Arbitration Clause or Foreign Court? The Dispute Clause That Decides Whether You Get Paid

For most cross-border contracts the answer is arbitration, and the reason is enforcement rather than procedure. Malaysia can register a foreign court judgment from only seven listed jurisdictions. Arbitral awards travel far more widely, because Malaysia acceded to the New York Convention on 5 November 1985, alongside around 170 other states.

Most dispute clauses are copied from the last contract and never negotiated. Nobody reads the clause again until a counterparty stops paying and someone asks the only question that matters: if we win, can we collect?

Which foreign court judgments can Malaysia enforce?

Only judgments of the superior courts of the seven countries in the First Schedule to the Reciprocal Enforcement of Judgments Act 1958 (Act 99). The creditor registers the judgment in the High Court under Part II. There is no general regime beyond it.

• United Kingdom — High Court in England, Court of Session in Scotland, High Court in Northern Ireland, and the Courts of Chancery of the Counties Palatine of Lancaster and Durham

• Hong Kong Special Administrative Region of the People’s Republic of China — High Court

• Singapore — High Court

• New Zealand — High Court

• Republic of Sri Lanka — High Court and District Courts

• India — High Court, excluding the areas stated in the Schedule

• Brunei Darussalam — High Court

What is absent decides more deals than what is present. The United States, mainland China, the EU states, Australia, Japan, South Korea, Indonesia, Thailand and Vietnam are all outside it. The Schedule can be amended by order under section 3(2), so confirm the current list in the Gazette.

What conditions must the judgment meet?

Section 3(3) requires the judgment to be final and conclusive between the parties with a sum of money payable under it. Taxes and charges of a like nature, fines and other penalties are excluded. Where a country was added to the Schedule by later order, the judgment must post-date that addition. Under section 4(1) the application to register must be made within six years of the judgment, or of the last judgment on appeal.

On what grounds can a registered judgment be set aside?

Section 5(1)(a) sets out six mandatory grounds:

1. it is not a judgment to which Part II applies, or was registered in contravention of the Act

2. the original court had no jurisdiction

3. the debtor did not receive notice in sufficient time to defend and did not appear

4. the judgment was obtained by fraud

5. enforcement would be contrary to public policy in Malaysia

6. the rights under the judgment are not vested in the applicant

Section 5(1)(b) adds a discretionary ground where the matter was already the subject of a final judgment elsewhere. The first and last of the six are the grounds debtors run most often — and the two most commonly missing from summaries of the Act.

What if the counterparty’s country is not on the list?

Registration is unavailable. The creditor is left with the common law route — a fresh action in Malaysia on the judgment as a debt, a second set of proceedings after you have already won once.

Two adjacent questions usually come up at the same point in this process: see governing law vs seat of arbitration and paying a foreign supplier or contractor for how each is handled.

The reverse point catches people out more often. Section 7 provides that where a judgment falls within Part II, no Malaysian court may entertain proceedings to recover the sum other than by registration. Registration is not the better of two routes; it is the only one, and letting the six-year window close leaves no common law fallback.

Why do arbitral awards travel further than judgments?

Because of the New York Convention, which Malaysia acceded to on 5 November 1985 and to which around 170 states are party. A judgment is registrable in seven places; an award is potentially enforceable across most of the trading world.

Two qualifications apply to Malaysia’s accession and both remain in force: reciprocity, so the Convention applies only to awards made in another contracting state, and the commercial reservation, limiting it to relationships considered commercial under Malaysian law.

Foreign awards are enforced through sections 38 and 39 of the Arbitration Act 2005 (Act 646), not the 1958 Act. Section 38(1) was substituted with effect from 1 January 2026 by the Arbitration (Amendment) Act 2024 [Act A1737]. An award seated in Malaysia or from a foreign State is now recognised as binding, and is enforced upon an application to the High Court, subject to section 39. Recognition no longer needs its own application; enforcement still does.

Section 39 sets the refusal grounds and they are exhaustive — recognition or enforcement may be refused only on them. They broadly track Article V of the Convention: incapacity, an invalid arbitration agreement, want of proper notice, an award beyond the submission, an irregular tribunal or procedure, and public policy. The court does not re-hear the merits.

Confidentiality also survives enforcement better than clients expect. In Siemens Industry Software GmbH & Co KG v Jacob and Toralf Consulting Sdn Bhd [2020] 5 CLJ 143 the Federal Court held that what is registered is the tribunal’s decision on the substance — the dispositive portion — not the reasoning. That was decided on the earlier wording of section 38.

Foreign court or arbitration — how do they compare?

Arbitration is rarely cheaper at first instance. It earns its cost on enforceability, on the absence of a merits appeal, and on neutrality where neither side will accept the other’s home courts.

When does a court clause still make sense?

• The counterparty’s assets are in Malaysia or in one of the seven Schedule countries

• The likely dispute is a debt claim where summary judgment is realistic

• Contract values do not justify tribunal and institutional fees

• You may need urgent injunctive relief against a Malaysian party

Low-value, high-volume supply into Singapore is a fair case for courts. A manufacturing agreement with a supplier whose only assets sit in mainland China is not. Read the clause alongside your default mechanics — our guides to contract termination and breach of contract cover how those interact.

Two traps that decide whether you get paid

Suing in the wrong forum can cost you the judgment

Section 5(3)(b) provides that the original court is not deemed to have had jurisdiction where the proceedings were brought contrary to an agreement to settle the dispute otherwise than in that court. Ignore your own arbitration clause, sue elsewhere and win, and the judgment may not be registrable here.

That protection can be lost by how you respond

Section 5(3)(b) is expressly subject to the carve-outs in section 5(2)(a)(i), (ii) and (iii) and section 5(2)(c). It falls away where the debtor submitted by voluntarily appearing — appearing only to contest jurisdiction or to protect seized property does not count — or was the plaintiff there, counterclaimed there, or had agreed before the proceedings began to submit to that court.

So if proceedings are started against you abroad in breach of your dispute clause, defending on the merits rather than contesting jurisdiction can forfeit the protection the clause was drafted to give. The first few weeks matter more than the wording; take advice before anything is filed. Both traps are cheaper to design out than to litigate, which is why the dispute clause, the governing law and the payment mechanics belong in one set of decisions — the substance of our international and cross-border contract drafting work.

Frequently Asked Questions

Can we just name the Malaysian courts in the contract?

You can, and against a Malaysian counterparty it is often sensible. Against a foreign counterparty the question is whether a Malaysian judgment could be enforced where their assets sit, which turns on that country’s rules, not ours.

How many countries’ judgments can Malaysia enforce by registration?

Seven: the United Kingdom, Hong Kong SAR, Singapore, New Zealand, Sri Lanka, India (with the exclusions stated in the Schedule) and Brunei Darussalam — the First Schedule to the Reciprocal Enforcement of Judgments Act 1958, which can be amended by order.

How long do we have to enforce a foreign judgment in Malaysia?

Six years from the date of the judgment, or from the last judgment on appeal, under section 4(1). For a First Schedule judgment there is no common law fallback once that window closes, because section 7 makes registration the only route.

Is an arbitral award automatically enforceable in Malaysia?

It is recognised as binding automatically, but enforcement still requires an application to the High Court under section 38(1) of the Arbitration Act 2005, and the court may refuse only on the section 39 grounds. Malaysia applies the Convention on a reciprocity basis, to commercial relationships only.

Which arbitral institution should we choose?

AIAC, SIAC, HKIAC and the ICC are all commonly used for Malaysian cross-border work. The choice turns on cost, the counterparty’s familiarity and where the seat will be — a commercial negotiation as much as a legal one.

Getting the dispute clause right before you sign

A dispute clause should be decided from where your counterparty’s assets are, not from the last precedent on the shared drive. Legal That Works advises Malaysian businesses on international and cross-border contract drafting — starting with the enforcement question and drafting the dispute, governing law and payment terms around the answer. If you are negotiating with an overseas counterparty now, speak to us before the terms are agreed rather than after the invoice goes unpaid.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Related guides

• Governing Law vs Seat of Arbitration

• Paying a Foreign Supplier or Contractor

• Buying From an Overseas Supplier

• Distribution Agreements in Malaysia

• Corporate Guarantee vs Personal Guarantee