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Daily Archives: November 23, 2011
November 23, 2011
DR. ZULKIFLI HASAN
Islamic Banks Get a ‘Libor’ of Their Own
Islamic Banks Get a ‘Libor’ of Their Own
By KATY BURNE Available at:
http://online.wsj.com/article/SB10001424052970204443404577054150155788364.html
A group of 16 banks resolved a quandary that has dogged the $1 trillion Islamic financing market for nearly three decades: how to represent rates on interbank funding when Islamic principles prohibit firms from charging interest.
The banks—working with industry associations and data provider Thomson Reuters—created a reference rate called the Islamic Interbank Benchmark Rate, or IIBR, which was put into use for the first time Tuesday. The banks say the solution, which complies with Islamic moral codes, known as Shariah, lies in considering money flowing between banks as investments that depend on the performance of underlying assets, rather than as interest-bearing loans.
Scholars and bankers involved in the project say it is an industry milestone akin to the first globally issued Islamic corporate bond in 2001, or the first Islamic sovereign bond in 2002. They say the rate brings transparency to the Islamic financing process and could encourage broader use of Islamic banks.
“The establishment of the IIBR marks an important milestone in the maturation of Islamic money markets by providing an international reference rate for interbank transactions,” said Nasser Saidi, chairman of the Islamic Benchmark Committee and chief economist at the Dubai International Financial Centre, in a statement.
Islamic banks aren’t allowed to earn or pay interest, yet have been using an international interest-rate benchmark—the London interbank offered rate, or Libor—since 1986. While Libor isn’t compliant with Shariah, religious leaders permitted its use because there was no alternative benchmark based on socially ethical investing.
Rather than measuring interest on loans as Libor does, IIBR uses expected profits from short-term money and a forecasted return on the assets of the bank receiving funds. Both are considered investments rather than loans, and therefore interest-free.
Sheikh Yusuf Talal Delorenzo, chairman of Thomson Reuters’s Shariah committee, said the significance of IIBR is that it allows firms participating “to see the interbank market in their own terms.”
“Earnings are lawful,” he said. “What is unlawful is earnings from interest.”
Hassan Demirhan, director in the treasury department at the Islamic Development Bank, added that the introduction of an “indigenous Islamic benchmark” will prove to be a “major milestone in the growth and sustainability of the industry.”
IIBR on everything from overnight to one-year funding will be determined from rates the member banks contribute each day. The data will go through a type of cleaning called a “fixing,” where the top and bottom rates are removed and an average of the middle eight contributions is taken.
The results are blessed by a panel of Islamic banks and approved by a committee of Shariah scholars. Also involved in the launch were the Islamic Development Bank, the Accounting and Auditing Organization for Islamic Financial Institutions, the Bahrain Association of Banks and the Association of Islamic Banking Institutions Malaysia.
As of Nov. 16, the theoretical overnight IIBR would have been 0.1%, which was slightly below overnight Libor of 0.14%. Libor was cheaper over one year, however, at 0.91% versus 1.01% for IIBR.
Such differences could encourage corporate borrowers to use Islamic banks when IIBR is lower than Libor, on the theory that banks could pass savings on to customers.
“It will facilitate liquidity into the Islamic banks,” said Rushdi Siddiqui, global head of Islamic finance at Thomson Reuters in New York, who helped launched the first Islamic equity index in 1999 for Dow Jones.
Islamic banks have attracted liquidity from outside investors interested in diversification, said Mr. Siddiqui, and this will provide those funding sources with “a transparent, visible benchmark” that will encourage increased funding flows, helping to finance a wave of infrastructure projects in the region.
The development of a Shariah-compliant benchmark rate also comes amid regulatory investigations into the way the Libor rate is fixed by investment banks. Regulators have opted not to specifically endorse IIBR over other benchmarks, preferring to remain neutral, but they are aware of its creation and have supported it.
Regards

Zulkifli Hasan
Swiss Alps, Grindelwald, Switzerland
Islamic finance news
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Law of Banking and SecurityLaw of Banking and Security

DR. ZULKIFLI HASANDR. ZULKIFLI HASAN

1111thth October 2011October 2011

Week VWeek V

ContentContent

�� Account OpeningAccount Opening

�� Stopping an accountStopping an account

�� Accounts of CustomersAccounts of Customers

�� Types of CustomersTypes of Customers

Open an AccountOpen an Account

�� Opening an accountOpening an account-- banker takes a banker takes a ‘‘mandatemandate’’

�� Mandate: instructions from the customer: Mandate: instructions from the customer:
customercustomer’’s signature, address and occupation.s signature, address and occupation.

�� CustomerCustomer’’s identitys identity

�� IC/PassportIC/Passport

�� Company registration recordsCompany registration records

�� Current AccountCurrent Account

�� IntroducerIntroducer

�� Search at CCMSearch at CCM

CustomerCustomer

�� The Code of Good Banking Practice The Code of Good Banking Practice –– 1 July 1 July

19951995-- PARA 2, Part APARA 2, Part A--2.1 & 2.1 provides the 2.1 & 2.1 provides the

requirements of opening an accountrequirements of opening an account

�� In 1989, Guidelines on MoneyIn 1989, Guidelines on Money--Laundering, Laundering,

Know Your Customer Policy which Know Your Customer Policy which

incorporates BASEL statement.incorporates BASEL statement.

�� Section 16 of AntiSection 16 of Anti-- Money Laundering 2001Money Laundering 2001

�� Section 18 of AMLA 2001Section 18 of AMLA 2001-- opening an account opening an account

in false name.in false name.

Preliminary Inquiries and IntroducersPreliminary Inquiries and Introducers

�� Identity, Integrity and ReliabilityIdentity, Integrity and Reliability

�� A proper person, legal capacity and authorityA proper person, legal capacity and authority

Need for IntroducersNeed for Introducers

�� Ladbroke & Co v ToddLadbroke & Co v Todd (1914) 111 LT 43(1914) 111 LT 43

�� A thief opened an account with a stolen A thief opened an account with a stolen

chequescheques. No introducer. . No introducer.

�� Held: BankerHeld: Banker’’s failure to get satisfactory s failure to get satisfactory

intro/referenceintro/reference-- a breach of duty to the true a breach of duty to the true

owner of the owner of the chequecheque, so the bank had not acted , so the bank had not acted

““without negligencewithout negligence””

Need for Preliminary InquiriesNeed for Preliminary Inquiries

�� The Rubber Industry (Replanting Board v Hong Kong The Rubber Industry (Replanting Board v Hong Kong
and Shanghai Banking Corpand Shanghai Banking Corp [1957] 1 MLJ 103[1957] 1 MLJ 103

�� ChequeCheque ‘‘account payee onlyaccount payee only’’. The . The chequecheque got got
into the hands of third party and he opened an into the hands of third party and he opened an
account with the B. No search and no account with the B. No search and no
preliminary inquiries have been made.preliminary inquiries have been made.

�� Held: Liable for damages. Not entitled to the Held: Liable for damages. Not entitled to the
protection (Section 82 of the Bills of Exchange protection (Section 82 of the Bills of Exchange
OrdOrd. 1949). 1949)

Stopping An AccountStopping An Account

�� When mandate is revokedWhen mandate is revoked

�� Death or mental incapacityDeath or mental incapacity

�� Bankruptcy Bankruptcy

�� Resolution for voluntary liquidation or winding Resolution for voluntary liquidation or winding

upup--orderorder

�� A garnishee order or other court orderA garnishee order or other court order

�� An assignment of the credit balance in the An assignment of the credit balance in the

account by the customer to a third party.account by the customer to a third party.

Types of AccountsTypes of Accounts

�� Savings and Current Savings and Current

�� Fixed DepositFixed Deposit

�� Trust AccountTrust Account

�� Unincorporated Clubs and SocietiesUnincorporated Clubs and Societies

�� Loan and OverdraftLoan and Overdraft

�� Joint Bank AccountsJoint Bank Accounts

Saving and CurrentSaving and Current

�� Most commonMost common

�� CA: the use of CA: the use of chequescheques to withdraw fundto withdraw fund

�� Funds deposited  are payable when demanded Funds deposited  are payable when demanded

by the C. Foley v Hill [1848] 2 HL. Ca. 28.by the C. Foley v Hill [1848] 2 HL. Ca. 28.

Fixed DepositFixed Deposit

�� Certain period of timeCertain period of time

�� To produce deposit receipt before the money To produce deposit receipt before the money

deposited may be withdrawndeposited may be withdrawn

�� Can only pay to a third party on a customerCan only pay to a third party on a customer’’s s

instruction.instruction.

�� The The rshiprship btnbtn B and C only come to an end up B and C only come to an end up

to time the deposited money are repaid to the C.to time the deposited money are repaid to the C.

�� FD can be used as a securityFD can be used as a security

Safe Deposit BoxesSafe Deposit Boxes

�� For safekeeping of For safekeeping of jewelleryjewellery and other personal and other personal

valuables.valuables.

�� Relationship:Relationship:--

�� 1. Bailment1. Bailment

�� 2. Licensor and licensee 2. Licensor and licensee Malayan Banking Malayan Banking BhdBhd v v

Hong Hong SekSek MeeMee & & AnorAnor [1998] 4 AMR 3265[1998] 4 AMR 3265

�� To maintain security system To maintain security system Susan Susan CheahCheah PikPik Yee Yee

& Ors v & Ors v MaybanMayban Finance Finance BerhadBerhad [2003]3 MLJ 376[2003]3 MLJ 376

Trust AccountTrust Account

�� Person who hold funds in trust for others.Person who hold funds in trust for others.

�� TrusteeTrustee-- Deposit trust fundsDeposit trust funds

�� AdministratorAdministrator-- Estate accountEstate account

�� Duty to the B: Not in breach of trustDuty to the B: Not in breach of trust

PartnershipPartnership

�� Must be in the firmMust be in the firm’’s names name

�� When a partner retires from a firm, he is under a When a partner retires from a firm, he is under a

duty to notify the B. duty to notify the B. Tan Boo Tan Boo CheoCheo v Ho Hong v Ho Hong

Bank LtdBank Ltd [1934] MLJ 180[1934] MLJ 180

Unincorporated Club and SocietiesUnincorporated Club and Societies

�� Members liability: Member is personally not Members liability: Member is personally not

liable for the debts incurred by the club unless liable for the debts incurred by the club unless

he has agreed. Overdraft facilities granted by B he has agreed. Overdraft facilities granted by B

cannot be recovered from its members.cannot be recovered from its members.

�� Contracts by committee members: the contract Contracts by committee members: the contract

is solely is solely btnbtn the CM and the third party. No the CM and the third party. No

liability to members.liability to members.

Loan and OverdraftLoan and Overdraft

�� Loan or overdraft facilitiesLoan or overdraft facilities

�� If the B makes an offer of loan and the offer is If the B makes an offer of loan and the offer is
accepted by a C, it is legally binding.accepted by a C, it is legally binding.

�� KluangKluang Wood Products Wood Products SdnSdn BhdBhd v Hong v Hong LeongLeong Finance Finance
BhdBhd [1999] 1 MLJ 193[1999] 1 MLJ 193

�� The B was liable for breach of contract.The B was liable for breach of contract.

�� United Overseas Bank Ltd v Mohamed United Overseas Bank Ltd v Mohamed ArifArif
[1994] 2 SLR 296[1994] 2 SLR 296

�� If the bank fails to disburse the loan once the C If the bank fails to disburse the loan once the C
accepts the offer, the C is entitled to sue for breach accepts the offer, the C is entitled to sue for breach
of contract.of contract.

Joint AccountJoint Account

�� Account of more than one personAccount of more than one person

�� Conducted by 2 or more personsConducted by 2 or more persons

�� The B needs to know the The B needs to know the ‘‘mandatemandate’’. Should . Should
obtain a written mandate signed by all parties to obtain a written mandate signed by all parties to
the account.the account.

�� To specify which and how many of the parties To specify which and how many of the parties
have authority to sign the have authority to sign the chequescheques..

�� The mandate is revoked:The mandate is revoked:-- 1. C1. C’’s instruction 2. s instruction 2.
death 3. bankruptcy 4. mental incapacity death 3. bankruptcy 4. mental incapacity

Types of CustomersTypes of Customers

�� Natural PersonNatural Person

�� CompaniesCompanies

�� PartnershipPartnership

�� Sole proprietorshipsSole proprietorships

�� Societies, ClubsSocieties, Clubs

�� MinorsMinors

�� Executors, Administrators and trusteesExecutors, Administrators and trustees

�� AgentsAgents

Natural personNatural person

�� Age of Majority Ac 1971Age of Majority Ac 1971-- 18 years and 18 years and

above.above.

�� The requirements: sound mind, not The requirements: sound mind, not

disqualified from contracting (S 11 of the disqualified from contracting (S 11 of the

Contracts Act 1950), sample of signature, Contracts Act 1950), sample of signature,

personal detail, for current accountpersonal detail, for current account--need an need an

introducerintroducer

Mental DisorderMental Disorder

�� PremPrem Singh & Ors v Singh & Ors v KirpalKirpal SinghSingh [1989] 2 MLJ 89[1989] 2 MLJ 89

�� Chao Hick Tin JC:Chao Hick Tin JC:

�� Section 3(1) of the Mental Disorders and Treatment Act 1985Section 3(1) of the Mental Disorders and Treatment Act 1985--

gives discretion to the court to determine whether a person is gives discretion to the court to determine whether a person is

mentally disordered, an inquiry should be ordered. mentally disordered, an inquiry should be ordered.

�� It does not mean that an inquiry must be ordered in every case.It does not mean that an inquiry must be ordered in every case.

�� Chow Yee Chow Yee WahWah v v ChooChoo Ah PatAh Pat [1978] 2 [1978] 2 mljmlj 41 PC41 PC

�� Drawn a Drawn a chequecheque and paid into a joint account for the benefit of and paid into a joint account for the benefit of

his wife. His thumbprints affixed to the said his wife. His thumbprints affixed to the said chequescheques. .

�� FC: Deceased was not mentally capable. FC: Deceased was not mentally capable.

�� PC: Allowed the appeal. PC: Allowed the appeal.

CompaniesCompanies

�� Refer to Companies Act 1965.Refer to Companies Act 1965.

�� If shareholders passed away, the companyIf shareholders passed away, the company’’s account is not s account is not
effected.effected.

�� MBF Finance MBF Finance SdnSdn BhdBhd v Ting v Ting KahKah KwangKwang & & AnorAnor [1993] 3 [1993] 3
MLJ 73MLJ 73

�� Change of companyChange of company’’s name does not affect the identity of s name does not affect the identity of
the company, rights and obligationsthe company, rights and obligations

�� Abdul Aziz bin Abdul Aziz bin AtanAtan & 87 Ors v & 87 Ors v LadangLadang Rengo Malay Rengo Malay
Estate Estate SdnSdn BhdBhd [1985] 2 MLJ 165[1985] 2 MLJ 165-- shareholders of a shareholders of a
company transferred their entire shareholdings to a certain company transferred their entire shareholdings to a certain
buyer, the court heldbuyer, the court held-- the companythe company’’s identity and s identity and
personality are not effectedpersonality are not effected

CompaniesCompanies

�� A corporation is an artificial legal personA corporation is an artificial legal person

�� A company is a separate entityA company is a separate entity-- not related to the not related to the

directors or shareholders.directors or shareholders.

�� Legal entityLegal entity-- has the right to sue and the right to be has the right to sue and the right to be

sued in its own name, deal with property and enjoy sued in its own name, deal with property and enjoy

‘‘perpetual successionperpetual succession’’

Veil of incorporationVeil of incorporation

�� The members are below two membersThe members are below two members

�� Fraudulent tradingFraudulent trading

�� Publication of namePublication of name

�� Taxation and nationality rulesTaxation and nationality rules

�� Holding and subsidiaries companiesHolding and subsidiaries companies

�� Abuse of legal rightsAbuse of legal rights

�� FraudFraud

Types of CompanyTypes of Company

�� Refer Section 14(1) of the Companies Act 1965Refer Section 14(1) of the Companies Act 1965

�� 14(2) Classification of Companies14(2) Classification of Companies

�� Limited by sharesLimited by shares

�� Limited by guaranteeLimited by guarantee

�� Shares and guaranteeShares and guarantee

�� Unlimited companyUnlimited company

PartnershipPartnership

�� Legal firms, accounting firms and medical practicesLegal firms, accounting firms and medical practices

�� Section 3(1) of the Partnership Act 1961Section 3(1) of the Partnership Act 1961

�� A relationship which subsists between persons carrying A relationship which subsists between persons carrying

on business in common with a view of profit.on business in common with a view of profit.

�� Section 4(a) of the Registration of Business Act Section 4(a) of the Registration of Business Act

1956 A company may be a partner1956 A company may be a partner

�� Search at the ROB, existence of the firm, identity Search at the ROB, existence of the firm, identity

of the partners, other particulars, firmsof the partners, other particulars, firms’’ rubber rubber

stamp, signatories of the partners.stamp, signatories of the partners.

PartnershipPartnership
�� A minor also can be a partner with an adult A minor also can be a partner with an adult
provided that the minor is not answerable for the provided that the minor is not answerable for the
debts of firm until he/she reaches the age of 18.debts of firm until he/she reaches the age of 18.

�� Legal entity, accounts, liabilities and termination of Legal entity, accounts, liabilities and termination of
partnership.partnership.

�� The Chartered Bank v Yong ChanThe Chartered Bank v Yong Chan [1974] 1 MLJ 157[1974] 1 MLJ 157
�� Partnership accountPartnership account-- a partner can sue for breach of a partner can sue for breach of
contractcontract

�� Malayan Banking Malayan Banking BhdBhd v Lim v Lim CheeChee LengLeng & & AnorAnor [1985] [1985]
1 MLJ 2141 MLJ 214

�� A partner remains liable for debts incurred before his A partner remains liable for debts incurred before his
resignationresignation

SOLE PROPRIETORSHIPSOLE PROPRIETORSHIP

�� Does not have a separate legal entity.Does not have a separate legal entity.

�� Sole proprietorships are registered with ROB Sole proprietorships are registered with ROB
(Registry of Business)(Registry of Business)

�� Account payeeAccount payee-- firmfirm’’s accounts account

�� Death, bankruptcy, and mental incapacity of the Death, bankruptcy, and mental incapacity of the
sole proprietorshipsole proprietorship

�� Wong Yoon Wong Yoon YarYar v Lin Yin Thai & Orsv Lin Yin Thai & Ors [1987] 2 [1987] 2
MLJ 714MLJ 714

�� No legal entity nor personality of its ownNo legal entity nor personality of its own

Societies, Club and Unincorporated Societies, Club and Unincorporated

BodiesBodies

�� Formed by persons grouping themselves Formed by persons grouping themselves
together.together.

�� No legal statusNo legal status--cannot be sued or sued otherscannot be sued or sued others

�� To recover debt, legal proceedings  have to be To recover debt, legal proceedings  have to be
commenced against the committee.commenced against the committee.

�� Registered under Societies Act 1996Registered under Societies Act 1996

�� Banker should obtain: certificate, constitution Banker should obtain: certificate, constitution
of association, memberof association, member’’s resolution, s resolution,
committeecommittee’’s resolution and account mandates resolution and account mandate

MinorsMinors

�� Full ageFull age-- 18 years (section 2 of Age of Majority Act 18 years (section 2 of Age of Majority Act
1971)1971)

�� A minor is not bound by certain agreementsA minor is not bound by certain agreements--

�� No legal capacity in contractNo legal capacity in contract

�� HalijahHalijah v v MoradMorad & Ors [1972] 2 MLJ 166 & Ors [1972] 2 MLJ 166
�� High Court, High Court, decides that the agreement was decides that the agreement was
absolutely void as the respondents were infants.absolutely void as the respondents were infants.

Executors, Administrators & TrusteesExecutors, Administrators & Trustees

�� A person may die testate/ intestateA person may die testate/ intestate

�� Executor/administratorExecutor/administrator will be appointed to will be appointed to
manage the property of deceased, often it is the manage the property of deceased, often it is the
personal representatives of deceased estates.personal representatives of deceased estates.

�� Dies intestate, the court of Dies intestate, the court of Public TrusteePublic Trustee

�� TrusteeTrustee-- a legal arrangement to  administer for the a legal arrangement to  administer for the
benefits of beneficiary. Strictly follow the terms of benefits of beneficiary. Strictly follow the terms of
trust in the Trust Deed.trust in the Trust Deed.

�� Executors: Grant of probate. Administrator: Letter Executors: Grant of probate. Administrator: Letter
of Administration Trustees: Trust Deedof Administration Trustees: Trust Deed

Power to charge the Trust Property under the Power to charge the Trust Property under the

Trust DeedTrust Deed

�� MohamadMohamad SallehSalleh v Lau v Lau SiokSiok KeeKee [1974] [1974]
1 MLJ 1021 MLJ 102

��The trustees charged land to the The trustees charged land to the
respondent. Failed to pay the loan, respondent. Failed to pay the loan,
the respondent applied for an order the respondent applied for an order
to sell the land. Appellant applied for to sell the land. Appellant applied for
declaration that the trustees had no declaration that the trustees had no
power to charge the land.power to charge the land.

��Held: there was power granted under Held: there was power granted under
the trust deed.the trust deed.

LawyersLawyers

�� Client AccountClient Account

�� Lawyers account or office accountLawyers account or office account

�� DatoDato’’ Seri Au Seri Au BaBa Chi v Malayan United Finance Chi v Malayan United Finance BhdBhd

& & AnorAnor, , DatoDato Au Development Au Development SdnSdn BhdBhd v Malayan v Malayan

United Finance United Finance BhdBhd & & AnorAnor [1989] 3 MLJ 434[1989] 3 MLJ 434

�� Duty of the a stakeholder is to hold the stake in Duty of the a stakeholder is to hold the stake in

mediomedio pending the outcome of a future event. He pending the outcome of a future event. He

holds it as trustee for both parties to await that event holds it as trustee for both parties to await that event

until that event is known.until that event is known.

Agents and Powers of AttorneyAgents and Powers of Attorney

�� Law of AgencyLaw of Agency-- agent and principal relationshipagent and principal relationship

�� Part x of Contracts Act 1950 (SS 135Part x of Contracts Act 1950 (SS 135-- 191)191)

�� Power of Attorney Act 1949Power of Attorney Act 1949-- only for only for

Peninsular Malaysia, registered with the HC.Peninsular Malaysia, registered with the HC.

PA created against the Provisions of PA 1949.PA created against the Provisions of PA 1949.

�� Wan Wan SalimahSalimah btebte Wan Wan JaafarJaafar v v MahmoodMahmood bin Omar bin Omar

((AnimAnim btebte Abdul Aziz, Intervener) [1985] 5 MLJ 162Abdul Aziz, Intervener) [1985] 5 MLJ 162

�� Lease agreement Lease agreement btnbtn the P and the P and DtDt. The . The DtDt agreed to lease his agreed to lease his

share in certain lands to the lands. The share in certain lands to the lands. The DtDt sold the lands to sold the lands to

the Intervener. The Intervener was represented by the Intervener. The Intervener was represented by HarunHarun

who claimed to be the holder of a PA granted by the who claimed to be the holder of a PA granted by the

Intervener. Intervener.

�� PA is null and void.PA is null and void.


Law of ArbitrationLaw of Arbitration

DR. ZULKIFLI HASANDR. ZULKIFLI HASAN

ContentContent

�� CostCost

�� FeesFees

�� TaxationTaxation

�� Interest Interest

�� RemissionRemission

�� Setting asideSetting aside

COSTSCOSTS

��Costs of legal advice and Costs of legal advice and
representation, the arbitrator fees, the representation, the arbitrator fees, the
costs of evidence, costs of costs of evidence, costs of
accommodation and administrative accommodation and administrative
support during the arbitration support during the arbitration
proceedings and other expenses proceedings and other expenses
incurred in connection with the incurred in connection with the
reference. reference.

��It does not refer to the substantive It does not refer to the substantive
amount claimed in a reference to amount claimed in a reference to
arbitration.  arbitration.

Types of CostsTypes of Costs

�� 1. The arbitrator1. The arbitrator’’s fees and expensess fees and expenses

�� 2. The fees and expenses of any arbitral 2. The fees and expenses of any arbitral

institution involvedinstitution involved

�� 3. The parties3. The parties’’ own costs including legal costs own costs including legal costs

and fees of counsel of repand fees of counsel of rep

�� 4. Any costs incidental to the arbitration. 4. Any costs incidental to the arbitration. EgEg fees fees

of experts, translators, photocopying, hiring of of experts, translators, photocopying, hiring of

premises.premises.

TERMS USED IN ARBITRATION TERMS USED IN ARBITRATION

ACT 2005ACT 2005

Costs Costs and and expensesexpenses of arbitrationof arbitration

�� Costs Costs –– egeg. Arbitrator fees, . Arbitrator fees,

�� Expenses Expenses –– egeg. . travellingtravelling, ,

photocopying, hiring of premisesphotocopying, hiring of premises

COSTS OF THE REFERENCE COSTS OF THE REFERENCE

AND COSTS OF THE AWARDAND COSTS OF THE AWARD

Arbitrators fees and Arbitrators fees and

proper expenses proper expenses

incurred in the incurred in the

arbitration processarbitration process

Item 1, 2 and 4.Item 1, 2 and 4.

Those which the Those which the

parties reasonably parties reasonably

incur in prosecuting incur in prosecuting

the claims made or the claims made or

in defending in defending

against them against them

Item 3Item 3

Costs of the AwardCosts of the AwardCosts of the Costs of the

referencereference

SECTION 44SECTION 44

Parties to a reference are in general at Parties to a reference are in general at
liberty to agree who shall pay the costs liberty to agree who shall pay the costs
(reflected in S. 44 (1) )(reflected in S. 44 (1) )

S. 44 (1) (a) arbitral tribunal has S. 44 (1) (a) arbitral tribunal has
discretion to discretion to

i)i)Direct to and by whom and in what Direct to and by whom and in what
manner those costs or any part thereof manner those costs or any part thereof
shall be paid shall be paid

ii)ii)Tax or settle the amount of such costs Tax or settle the amount of such costs
and expensesand expenses

iii)iii)Award such costs and expenses to be Award such costs and expenses to be
paid paid

DISCRETION OF ARBITRAL DISCRETION OF ARBITRAL

TRIBUNALTRIBUNAL

��Arbitral tribunal has discretion to Arbitral tribunal has discretion to

order costs  + interest (award interest order costs  + interest (award interest

and determined the rate of interest ) and determined the rate of interest )

��It has to be exercised judiciouslyIt has to be exercised judiciously

��The arbitral tribunal must state The arbitral tribunal must state

reasons for awarding the costs reasons for awarding the costs

Arbitrator is Empowered to make an award of costsArbitrator is Empowered to make an award of costs

�� Re Stephen, Smith and Co and Liverpool and London and Globe Re Stephen, Smith and Co and Liverpool and London and Globe
InsuranceInsurance Co  [1892] 36 Sol Jo 464Co  [1892] 36 Sol Jo 464
�� The effect of the clause is to make arbitrators and umpires judgThe effect of the clause is to make arbitrators and umpires judges es

in their own cause and to allow them to settle finally the amounin their own cause and to allow them to settle finally the amount t
of costs to be paid to them.of costs to be paid to them.

�� Must not take into account: prejudice of race, religion or Must not take into account: prejudice of race, religion or
sympathy with the unsuccessful party.sympathy with the unsuccessful party.

�� The exercise of this power must be in the form of an The exercise of this power must be in the form of an
award.award.

�� The arbitrator must specify The arbitrator must specify
�� the party entitled to coststhe party entitled to costs

�� Who shall payWho shall pay

�� The amountThe amount

�� Method of determining that amountMethod of determining that amount

�� Manner in which the cost shall be paidManner in which the cost shall be paid

Cost???Cost???

�� The complexity of the cause or matter and the The complexity of the cause or matter and the
difficulty or novelty of the questions involveddifficulty or novelty of the questions involved

�� The skill, The skill, specialisedspecialised knowledge and responsibility knowledge and responsibility
required of, and the time and required of, and the time and labourlabour expendedexpended

�� The number and importance of the documents The number and importance of the documents
(however brief) prepared or perused(however brief) prepared or perused

�� The place and circumstances in which the business The place and circumstances in which the business
involved is transactedinvolved is transacted

�� The urgency and importance of the cause or matter to The urgency and importance of the cause or matter to
the clientthe client

�� Where money or property is involved, its amount or Where money or property is involved, its amount or
valuevalue

��costs of an actioncosts of an action are usually awarded are usually awarded

to the successful litigant. to the successful litigant.

��The party who requires to submit to The party who requires to submit to

arbitration in order to achieve that to which he arbitration in order to achieve that to which he

is entitled should recover his costs incurred in is entitled should recover his costs incurred in

so doing from the other party. The loser pays. so doing from the other party. The loser pays.

��SmeatonSmeaton, , HanscombHanscomb & Co Ltd v Sassoon & Co Ltd v Sassoon

SettySetty, Sons & Co (No. 2), Sons & Co (No. 2)

�� Prima facie, a successful party is entitled to Prima facie, a successful party is entitled to

costs. Not entitled at law but merely prima costs. Not entitled at law but merely prima

facie entitled.facie entitled.

Costs Prima Facie to follow the eventCosts Prima Facie to follow the event

(i) Costs thrown away(i) Costs thrown away

egeg: failing to comply with a discretion, : failing to comply with a discretion,

failing to appear, cause delay in failing to appear, cause delay in

proceedings.proceedings.

ii) Adjournments or cancellations ii) Adjournments or cancellations

a) Failure of a successful party to accept a) Failure of a successful party to accept

an offer made earlier by the other an offer made earlier by the other

party party

b) extravagance, such as using too many b) extravagance, such as using too many

counsels or expert witnesses and the counsels or expert witnesses and the

likelike

c) Causing a large amount of time ( or c) Causing a large amount of time ( or

costs) involved   costs) involved

ExceptionException

�� the arbitrator may normally retain his the arbitrator may normally retain his

award until such fees or remuneration award until such fees or remuneration

is paid to him. is paid to him.

�� however, by virtue of S.44 (4), the HC however, by virtue of S.44 (4), the HC

may order the arbitral tribunal to may order the arbitral tribunal to

deliver the award on such conditions as deliver the award on such conditions as

the HC thinks fit the HC thinks fit

Award without specifying the costsAward without specifying the costs

�� S 44 (b): Apply to the HC for the costs to be S 44 (b): Apply to the HC for the costs to be

taxed if the arbitrator fails to specify the amount taxed if the arbitrator fails to specify the amount

of costs within 30 days of having been requested of costs within 30 days of having been requested

to do so.to do so.

Award without costsAward without costs

�� Williams v WilsonWilliams v Wilson [1853] LR 9 Ex 90[1853] LR 9 Ex 90

�� If the arbitrator has not included costs in his If the arbitrator has not included costs in his

award, it is assumed that each party to bear his award, it is assumed that each party to bear his

own costsown costs

�� S 44 (c): Each party shall be responsible for its S 44 (c): Each party shall be responsible for its

own legal and other expenses .own legal and other expenses .

INTEREST ON THE AWARDINTEREST ON THE AWARD

�� the court will not interfere with the the court will not interfere with the

tribunals exercise of its discretion to tribunals exercise of its discretion to

award costs merely because the court award costs merely because the court

would itself exercised that discretion would itself exercised that discretion

differentlydifferently

�� by virtue of S. 33(6), interest is by virtue of S. 33(6), interest is
payable from the date on which payable from the date on which
the award is made the award is made

S.33 (6) S.33 (6) –– unless otherwise unless otherwise
provided by the arbitration provided by the arbitration
agreement, the arbitral tribunal agreement, the arbitral tribunal
may may ––

a)a)Award interest on any sum of Award interest on any sum of
money ordered to be paid by the money ordered to be paid by the
award award from the date of the from the date of the
awardaward to the date of to the date of realisationrealisation

b)b)Determine the rate of interestDetermine the rate of interest

�� the rate of the interest would be the the rate of the interest would be the

same as that of judgment debtsame as that of judgment debt

�� The interest would accrue unless the The interest would accrue unless the

award otherwise statesaward otherwise states

�� The arbitral tribunal may award The arbitral tribunal may award

interest from the date of the award. interest from the date of the award.

�� This power is inherent in an arbitrator This power is inherent in an arbitrator

by virtue of his implied powers which by virtue of his implied powers which

he may exercise unless there is a he may exercise unless there is a

valid objection against it valid objection against it

S. 37 (1) (a) S. 37 (1) (a) the partythe party who apply to set who apply to set
aside the award must provide proof aside the award must provide proof
that: that:

i)i)A party to the arbitration agreement A party to the arbitration agreement
was under incapacitywas under incapacity

ii) arbitration agreement is not valid ii) arbitration agreement is not valid
under the law which the parties have under the law which the parties have
subjected itsubjected it

APPLICATION TO SET ASIDE APPLICATION TO SET ASIDE

OF AN AWARD  OF AN AWARD

iii) the party making the application iii) the party making the application

was not given proper notice of was not given proper notice of

appointment of an arbitrator / arbitral appointment of an arbitrator / arbitral

proceedings/ unable to present that proceedings/ unable to present that

partyparty’’s cases case

iv) The award deals with a dispute not iv) The award deals with a dispute not

contemplated /not falling within the contemplated /not falling within the

terms of the submission to arbitrationterms of the submission to arbitration

v) Award contains decisions on matters v) Award contains decisions on matters

beyond the scope of submission to beyond the scope of submission to

arbitrationarbitration

vi) Composition of the arbitral tribunal vi) Composition of the arbitral tribunal

/arbitral procedure was not in /arbitral procedure was not in

accordance with the arbitration accordance with the arbitration

agreementagreement

b) the HC finds that b) the HC finds that

i)Subjecti)Subject matter of the dispute is not matter of the dispute is not

capable of settlement by arbitration capable of settlement by arbitration

under the laws of Malaysia; orunder the laws of Malaysia; or

ii) The award is in conflict with the ii) The award is in conflict with the

public policy of Malaysia public policy of Malaysia

What is meant by in conflict with the What is meant by in conflict with the

public policy of Malaysia? public policy of Malaysia?

(S. 37(2) ) (S. 37(2) )

a)a) The making of the award was The making of the award was

induced or affected by induced or affected by fraud or fraud or

corruptioncorruption

Fraud?Fraud?

�� Court consider fraud as something Court consider fraud as something

which is in conflict with the public which is in conflict with the public

policy of Malaysiapolicy of Malaysia

�� It is part of misconduct of arbitrator  It is part of misconduct of arbitrator

Case: Case: HaighHaigh v v HaighHaigh [1861] 31 LJ Ch 420[1861] 31 LJ Ch 420

““Arbitrators like other judges are bound, Arbitrators like other judges are bound,

when they are not expressly absolved when they are not expressly absolved

from doing so, to observe in their from doing so, to observe in their

proceedings the ordinary rules which are proceedings the ordinary rules which are

laid down for the administration of laid down for the administration of

justice, and the court when called upon justice, and the court when called upon

to review their proceedings, is bound to to review their proceedings, is bound to

see those rules have been observedsee those rules have been observed””

a)a) A breach of natural justice occurredA breach of natural justice occurred

i)i) During the arbitral proceedings During the arbitral proceedings

ii)ii) In connection with the making of In connection with the making of

the award  the award

Other situations in which an award Other situations in which an award

is set aside is set aside

i)i)No choice except to set aside No choice except to set aside

��The award would have to be set The award would have to be set

aside where the only conclusion to aside where the only conclusion to

which the court can arrive is to set which the court can arrive is to set

aside the award aside the award

EgEg: when the contract is illegal : when the contract is illegal

ii) Where arbitrator is biasedii) Where arbitrator is biased

��The court would also set aside an The court would also set aside an

award where the arbitrator has award where the arbitrator has

misconductedmisconducted himself by himself by favouringfavouring

one party over the other / fails to one party over the other / fails to

reconsider the award impartiallyreconsider the award impartially

iii) Award being excessive iii) Award being excessive

�� an award which is manifestly an award which is manifestly

excessive may be set aside excessive may be set aside

iv) Mistake or error apparent on the iv) Mistake or error apparent on the

face of the award face of the award

Case: Case: PegangPegang Prospecting Prospecting Co.IndCo.Ind

(1967) MLJ 231(1967) MLJ 231

The arbitrator in this case refused to The arbitrator in this case refused to

accept accept certain question of lawcertain question of law. It was . It was

held that the award should be set aside held that the award should be set aside

as the arbitrator may have decided as the arbitrator may have decided

certain questions of law certain questions of law

EFFECT OF SETTING ASIDE AN EFFECT OF SETTING ASIDE AN

AWARDAWARD

�� it becomes devoid of any legal effect it becomes devoid of any legal effect

( as if it had never existed before)( as if it had never existed before)

�� the purpose of setting aside the the purpose of setting aside the

award is to prevent the original award is to prevent the original

arbitrators from hearing the case arbitrators from hearing the case

againagain

�� Once the award is set aside, the Once the award is set aside, the

arbitrator becomes arbitrator becomes functusfunctus officio officio

(having discharged his duty ) (having discharged his duty )

REFERENCE ON QUESTION OF REFERENCE ON QUESTION OF

LAWLAW

�� An award could also be set aside if a party An award could also be set aside if a party

refer to the HC any question of law which refer to the HC any question of law which

arise from an award  (S. 42)arise from an award  (S. 42)

�� S. 42(4) The HC may on the determination S. 42(4) The HC may on the determination

of a reference of a reference ––

a)a) Confirm the awardConfirm the award

b)b) Vary the awardVary the award

c)c) Remit the awardRemit the award

d)d) Set aside the award (in whole or in part)   Set aside the award (in whole or in part)

REMISSIONREMISSION

�� send back for reconsiderationsend back for reconsideration

�� Simply means that the court is asking Simply means that the court is asking

the arbitrator to make a fresh award the arbitrator to make a fresh award

on some or all of the issues under on some or all of the issues under

arbitrationarbitration

�� The power to remit an award is The power to remit an award is

limited only to matters which relate limited only to matters which relate

to question of law arising out of an to question of law arising out of an

award award

DISTINCTION BETWEEN DISTINCTION BETWEEN

REMISSION AND SETTING ASIDEREMISSION AND SETTING ASIDE

The whole award The whole award

becomes null and voidbecomes null and void
The door for The door for

arbitration is not arbitration is not

completely closed. completely closed.

Arbitrator could Arbitrator could

rectify the mistakes rectify the mistakes

he might have he might have

committed earlier committed earlier

SETTING ASIDE SETTING ASIDE REMISSIONREMISSION


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