A. LEGISLATION AND RULES
International arbitration in Malaysia continues to be governed by the Arbitration Act 2005 (“Act”), to which no legislative amendment has been made since the latest amendments in 2018.
A.2 Institutions, Rules and Infrastructure
The Asian International Arbitration Centre (AIAC) continues to rise as the leading arbitration institution in Malaysia. On 13 November 2020, the Government of Malaysia appointed former Malaysian Federal Court judge The Honourable Tan Sri Datuk Suriyadi bin Halim Omar as the new Director of the AIAC for the term of 2020 to 2022, replacing Vinayak Pradhan after his passing in March 2020. Under Tan Sri Datuk Suriyadi’s leadership, all case management practices for ADR matters and all pending appointment requests, decisions, and approvals resumed in December 2020.
B.1 Setting Aside Rules
The Federal Court in Master Mulia Sdn Bhd v Sigur Rus Sdn Bhd[i] provided a welcomed clarification of the setting aside rules on the ground of breach of natural justice and the interpretation of section 37 of the Act.
In this case, Master Mulia (“Appellant”) hired out its vessel to the Sigur Ros (“Respondent”), pursuant to a Charter Party Agreement. Following a delay by the Respondent in redelivering the vessel, the Appellant claimed for, amongst others, charter hire. The Respondent disputed the claims, and the Appellant commenced arbitration proceedings, which eventually led to the arbitrator deciding in the Appellant’s favor. The Respondent then applied to set aside the arbitral award on the principal ground that it was issued in breach of natural justice.
In deciding whether the court is bound to set aside an arbitral award, the Federal Court laid down eight important guiding principles regarding the exercise of a court’s residual discretion. Essentially, the principles require the court to consider which rule of natural justice was breached and the seriousness of the breach in the sense of whether it was material to the outcome of the arbitral proceedings. If it is immaterial, discretion will be refused; if it is material and might have affected the outcome, the award may be set aside. Nonetheless, the Federal Cout made clear that although materiality must be established, prejudice is not a pre-requisite to set aside an award grounded on breach of natural justice.
This decision serves as a reminder that a court is not bound to set aside an arbitral award even where grounds of challenge under section 37 of the Act has been established.
B.2 Anti-Arbitration Injunction
The High Court in FELDA Investment Corporation Sdn Bhd v Synergy Promenade Sdn Bhd[ii] (“FELDA”) and Federal Land Development Authority v Tan Sri Haji Mohd Isa Bin Dato’ Haji Abdul Samad[iii] (“FLDA”) both applied the principle in the Federal Court case of Jaya Sudhir a/l Jayaram v Nautical Supreme Sdn Bhd,[iv] but demonstrated contrasting approaches in doing so.
Both of these High Court matters arise from the same set of background facts involving FELDA Investment Corporation Sdn Bhd (FIC) and Federal Land Development Authority filing a conspiracy suit against Synergy Promenade Sdn Bhd (SPSB). In response, SPSB initiated arbitration proceedings, to which FIC and the Federal Land Development Authority filed anti-arbitration injunctions against. The key difference between the two matters is that in FELDA, the applicant for the anti-arbitration injunction was a party to the arbitration agreement, whereas, in FLDA, the applicant was not.
The High Court, in delivering its judgments, demonstrated that a higher threshold is required for an anti-arbitration injunction where an applicant is a party to the arbitration agreement, but a different standard would be applicable where an applicant is a non-party. In the latter scenario, the Keet Gerald Francis Noel John v Mohd Noor Bin Abdullah[v] test for interim injunctions would apply.
The reasoning behind applying different tests depending on whether an application is made by a party or a non-party to the arbitration agreement appears to be that courts are less ready to grant an anti-arbitration injunction to a party in effort to give effect to an arbitration agreement and hold parties to their express agreement.
B.3 Arbitration Clauses and Judgment in Default
The Federal Court in Tindak Murni Sdn Bhd v Juang Setia Sdn Bhd and another appeal[vi] explored the friction between judgment in default (JID) of appearance and the existence of a valid arbitration clause.
The Tindak Murni Sdn Bhd (“Appellant”) and Juang Setia Sdn Bhd (“Respondent”) entered into a building contract containing an arbitration clause. Following a dispute regarding overpayments, the Respondent initiated court proceedings against the Appellant and subsequently obtained a JID. However, the Appellant successfully set aside the JID and obtained a stay, pending arbitration on the grounds that there were valid disputes against the claims and that the parties were party to an arbitration agreement. The Respondent appealed against the setting aside and stay. Although the Respondent was initially unsuccessful at the High Court, the Court of Appeal granted judgment to the Respondent on the basis that there were no differences on merits.
The Federal Court, in deciding that the arbitration clause took precedence over the JID, illustrated that section 10 of the Act is applicable even when a JID has been obtained and that courts will not review whether a dispute exists between parties. This indicates that the existence of a JID is immaterial to a party’s right to arbitrate where there is a valid arbitration agreement, as the court’s role is merely highlighted in section 10 of the Act.
This case demonstrates the court’s emphasis on holding parties to their promises and preserving the autonomy of parties in deciding on a dispute resolution mechanism. The Federal Court’s strict approach of not considering the merits of a case before referring the matter to arbitration serves as a reminder for contracting parties to tailor their agreements carefully, for instance, by expressly excluding certain straightforward disputes from being referred to arbitration if necessary.
B.4 Arbitrator’s Own Knowledge and Expertise
In Pancaran Prima Sdn Bhd v Iswarabena Sdn Bhd,[vii] the arbitration proceeding was before an arbitrator who is a professional engineer and chartered arbitrator. The crux of the issues considered by the Federal Court is whether an arbitrator can be said to have breached the rules of natural justice where he relies on his own knowledge and expertise in arriving at a decision.
Although the Federal Court decided that the arbitral tribunal can indeed exercise its own personal knowledge and expertise without being in breach of the rules of natural justice, the court differentiated lay arbitrators from arbitrators appointed because of their knowledge and experience. With regards to the latter, courts will be slow to interfere with the arbitrator’s findings, in line with section 21(3)(b) of the Act, which expressly confers power on an arbitrator to draw on his own knowledge and expertise.
This case highlights the unique strength of arbitration proceedings in which parties are able to choose their own arbitrator, unlike in court proceedings. Where matters require expert knowledge, parties may find it beneficial to engage an arbitrator with the relevant knowledge and expertise.
[i]  12 MLJ 198.
[ii]  MLJU 1645.
[iii]  MLJU 1587.
[iv]  5 MLJ 1.
[v]  1 MLJ 193.
[vi]  MLJU 232.
[vii]  MLJU 1273.