A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Malaysia continues to be governed by the Arbitration Act 2005, to which no legislative amendments have been made since 2018.
A.2 Institutions, rules and infrastructure
The Asian International Arbitration Centre (AIAC) in Malaysia has released its latest updates in the form of AIAC Arbitration Rules 2023, AIAC i-Arbitration 2023, and AIAC Mediation Rules 2023 ( “Rules“), which has taken effect from 24 August 2023.
These Rules are rooted in UNCITRAL’s Arbitration Rules and UNCITRAL’s Mediation Rules and are aimed to offer clear guidance for all. Flexibility and customization options are also built into a more streamlined, efficient process.
That said, here are 10 key changes that were introduced in the 2023 Arbitration Rules:
1. UNCITRAL Arbitration Rules 2021
The 2021 UNCITRAL Arbitration Rules adopted the UNCITRAL Expedited Arbitration Rules and introduced a new paragraph to incorporate the Expedited Rules.[1] The focus of the 2021 version seems to emphasize the need for the parties’ express consent in order to apply the Expedited Rules to the arbitration process; this is supported by AIAC’s changes to the Fast Track Procedure, which will be discussed below. In the 2021 Arbitration Rules, the AIAC and UNCITRAL Arbitration Rules were merged into one part to streamline the Arbitration Rules and prevent conflict in both rules. This year, AIAC, in their newest arbitration rule, decided to revert to the previous approach in the 2018 version and separated both rules into different parts, namely I and II. Where conflict arises between the two parts, the provisions in Part I will prevail.[2]
2. Fast Track Procedure – Requirements
The provisions of the AIAC Fast Track Procedure, which previously could be found under Rule 8, have been moved to Schedule 4 of Part III.[3] The provision has been revised to provide better clarity through comprehensive provisions, as well as the addition of sub-clauses as a heading for a better structure of the procedure. Parties can now refer to clause 2 onward for procedural directions or clarifications when conducting Fast Track Arbitration.
The requirements for AIAC’s Fast Track Procedure were also previously found under Rule 8 of the 2021 Rules. Now, they have been extracted into a separate provision. The new criteria to initiate the Fast Track Procedure have been amended to the following:
- The parties have agreed in writing, by an arbitration agreement or otherwise, to arbitrate their dispute or refer their dispute to arbitration under the AIAC Fast Track Procedure.[4]
- The amount in dispute is quantified at less than USD 300,000 for an international arbitration or less than MYR 1 million for a domestic arbitration.[5]
The first criterion expressly states that the parties not only need to consent to arbitrate the dispute under the Fast Track Procedure but that the said consensus has to be in writing. In our opinion, the additional requirement for it to be in writing provides more clarity to the parties in the event of arbitration and also serves as hard evidence to prevent the parties from going back on their agreement in an attempt to maybe delay the arbitration process when the dispute can be resolved using the Fast Track Procedure.
For the second criterion, the default maximum dispute amount has been reduced from USD 500,000 to USD 300,000 for international arbitrations and from MYR 2 million to MYR 1 million for domestic arbitrations. The reduction in the disputed amount allows for better judgments for bigger disputes, as it gives the Tribunal more time to decide on the dispute. On the other hand, the reduction could also restrict the applicability of the Fast Track Procedure.
In the 2021 Arbitration Rules, there was an additional criterion that allowed for cases of “exceptional urgency” to qualify for the Fast Track Procedure, but that has been removed. The removal of the criteria provides better clarity on the applicability as the third criterion was vague, and there was no definition provided in the rules as to what constituted “exceptional urgency.”
3. Fast Track Procedure – Time for Award
Under Clause 15 in Schedule 4, an award under the Fast Track Procedure shall be made within six months from the date of the constitution of the Arbitral Tribunal, unless otherwise agreed by the parties.[6] The Arbitral Tribunal may, in exceptional circumstances and after hearing the parties’ views, extend the period of time to up to nine months from the date of the constitution of the Arbitral Tribunal.[7] If the Arbitral Tribunal concludes that it is at risk for not rendering an award even within the extended nine months, then it can propose to the parties a final extended time limit along with reasons. The final extension will only be adopted if all parties express their agreement to it.[8] If the parties do not agree to the final extension, then they may make a request to disapprove the Fast Track Procedure and follow the regular Arbitration Rules. The Arbitral Tribunal may then determine to continue the arbitration in accordance with the AIAC Arbitration Rules after inviting the parties to express their views.[9] The time limit for awards is a new addition to the 2023 Rules; it provides clarity and gives a clear time frame for awards for the parties, which was not available in the previous edition.
4. Emergency arbitrator
Under Clause 1.6 in Schedule 3, any emergency decision on interim measures shall be made within 14 days from the date of application for the appointment of the emergency arbitrator.[10] This is a change from the 2021 Rules, where the decision was to be made within 15 days of the delivery of the first procedural order for the conduct of the emergency arbitration proceedings. This effectively reduces the time an emergency arbitrator has to make a decision and provides the parties with a faster decision during times of emergency.
5. Third-party funding
Rule 12 is another new addition to the 2023 Rules, and it exclusively addresses third-party fundings. Third-party fundings were only briefly covered in Rule 1 (General rules), where third-party funding shall not affect or preclude the adoption of AIAC Arbitration Rules, and Rule 13 (Power of the Arbitral Tribunal), where the Arbitral Tribunal may enquire and request that the parties disclose the existence of third-party funding arrangements. Third-party funding is now expressly allowed, provided that the existence of the funding and the identity of the funder are disclosed.[11]
6. Challenge of arbitrator
The grounds for the challenge of the arbitrator remain the same, but there has been a slight change in the procedural rules. Rule 4 of the 2023 Rules states that a challenge can be initiated by sending a notice of challenge (in writing) within 15 days of the receipt of the notice of appointment of the challenged arbitrator or within 15 days when the grounds of challenge became known to the party.[12] Then, a Challenge Application consisting of the said notice, along with the proof of the service of the notice of challenge to all parties in the arbitration and the proof of payment of the non-refundable challenge fee, shall be sent to AIAC.[13] Previously, a separate Challenge Request had to be submitted to the AIAC for the director to determine if the challenge could not be resolved within 15 days from the date of the notice of challenge. Now, the challenging party can, within 30 days from the date of the notice of challenge, directly seek a final decision on the challenge from the appointing authority.[14] This slight change in procedure streamlines the challenging process as the parties no longer need to submit separate notices/requests during the challenge; instead, one comprehensive Challenge Application is sufficient.
7. Additional powers of the Arbitral Tribunal
The guidelines on the powers of the Arbitral Tribunal in Rule 6 have been amended to remove some of the previous provisions.[15] The following provisions have been removed:
- The power to determine the rules or law applicable to the substance of the dispute and the law governing the arbitration agreement in the absence of any agreement by the parties
- The power to determine the language of the arbitral proceedings in the absence of any agreement by the parties
- The power to conduct case management meetings with the parties, in person or virtually, to discuss the procedures most appropriate and efficient for the case
- The power to direct the order of proceedings, including but not limited to setting the timetable for submissions, determining the number of written submissions, bifurcating proceedings, limiting or excluding irrelevant testimony or other evidence or materials, and directing the parties to focus their submissions on issues in respect of which a decision may dispose of all or part of the case
Previously, the Arbitral Tribunal’s powers were not limited to the list and were meant to be non-exhaustive. However, such broad wordings have been removed. Instead, the provision was amended to give the parties more powers over the arbitration. This seems to be in line with the flexible nature of arbitration and supports the principle of party autonomy.
8. Joinder of Parties
Rule 9 on the Joinder of Parties has been summarized into a short provision without much detail on either the requirements of the joinder request or the procedural rules of the process.[16] The provision used to set out a list of documents that should be included in a joinder request and also provided procedural guidelines in terms of time frames, but those sections have been removed. The provision now seems to focus more on whether to admit additional parties to the arbitration and gives the parties more freedom on the procedural part of it.
9. Confidentiality
Finally, Rule 21 on Confidentiality has been amended to improve clarity. Previously, an award may only be published by AIAC with the express written consent of the parties. Now, unless otherwise informed to the director in writing by any of the parties or the Arbitral Tribunal before an award is made, the general presumption is that the parties and the Arbitral Tribunal shall be deemed to have consented to the AIAC disclosing, producing or publishing the award by any means the AIAC deems fit after two years from the release of the Award to the parties.[17] This change shifts the position on confidentiality from needing express consent from the party to a presumption of consent (after two years). Furthermore, a list of confidential information and details to be deleted should there be disclosure, production or publication has been included in the provision.[18] This addition guarantees that sensitive information and identity details of the parties are not included during disclosure and ensures confidentiality on a certain level.
10. Vacancy of the position of director
Rule 24 is a new rule that addresses the rare event that the position of director of the AIAC becomes vacant.[19] The rule sets out a hierarchy in order of precedence on who would assume the powers of the director until a new one is appointed:
(i) Deputy director
(ii) Assistant director
(iii) Head of Legal Services
While the application of the said provision is likely to be rare, it nevertheless addresses such exceptional situations and ensures that there are guidelines for the parties to refer to during such situations.
Conclusion
Besides the 10 key changes mentioned above, there are also other amendments in the 2023 Arbitration Rules to streamline and optimize the arbitration process. For example, Rules on Commencement of Arbitration,[20] Replacement of the Arbitral Tribunal,[21] Interim Measures[22] and others have also been amended to provide more clarity and reduce complexity.
[1] UNCITRAL Arbitration Rules 2021.
[2] AIAC Arbitration Rules 2023, Rule 1(3).
[3] Ibid, Schedule 4.
[4] Ibid, Schedule 4 Clause 1(2)(a).
[5] Ibid, Schedule 4 Clause 1(2)(b).
[6] Ibid, Schedule 4 Clause 15(1).
[7] Ibid, Schedule 4 Clause 15(2).
[8] Ibid, Schedule 4 Clause 15(3).
[9] Ibid, Schedule 4 Clause 15(4).
[10] Ibid, Schedule 3 Clause 1(6)(a)
[11] Ibid, Rule 12(1).
[12] Ibid, Rule 4(2).
[13] Ibid, Rule 4(3).
[14] Ibid, Article 13(4).
[15] Ibid, Rule 6.
[16] Ibid, Rule 9.
[17] Ibid, Rule 21(5)
[18] Ibid, Rule 21(6).
[19] Ibid, Rule 24.
[20] Ibid, Rule 2.
[21] Ibid, Rule 5.
[22] Ibid, Rule 8.
