What is arbitration?
Arbitration is an alternative dispute resolution mechanism whereby parties agree to have their disputes settled by a third party (i.e. one or more arbitrators). In choosing arbitration, parties agree not to go to court to settle their dispute. Arbitration is sometimes seen as an attractive alternative to the court process especially in certain industries or where there is an international element to the dispute. Arbitration proceedings in Malaysia are governed by the Arbitration Act 2005 (“Act”).
For more information on arbitration, please see our earlier article.
Are arbitral awards from other countries recognised in Malaysia?
Yes. Malaysia is a party to the Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (“New York Convention”), which requires courts of contracting states to recognise and enforce arbitration awards made in other contracting states. As at the time of writing of this article, there are 159 contracting states to the New York Convention.
For example, if a Singapore company has an arbitral award against a Malaysian company, the Singapore company can seek to have the arbitral award enforced in Malaysia against that Malaysian company, subject to certain conditions. This is because Singapore and Malaysia are both parties to the New York Convention.
How are arbitral awards enforced in Malaysia?
Under the Act, an arbitral award shall be final and binding on the parties.
Section 38 of the Act covers the recognition and enforcement of awards where the seat of arbitration is in Malaysia, or where the award is from a state which is a contracting party to the New York Convention.
Briefly, a party who seeks to enforce such an arbitral award must apply to the High Court to have the award recognised as binding. Once the award is recognised by the High Court, the award may be enforced as if it were a court judgment in terms of the award.
Can the Court refuse to recognise or enforce an arbitral award?
Yes. Section 39 of the Act provides that recognition or enforcement of the award may be refused by the High Court in exceptional situations, i.e.:
- a party to the arbitration agreement was under any incapacity
- the arbitration agreement is not valid under the law to which the parties have subjected it;
- the party opposing the recognition and enforcement was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case;
- the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration;
- the award contains decisions on matters beyond the scope of the submission to arbitration
- the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties
- the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, under the law of which, that award was made
- the subject matter of the dispute is not capable of being settled by arbitration under the laws of Malaysia;
- or the award is in conflict with the public policy of Malaysia.
(“Grounds for Refusing Recognition and Enforcement”)
Is there any difference between the enforcement of a foreign arbitral award and the enforcement of a foreign judgment in Malaysia?
Yes. Enforcement of a foreign court judgment can be done pursuant to the Reciprocal Enforcement of Judgments Act 1958 (“REJA”). However, there are strict requirements; for example, the foreign court judgment must be a monetary judgment and from a superior court from one of the countries specified in REJA. At the time of writing of this article, there are only 7 countries listed in REJA: United Kingdom, Hong Kong, Singapore, New Zealand, the Republic of Sri Lanka, India (excluding certain states) and Brunei.
If the foreign court judgment doesn’t meet the criteria under REJA, the foreign court judgment may have to be enforced in Malaysia by way of a separate/fresh action under common law so that a Malaysian court judgment can be obtained through that fresh action. This would obviously be more time consuming.
Can you appeal against an arbitral award if you are not happy with the decision?
No. Arbitral awards are not appealable. However, the Act allows the High Court to set aside an arbitral award if any of the Grounds for Refusing Recognition and Enforcement are present (Section 37 of the Act). However, a setting aside application must be made within 90 days from the date on which the award was received.
An arbitral award can be set aside if it is against “public policy” of Malaysia. What does that mean?
An award is in conflict with public policy of Malaysia if:
- the making of the award was induced or affected by fraud or corruption; or
- a breach of the rules of natural justice occurred during the arbitral proceedings or in connection with the making of the award
The 90 day time frame for applying to set aside the award does not apply if the grounds for setting aside is that the award was induced or affected by fraud or corruption.
Can you sue the arbitrator if you are not happy with the award or the outcome of the arbitration?
Under the Act, an arbitrator is not liable for any act or omission in respect of anything done or omitted to be done in the discharge of his functions of an arbitrator, unless the act or omission is shown to have been in bad faith.
This article was written by Donovan Cheah. Donovan is a registered foreign lawyer with the Singapore International Commercial Court, and is a fellow at the Singapore Institute of Arbitrators, and the Asian Institute of Alternative Dispute Resolution. He has also been named as a recommended lawyer for labour and employment by the Legal 500 Asia Pacific 2017, 2018 and 2019, and has been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.
Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory. Have a question? Please contact us.