ABTRTN AGRMT ABRTN ACT 2005.pdf

1. 1
ARBITRATION AGREEMENT
AND THE
ARBITRATION ACT 2005
BY LIM YING HUI
SKRINE
27 AUGUST 2008

2. 2
ARBITRATION ACT 2005
 Based on the UNCITRAL Model Law on
International Commercial Arbitration
 Arbitration Act 2005 has been strongly
influenced by the New Zealand Model

3. 3
Purposes of the
Arbitration Act 2005
 Not provided for in the Act but see section 5 of
the New Zealand Arbitration Act 1996.
 Among the purposes of the act is to :-
 Promote international consistency of arbitral regimes
based on the Model Law on International Commercial
Arbitration….
 To encourage the use of arbitration as an agreed
method of dispute resolution
 To redefine and clarify the limits of judicial review of
the arbitral process and of arbitral awards

4. 4
WHAT IS AN ARBITRATION
AGREEMENT?
 Section 9(1) Arbitration Act 2005 (AA 2005)
 In this Act, “arbitration agreement” means an
agreement by the parties to submit to
arbitration all or certain disputes which have
arisen or which may arise between them in
respect of a defined legal relationship, whether
contractual or not

5. 5
SEPARABILITY OF AN
ARBITRATION AGREEMENT

6. 6
 The arbitration agreement survives the
termination of the contract in the event of
frustration, repudiation or fundamental
breach of contract. Heyman & Anor v
Darwins Limited [1942] AC 356, followed
by the Federal Court in New India
Assurance Company Ltd v Lewis [1967]
1 MLJ 156

7. 7
Heyman & Anor v Darwins Limited
The House of Lords held:
“It [arbitration clause] is quite distinct from the other
clauses. The other clauses set out obligations which
the parties undertake towards each other… but the
arbitration clause does not impose on one of the
parties an obligation in favour of the other… What is
commonly called repudiation or total breach of
contract… does not abrogate the contract… it survives
for the purpose of measuring the claims arising out of
the breach, and the arbitration clause survives for
determining the mode of their settlement. The
purposes of the contract have failed but the arbitration
clause is not one of the purposes of the contract”

8. 8
Harbour Assurance
 Harbour Assurance Co (UK) Ltd v Kansa
General International Insurance Co Ltd [1993]
3 All ER 897
 Ralph Gibson L.J. held :-
“An arbitration clause, in ordinary terms - that is
to say, without special words to ensure survival -
is usually, and has been held to be, a self-
contained contract collateral to the containing
contract. As with any other contract, it must be
construed according to its terms in and with
regard to the relevant factual situation.”

9. 9
AA 2005 And Separability
 Section 18(2)(a) AA 2005
 “an arbitration clause which forms part of an
agreement shall be treated as an agreement
independent of the other terms of the agreement.”
 s 18(2)(b) Arbitration Act 2005
 Its validity does not depend on the validity of the
contract
 The law governing the Arbitration Agreement can
therefore be different from the law governing the
contract.

10. 10
ARBITRABILITY

11. 11
 Arbitrability draws a dichotomy between
matters that are capable of settlement by
arbitration and those which rest within the
domain of the courts.
 Arbitrability is determined by
 Law;
 Institutional rules and/or agreement of the parties.

12. 12
 Section 9(1) AA 2005
 Clearly states that an arbitration agreement
may arise from a defined legal relationship
whether contractual or not
 Section 4(1) AA 2005
 “any disputes which the parties have agreed
to submit …unless … contrary to public
policy”

13. 13
Defined Legal Relationship
 Methanex Motunui v Spellman [2004] 3 NZLR
454, CA at paragraphs 60 – 61
 Paragraph 60
“The term “defined legal relationship” is not defined in the Act.
Fisher J found that the phrase “defined legal relationship” should
be given a broad meaning because of the express inclusion of
non-contractual relationships and because section 10 of the Act
provides that any dispute which parties have agreed to submit to
arbitration under an arbitration agreement may be determined by
arbitration, unless the arbitration agreement is contrary to public
policy, or the dispute is not capable of determination by arbitration
under any other law.”

14. 14
 Paragraph 61
“He was supported in that view by the decision of Tamberlin J of
the Federal Court of Australia in Hi-Fert Pty Ltd v Kinkiang Marine
Carriers Inc (1997) 145 ALR 500. In that case, Tamberlin J was
asked to interpret a provision in Australian Commonwealth
legislation which was in virtually identical terms to the definition of
the “arbitration agreement” in the Act. He referred to the
expression “defined legal relationship, whether contractual or not”
and said that a broad approach should be taken to the nature and
extent of the relationship. In particular he found that the
relationship between a party alleged to have breached its statutory
obligations under section 1(a) and 52 of the Trade Practices Act
1974) and the victim of the alleged breach was a defined legal
relationship. Fisher J found …..a defined legal relationship was a
relationship which gave rise to the possibility that one party was
entitled to some form of legal remedy against the other.”

15. 15
TORT AND ARBITRATION
1. Dispute arising “out of” the Contract
 Covers every dispute except a dispute as to whether there is a
Contract or not.
2. Dispute arising “in connection with” the Contract
 Includes rectification and innocent or negligent misstatement
 Ashville Investments Ltd v Elmer Contractors Ltd [1988]
2 Lloyd’s Rep 73
3. Dispute arising “under” the contract
 Includes contractual negligence
 But as decided by the Court of Appeal in Fillite (Runcorn) Ltd
v Aqua Lift 26 ConLR 66, it is not wide enough to cover
claims that the Contract was induced by negligent
misrepresentation i.e. disputes which arise independently of the
Contract.

16. 16
Example of an
Arbitration Agreement
In the event that any dispute or difference in
connection with, or arising out of, this
Agreement, is unable to be resolved between the
Parties in accordance with Clause 24.1 within forty-
five (45) days after the receipt by one Party from
the other Party of the notification to settle such
dispute or difference in the first instance by mutual
discussions between the Parties, then such dispute
or difference shall be referred to arbitration……

17. 17
Position now may have changed
in light of Fiona Trust v Privalow
 [2007] All ER (D) 69, Court of Appeal
 It is authority for the proposition that any jurisdiction or arbitration
clause in an international commercial contract should be liberally
construed. The Court’s interpretation of the law is consonant with
commercial sense and reality. The words of Longmore L.J. are a
helpful reminder of the approach to be taken :-
“Ordinary businessmen would be surprised at the nice distinctions
drawn in the cases and the time taken up by the argument in debating
whether a particular case falls within one set of words or another very
similar set of words. If businessmen go to the trouble of agreeing that
their disputes be heard in the courts of a particular country or by a
tribunal of their choice they do not expect (at any rate when they are
making the contract in the first place) that time and expense will be
taken in lengthy argument about the nature of particular causes of
action and whether any particular cause of action comes within the
meaning of the particular phrase they have chosen in their arbitration
clause. If any businessman did want to exclude disputes about the
validity of a contract, it would be comparatively simple to do so.”

18. 18
Consent of the Parties
 The element of consent evidenced by the
arbitration agreement is the cornerstone of
any arbitration proceedings, without which,
there can be no arbitration.

19. 19
Defining Public Policy?
 Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v
Shell International Petroleum Co Ltd [1990] 1 AC 295 at p
316, Sir John Donaldson MR held:
 “…..considerations of public policy could never be
exhaustively defined.”

20. 20
 Attorney-General of Canada v Myers Inc [2004] FC 38,
judgment of Kelen J – Canadian Federal Court
 “….. ‘Public policy’ does not refer to the political position or an
international position….but refers to ‘fundamental notions and
principles of justice’. Such a principle includes that a tribunal not
exceed its jurisdiction in the course of an inquiry, and that such a
“jurisdictional error” can be a decision which is “patently
unreasonable”, such as a complete disregard of the law so that the
decision constitutes an abuse of authority amounting to flagrant
injustice.”

21. 21
Public Policy –
Malaysia’s Definition
Public policy explained:
 Banque Nasionale De Paris v. Wuan Swee
May & Anor [2000] 3 MLJ 587, HC
“When a Malaysian court is considering the issue
of public policy in Malaysia, it should look at
Malaysian law, Malaysian government policy,
Malaysian moral values and all other factors
prevailing in Malaysia”
 Ho Kok Cheong Sdn Bhd v. Lim Kay Tiong &
Ors [1979] 2 MLJ 224, FC
“Government’s political policy is not public policy”

22. 22
THE FORM OF AN
ARBITRATON AGREEMENT

23. 23
 An arbitration agreement may be in the form of an
arbitration clause in an agreement or in the form of a
separate agreement
 An arbitration agreement must be in writing. It is
considered to be in writing when:-
(i) A document signed by the parties;
(ii) An exchange of letters, telex, facsimile or other means
of communication which provide a record of the
agreement; or
(iii) An exchange of statement of claim and defence in
which the existence of an agreement is alleged by one
party and not denied by the other

24. 24
 A reference in an agreement to a document
containing an arbitration clause shall constitute an
arbitration agreement, provided that the agreement
is in writing and the reference is such as to make
that clause part of the agreement.

25. 25
 Sebor (Sarawak) Marketing & Services Sdn Bhdv
S A Shee (Sarawak) Sdn Bhd [2000] 6 MLJ 1
 Minutes recording the agreement to arbitrate, naming
and appointing the arbitrator was held to be sufficient
writing. This was not signed by the Parties and were
only recorded by the Secretary.

26. 26
ARBITRATION AGREEMENT
AND SUBSTANTIVE CLAIM
BEFORE THE COURT

27. 27
Section 10(1) AA 2005
 A court before which proceedings are brought in respect
of a matter which is the subject of an arbitration
agreement, shall, where a party makes an application
before taking any other steps in proceedings, stay those
proceedings and refer the parties to arbitration unless it
finds –
a) that the agreement is null and void, inoperative or
incapable of being performed; or
b) That there is in fact no dispute between the parties
with regard to the matters to be referred.

28. 28
When must an application for
stay be made?
 Before taking any other steps in the proceedings
 Pathak v Tourism Transport Ltd [2002] 3 NZLR
 Plaintiff had filed proceedings in court in which they sought
interim relief with reference to an arbitration agreement. After
the application for interim relief had been settled, the plaintiff
sought a stay of the court proceedings and an order to refer the
dispute to arbitration pursuant to the equivalent of section 10 of
the Act. The court held that in making the application for interim
relief, the plaintiff had not been submitting the substantive
dispute to the court; however by taking substantive steps in the
action before applying for the stay including a request for further
and better particulars of the defence, they were deemed to have
elected to submit the substantive dispute to the court and hence
had lost their entitlement to the stay.

29. 29
Section 10(2) AA 2005
 The court, in granting a stay of proceedings pursuant
to subsection (1) may impose any conditions as it
deems fit
 Not a Model Law provision

30. 30
Section 10(3) AA 2005
 Where the proceedings referred to in subsection
(1) have been brought, arbitral proceedings
may be commenced or continued and an award
may be made, while the issue is pending before
the court.

31. 31
ARBITRATION AGREEMENT AND
INTERIM MEASURE
BY HIGH COURT

32. 32
Section 11
 Section 11(1)
 A party, may before or during arbitral proceedings,
apply to a High Court for any interim measures and the
High Court may make the following orders for :
a) Security for costs;
b) Discovery of documents and interrogatories;
c) Giving of evidence by affidavit;
d) Appointment of a receiver;
e) Securing the amount in dispute;
f) The preservation, interim custody or sale of any property which
is the subject-matter of the dispute;
g) Ensuring that any award which may be made in the arbitral
proceedings is not rendered ineffectual by the dissipation of
assets by a party; and
h) An interim injunction or any other interim measure

33. 33
 Section 11(2)
 Where a party applies to the High Court for any
interim measure and an arbitral tribunal has
already ruled on any matter which is relevant
to the application, the High Court shall treat
any findings of fact made in the course of such
ruling by the arbitral tribunal as conclusive for
the purposes of the application.

34. 34
Comparison with the 1952 Act
 No :-
 Power to examine witness
 Detention, preservation and inspection of
property
 Inclusion of paragraph (g)

35. 35
Section 19
 Section 19 provides for interim measures which the
Arbitral Tribunal may give
 Section 19 (1)
Unless otherwise agreed by the parties, a party may
apply to the arbitral tribunal for any of the following
orders:-
a) Security for costs
b) Discovery of documents and interrogatories
c) Giving of evidence by affidavit
d) The preservation, interim custody or sale of any property
which is the subject-matter of the dispute

36. 36
 Section 19(2)
 The arbitral tribunal may require any party to provide
appropriate security in connection with such measure
as ordered under subsection (1).
 Section 19(3)
 Unless otherwise agreed by the parties, sections 38
and 39 shall apply to orders made by an arbitral
tribunal under this section as if a reference in those
sections to an award were a reference to such an
order

37. 37
Section 11 and Section 19
CORRESPONDING PROVISIONS
SECTION 11 SECTION 19
(a) (a)
(b) (b)
(c) (c)
(f) (d)

38. 38
 Unless provided in the arbitration agreement,
the parties has no powers to make orders
relating to :-
a) the appointment of a receiver – section 11(d)
b) Securing the amount in dispute – section 11(e)
c) Ensuring against dissipation of assets – section
11(g)
d) Interim injunctions – section 11(h)

39. 39
 Powers of the High Court under section 11 can be
invoked at any time – from the time when the
arbitration agreement comes into existence up to
the enforcement of the award
 Powers of the arbitral tribunal under section 19
can only be invoked after the constitution of the
arbitral tribunal up to the termination of the
arbitration proceedings
When should an interim order
be applied from the High Court
or the Arbitral Tribunal

40. 40
When courts are exercising their
powers under section 11
 Case law shows that the powers of the court should always be used to support
and not stifle the arbitral process
 Lord Mustill in the House of Lords case of Channel Tunnel Group Ltd v
Balfour Beatty Construction Ltd [1993] AC 334 held :-
 The purpose of interim measure of protection, by contrast, is not to
encroach on the procedural powers of the arbitrators but to reinforce them
and to render more effective the decision at which the arbitrators will
ultimately arrive on the substance of the dispute. Provided that this and no
more is what such measures aim to do, there is nothing in them contrary to
the spirit of international arbitration
 There is always a tension when the court is asked to order, by way of
interim relief in support of an arbitration, a remedy of the same kind as will
ultimately be sought from the arbitrators: between, on the one hand, the
need for the court to make a tentative assessment of the merits in order to
decide whether the plaintiff’s claim is strong enough to merit protection and
on the other the duty of the court to respect the choice of tribunal which
both parties have entrusted to them alone…..If the court now orders an
interlocutory mandatory injunction, there will be very little left for the
arbitrators to decide.

41. 41
OPT IN AND OPT OUT

42. 42
Section 3 AA 2005
 Section 3(2)
 In respect of a domestic arbitration, where the seat
of arbitration is in Malaysia –
a) Parts I, II and IV of this Act shall apply; and
b) Part III of this Act shall apply unless the parties agree
otherwise in writing.
 Section 3(3)
 In respect of an international arbitration, where the
seat of arbitration is in Malaysia –
a) Parts I, II and IV of this Act shall apply; and
b) Part III of this Act shall not apply unless the parties agree
otherwise in writing.

43. 43
 Section 3(4)
 For the purposes of paragraphs 2(b) and 3(b), the
parties to a domestic arbitration may agree to exclude
the application of Part III of this Act and the parties to
an international arbitration may agree to apply Part III
of this Act, in whole or in part.

44. 44
 Part I – Preliminary
 Part II – Arbitration
 Part III – Additional provisions relating to
arbitration
 Part IV – Miscellaneous

45. 45
Seat of Arbitration
 Definition section 2(1)
 Means the place where the arbitration is based as
determined in accordance with section 22
 Seat of Arbitration and Place of Arbitration is
different
 It is the juridicial seat of the arbitration
 It refers to the geographical location where the
arbitration is ultimately tied and which prescribes
the procedural law of the arbitration

46. 46
Section 22
 Section 22(1)
 The parties are free to agree on the seat of arbitration
 Section 22(2)
 Where the parties fail to agree under subsection (1), the seat of
arbitration shall be determined by the arbitral tribunal having
regard to the circumstances of the case, including the convenience
of the parties.
 Section 22(3)
 Notwithstanding subsections (1) and (2), the arbitral tribunal may,
unless otherwise agreed by the parties, meet at any place it
considers appropriate for consultation among its members, for
hearing witnesses, experts or the parties, or for inspection of
goods, other property or documents

47. 47
 Recent High Court Case of Aras Jalinan Sdn Bhd v Tipco Asphalt
Public Company Ltd and 2 others. The Judicial Commissioner held
on 7 April 2008 that :-
 The Malaysian Court has no jurisdiction to grant an injunctive
relief in matters where the seat of arbitration is NOT in
Malaysia.
 Article 121(1) of the Constitution states :-
“the two high courts shall have jurisdiction and powers as may
be conferred by or under any federal law”
AA 2005 does not provide for its applicability to the
international arbitrations when the seat is NOT in Malaysia –
see s. 3(3)
What if the seat of the arbitration
is not in Malaysia?

48. 48
 Article 1(2) of the Model Law
 Marriott International Inc v Ansal Hotel – AIR 2000 Delhi 377
 Indian High Court held that under the equivalent section in the
Indian Arbitration and Conciliation Act, it had no power to
grant interim relief in support of an arbitration to be held
overseas
 Agreement governed by Indian Law, arbitration held in KLRCA
 Had Parliament intended, it would have incorporated Article
1(2) of the Model Law which confers express jurisdiction to
arbitrations with a foreign seat
 There was also no prejudice to the Plaintiffs in this case as
they could still seek recourse in the Singapore Courts where
the seat of arbitration was.

49. 49
 The learned Judicial Commissioner, Y.A. Dr.
Badariah held “at some point, Parliament may in
its wisdom, adopt the equivalent of Article 1(2) of
the Model Law to expressly provide for the
jurisdiction of the Courts in matters where the
seat of jurisdiction is outside Malaysia.”
 The learned Judicial Commissioner further held
that “it is not for the Court to clothe itself with
powers where non has been conferred by
Parliament.”

50. 50
 Law Reform Committee comprising of representatives
from various prominent bodies was constituted from last
year to discuss and finalise amendments to the AA 2005.
Amongst the amendments are to:-
 Incorporate a provision similar to Article 1(2)
 To delete the words “where the seat of the arbitration
is in Malaysia” from section 3(3) of the AA 2005.

51. 51
OTHER MATTERS IN AN
ARBITRATION AGREEMENT

52. 52
Rules of Procedure
 How an arbitration is conducted
 Section 21(1) AA 2005
 Subject to the provisions of this Act, the parties are free to
agree on the procedure to be followed by the arbitral tribunal
in conducting the proceedings.
 Section 21(2) AA 2005
 Where the parties fail to agree under subsection (1), the
arbitral tribunal may, subject to the provisions of this Act,
conduct the arbitration in such manner as it considers
appropriate.

53. 53
Section 21(3)
 The power conferred upon the arbitral tribunal under
subsection (2) shall include the power to
a) determine the admissibility, relevance, materiality and weight
of any evidence
b) Draw on its own knowledge and expertise
c) Order the provision of further particulars in a statement of
claim or statement of defence
d) Order the giving of security for costs
e) Fix and amend time limits within which various steps in the
arbitral proceedings must be completed
f) Order the discovery and production of documents or
materials within the possession or power of a party
g) Order the interrogatories to be answered
h) Order that any evidence be given on oath or affirmation; and
i) Make such orders as the arbitral tribunal considers
appropriate

54. 54
Language
 The parties are free to agree on the
language to be used in the arbitral
proceedings – section 24(1)

55. 55
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