How much do you know about the implications of choosing a seat of arbitration in Malaysia?

How much do you know about the implications of choosing a seat of arbitration?

A party to an arbitration may have particular reasons to object against or challenge the arbitral tribunal’s jurisdiction to hear the dispute – for example, on grounds that there never was an arbitration agreement entered into between the parties, or that the arbitration agreement, if it exists, is invalid. Pursuant to Section 18 of the Malaysian Arbitration Act 2005 (“Act”), questions on the jurisdiction of the arbitral tribunal can be determined by the arbitral tribunal itself – including any objections with respect to the existence or validity of the arbitration agreement.

The mechanism for a party to challenge the arbitral tribunal’s jurisdiction, under the Act, can be briefly summarized as follows:-

• a plea that the arbitral tribunal does not have jurisdiction must be raised not later than the submission of the statement of defence;

• a plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings;

• notwithstanding the above, the arbitral tribunal may admit such plea if it considers the delay justified;

• a party shall not be precluded from raising a plea of no jurisdiction by reason of that party having appointed or participated in the appointment of the arbitrator;

• the arbitral tribunal may rule on such a plea either as a preliminary question or in an award on the merits;

• where the arbitral tribunal rules on such a plea as a preliminary question that it has jurisdiction, any party may appeal to the High Court on the same, after which no further appeal shall lie; and

• when an appeal to the High Court is pending, the arbitral tribunal may continue with the arbitral proceedings and make an award.

Section 18 of the Act closely mirrors Article 16 of the UNCITRAL Model Law on International Commercial Arbitration (“Model Law”). It therefore similarly provides for an appeal to the High Court against the ruling of the arbitral tribunal on its jurisdiction, only where the arbitral tribunal has made a positive ruling that it has jurisdiction.

The express wordings of Section 18(8) of the Act are reproduced below:-

Where the arbitral tribunal rules on such a plea as a preliminary question that it has jurisdiction, any party may, within 30 days after having received notice of that ruling, appeal to the High Court to decide the matter.” (emphasis added)

The Act is silent on what happens when an arbitral tribunal makes a negative ruling on its jurisdiction. The necessary implication is that if an arbitral tribunal erroneously declines to hear a dispute on grounds that it has no jurisdiction to do so, there is no avenue of appeal against this ruling. Depending on the nature of the objection raised however, parties may be precluded by estoppel from referring the dispute to a different arbitral tribunal and consequently, be compelled to submit the substantive dispute to the national courts for determination. This would be the case if, for example, the arbitral tribunal determines that the dispute referred falls outside the ambit of the arbitration agreement. In other words, a negative ruling on jurisdiction will effectively terminate the arbitration proceedings and there is no other recourse to the party dissatisfied with such a ruling on jurisdiction.

The current position in Malaysia remains untested by case law and it remains to be seen whether Malaysian courts will interpret Section 18 of the Act strictly so as to exclude the court’s jurisdiction to entertain appeals on negative rulings of jurisdiction. Based on the current trend of non-intervention by the Malaysian courts and the fact that Section 8 of the Act prohibits the courts from intervening in any matters governed by the Act unless otherwise provided, it is likely that the courts would decline to entertain such appeals.

Parties who are negotiating arbitration agreements would therefore be well advised to consider whether the contemplated seat of arbitration allows for court review of negative rulings on jurisdiction as it may result in an unanticipated curtailment of the right to arbitrate as the preferred mode of dispute resolution.

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This article was written by Elaine Yap and Donovan Cheah and was first published in the American Chamber of Commerce E-Update, Vol 1 Issue 30 (October 2010).

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