Malaysia: Arbitration

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding arbitration law in Malaysia including arbitration agreements, tribunals, proceedings as well as costs, awards and the hot topics concerning this country at present.

This Q&A is part of the global guide to Arbitration.

For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/arbitration/

  1. What legislation applies to arbitration in your country? Are there any mandatory laws?

    The principal legislation governing arbitrations in Malaysia is the Arbitration Act 2005 (“AA”), which regulates both international and domestic arbitrations. Unlike its predecessor, the AA draws a distinction between international and domestic arbitrations as it segmentalises the application of its constituent Parts depending on the nature of the arbitration.

    The AA comprises four Parts. Part I addresses preliminary arbitration issues, such as arbitrability, and defines key terms of the instrument. Part II deals with the arbitration itself, encompassing, inter alia, the validity of arbitration agreements, the conduct of arbitral proceedings, and the enforcement of the award. Part IV contains miscellaneous provisions, such as the liability of arbitrators and arbitral institutions and the bankruptcy of arbitral parties.

    Part III governs various additional matters:

    • Consolidation of proceedings and concurrent hearings.
    • Concurrent determination of preliminary points of law by the High Court and the arbitral tribunal.
    • References to the High Court on questions of law arising out of an arbitral award.
    • Appeals against the decision of the High Court on an above reference made to it.
    • Costs and expenses of the arbitration.
    • Extension of time for commencing arbitral proceedings.
    • Extension of time for the rendering of an arbitral award.

    Parts I, II, and IV apply mandatorily to both domestic and international arbitrations. In domestic arbitrations, Part III applies on an opt-out basis, i.e. parties may agree to exclude its application. By contrast, Part III only applies in an international arbitration where parties so agree.

    It is worth noting that the AA replaces the Arbitration Act 1952. Any Malaysian court proceeding relating to an arbitration will be governed by the AA despite that court action accruing from an arbitral proceeding predating the AA (section 51, AA).

  2. Is your country a signatory to the New York Convention? Are there any reservations to the general obligations of the Convention?

    Malaysia unreservedly acceded to the New York Convention in 1985. The country has since incorporated the Convention’s principles into its arbitration legislation. This is exemplified by the two-stage choice of law analysis of the law governing the arbitration agreement under section 39(1)(a)(ii), AA which mirrors the corresponding test under Article V(1)(a), New York Convention.

  3. What other arbitration-related treaties and conventions is your country a party to?

    Malaysia continuously seeks to position itself as a target for foreign investment. The country is a party to the ICSID Convention and close to 100 investment treaties that provide for investment treaty arbitration. A notable recent development is its ratification of the Trans-Pacific Partnership Agreement (“TPPA”), a preferential trade and investment agreement between 12 countries, which covers 40% of the world’s economy and a third of world trade. Alongside various novel regulations, the TPPA also contains an extensive investment treaty arbitration chapter.

    Regional trade growth has also been a core economic focus of Malaysia. In 2009, Malaysia entered into the ASEAN Comprehensive Investment Agreement (“ACIA”), a regional trade instrument consolidating existing agreements between the ASEAN member countries. The ACIA provides an investment treaty arbitration mechanism.

  4. Is the law governing international arbitration in your country based on the UNCITRAL Model Law? Are there significant differences between the two?

    The foundation of the AA is the 1985 UNCITRAL Model Law. Although the 1985 Model Law was drafted primarily for international arbitration, many states, including Malaysia, have adopted the Model Law as the basis for domestic arbitration. The principles of the Model Law have largely been incorporated into the AA in their original form and phraseology.

  5. Are there any impending plans to reform the arbitration laws in your country?

    Though the AA is an adaptation of the 1985 UNICTRAL Model Law, there have been no calls thus far to reform the AA to incorporate the 2006 revisions to the UNICTRAL Model Law.

  6. What arbitral institutions (if any) exist in your country?

    The Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) administers and provides a venue for commercial arbitration in Malaysia. It was established in 1978 under the auspices of the Asian-African Legal Consultative Organisation (“AALCO”) and became the first regional centre established by AALCO in Asia to provide institutional support as a neutral and independent venue for the conduct of domestic and international arbitration proceedings in Asia.

    The KLRCA maintains its own rules of arbitration, which are adaptations of the UNCITRAL Rules for Arbitration (revised in 2010). Additionally, the centre also provides the following rules:

    • KLRCA i-Arbitration Rules, which are modified rules for the arbitration of disputes arising from commercial transactions premised on Islamic principles. A notable feature of these rules is the reference procedure to a Shariah Advisory Council or Shariah expert whenever the arbitral tribunal has to form an opinion on a point related to Shariah principles.
    • KLRCA Fast Track Arbitration Rules, which are simplified procedures aimed at facilitating the rendering of an award in the fastest way with minimal costs.

    Apart from the KLRCA, arbitrations are also administered by a number of other Malaysian bodies, including the Institute of Engineers Malaysia, Kuala Lumpur and Selangor Chinese Chambers of Commerce, Malaysian Rubber Board, Palm Oil Refiners Association of Malaysia, Institute of Surveyors, and the Malaysian Institute of Architects.

  7. What are the validity requirements for an arbitration agreement under the laws of your country?

    An arbitration agreement is valid in Malaysia if it complies with the definition and formality requirements in section 9, AA. The agreement must entail a consensual submission to arbitration of all or certain disputes which have arisen between the parties in respect of a defined legal relationship, whether contractual or otherwise (section 9(1), AA). Save that the arbitration agreement has to be in writing (section 9(3), AA), Malaysian law is amply flexible as to the form of an arbitration agreement, which may be in the form of an arbitration clause or exist as a separate agreement. An arbitration agreement is in writing where it is contained in:

    • A document signed by the parties.
    • An exchange of letters, telex, facsimile or other means of communication which provide a record of the agreement.
    • 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.

    An arbitration agreement may also be incorporated by reference (section 9(5), AA). 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.

  8. Are arbitration clauses considered separable from the main contract?

    Malaysia statutorily recognises the separability principle in section 18(2)(a) and (b), AA. The provisions acknowledge the self-contained nature of an arbitration agreement which is a contract distinct and collateral to the main contract. Accordingly, the invalidity or rescission of the main contract does not necessarily invalidate the arbitration agreement. Instead, the arbitration agreement continues to bind contracting parties. Consequently, an allegation that the main contract is null and void will not deprive an arbitral tribunal of its power to determine its jurisdiction or a claim under the contract. Nonetheless, the arbitration agreement is still susceptible to vitiating factors relating directly to the arbitration agreement, such as, mistake, duress, and bribery.

  9. Can claims under more than one contract be brought in the one arbitral proceeding? Can an arbitral tribunal with its seat in your country consolidate separate arbitral proceedings under one or more contracts, and, if so, in what circumstances?

    In principle, claims under more than one contract may be brought in one arbitral proceeding.

    Separate arbitral proceedings under one or more contracts may only be consolidated either where the parties mutually agree to the procedure, or where an arbitral tribunal, conferred such power by the agreement of the parties, so determines. It should be noted that an arbitral tribunal lacks inherent jurisdiction to consolidate proceedings. Similarly, Malaysian courts do not have jurisdiction to consolidate arbitral proceedings.

  10. How is the law applicable to the substance determined?

    Section 30, AA governs the law applicable to the substance of a dispute. Although the provision prescribes a different choice of law analysis for international and domestic arbitrations, it gives primacy to the choice of the parties in both types of arbitrations. In the case of a Malaysian-seated domestic arbitration, save a contrary agreement, the arbitral tribunal shall decide the dispute in accordance with Malaysian law. Where an international arbitration is concerned, the law applicable to the substance of the dispute is the chosen law of the parties. Absent such an agreement in an international arbitration, the arbitral tribunal shall apply the applicable law as determined by conflict of laws rules, which under Malaysian law, mirrors the conflict of laws principles as applied in other common law jurisdictions.

    It is apposite to note that any designation by the parties of the law of a given state shall be construed as directly referring to the substantive law of that state rather than its conflict of laws rules unless otherwise stated.

  11. Are any types of dispute considered non-arbitrable? What is the approach used in determining whether or not a dispute is arbitrable?

    Malaysia has taken a broad approach to arbitrability as reflected in section 4, AA which has, thus far, been untested in Malaysian courts. However, the Malaysian Court of Appeal indicated that fraud is arbitrable under Malaysian law.

    One may identify potentially non-arbitrable disputes based on the facts of the case, the framing of the claim, and the relief sought. Typically, disputes concerning matters of public policy, such as custody disputes and illegal contracts, may not be arbitrated. Claims impacting a wide class of non-parties, as in the case of minority shareholder oppression claims, are potentially non-arbitrable. Similarly, that a claim may only be remedied by an exclusively judicial relief may indicate that the dispute is non-arbitrable.

  12. In your country, are there any restrictions in the appointment of arbitrators?

    There are no statutory restrictions imposed on the appointment of arbitrators and parties are free to appoint arbitrators of their choice (section 13(1) and (2), AA). However, that choice may be challenged if there are justifiable doubts as to that arbitrator’s impartiality or independence or if the arbitrator lacks agreed qualifications (section 14(3), AA).

    Paralleling party autonomy, parties may consensually place restrictions on the appointment of arbitrators. In particular, parties may require appointees to be of a certain nationality.

  13. Are there any default requirements as to the selection of a tribunal?

    Parties are free to determine the composition of the arbitral tribunal and the appointment procedure. Absent such an agreement, the AA prescribes a default appointment mechanism:

    • In respect of the number of arbitrators, three arbitrators will sit in an international arbitration whereas a domestic arbitration will be decided by a sole arbitrator (section 12, AA).
    • Where the tribunal comprises three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator as the presiding arbitrator (section 13(3), AA). If a party fails to appoint an arbitrator within 30 days of the receipt of a written request to do so from the other party; or the two arbitrators fail to agree on the third arbitrator within 30 days of their appointment or such other extended period agreed between the parties, either party may apply to the Director of the KLRCA for such appointment.
    • In an arbitration with a sole arbitrator, should the parties fail to agree on the arbitrator, either party may apply to the Director of the KLRCA for the appointment of the arbitrator (section 13(5), AA).
    • Upon a failure of the agreed appointment procedure, whereby a party fails to act as required under such procedure; the parties, or two arbitrators, are unable to reach an agreement under such procedure; or 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 KLRCA to make the appointment.
  14. Can the local courts intervene in the selection of arbitrators? If so, how?

    Pursuant to section 13(7), AA if the Director of the KLRCA is unable or fails to assist in the appointment of arbitrators within 30 days after a party’s request, any party may apply to the High Court to discharge the functions of the Director of the KLRCA under section 13(4), (5), and (6), AA.

    Besides this statutory device, the court lacks authority to intervene in the selection of arbitrators, in light of the principle of non-judicial intervention in section 8, AA.

  15. Can the appointment of an arbitrator be challenged? Can an arbitrator be disqualified? What is the procedure for such challenge?

    Challenges against arbitrator appointments are confined to limited and exhaustive statutory grounds, namely where:

    • The circumstances give rise to justifiable doubts as to the challenged arbitrator’s impartiality or independence; or
    • The challenged arbitrator does not possess qualifications agreed to by the parties.

    The AA contemplates that a party may challenge an arbitrator appointed by it, or in whose appointment that party has participated. Such a challenge may be mounted only for reasons which that party becomes aware of after the appointment has been made (section 14(4), AA). This logic is consistent with the waiver of a party’s right to object under section 7, AA.
    Parties are free to decide on the applicable challenge procedure subject to certain qualifications (section 15(1), AA). The agreed procedure must grant equal treatment to both parties with each party having a fair and reasonable opportunity of presenting its case (section 20, AA).

    Absent an agreed challenge procedure, the statutory challenge procedure will apply. A statutory challenge against an arbitrator is a two-stage process. Parties must first challenge the impugned arbitrator before the arbitral tribunal itself. This first stage is initiated by a communication of a written statement of the reasons for the challenge to the arbitral tribunal. This has to be communicated within 15 days, unless otherwise agreed, after a party becomes aware of the constitution of the arbitral tribunal or of any reasons referred to in section 14(3), AA.

    The second stage is an appeal against an unsuccessful challenge to the High Court (section 15(3), AA). An application for appeal must be made within 30 days after having received notice of the decision of the arbitral tribunal rejecting the challenge. The decision of the High Court is non-appealable (section 15(5), AA).

    Pending the High Court’s decision, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award (section 15(4), AA).

  16. Are arbitrators immune from liability?

    Any acts or omissions by the arbitrator in the discharge of his functions will not attract liability (section 47, AA). However, an arbitrator may not avail himself of this immunity where impugned act or omission was in bad faith.

    Where the impugned act or omission did not arise from a discharge of the arbitrator’s functions, such as where the arbitrator fails to act at all having accepted an appointment, the arbitrator would not be able to rely on this statutory immunity.

  17. Is the principle of competence-competence recognised in your country? What is the approach of local courts towards a party commencing arbitration in apparent breach of an arbitration agreement?

    Competence-competence comprises two aspects: positive competence-competence and the negative effect of competence-competence. Positive competence-competence refers to a tribunal’s competence to preliminarily decide virtually all jurisdictional disputes subject to subsequent judicial review. The negative effect of competence-competence is a rule of chronological priority which prohibits national courts from considering jurisdictional objections on an interlocutory basis prior to the arbitrator’s initial determination on the same jurisdictional question.

    Positive competence-competence is statutorily recognised in section 18(1), AA. Malaysia has embraced the negative effect of competence-competence through its case law. Malaysian courts are deferential to arbitrators on matters of jurisdiction and are generally willing to grant stays of court proceedings to allow jurisdictional questions to be first determined by arbitrators.

  18. How are arbitral proceedings commenced in your country? Are there any key provisions under the arbitration laws relating to limitation periods of which the parties should be aware?

    Arbitral proceedings are commenced by the communication of a written request to arbitrate on the responding party. Where an arbitration is conducted pursuant to the KLRCA Arbitration Rules, the written request is to be communicated to the Director of the KLRCA along with:

    • A copy of the Notice of Arbitration served on the respondent.
    • A copy of the written arbitration clause and contractual documentation in which the arbitration clause is contained or in respect of which the arbitration arises.
    • Confirmation to the Director of the KLRCA that the Notice of Arbitration has been or is being served on all other parties to the arbitration by one or more means of service to be identified in such confirmation.
    • A non-refundable registration fee (currently USD500.00 in an international arbitration as defined in Rule 4(4)(c), KLRCA Arbitration Rules 2013 or RM1000.00 in a domestic arbitration).

    The arbitral proceedings in respect of a particular dispute shall commence on the date of receipt of the written request by the respondent. This legal effect of the written request may be modified by the parties (section 23, AA).

  19. What is the applicable law (and prevailing practice) where a respondent fails to participate in the arbitration? Can the local courts compel parties to arbitrate? Can they order third parties to participate in arbitration proceedings?

    In principle, arbitral proceedings may continue despite the non-participation of a party provided that the non-participating party is given due written notice to of each stage of the arbitration and its outcome.

    While Malaysian courts cannot order parties to pursue arbitration, they are able to negatively compel parties to arbitrate by ordering a stay of court proceedings pending the completion of an arbitration (Section 10, AA).

    Malaysian courts lack jurisdiction to compel third parties to participate in arbitral proceedings to which they are not a party.

  20. In what instances can third parties or non-signatories be bound by an arbitration agreement or award (e.g. by joinder)?

    In Malaysia, an arbitration agreement typically does not bind third parties to the agreement. Similarly, due to the unqualified doctrine of contractual privity in Malaysia, a third party may not enforce an arbitration agreement against a contracting party. The above restrictions may be circumvented by an assignment to the third party of a contracting party’s rights under a principal contract which includes an arbitration agreement. In that event, the third party then becomes the assignee who is bound by the arbitration clause.

    It should be noted that the Article 17(5), KLRCA Arbitration Rules allow the joinder of third parties to an arbitration, provided that the third party is a party to the underlying arbitration agreement.

    In general, an arbitral award does not bind a third party. Malaysian courts are typically hesitant to lift the corporate veil to allow the enforcement of an award against a non-party to the arbitration. There are, however, certain circumstances, such as fraud, which permit the enforcement of an award against a third party.

  21. What interim measures are available? Will local courts issue interim measures pending the constitution of the tribunal?

    Arbitral tribunals are statutorily empowered to grant interim measures. Unless contractually modified, section 19, AA allows a party to apply to an arbitral tribunal for any of an exhaustive list of orders:

    • The provision of security for costs.
    • The discovery of documents and interrogatories.
    • The giving of evidence by affidavit.
    • The preservation, interim custody or sale of any property which is the subject-matter of the dispute.
    • The provision of appropriate security in connection with any of the above measures.

    In a KLRCA-administered arbitration, a party in need of emergency interim relief may apply to an emergency arbitrator, whose decision is final, for the necessary relief (Schedule 2, KLRCA Arbitration Rules). However, this procedure is only available prior to the constitution of the arbitral tribunal. There are no restrictions as to the type of interim relief that may be granted by an emergency arbitrator and any interim relief so granted shall cease to be binding if the arbitral tribunal is not constituted within 90 days of the interim order or award; upon the rendering of the final award by the arbitral tribunal; or upon the withdrawal of the final award.

    The application may be made concurrently or following the filing of a Notice of Arbitration and must be sent simultaneously to the Director of the KLRCA and other arbitral parties. Schedule 2(1), KLRCA Arbitration Rules sets out the formality and fee requirements of the application. If the application is accepted by the Director of the KLRCA, he shall endeavour to appoint an emergency arbitrator within 2 working days of his receipt of the application. A dissatisfied party may challenge the appointment of the emergency arbitrator.

    An emergency arbitrator ceases to have jurisdiction upon the constitution of the arbitral tribunal. Though the decision of the emergency arbitrator is final, it is not binding on the arbitral tribunal which may reconsider, modify or vacate the interim measure granted.
    Alternatively, a party may, before or during arbitral proceedings, apply to the High Court under section 11, AA for any interim measure and the High Court may make the following orders for:

    • Security for costs.
    • Discovery of documents and interrogatories.
    • The giving of evidence by affidavit.
    • Appointment of a receiver.
    • Securing the amount in dispute.
    • The preservation, interim custody or sale of any property which is the subject matter of the dispute.
    • Ensuring that any award which may be made in the arbitral proceedings is not rendered ineffectual by the dissipation of assets by a party.
    • An interim injunction or any other interim measure.

    In an application to the High Court, the High Court will defer to any relevant factual findings of the arbitral tribunal (section 11(2), AA). Given the significant overlap in the powers of arbitral tribunals and courts in respect of interim measures, recent jurisprudence favours less judicial intervention and requires parties to first approach arbitral tribunals for interim measures rather than seeking court intervention from the outset. Malaysian courts will only exercise their jurisdiction to assist rather than stifle arbitration.

  22. Are there particular rules governing evidentiary matters in arbitration? Will the local courts in your jurisdiction play any role in the obtaining of evidence?

    In general, arbitrations enjoy a great degree of evidentiary flexibility in Malaysia as the law of evidence in Malaysia, which is codified in the Evidence Act 1950, does not apply to arbitrations (section 2, Evidence Act 1950). However, an arbitrator’s discretion on the admissibility and weight to be accorded to evidence must abide by the rules of natural justice.

    However, it is not uncommon for international arbitrations to adopt the International Bar Association Rules on the Taking of Evidence in International Arbitration (revised in 2010) and for the rules to serve as guidelines in domestic arbitrations. Under the rules, documents protected by legal professional privilege are generally inadmissible as evidence.

    A party, with the tribunal’s permission, may apply to the High Court for assistance in the taking of evidence. It is submitted that the powers of the High Court in this regard are restricted to the following areas as specified by statute:

    • The attendance of a witness to give evidence.
    • The production of documents by a witness.
  23. What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings in your country?

    As counsel or solicitor in a Malaysian arbitration, a lawyer is required to abide by the rules of ethics and etiquette issued by the Malaysian Bar Council. These rules do not apply to non-lawyers acting in the same capacity.

    The principal ethical code to be followed by arbitrators in Malaysia is codified in section 14, AA which relates to the impartiality and independence of arbitrators.

  24. How are the costs of arbitration proceedings estimated and allocated?

    Under section 44, AA, an arbitral tribunal is bound by any prior agreement between parties as to costs.

    Absent such an agreement, the arbitral tribunal has complete discretion on the allocation and taxation of costs and expenses (section 44(1), AA). As a general rule, costs will follow the event. As such, the unsuccessful party generally bears the costs of the arbitration save where the parties wish to depart from this rule (section 44(5), AA). In determining and allocating costs and expenses, the tribunal may pay regard to any Calderbank offer that was made (section 44(2), AA). However, any Calderbank offer should not be communicated to the tribunal before a final determination of all aspects of the dispute other than the taxation and allocation of costs and expenses (section 44(3), AA).

    Where the tribunal fails to specify the amount of costs and expenses in its costs award, any party may, within 30 days of its request to the arbitral tribunal, apply to the High Court for its taxation (section 44(1)(b), AA). Should the tribunal fail to render a costs award, each party shall be responsible for its own expenses and for an equal share of the arbitral tribunal’s fees and expenses and any costs relating or incidental to the arbitration (section 44(1)(c), AA).

    Normally, “costs and expenses” would include:

    • Fees and expenses of the arbitrators.
    • Legal costs of the lawyers representing the parties.
    • Fees of expert witnesses.
    • Expenses incurred by the relevant arbitral institution.
    • Rental of the venue of the arbitration.
    • Fees and expenses of transcript service providers.
    • Expenses incurred by the parties in relation to factual and expert witnesses.
  25. Can interest be included on the principal claim and costs incurred?

    Section 33(6), AA enables an arbitral tribunal to award interest. In Malaysia, arbitrators have commonly granted post-award interest, which may only be given if specifically pleaded. It has also been the practice in Malaysia to grant pre-award interest. The long established right to award non-contractual pre-award interest has recently been challenged and is being re-considered by the Federal Court.

  26. Does the law impose limits on the available remedies? Are some remedies not enforceable by the local courts?

    In principle, the remedial powers of arbitrators are matters to be agreed upon by parties. Parties may consensually specify the types of monetary and non-monetary relief that can be granted by their arbitrators.

    There are no limits on the monetary relief which may be awarded by an arbitrator save where parties otherwise agree. In respect of non-monetary relief, it is submitted that arbitrators may award injunctive relief, such as injunctions, specific performance, and declarations, even where an express agreement conferring such powers is absent. Such practices have been upheld in other UNCITRAL Model Law jurisdictions, findings to which Malaysian courts would pay regard.

  27. What legal requirements are there in your country for the recognition of an award?

    To be enforceable in Malaysia, arbitral awards must comply with the formality requirements in section 33, AA.

    An award must be in written form and signed by the sole arbitrator or, provided that the reason for any omitted signature is stated, the majority of all members of the arbitral tribunal. The date and seat of arbitration, where the award shall be deemed to have been made, must be stated on the award. Awards should also contain the reasons for the decision save where the requirement has been contractually excluded or where the parties have settled the dispute.

    Duly signed copies of the award must be delivered to each arbitral party. It is, however, common for the award to be collected from the office of the sole arbitrator or the presiding arbitrator, or delivered to the parties’ solicitors.

  28. Can arbitration proceedings and awards be appealed or challenged in local courts? What are the grounds and procedure?

    Section 36, AA makes clear that an arbitral award is final and binding on the parties. Consistently, there is no appeal mechanism for arbitral awards under Malaysian law.

    Nevertheless, a party has recourse against an arbitral award with more default options made available to parties to a domestic arbitration. In international arbitration, a party’s recourse is, by default, limited to annulment proceedings. Where an arbitration is domestic, a party would, by default, have recourse via both annulment proceedings and references on questions of law to the High Court.

    A party may challenge the award in Malaysian courts by seeking its annulment. Section 37, AA permits challenges to the arbitral award on a limited and exhaustive list of grounds, which mirror Article 34, UNCITRAL Model Law (1985) and Article V, New York Convention, namely:

    • The incapacity of a party to the arbitration agreement.
    • The invalidity of the arbitration agreement under the chosen law of the parties, or, failing any such indication, under the laws of Malaysia.
    • 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;
    • Excess of jurisdiction in that the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration or that the award contains decisions on matters beyond the scope of the submission to arbitration.
    • 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 the AA from which the parties cannot derogate or, failing such agreement, was not in accordance with the AA.
    • The non-arbitrability of the subject matter of the dispute under Malaysian law. This may be raised sua moto.
    • The award is in conflict with the public policy of Malaysia. This may also be raised sua moto.

    An annulment application must be made within 90 days of the receipt of the award, corrected award, or additional award by the applicant unless the annulment application pertains to fraud or corruption in the procurement of the award (section 37(4) and (5), AA). Section 37(3), AA contemplates that an award may be annulled partially where the impugned portion of the award is severable from the entire award.

    It bears to note that, pursuant to a challenge against the award, a party may alternatively request for a court-ordered adjournment of arbitral proceedings to afford the tribunal an opportunity to remedy the issue founding the annulment application (section 37(6), AA). This reflects the non-interventionist approach of Malaysian law towards arbitration.

    Similarly, a party may, under section 42, AA, refer to the High Court any question of law arising from the award the judicial determination of which may result in one of the following:

    • Confirmation of the award.
    • Variation of the award.
    • Remission of part or the whole of the award to the arbitral tribunal. The arbitral tribunal is required to render a fresh award within 90 days or such other period ordered by the court of the date of the order for remission.
    • Partial or complete annulment of the award.

    A reference on questions of law must be filed within 42 days of the publication and receipt of the award. It must identify the question of law to be determined and the relevant grounds for the reference (section 42(2), AA). Only references concerning questions of law substantially affecting the rights of one or more parties will be entertained by the High Court (section 42(1A), AA). It is apposite to note that a decision of the High Court pursuant to section 42, AA is appealable (section 43, AA).

  29. Can the parties waive any rights of appeal or challenge to an award by agreement before the dispute arises (such as in the arbitration clause)?

    It is not open to parties to contractually exclude the annulment mechanism under section 37, AA.

    By contrast, the reference on questions of law mechanism under section 42, AA may be waived by the parties. As a Part III mechanism, parties to a domestic arbitration may agree to exclude its application in domestic arbitrations, failing which it applies by default. However, parties to an international arbitration have to consensually incorporate the mechanism into the arbitration, failing which section 42 cannot be later invoked.

  30. To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?

    It is possible to subject a state and state parties to arbitration who may not necessarily be able to rely on the defence of state immunity. Although Malaysian courts have not had the opportunity to consider the defence of state or sovereign immunity within the context of arbitration, there is judicial guidance on the general application of state or sovereign immunity.

    In Commonwealth of Australia v Midford (Malaysia) Sdn Bhd [1990] 1 MLJ 475, a claim was filed against the Australian Tax Authority in the Malaysian courts in a criminal matter. The Supreme Court clarified that Malaysia subscribes to a restrictive version of the defence in which Malaysian courts will only afford state or sovereign immunity to actions by foreign states of a public nature.

    The test applied by the Supreme Court was whether the impugned acts of a state were of a commercial and private nature. The court will contextually demarcate the breadth of governmental actions and will then see if the impugned state action fell outside of that scope which mirrors the analysis in the English case of The 'I Congreso del Partido' [1981] 2 All ER 1064.

    It is submitted that a similar legal analysis of the defence would apply in an arbitration, including at the enforcement stage which would entail an inquiry into the nature of the assets of the party. An arbitral award may be enforced against the commercial assets of a state but not its diplomatic assets.

  31. Are there rules or restrictions on third-party funders in your country?

    There are no express statutory prohibitions on third party funding in arbitration and litigation in Malaysia, though, such a fee arrangement may be the subject of judicial scrutiny under the common law rules of champerty and maintenance. However, there is presently no judicial guidance regarding the validity of third-party-funded claims in Malaysia.

    Malaysia is perceptive and has been noticeably receptive of international trends in arbitration. The Malaysian legal community has been keeping abreast with the current international discourse and reforms on third party funding and is considering the importation of such ideas into the jurisdiction. This is an area to be observed in the next few years.

  32. Is there a concept in your country providing for class-action or group arbitration? If so, are there any limitations to the arbitrability of such claims or requirements that must be met before such claims may be arbitrated?

    In Malaysia, there is no concept of class-action or group arbitration. As discussed in question 9, Malaysian courts lack the jurisdiction to consolidate arbitral proceedings.

  33. Is diversity in the choice of arbitrators (e.g. gender, age, origin) actively promoted in your country? If so, how?

    Diversity in the choice of arbitrators has not been an issue in Malaysia. Owing to its cosmopolitan colonial heritage, the Malaysian legal community is ethnically diverse. There is also no entry bar to the Malaysian legal community which showcases equal gender participation. KLRCA events and certification courses are well-attended by a healthy mix of participants of various backgrounds.

  34. Is emergency arbitrator relief available in your country? Is this actively used?

    Yes, emergency arbitrator relief is available under the KLRCA Arbitration Rules, as explained in question 21.

    However, the underlying legal principles of emergency relief, e.g. the enforceability of emergency arbitrator decisions, remain untested in Malaysia.

  35. Have measures been taken by arbitral institutions in your country to promote transparency in arbitration?

    Malaysia has made great strides in promoting transparency in investment arbitration. It unreservedly ratified the TPPA which includes an investment arbitration mechanism that encourages public participation (Chapter 9, TPPA). Adopting the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, TPPA investment arbitration hearings are open to members of the public who may file amicus curiae submissions.

    However, the move towards greater transparency in arbitration in Malaysia has thus far been limited to investment arbitration. Parties to Malaysian commercial arbitrations have thus far favoured confidentiality.

  36. Are efforts being made by arbitration institutions or local courts to impose strict deadlines for the rendering of awards?

    Rule 11, KLRCA Arbitration Rules requires arbitral tribunals to render their final award within 3 months of the closing of the final oral or written submissions. The rules, however, permit parties to consensually extend the above deadline and the Director of the KLRCA to grant an extension of time irrespective of the parties’ agreement (Rule 11(3), KLRCA Arbitration Rules).

    Malaysian courts have not imposed any deadlines for the rendering of awards. This procedure is viewed as a matter for the parties to agree upon in which the courts shall not interfere.

  37. Have steps been taken in your country to publish reasoned decisions on arbitrator challenges and provide more insight into the drivers behind arbitrator selection by institutions?

    There has thus far been no move by Malaysia towards this. See the answer to question 5 on transparency.

  38. Are there arbitral laws or arbitration institutional rules in your country providing for simplified procedures for claims under a certain value?

    Yes, such simplified procedures are provided for under the KLRCA Fast Track Arbitration Rules which are crafted for parties who wish to obtain an award in the fastest way with minimal costs.

    The rules require the completion of arbitrations (with a substantive oral hearing) within 160 days by providing for expedited procedures at each stage of the arbitral proceedings and for documents-only arbitration in certain circumstances. Article 9, KLRCA Fast Track Arbitration Rules provides that an arbitration will proceed as a documents-only arbitration where the aggregate amount of the claim and/or counter claim in dispute is less than USD75,000.00 or is unlikely to exceed USD75,000.00 for an international arbitration; or is less than RM150,000.00 or is unlikely to exceed RM150,000.00 in a domestic arbitration.

    Tribunal’s fees and recoverable costs are capped to a fixed scale. Other attractive features also include the lack of interim awards and tighter obligations for disclosure so as to avoid surprises and controlled usage of expert evidence to ensure that the parties and tribunal are focused only on specific issues.