Chambers Global Practice Guides: International Arbitration 2021
1.1 Prevalence of Arbitration
Litigation continues to be the primary method of resolving disputes in Malaysia, for both domestic and international disputes. This is not expected to change in the near future.
Based on statistics from the Asian International Arbitration Centre (AIAC), there is no observable trend in respect of the volume of domestic arbitration registrations over the last three years – with 80 registered domestic arbitrations in 2018, 117 domestic arbitrations in 2019, and 89 domestic arbitrations in 2020.
There has been little change in international arbitration registrations at the AIAC over the last three years. In 2018, the AIAC registered ten international arbitration cases; in 2019, the AIAC registered a total of eight international arbitration cases; and in 2020, the AIAC registered a total of 11 international arbitration cases.
1.2 Impact of COVID-19
During the period of the Movement Control Order in Malaysia, virtual hearings have been successfully held at the AIAC and elsewhere with the witnesses testifying from a neutral venue at the AIAC or elsewhere.
Some arbitrations have been deferred where parties/arbitral tribunals’ preference for physical hearings has necessitated this. The reasons for the preference of physical hearings are generally tied to the nature of the dispute, the volumes of documents that need to be referred to and the complexity of the subject matter of the dispute. These factors have caused parties to opt for an in-person hearing resulting in adjournments during the COVID-19 pandemic.
For in-person hearings, in accordance with the requirement of social distancing dictated by Malaysia's Ministry of Health, the attendees at an in-person hearing are closely monitored to ensure the minimum distance is maintained. As a result, most of the larger meeting/hearing rooms at the various arbitration venues are booked out well in advance.
The biggest impact to arbitrations both international and domestic has has been the lockdown periods imposed in 2020 and 2021. This has necessitated law firms, institutions such as AIAC and workspaces to close their premises. With respect to AIAC, although it has been able to act on commencement and appointment requests during the lockdown where the Director’s office has not been vacant, the provision of a neutral location for witnesses to take their oath and give evidence in an otherwise virtual arbitration has been impacted by the lockdowns.
Parties, arbitrators and counsels, whilst amenable to some extent to a virtual arbitration, have been somewhat opposed to witnesses testifying from their homes. With the movement control restrictions and closure of many establishments including the AIAC, this has impacted the ability of witnesses to give evidence from a neutral venue.
1.3 Key Industries
AIAC statistics indicate that the majority of arbitrations registered in 2020–21 relate to construction contracts. This is largely consistent with the trend in previous years.
There is also a marginal increase in the number of oil and gas company disputes being referred to the AIAC in 2020–21.
AIAC statistics do not indicate any particular industries that experienced decreased arbitration activity in 2020–21 as a result of the COVID-19 pandemic.
1.4 Arbitral Institutions
The arbitral institution most used for international arbitration in Malaysia is the Asian International Arbitration Centre (AIAC).
The AIAC was previously known as the Kuala Lumpur Regional Centre for Arbitration, and was first established in 1978 under the Asian-African Legal Consultative Organisation as a not-for-profit, non-governmental international organisation aimed at promoting alternative dispute resolution in the Asian region. It was subsequently rebranded as AIAC on 7 February 2018.
There have been no new arbitral institutions established in Malaysia in 2020–21.
The AIAC maintains its own rules of arbitration, known as the AIAC Arbitration Rules. Furthermore, the AIAC actively takes the initiative to modernise the AIAC Arbitration Rules in accordance with international trends in alternative dispute resolution proceedings in order to compete with the best arbitral institutions that Asia has to offer, contributing to its popularity in Malaysia.
The AIAC recently released the AIAC Arbitration Rules 2021 on 1 August 2021. The AIAC Rules 2021 streamline proceedings and embrace the needs of a fast-evolving disputes climate with third-party funding, summary disposal of cases, enhancements to multi-party arbitrations and various other welcome changes.
The AIAC i-Arbitration Rules offer a practical solution for the settling of disputes arising out of or in connection with Sharia-based commercial transactions, enabling the arbitral tribunal to refer a matter to the relevant Sharia Advisory Council or Sharia expert in respect of opinions on matters related to Sharia principles.
Following the onset of the COVID-19 pandemic, AIAC initiated a series of webinars on a multitude of areas relating to arbitration and other alternative dispute resolution processes. These webinars have been well attended and have been instrumental in bringing together local and international speakers.
1.5 National Courts
The High Courts of Malaysia are designated to hear disputes related to international arbitration and domestic arbitrations for matters in which they have jurisdiction under the Arbitration Act 2005. There is a construction High Court in Kuala Lumpur that specifically hears construction disputes, including those arising from arbitrations.