MALAYSIA Trends and Developments Contributed by: Rabindra S. Nathan, Rodney Gomez, K. Shanti Mogan and Alexius Lee, Shearn Delamore & Co
As a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”), Malaysia has steadily aligned its arbitration framework with the UNCITRAL Model Law through reforms such as the 2024 amend - ments to the Arbitration Act 2005 (AA) that came into force on 1 January 2026, and the introduction of the AIAC Arbitration Rules 2026. These developments, together with a generally pro-arbitration judiciary, have strengthened Malaysia’s position as an attrac - tive arbitral seat. This paper looks at a set of recent judicial decisions to map out where Malaysian arbitra - tion jurisprudence is currently heading. Recognition of the “Group of Companies” Doctrine in Arbitration Agreements Recent case law demonstrates a growing willingness on the part of Malaysian courts to extend arbitration agreements to non-signatory affiliates through doc - trines such as the “group of companies” doctrine. In PT Wijaya Karya ( Persero ) TBK and Another v Zecon Bhd and Another [2025] 6 MLJ 867, the Court of Appeal recognised the “group of companies” doc - trine, as outlined in Dow Chemical France and Others v Isover Saint Gobain ICC Award No 4131, YCA 1984, where an arbitration agreement entered into by certain entities may bind other companies within the same corporate group if their conduct in negotiation, per - formance or termination demonstrates the intention to be bound. This doctrine reflects the commercial reality of modern projects, ensuring that the arbitration agreement applies to related parties. In this case, Zecon Bhd engaged PT Wijaya Karya to provide project management services, among others. The parties then entered into a project management services agreement (“PMSA1”). Subsequently, Zecon Bhd appointed Zecon Construction Sarawak to act as its nominee and agent, while PT Wijaya Karya appoint - ed Wijaya Karya Perseron as its nominee and agent. A separate project management services agree - ment was entered into between Zecon Construction Sarawak and Wijaya Karya Perseron. A dispute arose and PT Wijaya Karya and Wijaya Karya Perseron commenced arbitration pursuant to PMSA1 against Zecon Bhd and Zecon Construction Sarawak. All four parties were brought into the same
arbitration despite the two separate agreements gov - erning separate parties. The Court of Appeal held that Zecon Bhd and PT Wijaya were the proper prin - cipals, while Zecon Sarawak and Wijaya Karya were their respective agents. Both principals, by conduct, had consented to assigning their obligations under PMSA1 to their agents. As such, the Court of Appeal found that all four entities could be brought into the same arbitration. Reaffirming the Mandatory Nature of Arbitration Agreements and Their Binding Effect on Downstream Contractors Malaysia’s pro-arbitration stance was further demon - strated in the Court of Appeal decision in Apex Com- munications Sdn Bhd v Sumber Khazanah Sdn Bhd ( in liquidation ) and another appeal [2026] 3 MLJ 152. The dispute arose from a construction project involving multiple tiers of subcontracting. Apex Communica - tions Sdn Bhd (“Apex”), the first-layer subcontractor, appointed Ikatan Engineering Sdn Bhd (“IESB”) as the second-layer subcontractor. IESB subsequently appointed Sumbertech Ventures Sdn Bhd (“SVSB”) as the third-layer subcontractor, whose position was later assigned to Sumber Khazanah Sdn Bhd (“SKSB”). In assuming that role, SKSB agreed to adopt and com - ply with all the terms and conditions of the second subcontract. Subsequently, a dispute arose where SKSB initiated court proceedings against Apex for monies unpaid for work done. In response, Apex applied for a stay of the proceedings pursuant to Section 10 of the AA, relying on the arbitration clause contained in the subcontract. The High Court dismissed the stay application, hold - ing that the arbitration clause was optional rather than mandatory and therefore did not prevent SKSB from pursuing litigation in court. On appeal, the Court of Appeal reversed the High Court’s decision and held that the arbitration clause created a mandatory obligation to arbitrate disputes. The Court rejected a literal interpretation of the word “may” in the arbitration clause and held that it did not provide the parties with a choice between arbitra - tion and litigation. Instead, the choice was between accepting the decision of the appointed officer under the contract or referring the dispute to arbitration.
583 CHAMBERS.COM
Powered by FlippingBook