Governing Law vs Seat of Arbitration

Governing law and the seat of arbitration are two different choices doing two different jobs. The governing law decides how the contract is read — interpretation, implied terms, remedies, limitation. The seat decides which country's courts supervise the arbitration and where an award can be challenged. They can be different countries, and in cross-border contracts they often are.

One clause at the back of the contract usually names both, often lifted from an earlier deal. A company that agrees to English law, calls Kuala Lumpur the “venue” and says nothing about the seat has not settled the question — it has deferred it to a preliminary fight.

What does a governing law clause in a Malaysian contract decide?

It answers the questions that arise once the words run out. Whether a term can be implied. What counts as a repudiatory breach. How damages are measured. Whether a liquidated damages clause is enforced or struck out as a penalty. Whether the claim is time-barred.

Two contracts with identical wording, governed by different systems of law, can produce different outcomes on the same facts. The counterparty's choice of law is a commercial decision, not an administrative one.

What does the seat of arbitration decide, and is it the same as the venue?

No. The seat is a legal location; the venue is a physical one. Hearings can be held anywhere, or online, without moving the seat. Confusing the two is the most common drafting error here.

Two adjacent questions usually come up at the same point in this process: see arbitration clause or foreign court? the dispute clause that decides whether you get paid and paying a foreign supplier or contractor for how each is handled.

What the seat fixes:

• Which country's arbitration legislation governs the process — the curial law

• Which courts grant interim relief, or remove an arbitrator

• Which courts hear an application to set the award aside

• Which State the award is treated as coming from, for enforcement

An arbitration seated in Malaysia runs under the Arbitration Act 2005, supervised by the Malaysian High Court. Move the seat to Singapore and the supervisory jurisdiction moves with it, even if Malaysian law still governs the contract.

The third law most contracts forget, and what section 9A does about it

Behind those two sits a third question: which law governs the arbitration agreement itself, as distinct from the contract it sits inside. It decides whether the agreement to arbitrate is valid and how far it reaches.

This used to be unsettled. Section 9A of the Arbitration Act 2005, inserted by the Arbitration (Amendment) Act 2024 and in force from 1 January 2026, now answers it where the seat of arbitration is in Malaysia: the parties are free to agree the law applicable to the arbitration agreement, and where they do not agree, it is the law of the seat.

The subsection that catches people out is section 9A(3). Agreeing the law applicable to the contract in which an arbitration agreement sits does not, by itself, constitute an express agreement that the same law applies to the arbitration agreement. Under English authority a choice of law for the main contract has been treated as a strong pointer to the law of the arbitration clause; section 9A(3) removes that inference where the seat is in Malaysia.

So if you want the two to match, the clause has to say so.

How do the three choices fit together?

Why the seat decides whether you actually get paid

Because the seat determines where the award comes from, and that determines how far it travels. Malaysia acceded to the New York Convention on 5 November 1985, alongside around 170 other contracting states, subject to reciprocity and commercial reservations that ordinary business contracts satisfy.

Sections 38 and 39 of the Arbitration Act 2005 give effect to this. Section 38(1) was substituted with effect from 1 January 2026: an award — whether the seat was in Malaysia or the award is from a foreign State — is recognised as binding and, upon application to the High Court, is enforced subject to section 39. Recognition is automatic; enforcement still needs that application to the court. Under section 39 the court may refuse only on the grounds listed there.

A foreign court judgment travels less well. Under the Reciprocal Enforcement of Judgments Act 1958, only judgments of the superior courts of the seven countries in its First Schedule can be registered here: the United Kingdom, the Hong Kong Special Administrative Region, Singapore, New Zealand, Sri Lanka, India (with stated exclusions) and Brunei Darussalam. Mainland China, Indonesia, Thailand and the United States are not, and registration must be applied for within six years of the date of the judgment. That asymmetry is why arbitration ends up in most cross-border contracts.

What does a properly drafted clause look like?

Not a template — a set of decisions taken in this order:

1. Where does the counterparty hold assets? A win you cannot enforce where the money is has cost you the fees for nothing.

2. Court or arbitration? Decided by whether a judgment from your preferred court could be registered and enforced there.

3. Seat. A New York Convention state, with courts used to supervising arbitration.

4. Governing law. Often the same as the seat, for simplicity. It does not have to be.

5. Law of the arbitration agreement. State it expressly. Section 9A(3) is the reason.

6. Institution, rules, arbitrators, language. AIAC, SIAC, HKIAC or ICC — and say which.

Then check the wording. Use “seat”, the term the legislation uses; “venue” and “place” get argued against each other. Name a country, not only a city. That order — enforcement first, drafting second — is how our international and cross-border contract drafting work runs.

What does it cost to leave this to the other side's template?

• The preliminary fight. Where the clause is ambiguous, the opening stage of a dispute goes on which law applies and which forum decides.

• The weak seat. Interim relief is hard to get where the supervisory courts are slow to support arbitration.

• The unenforceable result. An award that cannot be enforced where the assets sit is a piece of paper — a winnable claim turned into a write-off.

The clauses beside it are read under the same governing law — the termination provisions in a supply agreement, the dispute terms in a share purchase agreement.

Frequently asked questions

Can the governing law and the seat of arbitration be different countries?

Yes, and it is common. Malaysian law with a Singapore seat means Malaysian law is applied by a tribunal supervised by the Singapore courts. That is a deliberate choice, not an error.

If our contract is governed by Malaysian law, does that govern the arbitration clause too?

No, not on its own. Section 9A(3) of the Arbitration Act 2005 provides that the parties' agreement on the law applicable to an agreement of which the arbitration agreement forms a part does not constitute an express agreement that the same law applies to the arbitration agreement. Where the seat is in Malaysia and the parties have not agreed, section 9A(2) supplies the law of the seat. If you want the two to match, say so in the clause.

Is the seat the same as where hearings are held?

No. The seat is a legal designation fixing the curial law and the supervisory court. Hearings can be held wherever the parties and tribunal agree, or remotely, without changing it.

What if the contract names neither a governing law nor a seat?

The governing law falls to conflict-of-laws principles — broadly, the system with the closest and most real connection to the contract. That is an argument, paid for before the merits are reached. An unstated seat is fixed under whichever institutional rules apply, or by the tribunal.

Does a Malaysian seat put us at a disadvantage with a foreign counterparty?

Not inherently. Malaysia is a New York Convention state and the Arbitration Act 2005 follows the UNCITRAL Model Law. The Arbitration (Amendment) Act 2024, in force from 1 January 2026, also put third-party funding on a statutory footing. Acceptance is a negotiating question, not a legal defect.

Getting the dispute terms drafted properly

If you are negotiating with an overseas supplier, buyer or partner, these choices are worth settling deliberately rather than accepting the other side's precedent. Legal That Works advises Malaysian businesses on international and cross-border contract drafting — working back from where the counterparty holds assets to the governing law, seat and dispute terms that could actually be enforced. Speak to us before the contract is signed rather than after.

This article is general information on Malaysian law and is not legal advice. The position in any matter depends on the terms of the instrument and the facts. Obtain specific advice before acting.

Related guides

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

• Paying a Foreign Supplier or Contractor

• Buying From an Overseas Supplier

• Customised Agreement Drafting

• Debenture and Charge