MALAYSIA

Eddie Chuah

A. LEGISLATION AND RULES

A.1      Legislation

The law and practice of arbitration in Malaysia continue to be governed by the Arbitration Act 2005 (“Act”) with amendments made in 2018. No legislative amendment was made in 2019.

A.2      Institutions, Rules and Infrastructure

As previously highlighted, the Kuala Lumpur Regional Centre for Arbitration (KLRCA) was renamed as the Asian International Arbitration Centre (AIAC) in 2018. The AIAC continues to grow to be a multi-service hub for alternative dispute resolution. It handles a large number of adjudication and arbitration disputes.

In late November 2018, the AIAC launched its 2019 Edition of the Standard Form of Building Contracts, which is customizable according to the users’ specific needs. This suite of contracts is free of charge and is available for print and download. The contracts also take into account the Construction Industry Payment and Adjudication Act 2012. In particular, it considers the provisions on contract management as well as the duties and obligations of parties.

B. CASES

B.1      Enforcement of Arbitral Awards

Malaysia has been a signatory to the New York Convention since 1985. The Act had also largely adopted the UNICITRAL Model Law. As a result, the Malaysian courts recognize and enforce both domestic and foreign arbitral awards, so long as the legal requirements for enforcement under the Act are satisfied.

In Tune Talk Sdn Bhd v. Padda Gurtaj Sin,[1] the Court of Appeal was faced with the task of deciding whether to recognize an ex-parte order for the recognition and enforcement of the final award. It was said that the plaintiff failed to comply with the common law principles and the legislative procedures under the Rules of Court 2012, specifically order 69, rule 8(2) (b). The final award was a negative declaratory, which purportedly had no material benefit or utility to the plaintiff. Nevertheless, the Court of Appeal decided that the technical non-compliance was neither a fatal nor a sufficient ground to set aside the ex-parte order for the recognition and enforcement of the final award. The non-compliance was treated as a mere form of irregularity curable by the court.

The enforceability of arbitral awards was reinforced by the High Court in Wolfgang Leonhard Schulz & Ors v. Sapura-Schulz Hydroforming Sdn Bhd & Anor.[2] The crux of this case was that the defendant refused to comply with the arbitral award because the taxation of the legal costs was yet to be concluded. Therefore, it was not considered capable of being enforced. Despite this, the court dismissed the application to set aside the award. It asserted that it is possible to even maintain an action to recover costs which were yet to be concluded on the date of filing of the action.

These two cases make clear that the Act takes precedence over any procedural rules or common law principles. They establish a precedent that the failure to comply with procedural rules is not a barrier to enforcing an arbitral award.

B.2      Confidentiality

The amendments in 2018 introduced a new section[3] that provides for the confidentiality of an arbitration proceeding and exceptions to the rule. The new section 41A of the Act was considered for the first time in Dato’ Seri Timor Shah Rafiq v. Nautilus Tug & Towage Sdn Bhd.[4]

In this case, the plaintiff had somehow obtained copies of documents prepared by the defendant for an arbitration proceeding between the defendant and a third party. However, the plaintiff was not a party to the arbitration proceeding. The defendant applied to have the documents expunged from the court records.

The High Court disallowed the defendant’s application primarily on the basis that the plaintiff is not a party to the arbitration agreement and is therefore not subject to section 41A of the Act. Moreover, it was said that the wording of section 41A does not envisage extending the meaning “parties” to non-parties.

B.3      Anti-Arbitration Injunction In Favour Of Court Proceedings

In Jaya Sudhir a/l Jayaram v. Nautical Supreme Sdn Bhd & Ors,[5] the Federal Court had to consider whether to grant an injunction to restrain arbitration proceedings in favor of court proceedings when the overall disputes involve the rights of non-parties.

The underlying dispute, in this case, arose from a collateral understanding that the plaintiff would be entitled to an equity share in the respondents’ joint venture. After a 10 % share transfer of the joint venture’s equity to the plaintiff was executed, one of the respondents denied the existence of the aforementioned understanding and commenced an arbitration proceeding against the other respondent pursuant to the arbitration clause in the shareholders’ agreement.

Following this, the plaintiff applied for an injunction to restrain the arbitration as he commenced a claim in the High Court to enforce the collateral understanding. The High Court granted the anti-arbitration injunction, however, it was set aside by the Court of Appeal. The plaintiff then appealed to the Federal Court.

The Federal Court held that the Act does not apply to a party who is neither a party to an arbitration agreement nor an arbitration proceeding. Whilst construing the arbitration agreement, the court drew an analogy between an arbitration clause and an exclusive jurisdiction clause as well as between an anti-arbitration injunction and an anti-suit injunction.

In balancing the desires of the court to hold commercial parties to their bargain and to avoid multiplicity of proceedings, the court stated that granting an anti-arbitration injunction, in this case, would be the fairest approach to all parties. This was because a court proceeding will allow the participation of all material parties. The court also emphasized the importance of avoiding the multiplicity of proceedings which may risk inconsistent decisions arising out from the two parallel proceedings based on the same facts.

B.4      Arbitrability

There is nothing in the Act that inhibits parties’ submission to arbitration if the parties have agreed to do so under an arbitration agreement unless the agreement is contrary to public policy or “not capable of settlement by arbitration under the laws of Malaysia.”[6] Having said that, the second limb of this section (the words italicized) was added in 2018, which potentially creates wide-ranging repercussions in the context of the scope of disputes considered arbitrable. This can be seen in the ruling made by the Federal Court in Arch Reinsurance Ltd v. Akay Holdings Sdn Bhd[7] in early 2019, which narrowed the scope of what subject matter is arbitrable in Malaysia.

The crux of this case is that there were different dispute resolution clauses in different agreements relating to the transactions between the parties. There were two agreements that contained arbitration clauses. However, one other agreement provided that the parties would submit to the non-exclusive jurisdiction of the Malaysian courts. With this provision, the plaintiff proceeded to issue foreclosure proceedings in the Malaysian High Court. The court decided that the dispute underlying a statutory foreclosure proceedings under the National Land Code was non-arbitral despite the existence of the arbitration clauses in the other two agreements.

In effect, this case highlights the need to draft arbitration clauses carefully for a multi-contract transaction. Parties seeking arbitration as the mode of dispute resolution will need to ensure that the arbitration clauses are not prohibited under the laws of Malaysia under the amended section 4 of the Act.

 

[1] [2019] 1 LNS 85.

[2] [2019] 8 MLJ 610.

[3] Section 41A of the Arbitration Act 2005 which came into force on 8 May 2018.

[4] [2019] MLJU 405.

[5] [2019] 5 MLJ 1.

[6] Section 4(1) of the Arbitration Act 2005.

[7] [2019] 1 CLJ 305.