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/
What legislation applies to arbitration? Are there any mandatory laws?
Arbitrations in Malaysia are governed by the Arbitration Act 2005 (‘AA’), which was recently amended in 2018. With the latest amendments, the AA has been updated to mirror the UNCITRAL Model Law 2006 (with minor exceptions). These amendments also reflect the name change of the Asian International Arbitration Centre (Malaysia) –previously known as the Kuala Lumpur Regional Centre for Arbitration.
The AA regulates both international and domestic arbitrations, and divides the application of its constituent Parts depending on the nature of an arbitration. The AA comprises four Parts:
- Part I addresses preliminary arbitration issues, including arbitrability, and defines key terms of the statute;
- Part II concerns core matters in arbitrations, including the validity of arbitration agreements, arbitral jurisdiction, curial assistance in arbitration, the enforcement of arbitral awards, and recourse against arbitral awards;
- Part III governs various additional matters relating to the arbitral proceeding, including consolidation of proceedings and concurrent hearings, confidentiality, and additional powers conferred upon the Malaysian High Court in relation to arbitrations; and
- Part IV contains miscellaneous provisions, such as the liability of arbitrators and arbitral institutions and the bankruptcy of arbitral parties.
Parts I, II, and IV apply 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 to 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).
Is the 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.
What other arbitration-related treaties and conventions is the 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 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (‘CPTPP’), a preferential trade and investment agreement between 11 Asia-Pacific countries and covers 13.5% of global GDP. Thus far, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam have signed the CPTPP. However, these countries have yet to ratify the instrument. Alongside various novel substantive investor protections, the CPTPP also contains an extensive investor-state dispute resolution chapter, which is currently suspended until further notice.
Regional trade growth has also been a core economic focus of Malaysia. In 2009, Malaysia became a signatory to the ASEAN Comprehensive Investment Agreement (‘ACIA’), a regional trade instrument consolidating existing trade agreements between the ASEAN member countries. The ACIA contains a comprehensive investment protection regime.
Is the law governing international arbitration based on the UNCITRAL Model Law? Are there significant differences between the two?
Malaysian has based its arbitral legislation upon the UNCITRAL Model Law since 2005. In its original form, the AA sought to mirror the 1985 version of the UNCITRAL Model Law. Notwithstanding this, even before the 2018 statutory amendments, Malaysia had developed its arbitral jurisprudence abreast with international trends and principles of the 2006 Model Law.
With its latest amendments, the AA has been given greater congruence with the UNCITRAL Model Law 2006 with the principles of the Model Law having been incorporated into the statutory text in their original form and phraseology. In this regard, Part II of the AA follows the structure and has identical headings to Articles 3 to 36 of the UNCITRAL Model Law 2006 (with minor exceptions).
Certain revised aspects of the statutory regime should be noted by arbitral parties and practitioners, including:
- Equal positioning of emergency arbitrators and arbitral tribunals (section 2, AA). This resolves possible concerns regarding the recognition and enforcement of awards by emergency arbitrators;
- Further relaxation of formal requirements for valid arbitration agreements (section 9, AA);
- Broadened range of interim measures that can be ordered by arbitrator and enhanced curial powers by the Malaysian High Court to support arbitral interim measures (sections 19-19J, AA); and
- Removal of the statutory mechanism to challenge arbitral awards on questions of law arising out of the proceedings (previously section 42, AA). This now repealed mechanism was similar to challenges under section 69 of the English Arbitration Act 1996 and appeals under section 49 of the Singapore Arbitration Act.
Are there any impending plans to reform the arbitration laws?
As Malaysia has just recently amended its arbitration legislation, there are currently no plans for further legislative reform in the near future.
What arbitral institutions (if any) exist? Have there been any amendments to their rules or are there any being considered?
In early 2018, the Kuala Lumpur Regional Centre for Arbitration was renamed “the Asian International Arbitration Centre (Malaysia)” (‘AIAC’). The AIAC offers administrative and logistical support for arbitrations 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 AIAC has updated its arbitration rules in early 2018 in line with international legal trends and the aim of optimizing the cost of Malaysian arbitrations. The AIAC Arbitration Rules 2018, which are based upon the UNCITRAL Rules for Arbitration (as revised in 2013), contain various new features which its users should note, including:
- Expeditious appointment of emergency arbitrators;
- Joinder of the arbitral parties;
- Consolidation of disputes; and
- Technical review of arbitral awards.
Additionally, the centre also provides the following rules:
- AIAC 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; and
- AIAC 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 AIAC, certain industry-specific arbitrations are also administered by a number of other Malaysian bodies, including the Institute of Engineers Malaysia, the Chinese Chamber of Commerce and Industry of Kuala Lumpur and Selangor, Malaysian Rubber Board, Palm Oil Refiners Association of Malaysia, Institute of Surveyors, and the Malaysian Institute of Architects. However, the AIAC remains the preferred arbitral institution in the country.
What are the validity requirements for an arbitration agreement?
An arbitration agreement is valid in Malaysia if it complies with the definition and formality requirements in section 9, AA (as revised in 2018), which mirrors Article 7 (Option 1) of the UNCITRAL Model Law 2006.
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:
- Its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means; or
- It is contained in 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.
The requirement that an arbitration agreement be in writing is also met by any electronic communication that the parties make by means of data message if the information contained therein is accessible so as to be useable for subsequent reference.
Notably, there is no prohibition in Malaysia against the inclusion of tortious dispute within the scope of arbitration agreements.
Are arbitration clauses considered separable from the main contract?
Malaysia statutorily recognises the separability principle in section 18(2)(a) and (b), AA. The sub-provisions acknowledge the self-contained nature of an arbitration agreement as a contract distinct and collateral to the main agreement between arbitral parties. 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.
Is there anything particular to note in your jurisdiction with regard to multi-party or multi-contract arbitration?
In principle, claims under more than one contract or against multiple parties may be brought in one arbitral proceeding. Under Malaysian law, arbitral tribunals and Malaysian courts lack inherent jurisdiction to consolidate proceedings or to join additional parties to an existing arbitration.
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. A similar rule applies to the joinder of parties.
It is worth noting that, unlike its preceding version, the AIAC Arbitration Rules 2018 expressly empowers arbitral tribunals to add parties or to consolidate arbitral proceedings upon application by the parties.
How is the law applicable to the substance determined?
Section 30, AA governs the law applicable to the substance of a dispute. Following the 2018 amendments, section 30 no longer prescribes different conflict of law analyses for international and domestic arbitrations.
In its revised form, the law applicable to the substance of a dispute is by default the chosen law of the parties. 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.
Absent a designated governing law, the arbitral tribunal will have to determine the conflict of laws regime applicable to the matter and thereafter, the applicable law of the dispute. Notably, the Malaysian conflict of laws regime is largely similar to other common law jurisdictions.
Are any types of dispute considered non-arbitrable? Has there been any evolution in this regard in recent years?
The rule on arbitrability is contained in section 4, AA. While the provision does not often come before the courts, Malaysian judges have thus far taken a liberal approach to arbitrability when approached on the question. Recently, the Malaysian Federal Court has confirmed that fraud is arbitrable under Malaysian law.
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, subject to any requirements of the arbitration agreement. (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.
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 AIAC 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 AIAC 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 AIAC to make the appointment.
Can the local courts intervene in the selection of arbitrators? If so, how?
Pursuant to section 13(7) AA, if the Director of the AIAC 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 AIAC under section 13(4), (5), and (6), AA. Besides this statutory regime, the court lacks authority to intervene in the selection of arbitrators, consistent with the principle of non-judicial intervention in section 8, AA.
Can the appointment of an arbitrator be challenged? What is the procedure for such challenge? Has there been an increase in number of challenges in your jurisdiction?
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).
What happens in the case of a truncated tribunal? Is the tribunal able to continue with the proceedings?
This question has yet to be tested before Malaysian courts, which are likely to pay regard to relevant recent international trends.
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.
Is the principle of competence-competence recognised? What is the approach of local courts towards a party commencing litigation in apparent breach of an arbitration agreement?
The two aspects of competence-competence – positive competence-competence and the negative effect of competence-competence – are recognised in Malaysia.
Positive competence-competence is statutorily recognised in section 18(1), AA. Thus, an arbitral tribunal in Malaysia has competence to preliminarily decide virtually all jurisdictional disputes subject to a subsequent right of appeal to the Malaysian High Court.
Malaysia has embraced the negative effect of competence-competence through its case law. The negative effect of competence-competence, is a rule of chronological priority prohibiting national courts from considering jurisdictional objections on an interlocutory basis prior to the arbitrator’s initial determination on the same jurisdictional question. In line with this concept, 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.
How are arbitral proceedings commenced? Are there any key provisions under the arbitration laws relating to limitation periods or time bars of which the parties should be aware?
Arbitral proceedings are commenced by the communication of a written request to arbitrate to the responding party. Where an arbitration is conducted pursuant to the AIAC Arbitration Rules 2018, rule 2 therein requires the communication of a written request to the Director of the AIAC along with:
- A copy of the notice of arbitration served on all other parties;
- A copy of the written arbitration agreement and the contractual documentation containing the relevant arbitration agreement;
- Confirmation 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; and
- Proof of payment of the non-refundable registration fee (currently USD795.00 in an international arbitration as defined the Guide to the AIAC Arbitration Rules 2018; or RM1,590.00 in a domestic arbitration).
By default, arbitral proceedings in respect of a particular dispute shall commence on the date of receipt of the written request by the respondent (section 23, AA). Parties may contract out of this default position and may do so by adopting institutional arbitration rules. Where the AIAC Arbitration Rules 2018 apply, the Director of the AIAC will determine the commencement date of the arbitration and thereafter inform the parties of the same.
What happens when 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?
Subject to the parties’ agreement, the AA permits arbitral proceedings to continue despite the non-participation of a party provided there is no sufficient cause for this failure (section 27, AA). Where:
- The claimant fails to communicate the statement of claim in accordance with subsection 25(1), the arbitral tribunal shall terminate the proceedings;
- The respondent fails to communicate the statement of defence in accordance with subsection 25(1), the arbitral tribunal shall continue the proceedings without treating such failure in itself as an admission of the claimant’s allegations;
- Any party fails to appear at a hearing or to produce documentary evidence, the arbitral tribunal may continue the proceedings and make the award on the evidence before it; and
- The claimant fails to proceed with the claim, the arbitral tribunal may make an award dismissing the claim or give directions, with or without conditions, for the speedy determination of the claim.
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.
In what circumstances is it possible for a state or state entity to invoke state immunity in connection with the commencement of arbitration proceedings?
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  1 MLJ 475, a claim was filed against the Australian Tax Authority in the Malaysian courts in a criminal matter. The Supreme Court (the then apex 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 determine 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'  2 All ER 1064.
While the subject remains untested, a similar legal analysis of the defence could apply to the commencement of arbitration proceedings.
In what instances can third parties or non-signatories be bound by an arbitration agreement or award?
In Malaysia, an arbitration agreement typically does not bind third parties to the agreement. Similarly, a third party may not enforce an arbitration agreement against a contracting party.
Notably, Rule 9, AIAC Arbitration Rules 2018 now permits the joinder of non-signatories to an existing arbitration provided that the non-signatory and arbitral parties consent to this joinder.
What interim measures are available? Will local courts issue interim measures pending the constitution of the tribunal?
The 2018 statutory amendments have significantly revised the Malaysian regime for arbitration-related interim measures, which now closely resembles Articles 17-17J of the UNCTRAL Model Law 2006. Given its nascence, there is currently no Malaysian judicial guidance on the subject. However, it is clear that interim measures may be granted by arbitral tribunals and Malaysian courts.
i. Arbitral interim reliefs
Under the newly revised sections 19, AA, arbitrators are empowered to grant interim measures subject to any contrary agreement by the parties. The statute expressly authorises arbitrators to grant the following reliefs:
- Maintain or restore the status quo pending the determination of the dispute;
- Take action that would prevent or refrain from taking action that is likely to cause current or imminent harm or prejudice to the arbitral process;
- Provide a means of preserving assets out of which a subsequent award may be satisfied;
- Preserve evidence that may be relevant and material to the resolution of the dispute; and
- Provide security for the costs of the dispute.
To supplement an interim measure, arbitrators may also grant preliminary orders to prevent the frustration of the requested interim measure’s purpose (section 19B-C, AA); and security for the interim measure (section 19E, AA).
Unlike its previous iteration, the AA now provides an enforcement regime for arbitral interim measures (sections 19H-I, AA). This eases the access of parties to curial assistance.
ii. Emergency arbitrator procedures
Malaysia recognises and enforces emergency arbitral reliefs. In AIAC-administered arbitrations, where an arbitral tribunal has not been constituted, a party can apply for emergency arbitrator procedures (Schedule 3, AIAC Arbitration Rules 2018). Subject to jurisdictional limitations, an emergency arbitrator may grant any type of interim relief. 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 AIAC and other arbitral parties. Schedule 2(1), AIAC Arbitration Rules sets out the formality and fee requirements of the application. If the application is accepted by the Director of the AIAC, he shall attempt 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.
iii. Curial interim measures
Alternatively, a party may, before or during arbitral proceedings, apply to the High Court under section 11 and 19J, AA for any interim measure and the High Court may grant relief similar to those of arbitrators. However, unlike arbitrators, Malaysian courts are expressly empowered to make preservation orders by way of arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court.
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.
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. It is not uncommon for Malaysian arbitrations to adopt the International Bar Association Rules on the Taking of Evidence in International Arbitration 2010 as evidentiary guidelines.
A party, with the tribunal’s permission, may apply to the Malaysian 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.
What ethical codes and other professional standards, if any, apply to counsel and arbitrators conducting proceedings?
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.
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.
Can pre- and post-award interest be included on the principal claim and costs incurred?
Section 33, AA regulates the power of arbitral tribunals to award interest. Following the 2018 amendments to section 33, arbitrators can now award both pre- and post-award interest on the whole or any part of the principal claim and costs incurred. To avail themselves of this arbitral power, parties must ensure that any interest claimed must be sufficiently pleaded.
What legal requirements are there for the recognition of an award?
To be enforceable in Malaysia, arbitral awards must comply with the formal requirements of 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 in 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.
Where these requirements are met, recognition proceedings under Malaysian law are fairly straightforward. Pursuant to section 38, AA, an enforcing party merely has to apply to the Malaysian High Court to recognise and enforce an arbitral award. This application should be accompanied by:
- The duly authenticated original or duly certified copy of the arbitral award; and
- The original or duly certified copy of the arbitration agreement.
Where the award or arbitration agreement is in a language other than Malay or English, a duly certified English translation of the document should be produced by the enforcing party.
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.
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 may challenge an arbitral award by commencing annulment proceedings. Following the 2018 statutory amendments, annulment proceedings can now only be brought under section 37, AA. This statutory annulment regime only allows an arbitral award to be challenged on a limited and exhaustive list of grounds that mirror Article 34, UNCITRAL Model Law 2006 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; and
- 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.
It is worth noting that parties can no longer commence challenges against arbitral award in Malaysia on questions of law arising therefrom. This recourse was previously provided for by the now repealed section 42, AA, which was similar to challenges under section 69 of the English Arbitration Act 1996 and appeals under section 49 of the Singapore Arbitration Act.
Where, however, a section 42 challenge was commenced prior to the 2018 statutory amendments, the challenge will continue to be heard by the Malaysian courts and will be appealable (section 43, AA).
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.
To what extent might a state or state entity successfully raise a defence of state or sovereign immunity at the enforcement stage?
Further to the response to question 21 above, it may be possible to enforce an arbitral award against a state under Malaysian law. Although the subject has not been considered by Malaysian courts within the context of arbitration, it is likely that the prevailing legal analysis of the defence of state/sovereign immunity would apply to the question of enforcement of arbitral awards. This 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.
To what extent might a third party challenge the recognition of an award?
In general, arbitral awards do not bind third parties, who will likewise lack the capacity to challenge the recognition of awards. Malaysian courts are typically hesitant to lift the corporate veil to allow the enforcement of an award against a non-party to the arbitration. However, it remains unconsidered by Malaysian courts if a non-party can challenge the recognition of an arbitral award.
Have there been any significant developments with regard to third party funding recently?
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.
Is emergency arbitrator relief available? Is this frequently used?
Emergency arbitrator relief is available under the AIAC Arbitration Rules 2018. See our responses to question 21 for further details.
Are there arbitral laws or arbitration institutional rules providing for simplified or expedited procedures for claims under a certain value? Are they often used?
AIAC Fast Track Arbitration Rules provides simplified procedures intended 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. Rule 16, AIAC Fast Track Arbitration Rules provides that, subject to the arbitrators’ views, an arbitration will proceed as a documents-only arbitration where:
- In an international arbitration, the aggregate amount of the claim and/or counter claim in dispute is less than or is unlikely to exceed USD75,000.00; or
- In a domestic arbitration, the aggregate amount of the claim and/or counter claim in dispute is less than or is unlikely to exceed RM150,000.00.
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.
Have measures been taken by arbitral institutions to promote transparency in arbitration?
Through its latest revision, the AIAC Arbitration Rules 2018 have incorporated the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘UNCITRAL Transparency Rules’) into its framework. The UNCITRAL Transparency Rules are applicable to AIAC-administered investment arbitrations and prescribe highly transparent arbitral proceedings.
Is diversity in the choice of arbitrators and counsel (e.g. gender, age, origin) actively promoted? 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 and culturally diverse. There is also no entry bar to the Malaysian legal community which showcases equal gender participation. AIAC events and certification courses are well-attended by a healthy mix of participants of various backgrounds.
Have there been any developments regarding mediation?
The AIAC and Malaysia courts have been supportive of mediation in Malaysia. It is now commonplace for Malaysian judges to encourage parties to consider court-facilitated mediation. Supplementing this, many courts around Malaysia have recently dedicated facilities for such mediations. Our experience shows that these efforts have been well-received by the courts’ users.
Have there been any recent court decisions considering the setting aside of an award that has been enforced in another jurisdiction or vice versa?
Malaysian courts have thus far not been asked to consider such a situation.