1.1 Describe the prevalence of commercial arbitrations as a method of settling disputes, both domestic and international.
Commercial arbitration is gaining popularity as a method of settling disputes in Malaysia.
It is increasingly preferred over court proceedings in commercial disputes, particularly in disputes of an international nature. The principal reasons for this are: (a) the parties are free to use the language of their choice in arbitral proceedings unlike in court proceedings where Bahasa Malaysia is the norm; (b) the parties may be represented by any person of their choice in an arbitration unlike in court proceedings where they need to engage Malaysian solicitors; (c) the rigid rules of the Evidence Act are excluded from arbitral proceedings thereby providing arbitral proceedings a greater degree of flexibility as opposed to court proceedings; and (d) the parties are free to choose the arbitrators who fit their requirements, unlike court proceedings.
The popularity of arbitration is aided by the support of the Malaysian courts – the local courts are generally willing to enforce arbitration agreements unless there are strong reasons to the contrary.
2.1 What are the principal sources of law and regulation relating to domestic and international arbitration? (Describe the role of federal or state laws and relevance of court decisions.)
The principal legislation governing arbitration in Malaysia is the Arbitration Act 1952. The Act applies to both domestic and international arbitrations. Other relevant legislation includes the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Act 1985 and the Limitation Act 1953.
The local courts apply the statutory provisions as well as the common law while dealing with arbitration-related matters.
2.2 List and briefly describe relevant arbitration statutes, international treaties and conventions.
3.1 What are/describe the principal institutions and/or government agencies that assist in the administration or oversight of international and domestic arbitrations?
The Regional Centre for Arbitration Kuala Lumpur (RCAKL) is the principal arbitration centre in Malaysia. The RCAKL was established in 1978 by the Asian African Legal Consultative Committee (AALCC) with the co-operation and assistance of the Malaysian government. This is a non-profit centre that was set up to assist Asian countries in the region in the conduct of international arbitrations. It is based at 12 Jalan Conlay, 50450 Kuala Lumpur, Malaysia, tel: +603 2142 0103, fax: +603 2142 4513, email:
enquiry@rcakl.org.my.
The RCAKL is a neutral and independent arbitral institution of an international character. It has been in operation since 1978 and has handled a number of international arbitrations from India, the UK, Norway, France, Australia, Japan and the US. The RCAKL is headed by a director.
The RCAKL has its own procedural rules, the Rules for Arbitration of the RCAKL. The RCAKL Rules incorporate the Model Law with minor modifications. In this regard, it may be noted that s 34 of the Arbitration Act excludes the operation of the Arbitration Act to arbitrations (except the enforcement provisions) held under, inter alia, the UNCITRAL Arbitration Rules and the RCAKL Rules.
4.1 What is the relationship between agreements to arbitrate and access to the courts? Is there a presumption of arbitrability/policy support for arbitration? Will the courts stay court actions in favour of agreements to arbitrate?
The existence of an arbitration agreement does not automatically overrule 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 s 6 of the Arbitration Act to stay the court proceedings pending reference to arbitration.
Section 6 of the Arbitration Act empowers the High Court to order a stay of proceedings pending arbitration. The power to order a stay is discretionary. The court may order a stay of 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 an arbitration.
The general approach of the courts is to stay court proceedings in favour of arbitration unless some exceptional reasons exist (Seloga Jaya Sdn Bhd v Pembenaan Keng Ting (Sabah) Sdn Bhd [1994] 2 MLJ 97).
4.2 May an arbitral tribunal rule on a party’s challenge to its own jurisdiction (‘competence-competence’)? Need a tribunal suspend its proceedings if a party seeks to test jurisdiction in the courts?
Under the current regime, the High Court determines the arbitrability of a dispute.
5.1 Provide a selected bibliography of the most influential publications in or relied upon in the jurisdiction – books, journals, newsletters and pamphlets.
Books
A Redfern and M Hunter Law and Practice of International Commercial
Arbitration (London: Sweet & Maxwell, 3rd edn, 1999)
Lord Mustill and S C Boyd Law and Practice of Commercial Arbitration
(London: Butterworths, 2nd edn, 1989)
D St John Sutton and J Gill Russell on Arbitration (London: Sweet &
Maxwell, 22nd edn, 2003)
Cato Arbitration Practice and Procedure (London: ILP Ltd, 2002)
S Rajoo Law, Practice and Procedure of Arbitration (Kuala Lumpur:
LexisNexis, 2003) P Rau Law of Arbitration (Cases and Materials) (Kuala Lumpur: International Law Book Series, 1997) D C Abraham ‘Malaysia’ in M J Moser (ed) Arbitration in Asia (Butterworths Asia, 2001) D C Abraham ‘Malaysia’ in International Commercial Arbitration in Asia (ed) International Commercial Arbitration in Asia (ICC Publishing, 1998)
Journals
International Arbitration Law Review
Journal of International Arbitration
Arbitration International
Journal of the Chartered Institute of Arbitrators
6.1 Are there form and/or content requirements for an enforceable agreement to arbitrate? How may they be satisfied?
The arbitration agreement must be in writing. This is pursuant to s 2 of the Arbitration Act which states that an arbitration agreement means ‘a written agreement to submit present or future differences to arbitration, whether an arbitrator is named herein or not’. It should be noted that while a written agreement is a mandatory requirement, no specific form of arbitration clause is stipulated in the Arbitration Act. The parties are free to agree on the format and wordings of such a clause.
While arbitration is encouraged in commercial disputes for reasons stated above, it is not compulsory for any type of dispute.
7.2 Is arbitration prohibited for certain types of dispute (restraints of fundamental public policy)?
The non-arbitrability of certain matters may broadly be attributed to the public policy of the different jurisdictions, and general or specific reservations by statutory provisions. Instances include provisions which confer specific statutory rights on the courts – eg the requirement of court confirmation for capital reduction under s 64 of the Malaysian Companies Act 1965.
Given that an arbitrator is appointed by the parties and that his or her authority is derived from the arbitration agreement, he or she is not generally allowed to make a decision that is binding on third parties. Also, the decisions which are always the prerogative of the sovereign such as acts involving some criminal element and imposing imprisonment and fines are kept out of the purview of the arbitrators, probably for the same reasons.
It must also be noted that, in Malaysia, a matter that involves a question of fraud is effectively non-arbitrable (s 25(2) of the Arbitration Act).
8.1 May an arbitral clause be considered valid even if the rest of the contract in which it is embedded is invalid?
The rule in Heyman v Darwins [1942] AC 356 (that is, an arbitration clause continues to remain valid even after the termination of the principal contract of which the arbitration clause is a part) is applicable in Malaysia (Yip Chee Seng & Sons Sdn Bhd v Ornaconstruction Corpn Sdn Bhd [1998] 93 MLJU 1).
It must, however, be noted that this may not be the case in instances where the principal contract is void ab initio (Heyman v Darwins [1942] AC 356; Forest Development Sdn Bhd v Syarikat Permodalan dan Perusahaan Pahang Bhd [1981] 2 MLJ 285).
9. QUALIFICATION/APPOINTMENT/LIABILITY OF ARBITRATORS
9.1 Are there specific provisions regulating the qualifications of arbitrators? Are there requirements (including disclosure) for ‘impartiality’ and ‘independence’, and do such requirements differ as between domestic and international arbitrations?
There is no express qualification required for an arbitrator.
However, s 25(1) of the Arbitration Act does require an arbitrator to be impartial. The arbitrator is also required under s 24(1) of the Arbitration Act not to misconduct him or herself or the proceedings. Partiality and/or misconduct on the part of an arbitrator may lead to the removal of the arbitrator (s 24(1)), or the setting aside of the award (s 24(2)).
9.2 Are there provisions governing the challenge or removal of arbitrators? Do the courts or other jurisdictions play/have a role in any such challenge?
An arbitrator may be removed by the High Court if he or she misconducts him or herself or the proceedings. The High Court also has the power to revoke the arbitrator’s authority where he or she is not impartial (s 25(1)) or where the dispute referred to arbitration involves a question of fraud (s 25(2)).
9.3 Does legislation govern, or have the courts developed rules regarding the liability of arbitrators for acts related to their decision-making function?
There are no such provisions in the Arbitration Act. However, under common law, the arbitrators are immune from liability for acts (including negligence) related to their decision-making functions (Sutcliffe v Thackrah [1974] AC 727; Arenson v Casson Beckman Rutley & Co [1977] AC 405) except perhaps where they act corruptly.
The parties may also agree upon such ‘exclusion of liability’. Arbitration rules of many arbitral institutions contain such ‘exclusion of liability’ clauses.
10. PARTY REPRESENTATION
10.1 Are there particular qualification requirements for representatives (‘counsel’) appearing in the jurisdictions?
Malaysian law allows the parties to choose any person to represent them in arbitrations. Unlike some other jurisdictions, there are no requirements as to representation by Malaysian lawyers (Zublin Muhibbah Joint Venture v Government of Malaysia [1990] 3 MLJ 125) or even by legally qualified persons.
11. PLACE OF ARBITRATION/PROCEDURES
11.1 Are there provisions governing the place (seat) of arbitration, or any requirement for arbitral proceedings to be held at the seat?
There are no statutory provisions governing the place (seat) of arbitration or which require arbitral proceedings to be held at the seat.
Generally, the parties are free to agree on the place. When agreeing on the place of arbitration, it is important that the parties are specific. Designating alternative places for arbitration (eg ‘either in Kuala Lumpur or Singapore’) may give rise to uncertainty and possible subsequent disputes.
11.2 Are specific procedures mandated in particular cases, or in general?
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.
12. EVIDENCE GATHERING
12.1 What is the general approach to the gathering and tendering of evidence at the pleading stage and at the hearing stage (production, discovery, privilege, use of witness statements etc)? Are there differences between domestic and international arbitrations?
Section 2 of the Evidence Act 1950 provides that its provisions do not bind arbitrators. While this may relieve the 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 setting aside the award.
The courts have set aside awards, inter alia, where the arbitrators had failed to properly appraise the material evidence before them or rely on inadmissible evidence (The Government of India v Cairn Energy India Pty Ltd & ors [2003] 1 MLJ 348; Ganda Edible Oils Sdn Bhd v Transgrain BV [1988] 1 MLJ 428). However, there are decisions that did not agree with this view (Hartela Constructors v Hartecon JV Sdn Bhd & anor [1999] 4 MLJ 481; Future Heritage Sdn Bhd v Intelek Timur Sdn Bhd [2003] 1 MLJ 49).
In this regard, there are no differences between domestic and international arbitrations.
12.2 What powers of compulsion or court assistance are there for arbitrators to require attendance of witnesses or production of documents, either prior to or at the substantive hearing? Is there a difference between domestic and international tribunals or as between parties and non-parties? Do special provisions exist for arbitrators appointed pursuant to international treaties (ie bilateral or multilateral investment treaties)?
An arbitrator may, unless the parties have agreed otherwise, 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 (s 13(1) of the Arbitration Act), as well as their attendance. Witnesses who refuse to attend would have to be summoned through a subpoena issued by the High Court.
An arbitrator cannot, however, 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 persons within Malaysia.
13. INTERIM MEASURES/ROLE OF THE TRIBUNAL
13.1 Are there special provisions relating to the granting of interim and preliminary relief? Have the courts recognised and/or limited any such authority? Do the courts themselves play a role in interim relief in arbitration proceedings?
There are no restrictions on the arbitrators’ powers to order any interim and preliminary relief (s 13(6) of the Arbitration Act). The parties may expressly confer any such powers on the arbitrators. However, in reality, if a party wants to enforce an interim and preliminary relief, the practicalities are such that he or she may actually have to apply to the courts, especially if it affects third parties and time is of the essence. The Court of Appeal has recently decided that the grant of interim relief pending the outcome of an arbitration held under the Rules for Arbitration of the RCAKL is not prohibited by s 34 of the Arbitration Act. This is because s 34 of the Arbitration Act only excludes interference with the arbitration itself (Thye Hin Enterprise Sdn Bhd v Daimler Chrysler Malaysia Sdn Bhd [2005] 1 MLJ 293).
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 has, on the other hand, the power to order a third party to give evidence or produce documents (s 13(4) of the Arbitration Act) and/or issue an order to bring up a prisoner for examination before an arbitrator (s 13(5) of the Arbitration Act).
The Arbitration Act expressly provides the High Court, inter alia, the following powers to make orders in respect of:
14. TAXATION OF ARBITRATORS’ FEES
14.1 Does the state, or any of its sub-divisions, purport to tax domestically the fees of foreign arbitrators conducting hearings in the state? Is there a difference if the arbitration is ‘seated’ in the state or elsewhere?
So long as the foreign arbitrators or lawyers are not tax resident in Malaysia, they are exempted from paying Malaysian income tax on their income. To avail themselves of this exemption, they should not be employed in Malaysia for more than 60 days in a calendar year.
15. DEFAULT PROCEEDINGS
15.1 Are there provisions governing a tribunal’s ability to determine the controversy in the absence of a party who, on appropriate notice, fails to appear at or seek adjournment of the arbitral proceedings?
There are no express provisions in the Arbitration Act. As this is silent, it is presumed that there is no prohibition for a tribunal to determine the controversy in the absence of a defaulting party after reasonable notice has been given.
There is, however, a provision in the New York Convention Act. Pursuant to art V(1)(b) of the New York Convention, recognition and enforcement of an award will be refused if the party against whom the award is issued was not given proper notice of the arbitration proceedings or was otherwise unable to present his or her case.
16. THE ARBITRAL AWARD
16.1 Must an award take any particular form, eg in writing, signed, dated, place, the need for reasons, delivery etc?
The Arbitration Act does not prescribe any requirements for an award. However, the common practice is to have a dated and reasoned award in writing. In fact, the arbitration rules of a number of arbitral institutions stipulate that an award must be dated and reasoned and must be in writing. This would be particularly crucial where the award has to be enforced pursuant to the New York Convention, which requires an award to be in writing for it to be enforceable.
Although not expressly required by the Arbitration Act, the award must state the place of arbitration. The place in which the award is made is crucial for its enforcement, particularly under the New York Convention Act.
16.2 Are there limits on arbitrators’ powers to fashion appropriate remedies, eg punitive or exemplary damages, rectification, injunctions, interest and costs?
There are no express limits on the type of damages that are available in an arbitral proceeding. However, arbitrators are likely to follow the common law principles that regulate punitive or exemplary damages.
In relation to interest, an arbitrator generally has the same power as that of a court to award interest at such rate as he or she thinks fit (Lian Hup Manufacturing Co Sdn Bhd v Unitata [1994] 2 MLJ 51). Unless the award directs otherwise, a sum directed to be paid by an award will carry interest as from the date of the award at the same rate as a judgment debt (s 21 of the Arbitration Act). The interest rate for High Court judgments is eight per cent per annum under Ord 42, r 12 of the Rules of the High Court 1980.
In relation to costs, the arbitrator has the discretion to award costs under s 19(1) of the Arbitration Act. He or she may direct to whom, by whom and in what manner the costs must be paid. He or she may tax or settle the amount of costs to be so paid. In this regard, it must be noted that s 19(3) of the Arbitration Act provides that any provision in an arbitration agreement, entered into before the dispute has arisen, that stipulates that any party or the parties must pay their own costs is void. However, if the agreement to do so was entered into after the dispute has arisen, the issue of validity does not arise.
17. RECOURSE FROM AN AWARD
17.1 Are there provisions governing modification, clarification or correction of an award?
An arbitrator may make necessary amendments to his or her arbitral award where the award is remitted to the arbitrator in the High Court for reconsideration under s 23 of the Arbitration Act. An arbitrator may also correct any clerical mistake or error arising from any accidental slip or omission in an arbitral award under s 18 of the Arbitration Act.
The High Court may remit the matters referred to for the reconsideration of the arbitrator under s 23(1) of the Arbitration Act. An arbitral award will only be remitted in limited circumstances (Ong Guan Teck & ors v Hijjas [1982] 1 MLJ 105):
17.2 May an award be appealed to or set aside by the courts? If so, on what grounds and by what procedures?
Unless a contrary intention is expressed in the arbitration agreement, the arbitral award shall be deemed as final and binding on the parties and the persons claiming under them (s 17 of the Arbitration Act). In other words, an arbitrator cannot reopen or revisit the case once he or she has rendered a final award.
There is no appeal per se to the court. However, an arbitrator may make necessary amendments to his or her arbitral award where the award is remitted to the arbitrator by the High Court for reconsideration under s 23 of the Arbitration Act or where the arbitrator has to state a case for the High Court (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.
An arbitral award may be set aside where an arbitrator has misconducted him or herself or the proceedings (s 24(2) of the Arbitration Act). 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 (Syarikat Pemborong Pertanian & Perumahan v Federal Land Authority [1971] 2 MLJ 210). An arbitral award may also be set aside where an arbitration or arbitral award has been improperly procured (s 24(2) of the Arbitration Act).
The courts have set aside the arbitral award in instances, among others, where it is ambiguous and uncertain; where there is an error of law on the face of the arbitral award; and where the arbitrators do not properly appraise the material evidence before them or rely on inadmissible evidence.
Any application to set aside an arbitral award has to be filed within six weeks after the arbitral award has been made and published to the parties (Ord 69, r 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 award unless there is something radically wrong with the proceedings (Lian Hup Manufacturing Co Sdn Bhd v Unitata Bhd [1994] 2 MLJ 51).
18. ENFORCEMENT OF AWARD
18.1 What are the procedures and standards for enforcing an award? Is there a difference between ‘domestic’ and ‘non-domestic’ awards?
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 way as a domestic arbitral award (s 3 of the New York Convention Act read with s 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 the domestic and foreign arbitral awards may be enforced summarily in reasonably clear cases or by fresh action (Pam Shipping Ltd v MPC Holding Sdn Bhd [1984] CLJ 248).
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 (State Government of Sarawak v Chin Hwa Engineering Development Co [1995] 3 MLJ 237).
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 (Ord 45, r 1 of the Rules of the High Court 1980).
19. CONFIDENTIALITY OF PROCEEDINGS
19.1 What are the confidentiality requirements of the arbitral process, ie existence of the arbitration, pleadings, documents produced, hearing, award?
There are no statutory provisions on confidentiality.
Given that many parties adopt arbitration as their dispute resolution tool for the confidentiality it may grant to the proceedings, it is common practice for the parties to have an express confidentiality clause in their arbitration agreement (by, in most cases, adopting a set of institutional rules which contain such a clause).
If there is an express confidentiality clause in the arbitration agreement requiring parties to treat the arbitration proceedings (including their existence) as confidential, the parties are generally bound by it.
However, there are certain exceptions to this general rule. The exceptions include instances where the parties subsequently agree that the confidentiality requirement may be waived, or where a court orders disclosure or grants permission to disregard the confidentiality obligation to establish or protect an arbitrating party’s legal rights vis à vis a third party in order to found a cause of action against that third party or defend the claim or counterclaim brought by the third party.
Even if there is no express agreement as to confidentiality, it is likely that the local courts will imply an obligation of confidentiality to the arbitration agreement, following the English Court of Appeal view in Ali Shipping Corpn v Shipyard Trogir [1998] 2 All ER 136. This view was recently accepted in Singapore (Myanma Yaung Chi Oo Co Ltd v Win Win Nu and anor [2003] 2 SLR 547).
20.1 Is there any particular aspect of the approach to arbitration in the jurisdiction which bears special mention?
Arbitration is becoming increasingly popular as a dispute resolution tool in Malaysia. Most common disputes referred to arbitration in Malaysia are from the construction and shipping industries. There has also been a steady rise in arbitration of other commercial disputes.
The current Arbitration Act is based on the old English Arbitration Act 1950. It has become antiquated given the developments happening elsewhere in the arbitration world. A new Arbitration Act is being considered by the Attorney-General’s chamber, and is expected to be enacted sometime late 2005.
