Notion and role of seat of arbitration
Methods for selection of seat absent party choice
Distinction of matters of substance and matters of procedure
This article is part of a series on conducting arbitration in Malaysia.(1)
Notion and role of seat of arbitration
The choice of the seat of arbitration has a number of important legal consequences for the conduct of the proceedings. For example, under section 30(1) of the Arbitration (Amendment) Act 2011,(2) in respect of a domestic arbitration where the seat of arbitration is in Malaysia, the arbitral parties may decide the dispute in accordance with the substantive law of Malaysia. A consequence of having the seat of arbitration in Malaysia – where arbitral proceedings, including any hearings or other meetings, would be expected to be held – is that the High Court will intervene to lend support for issues arising under for example, sections 13, 15, 16, 18 and 37 of the Arbitration Act 2005 (the 2005 Act).
Further, the seat of arbitration in Malaysia determines the classification of international arbitration under section 2(2) of the 2005 Act. It is also relevant to note that section 33(4) of the 2005 Act provides that "an award shall state its date and the seat of arbitration as determined in accordance with section 22 and shall be deemed to have been made at the seat". Therefore, by the time the award is made, the seat must be identified, since the award is required to state the seat. The determination of the seat of arbitration where the award is made is also of importance when seeking to enforce the award under section 38 of the 2005 Act or determining whether it is a "New York Convention award".
As the Federal Court affirmed in Thai-Lao Lignite Co Ltd & Anor v The Government of the Lao People's Democratic Republic,(3) the seat of arbitration establishes the lex arbitrii and the curial law of the arbitration. In particular:
- Where the seat is Malaysia, the 2005 Act is the lex arbitrii.
- Where the parties fail to designate the law applicable to the substance of the dispute, the arbitral tribunal shall apply the law determined by the conflict of laws rules.
- Under the conflict of laws rules, the law with the closest and most real connection to the arbitration agreement is the law applicable to the arbitration agreement.
- Although the stipulation of Malaysia as the seat is not an express agreement that the law applicable to the arbitration agreement is the law of Malaysia, it is usually decisive in the determination of the law applicable to the arbitration agreement.
- Unless it is shown to be the contrary, the stipulation of Malaysia as the seat is a tacit agreement that the law applicable to the arbitration agreement is the law of Malaysia.(4)
In a recent decision, the Federal Court in Masenang Sdn Bhd v Sabanilam Enterprise Sdn Bhd held that the parties in an arbitration proceeding must specifically identify and agree on the state or city in Malaysia as the seat of arbitration in order to prevent duplicity of proceedings. The Federal Court further held that the fact that the "seat" of an arbitration is in "Malaysia" cannot be logically assumed to mean that every location or place within Malaysia comprises the seat.(5)
Methods for selection of seat absent party choice
Section 22 of the 2005 Act provides for the seat of arbitration. The Arbitration Act 1952 has no similar provision. Section 22 of the 2005 Act is almost a verbatim adoption of article 20 of the United Nations Commission of International Trade Law Model Law (the Model Law) except that the Model Law uses the term "place of arbitration" and not "seat of arbitration". It provides for a two-tiered system that gives the parties freedom to choose the seat or arbitration (section 22(1)). If the parties fail to determine the seat of arbitration, the arbitral tribunal has the default power to determine it, having regard to the circumstances of the case, including the convenience of the parties (section 22(2)). This is subject to section 22(3) of the 2005 Act, which enables a tribunal to 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" unless the parties agree otherwise. The parties may thus enjoy considerable flexibility.
Distinction of matters of substance and matters of procedure
The 2005 Act provides no rules governing the distinction between matters of substance and matters of procedure.
In Scandinavian Bunkering (Singapore) Pte Ltd v MISC Bhd, the Federal Court affirmed the common law conflict of law rule that issues relating to entitlement to heads of damages and remoteness of damages are matters of substance governed by the lex causae, whereas issues relating to the measure or quantification of damages is governed by the lex fori.(6) This matter did not relate to arbitral proceedings.
The 2005 Act deals with the issue of which law the arbitral tribunal should apply to the material facts of the dispute in section 30, as derived from article 28 of the Model Law with substantive changes. The procedural law is dealt with by the 2005 Act separately in section 21.
Section 30(1) provides that the arbitral tribunal shall decide the dispute in accordance with such rules of law chosen by the parties as applicable to the substance of the dispute. In other words, the parties are granted the autonomy to choose the rules of law applicable to the dispute. Where the parties have failed to designate such a choice, the arbitral tribunal will determine the applicable law in accordance with the rules of interaction of laws by virtue of the new section 30(4) of the 2005 Act using the common law principles of conflict of laws.(7) This preserves the decision of James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd (Tan Koon Swan, Third Party), where the court asserted that a court must find an implied choice to be inferred from the contractual terms or the surrounding circumstances. These inferences may include:
- the choice of forum clause;
- terminology particular to a system of law;
- contractual currency; or
- the law with the "closest and most real connection" to the transaction, such as the place of performance of the contract and the place where the contract was made.(8)
If the inferences do not lead to the finding of an implied choice however, the courts would use the best "localisation" or "centre of gravity" approach, or the law of country which has the "closest and most real connection" to the transaction.(9)
Section 30(5) of the 2005 Act additionally requires the arbitral tribunal to take into account the terms of the agreement and trade usages when deciding the dispute.
For further information on this topic please contact Tan Sri Dato' Cecil Abraham, Dato' Sunil Abraham, Aniz Ahmad Amirudin or Syukran Syafiq at Cecil Abraham & Partners by telephone (+60 3 2726 3700) or email ([email protected], [email protected], [email protected] or [email protected]). The Cecil Abraham & Partners website can be accessed at cecilabraham.com.
Endnotes
(1) For the first and second articles in the series, see:
- "Conducting arbitration in Malaysia: doctrine of separability, jurisdiction and arbitrability"; and
- "Conducting arbitration in Malaysia: arbitral tribunals".
(2) For details of the current arbitration legislation in Malaysia, see "Introduction to arbitration in Malaysia: history and current legislation".
(4) Ibid, [244] (Jeffrey Tan FCJ).
(7) Following section 9 of the Arbitration (Amendment) Act 2018 (No.2).