An expanded scope for judicial challenges against arbitral awards
In Far East Holdings Bhd & Ors v Majlis Ugama Islam dan Adat Resam Melayu Pahang (2017), the Federal Court made important some changes to Malaysian arbitration law:
- An expanded scope to challenge arbitral awards in court on questions of law
An arbitral award may be challenged in court on any question of law pursuant to section 42 of the Arbitration Act 2005. Specifically, the Federal Court overruled paragraphs 57(g), (g) and (j) of the Court of Appeal’s decision in Kerajaan Malaysia v Perwira Bintang [2015] that to challenge an award, it must be ‘manifestly unlawful and unconscionable’, ‘perverse’ or discloses ‘illegality’ or ‘patent injustice’ in order to be challenged.
On the scope of ‘question of law’, the Federal Court clarified that this includes a question of:
- construction of a document;
- the identification of all material rules of statute and common law, the relevant parts of the contract and those facts which must be taken into account when reaching the decision;
- the correctness of the tests applied (ie: whether the tribunal’s conclusion was inconsistent with the application of the right test)
- erroneous application of law (ie: whether a correct application of the law to the facts would lead to another different than the arbitrator’s.)
- whether the tribunal’s decision was wrong.
Note that Section 42 of Arbitration Act 2005 applies to domestic arbitration only (NOT international arbitration) and parties may opt out of it. One way of opting out is by agreeing to apply the Arbitration Rules of the Kuala Lumpur Regional Centre for Arbitration (KLRCA).
- Presumption that arbitrators have no power to grant pre-award interest removed.
Before this case, Malaysian courts had long accepted that arbitrators had an implied power to grant pre-award interest in arbitral disputes. However, the Federal Court has now removed this implied jurisdiction. This would mean arbitrators cannot grant pre-award interest unless expressly agreed by arbitral parties through arbitration agreements or the institutional rules governing the arbitration.
