Q.
How is Arbitration available as an option for dispute settlement in Malaysia? How does it differ from Court settlement?
A.
On March 15, 2006, Law 646 of 2005, on Arbitration came into effect in Malaysia replacing and repealing the Arbitration of 1952.
The Arbitration Act of 1952 was based on the English Arbitration Act 1950 and not the UNCITRAL Model Law. There were two different regimes in Malaysian law, namely arbitrations immune from court intervention under section 34 of the Arbitration Act 1952 and arbitrations to which the rest of the Act applied.
Arbitrations immune from court intervention under section 34 of the Arbitration Act 1952 consisted of those conducted under the Convention on the Settlement of Investment Disputes between States and Nationals of other States 1965 (“Washington Convention”) or arbitrations conducted under the United Nations Commission on International Trade Law (UNCITRAL) Rules of Arbitration 1976 and the Rules of the Regional Centre for Arbitration in Kuala Lumpur.
On March 15, 1966, Malaysia adopted the Washington Convention under the Convention on the Settlement of Investment Disputes Act 1966. The Kuala Lumpur Regional Centre for Arbitration adopted the UNCITRAL Rules of Arbitration 1976 with relevant modifications to fit into its institutional framework. Presently, it is the only recognized centre for arbitration in Malaysia.
Enforcement of arbitral awards was provided for in section 34(2) and 34(3) of the Arbitration Act 1952. Enforcement of an arbitral award procured as a result of arbitral proceedings conducted under the Washington Convention 1965 took place in accordance with the provisions of that Convention whereas enforcement of an arbitral award rendered under the Rules of KLRCA took place in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”).
This new Act of 2005 seeks to reform the law relating to domestic arbitration, provide for international arbitration, and to provide for the recognition and enforcement of awards and for related matters. It seeks to promote international consistency of arbitral regimes based on the model law adopted by the United Nations Commission on International Trade Law on 21 June 1985. Further, the Act replaces and repeals the Arbitration Act 1952.
The Preliminary Title defines international and domestic arbitration.
PART I. PRELIMINARY
Interpretation
"international arbitration" means an arbitration where
(a) one of the parties to an arbitration agreement, at the time of the conclusion of that agreement, has its place of business in any State other than Malaysia;
(b) one of the following is situated in any State other than Malaysia in which the parties have their places of business:
(i) the seat of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of any commercial or other relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
(c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one State;
"domestic arbitration" means any arbitration which is not an international arbitration;
Clause I contains the short title and the power of the Minister to appoint the date of coming into operation of the proposed Act.
Clause 2 contains the definition of certain words and phrases used in this Act.
Clause 3 provides that parties to a domestic or international arbitration shall comply with the requirements under Parts I, II and IV where the seat of arbitration is in Malaysia. Clause 3 also provides that Part III shall apply to domestic arbitration unless the parties agree otherwise and that Part III shall not apply to international arbitration unless the parties agree otherwise.
Clause 4 REGULATES arbitrability of subject-matter.
Clause 5 states that this Bill shall apply to any arbitration to which the Federal Government of Malaysia or the Government of any state of Malaysia is a party.
Government to be bound
5. This Act shall apply to any arbitration to which the Federal Government or the Government of any component state of Malaysia is a party.
Under clause 6 a written communication which is delivered to the addressee personally or at his place of business or habitual residence or mailing address shall be deemed to have been received on the day it is so delivered. In the event that the addressee cannot be found at any of these places then the written Arbitration communication is deemed to have been received with the fulfilment of the requirement of sending a registered letter or other means providing a record of the attempt to deliver it to the last known place of business, habitual residence or mailing address.
Clause 7 states that where a party proceeds with the arbitration without stating his objections without delay or within the stipulated time to any non- compliance of any requirement under the arbitration agreement, the party shall be deemed to have waived its right to object.
Clause 8 provides that no court shall intervene in any matter governed by this Bill except where the Bill provides otherwise.
Clause 9 defines and explains the form of an arbitration agreement.
Definition and form of arbitration agreement
9. (1) In this Act, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in an agreement or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing where it is contained in
(a) a document signed by the parties;
(b) an exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement; or
(c) an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.
(5) A reference in an agreement to a document containing an arbitration clause shall constitute an arbitration agreement, provided that the agreement is in writing and the reference is such as to make that clause part of the agreement.
Clause 10 provides that the court shall stay proceedings brought before it provided that a party makes an application to the court before taking any other steps in the proceedings. The court may refuse a stay where it finds that the arbitration agreement is null and void, inoperative or incapable of being performed or that there is in fact no dispute between the parties with regard to the matters referred to it. Clause 10 also provides that the arbitral proceedings may nevertheless still be commenced or continued while the issue is still pending before the court.
Clause 11 states that parties may apply to the High Court for interim measures of protection such as orders for the preservation, interim custody, sale of any property being the subject-matter of the dispute, order for security of costs, etc. before or during any arbitral proceedings.
Clauses 12 and 13 deal with the number of arbitrators and the appointment of arbitrators respectively. Clause 13 also provides the mechanism for appointing an arbitrator where parties fail to agree on a procedure for appointing the arbitrator by applying to the Director of the Kuala Lumpur Regional Centre for Arbitration. In the event that the Director of the Kuala Lumpur Regional Centre for Arbitration fails to appoint an arbitrator within the stipulated time then parties may apply to the High Court for such appointments.
Appointment of arbitrators
13. (1) Unless otherwise agreed by the parties, no person shall be precluded by reason of nationality from acting as an arbitrator.
(2) The parties are free to agree on a procedure for appointing the arbitrator or the presiding arbitrator.
(4) Where subsection (3) applies and
(a) a party fails to appoint an arbitrator within thirty days of receipt of a request in writing to do so from the other party; or
(b) the two arbitrators fail to agree on the third arbitrator within thirty days of their appointment or such extended period as the parties may agree, either party may apply to the Director of the Kuala Lumpur Regional Centre for Arbitration for such appointment.
(5) Where in an arbitration with a single arbitrator
(6) Where, the parties have agreed on the procedure for appointment of the arbitrator
(a) a party fails to act as required under such procedure;
(b) the parties, or two arbitrators, are unable to reach an agreement under such procedure; or
(c) a third party, including an institution, fails to perform any function entrusted to it under such procedure, any party may request the Director of the Kuala Lumpur Regional Centre for Arbitration to take the necessary measures, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) Where the Director of the Kuala Lumpur Regional Centre for Arbitration is unable to act or fails to act under subsections (4), (S) and (6) within thirty days from the request, any party may apply to the High Court for such appointment.
(8) In appointing an arbitrator the Director of the Kuala Lumpur Regional Centre for Arbitration or the High Court, as the case may be, shall have due regard to
(a) any qualifications required of the arbitrator by the agreement of the parties;
(b) other considerations that are likely to secure the appointment of an independent and impartial arbitrator; and
(c) in the case of an international arbitration, the advisability of appointing an arbitrator of a nationality other than those of the parties.
(9) No appeal shall lie against any decision of the Director of the Kuala Lumpur Regional Centre for Arbitration or the High Court under this section.
Clauses 14 and 15 state the grounds for challenging an arbitrator and the procedure for challenging the appointment of an arbitrator respectively.
Clause 16 regulates the situations where an arbitrator becomes in law or in fact, unable to perform the functions of that office. Clause 17 structures arbitrator sunstitution.
Clause 20 states that the parties to an arbitration shall be treated with equality and each party shall be given a fair and reasonable opportunity of presenting that party's case.
Clause 21 provides that the parties are free to agree on the rules of procedure to be followed by the arbitral tribunal in conducting the arbitral proceedings where the parties fail to agree on the procedure, the arbitral tribunal may determine the rules to conduct the arbitration in a manner it considers appropriate.
Under clause 22 parties are free to agree on the seat of arbitration failing which the arbitral tribunal shall determine it. Clauses 23 and 24 regulate the commencement and the language to be used in the arbitral proceedings respectively.
Clause 25 deals with statements of claim and defence.
Clause 26 seeks to empower the arbitral tribunal to determine whether to hold oral hearings or whether the proceedings shall be conducted on the basis of documents and other materials.
Under clause 27 where a claimant defaults to communicate the statement of claim in accordance with subclause 25(1) the arbitral tribunal may terminate the proceedings. Clause 27 also provides that where the respondent fails to communicate the statement of defence or where any party fails to appear at a hearing or produce documentary evidence, the arbitral tribunal may nevertheless continue the proceedings and make an award.
Clause 28 enables the arbitral tribunal to appoint one or more experts to report to it on specific issues to be determined by the tribunal.
Clause 29 enables a party with the approval of the arbitral tribunal to apply to a court for its assistance in taking evidence.
Clause 30 establishes applicable law to the substance of the dispute.
Law applicable to substance of dispute
30. (1) In respect of a domestic arbitration where the seat of arbitration is in Malaysia, the arbitral tribunal shall decide the dispute in accordance with the substantive law of Malaysia.
(2) In respect of an international arbitration, the arbitral tribunal shall decide the dispute in accordance with the law as agreed upon by the parties as applicable to the substance of the dispute.
(3) Any designation by the parties of the law of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules.
(4) Failing any agreement under subsection (2), the arbitral tribunal shall apply the law determined by the conflict of laws rules.
(5) The arbitral tribunal shall, in all cases, decide in accordance with the terms of the agreement and shall take into account the usages of the trade applicable to the transaction.
Clause 32 states that where parties during arbitral proceedings settle a dispute the arbitral tribunal may terminate the arbitral proceedings and may record the settlement in the form of an award on agreed terms.
Clause 33 spells out the form and contents of an award.
Clause 35 regulates the correction and interpretation of awards.
Clause 36 states that an award shall be final and binding.
Clause 37 sets out the grounds which may be relied upon by the High Court in setting aside an award.
Application for setting aside
37. (1) An award may be set aside by the High Court only if
(a) the party making the application provides proof that
(i) a party to the arbitration agreement was under any incapacity;
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of Malaysia;
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present that party' s case;
(iv) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;
(v) subject to subsection (3), the award contains decisions on matters beyond the scope of the submission to arbitration; or
(vi) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act; or
(b) the High Court finds that
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia; or
(ii) the award is in conflict with the public policy of Malaysia.
(2) Without limiting the generality of subparagraph (l)(b)(ii), an award is in conflict with the public policy of Malaysia where
(a) the making of the award was induced or affected by fraud or corruption; or
(b) a breach of the rules of natural justice occurred
(i) during the arbitral proceedings; or
(ii) in connection with the making of the award.
(3) Where the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the award which contains decisions on matters not submitted to arbitration may be set aside.
(4) An application for setting aside may not be made after the expiry of ninety days from the date on which the party making the application had received the award or, if a request has been made under section 3S, from the date on which that request had been disposed of by the arbitral tribunal.
(5) Subsection (4) does not apply to an application for setting aside on the ground that the award was induced or affected by fraud or corruption.
(6) On an application under subsection (1) the High Court may, where appropriate and so requested by a party, adjourn the proceedings for such period of time as it may determine in order to allow the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the arbitral tribunal's opinion will eliminate the grounds for setting aside.
(7) Where an application is made to set aside an award, the High Court may order that any money made payable by the award shall be brought into the High Court or otherwise secured pending the determination of the application.
Clause 38 seeks to allow an award made in respect of a domestic arbitration or an award from a foreign State to be recognized as binding and enforced by entry as a judgment in terms of the award by the High Court. Foreign State is defined to mean a State which is a party to the Convention on the Recognition and Enforcement of Foreign Awards adopted by the United Nations Conference on International Commercial Arbitration in 1985.
Clause 39 lists out the grounds for refusing recognition or enforcement of an award.
Clause 40 seeks to provide for the consolidation of arbitral proceedings.
Clause 41 provides for the determination of preliminary points of law by the court.
Determination of preliminary point of law by court
41. (1) Any party may apply to the High Court to determine any question of law arising in the course of the arbitration
(b) with the consent of every other party.
(2) The High Court shall not consider an application under subsection (1) unless it is satisfied that the determination
(a) is likely to produce substantial savings in costs; and
(b) substantially affects the rights of one or more of the parties.
(3) The application shall identify the question of law to be determined and, except where made with the agreement of all parties to the proceedings, shall state the grounds that support the application.
(4) While an application under subsection (1) is pending, the arbitral proceedings may be continued and an award may be made.
Clause 42 establishes how a party may refer any question of law to the High Court. Clause 43 explains that a decision of the High Court under clause 42 shall be deemed to be a judgment of the High Court within the meaning of section 67 of the Courts of Judicature Act 1964.
Reference on questions of law
42. (1) Any party may refer to the High Court any question of law arising out of an award.
(2) A reference shall be filed within forty-two days of the publication and receipt of the award, and shall identify the question of law to be determined and state the grounds on which the reference is sought.
(3) The High Court may order the arbitral tribunal to state the reasons for its award where the award
(a) does not contain the arbitral tribunal's reasons; or
(b) does not set out the arbitral tribunal' s reasons in sufficient detail.
(4) The High Court may, on the determination of a reference
(a) confirm the award;
(b) vary the award;
(c) remit the award in whole or in part, together with the High Court's determination on the question of law to the arbitral tribunal for reconsideration; or
(d) set aside the award, in whole or in part
(5) Where the award is varied by the High Court, the variation shall have effect as part of the arbitral tribunal's award.
(6) Where the award is remitted in whole or in part for reconsideration, the arbitral tribunal shall make a fresh award in respect of the matters remitted within ninety days of the date of the order for remission or such other period as the High Court may direct
(8) On a reference under subsection (1) the High Court may
(a) order the applicant to provide security for costs; or
(b) order that any money payable under the award shall be brought into the High Court or otherwise secured pending the determination of the reference.
Appeal
43. A decision of the High Court under section 42 shall be deemed to be a judgment of the High Court within the meaning of section 67 of the Courts of Judicature Act 1964 [Act 91].
Clause 44 regulaes costs and expenses of an arbitration.
Clause 45 empowers the High Court to extend the time for commencing arbitration proceedings. Clause 46 enables the High Court to grant extension of time to the arbitral tribunal for making an award.
Extension of time for making award
46. (1) Where the time for making an award is limited by the arbitration agreement, the High Court may, unless otherwise agreed by the parties, extend that time.
(2) An application under subsection (1) may be made
(a) upon notice to the parties, by the arbitral tribunal; or
(b) upon notice to the arbitral tribunal and the other parties, by any party to the proceedings.
(3) The High Court shall not make an order unless
(a) all available tribunal processes for obtaining an extension of time have been exhausted; and
(b) the High Court is satisfied that substantial injustice would otherwise be done.
(4) The High Court may exercise its powers under subsection (1) notwithstanding that the time previously fixed by or under the arbitration agreement or by a previous order has expired.
Clause 47 states that an arbitrator, shall not be liable for any act or omission in respect of anything done or omitted to be done in the discharge of his functions as arbitrator unless the act or omission is shown to have been done in bad faith. Clause 48 establishes the with immunity of arbitral institutions.
Liability of arbitrator
47. An arbitrator shall not be liable for any act or omission in respect of anything done or omitted to be done in the discharge of his functions as an arbitrator unless the act or omission is shown to have been in bad faith.
Immunity of arbitral institutions
48. The Director of the Kuala Lumpur Regional Centre for Arbitration or any other person or institution designated or requested by the parties to appoint or nominate an arbitrator, shall not be liable for anything done or omitted in the discharge of the function unless the act or omission is shown to have been in bad faith.
Clause 49 regulates arbitration and bankruptcy.
Clause 50 provides for the procedure for any application to the High Court under the proposed Act. Repeal and savings provisions are provided for clause 51.
Ref:
ADR Resources, available at
http://adrresources.com/adr-news/344/malaysia-arbitration-act