Arbitration Law Malaysia: Arbitration Act 2005 and Procedures

Posted on Jan 18, 2026 in Law

Meaning and Definition of Arbitration

Definition: Arbitration is a private, consensual, party-driven method of dispute resolution where two or more parties agree to settle a dispute with the assistance of an arbitrator. Source of Authority: Unlike litigation, which derives authority from the State, arbitration’s legitimacy flows from the parties’ agreement. In Collins v Collins (1858) and as approved in Malaysian jurisprudence, arbitration is a ‘reference to the decision of one or more persons… of some matter or matters in difference between the parties’.

Key Characteristics

Consensual foundation, private proceedings, a party-selected tribunal, internationally enforceable awards, and flexible procedures.

Advantages of Arbitration

Party Autonomy: Parties have the freedom to choose the governing law, procedural rules, venue, language, and timetable.
Tribunal Selection: Parties can appoint experts (engineers, accountants, etc.) specific to their industry, which leads to better-reasoned awards in technical disputes.
Neutrality: Avoids ‘home court advantage’ in cross-border disputes by allowing parties to select a neutral seat and tribunal.
Enforceability: Under the New York Convention 1958, awards are enforceable in over 170 jurisdictions.
Confidentiality and Finality: Hearings are private, and awards are generally final with very limited grounds for appeal, providing commercial certainty.

Disadvantages of Arbitration

Cost and Delay: It can be more expensive than litigation due to arbitrator fees, institutional charges, and venue costs. Tactical delays by parties can also occur.
Limited Coercive Powers: Arbitrators cannot compel witness attendance or impose contempt penalties; parties must apply to courts for such interim relief.
Multi-Party Issues: Joining third parties is difficult because arbitration is consensual.
Limited Appeal Rights: Errors of law or fact typically cannot be appealed, which can be seen as unfair if an award is erroneous.
Court Dependence: Arbitration still depends on national courts for enforcement, subpoenas, and the appointment or removal of arbitrators.

Governing Law: The Malaysian Framework

Arbitration Act 2005 (Act 646): Replaced the 1952 Act and came into force on 16 March 2006. Purpose: to reform domestic arbitration law, provide for international arbitration, and align with the UNCITRAL Model Law and the New York Convention.

Types of Arbitration

Domestic vs International

Domestic: Applies when all connecting factors (parties, seat, subject matter) are within Malaysia. Defined negatively as any arbitration which is not an international arbitration. For domestic arbitration, all rules in the Arbitration Act 2005 apply. Part III applies automatically unless the parties clearly agree in their arbitration agreement not to use it.

International: An arbitration is international if it involves a foreign party, a foreign seat, foreign performance or connection, or an express multi-state agreement. In international arbitration, most rules apply, but Part III only applies if the parties clearly agree to use it. This respects the international nature of the case and follows the UNCITRAL Model Law, allowing more flexible procedures for cross-border disputes.

Ad Hoc vs Institutional

Ad Hoc: Managed independently by the parties and tribunal without an administrative body; offers maximum flexibility and potential cost savings on institutional fees.

Institutional: Administered by bodies like the AIAC, ICC, or SIAC, providing professional oversight and established rules.

What Counts as Arbitration?

In Chow Yoke Pui v Tan Tuan Boon, the court held that arbitration means parties agree to let a neutral third person decide a dispute. If parties disagree on an issue and refer that issue to an arbitrator, it is arbitration under the Act. The agreement does not need to be formal or detailed. What matters is consent to third-party decision-making.

Form of the Arbitration Agreement

In Bauer (Malaysia) Sdn Bhd v Daewoo Corporation, the Court of Appeal clarified three key points:

No formal document required: A ‘written agreement’ does not need to be a signed contract. It can be shown through one document, several documents, or even conduct (estoppel).
Proper interpretation of clauses: Courts must read arbitration clauses carefully. An arbitration clause does not automatically cover all related matters unless clearly stated.
Election and waiver: If a party challenges the arbitrator’s jurisdiction but later asks the arbitrator to decide that issue, they are taken to have waived the challenge and cannot later claim the arbitrator had no jurisdiction.

Ad Hoc Arbitration

Ad hoc arbitration is conducted without an arbitration institution. The parties and arbitrators run the whole process themselves.

Key features: No institution or case manager involved; parties create their own rules or use UNCITRAL Arbitration Rules; full control over procedure; lower cost because there are no institutional fees. Often used in disputes involving States. Note: UNCITRAL only provides rules, not administration. It is not an arbitral institution.

Advantages of Ad Hoc Arbitration

Very flexible: Parties choose how arbitrators are appointed, how hearings are held, timelines, evidence rules, and cost sharing.
Cheaper: Costs are limited to arbitrators, venue, experts, and logistics.
Good for State disputes: Allows sensitivity and flexibility without formally labelling one party as a ‘respondent.’

Institutional Arbitration

Institutional arbitration is arbitration managed by an arbitration institution. Examples include AIAC, ICC, SIAC, and LCIA.

How Institutions Help

Administrative support: The institution appoints arbitrators, handles challenges, monitors timelines, and manages costs to prevent delays.
Clear rules: Institutions use fixed and well-tested rules, reducing procedural disputes.
Fee management: The institution collects and pays arbitrator fees so parties do not negotiate fees directly with arbitrators.
More credible awards: Awards from well-known institutions are seen as more reliable, harder to challenge, and easier to enforce internationally.
Handling complex cases: Institutions help with many-party disputes, emergency arbitrators, and interim orders.
Avoiding deadlock: If one party delays or refuses to cooperate, the institution can step in to ensure the arbitration continues smoothly.

Judicial Interpretations and Court Intervention

Section 8 (Court Intervention): Courts shall not intervene in matters governed by the Act except where specifically provided. Cases like AV Asia and Far East Holdings reinforce this restrictive role of the court.

Section 10 (Stay of Proceedings): Courts must stay proceedings and refer parties to arbitration if a valid arbitration agreement exists. In Far East Holdings Bhd’s case, the Federal Court said that courts must not interfere in arbitration unless the Arbitration Act 2005 clearly allows it. Section 8 AA 2005 means courts cannot step in freely. Courts may only intervene in specific situations stated in the Act (for example, Section 18(8)). Judges must read their powers strictly. This rule protects arbitration by stopping parties from attacking arbitral awards through normal court cases; arbitration decisions are meant to be final and respected.

Arbitrability: What Can Be Arbitrated?

Section 4: General rule: Any dispute parties agree to submit to arbitration is generally arbitrable.

Exceptions: Public policy: agreements contrary to public policy are unenforceable. Non-arbitrable matters include criminal cases, winding-up (insolvency) proceedings, and certain land matters (like foreclosure under the National Land Code).

In ARCH Reinsurance v Akay Holdings, the Federal Court decided that land foreclosure cases under the National Land Code cannot be sent to arbitration. Even if there is an arbitration agreement, the court cannot stay foreclosure proceedings under Section 10 of the Arbitration Act. The NLC is a complete law on land matters in Malaysia with its own procedures for resolving disputes; foreclosure is an essential part of that legal system.

In Press Metal Sarawak v Etiqa Takaful (2016), the Federal Court held that an insurance dispute where liability was admitted but quantum was disputed can be arbitrated if parties agreed. The arbitration agreement was valid and the amount of insurance payout is arbitrable under Malaysian law.

Winding-Up Cases

Winding-up (company liquidation) cases cannot go to arbitration because they affect creditors and the public and require court supervision. Examples include Four Pillars v Beiersdorf in Singapore and A Best Floor Sanding v Skyer in Australia, both concluding winding-up is not arbitrable. Malaysian courts would likely follow this reasoning, as corporate insolvency is a public matter.

Representation Rights

Refer to Section 3A for representation rights under the Act.

Section 4(2): Jurisdictional Silence

Just because a law gives courts power over a matter but does not mention arbitration, that does not mean the matter cannot be arbitrated. Silence in the law does not equal a ban on arbitration. Courts should assume matters are arbitrable unless public policy or specific legal rules say otherwise.

Arbitration Agreement Formalities

Refer to Sections 9(1), (2), (3). The Ajwa case established: (1) Reference to a document with arbitration terms is sufficient; the full clause does not need repetition. (2) Signature not needed: agreements need not be signed; emails, letters, faxes, or other written records are valid. (3) Informal writing works if arbitration terms are included.

Written Notices in Arbitration

Primary delivery: Delivered personally to business, home, or mailing address.
Fallback: If addresses are not found, use the last known address.
Electronic communication: Emails are valid if sent to the addressee’s email.

These rules clarify when notices are considered received and help prevent disputes. Parties can agree on different notice methods if they wish.

Stay of Court Proceedings – Section 10

Mandatory referral to arbitration: Courts must stay proceedings and send disputes to arbitration if there is an arbitration agreement, before taking other steps. Exceptions: only if the arbitration agreement is null, void, or impossible to perform. Courts can set conditions when granting a stay, but arbitration remains the primary route. This supports kompetenz-kompetenz—arbitrators decide their own jurisdiction.

In Tindak Murni v Juang Setia, Section 10 was held to be mandatory (‘shall’). Courts cannot check whether disputes are genuine; this is for the arbitrator to decide. Counterclaims or defences under the agreement also must be referred to arbitration.

Seat of Arbitration

Significance: The seat determines the supervisory jurisdiction of the courts and the procedural law governing the arbitration. Determination: Parties are free to agree on the seat; if they fail to do so, the tribunal determines it based on convenience and circumstances. In Masenang Sdn Bhd v Sabanilam Enterprise, the Federal Court established that the designated seat gives the court at that location exclusive supervisory jurisdiction.

Composition of the Arbitral Tribunal

Number of Arbitrators — Section 12 and Party Autonomy: The Arbitration Act 2005 grants parties substantial freedom to determine the composition of their tribunal. Parties may agree to any number of arbitrators appropriate for their dispute, provided this is stipulated in their arbitration agreement or subsequently agreed upon.

Default Numbers: International arbitration: three arbitrators (default). Local arbitration: one arbitrator (default). Where parties fail to specify, the Act provides these mandatory defaults.

The Appointment Process — Section 13

Party Agreement: Parties may agree on appointment procedures, with nationality typically not constituting a bar to appointment.

Trilateral Process: Each party appoints one arbitrator; the two appointed arbitrators jointly select the presiding arbitrator.

Institutional Intervention: The AIAC Director may appoint if parties fail to agree within statutory timeframes.

Judicial Recourse: High Court appointment is available if the AIAC fails to act within 30 days.

Appointment Procedures for a Three-Arbitrator Tribunal

Initial appointment: Each party appoints their own arbitrator following agreement to arbitrate or pursuant to an arbitration clause.
30-day window: A party must appoint an arbitrator within 30 days of receiving a written request from the opposing party.
Presiding arbitrator: The two party-appointed arbitrators must agree on the third arbitrator within 30 days of their appointment.
AIAC application: Either party may apply to the Director of AIAC if appointment deadlines are not met.
High Court application: Available if AIAC Director fails to act within 30 days; the decision is final and non-appealable.

Criteria for Institutional and Judicial Appointments

When the Director of AIAC or the High Court exercises appointment powers under subsections 13(4), (5) or (6), they must apply statutory criteria to ensure tribunal quality and impartiality:

Professional qualifications: Relevant expertise, experience, and technical qualifications appropriate to the dispute.
Independence and impartiality: Paramount consideration to secure an arbitrator free from conflicts and bias.
Nationality considerations: Advisability of appointing an arbitrator of different nationality from the parties to enhance neutrality.

Decisions made by the Director or High Court under these provisions are expressly non-appealable, ensuring finality and preventing tactical delays.

Jurisdiction of the Tribunal

Kompetenz-Kompetenz: Jurisdiction to Determine Jurisdiction

Section 18 of the Arbitration Act 2005 enshrines the principle of kompetenz-kompetenz, empowering arbitral tribunals to rule on their own jurisdiction without immediate court intervention.

Tribunal Powers Under Section 18

Authority to rule on its own substantive jurisdiction.
Power to determine objections regarding the existence or validity of the arbitration agreement.
Competence to address jurisdictional challenges as preliminary issues or within the final award.

Right to Appeal: Where the tribunal rules that it possesses jurisdiction, a dissatisfied party may appeal to the High Court within 30 days. The High Court’s decision on such jurisdictional appeals is final and conclusive.

Key Precedent

In Transfield Projects (M) Sdn Bhd & Anor v MAS [2001] 2 MLJ 403, the Federal Court noted that arbitrators possess inherent power to address threshold jurisdictional issues unless expressly restricted. Malaysian courts adopt a pro-arbitration approach, interpreting jurisdictional grants liberally in favour of tribunal competence.

Additional Precedents on Jurisdiction

In Hartela Contractors v Hartecin JV, Gopal Sri Ram JCA held that an arbitrator does not exceed jurisdiction by addressing and making an award upon an unpleaded issue, provided the issue was thoroughly canvassed. In Bauer (Malaysia) v Daewoo Corp, a party who participates fully in arbitration after challenging jurisdiction is precluded from subsequently challenging the award on jurisdictional grounds. These cases establish that parties must raise jurisdictional objections promptly and cannot approbate and reprobate by participating in proceedings while reserving jurisdictional challenges for post-award attack.

Additional Powers of the Tribunal

Security for costs: Authority to order security for costs to protect against non-recovery.
Discovery and interrogatories: Power to order discovery of documents and serve interrogatories.
Evidence by affidavit: Authority to receive and admit evidence in affidavit form.
Preservation of property: Power to order preservation, interim custody, or sale of disputed property.

Challenging Arbitrator Appointments

Grounds for Challenge and Disclosure Obligations

Section 14 imposes statutory duties upon prospective and appointed arbitrators to disclose circumstances that may give rise to justifiable doubts regarding impartiality or independence. This disclosure obligation is continuous, extending from initial approach through appointment and throughout proceedings.

Circumstances giving rise to justifiable doubts include facts affecting the arbitrator’s impartiality or independence, and lack of qualifications where parties agreed specific qualifications. A party may challenge an arbitrator whom that party appointed or in whose appointment that party participated, but only for reasons of which the party becomes aware after the appointment. This prevents parties from deliberately appointing compromised arbitrators with the intention of later challenging the award.

Landmark Decision: Sundra Rajoo

In Sundra Rajoo v Mohamed Abd Majed & Anor [2012] 1 MLRH 69, the High Court established that parties to arbitration are entitled to expect complete impartiality and indifference from their arbitrator. The High Court has coercive power to revoke an arbitrator’s authority under Section 25 of the Arbitration Act 2005. This decision emphasises the paramount importance of arbitrator impartiality and confirms the supervisory jurisdiction of the High Court to remove arbitrators where justified. The court recognised that the integrity of the arbitral process depends fundamentally upon the independence and impartiality of the tribunal.

Challenge Procedure

Written statement: The challenger must send a written statement to the tribunal within 15 days after becoming aware of the tribunal constitution or relevant circumstances under subsection 14(3).
Tribunal decision: The arbitral tribunal considers the challenge and makes a decision unless the challenged arbitrator withdraws or the other parties agree to the challenge.
High Court application: If the challenge is unsuccessful, the challenger may apply to the High Court within 30 days after the tribunal’s decision.
Proceedings continue: While the High Court application is pending, the arbitral tribunal (including the challenged arbitrator) may continue proceedings and make an award.
Final decision: The High Court decision on the challenge is final and non-appealable.

The ability of the tribunal to continue proceedings during a pending challenge prevents tactical delays and promotes procedural efficiency.

Role of the Arbitrator

Arbitrators occupy a quasi-judicial position, balancing procedural flexibility with requirements of natural justice. Their role encompasses both administrative case management and adjudicative functions.

Preliminary Responsibilities

Possess qualifications specified by parties in the arbitration agreement.
Excuse themselves where qualification or jurisdiction is lacking.
Convene a preliminary meeting to establish the procedural framework.
Agree hearing dates, inspection schedules, and discovery protocols.

Natural Justice Requirements

Maintain fairness and equality between parties.
Avoid ex parte communications or hearing one party only.
Refrain from communicating with either party without the other’s knowledge.
Conduct proceedings according to applicable evidence law or agreed rules.

Award-Making Responsibilities

Case closure notice: Inform parties formally that evidence is closed and that award preparation is commencing.
Legal advice: May seek legal advice in drafting an award while maintaining decisional independence.
Binding award: Issue a reasoned award that is binding upon parties and enforceable as a judgment.

The arbitrator’s award represents the culmination of the arbitral process and carries the same force as a court judgment, subject to limited grounds for challenge or setting aside.

Roles of Counsel and Parties

Role of Counsel

Advisory function: Advise clients on rights, obligations, and strategic options under arbitration law.
Professional conduct: Refrain from stirring up strife; promote amicable resolution where possible.
Advocacy: Make submissions on behalf of parties unless alternative arrangements are agreed.

Role of the Parties

Arbitrator selection: Agree collaboratively on appointment of arbitrator(s) according to agreed procedures.
Full cooperation: Provide cooperation to arbitrator in discovery, inspection of assets, and production of documents.
Good faith: Participate in proceedings honestly and in good faith to facilitate efficient resolution.

Procedure and Evidence in Arbitration

This section presents the procedural framework and evidentiary rules governing arbitration under the Arbitration Act 2005, from commencement through evidence-taking.

Overview: The Arbitration Act 2005 Framework

Party autonomy: The Act prioritises party autonomy, allowing disputing parties to shape procedural rules. Where parties cannot agree, the arbitral tribunal steps in to ensure proceedings continue efficiently and fairly. Tribunal powers include control over evidence, timelines, and procedural directions.

Section 21: Procedural Freedom and Tribunal Powers

Section 21 establishes party autonomy in arbitral proceedings. Parties enjoy freedom to agree on procedure from initial submissions through final hearings. This flexibility is fundamental to arbitration’s appeal as an alternative dispute resolution mechanism. Where parties fail to agree, Section 21(2) empowers the tribunal to conduct proceedings as it considers appropriate, balancing fairness with efficiency.

Tribunal’s Extensive Powers — Section 21(3)

Section 21(3) grants tribunals a comprehensive suite of procedural powers, exercisable subject to party agreement and the tribunal’s overarching discretion:

Evidence management: Determine admissibility, relevance, materiality, and weight of evidence; draw on own knowledge and expertise.
Pleadings control: Order further particulars in statements of claim or defence to ensure clarity of issues.
Security for costs: Order security for costs where appropriate.
Time management: Fix and amend time limits for procedural steps to ensure efficient progress.
Discovery powers: Order discovery and production of documents; order interrogatories.
Evidence on oath: Order that evidence be given on oath or affirmation.

Section 21(3)(a): Controlling Evidence

The tribunal’s power to determine the admissibility, relevance, materiality, and weight of evidence is fundamental. Unlike courts, arbitral tribunals are not bound by strict rules of evidence. Tribunals may admit evidence that would be inadmissible in court if it assists in determining the dispute fairly and efficiently. Tribunals may also draw on their own knowledge and expertise, which is a significant advantage in technical disputes where tribunal members possess specialist understanding.

Section 22: The Seat of Arbitration

Section 22 addresses the seat of arbitration. The seat is a juridical or legal concept that determines which national law governs the arbitration, which courts have supervisory jurisdiction, and where an award may be challenged. Parties are free to agree the seat; if they fail to do so, the tribunal determines it based on case circumstances and parties’ convenience.

Relevant authorities include Incitec Ltd v Alkimos Shipping Corp [2004] FCA 698 and Dubai Islamic Bank v Paymentech [2001] 1 Lloyd’s Rep 65, both clarifying that hearings may occur in multiple locations without affecting the juridical seat.

Section 23: Commencement of Arbitral Proceedings

Section 23 provides that proceedings commence on the date the respondent receives a written request for arbitration, unless parties agree otherwise. This date affects limitation periods, interest accrual, and substantive rights; clear documentation is essential.

Section 24: Language of the Arbitration

Parties are free to agree the language(s) used in proceedings. If they fail to agree, the tribunal determines the language. The chosen language applies to written statements, hearings, awards, decisions, and tribunal communications. Language choice affects translation costs and procedural efficiency. In international arbitrations, parties often choose English as a neutral language.

Section 25: Statements of Claim and Defence

Section 25 prescribes mandatory contents of a statement of claim to ensure respondents can prepare an adequate defence:

Facts supporting the claim: A clear narrative of the factual matrix.
Points at issue: Identification of specific issues requiring determination.
Relief or remedy sought: Precise specification of what the claimant seeks from the tribunal.

Similar principles apply to statements of defence.

Section 26: Hearings and Procedural Conduct

Section 26 grants tribunals discretion over whether proceedings should involve oral hearings or proceed on documents alone. Documents-only proceedings are suitable for straightforward disputes and are more cost-effective. Oral hearings are appropriate where witness credibility, complex technical issues, or in-person argument are necessary. Tribunals may also order inspections of goods, property, or documents when required.

Section 26 imposes fairness obligations: any statements, documents, or information supplied to the tribunal by one party must be communicated to the other party. Any expert report or evidentiary document relied upon by the tribunal must be communicated to both parties so they can comment. These requirements embody natural justice and equality of treatment.

Section 27: Default of a Party

Section 27 addresses party default with powers varying by default type:

If the claimant fails to submit their claim, the tribunal shall terminate the proceedings.
If the respondent fails to submit a defence, the tribunal continues proceedings without treating the failure as an admission; the claimant must still prove the case.
If a party fails to appear at a hearing, the tribunal may continue and make an award based on available evidence.
If the claimant fails to proceed, the tribunal may dismiss the claim or give directions for speedy determination.

These provisions prevent parties from frustrating proceedings through non-attendance while ensuring adequate notice and opportunity to participate.

Section 28: Expert Appointed by Tribunal

Section 28 empowers tribunals to appoint independent experts to report on specific issues, unless parties agree otherwise. Tribunal-appointed experts are independent, owe duties to the tribunal, and provide objective analysis. This can be more cost-effective than each party appointing their own expert.

Expert procedure includes tribunal identification of the issue, parties providing information and access, expert delivery of a written report to tribunal and parties, and a hearing in which parties may question the expert.

Section 29: Court Assistance in Taking Evidence

Section 29 recognises that tribunals may require court assistance in compelling evidence. With tribunal approval, any party may apply to the High Court for assistance in taking evidence. The High Court may order attendance of witnesses to testify, effectively compelling individuals who might otherwise refuse to participate. Tribunal approval ensures the tribunal retains control over proceedings and prevents parties from circumventing tribunal directions.

Key Takeaways: Procedure and Evidence in Arbitration

Party autonomy prevails: The Act prioritises party agreement on procedure, language, and seat, with tribunal discretion as fallback.
Extensive tribunal powers: Tribunals possess comprehensive case management powers over evidence, timing, discovery, and procedural directions.
Fairness and efficiency: Provisions balance procedural fairness with efficiency, preventing abuse while ensuring each party can present their case.
Flexible evidence rules: Tribunals enjoy discretion over evidence admissibility and may appoint independent experts or seek court assistance when needed.