How Malaysian and Indian Courts Diverge on Arbitration Clauses — A Lesson in Choosing Wisely and Drafting Precisely
We very often treat arbitration agreements as a standard boilerplate clause, giving it little attention during contract negotiations. Two recent decisions from Malaysia and India highlight the risks of this approach. They demonstrate how imprecise drafting, often intended to provide flexibility, can instead create costly ambiguity. Ultimately, this ambiguity transfers the power to choose between arbitration or court from the contracting parties to the judiciary, subverting the very choice they had intended to reserve for themselves.
Malaysia: A Pro Arbitration Push
Court of Appeal in Setia Awan Management Sdn Bhd v SPNB Aspirasi Sdn Bhd [2025] 4 MLJ 181
In this case, the clause read:
“In the event that any dispute or difference whatsoever shall arise between parties touching or concerning this Agreement …… the same may be referred to any court in Malaysia or to arbitration in accordance with the provisions of the Arbitration Act 2005 or any statutory modification or re-enactment thereof.”
Despite the language of the clause contemplating a choice, the Court upheld it as a valid arbitration agreement and stayed court proceedings. The court cited authorities from Singapore, Australia, and the UK which upheld similar arguably ambiguous arbitration clauses.
The decision lends credence to the view that the Malaysia courts are adopting a pro-arbitration judicial trend. But was this decision a stretch too far, to give certainty to an inherently optional clause?
For context and an alternative view, we juxtapose a similar dispute clause that arose and was decided around the same time in India.
India: A Difference Lens
Supreme Court in BGM and M-RPL-JMCT (JV) v Eastern Coalfields Limited [2025] INSC 874
Here, the relevant extract from the arbitration clause read:
“…In case of parties other than Govt. Agencies, the redressal of the dispute may be sought through ARBITRATION AND CONCILIATION ACT, 1996 as amended by AMENDMENT ACT OF 2015.”
The court found the phrase—”may be sought”—insufficient to constitute a binding arbitration agreement under India’s Arbitration and Conciliation Act, 1996. The decision relied on its domestic precedents which stress that there must be an unequivocal intention to arbitrate, at contract formation.
Choose Wisely, Draft Precisely
The disputes in both cases stemmed from uncertainty in the parties’ choice of dispute resolution, leading to ambiguously drafted clauses. These cases also illustrate how different jurisdictions may adopt very different approaches when interpreting such ambiguity.
A deliberate approach involves carefully considering which method—arbitration, mediation, or litigation—best suits a project’s complexities after weighing the distinct advantages and disadvantages of each. Parties can also explore hybrid mechanisms like the Arb-Med-Arb approach[1]. This approach allows parties to commence arbitration, pause for mediation, and either record a settlement as a binding consent award or resume the arbitration if mediation fails. This preserves procedural momentum while still encouraging amicable resolution.
Ultimately, the objective is to discuss the options, decide on the forum, and reflect that choice with precision in drafting.
For further inquiries, please contact: Allen Cheng (allen.cheng@azmandavidson.com.my); Jeyamala Ariaratnam (jeyamala@azmandavidson.com.my).
Contributors: The Contact Persons, Georgina Lim Ern Ling (Associate), Crystal Yong Qian Yin (Pupil in Chambers).
[1] Along the lines of that offered by the Singapore International Arbitration Centre (SIAC).
