New KLRCA Rules 2017 – a step towards more efficient arbitrations in South East Asia

On 1 June 2017, the Kuala Lumpur Regional Centre for Arbitration (the "KLRCA") published its updated arbitration rules (the "KLRCA Rules 2017"). The KLRCA has seen a steep increase in cases over recent years reflecting Malaysia's growing importance as a regional dispute resolution hub. From 1978 to 2010, the KLRCA recorded only 22 cases but by 2016 this had risen to 618. The amount in dispute for international cases alone totalled over USD 295 million, the majority of which related to disputes from the construction and related sectors.

The KLRCA Rules 2017 apply, unless otherwise agreed by the parties, to all KLRCA arbitrations commenced after 1 June 2017. The KLRCA Rules 2017 replace the previous version of the rules which were last revised in 2013.

The changes implemented in the KLRCA Rules 2017 are designed to optimize the costs and efficiency of KLRCA proceedings and to improve the quality of arbitral awards. The changes are also designed to reflect international best practice in the case of multi-party disputes and introduce or bolster provisions for joinder of third parties and consolidation of proceedings. A summary of the key changes is set out below.

Joinder of parties

As is customary in the rules of international arbitral institutions, the KLRCA Rules 2017 now contain provisions on the joinder of third parties to proceedings. These allow for a tribunal to join additional parties to the arbitration subject to the consent of all the parties and the additional party. The additional party has 15 days of receipt of a Request for Joinder to submit a response to the arbitral tribunal (or the Director of the KLRCA where no arbitral tribunal has been appointed). In deciding whether to grant a request for joinder, the arbitral tribunal must consult the parties, the additional party and consider all the relevant circumstances, which presumably include factors such as the stage reached in the arbitration.

Consolidation of disputes

The KLRCA Rules 2017 now contain more sophisticated provisions for the consolidation of a new arbitration with existing arbitration proceedings. Consolidation can now happen where (i) the parties have consented, (ii) all claims in the arbitrations are made under the same arbitration agreement, or (iii) the claims are made under more than one arbitration agreement, the dispute arises in connection with the same "legal relationships" and the KLRCA deems the arbitration agreements to be compatible. All relevant circumstances will be taken into account in the consolidation, including the stage reached in the pending arbitrations and the efficiency of the proceedings. 

Technical review of awards

With the aim of improving the quality of awards, the KLRCA Rules 2017 now set out detailed provisions for the technical review of awards. An arbitral tribunal needs to submit to the KLRCA a draft final award within three months of declaring proceedings closed.  The KLRCA must then, as soon as practicable, draw the tribunal's attention to any perceived irregularity as to the form of the award and any errors in the calculation of interest and costs. This notification gives the tribunal 10 days in which to re-submit a draft award unless extra time is granted by the KLRCA.

Simplified fee schedules

The KLRCA has a new simplified fee schedule that sets out both the arbitrator's fees and KLRCA administrative fees by value of the amount in dispute using a unified banding structure. The new schedule makes it easier at a glance to calculate arbitrator's fees as well as those of the KLRCA. There are no changes to the rule allowing the parties and tribunal to agree fees other than those in the schedule.

Model arbitration clause and submission agreement

The KLRCA Rules 2017 now contain a model arbitration clause for disputes to be administered under the rules. Of particular note, the model arbitration clause provides for parties to seek amicable settlement of a dispute by mediation in accordance with the KLRCA Mediation Rules.  This is consistent with the KLRCA's aim of establishing Malaysia as a multi-service global hub for ADR and not just international arbitration, as re-affirmed during their recent International ADR Week. The KLRCA Rules 2017 also contain a short model agreement for parties seeking to substitute an existing arbitration clause for one referring the dispute to arbitration under the KLRCA Rules.

A new guide to the KLRCA Rules

The guide to the KLRCA Rules is a list of the most-commonly used definitions in the KLRCA Rules 2017 and is designed to make the rules more user-friendly by having key terms in one place.

Conclusion

The KLRCA Rules 2017 are a welcome attempt to bring the rules of the KLRCA into line with international best practice.  It is evident from the changes made that the overall goal of the KLRCA is to improve the efficiency and speed of KLRCA-administered arbitrations. It remains to be seen how the changes will be implemented in practice by the KLRCA and tribunals. However, what is clear is that Malaysia is doing what it can to make itself one of the go-to arbitral centres in South East Asia.

If you have any questions about how the introduction of the KLRCA Rules 2017 will impact on the drafting of dispute resolution clauses in contracts or on any current or future KLRCA arbitrations, then please contact Peter Godwin (Managing Partner) in the Herbert Smith Freehills Kuala Lumpur office or your usual Herbert Smith Freehills contact.