Arbitration in Malaysia is governed by the Arbitration Act 2005. It repealed the previous legislation passed in 1952, and was hailed as a welcome modernisation of the law of arbitration. As judicial precedents are made under the Act however some concerns have become apparent.
Based on the current state of the law for example no party is able to invoke the assistance of the Malaysian courts in aid of any arbitration proceedings where the seat of arbitration is outside Malaysia.
The High Court in Aras Jalinan Sdn Bhd v Tipco Asphalt Public Company Ltd & Ors [2008] 5 CLJ 654 construed section 3 of the Arbitration Act 2005 as limiting the applicability of the Act to only two categories of arbitrations:
(a) domestic arbitration where the seat of arbitration is in Malaysia, and
(b) international arbitration where the seat of arbitration is in Malaysia.
Accordingly, the High Court determined that it has no jurisdiction to grant an injunction to preserve the subject matter of an arbitration – or any other order for that matter – since the seat of arbitration was outside Malaysia. This is a remarkable departure from the position before.
The right of parties to apply to any competent judicial authority for interim or conservatory measures without restriction of its application to courts situated in the seat of arbitration used to be taken for granted. Now, this is no longer a right available to parties who choose a seat outside Malaysia.
It also used to be trite that the Malaysian Courts will stay any court action filed in breach of an agreement to arbitrate, irrespective of the chosen venue for arbitration. Now, arbitration clauses providing for venues of arbitration outside Malaysia are unenforceable against parties who choose to sue in the Malaysian court instead.
It remains to be seen whether it was the intention of Parliament to limit the application of the Arbitration Act 2005 only to arbitration proceedings with the seat in Malaysia. There has been no amendment to the Act since the Aras Jalinan case. Until that happens or until the issue is clarified by the appellate courts in Malaysia, parties negotiating arbitration clauses in their contractual documents may just need to be more circumspect when choosing the venue for their arbitrations.
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Elaine Yap
Partner
Tel: +603 2298 7838
E: elaine.yap@wongpartners.com