9 November, 2017
In theory, arbitration is supposed to be a faster and more efficient method of resolving disputes compared to litigation. This is premised on the assumption that since party autonomy is the paramount feature of arbitration, there should be less delays as parties can agree on shorter timelines and are not subject to the availability of the court.
In reality, arbitration proceedings can be as protracted as litigation (or even more so) since arbitrators are more likely to grant adjournments and extensions of time to minimize allegations that one party has not been given the full opportunity to be heard.
When arbitration proceedings are delayed, frustrated participants may not have the same remedies as they would in a court case.
For example, in litigation, the Court has the power to enter default judgment against a party who fails to comply with prescribed timelines. Plaintiffs in court litigation who delay in prosecuting their claims could also have their matters struck out for want of prosecution.
The problem of delays in arbitration proceedings will often come to the forefront when one party (usually the losing party) alleges that the delay has tainted the arbitral award, rendering it unconscionable and in breach of natural justice. This is because in some jurisdictions, a breach of natural justice is one of the grounds to have an arbitration award set aside.
In Malaysia, an award may be set aside by the High Court only under the limited grounds of Section 37 of the Arbitration Act 2005. One of those grounds is if “a breach of the rules of natural justice occurred – (i) during the arbitral proceedings; or (ii) in connection with the making of the award”.
In October 2017, the Court of Appeal in Asean Bintulu Fertilizer Sdn Bhd v Wekajaya Sdn Bhd dealt with the issue of whether a substantial delay in the arbitral process is sufficient to amount to a breach of natural justice. In this case:
The period taken from the commencement of arbitration proceedings to the delivery of the award was about 10 years. In these 10 years, the arbitrator took a period of 4 years from close of submissions to issue the final award and no explanation was given by the arbitrator to explain the delay.
When the award was finally handed down by the arbitrator, it was in favour of the Respondent. The Appellant, the losing party, had concerns that the arbitrator “could not have properly evaluated the evidence 4 years after close of submissions and 5 years after the evidence was recorded.”
Further, as the arbitrator also awarded pre-award interest against the Appellant, this amounted to an additional RM10.9 million payment which the Appellant would not otherwise had to pay had the arbitration process been faster.
The Appellant therefore sought to set aside the award on grounds that it was a breach of natural justice and/or against public policy.
The High Court refused to set aside the award but made a variation to the award on the issue of interest. The Appellant thereafter appealed to the Court of Appeal.
The Court of Appeal refused to set aside the award , holding that the delay issue cannot be a reason for appellant intervention.
The reasons cited by the Court of Appeal include:
The Malaysian Arbitration Act 2005 does not give Courts a free hand to set aside awards based on public policy or breach of natural justice purely on a delay issue.
There are limited procedural mechanisms to address the delay issue under the Arbitration Act 2005 and/or to preserve the integrity of the arbitral process. However, the Appellant did not resort to any of those measures and it was too late to address the delay issue in a setting aside application.
The test for determining a breach of natural justice is whether there is “patent injustice on the face of the record and one where the award cannot be saved by sending it back to the arbitrator for reconsideration”.
The arbitration award is final and binding on the parties.
Commentary
This latest decision continues to demonstrate the Malaysian courts’ reluctance to interfere in arbitration matters in order to preserve the integrity of the process. The grounds in which an arbitration award can be set aside (or whereby recognition and enforcement of the award can be refused) are limited and narrow, and the threshold is generally high. Otherwise, parties will not be held to their bargain to arbitrate.
That being said, the Court of Appeal noted that the Malaysian arbitration regime needs to do more to prevent misconduct of arbitrators from undermining the administration of justice:
“Malaysian law also does not have a disciplinary mechanism for arbitrators coming from the panel of institutional bodies like KLRCA to check the integrity of arbitration process, the arbitrator as well as the award. Many professional bodies in Malaysia where there is some form of statutory recognition such as for the lawyers or medical practitioners, comes with a disciplinary body to keep in check with the conduct and professionalism of their members to sustain rule of law as well as administration of justice. Arbitrators or adjudicators even appointed by KLRCA are not subject to disciplinary action for conduct, unbefitting of the professional obligation.
Countries like India, has amended their Arbitration Act to provide some form of relief to check misconduct. [See Indian Arbitration Amendment Act 2015]. For example, India has included a provision for disclosure… In addition, it has set out time limits for the award to be delivered and also to penalise the arbitrator on his fees as well as terminate his appointment, if the award is not delivered within the time frame.
Such drastic steps have not yet been provided in AA 2005 to control the misconduct of arbitrators. Misconduct of arbitrators will generally undermine the growing arbitration industry as it will compromise administration of justice and rule of law. Our constitutional framework requires it to be checked by legislative measures, to uphold the rule of law.”
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
