Dispute Resolution in Malaysia: Key Mechanisms & Legal Insights

Malaysia offers a comprehensive dispute resolution system, including courts, arbitration, adjudication, and mediation. In this article, Christopher Arun and Sylvie Tan Sze Ni, partners at Ariff Rozhan & Co, and  Vivian Mao, partner at Dezan Shira & Associates, share key insights on legal mechanisms, judgment enforcement, and best practices to help businesses manage disputes efficiently in the country and ensure compliance with contractual obligations. For specialized inquiries, please contact vivian.mao@dezshira.com. 

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Malaysia has a well-structured and comprehensive legal framework for dispute resolution, featuring a tiered court system and robust statutory frameworks governing various dispute resolution mechanisms. The country provides multiple avenues for resolving legal disputes, including formal court proceedings, alternative dispute resolution (ADR) mechanisms such as arbitration, adjudication, and mediation, as well as specialized tribunals and courts. Understanding these options is essential as it enables businesses to navigate disputes efficiently and cost-effectively.

Mechanisms of dispute resolution in Malaysia

Court system

The court system comprises the superior courts (High Court, Court of Appeal, and Federal Court) and the subordinate courts (Magistrates’ Courts and Session Courts). In gist:-

• Federal Court: The highest/apex court, dealing with constitutional matters and hearing appeals from the Court of Appeal and the High Courts.​
• Court of Appeal: Determines appeals from the High Courts in both civil and criminal cases.​
• High Courts: There are two High Courts of co-ordinate jurisdiction. High Court of Malaya hears cases within Peninsular Malaysia and the Federal Territory of Labuan. High Court of Sabah and Sarawak hears cases within Sabah and Sarawak.​ Both High Courts have equal standing and jurisdiction over civil and criminal matters, including those involving the death penalty.​
• Sessions Courts: Deal with civil claims up to RM1,000,000 (US$226,000) and criminal cases except those involving the death penalty.​
• Magistrates’ Courts: Deal with civil claims below RM100,000 (US$22,600) and criminal cases where the offense is punishable by fine or carries an imprisonment term of less than 10 years.​

Alternative dispute resolution

Arbitration

The primary legislation governing arbitration in Malaysia is the Arbitration Act 2005. Arbitration is particularly favored in international and commercial disputes due to its flexibility, efficiency, and confidentiality. The Asian International Arbitration Centre (AIAC) is the leading arbitral body in Malaysia.

Central to arbitration is the arbitration agreement, which is a written contract in which parties agree to resolve any disputes through arbitration rather than traditional court litigation. Such agreement typically specifies the rules, procedures, and location for the arbitration process.

Arbitration (Amendment) Act 2024 introduces the regulation of Third-Party Funding (TPF), a significant development in the financing of arbitration cases. This reform allows external parties to finance arbitration proceedings, which can have a major impact on a party’s ability to pursue arbitration.

Adjudication

In the construction industry, the Construction Industry Payment and Adjudication Act (CIPAA) 2012 was enacted to facilitate timely payments and speedy dispute resolution. Adjudication proceedings under the CIPAA will be presided over by a neutral and impartial adjudicator agreed upon by parties or appointed by the AIAC. The adjudicator usually has a highly experienced background in the construction law and industry fields relevant to the dispute. The decision of the adjudicator will be immediately binding on the parties. The adjudicator’s decision can only be set aside on limited grounds, such as fraud or denial of natural justice.

Mediation

The Mediation Act 2012 aims to promote mediation to facilitate fair, speedy, and cost-effective dispute resolution. Mediation provides the benefit of flexibility and cost savings, and if unsuccessful, parties can still proceed with litigation or arbitration.

Specialized Tribunals and Court

In addition, specialized tribunals have been established to provide targeted adjudication and resolution in specific areas of law. Notable examples include the Competition Commission for matters related to antitrust and market competition, the Tribunal for Consumer Claims for disputes between consumers and businesses, the Tribunal for Home Buyers Claims for homebuyers to seek redress against housing developers, and the Industrial Court which addresses industrial relations disputes.

Condition precedent in dispute resolution clause

Many contracts, particularly in commercial and construction agreements, include conditions precedent that must be fulfilled before commencing litigation or arbitration (e.g., multi-tiered dispute resolution clauses). These clauses typically require parties to attempt informal resolution methods—such as negotiation or mediation—before proceeding to formal arbitration or litigation. For instance, in the case of Juara Serata Sdn Bhd v Alpharich Sdn Bhd [2015] 6 MLJ 773, the Malaysian Apex Court upheld the importance of adhering to the conditions precedent in dispute resolution clauses, emphasizing that parties must honor their contractual obligations. Therefore, dispute resolution clauses should not be treated as “boilerplate” provisions to be overlooked during contract review. They must be carefully considered and complied with, as failure to do so may have serious consequences, potentially invalidating a claim.

Enforcement of judgments & arbitration awards

Domestic judgments

For monetary judgments, judgment creditors may apply for a Writ of Seizure and Sale to seize and sell the debtor’s assets or Garnishee Proceedings where third parties (such as banks) who owe money to the judgment debtors are ordered to pay the money owed directly to the judgment creditors. Other enforcement options include Charging Orders to place a charge on a property and appointing a Receiver to manage the debtor’s assets. For non-monetary judgments, judgment creditors may apply for a Writ of Possession to take possession of immovable property or a Writ of Delivery for movable property.

In addition, one can initiate winding-up proceedings for companies or bankruptcy proceedings for individuals. Currently, the debt threshold for winding-up proceedings is RM50,000 (Approx. US$11,300), and for bankruptcy is RM100,000 (Approx. US$22,600).

Foreign judgments

Enforcement of a foreign judgment in Malaysia is governed by the Reciprocal Enforcement of Judgments Act 1958 (REJA). Under REJA, a judgment creditor must apply to the Malaysian High Court to register a foreign judgment. If a foreign judgment is registered under REJA, it can be enforced as though it is a domestic judgment. If the foreign judgment does not meet the criteria for registration under REJA, the judgment creditor may need to file a fresh suit in the Malaysian courts, providing prima facie evidence of the claim.

Enforcement of arbitration awards

Arbitration awards, whether domestic or international, are generally enforceable under the Arbitration Act 2005 by making an application to the Malaysian High Court. Specifically, under the Arbitration (Amendment) Act 2024, an award (whose seat of arbitration is in Malaysia or from a foreign State) is automatically recognized as binding in Malaysia without the need to apply to the High Court for recognition; however, parties must still apply to the High Court for enforcement purposes.

Key takeaway

For foreign investors, Malaysia’s robust and flexible dispute resolution framework offers certainty and efficiency in navigating the market. With a well-developed judicial system, an internationally recognized arbitration body (AIAC), and business-friendly dispute resolution mechanisms, Malaysia provides a stable and investor-friendly environment to ensure disputes can be resolved swiftly. To fully leverage these mechanisms, it is crucial to ensure compliance with dispute resolution clauses or consult legal experts to mitigate risks and address procedural challenges effectively.

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