Historical evolution of law relating to arbitration
This article is part of a series of articles that provide an introduction to arbitration in Malaysia.
Historical evolution of law relating to arbitration
The Arbitration Ordinance XIII of 1809 of the Straits Settlements was Malaysia's first piece of arbitration legislation. This Ordinance was then replaced in Penang and Malacca by the Arbitration Ordinance 1890. In 1950, the Arbitration Ordinance 1950 replaced the 1890 Arbitration Ordinance for all the states of the then Federation of Malaya. The 1950 Ordinance was based on the English Arbitration Act 1889. British North Borneo and Sarawak adopted the English Arbitration Act of 1952 as their respective Ordinance in 1952. In 1963, North Borneo and Sarawak joined the Federation of Malaysia. On 1 November 1972, Malaysia adopted the arbitration laws prevailing in Sabah and Sarawak and it became known as the Arbitration Act 1952 (the 1952 Act), which is based on the English Arbitration Act 1950.
An amendment to the 1952 Act on 1 February 1980 gave special status to arbitrations held under the Convention on the Settlement of Investment Disputes between the States of Nationals and other States 1965 (ICSID) under the United Nations Commission of International Trade Law (UNCITRAL) and the Rules of Arbitration for the Regional Arbitration Centre for Kuala Lumpur (KLRCA) (now known as the "Asian International Arbitration Centre" (AIAC)). There are omissions in the 2005 Act, and the arbitral community, including the Bar Council and Attorney-General's Chambers, collaborated to ensure that these omissions were enacted by the Arbitration (Amendment) Act 2011 (the 2011 Act), which came into force on 1 July 2011.
Pressure to replace the 1952 Act by the Malaysian Bar Council and the arbitral community with the UNCITRAL Model Law resulted in the enactment of the Arbitration Act 2005 (the 2005 Act). The 2005 Act, based largely on the UNCITRAL Model Law and the New Zealand Arbitration Act 1996, came into effect on 15 March 2006.
Two legislations were passed in 2018 that made several key changes to arbitration in Malaysia under the scheme of the 2005 Act. The first was the Arbitration (Amendment) Act 2018 (No. 1), which renamed the KLRCA to the AIAC. All legal references to the former KLRCA (under the 2005 Act and the existing KLRCA Rules) remain in full force subject to the change in name.
The second amendment in 2018 was the Arbitration (Amendment) Act 2018 (No. 2) (the 2018 Amendment Act), which brought significant changes to the substantive rules of law on arbitration under the scheme of the 2005 Act and came into force on 8 May 2018.
The 2018 Amendment Act was passed with a view of ensuring that Malaysian arbitration laws reflect the 2006 amendments to the UNCITRAL Model Law, and to mirror arbitral legislations of leading arbitral jurisdictions in the region and worldwide.
There are currently two acts in force in Malaysia – namely, the 1952 Act and the 2005 Act. The 1952 Act has only residual relevance now, as it only applies to arbitrations commenced prior to the 15 March 2006. The 2005 Act applies to arbitrations commenced after 15 March 2006. The 2011 Act amended section 51(2) of the 2005 Act, which now provides that the 1952 Act is only to apply where arbitral proceedings were commenced prior to 15 March 2006.
The 1952 Act was amended on 1 February 1980 to incorporate a new section 34, whereby the jurisdiction of the Malaysian courts was excluded in respect of arbitrations held under ICSID and UNCITRAL and the AIAC Arbitration Rules.
Section 34 of the 1952 Act had been interpreted by the Malaysian courts as excluding interim relief such as security for costs,(1) despite the wording of article 26.3 of the AIAC Arbitration Rules,(2) in force at the time, which provides for interim measures. The position has been clarified by the Court of Appeal in Thye Hin Enterprises Sdn Bhd v Daimlerchrysler Malaysia Sdn Bhd,(3) where the Court stated that interim relief can be granted despite section 34. The provisions of section 34 under the 1952 Act were to cater for international arbitrations. However, the Malaysian courts have interpreted this section as applicable to domestic arbitrations as well.
The 2005 Act applies to both domestic and international arbitrations. The Act is divided into four parts. Part I contains the definition section, including important definitions of "international arbitration" and "domestic arbitration". Parts I, II and IV apply to all arbitrations. Part III applies only to domestic arbitrations unless the parties opt out. It does not apply to international arbitrations unless the parties opt in.
The 2018 Amendment Act makes several key amendments to the 2005 Act. These include:
- an expansive redefinition of "arbitral tribunal" under section 2 of the 2005 Act to ensure the enforceability of awards issued by an emergency arbitrator (section 2);
- the right for parties to choose their representation under a new section 3A of the 2005 Act (section 3);
- an amendment to section 4 of the 2005 Act to further define non-arbitrability (section 4);
- the expansion of the formal validity of arbitration agreements, including those recorded through electronic communications under the amended section 9 of the 2005 Act (section 5);
- the expansion to the jurisdiction of the High Court (section 11 of the 2005 Act) and the arbitral tribunal (section 19 of the 2005 Act) to grant interim measures (sections 6 and 7, respectively);
- the introduction of Chapter IV A of the UNCITRAL Model Law as amended in 2006 under the new sections 19A-19J of the 2005 Act (section 8) to provide for the applicable rules and conditions for the granting and subsequent recognition and enforcement of interim measures and preliminary orders issued by an arbitral tribunal;
- the amendment of the choice of law and choice of rules of law rules under section 30 of the 2005 Act to mirror the provisions of article 28 of the UNCITRAL Model Law as amended in 2006;
- an expansion of the powers of the arbitral tribunal in awarding interest under section 33 of the 2005 Act (section 10);
- the introduction of confidentiality clauses under new sections 41A and 41B of the 2005 Act to set out the parties' duty of confidentiality and to provide for the confidentiality of court-related arbitration proceedings (section 11); and
- the repeal of sections 42 and 43 of the 2005 Act (which previously allowed parties to refer any question of law arising from an award to the High Court) (sections 12 and 13).
Distinction between national and international arbitration
Section 3 of the 2005 Act makes the main distinction between international and domestic arbitrations and sets out the territorial limits and scope of the 2005 Act. This section incorporates the provision for opting in and opting out of Part III of the Act in respect of domestic and international arbitrations where the seat of the arbitration is in Malaysia. There is no equivalent provision to section 3 of the 2005 Act in the 1952 Act. The 1952 Act applies both to domestic and international arbitrations.
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.
(1) Klockner Industries-Analagen GmbH v Kien Tat Sdn Bhd (1990) 3 MLJ page 183 at 185.
(2) Part 1, Rule 16 of the AIAC Arbitration Rules 2021 now addresses the notion of interim measures.