Stay of Proceedings in Malaysia (2026): Mandatory S.10 Stay, Court Steps, Deadlines & Pitfalls

A stay of proceedings in Malaysia is the single most important procedural weapon available to a defendant who has been sued in court despite having agreed to arbitrate. Section 10 of the Arbitration Act 2005 (Act 646) makes the stay mandatory, not discretionary, wherever the statutory preconditions are met, and the Arbitration (Amendment) Act 2024, which came into force on 1 January 2026, has reinforced that position while introducing new compliance obligations around third-party funding. This guide gives in-house counsel and arbitration solicitors a concrete, step-by-step framework, covering deadlines, safe-harbour conduct, affidavit evidence, AIAC Rules 2026 interplay, and the pitfalls that can forfeit the right to a mandatory stay arbitration Malaysia practitioners must navigate every day.

At a Glance, Key Takeaways

• Do not file a defence or take any substantive step in the court proceedings. Doing so can be treated as a submission to the court’s jurisdiction and a waiver of the right to stay.
• Apply for a stay at the earliest possible opportunity, before filing any pleading or making any application that addresses the merits.
• Lodge a Notice of Arbitration concurrently (or as soon as practicable) to demonstrate a genuine intention to arbitrate.
• Check third-party funding obligations under the Arbitration (Amendment) Act 2024, funded parties now face disclosure timelines that interact with the stay process.
• Prepare the affidavit in support meticulously, exhibit the arbitration agreement, demonstrate the dispute falls within scope, and set out a chronology showing no step has been taken.

Legal Basis: Section 10 Arbitration Act 2005 & the 2024 Amendment

Section 10 of the Arbitration Act 2005 is the statutory foundation for every application to stay court proceedings in favour of arbitration in Malaysia. In plain terms, the provision directs the court to stay proceedings where a party to an arbitration agreement commences court action on a matter that the parties have agreed to submit to arbitration, provided the opposing party applies for the stay before taking any step in those proceedings.

The section mirrors Article 8 of the UNCITRAL Model Law, which Malaysia adopted as the backbone of Act 646. The legislative intent is clear: courts must respect party autonomy and hold parties to their bargain to arbitrate. A court seized of an action in a matter that is the subject of an arbitration agreement shall, upon application by one of the parties, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed.

The Arbitration (Amendment) Act 2024, gazetted in 2024 and brought into force on 1 January 2026, reaffirms and strengthens this position. Among its changes, the 2024 Amendment introduces a formal framework for third-party funding (TPF) disclosure in arbitration, clarifies the scope of confidentiality provisions, and refines certain procedural timelines. For practitioners preparing a stay of proceedings in Malaysia, the most consequential aspect of the 2024 Amendment is the reinforcement of the mandatory character of the section 10 Arbitration Act 2005 stay and the addition of compliance steps for funded parties that must be considered at the outset of any arbitration-related litigation strategy.

When Is a Stay of Proceedings Mandatory Under S.10 AA 2005?

A stay is mandatory whenever three conditions are satisfied: (1) there is a valid and existing arbitration agreement between the parties; (2) the subject matter of the court proceedings falls within the scope of that agreement; and (3) the party seeking the stay applies before taking any step in the proceedings to submit to the jurisdiction of the court.

The court’s discretion is extremely narrow. Under section 10, it may only refuse a stay where the arbitration agreement is null and void, inoperative, or incapable of being performed. These exceptions are construed strictly. An agreement is “null and void” if it was never valid, for example, due to fraud, illegality, or absence of consensus. An agreement is “inoperative” if the parties have, by their subsequent conduct, abandoned or waived it. An agreement is “incapable of being performed” if a supervening event makes arbitration practically impossible, not merely inconvenient.

Malaysian courts have also recognised a limited additional ground: non-arbitrability. Certain categories of dispute, such as those involving the winding-up of companies under insolvency legislation or matters reserved by statute exclusively for court adjudication, fall outside the scope of arbitration as a matter of public policy. However, the trend in Malaysian jurisprudence is to interpret non-arbitrability narrowly, consistent with international practice.

Timeline of Key Legislative Dates

Immediate Steps on Receipt of Court Process, Preserving the Right to Stay

The moment a writ of summons, originating summons, or other originating process is served, counsel for the defendant must act with urgency. The right to a mandatory stay pending arbitration can be lost permanently if the defendant takes a “step in the proceedings” before filing the stay application. Here is a practical checklist of what to do, and what to avoid, in the first 48 to 72 hours after service:

1. Locate and review the arbitration clause immediately. Confirm the clause exists, identify the parties bound by it, and verify that the dispute pleaded falls within the scope of the clause. Check for any pre-conditions to arbitration (e.g., mandatory mediation or negotiation periods) and assess whether they have been complied with.
2. Do NOT file a defence, counterclaim, or any pleading on the merits. Filing any document that engages with the substantive issues in the action will almost certainly be treated as a step in the proceedings.
3. Do NOT apply for interlocutory relief that addresses the merits. Seeking a striking-out order or summary judgment on substantive grounds, rather than on jurisdictional grounds, risks waiver.
4. Enter a conditional appearance (if required) solely to preserve the right to contest jurisdiction. An appearance entered for the limited purpose of applying for a stay should not, in itself, constitute a step, but the documentation must make that conditional purpose explicit.
5. Lodge a Notice of Arbitration concurrently. Filing the notice with the agreed arbitral institution (such as the AIAC) or directly with the counterparty for ad hoc arbitrations demonstrates a bona fide intention to arbitrate and strengthens the stay application.
6. Prepare and file the application to stay at the earliest available opportunity. Delay, particularly if accompanied by any engagement with the merits, can be fatal.

Avoiding “Taking a Step”, Practical Checklist and Examples

The concept of “taking a step in the proceedings” is critical to every stay of proceedings Malaysia application. If the applicant has taken such a step, the court loses its obligation to grant a mandatory stay. The question is whether the conduct, viewed objectively, indicates an election to have the dispute resolved by the court rather than by arbitration.

The general principle emerging from Malaysian case law, consistent with academic analysis in the INSAF journal and UiTM institutional scholarship, is that any conduct that is only consistent with the defendant accepting the court’s jurisdiction, rather than merely preserving procedural rights to challenge it, will amount to a step. Practitioners should err on the side of extreme caution: do less, not more, before the stay hearing.

How to Apply for a Stay Pending Arbitration: Drafting, Evidence & Rules of Court 2012

The application to stay court proceedings is made by way of a Notice of Application supported by an affidavit. Under the Rules of Court 2012 (Malaysia), interlocutory applications, including applications for a stay, are governed by the general provisions for originating and interlocutory applications. Counsel should refer to the relevant Orders of the Rules of Court 2012 for the precise procedural requirements for filing and service.

The structure of the application typically follows this format:

1. Notice of Application: State the relief sought (an order that the court proceedings be stayed pursuant to section 10 of the Arbitration Act 2005) and identify the statutory basis. Include a prayer for costs.
2. Affidavit in Support: This is the evidential foundation of the application. The affidavit must exhibit the arbitration agreement (or the contract containing it), set out the factual basis demonstrating the dispute falls within its scope, and provide a chronology showing the defendant has not taken any step in the proceedings.
3. Written Submissions: Address the legal test under section 10, distinguish any cases relied upon by the claimant, and deal pre-emptively with any arguments that the arbitration agreement is null and void, inoperative, or incapable of being performed.

Essential Affidavit Exhibits and Sample Structure

A well-prepared affidavit in support of a stay pending arbitration should include the following exhibits and paragraphs:

• Exhibit A, The Arbitration Agreement: A certified true copy of the contract containing the arbitration clause (or the standalone arbitration agreement). Highlight the clause by tab or marginal note.
• Exhibit B, The Court Process: The writ of summons, statement of claim, and any other originating process served on the defendant.
• Exhibit C, Notice of Arbitration: Proof that the defendant has lodged (or is lodging) a Notice of Arbitration with the relevant institution or the counterparty, demonstrating a genuine intention to proceed to arbitration.
• Exhibit D, Chronology of Events: A detailed timeline from execution of the contract through service of the court process, demonstrating no step has been taken.
• Paragraphs on Scope: The affidavit should include specific paragraphs explaining why the claims in the statement of claim fall within the scope of the arbitration clause, this is often the most contested issue.
• Paragraphs on No Step Taken: A clear, unequivocal statement that the defendant has not filed any defence, counterclaim, or application addressing the merits, and has entered appearance (if at all) solely and expressly for the purpose of applying for a stay.

The application should be filed and served on the claimant as soon as practicable after service of the originating process. Under the Rules of Court 2012 Malaysia, the claimant is then given an opportunity to file an affidavit in reply, and the matter is typically listed for hearing before a judge in chambers. The hearing timeline varies by court, but practitioners should be prepared for a hearing within two to four weeks of filing in most High Court registries.

Special Situations: Optional Clauses, Non-Parties, Multi-Party Disputes & Third-Party Funding

Optional Arbitration Clauses

An optional arbitration clause Malaysia practitioners encounter, one that gives the parties a choice between arbitration and litigation, presents a distinct challenge for stay applications. Courts have grappled with whether section 10 applies at all where the clause does not oblige the parties to arbitrate but merely permits them to do so. The prevailing judicial approach, drawing on Court of Appeal guidance, is that a stay may still be granted under section 10 if the party seeking arbitration has elected to invoke the arbitration option and that election is communicated before any step is taken. Practitioners should file the stay application promptly and exhibit evidence of the election (such as the Notice of Arbitration) to anchor the argument.

Non-Parties and Additional Parties

Section 10 applies to “a party to an arbitration agreement.” Non-parties to the agreement, including related companies, guarantors, or third-party contractors, generally cannot invoke the mandatory stay. Courts apply a strict privity test: the applicant must demonstrate it is a party to the specific arbitration agreement covering the specific dispute. There are limited exceptions where doctrines such as assignment, novation, agency, or the group-of-companies doctrine may extend the arbitration agreement to non-signatories, but these must be pleaded and proved.

Multi-Contract and Multi-Party Proceedings

Where court proceedings involve multiple contracts, some with and some without arbitration clauses, or multiple parties who are not all bound by the same agreement, courts face a more complex analysis. The likely practical effect will be a partial stay: proceedings relating to disputes covered by an arbitration agreement are stayed, while claims against non-agreeing parties or under non-arbitrable contracts proceed in court. Counsel should prepare separate submissions addressing each contract and each party’s position in the arbitration architecture.

Third-Party Funding and the 2024 Amendment

The Arbitration (Amendment) Act 2024 introduces a formal regime for third-party funding in arbitration proceedings in Malaysia. Funded parties are now required to disclose the existence of a funding arrangement and the identity of the funder within prescribed timelines. While the TPF provisions do not directly alter the section 10 stay mechanism, they create collateral compliance obligations that must be addressed at the outset. If a party seeking a stay is itself funded by a third party, it must ensure compliance with the new disclosure rules to avoid satellite disputes about procedural irregularity that could undermine the arbitration and, by extension, weaken the argument for a stay.

AIAC Rules 2026 and Practical Interplay with S.10 Stays

Where the arbitration is administered by the Asian International Arbitration Centre, the AIAC Rules 2026 introduce several procedural timelines that interact directly with stay strategy. The emergency arbitrator procedure under the AIAC Rules 2026, for instance, provides a mechanism for urgent interim relief before the constitution of the tribunal. A defendant who has filed a stay application can simultaneously apply for an emergency arbitrator to preserve the status quo, this dual-track approach both supports the stay (demonstrating genuine arbitral engagement) and protects the defendant’s commercial position pending the court hearing.

The AIAC Rules 2026 also set timelines for arbitrator challenges and disclosures. Counsel should map these institutional deadlines against the expected hearing date for the court stay application to ensure there is no gap in procedural protection. If the AIAC emergency arbitrator grants interim measures before the court hears the stay application, this can reinforce the court’s confidence that arbitration is an effective and available forum, further supporting the mandatory stay.

Common Pitfalls and Courtroom Responses

Even experienced counsel can fall into traps that forfeit the right to a stay of proceedings in Malaysia. The most common pitfalls include:

• Filing a defence “without prejudice” to the stay application. Courts have consistently held that filing a defence, even with a reservation of rights, is a step in the proceedings. The reservation provides no protection.
• Seeking interlocutory relief that engages the merits. Applying for an injunction based on a substantive cause of action, or seeking discovery relating to the merits of the claim, signals acceptance of the court’s jurisdiction.
• Delay without explanation. Although there is no statutory time limit in section 10 (other than “before taking any step”), unexplained delay in applying for a stay invites the argument that the defendant has acquiesced.
• Failing to exhibit the arbitration agreement properly. An incomplete or unsigned copy, or a copy that does not clearly cover the dispute in question, is a gift to the opposing party.
• Ignoring TPF disclosure obligations. Under the 2024 Amendment, non-compliance with funding disclosure can create procedural objections that distract from the stay application itself.

When facing opposition, counsel should be prepared with rebuttal submissions that address each limb of the statutory test methodically: the agreement exists, the dispute is within scope, no step has been taken, and none of the narrow exceptions (null and void, inoperative, incapable of performance) apply. Keep submissions tightly focused on the statutory language, section 10 leaves courts very little room to exercise residual discretion.

Templates, Checklists & Practitioner Resources

To support practitioners in preparing a stay of proceedings Malaysia application efficiently and comprehensively, the following resources are recommended as part of a standard application toolkit:

• Section 10 Decision Tree (PDF): A downloadable one-page flowchart setting out each statutory condition, the exceptions, and the critical “no step” threshold.
• Sample Notice of Application to Stay: A template notice citing section 10 of the Arbitration Act 2005, with adaptable prayers for relief and costs.
• Affidavit Checklist: A comprehensive checklist of all exhibits and substantive paragraphs required, mapped against the statutory test and common opposing arguments.
• Client Memo Template: A short-form memo for in-house counsel explaining the stay strategy, expected timeline, and immediate conduct obligations (what not to do).
• Chronology Template: A timeline format for documenting every step from contract execution through service of proceedings, designed to demonstrate conclusively that no step has been taken.

Practitioners handling cross-border matters may also wish to consult Malaysia’s broader commercial law framework. For background on contractual remedies that often arise alongside arbitration disputes, see the analysis of Section 75 of the Contracts Act 1950 (Malaysia). Those dealing with recent Malaysian legislative reform may also find the overview of the Hire Purchase (Amendment) Act 2026 helpful context for understanding the current pace of law reform across commercial practice areas in Malaysia.

Conclusion and Next Steps

Securing a stay of proceedings in Malaysia under section 10 of the Arbitration Act 2005 is procedurally straightforward but tactically demanding. The mandatory character of the stay means the legal threshold is relatively low for applicants who have a valid arbitration agreement and have not taken any step in the proceedings. The greater challenge lies in the discipline required to avoid inadvertent waiver, every action taken (or not taken) between service of the writ and the stay hearing matters. With the Arbitration (Amendment) Act 2024 now in force and the AIAC Rules 2026 reshaping institutional timelines, counsel must approach a stay of proceedings Malaysia application with both statutory precision and procedural awareness. Prepare the affidavit evidence meticulously, lodge the Notice of Arbitration immediately, and file the stay application before engaging with any other aspect of the court proceedings.

Sources

1. Attorney-General’s Chambers of Malaysia, Arbitration Act 2005 (Act 646)
2. Arbitration (Amendment) Act 2024, Official Text (AIAC / Laws of Malaysia)
3. Asian International Arbitration Centre (AIAC), AIAC Rules 2026
4. Malaysian Judiciary, Rules of Court 2012
5. INSAF, Journal of the Malaysian Bar (Stay of Proceedings Commentary)
6. UiTM Institutional Repository, Academic Analysis on Stay of Proceedings Jurisprudence