Arbitral Regime
Advantages of Arbitration
Arbitrable Subject Matter
Drafting Arbitration Agreements
Separability of Arbitration Clauses
Unilateral Right
Multi-party Arbitrations
Stay of Proceedings
Procedural Matters
Selection of Arbitral Tribunal
Qualification of an Arbitrator
Preliminary Relief and Interim Measures
Evidentiary Matters
Discovery
Damages
Interest
Costs
Taxation
Arbitral Awards
Stating the Case
Setting Aside of Arbitral Awards
Enforcement of Arbitral Awards
Recent Developments
Logistics
Comment
Arbitration is becoming increasingly popular as a commercial dispute resolution tool in Malaysia. This Overview provides an outline of commercial arbitration in Malaysia.
Commercial arbitration in Malaysia is primarily governed by the Arbitration Act 1952. The act applies to both domestic and international arbitration. The act is in pari materia with the English Arbitration Act 1950 (ie, they may be construed together), which was replaced in 1996 by a new act. The other relevant legislation includes the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985, and the Limitation Act 1953.
It is difficult to attempt to generalize the advantages of one dispute resolution tool over others. What may be true in one context may not be true in another. For example, parties may find speed an attractive feature of arbitration in India; in Singapore, however, speed is unlikely to be a factor in favour of arbitration, given the pace of the court proceedings there. The preference for one particular mode of dispute resolution is also dependent on the parties' requirements, such as whether they want the proceedings to be confidential or whether they want an expert in a particular area to judge the dispute.
In Malaysia, parties opting for arbitration (as opposed to litigation) can take advantage of the following factors.
Flexibility
The emerging trend of party autonomy under the arbitral laws and rules of various countries and institutions gives the parties significant flexibility throughout the arbitration - be it in the choice of arbitrators or counsel, the scheduling of hearings or the mode of taking evidence. This flexibility, if properly utilized, will in turn cut down the costs and time involved. Malaysian law allows the parties to choose any person to represent them, and unlike in some other jurisdictions, there are no requirements as to representation by Malaysian lawyers(1) or even by legally qualified persons.
Privacy/confidentiality
Arbitration is a private process. It is also confidential should the parties agree on confidentiality, subject to some exceptions. The exceptions include the following:
- where disclosure is made with the express or implied consent of the party which originally produced the material;
- an order of court for disclosure of documents generated by an arbitration for the purposes of a later court action;
- leave of the court; and
- disclosure when and where it is reasonably necessary for the protection of the legitimate interests of an arbitrating party.
In Malaysia, arbitration proceedings, including the documents produced therein and the arbitral award, are arguably confidential as well, even if there is no specific agreement between the parties to that extent. This is assuming that Malaysia will follow the English position, which is in favour of implying an obligation of confidence under an implied term of an arbitration agreement. In Ali Shipping Corp v Shipyard Trogir [1998] 2 All ER 136 the English Court of Appeal found that a party to an arbitration is subject to an implied duty of confidence not to use the information generated in the course of arbitration outside that arbitration, although this duty is not absolute. However, the debates over whether such an implication can be made are yet to be settled, and it cannot be established with any degree of certainty that the Malaysian courts will follow the English position.
The obvious way out of this debate is to insert an appropriate confidentiality clause into the arbitration agreement or to select a set of rules with a confidentiality clause.
Enforceability
Malaysia is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention has the force of law in Malaysia by virtue of the Convention on the Recognition and Enforcement of Foreign Awards Act 1985. The New York Convention, one of the most successful conventions in the arbitration arena, has been ratified and enacted by more than 120 countries. This means that an arbitral award given in one convention country is enforceable in any other convention country. Consequently, an arbitral award rendered in Malaysia is summarily enforceable in over 120 countries.
In contrast, judgments of Malaysian courts do not enjoy such treatment in other jurisdictions.
Expertise
The parties can choose appropriately trained/experienced arbitrator(s) by agreement. This can be particularly advantageous where the dispute is industry-specific. In such cases setting the background of the dispute before a judge, who is unlikely to have sufficient experience in that particular industry, could be an expensive process in terms of both time and money. Worse still, there is the ultimate possibility of an incorrect judgment.
Language
While the courts may allow English as the language of the proceedings,(2) generally the language of the court is Bahasa Malaysia. The use of Bahasa Malaysia extends throughout the proceedings. In contrast, parties to arbitration may choose any language or languages as the language(s) of the arbitration.
Speed
While court proceedings in Malaysia are not as slow as those in some other countries in the region, Malaysia's court system may not be fast enough for some litigants. Given the flexibility available to parties as to procedure, arbitration may be used to speed up dispute resolution.
Historically, a number of matters were excluded as being incapable of arbitration, on the basis of public policy and requirements of certain areas of practice. Despite a few cases where some courts have considered arbitration to be unsuitable, an emerging trend suggests that the scope for arbitration is widening.
The non-arbitrability of certain matters may be broadly attributed to the public policy of different jurisdictions, and general or specific reservations in statutory provisions. Examples include provisions which confer specific statutory rights on the courts, such as the requirement for court confirmation of capital reductions under Section 64 of the Malaysian Companies Act 1965. Given that an arbitrator is appointed by the parties (and not by the state), and that his authority is derived from the arbitration agreement, he is not generally allowed to make a decision that is binding on third parties. In addition, decisions which are always the prerogative of the state - such as those dealing with acts involving some criminal element, or imposing imprisonment or fines - are beyond the purview of the arbitrator, probably for the same reasons.
It can safely be said that any matter which can be privately decided by the parties, or any rights over which the parties have free disposition, may be referred to arbitration. The scope of arbitrable disputes is quite wide and generally includes all matters except those related to family, criminal liability, civil status and the like. One example where the statute preserves the courts' exclusive jurisdiction in company matters is winding up.
In Malaysia, a matter that involves a question of fraud is effectively non-arbitrable.
Drafting Arbitration Agreements
A properly drafted arbitration clause is essential for the proper constitution of an arbitral tribunal, the conduct of the arbitration and the enforcement of the arbitral award.
There is no perfect standard clause: rather, it must be drafted according to the requirements of the parties, given the nature of the contract in question. However, there are certain issues that are invariably significant in any context.
Parties' status
The parties entering into an arbitration agreement, as with any other agreement, must be capable of contracting. They should be of proper age and of sound mind. In Malaysia, the age of majority for most purposes is 18 (Sections 3 and 4 of the Age of Majority Act 1971). An arbitration agreement with a minor may be avoided on general contractual principles. It is long-established in law and in practice that a company, being a legal person, is capable of being a party to an arbitration clause.
Written agreement
the arbitration agreement must be in writing. Section 2 of the Arbitration Act states that an 'arbitration agreement' is "a written agreement to submit present or future differences to arbitration, whether an arbitrator is named herein or not". While writing is a mandatory requirement, no specific form of arbitration clause is stipulated in the act and the parties are free to agree on the format and wordings of such a clause. In Sebor (Sarawak) Marketing & Services Sdn Bhd v SA Shee (Sarawak) Sdn Bhd [2000] 6 MLJ 1 it was held that unsigned minutes which recorded an oral agreement between the parties to arbitrate amounted to a valid arbitration agreement.
The written requirement is also found in the New York Convention. Article II of the New York Convention states that an 'arbitration agreement' means "an agreement in writing, including an agreement contained in an exchange of letters or telegrams, to submit to arbitration present or future differences capable of settlement by arbitration".
As Malaysia is a signatory to the New York Convention, the written requirement is particularly significant when it comes to the enforcement of a Malaysian award in a convention country or a convention country award in Malaysia.
The 1985 United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration also requires an arbitration agreement to be in writing. The Model Law has been adopted either fully or substantially by over 30 countries in their arbitration statutes. Malaysia's arbitration regime does not directly incorporate the Model Law provisions, although some of the fundamental principles are reflected. However, the draft Arbitration Act which the Malaysian Bar Council has proposed to replace the act is largely based on the Model Law.
Choice of applicable laws
There are three sets of law relating to an arbitration agreement which are important while drafting an arbitration clause:
- the proper law of contract which governs the contract containing the arbitration clause;
- the law of the arbitration clause; and
- the procedural law of the arbitration.
The proper law of the contract governs the rights and liabilities of the parties to the principal contract. Under common law, the parties may expressly or impliedly(3) agree on the proper law, and if they do so, their choice of law is generally conclusive.(4) If the parties fail to do so, then the law with the closest and most real connection will be regarded as the proper law.(5) Where the parties fail to agree on the proper law, determination of the proper law may become difficult. The best way to avoid this uncertainty is to agree on the proper law.
In most cases the proper law of the arbitration clause is that of the original contract containing the arbitration clause. However, if the parties have expressly chosen a particular law as the proper law of the arbitration clause (which is different from the proper law of the contract of which the arbitration clause is a part - normally this happens where there is a separate arbitration agreement), effect will be given to that proper law.(6) If no law is expressly chosen, the arbitration clause will be governed by the law impliedly chosen by the parties. In the absence of express or implied choice, the law with which the arbitration agreement has the closest and most real connection will apply.(7) This law determines the validity and scope of the arbitration agreement.(8)
The procedural law (or law of arbitration) governs the procedural aspects of arbitration, such as:
- the number, appointment and removal of arbitrators;
- conduct of arbitral hearings;
- taking of evidence;
- court ordering of security for costs;
- discovery;
- injunctions; and
- interrogatories.
The procedural law is normally agreed (or in some instances even assumed) as the law of the place of arbitration. One reason for so agreeing is that an express choice of procedural law (other than the law of the place of arbitration) may not necessarily oust the jurisdiction of the courts of the place of arbitration.(9)
Choice of procedure
The parties may choose either institutional arbitration or ad hoc arbitration. In broad terms, 'institutional arbitration' refers to arbitration conducted pursuant to the rules of a centre specializing in arbitration procedure, such as the International Chamber of Commerce Arbitration Centre (ICC), the Kuala Lumpur Regional Centre for Arbitration (KLRCA) or the Singapore International Arbitration Centre. Ad hoc arbitration refers to conduct of arbitration pursuant to a one-off agreement between the parties without the involvement of an arbitration centre.
Although it is difficult to determine which is the better option without having regard to the particular needs and concerns of the parties, there are distinct advantages to institutional arbitration, particularly in international commercial disputes. For example, the arbitration centres assist in administering the arbitration proceedings by:
- arranging the location and schedule;
- providing the rules of arbitration, including those required for the appointment and removal of arbitrators; and
- dealing with other matters that arise, for example scrutinizing the arbitral awards made (the ICC is an example).
Arbitral awards made in arbitration proceedings through reputed arbitration centres often carry more weight in national courts, and courts are more ready to enforce such awards.(10)
In the Malaysian context, the choice of institutional rules sometimes produces interesting results. For example, the (admittedly controversial) Section 34 of the Arbitration Act provides, among other things, that its provisions (except those relating to enforcement) do not apply to arbitrations held under the UNCITRAL or KLRCA Rules. This means that the supervisory jurisdiction of the local courts, for which the act makes provision, is excluded where:
- the UNCITRAL Rules or KLRCA Rules are adopted;
- the procedural law is Malaysian law; or
- the place of arbitration is Malaysia.(11)
A major concern of parties conducting arbitration under the KLRCA Rules is the inability to seek interim relief from the courts where the arbitration has commenced (under the KLRCA Rules, an arbitration is deemed to have commenced on the date on which the notice of arbitration is received by the respondent). It appears that the courts will not entertain a request for interim relief once arbitration proceedings under the KLRCA Rules have commenced, leaving the parties without interim protection until the arbitral tribunal has been fully constituted, at which point they are limited to the relief granted by the arbitral tribunal.
Place of arbitration
The place of arbitration is of great significance, since the procedural law of arbitration is generally the law of the place of arbitration. The parties are free to agree on the place. When designating the place of arbitration, it is important not to designate alternative places for arbitration (eg, 'either in Kuala Lumpur or Singapore'), as this may give rise to uncertainty and possible disputes.
The place of arbitration may well be different from the place where the hearings, if any, are held. The hearings can be held at any venue agreed by the parties, and no legal significance is attached to the place of the hearing as opposed to the place of arbitration.
Appointment of tribunal
An efficient procedure for the appointment of the arbitral tribunal should ideally be agreed upon. The rules of most arbitration institutions contain an appointment procedure. If necessary, the parties may specify the number of arbitrators or, if there is a default number in the chosen arbitration rules, modify that number.
Language
In order to avoid potential difficulties such as delays and expenses, the language of the arbitration must be agreed upon. If there is more than one language, the parties should provide for one language to prevail over the others in the event of a conflict.
Wording
Sufficient consideration must be given while choosing the wording of the arbitration clause, since the scope of the arbitration clause depends on it.
Separability of Arbitration Clauses
Even where the principal contract containing a valid arbitration clause comes to an end, the arbitration clause remains valid.(12) This is because the arbitration clause is considered collateral or ancillary to the underlying contract.(13) Given that, a distinct and specific agreement would be required to terminate the arbitration clause. The rationale behind this survival is simple: if an arbitration clause is terminated together with the termination of the contract of which it is part, the very objective of the arbitration clause (ie, to settle disputes arising out of the breach of the terms of that contract) will fail. However, this may not be the case where the principal contract is invalid from the outset.(14)
In Malaysia, it is yet to be settled whether the courts will uphold an agreement between two persons conferring a unilateral right to refer the matter to arbitration. The popular practice is to ensure mutuality of rights.
Multi-party arbitrations (where there are more than two parties) typically arise where one party to an arbitration agreement has a claim against the other party to the agreement, as well as against another person who is not a party to the arbitration agreement, and both claims arise from the same set of facts. Multi-party arbitrations also occur where the respondent in an arbitration has a claim in another arbitration against a third party (which is not a party to the first arbitration). In these situations it would be not only appropriate, but also desirable, to have one arbitration, in order to save time and costs. However, this approach can only be pursued with the consent of all parties, because the arbitral tribunal or courts do not have the power to consolidate two or more arbitration proceedings without such consent. Given that consolidation of arbitral proceedings is regulated by agreement between the parties, an arrangement may be made for all related parties to enter into an arbitration agreement which allows the joinder of other parties for a specified range of disputes.
The existence of an arbitration agreement does not automatically oust the jurisdiction of the courts. A party to an arbitration agreement may file an action in court notwithstanding the existence of an arbitration agreement to deal with such disputes. The other party may then bring an application under Section 6 of the Arbitration Act to stay the court proceedings pending reference to arbitration.
Section 6 empowers the High Court to order a stay of proceedings pending arbitration. It states:
"If any party to an arbitration agreement or any person claiming through or under him commences any legal proceedings against any other party to the arbitration or any person claiming through or under him in respect of any matter agreed to be referred to arbitration, any party to the legal proceedings may, before taking any other steps in the proceedings, apply to the court to stay the proceedings, and the court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement, and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the proceedings."
Section 6 thus provides for a discretionary stay of proceedings in favour of arbitration. The courts retain their discretion even if the applicant satisfies all the requisite conditions for a stay under Section 6.(15) The court may order a stay of court proceedings where there is no sufficient reason why the matter should not be referred to arbitration in accordance with the arbitration agreement and where the applicant for the stay has been willing properly to conduct arbitration. The general approach of the courts, however, is to stay court proceedings in favour of arbitration unless some exceptional reasons exist.(16)
One issue which frequently arises is whether entering an unconditional appearance in the proceedings amounts to taking "any other steps in the proceedings" within the meaning of Section 6. This remained a moot point (a number of conflicting decisions were issued) until the Federal Court settled it in Sanwell Corp v Trans Resources Corp Sdn Bhd [2002] 2 MLJ 625.
The Federal Court in Sanwell made the following points:
- The entry of appearance is a mandatory procedural step to be taken by an applicant in proceedings in the High Court.
- However, the entry of appearance (whether conditional or unconditional) is a permitted, excluded or exempted step in the proceedings, which does not amount to a step in the proceedings within the meaning of the Section 6 of the act that would prejudice the applicant's right to apply for a stay of the proceedings.
- If the applicant has served any pleadings, then it has clearly taken a step in the proceedings within the meaning of Section 6. It has thereby elected to proceed with the proceedings in the High Court and is barred from applying for a stay of proceedings to refer the dispute to arbitration.
- If the applicant has taken any other action in the proceedings (other than the entry of appearance or service of pleadings), the court will have to consider whether such action amounts to a step in the proceedings by determining the nature of the action, and whether it indicates an unequivocal intention to proceed with the suit and abandon the right to have the dispute disposed off by arbitration.
A court will order a stay of proceedings only if it is satisfied that the applicant for the stay is ready and willing properly to conduct the arbitration.(17) For the court to be so satisfied, the applicant must at least state in the affidavit that it was and is willing to do all things necessary for the proper conduct of arbitration. In addition, the defendant must satisfy the court that it was and is ready and willing to do all things necessary to the proper conduct of the arbitration through its subsequent actions as well. In Sarawak Electricity Supply Corp v Celcom (M) Sdn Bhd [2002] 5 MLJ 490 the court refused to stay the proceedings because the defendant's actions conveyed its unwillingness properly to conduct arbitration.
Where allegations of fraud are made, the court has the discretion to stay the arbitration proceedings.(18) The party charged with fraud is entitled as of right to a stay of arbitration, whereas a party charging the other with fraud can seek the discretion of the court.(19) The applicant needs to show only a genuine allegation of fraud at the stage of the application; the allegation of fraud need not beyond reasonable doubt until the trial stage.(20)
It is a pre-condition to an arbitration that there must be a disagreement or a dispute between the parties. The actual scope of the disagreement or dispute that must exist to trigger an arbitration agreement is a matter of agreement between the parties. For example, there will not be any dispute (to commence an arbitration) where one party expressly admits its liability to the claim raised by the other party, or where a claim is merely made out.(21)
Procedural rules are entirely a matter for the parties to agree. To this extent, the parties may set their own rules or adopt rules of arbitration institutions (with modifications, if they so choose). The only possible restriction on such an agreed procedure is that it must not contravene the principles of natural justice. Where the agreed procedure contravenes the principles of natural justice, the local courts may remove the arbitrator or set aside the award. The local courts may also refuse to enforce awards that are procured in breach of the principles of natural justice.
Selection of Arbitral Tribunal
Generally, the parties are free to agree on the procedure for the appointment of arbitrators (this can be done by adopting a set of institutional rules which has such a procedure). However, if the parties fail to agree on the procedure for the appointment, and there is no default procedure applicable, the parties can apply to the High Court to appoint an arbitrator under Section 12 of the act.
Section 12 applies in the following circumstances, among others:
- if the parties fail to concur in the appointment of an arbitrator, where they have agreed on a single-member tribunal;
- if the parties fail to fill a vacancy created due to an appointed arbitrator's refusal or incapacity to act, or due to his death;
- if the parties or the arbitrators fail to appoint the third arbitrator or umpire where they are at liberty to do so; or
- if the parties fail to fill a vacancy created due to an appointed third arbitrator's or umpire's refusal or incapacity to act, or due to his death.
Section 12 allows a party to apply to the High Court for appointment of an arbitrator or umpire only if the other party - or the arbitrators, as the case may be - fails to appoint an arbitrator or umpire within 21 days of the date of service of a written notice by the former asking the latter to appoint or concur in the appointment of an arbitrator or umpire.
Qualification of an Arbitrator
While there is no positive assertion as to the qualification and requirements of an arbitrator, Section 25(1) of the act requires an arbitrator to be impartial. The arbitrator is also required under Section 24(1) not to misconduct himself or the proceedings. Partiality and/or misconduct on the part of an arbitrator may lead to the removal of the arbitrator (Section 24(1)) or the setting aside of the award (Section 24(2)).
Preliminary Relief and Interim Measures
There are no restrictions on the arbitrators' powers to order any preliminary or interim relief (Section 13(6)). The parties may expressly confer any such powers on the arbitrators.
However, an arbitrator has no authority to issue an order to a third party. For example, an arbitrator cannot order a third party to give evidence or produce documents. An arbitrator also has no authority to issue an order to bring up a prisoner for examination. The High Court, on the other hand, has the power to order a third party to give evidence or produce documents (Section 13(4)), and/or to issue an order to bring up a prisoner for examination before an arbitrator (Section 13(5)).
The act expressly affords the High Court powers to make orders in respect of the following, among other things:
- security for costs;
- discovery of documents and interrogatories;
- giving of evidence by affidavit;
- examination of a witness outside jurisdiction;
- preservation, interim custody or sale of any goods that are the subject matter of the reference;
- securing the amount in dispute in reference;
- detention, preservation or inspection of any property or thing that is the subject of the reference; and
- interim injunctions or appointment of a receiver.
Section 13(6) clearly provides that the above powers granted to the High Court must not prejudice any similar powers that may be vested in an arbitrator.
The local courts generally tend to take a pro-arbitration approach, extending support to arbitration proceedings unless there are prohibiting reasons.
Section 2 of the Evidence Act 1950 states that its provisions do not bind arbitrators. While this may exempt arbitrators from following the strict rules of evidence, they are nevertheless expected to follow the established principles of evidence. Departing from those principles may lead to their removal and/or the setting aside of the award. For example, the courts have set aside awards in cases where the arbitrators failed properly to appraise the material evidence before them, or relied on inadmissible evidence.(22) However, other decisions do not agree with this viewpoint.(23)
Unless the parties have agreed otherwise, an arbitrator may (i) require the parties to the reference and all persons claiming through them to submit to be examined on oath or affirmation, subject to any legal objection (Section 13(1)); and (ii) administer oath to or take affirmations of the parties and witnesses (Section 13(3)).
Unless the parties have agreed otherwise, the witnesses must be examined on oath or affirmation (Section 13(2)). However, the parties may agree to do away with the oral evidence and base the proceedings on documentary evidence. The High Court also has the power to order that the evidence be given by affidavit (Section 13(6)(c)).
Unless the parties have agreed otherwise, an arbitrator may require the parties to the reference and all persons claiming through them to produce all relevant documents within their possession or power, subject to any legal objection (Section 13(1)).
However, an arbitrator cannot order a third party to produce any documents within its possession or power. In such cases a party to an arbitration may take out a summons to produce documents. The High Court has the power to order that a summons to produce documents be issued to any person within Malaysia.
There are no express limits on the type of damages that are available in arbitral proceedings. However, arbitrators are likely to follow the common law principles that regulate punitive or exemplary damages.
An arbitrator generally has the same power as a court to award interest at such rate as he thinks fit.(24) Unless the award directs otherwise, a sum directed to be paid by an award will accrue interest as from the date of the award at the same rate as a judgment debt (Section 21). The interest rate for High Court judgments is 8% per year under Order 42 Rule 12 of the Rules of the High Court 1980.
The arbitrator has the discretion to award costs under Section 19(1). He may direct to and by whom, and in what manner, the costs must be paid. He may tax or settle the amount of costs to be so paid. Section 19(3) provides that any provision in an arbitration agreement, entered into before the dispute has arisen, which stipulates that any party or the parties must pay its or their own costs is void. However, if this agreement was entered into after the dispute arose, the issue of validity does not arise.
Whether an award is taxable in the hands of the recipient depends on whether it is compensation for loss of income or capital loss. Loss of income is subject to tax at the usual tax rates applicable to the recipient.
An arbitral award is a decision of the arbitrator. There are no legal requirements for an award. However, the common practice is to issue a reasoned award in writing. A written award is particularly crucial where the award must be enforced pursuant to the New York Convention.
An arbitral award may be interim or final. An arbitral award is interim where the arbitrator decides some (but not all) of the issues before him. As far as those decided issues are concerned, the interim award is final. A final award finally decides all the issues before an arbitrator, except where an interim award was rendered in the same proceedings. If an interim award was rendered in the same proceedings, the final award will finally decide those issues that were not decided in the interim award.
Recourse against awards
Unless a contrary intention is expressed in the arbitration agreement, the arbitral award will be deemed final and binding on the parties and the persons claiming under them (Section 17). In other words, an arbitrator cannot reopen or revisit the case once he has rendered a final award.
There is no appeal per se to the court.
However, an arbitrator may make necessary amendments to the arbitral award:
- where the award is remitted to him by the High Court for reconsideration under Section 23;
- where the arbitrator has to state a case for the High Court under Section 22 (so that some of the questions of law can be referred to the High Court for determination); or
- where the arbitrator corrects any clerical mistake or error arising from any accidental slip or omission in an arbitral award under Section 18.
Remission of awards
The High Court may remit the matters referred to for the reconsideration of the arbitrator under Section 23(1). When an arbitral award is remitted, unless otherwise directed by the High Court, the arbitrator must make his arbitral award within three months of the date of the order (Section 23(2)).
An arbitral award will be remitted only in the following limited circumstances:(25)
- The arbitral award is bad on the facts of it;
- There has been misconduct on the part of the arbitrator;
- There has been an admitted mistake and the arbitrator has requested for the award to be remitted; or
- Additional evidence has been acquired after the making of the arbitral award.
An arbitrator may, on his own motion or on the direction of the High Court, state any question of law arising in the course of the reference or an arbitral award, or any part of an arbitral award, in the form of a special case for the decision of the High Court (Section 22(1)). Such statement of case may be made with respect to an interim award or a question arising in the course of a reference, notwithstanding that proceedings under reference are pending (Section 22(2)).
The power of the High Court to direct the arbitrator to state a special case for its decision is discretionary. General principles as set out in Lion Asia Investment Pte Ltd v Atelier ADT International Consultants Ltd [2002] 5 CLJ 86 govern the exercise of such discretion.
Firstly, the plaintiff must have first asked the arbitrator to state a case for the decision of the High Court and his request must have been met with refusal (however, the court would not direct the arbitrator to state a case for reference merely because the arbitrator has refused to do so(26)).
Second, the question of law raised must be determined by the High Court, having regard to all the circumstances of the case. In this regard, the High Court will take into account the following points:
- The question of law must be clear and must be accurately stated as a point of law;
- The point of law must be open to serious argument;
- The point of law must be important for the resolution of the parties' dispute; and
- The point of law is raised must be raised by the applicant in good faith and without any ulterior motive.
Setting Aside of Arbitral Awards
An arbitral award may be set aside where an arbitrator has misconducted himself or the proceedings (Section 24(2)). The term 'misconduct' is used in its technical sense as denoting irregularity and not moral turpitude. It includes:
- failure of an arbitrator to observe the rules of natural justice;
- appearance of bias or partiality; and
- any irregularity of action that is not consonant with the general principles of equity and good conscience.(27)
An arbitral award may also be set aside where an arbitration or arbitral award has been improperly procured (Section 24(2)).
The courts have set aside the arbitral award in instances, among others, where:
- the arbitral award was ambiguous and uncertain;(28)
- there was an error of law on the face of the arbitral award;(29) or
- the arbitrators did not properly appraise the material evidence before them or relied on inadmissible evidence.(30)
Any application to set aside an arbitral award must be filed within six weeks of the date on which the arbitral award is made and published to the parties (Order 69 Rule 4(1) of the Rules of the High Court). When faced with applications to set aside, the general approach of the Malaysian courts is to uphold an arbitral award unless there is something radically wrong with the proceedings.(31)
Enforcement of Arbitral Awards
A domestic arbitral award may, by leave of the High Court, be enforced in the same manner as a judgment or order to the same effect (Section 27). Once an award is made, an application for leave to enforce the award can be refused only where there are real grounds for doubting the validity of the award. In such cases it is for the respondent to bring in grounds for doubting the validity of the award.(32) Where leave is given by the High Court, judgment may be entered in terms of the arbitral award.
Pursuant to the New York Convention Act, foreign arbitral awards made in a convention country are enforceable in Malaysia by leave of the High Court in the same away as a domestic arbitral award (Section 3 of the New York Convention Act, read with Section 27 of the Arbitration Act). Where leave is obtained, the arbitral award may be enforced in the same manner as a judgment or order of the High Court. Also, where leave is given, a judgment may be entered in terms of the arbitral award.
Both domestic and foreign arbitral awards may be enforced summarily in reasonably clear cases(33) or by fresh action.(34)
A party against whom an award was made can have recourse to the passive remedy (as opposed to active remedies such as setting aside or remission) of resisting the enforcement proceedings.(35)
Once leave is obtained, an arbitral award becomes an order of the High Court and thereafter all modes of execution available to judgments of the High Court are similarly available to the party enforcing the arbitral award (Order 45 Rule 1 of the Rules of the High Court).
The modes of execution for judgments for payment of money include:
- writ of seizure and sale (of immovable and movable property, including shares and securities);
- garnishee proceedings;
- a charging order;
- the appointment of a receiver; or
- order of committal (if the arbitral award refers to a specific order to do or to abstain from doing an act).
There is also the ultimate remedy of bankruptcy or winding up.
Enforcement of a foreign arbitral award may be refused if the party against whom enforcement is sought proves to the satisfaction of the court that:
- one of the parties to the arbitration agreement was under some incapacity under the law applicable to it at the time the agreement was made;
- the arbitration agreement is not valid under the law to which the parties have subjected it (or where this is not indicated, under the law of the country where the arbitral award was made);
- the applicant was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present its case;
- the arbitral award (or part of it) deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration;
- the composition of the tribunal or the arbitration procedure was not in accordance with the agreement of the parties (or in the absence of such an agreement, was not in accordance with the law of the country where the arbitration took place);
- the arbitral award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country where the arbitral award was made;
- the subject matter is not arbitrable under the law of Malaysia; or
- enforcement of the arbitral award would be contrary to the public policy of Malaysia.
The general judicial attitude in Malaysia is to give effect to arbitral awards unless there are prohibiting reasons. For example, in Harris Adacom Corp v Perkom Sdn Bhd [1994] 4 CLJ 683 the High Court rejected an opposition to an application for enforcement of a foreign arbitral award on the grounds of public policy.
It is generally accepted that the Malaysian arbitration regime is outdated and needs some urgent reform. In the face of increasing pressure from the arbitration community, both local and international, Malaysia is finally paving the way for a new Arbitration Act.
In this regard, a Bar Council sub-committee has prepared a draft Arbitration Act for submission to the Attorney General's Chambers. The proposed act is largely based on the Model Law and principally modelled along the lines of the New Zealand Arbitration Act 1996.
The proposed act contains three parts:
- Part I - Preliminary;
- Part II - General Provisions; and
- Part III - Additional Optional Rules.
Part I contains 16 sections which principally deal with:
- the application and purposes of the proposed act;
- the arbitrability of disputes; and
- the powers and liabilities of arbitrators.
Part II sets out the general provisions largely based on the UNCITRAL Model Law. It deals, among other things, with:
- the definition and form of arbitration agreements;
- appointment and challenge of arbitrators;
- the arbitration procedure;
- the role of courts in arbitration; and
- the form, contents, effect, recognition, enforcement and setting aside of arbitral awards.
Part III provides the High Court with additional powers to supervise and/or support arbitration proceedings. This part contains seven sections and provides, among other things, for:
- consolidation of arbitral proceedings;
- determination of preliminary points of law; and
- appeals on questions of law.
Part II applies to both international and domestic arbitrations, while the application of Part III is subject to agreement between the parties. By default, Part III applies only to domestic arbitrations. However, the parties to an international arbitration can agree to adopt Part III for their arbitration, while the parties to a domestic arbitration can agree to exclude it.
The key difference between the default provisions applicable to international and domestic arbitrations is the varying degree of court intervention. A lesser degree of court intervention is prescribed for international arbitrations, while greater powers are conferred on the local courts with regard to domestic arbitrations.
From a logistical point of view, Malaysia has a convenient geographical location and is easily accessible by air. Its infrastructure is comparable to that of many developed nations. It has good and relatively inexpensive accommodation, food and communications system. With regard to venues, Malaysia has the KLRCA and a wide range of hotels that are capable of holding arbitration sessions. There is still a shortage of local transcribers, but the situation is improving. Further, a large pool of experienced local arbitrators, including a number of retired appellate court judges, is available.
While the Malaysian response to the fast-changing world of arbitration has often been seen as slow compared with many other jurisdictions, it is now set to enter the fray with a modern arbitration law. It is hoped that the local courts will provide the requisite back-up to the proposed legislation by enforcing its spirit of party autonomy and minimal court interference, and that the government authorities will upgrade the existing facilities (logistical and otherwise) for the conduct of arbitration in Malaysia.
For further information on this topic please contact Rodney Gomez or Rajesh C Muttath at Shearn Delamore & Co by telephone (+603 2076 28 44 490 90) or by fax (+603 2026 6076) or by email ([email protected] or [email protected]).
Endnotes
(1) Zublin Muhibbah Joint Venture v Government of Malaysia [1990] 3 MLJ 125.
(2) Yomeishu Seizo Co Ltd v Sinma Medical Products [1996] 2 MLJ 334, Re Tioh Ngee Heng; ex p Yap Kin Lian @ Norhashimah Yap (Administratix of the Estate of Mohamad Shariff bin Haji Hussain [2002] 6 MLJ 155.
(3) Hang Lung Bank Ltd v Datuk Tan Kim Chua [1988] 2 MLJ 567.
(4) Amin Rasheed Shipping Corporation v Kuwait Insurance Co [1983] 3 WLR 241; James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd [1996] 2 MLJ 97.
(5) Compagnie d'Armement Maritime SA v Compagnie Tunisienne de Navigation SA [1970] 3 All ER 71; James Capel.
(6) James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583; James Capel.
(7) Union of India v McDonnell Douglas Corp [1993] 2 Lloyd's Rep 48; James Capel.
(8) Dallal v Bank Mellat [1986] QB 441; James Capel.
(9) Union of India; James Capel.
(10) Westacre Investments Inc v Jugoimport - SDPR Holding Co Ltd [1998] 3 WLR 770.
(11) Sarawak Shell Bhd v PPES Oil & Gas Sdn Bhd [1998] 2 MLJ 20; Jati Erat Sdn Bhd v City Land Sdn Bhd (2002) 1 CLJ 346.
(12) Heyman v Darwins [1942] AC 356; Yip Chee Seng & Sons Sdn Bhd v Ornaconstruction Corp Sdn Bhd [1998] 93 MLJU 1.
(13) Bremer Vulkan Schiffban und Maschinenfabrik v South India Shipping Corporation [1981] AC 909.
(14) Heyman; Forest Development Sdn Bhd v Syarikat Permodalan dan Perusahaan Pahang Bhd [1981] 2 MLJ 285.
(15) Seloga Jaya Sdn Bhd v Pembenaan Keng Ting (Sabah) Sdn Bhd [1994] 2 MLJ 97; Pekeliling Triangle Sdn Bhd v Chase Perdana Bhd [2003] 1 CLJ 153.
(17) Eas Jurntera Perunding Sdn Bhd v Hj Shahir bin Yunus [2002] MLJU 68; Seloga Jaya.
(18) Bina Jati Sdn Bhd v Sum-Projects (Bros) Sdn Bhd [2002] 2 MLJ 71.
(20) Capital Insurance Bhd v Wierig Prefab (Selangor) Sdn Bhd [2003] 1 MLJ 449.
(21) Niaga Tani Sdn Bhd v Samarez Holdings Berhad [2002] MLJU 140; Celcom (M) Sdn Bhd v Sarawak Electricity Supply Corporation [2002] 4 MLJ 593.
(22) The Government of India v Cairn Energy India Pty Ltd [2003] 1 MLJ 348; Ganda Edible Oils Sdn Bhd v Transgrain BV [1988] 1 MLJ 428.
(23) Hartela Contractors v Hartecon JV Sdn Bhd [1999] 4 MLJ 481; Future Heritage Sdn Bhd v Intelek Timur Sdn Bhd [2003] 1 MLJ 49.
(24) Lian Hup Manufacturing Co Sdn Bhd v Unitata Bhd [1994] 2 MLJ 51.
(25) Ong Guan Teck v Hijjas [1982] 1 MLJ 105.
(26) Kerajaan Negeri Selangor v Maraputra Sdn Bhd [1992] 1 CLJ 441.
(27) Syarikat Pemborong Pertanian & Perumahan v Federal Land Authority [1971] 2 MLJ 210.
(28) Pegang Prospecting Co Ltd v Chan Phooi Hoong (1957) 23 MLJ 231; WAC Engineering Sdn Bhd v MUI Hikari Construction Sdn Bhd [2000] MLJU 234.
(29) Pegang Prospecting; WAC Engineering.
(30) Cairn Energy India; Ganda Edible Oils; contrast with Hartela Contractors and Future Heritage.
(31) Lian Hup Manufacturing Co Sdn Bhd v Unitata Bhd [1994] 2 MLJ 51.
(32) Rahamatthllah a/l Mohamed Ismail t/a MR Kamal Bersaudara v The Netherlands Insurance Co Ltd [1993] MLJU LEXIS 717.
(33) Dr Ng Ah Kow v Dr Low Shik Aun [1970] 2 MLJ 257.
(34) Pam Shipping Ltd v MPC Holding Sdn Bhd (1984) CLJ 248.
(35) State Government of Sarawak v Chin Hwa Engineering Development Co [1995] 3 MLJ 237.