Malaysia - Amendments To The Arbitration Act 2005 (Act 646) Comes Into Effect

Legal News & Analysis - Asia Pacific - Malaysia - Dispute Resolution

9 May, 2018


The Arbitration Amendment (No. 2) Act 2018 (the “Amendment Act”) comes into force, bringing Malaysian arbitration framework in line with the latest revision of the UNCITRAL Model Law and arbitration laws of leading jurisdictions.


The Malaysian Government has always been committed to establishing Malaysia as a global hub for arbitration, mediation, adjudication and other methods of alternative dispute resolution.


The adoption of the Amendment Act is the second step towards reinforcement of Malaysia as the leading countries in dispute resolution in the region following the rebranding of the Kuala Lumpur Regional Centre for Arbitration into the Asian International Arbitration Centre (AIAC) and signing of the supplementary agreement with the Asian-African Legal Consultative Organisation earlier this year.


According to the Amendment Act, the Arbitration Act 2005 (the “Act”) was amended to extend and expand the definition of arbitral tribunal by including “emergency arbitrator” in the definition. This guarantees that decisions by emergency arbitrators are recognised.


Another expansion of a definition in the Act is that of “arbitration agreement.” Following the UNCITRAL Model Law 2006, the Act now recognises validity of arbitration agreements concluded by form of email, fax, etc. Both amendments take into account the changes in economic and arbitration realities, with emergency arbitrations having become regular and arbitration agreements often executed electronically.


The provisions of interim measures were completely overhauled and are now fully in line with the UNCITRAL Model Law 2006: arbitral tribunals now can issue those interim measures, which are also available to the Malaysian courts. In line with the goal of making Malaysia a true UNCITRAL Model Law country, the new provisions on interim measures now also deal with the issue of recognition and enforcement of interim measures and provide for safeguards for parties against whom such measures are sought. This brings much greater clarity in the enforcement process of interim measures.


The Act also aligns the provisions on interest with global standards and now provides for the same rules as the Singapore and Hong Kong, as well as the UK: arbitral tribunals are now explicitly allowed to award simple or compound interest and at a rate considered appropriate by the arbitral tribunal. This applies to (i) sums awarded by the arbitral tribunal; (ii) sums in issue in the arbitration proceedings, which are, however, paid before the date of the award; and (iii) costs. Allowing for full party autonomy, the provision on interest is opt-out.


Also, fully in line with the arbitration acts of many other countries as well as the arbitration rules of many arbitral institutions, the Act now makes it clear that unless there is another agreement by the parties, all arbitration proceedings are confidential. The publication, disclosure or communication of information related to the arbitral proceedings or the arbitral award may only made if it is made (i) to protect or pursue a party’s legal right or interest; or (ii) the enforce or challenge the arbitral award. The disclosure must be made in legal proceedings before a court or judicial body in Malaysia or elsewhere.


Furthermore, such publication, disclosure or communication of information may be made if it is made to any government body, regulatory body, court or tribunal and the party is obliged by law to make the publication, etc. or if it is made to a professional or any other advisor of a party.


Finally, all court proceedings under the Act are in principle to be heard in closed court. This ensures that even when there are court proceedings related to the arbitration proceedings, which you usually be heard in open court, the confidentiality of the parties and the dispute is preserved. This provision served the purpose of addressing one of the criticisms that arbitration is often faced with, the fact that when there are arbitration-related court proceedings, the often-cited advantage confidentiality does not hold true any longer. It is one of the prime examples of why Malaysia is a truly safe seat.


Before the changes to the Act, the Malaysian courts, upon referral by a party, were allowed a substantive review or arbitral awards insofar as it came to “questions of law”. When the court was satisfied that the question of law substantially affected the right of one or more of the parties and that the arbitral tribunal had erred, the court was equipped with vast powers, including the varying of the award, the remission of the award or parts thereof to the arbitral tribunal for reconsideration, or the setting aside of the award.


Although there were safeguards in place which made sure that no frivolous referrals to the court were possible – the court could order the applicant to provide security for costs or order that any money payable under the award would have to be secured – this provision was obviously seen as a potential risk, especially by foreign parties.


In order to make Malaysia a safe seat and to put the Act in line with other arbitration acts worldwide, the referral to a court is not possible any longer as the entire provision, and a related additional provision, was removed. Now, the only recourse against an arbitral award is a setting-aside action.


Asia has been the world’s motor of economic growth for the last decade. The growth rates achieved in the region are unprecedented – and although China’s economic growth has recently slowed down (while still achieving growth rates the so-called ‘Western World’ dreams of), many other countries in the region have been going and are predicted to continue going from strength to strength.


Malaysia is located at the heart of the Asia-Pacific Region. Australia in the South and Japan and Korea in the North can all be reached within a day’s trip – and without any jet lag due to the same time zones. Neighbouring Singapore, Malaysia offers all the amenities its Singapore offers with respect to facilities, at a fraction of the costs there.


Being one of only two countries having access to the Strait of Malacca, one of the most important shipping lanes in the world, Malaysia is also one of the key countries geographically when it comes to the Belt and Road Initiative, which will see hundreds of billions of dollars of infrastructure investment in East Asia and Africa and a surge in trade across continents.


All of the above, including the revision of the Act, now make Malaysia a serious contender for the number one spot of the best arbitral seat in Asia.


A notification in the Gazette as to the date when the Amendment Act comes into force can be viewed here.


A full text of the Amendment Act can be viewed here