MALAYSIA Law and Practice Contributed by: Rabindra S. Nathan, Rodney Gomez, K. Shanti Mogan and Alexius Lee, Shearn Delamore & Co
Recently, in V Medical Services M Sdn Bhd v Swissray Asia Healthcare Co Ltd [2025] 2 MLJ 744, the Federal Court held that the provisions of the AA 2005 do not purport to extend its reach to the insolvency provi - sions under the Companies Act 2016; its provisions ought not to be invoked or incorporated into the exer - cise of discretion in determining whether to grant a Fortuna injunction, or stay, dismiss or allow a winding- up petition, reinforcing the proposition that insolvency proceedings under the Companies Act 2016 are non- arbitrable. However, the Court of Appeal in Hashim bin Abdul Razak and Others v Pembinaan PD Jaya Sdn Bhd ( in liquidation ) [2026] 2 MLJ 608 recently held that pre-insolvency contractual disputes remain arbitrable despite a party’s liquidation, because it concerned private pre-insolvency contractual rights and did not involve insolvency-specific remedies. The Tribunal’s Powers to Determine Arbitrability If the issue of whether a dispute is arbitrable or not is raised by any party, the arbitral tribunal has the power to rule on its own jurisdiction, which includes decid - ing whether a dispute is arbitrable. Within 30 days of receiving notice of the arbitral tribunal’s ruling that there is jurisdiction, any party may appeal to the High Court to decide the matter (see Section 18 (8) AA 2005). 3.3 National Courts’ Approach Law of Arbitration Agreement The AA 2005 now provides that, where parties have not agreed on the law applicable to the arbitration agreement, the default law is the law of the seat of arbitration (Section 5). The 2024 Amendments are consistent with the con - flict-of-laws rules which have been used by Malaysian courts with respect to determining the law governing arbitration agreements. The newly introduced Section 9A of the AA 2005 provides that, where the parties fail to agree on the law applicable to the arbitration agreement, the applicable law shall be the law of the seat of the arbitration. Enforcement of Arbitration Agreements Arbitration agreements are frequently enforced by the Malaysian courts. Where court proceedings are brought in respect of a matter that is the subject of an
arbitration agreement and a party makes an applica - tion to stay the court proceedings, where there is valid agreement to arbitrate, it is mandatory for the court to do so (see the Malaysian Federal Court’s decision in Press Metal Sarawak Sdn Bhd v Etika Takaful Sdn Bhd [2016] 5 MLJ 417). So long as an application to stay the court proceedings is made before any further steps in the court proceedings are taken, there is no discretion for the Malaysian courts to refuse enforce - ment of an arbitration agreement when the arbitration agreement is not null and void, inoperative or incapa - ble of being performed. However, where the validity of the arbitration agree - ment itself is questioned, the Malaysian courts may find that they retain jurisdiction to determine that issue. In Setia Awan Management Sdn Bhd v SPNB Aspi- rasi Sdn Bhd [2025] 4 MLJ 181, the Court of Appeal considered whether an optional dispute resolution clause was a valid arbitration agreement. The clause provided that disputes “may be referred” either to the Malaysian courts or to arbitration under the AA 2005. The respondent commenced court proceedings, while the appellant applied to stay those proceedings in favour of arbitration. The High Court refused the stay on the basis that the clause was not a binding arbitra - tion agreement, including because the parties had not agreed on the seat of arbitration, number of arbitrators or mode of appointment. The Court of Appeal reversed that decision. It held that the absence of those details did not invalidate the arbitration agreement because the AA 2005 contains default mechanisms to determine them. The Court also held that an optional clause allowing parties to choose between litigation and arbitration may still amount to a valid arbitration agreement. Once one party elects arbitration under such a clause, the court will hold the parties to that bargain and stay the court proceedings, provided the requirements of Section 10 AA 2005 are satisfied and the arbitration agreement is not null and void, inoperative or incapable of being performed. 3.4 Validity Malaysia applies the rule of separability of arbitration clauses contained in invalid agreements. An arbitra - tion clause that forms part of an agreement shall be
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