When the dispute cannot be solved amicably

WHENEVER there is a dispute, the best way to resolve it is through an amicable win-win settlement. This stands true, especially in eastern culture where we believe in solving a dispute harmoniously. However, there are times when a dispute cannot be solved through negotiation or mediation, such as after a few rounds of failed attempts or both parties assert their rights and are unwilling to compromise. When parties in a dispute reach that juncture, mediation is no longer a good way for dispute resolution. A third-party decision maker’s intervention would be necessary to determine a solution for that dispute.

Conventionally, such a dispute will be brought up to a court for decision making by one party against the other. However, in recent years, more disputing parties are seeking private dispute resolution through arbitration instead of submitting the case to a court. Unlike in a mediation where a mediator’s role is to facilitate the negotiation, an arbitrator makes a decision on the dispute known as an “award’ in an arbitration proceeding. In a mediation, parties may risk walking out without a solution, in contrast, an arbitral award has a binding effect against both parties in the arbitration proceeding. Thus, it provides certainty to the parties as at the end of the arbitral proceedings, an outcome is almost certain.

Arbitration is useful for cross-border commercial transactions as international arbitration is widely recognised by many countries worldwide. Given that law develops at different levels in different countries, arbitration laws in different countries would create disparity between nationals’ laws. Recognising this, the United Nations Commission on International Trade Law (UNCITRAL) drafted the UNCITRAL Model Law on International Commercial Arbitration (“the Model Law”) to assist member states in modernising their arbitration law, considering the needs of international commercial arbitration.

Malaysia is one of 85 states that adopted the Model Law under the Malaysian Arbitration Act 2005 (“Malaysian AA”). The definition of “international arbitration” in S.2 of the Malaysian AA follows the definition in the Model Law. Thus, Malaysian AA recognises and governs an international arbitration such as in a situation where one of the parties has its place of business outside of Malaysia, the seat of the arbitration is situated outside of Malaysia where the parties have their places of business, or the substantial part of the obligations of any commercial or other relationship is to be performed is outside of Malaysia.

Compared to Malaysia, China has not adopted the Model Law. Despite that, realising the importance of being consistent with the international requirements, China has referred to the Model Law in drafting its Arbitration Law of the People’s Republic of China 1994 (“China AL”).

It is observed that China AL did not specifically define “international arbitration”.

Nevertheless, Chapter VII – Articles 65-73 of China AL deals explicitly with “arbitration involving foreign interest” where reference is made to ‘arbitration of disputes arising from foreign economic cooperation and trade, transportations and maritime matters’. Thus, it appears that China AL does cover international arbitration.

Both Malaysia AA and China AL require parties in dispute to have a written agreement to submit a dispute to arbitration, whether before or after the dispute arises. The difference is that China AL requires the arbitration commission to be named in the arbitration agreement, while this is not a requirement under Malaysia AA. In other words, Malaysia, following the Model Law, allows for ad hoc arbitration tribunals to be set up. However, China AL does not allow ad hoc arbitration tribunals and only recognises institutional arbitrators.

It is observed that China is putting in great efforts to align its laws with the international arbitration law. On 30 July 2021, the China Ministry of Justice issued a Draft Revised Arbitration Law inviting public comments. One of the proposals in the Draft Revised Arbitration Law, is to remove the requirement for parties in international arbitration to name arbitration commission in the arbitration agreement.

This move is welcomed as it aligns with international arbitration law, which recognises ad hoc arbitration.

China AL is unique as parties in an arbitration proceeding may reconcile and reach a settlement agreement, either at the parties’ initiative or by the arbitration tribunal even after the commencement of the arbitration proceeding. If the reconciliation is successful, the arbitral award will be made based on the reconciliation. This differs from most countries’ practices where the arbitrator does not mediate. This unique characteristic could be a strong selling point for parties in a cross-border transaction to consider submitting to arbitration under China AL.

As to the arbitration institution, in Malaysia, the Asia International Arbitration Centre (AIAC) (formerly known as KLRCA) is a holistic alternative dispute resolution centre in Kuala Lumpur, which adopts the UNCITRAL Arbitration Rules. Whereas in China, there are about 225 Arbitration Commission (as of 2020), including the China International Economic and Trade Arbitration Centre (CIETAC) and Beijing International Arbitration Centre (BIAC). In October 2020, the International Commercial Dispute Prevention and Resolution Organisation (ICDPRO), an international non-governmental organisation, was established to cater for international commercial dispute resolution focusing on, but not limited to the Belt and Road Initiative participating countries.

In addition to that, both Malaysia and China are parties to the Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 (“the New York Convention”). The New York Convention came into force in Malaysia and China on 3 February 1986 and 22 April 1987, respectively. By accessing the New York Convention, both Malaysia and China have agreed to recognise and enforce arbitral awards made in the territory of all contracting states concerning commercial matters under the respective country’s law. Therefore, in a dispute involving a cross-border commercial transaction between parties from China and Malaysia, the arbitral award will be recognised and is enforceable in both countries, notwithstanding the seating of the arbitral tribunal.

Considering the above, businesses and investors in cross-border transactions between Malaysia and China are assured of protection under both countries’ laws.

However, given the complexity of cross-border transactions, it is important for parties to seek legal advice to safeguard their respective legal rights.

Lai Chooi Ling is a Lecturer at Tunku Abdul Rahman University College (TAR UC).

The views expressed here are entirely the writer’s own.

The SEARCH Scholar Series is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and the Centre of Business and Policy Research, Tunku Abdul Rahman University College (TAR UC), and co-organised by the Association of Belt and Road Malaysia.

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