Introduction to arbitration in Malaysia: arbitration infrastructure and practice

Major arbitration institutions
Development of arbitration compared with litigation

This article is part of a series of articles that provide an introduction to arbitration in Malaysia.(1)

Major arbitration institutions

The Kuala Lumpur Regional Centre for Arbitration (KLRCA) is an independent international institution. It was established on 17 October 1978 in Kuala Lumpur under the auspices of the Asian-African Legal Consultative Committee (the AALCC), in cooperation with and with the assistance of the government of Malaysia, to provide a system for settlement of disputes on an integrated pattern with regard to international commercial transactions. In 2018 the KLRCA was rebranded as the Asian International Arbitration Centre (AIAC).

It was a term of the agreement that the AIAC would function as an independent institution under the auspices of the AALCC. The AIAC has its own arbitration rules: the United Nations Commission on International Trade Law rules as modified by the rules of the AIAC, more recently by way of the AIAC Arbitration Rules 2021.(2) The AIAC Arbitration Rules allow a great deal of flexibility in the conduct of arbitration proceedings, leaving wide discretion to the parties regarding the choice of arbitrators, the place of arbitration and the applicability of the procedural rules. The AIAC has been at the forefront of trying to encourage international arbitrations to be conducted in Malaysia and has been taking steps to make Malaysia and Kuala Lumpur, in particular, an international arbitration centre.

Arbitrations are also administered by professional bodies such as the Malaysian Institute of Architects, the Institute of Engineers Malaysia, the Institution of Surveyors Malaysia, the Malaysian International Chamber of Commerce, the Kuala Lumpur and Selangor Chinese Chamber of Commerce as well as commodity associations like the Malaysian Rubber Board and the Palm Oil Refiners Association of Malaysia.

Finally, parties conducting arbitration in Malaysia are entitled to choose the rules of international institutions such as the International Chamber of Commerce or the London Court of International Arbitration rules, among others.

Development of arbitration compared with litigation

Arbitration clauses are increasingly included by parties in their contracts to resolve disputes in Malaysia. This stems from the parties' desire to resolve disputes by experienced arbitrators who are specialists in the subject matter of the dispute. The relative speed of resolution has also contributed to the adoption of arbitration (Table 1).

Table 1: average duration of arbitration in Malaysia(3)

The position under the Arbitration Act 2005(4) is that the Malaysian courts are bound to stay any proceedings upon the application by either party to the contract if the dispute is the subject matter of an arbitration agreement between the parties.(5) This judicial support for arbitration has led to an increasing number of arbitrations in Malaysia. Arbitration clauses are frequently inserted into contracts relating to construction, real estate, technology, company disputes, maritime contracts and other commercial transactions.(6)

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 article in the series, see "Introduction to arbitration in Malaysia: history and current legislation".

(2) The AIAC Rules 2021 came into effect on 1 August 2021. As such, all previous editions of the AIAC Arbitration Rules shall no longer be applicable to arbitral proceedings commenced after 1 August 2021, unless otherwise agreed by the parties. The fast track procedure for the determination of arbitration disputes is now encapsulated in Part 1, Rule 8 of the AIAC Arbitration Rules 2021.

(3) AIAC, 2019 & 2020 Annual Report: Shaping Excellence, From Strength to Strength at 33, accessible here.

(4) For details of the current arbitration legislation in Malaysia, see "Introduction to arbitration in Malaysia: history and current legislation".

(5) Affirmed by the Federal Court in Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 5 MLJ 417.

(6) AIAC, 2019 & 2020 Annual Report: Shaping Excellence, From Strength to Strength at 16, accessible here.