Malaysia

Guide to Arbitration Rules and Procedures in Malaysia

Our Country Chapters set out key aspects of the arbitration framework of each jurisdiction highlighted in our website, covering basics like judicial hierarchy and domestic arbitral institutions to substantive issues such as conflicts of laws and the extent of adoption of the UNCITRAL Model Law.

1. Legal System and Framework

Malaysia has a dual legal system, comprising civil law and Syariah law. The national civil legal system is based primarily on the English common law tradition. The Federal Constitution is the supreme law of the federation which sets out the legal framework and basic civil rights. Malaysia has a mix of (a) statutory laws, which were adopted during the British colonial era and subsequently enacted by parliament post-independence; (b) subsidiary legislation, which are made by ministers, government agencies and statutory boards as well as State Legislative Assemblies; and (c) judge-made law, which arises from precedents set by way of judicial decisions.

The Syariah system also operates concurrently but is restricted to the subject matters of family and inheritance, and only binds Muslim citizens. Customary laws also apply in a similarly restricted fashion.

As relevant to international arbitration, the judiciary in Malaysia is comprised of the superior courts, being the Federal Court, the Court of Appeal and the two High Courts (namely the High Court of Malaya (Peninsular Malaysia) and the High Court of Sabah and Sarawak (East Malaysia)). An application made under the Arbitration Act may only be heard by the High Courts with subsequent right to appeal to the Court of Appeal.

Under section 8 of the Arbitration Act, no court may intervene in any matter governed by the Arbitration Act unless otherwise provided.

In respect of jurisdiction, if the arbitral tribunal decides on the issue of jurisdiction as a preliminary question, or at any stage of the arbitral proceedings rules that it has no jurisdiction, a party may appeal against the arbitral tribunal’s ruling to the High Court within 30 days after having received notice of that ruling (section 18 of the Arbitration Act). Therefore, the arbitral tribunal’s decision on the issue of jurisdiction is not final.

Additionally, at any time before or during arbitral proceedings a party can apply to a High Court for any interim measure, i.e. security for costs, discovery of documents and interrogatories, interim injunctions, etc.

The only recourse against an arbitral award is to apply to set it aside (section 37 of the Arbitration Act). The Arbitration Act does not contain any provisions enabling an appeal against an arbitral award.

Lastly, all arbitral awards must be converted into a court judgment or order of the High Court by way of registration for the purposes of enforcement.

The Arbitration Act is the main source of law in Malaysia for international arbitration. The Act makes a distinction between domestic and international arbitration stating:

(a)  Parts I, II and IV of the Act apply to domestic arbitration and Part III applies unless the parties agree otherwise in writing (section 3(2)); and

(b)  Parts I, II and IV apply to international arbitration and Part III does not apply unless the parties agree otherwise in writing (section 3(3)).

In addition, Order 69 of the Rules of Court 2012 sets out the procedural requirements for arbitration-related suits, such as applications for the appointment of arbitrators and the enforcement of awards. Part II of the Arbitration Act deals with the general provisions of arbitration, and generally follows the structure and headings of the UNCITRAL Model Law on International Commercial Arbitration 1985 (“UNCITRAL Model Law“).

As for procedural law, each international arbitral institution in Malaysia (i.e. the Asian International Arbitration Centre (“AIAC“), the Institute of Engineers Malaysia, the Palm Oil Refiners Association of Malaysia, and the Malaysian Institute of Architects) may provide for its own arbitration rules. 

The Limitation Act 1953 and any other written law relating to the limitation of actions applies to arbitrations (section 30 of the Limitation Act 1953). 

Under Malaysian law, a distinction is drawn between international and domestic arbitration. Section 2 of the Arbitration Act defines international arbitration as an arbitration where:

  1. one of the parties to an arbitration agreement, at the time of the conclusion of that agreement, has its place of business in any State other than Malaysia;
  2. one of the following is situated in any State other than Malaysia in which the parties have their places of business:
    • the seat of arbitration if determined in, or pursuant to, the arbitration agreement;
    • any place where a substantial part of the obligations of any commercial or other relationship is to be performed or the place with which the subject matter of the dispute is most closely connected; or
  3. the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one State.

Domestic arbitration is defined in the same section as any arbitration which is not an international arbitration.

Section 8 of the Arbitration Act states that no court may intervene in matters governed by the Arbitration Act, except where so provided by the Arbitration Act. One of the fundamental concepts under Malaysian law is the need to respect party autonomy in the arbitral process. The limited circumstances provided by the Arbitration Act that allows for court intervention includes the:

  1. appointment of arbitrators, where the director of AIAC fails to do so within 30 days from the request;
  2. determination on any challenge made by a party to the appointment of an arbitrator;
  3. determination of the jurisdiction of the arbitral tribunal upon an appeal by a party;
  4. power to issue interim measures in relation to arbitral proceedings, including to maintain or restore the status quo pending the determination of the dispute, to preserve assets, or to preserve evidence;
  5. power to order the attendance of a witness (or where applicable, to produce documents);
  6. determination of any preliminary question of law arising in the course of arbitration; and
  7. extension of time for commencing arbitral proceedings.

2. Arbitral Institutions

There are a number of arbitral institutions in Malaysia, such as the Asian International Arbitration Centre (“AIAC“), the Chartered Institute of Arbitrators (“CIArb“) and the Malaysian Institute of Arbitrators (“MIArb“). However, the arbitration hub in Malaysia is AIAC.

Previously known as the Kuala Lumpur Regional Centre for Arbitration, AIAC is the main arbitral institution in Malaysia. Apart from providing support for domestic and international arbitrations and other alternative dispute resolution proceedings, AIAC offers hearing facilities and ancillary administrative services to tribunals operating ad hoc or under the auspices of another institution. AIAC was the first arbitral institution in the world to adopt the UNCITRAL Rules for Arbitration as revised in 2013, and has its own set of procedural rules which governs the conduct of the entire arbitral proceedings from its commencement to its termination.

AIAC also provides for its own rules in administering arbitrations. It must be noted that both ad hoc and institutional arbitration are recognised in Malaysia. However, the most popular mode of institutional arbitration in Malaysia is arbitration administered by AIAC. The AIAC Arbitration Rules 2018 adopt the framework of the UNCITRAL Arbitration Rules 2013 and provide for, among other things, the expeditious appointment of emergency arbitrators, joinder of parties, and consolidation of disputes.

3. Confidentiality

Arbitrations in Malaysia are governed by the Arbitration Act, which is silent on the issue of confidentiality of arbitrations.

Notwithstanding this, the issue of confidentiality of arbitrations in Malaysia has been considered by the Malaysian Courts. In the case of Jacob and Toralf Consulting Sdn Bhd & Ors v Siemens Industry Software Gmbh & Co KG & Ors [2013] MLJU 1621, the High Court set out the Malaysian position with respect to the confidentiality of arbitral proceedings:

  1. Firstly, confidentiality is an essential attribute of a private arbitration imposing an obligation on each party not to disclose the proceedings or documents and information provided in and for the purposes of the arbitration.
  2. Secondly, the obligation is not limited to documents which are per se confidential or to documents which contain material which is inherently confidential, such as trade or commercial secrets. It includes and extends to all documents generated in the course of arbitration. The obligation arises, not as a matter of business efficacy, but is implied as a matter of law.
  3. Thirdly, that disclosure of documents is permissible:

a.  with the consent of the parties, express or implied;

b.  by order of court;

c.  with leave of court; and

d.  when it is reasonably necessary for the protection of the legitimate interests of an arbitrating party.

The case was ultimately appealed to the Federal Court of Malaysia. The Federal Court did not suggest the High Court’s statement of the law was incorrect, and expressly accepted that:

“Arbitration is a private means of dispute resolution between disputing parties and the award made binds parties who had consensually submitted to arbitration proceedings. Due to the private nature of an arbitration, it imposes certain implied obligation of confidentiality…”

Further, in Malaysian Newsprint Industries Sdn Bhd v Bechtel International, Inc & Anor [2008] 5 MLJ 254, the Court referred to the English principle that in the absence of an express term in an arbitration clause providing for confidentiality, the presumption of confidentiality arises as an implied term by the very nature of the arbitral process itself. The Court also remarked that “it is now accepted, by all and sundry, that arbitrations are private and confidential” in quoting supporting English cases on this point.

4. The Law of the Arbitration and Conflicts of Law

Yes, Malaysia does recognise the concept of the seat of arbitration in determining the law applicable to the arbitral proceedings. In this regard, section 22 of the Arbitration Act clearly provides as follows:

“Seat of arbitration 22.

  1. The parties are free to agree on the seat of arbitration.
  2. Where the parties fail to agree under subsection (1), the seat of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.
  3. Notwithstanding subsections (1) and (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of goods, other property or documents.”

In Government of India v Petrocon India Ltd [2016] 3 MLJ 435; [2016] 6 CLJ 321, the Federal Court considered that the seat of arbitration determined the curial law governing the arbitral proceedings. The Federal Court recognised that the ‘seat’ refers to the legal seat rather than the geographical seat, and that it is a permanent or fixed seat which can only be changed by consent of the parties to the arbitration, and must be distinguished from the physical or geographical place where the arbitration was held.

The law applicable to the substance of the parties’ dispute would be the law chosen by the parties. Where the parties to a contract have not made an express choice of the proper law to be applied, the court would have to find an implied choice to be inferred from the terms or form of contract or its surrounding circumstances. In the absence of such choice, the law of the country with which the agreement is most closely connected would be the applicable law (James Capel (Far East) Ltd v YK Fung Securities Sdn Bhd (Tan Koon Swan, Third Party) [1996] 2 MLJ 97 (CA)).

Yes. The arbitral tribunal in Malaysia shall decide the dispute in accordance with the law agreed by the parties to be the substantive law governing the parties’ obligations with respect to the subject matter of the dispute, which may be the law of another jurisdiction (section 30(1) of the Arbitration Act).

The fact that the seat of the arbitration is Malaysia would not necessarily impose any mandatory rules of substantive law which would apply to the parties’ rights and obligations.

For procedural law, however, seating the arbitration in Malaysia would mean that certain aspects of procedural law under the Arbitration Act would apply (section 3 of the Arbitration Act).

Where the parties have made an express or implied choice as to the law governing their commercial agreement, that law will be considered the applicable law for claims in tort (section 30(1) of the Arbitration Act).  

Where there is no express or implied choice, section 30(4) of the Arbitration Act provides that the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable.

Following the decision in Thai-Lao Lignite Co Ltd & Anor v Government of the Lao Peoples Democratic Republic [2017] 9 CLJ 273, a distinction is drawn between the law governing the arbitration agreement and the law applicable to the arbitration.

The law governing the arbitration agreement governs all issues related to the substantive validity of the arbitration agreement, such as the existence of a valid arbitration agreement and errors of consent. It also extends to issues of interpretation, assignment and waiver of an international arbitration agreement, as well as to issues of non-arbitrability.

In contrast, the law applicable to the arbitral proceedings (the lex arbitri) comprises the rules governing interim measures (e.g. filing Court orders for the preservation or storage of goods), the rules empowering the exercise by the Court of supportive measures to assist an arbitration which has run into difficulties (e.g. filling a vacancy in the composition of the arbitral tribunal if there is no other mechanism) and the rules providing for the exercise by the Court of its supervisory jurisdiction over arbitrations (e.g. removing an arbitrator for misconduct).

In Malaysia, the limitation period is prescribed under the Limitation Act 1953 (“Limitation Act“). Section 30(1) of the Limitation Act specifically provides that the Limitation Act and any other written law relating to the limitation of actions shall apply to arbitrations as they apply to actions.

In accordance to the Court of Appeal case of Sakapp Commodities (M) Sdn Bhd v Cecil Abraham [1998] 4 CLJ 812, questions of limitation are procedural and not substantive law, as limitation is merely a defence to an action. It assumes the existence of a cause of action but does not create one. The defence of limitation cannot be relied upon unless specifically pleaded.

Currently under section 6 of the Limitation Act, the limitation period to bring an action founded on a contract or on tort is 6 years from the date on which the cause of action accrued.

5. Arbitration Agreements

In Malaysia, the arbitration agreement is required to be in writing to be binding and enforceable under the Arbitration Act (section 9(3) of the Arbitration Act).

Section 9(4) of the Arbitration Agreement provides that an arbitration agreement is in writing if:

  • 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 arbitration agreement need not be a formal agreement signed by the parties to the dispute (Bina Puri Sdn Bhd v EP Engineering Sdn Bhd & Anor [2008] 3 MLJ). The writing requirement is satisfied when there is a document which incorporates or confirms the existence of an agreement to arbitrate (Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 MLJ 545). 

Where there is a clear intention to arbitrate, effect will be given to the arbitration agreement even if the arbitration agreement is incomplete or lacks certain particulars (Lim Su Sang v Teck Guan Construction & Development Co Ltd [1966] 2 MLJ 29).

Yes, electronic arbitration agreements are recognised in Malaysia. The requirement that an arbitration agreement be in writing is 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 (section 9(4A) of the Arbitration Act). The phrase “data message” means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange, electronic mail, telegram, telex or telecopy (section 9(6) of the Arbitration Act).

Section 9(5) of the Arbitration Act provides that a reference in an agreement to a document containing an arbitration clause constitutes an arbitration agreement, provided that the agreement is in writing and the reference is such as to make that clause part of the agreement.

However, there is no requirement that the arbitration agreement contained in the document must be explicitly referred to in the reference. The reference need only be to the document and no explicit reference to the arbitration clause contained therein is required (Ajwa for Food Industries Co (MIGOP), Egypt v Pacific Inter-Link Sdn Bhd [2013] 5 MLJ 625).

Whether an incorporation by reference was intended by the parties in a particular case is a question that must be resolved according to the facts and circumstances of the individual case (Bauer (M) Sdn Bhd v Daewoo Corp [1999] 4 MLJ 545).

The Arbitration Act also does not restrict the scope of arbitration agreements to only claims that are commercial or contractual in nature, and may include claims that are, for example, tortious in nature (Renault SA v Inokom Corp Sdn Bhd & Anor and other appeals [2010] 5 MLJ 394). The general rule is that all disputes between parties to an arbitration agreement are presumed to fall within the scope of that agreement, based on the language of the arbitration clause, unless the language makes it clear that certain matters are to be excluded from arbitration (Press Metal Sarawak Sdn Bhd v Etiqa Takaful Bhd [2016] 9 CLJ 1).

The fact that any written law confers jurisdiction in respect of any matter on any court of law, but does not refer to the determination of that matter by arbitration, shall not by itself indicate that the dispute is not capable of determination by arbitration. However, if the arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia, the dispute would not be arbitrable (section 4 of the Arbitration Act).

As for claims in fraud, where the dispute involves whether a party has been guilty of fraud, the High Court previously had power (under the now repealed Arbitration Act 1952) to order the question to be determined by the High Court instead. However, this provision has been abolished under the current Arbitration Act. Therefore, any claims involving the element of fraud are now in principle capable of falling within the scope of an arbitration agreement, subject to the express language of the agreement.

The principle of separability is recognised by Malaysian law under section 18(2) of the Arbitration Act. As such, the invalidity or unenforceability of the main agreement would not ipso jure affect the validity of the arbitration agreement (Article 16, UNCITRAL Model Law).

Please contact the editorial team of Arbitration Asia at arbitrationasia@rajahtannasia.com.