International Journal of Engineering & Technology, 7 (3.

21) (2018) 345-350

International Journal of Engineering & Technology

Website: www.sciencepubco.com/index.php/IJET

Research paper

The Role of Asian International Arbitration Centre (AIAC) as

a regional Hub for Oil and Gas Sector
Wan M. Zulhafiz1*
1
Ahmad Ibrahim Kulliyyah of Laws, International Islamic University Malaysia
*Corresponding author E-mail: [email protected]

Abstract

Hydrocarbons projects involve multiple parties, including sovereign states and corporations, to operate expensive, complex and high-risk
activities. Alternative dispute resolution (ADR) is often preferred more by the parties than litigation to ensure the smooth running of the
projects. ADR refers to all mechanisms of dispute settlement other than litigation such as negotiation, mediation, adjudication, and arbi-
tration. The Asian International Arbitration Centre (AIAC) or formerly known as the Kuala Lumpur Regional Centre for Arbitration
(KLRCA) is the main institution that administers and resolves all commercial arbitration disputes in Malaysia. This research argues that,
due to the technicalities and complexity of operations in the oil and gas sector, there is a need to set up a special arbitration centre for oil
and gas under the AIAC to handle and resolve the industrial disputes. Furthermore, by establishing the centre, it can help to promote the
AIAC as the choice of arbitration hub, especially within the Organization of the Petroleum Exporting Countries (OPEC). In doing so, it is
necessary to pass a special legal framework to enable the establishment of the centre. It may function as a roadmap by the key players of
the oil and gas sector to recourse in resolving disputes. The methodology employed by this research is carried out in a prescriptive, com-
parative and analytic manner.

Keywords: Dispute resolution; oil and gas; arbitration

2. Literature review
1. Introduction
2.1. Dispute Resolution in the Oil and Gas Industry: An
Hydrocarbons projects involve multiple parties, including sover- Overview
eign states and corporations, to operate complex, costly, high-risk
jobs (1). In this context, the oil and gas sector is exposed to vari- There are unique features in respect of the settlement of disputes
ous types of disputes such as international maritime boundary in the oil and gas industry as explained by (4),
claims, claims over jurisdiction, expert determination, environ- “…dispute resolution processes are used imaginatively in the oil
mental claims, regulatory issues, and trade restriction (2, 3). Al- and gas industry and close attention is paid to the choice of pro-
ternative dispute resolution (ADR) is often preferred more by the cess appropriate to the dispute. This is influenced by a number of
parties than litigation to ensure the smooth running of the projects. factors: need, preference and, above all, commercial intuition.
The Asian International Arbitration Centre (AIAC) or formerly There is a need for processes that are fast, effective, and cause
known as the Kuala Lumpur Regional Centre for Arbitration minimum disruption to working processes and relationships. The
(KLRCA) is the main institution that administers and resolves all preference is for processes which are both private and flexible.
commercial arbitration disputes in Malaysia. However, it may be They require to be capable of crossing both international bounda-
argued that, given the technical nature and complexity of disputes ries and business cultures. While, traditionally, there has been a
that may arise in the oil and gas sectors (4), there is a need to set limited pool of industry players, they have operated within a glob-
up an independent arbitration centre for oil and gas under the al marketplace. These factors combined to create an incentive to
AIAC to resolve the matters. avoid making future enemies out of the present dispute, and drew
This paper investigates the problem ADR in Malaysia, particularly into the range of choices the dispute resolution experiences and
in the oil and gas industry and considers what legal mechanism preferences of many nationalities and professions. As the industry
ought to be implemented to solve the problem. It also aims to has matured and expanded over time, slightly more willingness to
address the problems and legal issues arising from Alternative use adversarial methods has become evident, driven less by regard
Dispute Resolution (ADR) in the petroleum industry in Malaysia. for long-term relationships and more by desire for court-ordered
The paper proposes a new legal framework special legal frame- enforceable remedies and perceived speed of return”.
work to enable the establishment of the centre by drawing inspira- The parties in oil and gas industry prefer to resolve the dispute by
tion from other jurisdiction. way of an Alternative Dispute Resolution (ADR) (or it is known
as Agreed Dispute Resolution in some jurisdictions) processes
rather than bringing up those issues to national courts (5). In this
context, the ADR refers to “all means of dispute settlement other
than litigation which includes mediation, arbitration, expert de-

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346 International Journal of Engineering & Technology

termination, negotiations, conciliation” (6). There are few ad- nies may also indirectly engage with the disputes if their conces-
vantages of ADR including arbitration such as, sion areas overlap with disputed boundary lines.
“quick, efficient resolution of disputes; lower legal fees; minimal Secondly, any dispute between company and state. It is also
pre-hearing discovery and motions; neutrality of the forum is per- known as state investment or investor-state disputes. The conflicts
mitted, which is particularly attractive in a multinational dispute, happen when a particular state varies the terms and conditions of
where any participant may be reluctant to resolve disputes in one the original agreements significantly or nationalise or expropriate
participant‟s home country; arbitrators can be selected who have an investment. “The investor (in this case, an oil and gas company
expertise over highly technical and complicated subject matter; or a consortium of oil and gas companies) can base its claim on its
one party cannot force dispute resolution into a local court; flexi- investment contract (e.g., a production sharing contract (PSC) or
ble and informal proceedings; and the privacy and confidentiality risk service agreement (RSA)) or an investment treaty, or possibly
of proceedings” (7). both” (11). In respect of the treaty claims, they are made base on
Having said that, bilateral investment treaties (BITs) which were entered by two
“these advantages only exist to the extent they are preserved in the sovereign states that had negotiated and ratified it. On that point,
arbitration clauses drafted for the contract, and to the extent the companies should ensure that their investments are protected by
arbitration clauses are not challenged by litigation. In addition, the BITs, and they must have access to the International Centre for
foreign arbitration awards can be enforced easier under various the Settlement of Investment Disputes (ICSID) to resolve any
conventions and bilateral treaties than is the case for enforcement dispute with a sovereign state. This could be done by incorporat-
of foreign judgments”(7). ing an ICSID dispute resolution clause in their host government
Litigation, arbitration, and expert determination are typically used contract. Thus, it is suggested that a company should seek legal
by parties in oil and gas contracts as binding methods of dispute guidance in structuring their investments and how to draft the
resolution mechanisms. While using any of the dispute resolu- dispute resolution provisions in their host government agreements
tions, it is important to ensure that it does not affect the commer- (11).
cial activities or permanently destroy the goodwill or sour the Thirdly, any dispute which involves two companies. It is also
relation-ship and future cooperation between the parties. In this known as international commercial disputes. The dispute can be
regard, arbitration is seen as a better form of dispute resolution further divided into two types. The first one is amongst members
mechanisms as opposed to litigation. It is claimed that the arbitra- of a joint venture in contracts “such as Joint Operating Agree-
tion process is more user-friendly than the litigation and its confi- ments, Unitization Agreements, Farmout Agreements, Area of
dentiality is well preserved since the whole process is done in Mutual Interest Agreements, Study and Bid Agreements, Sale and
private and away from the public eye (8). Such aspect is consid- Purchase Agreements, Confidentiality Agreements” (11). The
ered to be very crucial in the oil and gas industry. second type is the dispute which occurs between operators and
Besides, it also allows the parties to sense that they will be able to oilfield service contractors under various kinds of contracts, such
resolve the dispute in a fair, neutral and an independent environ- as, Drilling and Well Service Agreements, Seismic Contracts,
ment (9). The disputing parties are given the right to select an Construction Contracts, Equipment and Facilities Contracts,
arbitrator or venue depending on the contractual terms, complexity Transportation and Processing Contracts (11). It is said that “the-
or expertise of each case (8). Moreover, the award made by the se disputes make up the majority of disputes in which oil and gas
arbitrator can be enforced in countries that have ratified the United companies find themselves” (11).
Nations Convention on Recognition and Enforcement of Foreign Finally, any dispute between individuals and corporations. The
Arbitral Awards (The New York Convention) (1958). As men- dispute might happen in some situations; usually when people
tioned earlier, the cost of arbitration is cheaper than litigation and initiate legal action against oil and gas companies. For example,
consumes lesser time. Thus, it can be concluded that “arbitration claim made by an individual for tortious liability and contractual
remains the preferred mechanism for dispute settlement in the oil claims by a consultant to demand payments from oil and gas com-
and gas sector”(10). panies.
It is worth noting that “any international contract signed by the
2.2. Classification of Disputes in the Oil and Gas Indus- parties that does not contain an arbitration clause will have re-
try course to foreign court systems to resolve their disputes” (3).
Therefore, it is essential for contracting parties to incorporate an
In general, the disputes in the oil and gas industry can be divided appropriate arbitration clause into their contracts. This will pro-
into four categories: vide the parties with an “opportunity of resolving any disputes that
may arise in future on a neutral ground rather than on the home
grounds of one party or the other” (12).

3. Methodology
The methodology employed in this research will essentially be a
combination of functional comparative analysis and doctrinal
study. It is necessary to engage in a comparative analysis with the
practice from other states, such as the United Kingdom, Norway,
Netherlands, European Union and United States jurisdictions.
Such comparative analysis would allow this research to determine
which approach would be the most appropriate for the Malaysian
oil and gas industry. These jurisdictions are chosen because of
their frequent use as the „applicable law‟ governing international
Fig. 2: Classification of Disputes in Oil and Gas Industry oil and gas contracts. Furthermore, a comparison of the practice in
these legal regimes with the Malaysian system presents an oppor-
Firstly, any dispute which involves inter-countries or issues con- tunity to make an original contribution to legal scholarship (13).
cerning two or more sovereign states. For example, boundary The second methodology is a doctrinal analysis. It is based on a
disputes relating to oil and gas fields involving territorial sover- mix of primary and secondary data, which is taken from several
eignty located in maritime waters. In ordinary cases, the dispute sources. Primary sources of data will be the case laws of the re-
would usually include governments. However, oil and gas compa- spective jurisdictions, as well as, the statutory laws and treaties,
International Journal of Engineering & Technology 347

which include but are not limited to the New York Convention on Fast Track Rules, as well as Mediation and Conciliation Rules”
the Recognition and Enforcement of Foreign Arbitral Awards (12).
1958, the Malaysian Arbitration Act 2005, the UNCITRAL Model Besides the AIAC, arbitrations are also administered by some
Law on International Commercial Arbitration 198 and the Malay- other professional bodies, such as the Institute of Engineers Ma-
sian Construction Industry Payment and Adjudication Act 2012. laysia, Kuala Lumpur (IEM) and the Malaysian International
Secondary sources of data are textbooks, journals, newspaper Chamber of Commerce and the Malaysia Institute of Architects
articles and online databases such as Lexis-Nexis, HeinOnline, (Pertubuhan Akitek Malaysia) (PAM).
Westlaw, and others. “The IEM was formed in 1959 and was admitted as a member of
the Commonwealth Engineers Council in 1962. The Institution is
a qualifying body for professional engineers in Malaysia. It ap-
points arbitrators when the contract used by the parties is an IEM
standard term contract. In addition to arbitration, it administers
other forms of alternative dispute resolution (ADR)” (17).
On the other hand,
“PAM was originally established as the Institute of Architects
Malaya (IAM) in 1920. PAM was registered with the Registrar of
Societies Malaysia on 20 January 1967 under the present constitu-
tion. PAM is the governing body for engineers. It appoints arbitra-
tors when the contract used by the parties is a PAM standard term
contract. In addition to arbitration it administers other forms of
ADR” (17).
Apart from the IEM and PAM, other related bodies are like Selan-
gor Chinese Chamber of Commerce, Malaysian Rubber Board,
Palm Oil Refiners Association of Malaysia, Institution of Survey-
Fig. 2: Doctrinal Study. ors, the Malaysian International Chambers of Commerce. Howev-
er, it is important to note that none of these bodies are connected
to the oil and gas sectors in particular. Hence, it could be regarded
4 Results and Findings as one of the flaws of the AIAC to resolve matters pertaining to oil
and gas.
4.1. ADR in Malaysia In 2012, Construction Industry Payment and Adjudication Act
2012 (CIPAA) was passed to mandate adjudication in construc-
Malaysia is a signatory to the New York Convention on the tion-related disputes to reduce numbers of arbitration cases. The
Recognition and Enforcement of Foreign Arbitral Awards 1958 CIPAA applies to all construction agreements, both domestic and
(14). Any arbitral awards rendered in Malaysia are enforceable in international contracts carried out in Malaysia. „Construction
more than 148 countries whom the signatories to this treaty. That work‟ is defined broadly, includes water, gas, oil and petrochemi-
said, arbitral awards are not binding in countries that are yet to cal works. The broad definition of “construction” under CIPAA
ratify the Convention. In that regard, arbitration might not be a provides a better room of ADR for oil and gas disputes in Malay-
preferred choice to resolve the dispute via arbitration in those sia. Unlike the UK, the definition of construction excludes oil and
cases. gas activities. This could be considered another plus point for
Arbitration is becoming more prevalent as an attractive option of Malaysia to promote the AIAC as a choice hub for dispute resolu-
dispute resolution forum in Malaysia. It was originally used to tion in the oil and gas sectors at the international level.
resolve the dispute in the construction industry and becoming
increasingly popular for other commercial dispute including oil 4.2. ADR Cases Involving Oil and Gas Matters in Other
and gas sector (15). Jurisdictions
The Malaysian Arbitration Act 2005 (MAA) is closely modelled
on the UNCITRAL Model Law on International Commercial Ar- When discussing the issue of ADR in the oil and gas industry, it is
bitration 1985 with some amendments in 2006 and the New Zea- vital to look into the outlooks of ADR in other foreign jurisdic-
land Arbitration Act 1996 (14). The MAA “repealed the old and tions. This is because, more often than not, contracts in the oil and
out-dated Arbitration Act 1952 which had been based almost word gas industry involve foreign parties and international players (3).
for word on the old English Arbitration Act 1950” (16). Such re- One of the unique features makes arbitration popular is because
peal “has increased public confidence in, and adoption of, the the arbitral tribunal decision is recognised and enforceable interna-
arbitral process” (12). Malaysia is a common law jurisdiction, any tionally. In other words, “the enforcement does not only take place
decisions made by Commonwealth courts, especially in commer- in the place where the award is made but also in any other country
cial matters, would be regarded as highly persuasive (12). where the party against whom the award was made has his assets”
The principal institution that both administers and commonly pro- (3).
vides a venue for commercial arbitration in Malaysia is the Kuala For example, in 1933, the Arabian American Oil Company (Ar-
Lumpur Regional Centre for Arbitration (KLRCA) (14). The amco) signed an agreement with the Saudi Arabian government.
AIAC is “internationally recognised as an experienced, neutral, The agreement stipulated that the exclusive right was granted to
efficient and reliable dispute resolution service provider” (17). It Aramco to extract and transport oil from the concession block in
provides a forum to resolve disputes pertaining to trade, commerce, Saudi Arabia. Later in 1954, the government of Saudi Arabia and
and investment. Saudi Arabian Maritime Tankers Ltd signed another contract that
“The [AIAC] was established in 1978 under the auspices of the was inconsistent with the earlier agreement which had resulted in
Asian-African Legal Consultative Organization. The [AIAC] was a dispute between the parties. However, the dispute was managed
the first regional centre established in Asia to provide institutional to be resolved by arbitration in Geneva, 1955 (18).
support as a neutral and independent venue for the conduct of In another case, the dispute involving government of Libya, Brit-
domestic and international arbitration proceedings in Asia. It was ish Petroleum (BP), Texaco Overseas Petroleum Company (TOP-
also the first centre in the world to adopt the UNCITRAL Arbitra- CO) and Libyan American Oil Company (LIACO) regarding the
tion Rules as revised in 2010. The [AIAC] has developed new nationalization phenomenon in Libya was settled through interna-
rules to cater for the growing demands of the global business tional arbitration on the 7th December 1971.
community, such as the [AIAC] i-Arbitration Rules and the AIAC
348 International Journal of Engineering & Technology

In 2007, an arbitration award of ICC ruling was enforced between Netherland

Netherlands Arbitration Institute
Yes
Exxon Mobil and Petroleos De Venezuela, S.A. (PDVSA- (NAI)
Venezuela NOC). The dispute was about the 2007 nationalization European
Yes Yes
of assets by the Venezuelan government in which Exxon Mobil Union
was awarded $908 million; however, the award was finally re- Based on the above discussion, it can be said that despite there is a
duced to around $750 million in favour of PDVSA. gap of ADR legal framework pertaining to oil and gas sector in
Most of the countries have set up their arbitral institution and Malaysia, until now the country has no clear guidelines to resolve
drafted their arbitration rules to accommodate parties to an arbitra- the complexities and technicalities of the oil and gas disputes.
tion agreement to settle their commercial disputes. Some of the Moreover, unlike other jurisdictions, the ADR has not been made
institutions, to name a few such as, American Arbitration Associa- mandatory for oil and gas cases in Malaysia before they were
tion (AAA), the Euro-Arab Chambers of Commerce (EACC), the brought for litigation. Hence, it is argued that there is need to es-
London Court of International Arbitration (LCIA), the Nether- tablish a special legal framework in dealing with this problem.
lands Arbitration Institute (NAI), the Stockholm Chamber of
Commerce (SCC), the International Court of Arbitration (ICC), 4.3. Special Legal Framework for Oil and Gas
the United Nations Commission on International Trade Law
(UNCITRAL), have come out with their own set of rules to over- (4) argues that “given the technical nature of disputes that may
see the conduct of arbitration (2). Any dispute that has been arise in the oil and gas industries, some negotiations require to be
brought up to the respective arbitration institution shall be re- carried out by a team of people who can, collectively, bring the
solved by its rules and regulation. necessary expertise (for example technical, legal, financial) to the
United Kingdom dispute and its resolution”. Moreover, taking the case of United
In the United Kingdom, “English courts, in particular, are now Kingdom, (6) maintains that,
willing to take a more aggressive approach while deciding the “[it is] observed that the industry has developed its own particular
outcome of disputes in which ADR has been refused unreasonably arrangements in terms of dispute resolution where as [dispute
by disputants” (8). This can be seen in a landmark case of Susan resolution] processes might be utilized as a means to an end of
Dunnett v. Railtrack Plc [2002] EWCA Civ 303, [2002] 1 WLR achieving strategic advantages over the other party by using the
2434, [2002] CPLR 309, [2002] 2 All ER 850, where this case has unique cultural dimensions of the industrial practices. This serves
set a precedent for any opponents, who seek to neglect ADR. It the dual purpose of avoiding litigation while at the same time
was held that the parties should recourse to all available mecha- avoiding a breakdown of industrial relations” (6).
nisms of ADR as appropriate prerequisites before the parties pro- On this point, there have been some initiatives implemented to
ceed to litigation. bring the operators and oilfield service contractors together on a
Netherlands multilateral, cooperative basis using their respective industry or-
Meanwhile, in the Netherlands, a settlement conference is used as ganisations. There are several types of standard forms of condi-
a primary stage in civil litigation where the judge will deliver a tions of contract published by various professional bodies in the
high steer on the merits of the dispute (6). Such requirement has UK North Sea, Canada and the international level that could be
been made mandatory across the courts in Netherlands especially adopted as a foundation in drafting oilfield contracts, including,
if it seems that “the litigation process will not in itself be able to LOGIC (Leading Oil & Gas Industry Competitiveness), Canadian
determine all aspects of the dispute between the parties” (4). Association of Oilwell Drilling Contractors (CAODC), Canadian
USA and Norway Association of Petroleum Producers (CAPP), Association of Inde-
In some parts of the USA and also Norway, under particular cir- pendent Petroleum Negotiators (AIPN), International Association
cumstances, mediation is required by legislation as pre-condition of Drilling Contractors (IADC), International Association of Geo-
prior to holding adjudication in the local courts. Besides, “many physical Contractors (IAGC), Petroleum Equipment Suppliers
US states and federal courts (including appeal courts) have court- Association (PESA), International Federation of Consulting Engi-
annexed or court-ordered ADR programmes that have, on evalua- neers (IFCE) and several other international service organisations
tion, proved to be very effective” (4). (19). LOGIC, for example, is widely used primarily for offshore
European Union operations in the U.K. sector of the North Sea (20). It is also used
On the other hand, European Union Directive (i.e. Directive widely in Southeast Asia, including Malaysia.
200S/52/Ee of the European Parliament and of the Council of 21 LOGIC is a non-profit subsidiary of Oil & Gas UK and its objec-
May 2008 on certain aspects of mediation in civil and commercial tive is to promote and ensure “United Kingdom Continental Shelf
matters) encourages the use of ADR in both civil and commercial (UKCS) competitiveness remains current and was carried forward
matters. It sets out particulars for confidentiality and time limita- into the work of the PILOT Taskforce, a collaborative partnership
tion rules for litigation to stay in order to provide room for the use of oil and gas industry operators, suppliers and the UK Govern-
of ADR in the Member States. Under the EU Civil Justice pro- ment” (21). LOGIC publishes several standard forms of contracts
gramme, EU itself has funded research with regards to “the use of to be used in marine construction contracts within the petroleum
information in the Member States, and the cost of not using ADR industry (22). The standard contract is derived from the CRINE
in cross-state disputes” in promoting the use of ADR to its mem- (Cost Reduction in the New Era) initiatives, where the operators
bers (4). and contractors work together to produce the standard contracts
The comparative analysis of ADR framework in the abovemen- for the UK Offshore Oil and Gas Industry which today are availa-
tioned jurisdictions can be summarised as follows: ble in ten forms, four of which are second editions (23).
For construction contracts, LOGIC has produced a set of General
Table.1: Comparative analysis of ADR framework in Malaysia, UK, Conditions for Marine Construction (the „Model Construction
USA, Norway, Netherland and the European Union. Contract‟), 2004 Edition (24). The Model Construction Contract is
Country ADR Framework/ Model Mandatory for Oil
intended for use in an offshore context and specifically for pipe
and Gas Sector
United Nations Commission on
laying, offshore installation, subsea construction, and inspection,
Malaysia International Trade Law No repair and maintenance operations. It is similar in overall form and
(UNCITRAL) content of Engineering, Procurement, Construction and Installa-
United London Court of International tion (EPCI) contracts, which are frequently used by operators in
Yes
Kingdom Arbitration (LCIA) South/Southeast Asia to deliver „turnkey‟ solutions for offshore
United American Arbitration Association
Yes infrastructure projects (25). Due to complexities and technicalities
States (AAA)] of the industry, it could be argued that it is necessary to have an
Norway Yes Yes
International Journal of Engineering & Technology 349

individual arbitration centre for oil and gas, which consists of a especially within the oil-producing countries such as Saudi Arabia,
team of specialists to deal with disputes pertaining to the subject. Kuwait, Canada, United Arab Emirates, and other Organization of
In fact, the idea to establish a special arbitration centre for a par- the Petroleum Exporting Countries (OPEC).
ticular sector is not something new, and it has been done before.
The following are the examples of particular arbitration centre
which only arbitrate specific and technical aspects of a particular
5. Conclusion
subject:
i. Arab Intellectual Property Mediation and Arbitration Society In conclusion, whilst Malaysia is profoundly depending on the
(AIPMAS) - Amman, Jordan; resources from the oil and gas, it is exceptionally significant that
ii. Court of Arbitration for Sport - Lausanne, Switzerland; both local and foreign industry players who undertake the project
iii. Energy Arbitration Court (EAVB) - Budapest, Hungary; in Malaysia will be assured “with a fast, cost-effective and effi-
iv. European Centre for Financial Dispute Resolution (EURO- cient manner in which to resolve their disputes which inevitably
ARBITRATION) - Paris, France; arise from time to time” (9). This is because, while it is true that
v. Foreign Trade Court of Arbitration at the Serbian Chamber despite the obvious advantages of alternative dispute resolution
of Commerce - Belgrade, Serbia; (ADR) in the oil and gas industry in maintaining the smooth run-
vi. Insurance and Reinsurance Arbitration Society (ARIAS) - ning of commercial activities both at national and international
London, England; levels, the impression that the use of ADR could save time and
vii. Muslim Arbitration Tribunal (MAT) - London, England; cost might turn out to be an exaggerated in the absence of a clear
viii. World Intellectual Property Organisation Arbitration and legal framework. Some parties had even unwillingly opted the
Mediation Centre (WIPO) - Geneva, Switzerland; ADR as a mechanism to resolve their contractual disputes due to
ix. Dispute Resolution Center of the Federal Association of En- the industrial pressure rather than expecting to save cost and time.
gineers and Architects of Costa Rica - San José, Costa Ri- This is because, as of now, there are no clear guidelines in resolv-
ca; ing the complexities and technicalities of the oil and gas disputes,
x. General Arbitration Tribunal of the Buenos Aires Stock not to mention, if the cases are urgent matters. As a result, the
Exchange (BCBA) - Buenos Aires, Argentina; process can take a longer period more than expected. The problem
xi. Equine Dispute Resolution (EqADR) - Lexington, USA; leads “to the conclusion that despite being the lesser evil for a firm
xii. China Maritime Arbitration Commission (CMAC) - Beijing, facing the horrors of expensive and time-consuming litigation, the
China; arbitration mechanisms in place today and the way they are used
xiii. Singapore Chamber of Maritime Arbitration (SCMA) - Sin- are less than perfect when catering to the needs of the major indus-
gapore, Singapore; try players in the oil and gas market today” (6).
xiv. Tokyo Maritime Arbitration Commission of the Japan Despite the existence of legal framework embracing alternative
Shipping Exchange (JSE) - Tokyo, Japan; and dispute resolution which has been already in place, it is argued
xv. Maritime Arbitrators Association of Nigeria (MANN) - La- that the current legal framework is not comprehensive to resolve
gos, Nigeria. matters pertaining to oil and gas disputes in Malaysia. A special
The abovementioned arbitration centres were established to facili- legal framework is needed to establish a special centre for oil and
tate the complexity of technical subject according to its respective gas as a roadmap for the industry key players in solving their dis-
discipline. These 15 arbitration entities can be divided into ten pute. The centre “should include an independent arbitration and
categories as far as their subjective jurisdictions are concerned: supervisory body as an indispensable component for settlement of
Maritime (four entities), sports (two entities), stock exchange disputes in oil industry contracts” (26). In order to promote AIAC
(one), engineering and architecture (one), intellectual property as a choice of international arbitration hub by foreign industry
(two), and finally Muslim disputes, insurance and reinsurance, players in the oil and gas sector, it is essential to encourage the
foreign trade, financial and energy disputes each have only one development of an effective ADR framework which to be sup-
arbitration entity. Even though the Energy Arbitration Court ported by a special arbitration centre for oil and gas in providing a
(EAVB) is already in existence, the proposed arbitration centre for forum for dispute resolutions, especially that involve complexities
oil and gas will be different from the EAVB regarding subject and technicalities of the subject matter.
matter, structure and dispute resolution mechanism. Recently, numbers of the arbitral institution have amended their
While it is true that generally, “arbitration centers, tribunals or rule to allow for an emergency relief. The emergency relief is
even courts handle all the cases referred to them without limiting designed to handle urgent matters which cannot envisage for the
the scope of the subjects handled by them” (26), it is argued that constitution of the tribunal. “Unlike the equivalent regimes of
due to the complexity of technical subject of the oil and gas sector, other arbitral institutions, the ICC emergency arbitrator procedure
there is a need to set up a special arbitration centre to resolve the can be invoked before a request for arbitration is filed” (4). That
disputes which will be placed under the AIAC. said, despite the use of emergency arbitration procedure, there is
Based on one previous study, when respondents were asked about some limitation in the process, such as numbers of concerns were
their preferred institutions, it was “revealed that institutions are raised with regards to its enforcement and recognition of the arbi-
primarily chosen due to their high level of administration, neutrali- tral award. In the United Kingdom for example, since “the emer-
ty/internationalism and ability to administer arbitrations world- gency arbitrator procedure is still relatively new and untested in
wide” (27). In that sense, it could be argued that Malaysia, particu- England, and internationally, it is critical that international oil and
larly the AIAC has strong potential to be chosen as a preferred gas/energy companies are aware of the risks and uncertainties
arbitration institution for its neutrality and international-ism. The involved before embarking on this route in preference to seeking
reason is that Malaysia, on the one hand, is a competitive global court assistance” (28). It is argued that due to the complexity of
player in terms of international trade and business. While, on the the technical subject of the oil and gas sector, there is a need to
contrary, it is not a member of OPEC countries. These factors establish a new legal framework to handle the disputes, particular-
considered as bonus points to the AIAC. ly in Malaysia.
It is claimed that “the growth of emerging markets in Asia has The new legal framework provides a unique perspective into the
created a flow of capital between west and east – often to fund application of international and local arbitration laws in respect of
significant oil and gas projects and mega infrastructure develop- the complexities of the upstream, midstream and downstream
ments” (27). These commercial activities have given an enormous sectors of the oil and gas industry. It specifically focuses on the
impact on the use of arbitration in Asia for large oil and gas pro- technical nature of disputes which arises in the oil and gas indus-
jects (27). Therefore, by establishing the special arbitration centre, tries. The new legal framework proposes to set up an exclusive
it will help to promote the AIAC as the choice of arbitration hub, centre for arbitration for the oil and gas industry by drawing inspi-
350 International Journal of Engineering & Technology

ration from other jurisdictions such as the United Kingdom and contracts in Malaysia? IntJTrade and Global Markets. 2015;8(1):3-
the United States. Such arbitration centre will be placed under the 16.
AIAC. Moreover, it will also help to promote the AIAC as the [25] Hewitt T. An Asian Perspective on Model Oil and Gas Services
Contracts. Journal of Energy & Natural Resources Law.
choice of arbitration hub especially for matters pertaining to oil
2010;28(3):331-.
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gas industry in Malaysia.

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