Malaysia's status as a maritime nation has been flagging for some time but her ship has come in now, with the gazetting of the Arbitration (Amendment) Act 2011
THE gazetting of the Arbitration (Amendment) Act 2011 and its coming into force on July 1 is just what Malaysia needs to compete on an even keel for arbitrations, especially those involving admiralty disputes.
The arbitration community has fought hard the last five years for these wide-ranging amendments.
Seeing as maritime disputes have generally been resolved by arbitration for decades now, a major amendment now empowers the High Court to order the arrest of a ship as security for arbitration.
"This right to security is peculiar to admiralty claims," says arbitration counsel Sitpah Selvaratnam, a member of the Bar Council's Shipping and Admiralty Law Committee.
"Other civil claimants do not enjoy this advantage of a right to security in advance of proof of their claim."
She says it was created to facilitate shipowners seeking credit for services and supplies rendered to their ships at various ports of call in the course of their ships' voyage.
"As the ship may not return to such port and the shipowner may not have assets within that jurisdiction where services or supplies are rendered, suppliers of fuel or spare parts would be hesitant to extend credit to the ship unless they were certain they could arrest the ship elsewhere, should the shipowner default in payment of the debt," she adds.
Under the Arrest Convention 1952, the recognised categories of claimants who can obtain security by arrest of a ship include charterers of ship, mortgagees of a ship, suppliers of fuel and necessaries to ships, the ship's master and crew, ship repairers, exporters and importers of commodity and oil majors whose cargo are damaged on board a ship.
Malaysia is not a signatory to the Convention and although England (1980s) and Singapore (2000s) had amended their laws to facilitate the civil arrest of ships as security for arbitration proceedings, Malaysia had not followed suit, until now.
Once a warrant of arrest has been issued for a ship, it is up to the Harbour Master, Marine Police and the Customs officials to ensure an effective arrest by denying port and customs clearance for the vessel to sail out of the port.
It must be noted, however, a warrant of arrest issued by the Malaysian High Court is not enforceable over a ship outside Malaysia, say in Hong Kong.
"The claimant would either have to wait for the vessel to come into Malaysian waters, or issue a separate warrant of arrest in Hong Kong," says Sitpah.
Arbitration counsel and arbitrators anticipate much benefit for Malaysia now that the legal system provides for the arrest of a ship in Malaysian waters, while the maritime dispute proceeds to arbitration in Malaysia or elsewhere.
For one, in the event there is a judicial sale of an arrested ship, the Malaysian Government Treasury would receive additional income in the form of a court commission.
"This can be substantial, at 2.5% of the sale proceeds; a small vessel could be sold for US$1mil (RM3.2mil) and a larger one could sell for US$5mil (RM16mil)," says Sitpah.
"Auctioneers and surveyors would be commissioned for the appraisal of the vessel for her sale. Ship agents would be appointed on behalf of the Malaysian Court Sheriff to manage the ship while under arrest.
"Suppliers of fuel, water and victuals nearest the port of arrest would receive additional orders for the subsistence of crew and maintenance of the vessel. Security firms would be engaged to guard the vessel while under arrest. Insurers can expect to secure policies to cover risks of the arrested vessel.
"Maritime lawyers would necessarily be appointed to ensure that the right of parties are preserved and protected. The Malaysian maritime cluster group would therefore, spin into activity," she adds.
According to Ong Chee Kwan, who wears the hat of arbitrator as well as arbitration counsel, the 2011 amendments will make Malaysia more appealing as a centre for arbitration locally and internationally because lawmakers have plugged the loopholes in the Arbitration Act 2005.
One thing that used to bog down arbitration was the tendency of parties to run to the High Court for an intervention.
Now, the scope of the court's intervention is to only matters specifically provided for under the Act, says Ong.
They include: order the arrest of ships as security for arbitration, promote party autonomy on the proper law for the arbitration even in respect of domestic arbitration, extend the recognition of arbitral awards to include an international arbitration where the seat of arbitration is in Malaysia.
The amendments also discourage referrals to the High Court, any question of law arising out of an award unless the question of law substantially affects the rights of one or more of the parties; and they address the anomaly between the national language text and the English text of the Act, says Ong.
"With the more limited roles by the court, there is a greater finality in decisions or awards made by the arbitrators," he adds.
Asked whether these amendments would put Malaysia on the international arbitral map, he replies that they certainly better enable Malaysia to compete with the other countries in the region as an arbitration centre.
Kuala Lumpur Regional Centre for Arbitration (KLRCA) director Sundra Rajoo expects an increase in reference of international arbitration in Malaysia.
"Besides introducing specific provisions relating to maritime matters and admiralty disputes, the amendments in general improve the process of international arbitration.
"Historically, while the Arbitration Act 2005 was seen as a good move since it adopts the Uncitral Model Law, the drafting of the same international arbitration created confusion and concerns among users as it created a dual regime and drew a distinction between international and domestic arbitration."
There was also no specific reference to an international arbitration, raising questions as to whether an award from an international arbitration that is made in Malaysia could even be enforced in Malaysia, adds Sundra.
With the amendments, he says, parties in international arbitrations seated outside Malaysia are reassured of the court's limited powers of intervention, the availability of interim measures and the likelihood of enforcement of awards by the courts.
"Under Section 8, the courts now may not apply its inherent jurisdiction and may only intervene where the court finds the agreement null and void, inoperative or incapable of being performed."
On Sept 30 last year, then Chief Justice Tun Zaki Azmi launched the Admiralty Court at the Jalan Duta Court Complex. Is this a plus for arbitration of maritime disputes?
It was certainly welcome news for the shipping industry because the maritime service sector is booming in Malaysia and the admiralty court places Malaysia as an option of international maritime dispute resolution provider.
"The admiralty courts provide easy access to information relating to arrest, release and sale of vessels and target to dispose of matters within nine months," says Sundra.
Sitpah agrees that having specialised courts, which effectively and expeditiously deals with admiralty disputes, inevitably provide greater confidence to the international maritime arbitral users that an arbitration in Malaysia has the support of a judiciary growing in its expertise in admiralty and developing case laws and that specific orders on interim measures will be easily available.
Are these measures enough to encourage companies to designate Malaysia as the seat of arbitration in their contracts, or to draw them here even if they had not specified Malaysia but had agreed to arbitrate and not litigate a breach of contract?
While industry observers are optimistic, KLRCA is not leaving matters to chance and has upped its ante by providing specialised arbitration relating to maritime.
"A working committee consisting of maritime law experts has been formed to work on the KLRCA Maritime Arbitration Rules and infrastructure such as specialised facilities, panel of maritime arbitrators," says Sundra
He reckons the new set up should be in place by early next year.
Malaysia is a maritime nation and is strategically positioned as the gateway to the Asean maritime and logistics market.
The Malaysian arbitration community thinks the amendments have nailed it for Malaysia to be a promising seat of international arbitration and KLRCA as the service provider.
Now it just needs disputing parties to come here to arbitrate their disputes.
Source: The Star