The Court of Appeal recently considered(1) whether the appointment of an arbitrator by an appointing authority can be challenged and, if it can, on what basis. In this case, Sebiro Holdings (the appellant) sought a declaration challenging the appointing authority's appointment of an arbitrator (the first respondent) in a dispute between the appellant and the Malaysian Ministry of Education (the second respondent).
When a dispute arose, the appellant's solicitors proposed the arbitrator as the sole arbitrator. The second respondent disagreed with this choice and proposed that the director of the Kuala Lumpur Regional Centre for Arbitration (KLRCA) make the appointment, pursuant to Section 13(5) of the Arbitration Act 2005.
The appellant then requested that the KLRCA director make the appointment and indicated that it preferred the candidate that the appellant had initially proposed. The appointing authority took the position that, as the second respondent had objected to that candidate, it was unable to appoint the appellant's candidate. The appointing authority then appointed the sole arbitrator. The appellant expressed dissatisfaction with the candidate due to the arbitrator's lack of geographical knowledge of the location where the dispute arose. The appointing authority argued that it was not administrating the arbitration and that it was functus officio (could not be reopened before the same tribunal) once the appointment was made.
Against this background, the appellant filed an originating summons to terminate the appointment of the first respondent. The High Court dismissed the application as being bereft of merits. The matter was appealed to the Court of Appeal.
The Court of Appeal dismissed the appeal and upheld the High Court's decision, highlighting the following:
- A proper challenge to the appointment of an arbitrator should stem from Section 15(1) of the act, which provides specific period for making challenges. This was not done in this case.
- If an arbitrator must have special knowledge or expertise in a particular area, this should be made clear to the appointing authority before appointment.
The Court of Appeal held that Section 13(5) of the act serves as a means of nullifying a deadlock between the parties where there is a disagreement regarding the appointment of the arbitral tribunal by empowering the KLRCA director to appoint the arbitrator. In making an appointment, the appointing authority must consider any qualifications required of the arbitrator within the parties' agreement and any other considerations that will ensure the appointment of an independent and impartial arbitrator.(2)
The Court of Appeal went on to state as follows:
"It should be noted that the power exercised by the Director of the KLRCA under sub- ss. 13(4) and (5) of Act 646 is an administrative power. The Director of the KLCRA is not required to determine the question of the validity of the arbitration agreement, the maintainability and arbitrability of the claim and other jurisdictional matters. The subsections merely provide for the Director of the KLRCA to appoint arbitrator(s) in the event the parties fail to agree on the arbitration. The director's function is not a judicial function where he has to afford the right to be heard to the parties before an arbitrator(s) is appointed."
The Court of Appeal also explained the circumstances in which an appointment can be challenged:
"we must say that if a party had agreed with open eyes and full knowledge and comprehension of a clause in the contract that in the event they fail to agree on the appointment of an arbitrator, an arbitrator shall be appointed by the Director of the KLRCA, such a party cannot subsequently turn around and contend that it agrees to the settlement of disputes by arbitration but only by the arbitrator of his/her own choice.
In our view, the court cannot interpose and interdict the appointment of an arbitrator whom the parties have agreed to be appointed by the named appointing authority under the terms of the contract, except in cases where it is proved that there are circumstances which give rise to justifiable doubt as to the first respondent's impartiality or independence or that the first respondent did not possess the qualification agreed to by the parties."
In light of the court's decision, the following points are important to consider:
- Any arbitrator qualifications must be agreed by the parties before requiring the arbitral tribunal to take cognisance of the same.
- In exercising powers as the appointing authority, the KLRCA director will act in an administrative capacity. Once an appointment has been made, the appointing authority is functus officio.
- The parties' right to challenge an arbitrator remains intact. However, the basis of challenge is premised not on the qualifications of the arbitrator (unless the qualifications have been agreed to by the parties), but instead on the requirements of impartiality and independence.
- The timeline to make a challenge must be observed. It is only after challenges are made that the matter can be referred to the High Court for a decision.
For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 3 2070 0644) or email (email@example.com). The Shearn Delamore & Co website can be accessed at www.shearndelamore.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.