Introduction
The long-awaited Arbitration (Amendment) Act 2024 (“2024 Amendment Act”) came into force on 1 January 2026. By all accounts, the amendments aim to strengthen Malaysia’s position as a preferred seat for international arbitration1. To that end, the 2024 Amendment Act introduces several significant changes to the existing arbitration framework in Malaysia. The key changes are highlighted below.
Introduction of the AIAC Court of Arbitration
The most significant change is the introduction of the AIAC Court of Arbitration. This reflects the Government’s initiative to restructure the Asian International Arbitration Centre (“AIAC”). This initiative was conceived in early 2024, when the Government entered into a Supplementary Agreement with the ASEAN-African Legal Consultative Organization (“AALCO”) to enhance governance within AIAC’s administrative framework.
As part of this process, a Board of Directors was established with a Chief Executive Officer to oversee the day-to-day operations of the AIAC. At the heart of the reforms is the establishment of the AIAC Court of Arbitration.
In line with these initiatives, the 2024 Amendment Act introduces a President of the AIAC Court of Arbitration to replace the former Director of the Asian International Arbitration Centre. The 2024 Amendment Act further provides that the President will assume all appointments and decisions previously made by the Director of the AIAC. This will transform the AIAC into an institution that functions through a Court of Arbitration helmed by a President, bringing with it a more robust, transparent, independent and efficient oversight body to regulate the conduct of arbitration.
Third-Party Funding (“TPF”)
The 2024 Amendment Act introduces a comprehensive framework to regulate TPF through Sections 46A-46I.
- Common Law Rules Abolished: The new section 46C AA 2005 expressly provides that the common law rules against maintenance and champerty will no longer apply. By statutory amendment, TPF ceases to be contrary to public policy in the context of arbitration.
- Mandatory Disclosure: Funded parties are now required, pursuant to the new section 46G AA 2005, to disclose the existence of a TPF agreement to the opposing party and the arbitral tribunal or the court. Disclosure must be made before the commencement of proceedings, or within 15 days if the agreement is executed after proceedings have begun. Non-compliance with such mandatory disclosure may result in the third-party funder being held liable for any legal consequences arising from the breach under section 46I AA 2005.
- Code of Practice: TPF is further governed by a code of practice issued by the Minister, pursuant to the new section 46D AA 2005. On 5 January 2026, the Legal Affairs Division of the Prime Minister Department announced the implementation of the Code of Practice for Third Party Funding 2026 (“Code of Practice”), which came into force on 1 January 20262. The Code of Practice consists of the following key features, to ensure proper regulation and oversight in relation to TPF agreements made on or after 1 January 20263:
- Responsibilities of a Third Party Funder (Clause 5 Code of Practice): A third party funder is responsible for compliance with the Code not only by itself, but also by its subsidiaries, associated entities, and any investment adviser involved.
- Capital Adequacy Requirements (Clause 9 Code of Practice): A third party funder must maintain access to at least RM10 million of capital, or an equivalent amount in foreign currency. In reality, it ensures that only third party funders with sufficient financial strength can provide TPF.
- Control and Influence (Clause 12 Code of Practice): A third party funder should not influence the funded party to give conduct or settlement of the arbitral proceedings. It protects the funded party’s autonomy in arbitral proceedings.
- Termination of third party funding (Clause 14 Code of Practice): If a third party funder terminates the TPF agreement outside the circumstances permitted under Clause 14(1), it remains liable for all funding obligations.
Arbitral Awards Are Now Automatically Binding
The 2024 Amendment Act introduces an expedited procedure by amending Section 38 AA. An arbitral award made in an arbitration where the seat of arbitration is in Malaysia or a foreign State is now automatically binding, without the need for a separate application for recognition.
Law Applicable to Arbitration Agreements
A new Section 9A AA 2005 comes into force, introducing a default rule regarding the law applicable to arbitration agreements. In the absence of an agreement between the parties, the law governing the arbitration agreement will be that of the arbitration seat, giving much needed clarity and certainty to users of arbitration.
Digital and Electronic Signatures on Arbitral Awards
Embracing the digital age, digital and electronic signatures on arbitral awards are recognised pursuant to Section 33 AA 2005. The definitions of “digital signature” and “electronic signature” are guided by the Digital Signature Act 1997 and the Electronic Commerce Act 2006 respectively.
Key Takeaways
Enhanced governance, efficiency, certainty and access to justice are the key benefits of the 2024 Amendment Act. Making arbitral awards automatically binding, recognising digital and electronic signatures, and introducing default rules to the law applicable to arbitration agreements facilitates efficiency and certainty. Legalising third-party funding places Malaysian on a level playing field internationally.
Coupled with the establishment of the AIAC Court of Arbitration, these reforms strengthen Malaysia’s standing as a competitive and arbitration-friendly jurisdiction for both domestic and international disputes.
This update is prepared by Wong Jia Sheng.
For more information, please reach out to your usual contact from our Arbitration Practice Group.
Footnotes:
1Hansard (16 July 2024).
