While most of us may have a rough idea about what court proceedings are, not many may be aware of an alternative dispute resolution process known as “arbitration”. While sharing the same objective as court proceedings (i.e.: the aim is to resolve a dispute), arbitration is a private process that is done without a judge, and can even be completed in your office meeting room. Here are five things you should know about arbitration in Malaysia:
Party Autonomy is Key – but it could come with a price
Unlike court proceedings, arbitration can only take place if both parties have agreed to have their disputes resolved via arbitration. For example, if there is a dispute arising under a contract, there should be an arbitration clause in that contract whereby parties have agreed to arbitration. Party autonomy is key in arbitration proceedings – which means that parties are generally free to agree on how the arbitration should proceed. Unlike court proceedings, parties can agree on the arbitrator (the person deciding the dispute), the language of the proceedings, what arbitration rules to apply, and other factors.
Unlike the court process, arbitration is often viewed as being less formal due to the concept of party autonomy as described above. Parties do not have to deal with the formalities and technicalities of a court process (e.g.: courtroom etiquette). The venue of the arbitration can take place anywhere – e.g.: one party’s office, or a rented meeting room such as in a hotel or at the premises of the Asian International Arbitration Centre (AIAC).
However, arbitration is more expensive compared to court proceedings. Parties will have to pay for arbitrator’s fees (which, depending on which rules of arbitration are adopted, are usually based on the quantum of the claim), the arbitration institution’s administrative fees (if institutionalized arbitration is adopted) and other miscellaneous costs such as meeting room rental. In Malaysia, court filing fees are nominal in comparison.
No judge, just an arbitrator
The person who presides over an arbitration proceeding is known as an arbitrator (not a judge). Depending on the arbitration agreement or the rules of arbitration that are adopted, the arbitral tribunal can consist of either a sole arbitrator, or an odd number such as three arbitrators or five arbitrators.
There is no requirement for an arbitrator to be a lawyer, a judge, or someone legally trained. Parties are free to specify the qualifications and expertise required – for example, if it is a construction dispute, parties may agree that any arbitrator appointed should have engineering qualifications, or a minimum number of years of experience in the construction industry. This is different from court proceedings whereby the selection of the judge hearing your case is randomized and you cannot select or impose pre-conditions on the judge’s qualifications.
If parties cannot agree on the arbitrator, it is also possible to have an independent third party (e.g.: the Asian International Arbitration Centre) appoint the arbitrator.
There are many arbitration institutes to choose from
In Malaysia, we have the Asian International Arbitration Centre (AIAC), formerly known as the Kuala Lumpur Regional Centre for Arbitration. AIAC is Malaysia’s very own hub for alternative dispute resolution. Apart from the provision of institutional support for domestic and international arbitrator and other ADR proceedings, AIAC offers hearing facilities and ancillary administrative services to tribunals operating ad hoc or under the auspices of another institution.
Malaysian parties are not limited to choosing the AIAC as the arbitration institute. There are many arbitration institutions around the world. For example, the Singapore International Arbitration Centre (SIAC) or the Hong Kong International Arbitration Centre (HKIAC). To illustrate, it would be perfectly acceptable for two Malaysian parties to agree that their disputes are to be settled by arbitration using the rules of the SIAC.
It is not mandatory to select an arbitration institute when entering into an arbitration agreement, as parties can also agree to conduct an “ad hoc” arbitration without any institute involved.
Due to the complexities involved and the different implications, parties are always advised to get legal advice when drafting an arbitration agreement.
Arbitration is confidential
Court proceedings are potentially a public affair: some court judgments are published, court papers can be publicly accessible via online file search, and trials are usually heard in “open court” (which means any member of the public can observe the proceedings). In comparison, arbitration is a private process that only involves the parties named. To this end, the Malaysian Arbitration Act 2005 was recently amended to provide that unless otherwise agreed by the parties, no party may publish, disclose or communicate any information relating to the arbitration proceedings or an award made in those arbitral proceedings.
An arbitral award is final, and almost like a court judgment
The decision of the arbitral tribunal on the merits of the claim is referred to as an “award”. An arbitral award is final and binding on the parties, and can only be set aside in exceptional circumstances (e.g.: if the award was obtained via fraud). An arbitration award (even if obtained outside of Malaysia), once registered with the High Court, may be enforced as a court judgment. In certain circumstances, an arbitral award made in Malaysia may be enforced in other countries, too.
The above are just some of the key fundamentals of arbitration, compared to court proceedings. While the speed and efficiency of the court process in Malaysia has improved tremendously over the past few years, arbitration is still seen as an attractive method of resolving disputes, especially where confidentiality is paramount and specialist expertise is required.
About the author: Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation.
Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, family law and real estate/conveyancing. Have a query? Contact us.