Dispute Resolution: Malaysia

Most large commercial disputes are resolved through litigation in the courts. However, using arbitration to resolve commercial disputes is well established and increasing. The Arbitration Act 2005, based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law, was introduced to encourage arbitration. It is now common for new commercial agreements to include an arbitration clause.

Limitation periods for bringing claims are set out in the Limitation Act 1953. Contract and tort actions have a limitation period of six years from the date that the cause of action accrues.

Actions to recover land have a limitation period of 12 years from the date that the right of action accrues. In cases to recover money secured by a mortgage or charge, or to recover proceeds of the sale of land, the limitation period is also 12 years from the date when the right to receive the money accrued.

Where an action is based on fraud of the defendant, or the right of action is concealed by fraud, or the action is for relief from the consequences of a mistake, the limitation period will run from the time that the claimant discovers the fraud or mistake or could, with reasonable diligence have discovered it.

The two High Courts (of co-ordinate jurisdiction), are the High Court of Malaya and the High Court of Sabah and Sarawak. The High Court of Malaya has branches in various locations in Peninsular Malaysia. However, most large commercial disputes are brought before the High Court of Malaya at Kuala Lumpur. This is because the majority of large scale transactions are conducted in Kuala Lumpur, and this is where companies tend to have either a registered or business address.

The Kuala Lumpur High Court is divided into the following divisions:

Large commercial disputes are commenced in the Commercial Division or the Civil Division depending on the subject matter of the proceedings.

The answers to the following questions relate to procedures that apply in the High Court of Malaya at Kuala Lumpur.

All individuals admitted as advocates and solicitors of the High Court of Malaya who hold a valid practising certificate are entitled to appear before this court. Officers from the Attorney General's Chambers and other specified officers of government agencies are permitted to conduct cases in the High Court for the government and its various agencies.

Foreign lawyers (or other persons) can, with leave of the High Court, be admitted to practise as advocates and solicitors in particular cases. Leave is only granted where the High Court believes that for a particular case, the lawyer has special qualifications or experience not available among advocates and solicitors in Malaysia.

The legal fee structures commonly used for litigation are hourly rates and task-based billing. The rates charged by advocates and solicitors depend on their experience and expertise and are not fixed by law. The Malaysian Bar Council has taken the position that conditional or contingency fees are illegal. However, there is at least one High Court decision that has held that a conditional fee agreement is valid.

For large commercial disputes, litigation is usually funded by the parties themselves. Third party funding is vulnerable to a defence of maintenance and champerty, particularly if the claimant is not the original title holder to the litigation.

There is no provision for litigation insurance in Malaysia.

Generally, all court proceedings are public. Certain proceedings, including trials, are held in open court. However, interlocutory proceedings are heard in chambers before a judge, deputy registrar or senior assistant registrar of the High Court.

The rules of court do not facilitate commercial proceedings being kept completely confidential. Any person can, on paying a fee at the court registry, inspect and take a copy of the originating process in an action and any court judgment or order. Under the rules, a person (except for the parties themselves) may only inspect and take a copy of any other document with the leave of the Registrar.

The courts do not impose any rules on the parties for pre-action conduct.

Most commercial disputes begin with the claimant filing a writ of summons (writ) in the High Court, with a statement of claim. The writ summarises the claimant's claim and requires the defendant to enter appearance within a specified number of days (usually eight or 12) from service of the writ.

The defendant is notified of the claim through the writ, which must usually be served personally or sent by acknowledged receipt registered post to an individual defendant. A defendant company is served at its registered address. Service of the writ is usually accompanied with service of a statement of claim. However the statement can be served up to 14 days after the defendant's entry of appearance.

The defendant has 14 days after the time limit for entering an appearance or 14 days after service of the statement of claim on the defendant, whichever is the later, to serve a defence on the claimant.

Service of the defence is followed by the claimant's reply, which must be served 14 days after receipt of the defence. If the defence is accompanied by a counterclaim, the claimant can serve a defence within 14 days after service of the counterclaim. Any pleadings subsequent to a reply can only be filed with leave of court.

At the close of pleadings, which is 14 days after service of the final pleading, the claimant files a case management notice with the High Court. A date is then fixed for parties to appear before the court to take directions in preparation for trial including the exchange of documents, agreement on the principal issues to be tried and preparation of witness statements. Case management directions can differ depending on the practice of the judge hearing the matter.

Once case management directions are complied with, trial dates are fixed. The trial involves witnesses for the parties being called and examined. At the end of the trial, the judge will hear submissions by lawyers for the parties and deliver judgment.

However, the steps outlined above are frequently combined with the parties filing and disposing of various interlocutory applications.

The claimant can apply for summary judgment on an action by filing and serving a summons in chambers, with an affidavit in support. The defendant can reply to the claimant's affidavit and further exchanges of affidavits usually follow. The judge then hears submissions by the parties' lawyers and delivers a decision. The judge only grants summary judgment where the case is plain and obvious, and where there are no serious issues to be tried.

The court can on the application of either party, determine a question of law or construction of a document where in the court's view, this question is suitable for determination without a full trial and this determination resolves the entire claim. Application for determination is made by summons in chambers, with an affidavit in support.

The claimant can obtain judgment in default, where the defendant fails to enter appearance within the specified timeframe, or fails to serve a defence within the specified timeframe.

The defendant can apply to strike out the claimant's claim on the basis that it:

The application to strike out is made by summons in chambers, with an affidavit in support. Following the exchange of affidavits between the parties, the judge hears submissions and delivers a decision.

The defendant can obtain an order for security for costs on one or more of the following grounds set out in the rules of court:

Provisions for security for costs are also set out in the Companies Act 1965 and the Arbitration Act 2005. Under the Companies Act 1965, the court can order a claimant company to provide security for costs if there is reason to believe the claimant may be unable to meet the costs of the defendant, if successful in his defence.

Establishment of any of these grounds does not entitle the defendant to an order for security for costs, and the court maintains its discretion to make an order for costs after considering all the circumstances of the case.

Interim injunctions are available before a full trial. They can be granted if the claimant can establish the following:

In urgent cases, ex parte injunctive relief can be granted. It is possible to obtain relief on the same day or within a few days where the matter is urgent. However, ex parte injunctive relief is only granted for 21 days and a date for a hearing between the parties (inter partes) must be fixed within those 21 days. Ex parte injunctive relief is not granted if the effect is to stop the holding or progress of a meeting of a body corporate, society, association, union, organisation, club or any type of body of persons.

Mandatory interim injunctions are available. However, given the nature of these injunctions, the standard of proof applied is that of an "unusually strong and clear case".

A claimant can apply to the court for an order to restrain a defendant from dealing with, disposing of or otherwise dissipating its assets to frustrate any judgment obtained against it (Mareva injunction). The injunction is effective only as a personal prohibition against the defendant, and not as a physical attachment of assets. Mareva injunctions can relate to assets within the court's jurisdiction or in some cases worldwide.

The grounds for a Mareva order are that:

Mareva injunctions are sought without notice to the defendant and in urgent cases, can be obtained on the same day. The main proceedings for which the Mareva injunction is sought must be in the same jurisdiction. The claimant is liable for damages suffered because of the Mareva injunction, if this injunction turns out to be unjustified. For that reason, the claimant must generally provide an undertaking for damages if the injunction turns out to be unjustified, and can also be required to provide security in support of the undertaking if it is resident outside the court's jurisdiction.

The order does not create any preferential rights or liens in the claimant's favour and his priority is subsequent to any secured creditors.

An Anton Piller order permits the applicant to enter into specified premises to inspect and take into custody materials that would be relevant for the action, but that might be concealed, destroyed or disposed of by the defendant. This is commonly used in intellectual property disputes. Urgent applications can be heard on the day of filing.

Other interim remedies include:

Relief sought in large commercial disputes includes:

Punitive damages can be awarded if there is particularly bad conduct by the defendant.

In commercial disputes, all documents necessary to establish or dispute the claim must be disclosed to the other parties and the court. These include relevant correspondence between the parties and documents supporting the parties' claims.

The rules of court make provision for the process of discovery either by mutual discovery or by a court order on application by one of the parties at the close of pleadings.

Without prejudice communications cannot be adduced in court as evidence of their contents, except where these communications have led to settlement.

The Evidence Act 1950 provides that situations of privilege include, among others:

The provisions of the Evidence Act 1950 are exhaustive. There are no other situations in which the courts recognise privilege. Documents written by in-house lawyers are not privileged.

Where a matter proceeds to trial, witnesses of fact give oral evidence. However in practice, evidence in chief often takes the form of a written witness statement which the witness is asked to confirm in court.

There is a right to cross-examine witnesses of fact.

An expert can be appointed by the party intending to establish a particular fact. Parties can also agree to the appointment of a joint expert on a cost sharing basis.

Further, the court can, on the application of a party, appoint an independent expert to inquire and report on any question of fact or opinion not involving questions of law or construction.

An expert's role is to provide assistance to the judge in coming to a conclusion on a particular fact in issue. However, experts appointed by parties tend to be biased towards the party appointing them, as opposed to a court appointed expert, whose evidence may be less biased.

As with other witnesses, there is a right to cross-examine (or reply to) expert evidence.

An expert's fees are paid by the party who retained him. Where the expert is a court expert, costs will usually be apportioned between the parties. The party that ultimately succeeds at trial can recover those fees through an order that the unsuccessful party pay the costs of the action.

Large commercial disputes are generally determined by judges of the High Court. Except in limited circumstances, appeals are to the Court of Appeal from a decision of a judge of the High Court. These appeals are made on the basis that the High Court judge erred in law and/or in fact in arriving at the decision.

An appeal to the Court of Appeal is commenced by filing a notice of appeal at the Registry of the High Court within one month from the decision of the High Court in relation to which the appeal is filed. The appellant then writes to the High Court judge to obtain the notes of evidence and the grounds of judgment. Once these documents are obtained, the appellant files an appeal record containing all relevant papers before the High Court, and a memorandum of appeal setting out the grounds of an appeal. An appeal record must be filed within eight weeks of filing the notice of appeal. However, this is usually delayed (by request to the Court of Appeal) pending receipt of the notes of evidence or grounds of judgment from the High Court. Once the appeal record is filed, the Court of Appeal fixes a hearing date for the appeal. This can take about three months to a year from the time of filing the appeal record.

An appeal from a decision of the Court of Appeal is to the Federal Court, but only with leave of the Federal Court. Leave is only granted in limited circumstances. Usually, this is if there is a novel issue of law for which a Federal Court decision is beneficial.

In general, the successful party can expect to recover from the losing party its reasonable costs incurred in conducting the proceedings.

The rules of court provide detailed guidelines on the calculation of fees and disbursements, and on the process of taxation by which the court assesses and determines the costs in a matter. An order for costs can be made and is enforced as a court judgment.

Pre-trial offers to settle, if made on a without prejudice basis, are not considered by the court in making an award of costs. However, open settlement offers can be taken into account.

An award of costs forms part of the court's judgment in the proceedings. Interest is determined by the court and can be imposed up to a maximum of 8% per annum from the date of judgment.

Local judgments are commonly enforced in Malaysia by separate actions in bankruptcy (for individuals) and winding-up (companies). This mode of enforcement, which is commonly used, is not traditionally considered to be an enforcement action in law.

However, there are other possible modes of execution under the rules of court which include:

The courts respect the choice of law clause in contracts unless there are public policy reasons against this. Areas of law that can apply to a contract, despite the choice of law, include insolvency law, land law, employee rights and financial services regulation.

A choice of jurisdiction clause (specifying a foreign jurisdiction) does not oust the jurisdiction of the Malaysian courts. However, where such a clause is present, Malaysian courts normally give effect to this choice by granting a stay of proceedings, pending resort to litigation in the chosen jurisdiction. Malaysian courts sometimes exercise their jurisdiction despite the choice of jurisdiction clause. This is usually where it can be shown that there is some injustice in requiring a party to litigate in the foreign jurisdiction.

Service on a party of proceedings in a foreign jurisdiction is by personal service, or acknowledged receipt registered post for individuals, and by service at the registered office of a defendant company. Malaysia is not a party to any international agreements affecting this process.

Under the rules of court, an application is made to the High Court by a letter of request or other document issued by a foreign court to obtain evidence of a witness for the purposes of civil proceedings before that court.

The examination of a witness can be taken before any fit and proper person nominated by the person applying for the order, or by the registrar. Subject to a contrary order, the witness will be examined, cross-examined and re-examined in the same manner as at a trial. The examiner sends the deposition of the witness to the registrar, who then issues a certificate sealed with the seal of the High Court for use out of the jurisdiction and sends this certificate to the authorised person for transmission to the foreign court or tribunal.

Malaysia is not a party to an international convention on this issue.

The judgment creditor can sue on a foreign judgment in the local court by treating the judgment as a debt due. The judgment creditor must show that the foreign judgment court had jurisdiction over the judgment debtor, the judgment was final and that the judgment sum is a liquidated sum if the claim is in personam.

For judgment obtained in certain countries including the UK, Singapore, New Zealand, Sri Lanka, and Hong Kong, the Reciprocal Enforcement of Judgment Act 1958 will apply. The judgment creditor can apply to the High Court for leave to register a judgment through an originating summons supported by an affidavit exhibiting the judgment. The order for registration of judgment must then be served on the judgment debtor who can apply to set it aside within the allotted timeframe. Once the foreign judgment in registered, it can be enforced as a judgment of the Malaysian High Court.

Arbitration is the main ADR method used to settle large commercial disputes. Arbitration is generally regulated by the Arbitration Act 2005 subject to procedural rules of the arbitral body and any prior agreements between the parties.

Mediation is a new form of ADR in Malaysia and is at present, rarely used.

ADR does not form part of court procedures. The courts only compel parties to pursue ADR on application by one of the parties, if it can be shown that before the dispute, the parties agreed to ADR as a form of dispute resolution.

The general rule is that for arbitration, proceedings are confidential. The following are exceptions to this rule:

Evidence is given in a similar way to court proceedings, that is by the production of relevant written documents, oral or written evidence of witnesses, and inspection of objects forming the subject matter of the dispute.

Documents or admissions made in arbitration proceedings are confidential, except if the parties pursue further litigation and therefore the documents become part of the public record.

In arbitration proceedings, the general rule is that costs follow the event, that is, the unsuccessful party pays the costs of the successful party, and bears his own costs.

In mediation proceedings, costs are generally shared between the parties.

Arbitration is a generally accepted method of dispute resolution in the construction industry and international commerce.

Mediation is at present not very widely used.

The KLRCA was set up in 1978 through an inter-governmental international law body, the Asian-African Legal Consultative Organisation and provides a neutral system to settle disputes in trade, commerce and investment with and within the Asia-pacific region.

The KLRCA, however, is an independent institution and is not governed by the Arbitration Acts of 1952 and 2005. The rules that it applies are the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules of 1976 with certain modifications and adaptations.

The MMC is a body established through the Malaysian Bar Council to promote mediation as a means of ADR and provide a proper avenue for successful dispute resolution. The MMC offers mediation services and provides mediation training for those interested in becoming mediators, and accredits and maintains a panel of mediators. Currently, the MMC consists of lawyers who have completed the mediation training programme and deals with civil, commercial and matrimonial matters. It intends to expand its scope to other matters in the future.

Amendments have been proposed to the Arbitration Act 2005. The amendments would, among other things, clarify that stay applications and interlocutory orders in support of arbitration can be made by the courts where the seat of arbitration is outside Malaysia. It also intends to clarify that the enforcement provisions of the act also cover international arbitration where the seat of arbitration is in Malaysia. It is anticipated that the bill will be passed in 2009.

The MMC will be opening up admission to members of the Malaysian Bar to be accredited as mediators on its panel.

The Mediation Act is also being considered and consultation is being carried out with interested parties.