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Sabah to lose out on arbitration business
Published on: Monday, December 14, 2015
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Kota Kinabalu: The Federal Court's landmark decision last Monday to bar peninsula or foreign lawyers appearing as counsel in arbitration proceedings, and instead mandated only Sabah lawyers can appear as legal counsels has immense impact on Malaysia's attractiveness as a centre for arbitration, in particular Sabah and Sarawak.If any client requires a legal counsel in an arbitration proceeding in Sabah or Sarawak, he or she has to engage a Sabah or Sarawak based lawyer, who is a member of the State's Bar.

"Sabah will lose out on the arbitration market business. The state with its natural beauty and attraction is definitely an attractive venue for arbitration when parties from other places around the world can come for arbitration and at the same time have a quality holiday with the family and friends. The tourism aspect of business brings great revenue."

"Singapore used to be like Sabah, but the Government changed the law by an Act of Parliament to force the market open to all in accordance with international norms, and today Singapore is a thriving and a favourite arbitration centre for businesses all over the world where families of parties involved can enjoy a great Singapore holiday."

This opinion was expressed by Sabah lawyer Ho Kin Kong acting for Borneo Samudera Sdn Bhd. Ho was of the opinion that it is unlikely that the Federal Court would review its decision in future. He is one of Sabah's two lawyers with an International Diploma in Commercial Arbitration. The other is Catherine Chau.

In the past, some sparse BIMP-EAGA trade ties were marred by commercial disputes mainly unpaid bills that if using the respective countries' court system would be very complex to file cases out of jurisdiction of the respective Common Law-British-American and Civil Law-Dutch legal heritage systems. This could easily be avoided by resorting to arbitration consensus in contract signed.

Ho said the origins of the Malaysian Arbitration Act 2005 are premised on the UNCITRAL Model Law on International Commercial Arbitration, not England's as was presented by the opposing counsel. The UNCITRAL Model Law has been adopted in 100 jurisdictions worldwide, including Malaysia.

Excerpt from the Malaysian Arbitration Act 2005 (Amended 2011) states 'Malaysia has now joined the community of nations which have adopted the UNCITRAL Model Law to govern their arbitration.'

One of the key features of the UNCITRAL Model Law is party autonomy, which includes the freedom of parties to appoint a representative or representatives of their choice in arbitration.

As barristers and solicitors in England never had exclusivity of practice in representing parties in arbitration, it follows therefore that Section 16(1)(a) of the Sabah Advocates Ordinance, in particular the word 'suit' could not have been intended to encompass arbitration or other dispute resolution mechanisms, Ho said.

In the decided case of Zublin Muhibbah Joint Venture v. Government of Malaysia (1990), the High Court dealt with Section 35(1) of the Legal Profession Act which is similar to Section 8(1) of the Advocates Ordinance in that it does not give an advocate and solicitor an exclusive right to appear in other tribunals which are not courts of justice in Malaysia, although an advocate and solicitor who is a qualified person under Section 36(1) of the Legal Profession Act an exclusive right to appear and plead in all courts of justice in Malaysia.

The High Court in Zublin Muhibbah Joint Venture v. Government of Malaysia (1990) held that "an arbitral forum is not a court of justice in Malaysia as envisaged by the Legal Profession Act 1976. It is a private tribunal."

"Subject to Section 12 of the Arbitration Act 1952, the arbitrator is appointed by the parties to an arbitration agreement to adjudicate on certain specific facts before him, and ultimately to settle the disputes between the contracting parties arising out of their contract.

"The parties who may appear before the arbitrator are those provided for by the arbitration agreement, or if the agreement does not so provide, then the provisions of Section 13 of the Arbitration Act 1952 shall apply.

"Any person who assists a party in presenting his case may also attend, e.g. a shorthand writer, an assessor, an engineer, an architect, and such parties should not be excluded without good ground when their presence are desired by a party or the award of the arbitrator may be set aside.

"Thus in Haigh v. Haigh, where one of the parties desired to have his son present because the son was versed in the accounts of the business, and the arbitrator excluded the son and also a shorthand writer, the award was set aside."

The Federal Court's decision will undoubtedly impact arbitration law and practice in Malaysia dividing the country into two zones – West Malaysia and East Malaysia, whereas prior to this, by virtue of the Court of Appeal's decision, there was a perceived uniformity in the practice of arbitration in the whole of Malaysia.

On Sept 24, 2012, the decision of the Court of Appeal puts Sabah on the same footing as West Malaysia. The relevant provision in the Sarawak Advocates Ordinance 1953 (Sarawak Cap 110) is in pari materia with the Sabah Advocates Ordinance. Until the Federal Court decision reversing the Court of Appeal ruling, there was uniformity in the whole of Malaysia. But now not anymore.

The reversal of that position by the Federal Court gave the impression that there is a double standard with the demarcation being West and East Malaysia which will affect Malaysia's position as a centre for international commerce and a regional / international hub for arbitration.

Datuk Prof. Sundra Rajoo, currently the Director of the Kuala Lumpur Regional Centre for Arbitration has written extensively that essentially it is common practice in arbitration proceeding that parties may be represented by non-lawyers or if represented by lawyers, such lawyers may not necessarily have been admitted to the respective jurisdictions or are foreign lawyers.

The Federal Court failed to take into account these international principles so that Malaysia (which not only includes West Malaysia but Sabah and Sarawak as well) may progress to the next level as a preferred place for arbitration, consistent with the current trend in promoting arbitration in Malaysia.

"This is an important policy consideration that ought to be adhered to. An unduly restrictive construction of the Sabah Advocates Ordinance would impinge upon party autonomy, one of the key pillars in the Arbitration Act 2005 and present dire consequences to promoting Malaysia as an arbitration hub," Ho opined, adding that, "I am just being a bit forward-looking."


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