Philip
COMMERCIAL ARBITRATION – KEY CONSIDERATIONS
Philip Teoh 13 May 2019

COMMERCIAL ARBITRATION – KEY CONSIDERATIONS

Arbitration serves as animmensely beneficial avenue for resolving commercial disputes between two parties. It is the most popular mode of dispute resolution for disputes between commercial parties especially if they are of different nationalities.

The function of Arbitration as a means of dispute settlement is not always understood. This Article aims to provide an overview of the utility of Commercial Arbitration and how it can function as an essential part of the parties’ contract and dealings.

Why Arbitration ?

The most common question parties ask is why go to Arbitration in the first place.

For domestic parties ie where both parties are of the same nationality, the clear option is that they can try their disputes in the commercial courts of their own country. In Malaysia, the trial of a commercial dispute can proceed expeditiously given the judges have a 9 month rule to as far as possible to complete the trial from filing of the suit. Further the Court fees of litigation in the Malaysian Courts are nominal and involves mainly filing fees. The Courts also provide a Court annexed Mediation Service where the parties are provided an option to bring their dispute to the Court Mediation Centre, as an option just before trial. At the moment this is provided without charge.

The domestic parties should be aware that the Court proceedings are not private and if the dispute involves sensitive or issues that parties wish to keep private then litigation in Court is not a good option. Arbitration Proceedings on the other hand is confidential.

The other reason why parties opt for Arbitration is that they have control over the choice of the Arbiter / Arbitrator for their dispute. This may be a key advantage for disputes of a specialized nature or which involve technical issues.

The Court system involves several layers of appeal whilst the Awards from Arbitration are final and not appealable. The Judgment of a trial judge can be set aside on appeal if it is shown on appeal that the trial judge erred on the facts and in the law. On the other hand, Arbitration Awards can only be set aside or enforcement resisted on limited grounds.

Arbitration comes into its own in transactions involving parties of different nationalities. Most countries have ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)[ ‘ the New York Convention ‘ ]. This means that an Award from Arbitration conducted in a Contracting Country can be registered and enforced in a similar manner as a judgment in another Contracting Country. The recognition and enforcement of judgments on the other hand depends on mutual recognition and enforcement statutes enacted in both countries. In many instances the list of countries included are very limited. Due to the New York Convention Malaysian Arbitration Awards can be enforced in China, Indonesia and the United States and vice versa whilst Malaysian Judgments are not recognized and enforceable in these same countries, and vice versa. 

Unlike litigation, in most countries the Parties can be represented by lawyers of their own countries instead of appointing lawyers licensed to practice in the Domestic Courts of that Country. This allows parties to use their regular lawyers instead of engaging foreign lawyers they are not familiar with.

Arbitration Law and Rules

There is a good uniformity on the Arbitration laws internationally. Many Countries have incorporated the UNCITRAL Model Law on Commercial Arbitration [Model Law] into the Arbitration Statutes.

Similarly the Rules adopted in many Arbitration Centres follow or adopt the UNCITRAL Rules. Some of the Institutions adopting the UNCITRAL Rules in their Rules are LCIA, SCMA, SIAC and AIAC. As there are many Arbitral Institutions in India, it would be important to carefully study the Rules of the particular Institution.

The uniformity of Arbitration law Rules provides for certainty and allows the Parties and their lawyers to easily understand and advice on the law and procedure applicable to the Arbitration proceedings.

Contractual underpinnings

Arbitration can only be a mode of dispute resolution if the parties provide for an Arbitration Clause in their contracts. The Arbitrator(s)’s role derive from the contract. It is therefore important that the transactional lawyer draft an effective Arbitration Clause in the Contract as vague and unclear clauses may evoke challenges to the Arbitrators’ authority and the validity of Awards. This Arbitration Clause should be part of the contract at inception. Arbitration agreements entered into after parties’ dispute arises may be possible but these may also invite challenges. Similarly challenges may also occur where contractual provisions are adopted by reference.

As for drafting Arbitration Clauses, there are sample clauses provided by the Arbitral Institutions chosen by the parties. These provide a good guide as for drafting effective Clauses.

Interlocutory Relief

The appointment of an arbitrator or constitution of an arbitral tribunal takes time. In some cases urgent action will need to be taken to ensure that the purpose of an alternative dispute resolution is not defeated.These may include actions to preserve evidence, goods which may be perishable, or need to prevent publishing of confidential information. There may be difficulties in resorting to local or national courts for interim urgent remedies not least of which having to use local counsel. 

These difficulties can be addressed if parties can resort to an interim arbitrator called emergency arbitrator before the arbitral tribunal is constituted. An emergency arbitrator can be appointed expeditiously without wasting any time. However, the emergency arbitrator is not a part of the intended pending arbitral tribunal. His involvement is prior to the constitution of arbitration tribunal. Once the tribunal is set up, the role and function of the emergency arbitrator ceases.

Emergency arbitrators are not appointed by parties as the power to appoint is provided in institutional arbitration rules. This overcomes the problem of seeking the agreement of a recalcitrant party who refuses to cooperate.An emergency arbitrator is often accorded wide powers to grant necessary conservancy powers. However, an emergency arbitrator is empowered temporarily until intended arbitral tribunal is constituted. Once constituted, the arbitral tribunal is not bound by the emergency arbitrator’s orders and has the option to confirm, vary, adopt or set aside orders made by such emergency arbitrator.

This recourse to relief by the Emergency Arbitrator depends on the Arbitration laws of Country in which relief is sought and the Arbitral Rules allowing such appointment. The Indian position is not entirely clear as the Court decision has cast doubt on this relief.

Institutional vs Ad Hoc Arbitration

Most Countries have a key Arbitration Centre eg the Asian International Arbitration Centre based in Kuala Lumpur is the key Arbitration Centre for Malaysia but it serves a wide international reach and role. Some Centres are specialist in nature. The London Maritime Arbitrators Association [LMAA] and the Singapore Chamber of Maritime Arbitration [SCMA] are important Arbitration Centres for Maritime Disputes. These Centres have their own Rules and list of Arbitrators. Many adopt the

Parties who provide for Institutional instead of Ad Hoc Arbitration will be able to obtain certainty of the law and procedure in the Arbitration process. The Arbitral Institutions will have their own scale of Arbitrators fees. The Panel Arbitrators have as a condition of placement on the Panel agreed to abide the scale. This is an added advantage of providing for Institutional Arbitration instead of Ad Hoc. Additionally the Institution will also assist to monitor the progress of the Arbitration and ensure that parties pay their proportion of the fees. 

  • PHILIP TEOH
Philip heads the Shipping, Insurance and International Trade Practice in Azmi&Associates. He has been in legal practice in Singapore and Malaysia for the past 29 years. He is an Arbitrator and is empaneled with AIAC, SCMA, LMAA, LCIA and other International Arbitral Institutions. He is also the author of key Practitioners Texts e.g. Halsbury’s Laws of Malaysia on Equity, Conflict of Laws, Sale of Goods and the Shipping Titles, Annotated Merchant Shipping Laws, Forms and Precedents on Shipping, Chapter on Carriage of Goods in Bullen, Leake& Jacob Malaysia.

His Profile can be accessed on LinkedIn: https://www.linkedin.com/in/philipteoh/
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