Introduction
Arbitration clauses occasionally contain option clauses that allow the parties the flexibility to choose how they want to resolve disputes, whether through arbitration or by going to court. For example, an option clause may say that a dispute may be referred to Court or to arbitration, leaving the choice open.
Questions do arise as to whether such option clauses are valid and are sufficiently certain in their scope and meaning as to be enforceable. More importantly, the broader and more immediate question would be how do these clauses work when a dispute arises and the time comes for decisions to be made on these options.
The recent decision of the Court of Appeal in Setia Awan Management Sdn Bhd v SPNB Aspirasi Sdn Bhd [2025] MLJU 1264 provides important guidance on the enforceability of arbitration agreements containing option clauses.
The Court held that arbitration clauses are not invalid just because they give parties the choice to go either to Court or to arbitration. Nor are they invalid simply because they leave out procedural details — like the number of arbitrators or the location of arbitration.
The Arbitration Act 2005 (“AA 2005”) provides default rules to fill in these gaps. What matters is whether the parties have agreed to resolve disputes through arbitration, and that agreement will be upheld unless it is fundamentally flawed.
The Court took a practical, pro-arbitration approach, placing emphasis on party autonomy and the objectives of the Act.
For further information, please contact:
Seh Zhen Yang, Shearn Delamore & Co
zhenyang.seh@shearndelamore.com
