The Arbitration (Amendment) Act 2011

 

Ashok Kumar explains the changes under the Arbitration (Amendment) Act 2011

 

The Arbitration Act 2005 ("Principal Act") was a long-awaited and much needed change to the landscape of arbitration practice in Malaysia. The Principal Act is based on the UNCITRAL Model Law and came into force on 15 March 2006 ("Commencement Date").

Being a relatively new legislation, the jurisprudence surrounding the Principal Act is still developing and different interpretations of the provisions and different approaches have been adopted by the Malaysian courts, no doubt due, in part, to the courts' lack of familiarity with the arbitral process and the UNCITRAL Model Law.

The Arbitration (Amendment) Bill 2010 ("Bill") was introduced to address the inconsistency in the interpretation of the provisions of the Principal Act and to give effect to some of the representations by the arbitral community.

The Bill passed into law as the Arbitration (Amendment) Act 2011 ("Amendment Act") upon receipt of Royal Assent on 23 May 2011 and publication in the Gazette on 2 June 2011. The Amendment Act will come into operation on a date to be appointed by the Minister by notification in the Gazette.

This article highlights the main changes that will be made to the Principal Act upon the Amendment Act coming into operation.

 

SECTION 8

The objective of Section 8 of the Principal Act is to restrict curial intervention in arbitration proceedings to the circumstances set out in the Principal Act, such as those set out in Sections 11, 37, 38, 39 and 42 thereof.

Notwithstanding the aforementioned provision, views have been expressed from the Bench that curial intervention may be permitted in a case of "patent injustice" (per Hamid Sultan, JC in Taman Bandar Baru Masai Sdn Bhd v Dindings Corporations Sdn Bhd [2010] 5 CLJ 83, 98) or in the exercise by the Court of its "inherent jurisdiction" (per Abdul Malik Ishak, JCA in Albilt Resources Sdn Bhd v Casaria Construction Sdn Bhd [2010] 7 CLJ 785, 799 to 804).

The Amendment Act has now re-cast Section 8 to state that "No Court shall intervene in matters governed by this Act, except where so provided in this Act."

The Explanatory Notes to the Bill states inter alia that the purpose of this amendment is to limit court intervention to situations specifically covered by the Principal Act and to discourage the use of inherent powers.

With this amendment, it is hoped that the original objective of Section 8 will be achieved.

 

SECTION 10

The Amendment Act amends Section 10 of the Principal Act in three respects.

First, it removes the ground to stay arbitration proceedings in Section 10(1)(b) where the Court is satisfied that there is no dispute between the parties with regard to the matters which are to be referred. The Explanatory Notes to the Bill state that this provision is unnecessary.

The effect of the foregoing is that the only ground to stay arbitration proceedings under the amended Section 10(1) is where the Court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.

An instance where Section 10(1)(a) of the Principal Act has been applied is Lembaga Pelabuhan Kelang v Kuala Dimensi Sdn Bhd [2010] 9 CLJ 532 where the Court of Appeal held that the arbitration clause in the principal agreement had been abandoned and rendered null and void, inoperative and incapable of being performed when the parties executed various supplemental agreements which contained provisions whereby they agreed to submit to the jurisdiction of the court.

Secondly, the Amendment Act introduces special provisions in relation to admiralty proceedings which permit the Court to order that any property arrested, or bail or other security given, be retained as security for the satisfaction of any award that may be given in the arbitration proceedings or to order that a stay of court proceedings be conditional upon equivalent security being provided for the satisfaction of any award that may be given in the arbitration proceedings.

Thirdly, the Amendment Act introduces a new sub-section (3) to the Principal Act which provides that the provisions of Section 10 of the Principal Act apply to an international arbitration where the seat of arbitration is not in Malaysia.

 

SECTION 11

Section 11 of the Principal Act confers express powers on the High Court to make interim orders in respect of the matters set out in sub-paragraphs (a) to (h) of Section 11(1) of the Principal Act, including an order to prevent the dissipation of assets pending the outcome of the arbitration proceedings.

The Amendment Act clarifies that the power of the High Court under Section 10(1)(e) of the Principal Act to make interim orders "to secure the amount in dispute" extends to the arrest of property or bail or other security pursuant to the admiralty jurisdiction of the High Court.

A new sub-section (3) extends the powers of the Court under Section 11 to an international arbitration where the seat of arbitration is not in Malaysia. The effect of this amendment is that the decision of the High Court in Aras Jalinan v Tipco Asphalt Public Company Ltd & Others [2008] 5 CLJ 654 is no longer good law insofar as it held that the Malaysian High Court has no jurisdiction to grant interim orders in arbitration matters where the seat of jurisdiction is outside Malaysia.

 

SECTION 30

Sub-section (1) of Section 30 of the Principal Act provides that in a domestic arbitration where the seat for arbitration is in Malaysia, the arbitral tribunal shall decide the dispute in accordance with the substantive law of Malaysia.

In other words, the provision appears to impose a mandatory obligation on the arbitral tribunal to apply the laws of Malaysia in every domestic arbitration where the seat for arbitration is in Malaysia.

The Amendment Act amends this provision to dispense with the requirement for the arbitral tribunal to apply Malaysian law where the parties to the dispute have agreed that the dispute is to be governed by the laws of a jurisdiction other than Malaysia.

 

SECTION 39

This section sets out the grounds on which the High Court can refuse to recognise or enforce an arbitration award.

The Amendment Act replaces the reference to “Malaysia” in Section 39(1)(a)(ii) with the words “the State where the award was made”. This means that determination of the validity of the arbitration agreement should be determined in accordance with the laws of the State where the award was made and not necessarily under the laws of Malaysia.

Section 39(2)(a)(v) of the Principal Act confers the right on the Court to not recognise or enforce an arbitration award which contains decisions on matters beyond the scope of the submission to arbitration.

The Amendment Act introduces a new Section 39(3) to the Principal Act which reduces the harshness of Section 39(2)(a)(v) by providing that where the decision on matters submitted to arbitration can be separated from those which have not been submitted, the Court may recognise and enforce those parts of the award on matters that have been submitted for arbitration.

 

SECTION 42(1A)

Section 42(1) of the Principal Act allows any party to refer to the High Court any question of law arising out of an award.

The Amendment Act introduces a new Section 42(1A) to the Principal Act which confers power on the High Court to dismiss a reference under Section 42(1) unless the question of law substantially affects the rights of one or more of the parties.

The expression “substantially affects the rights of one or more of the parties” is unclear and may be fertile ground for litigation until such time that the Malaysian Courts make an authoritative ruling as to the circumstances that fall within the ambit of that expression.

 

SECTION 51

Section 51(2) of the Principal Act provides inter alia that the provisions of the Arbitration Act 1952 will continue to apply to arbitration proceedings which have been commenced before the Commencement Date. Under the English language text of the Principal Act, the sole criterion for determining whether this saving provision applies to an arbitration is whether the arbitration were commenced before or after the Commencement Date.

Section 51(2) of the Bahasa Malaysia text of the Principal Act was inconsistent with the English text in that it provided that the saving provision applied where an arbitration agreement is made or where arbitration proceedings are commenced before the Commencement Date.

The Amendment Act amends Section 51(2) of the Bahasa Malaysia text to remove the inconsistency with the English text of the Principal Act, the latter of which is the authoritative text.

The Amendment Act introduces a new sub-section (4) to Section 51 of the Principal Act which provides that the Principal Act will govern all court proceedings relating to arbitration which are commenced after the Commencement Date notwithstanding that such proceedings arise from arbitration proceedings that were commenced before the Commencement Date.

In other words, while arbitration proceedings which are commenced before the Commencement Date continue to be governed by the Arbitration Act 1952, any court proceedings which arise from such arbitration are to be governed by the provisions of the Principal Act.

 

CONCLUSION

The amendments are welcomed as they provide greater clarity and certainty in the law as well as finality in the arbitral process and enforceability of awards.

 

ASHOK KUMAR MAHADEV RANAI ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 
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