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Arbitration in Malaysia is a widely used alternative dispute resolution (ADR) mechanism for resolving commercial disputes. In Malaysia, arbitration is governed by the Arbitration Act 2005, which is based on the UNCITRAL Model Law. The Arbitration Act 2005 applies to both domestic and international arbitrations conducted in Malaysia.

The Asian International Arbitration Centre (AIAC), formerly known as the Kuala Lumpur Regional Centre for Arbitration (KLRCA), is a major arbitration institution that facilitates domestic and international arbitrations.

One of the advantages, among others, that parties can avail of arbitration process is that, in arbitration there is significant flexibility in conducting proceedings, allowing for a more efficient and tailored process, particularly because parties can agree on the rules governing the procedure. Further, the confidentiality is one of the most important features of arbitration in Malaysia.

The arbitrability of a subject matter is rather wide, as section 4 of the Arbitration Act 2005 provides that any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy or the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia. Indeed, the fact that any written law confers jurisdiction in respect of any matter on any court of law but does not refer to the determination of that matter by arbitration shall not, by itself, indicate that a dispute about that matter is not capable of determination by arbitration.

Pursuant to section 9 of Arbitration Act 2005, arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them. It is important to note that an arbitration agreement may be in the form of an arbitration clause in an agreement or in the form of a separate agreement. A reference in an agreement to a document containing an arbitration clause shall constitute an arbitration agreement, provided that the agreement is in writing and the reference is such as to make that clause part of the agreement. Nevertheless, the bottom line is that such agreement must be in writing.[1]

The finality of an arbitral award lies with the section 36 of the Arbitration Act 2005, whereby an award made by an arbitral tribunal pursuant to an arbitration agreement shall be final and binding on the parties and may be relied upon by any party by way of defence, set-off or otherwise in any proceedings in any court. In addition, section 8 of the Arbitration Act 2005 expressly provides that no court shall intervene in matters governed by this Act, except where so provided in this Act.

This is strengthened by the fact that there are limited grounds to set aside an arbitral award and the Malaysian courts play a supportive role in the arbitration process and are generally pro-arbitration. Under section 37 of Arbitration Act 2005, an award may be set aside by the High Court only if the applicants for setting aside provides proof that:

(i) a party to the arbitration agreement was under any incapacity;

(ii) the arbitration agreement is not valid under the law to which the parties have subjected it, or, failing any indication thereon, under the laws of Malaysia;

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present that party's case;

(iv) the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;

(v) the award contains decisions on matters beyond the scope of the submission to arbitration; or

(vi) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Act from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Act; or

Further, an arbitral award can also be set aside if the High Court finds that the subject-matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia or the award is in conflict with the public policy of Malaysia.[2] It is noted that such award is said to constitute a conflict with public policy if the making of the award was induced or affected by fraud or corruption or there is a breach of the rules of natural justice.[3]

In summary, arbitration in Malaysia provides a robust legal framework for the resolution of commercial disputes, both domestic and international. The country's commitment to international conventions and the availability of established arbitration institutions contribute to its status as an attractive venue for arbitration.

[1] If its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means. Alternatively, if it is contained in an exchange of statement of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other. Besides, the requirement that an arbitration agreement be in writing is met by any electronic communication that the parties make by means of data message if the information contained therein is accessible so as to be useable for subsequent reference.

[2] Section 37(1)(b) of Arbitration Act 2005

[3] Section 37(2) of Arbitration Act 2005

Authored by Tan Zu Hao

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