removal of, arbitrators. An arbitrator may be challenged only if the circumstances give rise to justifiable doubts as to his or her impartiality or independence, or he or she does not possess qualifications agreed to by the parties (section 14(3), AA).
Unless otherwise agreed by the parties, the party who intends to challenge an arbitrator shall, within 15 days after becoming aware of the constitution of the arbitral tribunal or of any reasons referred to in section 14(3) of the AA, send a written statement of the reasons for the challenge to the arbitral tribunal (section 15(1), AA). The words "Unless otherwise agreed by the parties" in section 15(1) of the AA signify that the parties can agree to a procedure for the challenge of arbitrator. Most rules of arbitration maintained by the arbitral institution set out their respective challenge procedures.
The arbitral tribunal shall then make a decision on the challenge, unless the challenged arbitrator withdraws from office or the other party agrees to the challenge. If the challenge is not successful, the challenging party may, within 30 days after having received notice of the decision rejecting the challenge, apply to the High Court to make a decision on the challenge. The decision of the High Court shall be final and no appeal may be made.
If the challenge is successful, it appears that the other party does not have a right to appeal to the High Court against the decision.
Where an arbitrator becomes in law or in fact unable to perform the functions of that office, or for any other reason fails to act without undue delay, that arbitrator's mandate terminates on withdrawal from office or if the parties agree on the termination. If any party disagrees on the termination, either party may apply to the High Court to decide on such termination and no appeal shall lie against the decision of the High Court.
Where an arbitrator withdraws from office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any of the following grounds:
- The circumstances give rise to justifiable doubts as to that arbitrator's impartiality or independence.
- The arbitrator does not possess qualifications agreed to by the parties.
- The arbitrator is in law or in fact unable to perform the functions of that office, or for other reasons fails to act without undue delay.
A substitute arbitrator shall be appointed where the mandate of an arbitrator terminates, an arbitrator withdraws from office for any other reason, the mandate of the arbitrator is revoked by agreement of the parties or in any other case of termination of mandate. Where a single or the presiding arbitrator is replaced, any hearings previously held shall be repeated before the substitute arbitrator. Where an arbitrator other than a single or the presiding arbitrator is replaced, any hearings previously held may be repeated at the discretion of the arbitral tribunal.
For the avoidance of any doubt, any order or ruling made by the arbitral tribunal prior to the replacement of an arbitrator shall not be invalid solely on the ground that there has been a change in the composition of the arbitral tribunal.
3.1.6 What role do national courts have in any such challenges?
See Section 3.1.5 above.
3.1.7 What principles of law apply to determine the liability of arbitrators for acts related to their decision-making function?
Section 47 of the AA expressly provides that an arbitrator shall not be liable for any act or omission in respect of anything done or omitted to be done in the discharge of his functions as an arbitrator unless the act or omission is shown to have been in bad faith.
3.2 Confidentiality of arbitration proceedings
3.2.1 Is arbitration seated in your jurisdiction confidential? What are the relevant legal or institutional rules which apply?
Although there is no statutory provision contained in the AA which declares arbitration proceedings as confidential, it is not uncommon for parties to enter into an arbitration agreement on the basis that all matters relating to the arbitral proceedings shall be kept confidential.
In the absence of such a confidentiality clause in the arbitration agreement, the Malaysian courts would most likely imply an obligation of confidentiality in the arbitration agreement. Most confidentiality clauses are adopted in the arbitration agreement by adopting a set of arbitral institutional rules which contains such a clause. For example, Rule 15, Part 1 of the KLRCA 2013 arbitration rules expressly provides for confidentiality.
3.2.2 To what matters does any duty of confidentiality extend (for example, does it cover the existence of the arbitration, pleadings, documents produced, the hearing and/or the award)?
This will depend on any confidentiality agreement entered into by the parties, as there is no relevant statutory provision.
3.2.3 Can documents or evidence disclosed in arbitration be used in other proceedings or contexts?
Unless otherwise expressly agreed between the parties or if they are in the public domain, documents or evidence disclosed in arbitration cannot be used in other proceedings or contexts. As mentioned in Section 3.2.1 above, in the absence of a confidentiality agreement relating to the arbitration, the Malaysian courts would most likely imply an obligation of confidentiality in the arbitration agreement.
However, pursuant to section 36(1) of the AA, the award made by an arbitral tribunal may be relied upon by any party to the arbitral proceeding by way of defence, set-off or otherwise in any proceedings in any court.
3.2.4 When is confidentiality not available or lost?
Confidentiality is lost if the parties waive such confidentiality or the court makes an order granting permission to disregard it. Confidentiality is not available in respect of documents in the public domain.
Documents filed in the courts and read out in open court are public documents. Thus matters relating to an arbitral proceedings may lose their confidentiality if the award is challenged and the arbitration documents are produced in the High Court.
3.3 Role of (and interference by) the national courts and/or other authorities
3.3.1 Will national courts stay or dismiss court actions in favour of arbitration?
Section 8 of the AA expressly states that "No court shall intervene in matters governed by this Act, except where so provided in this Act".
Pursuant to section 10 of the AA, it is mandatory for the Malaysian courts to stay any court proceedings which are the subject of an arbitration agreement in favour of arbitration. A stay will be refused if:
- The party applying for a stay of proceedings has taken definite, conscious and deliberate steps to participate in the court proceedings.
- The arbitration agreement is null and void, inoperative or incapable of being performed.
3.3.2 Are there any grounds on which the national courts will order a stay of arbitral proceedings?
The courts are unlikely to order a stay of the arbitral proceedings unless the arbitral tribunal has no jurisdiction. The procedure for challenging jurisdiction is discussed in Section 3.6.3 below.
3.3.3 What is the approach of national courts to parties who commence court proceedings in your jurisdiction or elsewhere in breach of an agreement to arbitrate?
The courts have consistently favoured arbitrations as the parties' choice of dispute resolution. The power of the court to grant a stay of its proceedings in favour of arbitration is discussed in Section 3.3.1 above.
Besides granting a stay of the court proceedings, antisuit injunctions restraining a party from commencing court proceedings in other jurisdictions in breach of an arbitration agreement which provides Malaysia as the seat of arbitration may be granted by the courts.
3.3.4 Is there a presumption of arbitrability or policy in support of arbitration? Have national courts shown a willingness to interfere with arbitration proceedings on any other basis?
Pursuant to section 4(1) of the AA, 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. The public policy of Malaysia may differ from that of another jurisdiction and must be considered in a Malaysian context. There is a presumption of arbitrability which is qualified by public policy requirements. In practice, the courts will presume arbitrability of commercial disputes (except gaming contracts).
As mentioned in Section 3.3.3 above, the courts have consistently favoured arbitrations. Pursuant to section 8 of the AA, the national courts cannot intervene in matters governed by the AA except where so provided in the AA.
As such, it is unlikely that the courts will interfere with arbitration proceedings on any basis other than lack of jurisdiction. Accordingly, it is unlikely that arbitrations will be delayed or frustrated by reason of interference by the national courts.
It should be noted that, pursuant to section 5, the AA applies with equal force to any arbitration to which the Federal Government or any state government is a party.
3.3.5 Are there any other legal requirements for arbitral proceedings to be recognisable and enforceable?
There are no legal requirements for arbitral proceedings to be recognisable and enforceable save for section 4(1) of the AA, which 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, and section 10 of the AA, which makes it mandatory for the courts to stay the court proceedings in favour of arbitration. The definition of an arbitration agreement is contained in section 9 of the AA and discussed in Section 3.6.1 below. Pursuant to section 38 of the AA, an award made in Malaysia or any other state which is a contracting party to the New York Convention is recognised and enforceable in Malaysia.
3.4 Procedural flexibility and control
3.4.1 Are specific procedures mandated in particular cases, or in general, which govern the procedure of arbitrations or the conduct of an arbitration hearing? To what extent can the parties determine the applicable procedures?
Pursuant to section 21(1) of the AA, the parties are free to agree on the procedure to be followed by the arbitral tribunal subject to the provisions of the AA. Where the parties do not agree on a procedure, the arbitral tribunal may, subject to the provisions of the AA, conduct the arbitration in such manner as it considers appropriate. In this regard, the power conferred upon the arbitral tribunal shall include the power to:
- Determine the admissibility, relevance, materiality and weight of any evidence.
- Draw on its own knowledge and expertise.
- Order the provision of further particulars in a statement of claim or statement of defence.
- Order the giving of security for costs.
- Fix and amend time limits within which various steps in the arbitral proceedings must be completed.
- Order the discovery and production of documents or materials within the possession or power of a party.
- Order the interrogatories to be answered.
- Order that any evidence be given on oath or affirmation.
- Make such other orders as the arbitral tribunal considers appropriate.
In any event, at all times, the parties shall be treated with equality and each party shall be given a fair and reasonable opportunity of presenting that party's case (section 20, AA). This means that the arbitral tribunal must follow the rules of natural justice.
It is increasingly the norm that parties agree to adopt institutionalised rules in commercial disputes.
There are default legislative provisions governing procedures in the AA. These include:
- The application of Part III of the AA to domestic arbitrations.
- When a written communication is deemed to have been received.
- The procedure for the appointment and number of arbitrators.
- Challenge procedures.
- The power of the arbitral tribunal to grant interim measures.
- Determination of the seat of arbitration.
- Submission of statements of claim and defence.
- Hearing procedure.
- When is an arbitral proceeding deemed to have been commenced.
- Decision making by panel of arbitrators.
3.4.2 Are there any requirements governing the place or seat of arbitration, or any requirement for arbitral hearings to be held at the seat?
Pursuant to section 22 of the AA, the parties are free to agree on the seat of arbitration. However, if the parties fail to agree on the seat, the seat shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. There is no requirement that the arbitral hearings must be held at the seat. The parties are free to agree the place at which the arbitral hearings are to be held. Unless otherwise agreed by the parties, the arbitral tribunal may meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents (section 22(3), AA). It is not uncommon for arbitral proceedings in Malaysia to be held at the KLRCA.
3.4.3 What procedural powers and obligations does national law give or impose on an arbitral tribunal?
The procedural powers and obligations that the national law give or impose on an arbitral tribunal are those set out in the AA. Amongst others, the arbitral tribunal has powers to grant interim measures pursuant to section 19 of the AA (discussed in Section 4.1 below). The arbitral tribunal also has the power to determine the challenge made to an arbitrator (section 15, AA), determine its own jurisdictions (section 18, AA), determine the rules of procedure (section 21, AA), determine the seat of arbitration (section 22, AA), determine the language of the arbitration (section 24, AA), decide on the admissibility of evidence, and so on. Unless otherwise agreed, an award must be reasoned.
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