Malaysian court litigator is no stranger to arbitration being an alternative dispute resolution existing alongside the court adjudication in our legal system. Having the role of a “faster and less formalities” dispute resolution, arbitration is highly encouraged and sought on both local and international level. Over the years, the arbitral processes have developed comprehensively and this has extensively been promoted with the amendment of Arbitration Act 2018.
The whole idea of this arbitral process trace back to the year of 2005 whereby the Arbitration Act 2005 (“the Act”) was introduced and came into force on 15 March 2006 based on UNCITRAL Model Law which has effectively repealed the earlier Arbitration Act 1952.
As at the current position, the Act was amended thrice, namely the Arbitration (Amendment) Act 2011, the Arbitration (Amendment) (No. 1) Act 2018 and the Arbitration (Amendment) (No. 2) Act 2018. Especially with the latest amendment – the Arbitration (Amendment) (No. 2) Act 2018 (“the 2018 Amendment”), it is no doubt that the position of arbitration as ADR was being overhauled and upheld to another level.
Parties’ Autonomy in the arbitration
Arbitration tends to be a less formal forum for dispute resolution and the involvement of experts have been highly encouraged and sought. As arbitration is highly preferred and suitable for dispute resolution internationally, the issues with the choice of language, arbitrators and procedural rules are of so much importance that they too become as crucial as the subject matter of the dispute in order to ensure the flow of proceeding can be conducted without any unnecessary delay by technical issue.
That being said, with the aforementioned criteria properly handled, the 2018 Amendment allows so much flexibility wherein parties of the arbitration may exercise their autonomy to reach an agreement in determining on how the proceedings may be conducted.
In order to comprehend arbitration at a better level, we kick start by going into depth the following:-
Language plays an important role when it comes to hearing and submissions of parties, rendering an award and deliberating on others subject matters. The parties’ agreement on language are of utmost importance. Even though English is the general language which is widely used in dispute resolution, the parties are free to agree to use any other language in the arbitral proceedings.1
Arbitration clearly has a favour in welcoming expertise and does not intend to limit the selection of arbitrators. Sections 12(1) and 13(1) & (2) of the Act enables the parties to determine the numbers of arbitrators and the procedure in appointing the arbitrators with no restriction on their nationality. Idealistically, parties may agree with a three-member panel arbitral tribunal where each party shall appoint an arbitrator respectively and the remaining arbitrator are to be appointed by the said two arbitrators or by the authorities, namely the Director General of AIAC. Having said that, the ultimate decision power still lays in the hand of the parties on who and how they would prefer their matter to be resolved through this arbitral process.
For instance, construction disputes involving defect issue, delay issue, non-completion and etc seem to favour arbitration as the country is stepping into a speedy phase of housing and building development since the past century. In light of this, such technical nature of disputes can be well understood and more relatable to an experienced architect, engineer or even an experienced legal practitioner over the jurisdiction of the Courts. As such, the solution of dispute can be quicker, more efficient and more effective when things can be handled at a professional/expert level with all concerned beings having knowledge and experience of the subject matter.
Aside from the arbitral tribunal, parties are also free to appoint respective representatives in the arbitral proceedings.2 With the introduction of Section 3A, the freedom to appoint any representative is extended to not just a local or foreign advocates and solicitors to advise and represent one party in the arbitral proceedings, but also enable the appointment of any other non-legal person who might have their own expertise in the disputed subject matter.
This position has particularly been extended when Sections 36 and 37 of the Legal Profession Act 1976 was overcome with the new insertion of Section 37A which stipulates that Sections 36 and 37 shall not apply to (a) any arbitrator lawfully acting in any arbitral proceedings; (b) any person representing any party in arbitral proceedings; or (c) any person giving advice, preparing documents and rendering any other assistance in relation to or arising out of arbitral proceedings except for court proceedings arising out of arbitral proceedings. Therefore, foreign arbitrators and parties’ representatives shall now enjoy the freedom to exercise their expertise and provide assistance in Malaysia’s arbitration without the interference of the local jurisdiction.
Choice of Law and Rules
The parties are also given opportunity to exercise their autonomy in determining the arbitration rules pursuant to Section 21 of the Act. For example, AIAC Arbitration Rules, UNITRAL Arbitration Rules and International Chambers of Commerce (ICC) Arbitration Rules.
Given the freedom to determine the procedural rules, as opposed to court proceedings, arbitral proceedings can function with flexibility to adopt suitable procedure to access evidence instead of following the rigid rules of admission of evidence in court proceedings.
The freedom provided in the arbitration enables parties to achieve independent and neutral proceedings which will not only provide a fair and just result. When the arbitral proceedings are conducted within the consensus of parties, ie. from the aspect of language, rules and arbitral tribunal, we cannot foresee any biased quality due to any forum with one side favored.
As opposed to the rigid system of court jurisdiction, it is clear that the accuracy and expert’s involvement based on parties’ autonomy in resolving a dispute has become the ultimate reason for resorting to arbitration. With such freedom, the case could be argued and decided by various expert who is likely to know the issue like the back of their hands.
In another word, the apex concern in an arbitration is to get commercial justice. The intention is to provides a quick solution to the parties’ disputes and to obtain an outcome of litigation within an acceptable time frame. Ultimately, the arbitral award is also gifted with the advantage of its finality nature, save and except the available grounds to set aside under the Act.
Court intervention on the arbitration
In order to draw to clear line between the court’s jurisdiction and the arbitration, Section 8 of the Act is drafted in an unambiguous way – No court shall intervene in matters governed by this Act, except where so provided in this Act.
An arbitral award is final and binding on the parties whereby it is enforceable against the party against whom it is made.
With its nature of finality, court intervention on an arbitral proceeding is restricted. In another words, there is no right of appeal against an arbitral award. Having said that, the parties may still apply to the court to set aside the arbitral award under section 37 of the Arbitration Act based on the following grounds –
(a) A party to the arbitration agreement was under an incapacity.
(b) The arbitration agreement is not valid under the law.
(c) The party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present its case.
(d) The award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration.
(e) The award contains decisions on matters beyond the scope of submission to arbitration.
(f) The composition of the arbitral tribunal or arbitral procedure was not in accordance with the parties’ agreement.
(g) The subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia.
(h) The award is in conflict with the public policy of Malaysia.
It is not difficult to note that the grounds made available to the parties are to focus the legality of technical issues. As the subject matter is resolved and decided by the arbitral tribunal, it would be an abuse of process to allow parties to commence a new proceeding in court to reopen/revisit the same issue of dispute which has been attended and settled prior. The finality of an arbitral decision ought to be upheld as it is built on the basis of certain level of expertise and parties’ autonomy.
The intention to promote the finality nature of an arbitral award is further enhanced and justified when the 2018 Amendment comes into force to which Sections 42 and 43 of the Act were deleted. The deletion of provisions has brought an implication where parties are no longer able to bring any question of law before the court before the conclusion of an arbitration proceeding. Otherwise, the validity of an award may only be challenged and set aside as provided under Section 37 of the Act.
Nevertheless, the court’s intervention may still be required to determine question of law during the course of arbitral proceedings at times provided with the consent of the arbitral tribunal or parties and the court is satisfied with the requirement provided under the provision.
Perhaps, what is also worth mentioning is that the court’s intervention is again reduced significantly with the deletion of the requirement of “that there is in fact no dispute between the parties with regard to the matters to be referred” under Section 10 of the Act which means that the court now no longer consider whether a ‘dispute’ exists for the purposes of an application to stay court proceedings, but to only determine the validity of the arbitration agreement under the previous first limb of requirement – whether it is null and void, inoperative or incapable of being performed.3
With the removal of limb (b) however, the issue of the subsistence or otherwise of a dispute between the parties is rendered obsolete and irrelevant.
As such, the court’s power to study the subject matter of an arbitration dispute and to determine whether there is dispute between the parties with regard to the matters to be referred to arbitration is removed.4 In line with Article 8A of the UNCITRAL Model Law, under the current Section 10, the court is under the obligation to refer the parties to arbitration unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.
The position does not run far from the pre-2018 Amendment provision. In fact, the 2018 amendment for Section 10 has confirmed the same approach taken by the Federal Court previously.
“The present form of s 10 of the Arbitration Act 2005 is the result of the amendment to that section which came into force on 1 July 2011 (Act A1395). It is generally accepted that the effect of the amendment is to render a stay mandatory unless the agreement is null and void or impossible of performance. The court is no longer required to delve into the facts of the dispute when considering an application for stay.”
A stay of court proceeding will become inevitable once the court finds that an arbitration agreement is not null and void, inoperative or incapable of being performed. It has become trite law since the incorporation of the Act, that the court is not to inquire or investigate whether there subsists a dispute warranting referral to arbitration. Such matter is subject to the consideration and determination of the arbitral tribunal alone without any interference of any sorts
Some may have said that the court’s jurisdiction is heavily undermined since the introduction of arbitration. However, one could definitely see that Section 8 of the Act actually has not ousted the court of its inherent jurisdiction or the powers to order interim measures order6 even though it would be rather time consuming for the courts to provide a relief. This has undoubtedly ensured the of decision making in arbitration to remain secured and independent.
Perhaps one would say that the court jurisdiction’s over the arbitration is further undermined by the 2018 Amendment, but rather it would be prudent to take a step back and look at it as an enhancement of the existing approach, which remove ambiguity to the interpretation of the Act. Its rationale is clearly to reduce the court’s burden in resolving commercial dispute and provide an opportunity for the expert to step forward in assisting the civil dispute resolution.
Contributor: Mr Lim Sze Han, Partner, Litigation & Dispute Resolution Department
Date: 23 Sept 2022
Ms Khor See Lin, Senior Partner
Head of Corporate • ASEAN & China Desk