A. LEGISLATION AND RULES
A.1 Legislation
International arbitration in Malaysia continues to be governed by the Arbitration Act 2005 (“AA 2005“).
This act was amended by the Arbitration (Amendment) Act 2024 (“2024 Act”) which was gazetted on 1 November 2024 and passed as law. However, the amendments are not yet in force, as this date is to be appointed by the minister.
That being said, here are the 10 key changes that were introduced in the 2024 Act:
A.1.1 President of the AIAC court
The Asian International Arbitration Centre (AIAC) has been replaced by the Asian International Arbitration Centre Court of Arbitration.
The term “Director of AIAC” is replaced by the term “President”, which refers to the President of the Asian International Arbitration Centre Court of Arbitration.
The change aligns with the restructuring initiatives of the AIAC, as outlined in the Supplementary Agreement between the Government of Malaysia and the Asian-African Legal Consulate Organization.
A.1.2 Law applicable to arbitration agreement
Section 9(4)(b)[1] reflects the inclusion of “any other documents” as constituting an arbitration agreement in writing.
Previously the subsection considered an arbitration that an agreement in writing is found if it was contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.
With this amendment, an arbitration agreement can now be established through any other documents in which one party alleges the existence of an agreement, and the other party does not deny it.
In addition, much needed clarity to the law applicable to arbitration agreement has been introduced via section 9A[2] which provides that parties in arbitration have the freedom to agree on the governing law for their arbitration agreement, failing which this will be the law of the seat of the arbitration. The governing law of the main agreement is not the law of the arbitration agreement.
A.1.3 Arbitrators
The newly added subsection 13(3A)[3] clarifies that where there are multiple claimants and multiple respondents, all claimants shall jointly appoint one arbitrator, and all respondents shall jointly appoint one arbitrator.
On the other hand, subsection 17(2)[4] provides for a discretion to repeat hearings previously held where any arbitrator (including the presiding arbitrator) is replaced. Previously, it was mandatory to repeat hearings where a single or presiding arbitrator is replaced. This is of course subject to the parties’ agreement.
This change is a significant step towards expediting the arbitration process in Malaysia by eliminating unnecessary or irrelevant repetitions of previous hearings following the replacement of an arbitrator. Additionally, it may prevent the parties from incurring unnecessary extra costs during the proceedings.
A.1.4 Recognition of digital and electronic signatures in awards
The insertion of subsections 33(2A)[5] and 33(9)[6] provide that the signatures of the arbitrator on an award shall include the digital and electronic signatures of the arbitrators on the award. “Digital signature” shall have the meaning assigned to it in the Digital Signature Act 1997 whilst “electronic signature” shall have the meaning assigned to it in the Electronic Commerce Act 2006.
This amendment is particularly relevant in the context of today’s rapidly evolving technological landscape, where agreements are increasingly being signed electronically or digitally through platforms. The clarity this amendment brings is instrumental in averting disputes over the validity of signature forms during arbitration proceedings and supports environmental sustainability.
A.1.5 Simplified arbitral award recognition
An arbitration award (where the seat of arbitration is in Malaysia or an award from a foreign state) is now expressly said to be binding, without the need for an application to the High Court.
However, an application in writing to the High Court is still required to enforce the award pursuant to section 28 of the 2024 Act.
In contrast, under the pre-amended provision, recognition and enforcement both required an application in writing to the High Court. The change harmonizes this provision with the UNCITRAL Model Law.
A.1.6 Third-party funding
A new chapter, “Third-Party Funding”, is introduced after section 46 of the 2024 Act as sections 46A – 46I[7].
Third-party funding of arbitration and court proceedings in respect of an arbitration shall no longer be prohibited in Malaysia.
Section 46(c)[8] provides that the rule of common law against maintenance and champerty shall cease to apply in relation to the third-party funding of arbitration and that a third-party funding agreement shall not be treated as contrary to public policy on the grounds of maintenance and champerty. This does not apply to third-party funding agreements made before the date of this chapter[9] (section 46(b) and relevant definitions are defined in section 46(a)).
A.1.7 Third-party funding code of practice
The new section 46D[10] provides for the power of the minister to issue a code of practice setting out the practices and standards relating to third-party funding in which third-party funders are ordinarily expected to comply.
This code would be admissible in evidence in proceedings before court or arbitration, and may cover the following:
- Requirements on promotion of the third-party funding
- Requirements for a third-party funding agreement (such as the degree of control that a Funder will have on an arbitration, the liability of a funded party, and termination of the agreement)
- Criteria on a third-party funder including the sufficient maximum amount of capital which shall be satisfied by the Funder
- Procedures for addressing conflicts of interests (potential/ perceived/ actual) by a Funder
- Procedures for enhancing the protection of a funded party
In the event of non-compliance with the code, section 46E provides that a third-party funder shall not be rendered liable to any action or legal proceedings. However, the arbitral tribunals have the discretion to consider any compliance or non-compliance which are relevant to the questions being decided.
A.1.8 Disclosure of information and third-party funding agreement
In summary, these sections address the disclosure of information as follows:
- 46F- on information for the purpose of seeking or securing third-party funding
- 46G- on the funding agreement to the other party to the arbitration, arbitration tribunal and court
- 46H- on the termination of the funding agreement to the arbitration, arbitration tribunal and court
Whereas 46I provides for the effect of non-compliance.
46F allows disclosure of any information relating to the arbitration proceedings or an award to any person for the purpose of seeking or securing funding from that person. That person shall not further disclose the information unless (either of) the following is true:
- It is made to protect/ pursue a legal right of that person; where that person is obliged by law to do so to a government body/ regulatory body/ tribunal/ court; or
- It is made to a professional or any other adviser for the purpose of obtaining advice relating to the third-party funding
Similar considerations would apply to that professional or any other adviser in receipt of such information.
46G provides that the funded party must disclose (i) the fact that there is a third-party funding agreement; (ii) the name of the third-party funder, upon the commencement of arbitration or court proceedings or within 15 days after the agreement is made (where this is made after the commencement of proceedings) or immediately after the arbitral tribunal is appointed (where the appointment of the tribunal was not previously done).
46H provides that the funded party must disclose (i) the termination/ end of a third-party funding agreement; (ii) the date, within 15 days after such termination/ end.
Lastly, in the event of non-compliance, section 46I mirrors section 46E to the effect that a third-party funder shall not be rendered liable in any action or legal proceedings, and that arbitral tribunals have the discretion to consider any compliance or non-compliance which are relevant to the questions being decided.
A.1.9 Broader immunity
Section 48[11] now provides for broader immunity by deleting the reference made to the Director of AIAC, thereby leaving the amended provision merely referring to “any person”.
This means that any person or institution acting as an appointing authority authorized by the parties, enjoys immunity from liability for their actions or omissions in discharging their functions—unless there is evidence of bad faith.
A.1.10 Savings provision
All appointments, decisions, and actions previously carried out by the Director of the AIAC will- on the date of coming into operation of the Act- be attributed to the President of the Asian International Arbitration Centre Court of Arbitration- unless revoked, amended, repealed, rescinded or replaced by the said President.
In addition, the law governing arbitration agreements made before the enactment of this Act continues to be governed by the principal Act, unaffected by these changes.
A.2 Institutions, rules and infrastructure
The latest arbitration rules for AIAC remain the AIAC Arbitration Rules 2023, AIAC i-Arbitration 2023, and AIAC Mediation Rules 2023 (“Rules“).
We anticipate amendments to the 2023 Rules in due course to be in line with the 2024 amendments to AA 2005 (yet to come into effect).
B. CASES
The Malaysian courts have decided on numerous arbitration matters throughout the year of 2024. Some of the cases are explored below.
B.1 Validity of an oral arbitral award
In Telekom Malaysia Bhd v Obnet Sdn Bhd[12], the respondent, Obnet, initiated arbitration proceedings against Telekom Malaysia over a dispute related to the SELNET project, a high-speed broadband network for the Selangor State Government. The arbitrator decided to bifurcate the proceedings, addressing liability first and damages later. After hearing both parties, the arbitrator delivered an oral decision in favor of Obnet on liability but chose not to issue a written award until after the hearing on damages was completed.
Telekom Malaysia challenged this approach, arguing that the oral decision violated sections 2 and 33 of the AA 2005, which mandate that an award must be in writing, and article 34 of the UNCITRAL Arbitration Rules, which require that awards be made in writing and be final and binding.
The Federal Court unanimously allowed Telekom Malaysia’s appeal, ruling that the arbitrator’s oral decision on liability was a decision on the substance of the dispute between parties and therefore final and binding on the issue of liability. The argument that it was not an award as the issue of quantum had yet to be determined was untenable as article 34 UNCITRAL Arbitration Rules provided that the arbitral tribunal may make separate awards on different issues at different times.
As such, a written award on liability ought to be given as an oral decision was invalid and of no legal effect as it could not be enforced, set aside, or even form the basis for reference in law. Section 33(1) of the AA 2005 further excluded the possibility of the arbitrator making an oral award.
It follows that the arbitrator was not entitled to proceed with the determination of quantum until a written award on the issue of liability had been given as required under AA 2005 and Obnet was so restrained from continuing with the arbitration proceedings until this was done.
B.2 Power of the courts to grant interim Measures
Cypark Sdn Bhd v KNM Process Systems Sdn Bhd and other appeals[13] concerns Bank Guarantees (BGs) issued pursuant to a building contract. The BGs were subsequently subjected to calls made by the defendant (Cypark), and the plaintiff (a consortium between KNM Process and Hitachi) challenged the validity of these calls. The High Court judge allowed the applications. Both parties appealed.
The Court of Appeal re-emphasized that the court is only empowered to grant interim measures pursuant to section 11(a)-(e) of the Act and is not able to grant permanent or final relief which will be decided upon by the arbitral tribunal. The reasoning of the court’s interim measures does not bind the arbitral tribunal nor are parties bound or estopped in the arbitral proceedings by the said reasoning of the court.
[1] Arbitration (Amendment) Act 2024
[2] Ibid
[3] Ibid
[4] Ibid
[5] Ibid
[6] Ibid
[7] Ibid
[8] Ibid
[9] Ibid, Chapter 2, Third-Party Funding
[10] Ibid
[11] Ibid
[12] [2024] 6 MLJ 293
[13] [2024] MLJU 805
