‘Optional' Arbitration Clauses: Use Of ‘Shall' Or ‘May'

Author:Mr Datuk Naban and Crystal Wong Wai Chin
Profession:Lee Hishammuddin Allen & Gledhill

In recent years, an increasing number of Malaysian and foreign companies have embraced arbitration as an alternative means for resolving their commercial disputes. With careful drafting, the parties to a contract can tailor the arbitration process to meet their specific needs and circumstances. Because of this trend towards arbitration, courts are routinely asked to determine whether arbitration is compulsory under a given contract.[1] Interestingly, while the Malaysian courts uniformly answer this question in the affirmative for arbitration agreements containing the word "shall", the presence of the term "may" does not render an arbitration clause permissive.


The Privy Council decision in Anzen[2] has important implications for the drafting of arbitration clauses. In that case, the Privy Council addressed the issue of whether an arbitration clause in a shareholders' agreement — which provided that in the event of an unresolved dispute, "any party may submit the dispute to binding arbitration" — constituted a binding agreement to arbitrate.

The Privy Council described the appeal as raising "interesting points on interpretation of an arbitration clause", and concluded that there were three possible analyses which could be adopted:[3]

Analysis I — the words "any party may submit the dispute to binding arbitration" are not only permissive, but exclusive, if a party wishes to pursue the dispute by any form of legal proceedings; Analysis II — the words are purely permissive, leaving it open to one party to commence litigation, but giving the other the option of submitting the dispute to binding arbitration, such option being exercisable either by commencing an ICC arbitration, as the respondent submitted and Bannister J and the Court of Appeal held; or Analysis III — the option may be exercised by requiring the party which has commenced the litigation to submit the dispute to arbitration, by making an unequivocal request to that effect and/or by applying for a corresponding stay, as the appellants had done. Rationale of the decision ('The hallmark of arbitration is consent'[4])

The Privy Council concluded that[5] the arbitration clause could amount to a binding commitment to arbitrate if one party chose to rely upon it, either i) by commencing arbitration proceedings, or ii) by applying to stay litigation in favour of arbitration. The Privy Council held that:

"Clauses depriving a party of the right to litigate should be expected to be...

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