Malaysia: A Dispute Resolution Overview

Introduction

Malaysia operates a dual legal system – the civil courts and Sharia courts. Malaysia’s civil courts adopt a hierarchical system, with the courts arranged in sequence from highest to lowest: Federal Court, Court of Appeal, High Court, Sessions Court and Magistrate Court. The Federal Constitution, being the supreme law of Malaysia, is enforced throughout Malaysia. On the other hand, state legislative assemblies enact laws at state level.

Functioning independently alongside Malaysia’s civil courts are the Sharia courts, which administer Islamic law (which applies to individuals who profess the Islamic religion). Sharia courts are limited to specific matters of Islamic law, as set out in the Ninth Schedule of the Federal Constitution. 

Beyond the civil and Sharia courts, Malaysia also has specialised courts and tribunals, such as the Industrial Court, which was formed under the Industrial Relations Act 1967 to resolve disputes in employment matters.

Alternative dispute resolution (ADR) in most of its common forms is also strongly encouraged and promoted, including arbitration and adjudication of construction matters and mediation.

Recent Developments

Arbitration

The Arbitration Act 2005 (AA), modelled on the UNCITRAL Model Law on International Commercial Arbitration, governs arbitration in Malaysia, and provides a statutory framework for enforcement of awards. Arbitration in Malaysia operates on principles such as natural justice, party autonomy and finality of awards. Significant legal developments modernising and enhancing the Malaysian arbitration landscape have taken place recently, as set out below.

Legislative and institutional framework

Gazetted on 1 November 2024 (and coming into operation on 1 January 2026), the Arbitration (Amendment) Act 2024 introduces significant amendments including:

• an expanded definition of arbitration agreements in writing;
• an additional section to give certainty to the law applicable to arbitration agreements;
• the introduction of the President of the AIAC Court of Arbitration;
• a procedure for the joint appointment of arbitrators in disputes involving multiple parties;
• automatic recognition of arbitration awards as binding and streamlined enforcement upon application to the High Court; and
• regulation of third-party funding.

Malaysia’s arbitration practice is also embracing the use of modern technology, as the use of digital and electronic signatures by arbitrators on arbitral awards is now permitted.

Additionally, the Asian International Arbitration Centre (AIAC) officially introduced its AIAC Suite of Rules 2026, which contains, amongst other things, the AIAC Arbitration Rules 2026 (the “2026 Rules”), modernising its institutional framework.

The 2026 Rules, effective on 1 January 2026, establish the AIAC Court of Arbitration and clearly define the roles of the President, the AIAC Court and the Registrar in AIAC-administered arbitration proceedings. Other significant changes include the increase in maximum pecuniary threshold to promote fast-track procedures, enforcing diversity in the appointment process of arbitrators, mandating technical review of all draft awards (except Emergency Awards) by the AIAC Court of Arbitration, as well as introduction of a new provision on third-party funding.

The 2026 Rules are also designed to encourage procedural efficiency, integrating the UNCITRAL Rules as part of a harmonised framework and supporting ADR by allowing mediation before, during or after the commencement of arbitration.

Registration and enforcement of foreign arbitral awards in Malaysia

The Federal Court’s decision in ING Bank NV & Anor v Tumpuan Megah Development Sdn Bhd [2025] 6 MLJ 751 marks a pivotal moment in the enforcement of foreign arbitral awards in Malaysia. The Federal Court confirmed that the winning party has the option to register and enforce awards through either Malaysia’s AA or the Reciprocal Enforcement of Judgments Act 1958 (REJA). The availability and flexibility of two distinct registration and enforcement avenues further enhance Malaysia’s standing as a global arbitration hub as, inter alia, it permits creditors to pursue the enforcement route best suited to their strategic needs.

In making this decision, the Federal Court also emphasised the importance of minimal curial review of the foreign judgment, as the enforcing court under REJA (based on principles of reciprocity) is not an appellate one. In essence, Malaysia continues to preserve the general principle of finality of awards.

Civil litigation

Striking-out applications

In the landmark Judgment of MT Ventures Sdn Bhd & Anor v QM Print Sdn Bhd & Another Appeal [2025] 6 MLJ 471,the Federal Court clarified that the dismissal of striking-out applications is appealable when it relates to threshold conditions that have the effect of finally disposing the parties’ rights — such as challenges to locus standi, state immunity, jurisdictional objections and res judicata. The Court held that Section 68(1)(f) of the Courts of Judicature Act 1964 (CJA) must be read in harmony with Sections 3 and 67 of the CJA. This judgment departs from the previous literal reading of Section 68(1)(f) of CJA - post-2022 CJA amendment - which was thought to curtail the right to appellate recourse in interlocutory matters.

Unless Orders

Fresh off the bench, the Federal Court in Ketua Pengarah Jabatan Penyiaran Malaysia & Anor v Vertex Blue Consulting Sdn Bhd [2026] 1 MLRA 810 clarified the legal effect of an Unless Order. The Federal Court overturned the High Court and Court of Appeal’s decisions, which previously held that the appellants’ non-compliance with the Unless Order (which failure was admitted at the High Court), resulted in the automatic striking out of the appellants’ defence and counterclaim as the Unless Order was “self-executing” in nature. By a 2:1 majority, the Federal Court held that the High Court’s judgment was irregular, and the Court of Appeal’s affirmation was wrong in law. In doing so, the Federal Court emphasised that a default judgment in the form of a declaration usually requires the court to consider the merits of the case. In contrast, the dissenting judge considered the Unless Order binding on the basis that, amongst other things, it was a clear, unambiguous and self-executing order that had to be obeyed unless set aside or varied. He further observed that failure to give effect to it would allow the appellants to avoid their obligation and effectively ignore the Court’s directions which would, amongst other things, “hamper and frustrate” the Court’s ability to properly manage the case at pre-trial stage.

Artificial Intelligence (AI) in the Legal Landscape

Whilst there is currently no legislation comprehensively covering the use of AI, AI tools are increasingly used in the justice system, most notably in East Malaysia, through the AiCOS sentencing aid. Beyond sentencing, AI has also been used to streamline court processes, such as, the planned upgrade of the digital recording system to enable real-time transcripts on‑screen in the Industrial Court. In December 2024, Malaysia also launched the National AI Office (NAIO) to co-ordinate the country’s AI agenda and governance efforts. The introduction of a coherent, risk-based regulatory framework is imminent in Malaysia, to ensure that AI enhances, rather than undermines, the integrity of Malaysia’s justice system.

Observation

Malaysia’s legal landscape continues to evolve. Recent developments, especially in the civil courts, demonstrate a drive toward procedural clarity and greater efficiency in the administration of justice, while still preserving the intent of statutory frameworks. A clear example is the Court of Appeal Circuit Initiative in November 2025 decentralising appellate hearings to make appellate recourse more accessible and effective. In parallel, Malaysia’s commitment and determination to promoting ADR, through ongoing legislative and institutional reforms, remains steadfast and resolute.