Arbitration: The Malaysian Perspective

What is Arbitration?

At its core, arbitration is a form of dispute resolution. Arbitration is the private, judicial determination of a dispute, by an independent third party. Arbitration begins with an agreement, made either when a contract is made, or after a dispute has arisen, that certain matters which are or may be in contention between the two parties will be resolved by submitting them to arbitration and not at least in the first instance to the courts. In that agreement it is usually stated that the parties will honour the valid award of the arbitrator in respect of matters referred to him in accordance with that arbitration agreement. Should a party fail to honour the award, the other party may still seek relief from the courts.

 

What is the Governing Law?

Arbitration, while being nicknamed the “businessman’s method of resolving disputes” is governed by law. Most nations have provisions in their civil practice rules for arbitration. The Arbitration Act 2005 (Act 646) is the governing law of arbitration in Malaysia. The Arbitration Act 2005 (Act 646) is a total revision of the previous Arbitration Act 1952. The legislators have keenly adopted the UNCITRAL Model Law on International Commercial Arbitrations as part of the working provisions of this revised Act. It has been regarded as an excellent revision which incorporates the current needs of business trends both local and international.

 

The Regional Centre for Arbitration Kuala Lumpur

In Malaysia, alternative dispute resolution, in particular arbitration is facilitated by the Kuala Lumpur Regional Centre of Arbitration. This Centre was set up in 1978 pursuant to a decision taken by the Asian African Legal Consultative Committee. The Malaysian government gave assurance that it would respect the independent functioning of the Centre as an International Arbitration Centre.

 

The Arbitration Tribunal

An arbitration hearing may involve the use of an individual arbitrator or a tribunal. In Malaysia the Arbitration Act 2005 expressly states that in the event the parties are silent on the number of arbitrators, the law imposes that in cases of domestic arbitration the tribunal shall consist of one arbitrator and for international arbitration three arbitrators in a tribunal.

 

Advantages of Arbitration

Supporters of arbitration hold that it has a multitude of advantages over court action. The following are a sample of these advantages:-

·         Choice of Decision Maker: For example, parties can choose a technical person as arbitrator if the dispute is of a technical nature so that the evidence will be more readily understood.

·         Efficiency: Arbitration can usually be heard sooner than it takes for court proceedings to be heard. As well, the arbitration hearing should be shorter in length, and the preparation work less demanding compared to conventional litigation.

·         Privacy: Arbitration hearings are confidential, private meetings in which the media and members of the public are not able to attend. As well, final decisions are not published, nor are they directly accessible. This is relevant in cases where confidentiality is of utmost importance.

·         Convenience: Hearings are arranged at times and places to suit the parties, arbitrators and witnesses.

·         Flexibility: The procedures can be segmented, streamlined or simplified, according to the circumstances.

·         Finality: Although, the High Court has limited powers to set aside or remit an award, there is in general, no right of appeal in arbitration.

·         Enforcement: In the event of cross border cases, enforcement of arbitration award in other nation is generally easier than a court’s judgement due to the provisions of the New York Convention 1958.

 

Disadvantages of Arbitration

Though its advantages are aplenty, it also has its possible disadvantages, which are:-

·         Consumers and employees usually do not know in advance that they have been forced into mandatory binding pre-dispute arbitration by purchasing a product or taking a job;

·         If the arbitration is mandatory binding pre-dispute arbitration, the individual must, in advance, give up his or her right to access the courts and have a judge or jury decide the case;

·         The parties need to pay for the arbitrators, which adds an additional layer of legal cost that can be prohibitive, especially in small consumer disputes;

·         A recovery of attorneys’ fees is usually unavailable, making it difficult or impossible for consumers or employees to get legal representation;

·         The arbitrator depends on the corporation for repeat business, so there is an inherent incentive to rule against the consumer or employee;

·         There are very limited avenues for appeal, which means that an erroneous decision cannot be overturned;

·         Although usually thought to be speedier, when there are multiple arbitrators on the panel, juggling their schedules for hearing dates in long cases can lead to delays;

·         In some legal systems, arbitral awards have fewer enforcement remedies than judgments;

·         Arbitrators are generally unable to enforce interlocutory measures against a party, making it easier for a party to take steps to avoid enforcement of an award, such as the relocation of assets offshore;

·         Rule of applicable law is not binding, and arbitrators not subject to overturn on appeal may be more likely to rule according to their personal ideals;

·         Large corporations may exert inappropriate influence in consumer disputes, pressuring arbitrators to decide in their favor or lose future business.

 

Sample Clauses for Alternative Dispute Resolution

In the event that parties to an agreement agree to incorporate ADR as one of its dispute resolution method then it is best that the parties include such ADR clauses in the written agreement. Such ADR provisions will allow the parties to first venture into alternative methods of dispute resolution rather than going for conventional litigation.

 

Below is a sample ADR clause, starting with a basic negotiation then mediation and arbitration:-

 

Negotiation

The Parties shall attempt, in good faith, to resolve any dispute relating to or arising out of this Agreement within sixty (60) days, save where expressly agreed otherwise, promptly by negotiation between executives who have the authority to settle the dispute and who are at a higher level of management than those involved directly in the dispute. All disputes, controversies or differences, which may arise between the Parties hereto in respect of this Agreement, shall be settled amicably through mutual consultation.

 

Mediation

If the dispute has not been resolved by negotiation as provided in the above, the Parties shall endeavour to settle the dispute within thirty (30) days by a non-binding mediation to be conducted thereupon by an appointed mediator with the mutual consent in writing by the Parties to the dispute.

 

Arbitration

If the Parties, after having exhausted all remedies stated in the clauses above, are unable to resolve the dispute, the dispute shall then be settled by arbitration. Such arbitration is to be conducted in accordance with the Arbitration Act 2005. The arbitrator shall be appointed by the Director of the Regional Centre for Arbitration at Kuala Lumpur. The arbitral award made and granted by the arbitrator shall be final, binding and incontestable and may be used as a basis of judgement thereon in Malaysia.