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Swinburne University of Technology Sarawak Campus

Settling disputes by arbitration

May 13, 2015

By Selina Sui Lu Siew

Arbitration was first introduced formally under the Arbitration Act 1952 as a form of alternative dispute resolution (ADR) method in Malaysia. This followed almost three decades after the International Chamber of Commerce (ICC) conducted its first arbitration case in 1923 involving an Asian claimant.

In recent years, arbitration has been widely used as a dispute settlement method particularly in international commercial agreements where the parties involved have different places of residence. The parties to such agreements will normally include an arbitration clause or sign independent arbitration contracts that will subject any disputes between themselves to arbitration.

Arbitration provides the parties in disputes with an option to resolve conflicts without instituting legal proceedings in courts. They submit their disputes to impartial third parties who will deliver decisions, known as awards, which are binding upon the parties after considering all the submissions presented.

A significant appeal of arbitration is the control it affords to the parties involved to tailor their proceedings which do not apply in court proceedings. For example, they are permitted to elect their own arbitrators (who are normally specialists in the field of disputes), choose the language and determine the timeline of their arbitration.

Furthermore, for parties who are unfamiliar with the process, there is always the option of adopting ready-made proceeding rules prepared by international organisations such as the ICC and the United Nations Commission on International Trade Law (UNCITRAL). These rules are available for downloading on the respective websites at no cost.

Arbitration, normally conducted in private, will also significantly decrease the level of publicity as only parties involved are present during the proceedings. Likewise, documents are confidential and are not released to the public as per Justice Collins in the English case of Emmott v Michael Wilson & Partners (2008). In contrast, hearings and documents of any court proceedings are made available to the public and are potentially subjected to both public and media scrutiny.

Moreover, the parties in arbitration can also be assured that the awards delivered by arbitrators will be acknowledged by signatories to the New York Convention 1958 (which has 149 signatory countries, including Malaysia, as of 2013). Under the Convention, awards that are delivered in signatory countries will receive reciprocal acknowledgement in other member countries. This is less cumbersome in comparison to court judgments which require judiciary systems in different countries to acknowledge the judgments independently.

Following what seems like an onset of the arbitration bandwagon particularly in international commerce, the Malaysian Bar Council has called for a revision of the 1952 Act which was deemed archaic and severely ambiguous. Notably, the Act has failed to define the core notion of arbitration which allows Malaysian courts to exercise massive discretion when deciding whether to recognise the validity of arbitration agreements between parties in conflicts. They strongly recommend the enactment of a more specific act to minimize any form of judicial interference in arbitration proceedings in Malaysia. As a result, the new and current Arbitration Act 2005, modelled on the UNCITRAL Model Laws on arbitration, was enacted.

In order to discourage judicial interference in international arbitration in the country, the 2005 Act prohibits parties that are subjected to arbitration from taking or appealing their disputes before Malaysian courts unless the parties can prove the presence of fraud or severe injustice in the arbitration. To reflect this free spirit of arbitration, the High Court judge in a Malaysian case of Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd (2010) has stated that “it is compulsory for the courts to respect the decision of the arbitrators and that real proof is required before the court can meddle with the arbitration”. He further said that “constant interference of the court will only defeat the spirit of arbitration”.

Furthermore, the Kuala Lumpur Regional Centre for Arbitration (KLRCA) was established in 1978. KLRCA is a non-profit and non-governmental organisation which aims to provide institutional support to arbitration not only within Malaysia but also in Asia. It was estimated that in 2013, KLRCA facilitated more than a 100 cases a year due largely to cross-border conflicts that are more suitably resolved by arbitration. For Malaysia to thrive as a major centre of commerce and finance, Datuk Professor Sundra Rajoo, the director of KLRCA, commented that it must be able to offer the highest level of arbitration equivalent to those of other international arbitral institutions. In February this year, an effort by KLRCA in collaboration with the Indonesia Board of Arbitration (BANI), allows both parties to jointly organise seminars, conferences and educational training events on arbitration on a frequent basis to enhance arbitration standards in both countries.  This might just mean that Malaysia is one step nearer to becoming a world class arbitration centre.

Although the future of arbitration in Malaysia still remains unclear, it has become the preferred method of dispute resolution due to its effectiveness and efficiency. Is this therefore an indication that arbitration might just be a more viable option to dispute resolution compared to court proceedings which can at times be lengthy and cumbersome?

Selina Sui Lu Siew is a lecturer in law and coordinator for postgraduate education with the Faculty of Business and Design at Swinburne University of Technology Sarawak Campus. She is an advocate of the Bar of Sabah and Sarawak and has practiced extensively in the areas of commercial litigation, family litigation and conveyancing. Selina is also a legal practitioner of the Supreme Court of Victoria after her formal admission to the Victorian Bar in 2006. She is contactable at slssui@swinburne.edu.my