Malaysia’s arbitration framework has undergone significant reform with effect from 1 January 2026, when the Arbitration (Amendment) Act 2024 (the “2024 Act”) entered into force and introduced substantial changes to the Arbitration Act 2005 (as previously amended) (the “2005 Act”). At the same time, Malaysia’s principal arbitral institution, the Asian International Arbitration Centre (Malaysia) (the “AIAC”), brought into force a revised suite of AIAC Arbitration Rules (the “2026 AIAC Rules”).
Taken together, these developments amount to a significant update of Malaysia’s arbitration framework. On the legislative side, the 2024 Act introduces, among other changes, a statutory regime for third-party funding, clarifies the default law governing the arbitration agreement, and updates a number of procedural provisions relevant to tribunal constitution, arbitral procedure, and the form of awards. On the institutional side, the 2026 AIAC Rules establish a new AIAC Court of Arbitration and introduce a more structured approach to expedited procedure, emergency arbitration, consolidation, summary determination, and funding disclosure.
This note examines the principal changes introduced by the 2024 Act and the 2026 AIAC Rules, and considers what they may mean for parties, counsel, funders, and other users of arbitration in Malaysia. (To learn more about arbitration in Malaysia under the 2005 Act and earlier iterations of the AIAC Rules, see our earlier note here.)
The Arbitration (Amendment) Act 2024
The 2024 Act contains a number of updates and additions including: (1) the addition of a statutory third-party funding framework; (2) clarification regarding the default law governing the arbitration agreement; (3) explicit procedures for dealing with multi-party appointments; (4) shifting the decision on re-hearings following arbitrator replacement to arbitrator discretion; (5) recognition that arbitrators may sign awards digitally or electronically; and (6) statutory updates reflecting the AIAC’s revised institutional structure. Each of these changes is explained below.
1. Statutory third-party funding framework
The most significant development in the 2024 Act is the insertion of an entirely new Chapter 2 on “Third party funding” into Part III. This chapter introduces defined terms, outlines the legal status of third-party funding arrangements, and sets out a policy and compliance architecture around funders and funded proceedings.[1]
Key elements of the new chapter include:
- Definitions of “third party funder”, “third party funding”, “third party funding agreement”, “funded party”, and an express clarification that “costs or expenses of the arbitration” can include pre-commencement costs.[2]
- A non-retroactivity rule, so the new chapter does not apply to funding agreements made before commencement.[3]
- A provision disapplying maintenance (the intermeddling of a disinterested party to encourage a lawsuit) and champerty (an agreement in which a person with no previous interest in a lawsuit finances it with a view to sharing the disputed property if the suit succeeds) objections in relation to third-party funding agreements, which previously often led to the striking down of such funding arrangements as void,[4] while preserving other doctrines of illegality and public policy.[5]
- A provision empowering the Minister to issue a code of practice for third-party funding.[6]The result of this provision, the Code of Practice for Third Party Funding 2026, entered into force in tandem with the 2024 Act and establishes baseline conduct and financial standards for funders. While non-compliance with the code will not, by itself, render a third-party funder liable to any action or legal proceeding, it may be taken into account by any arbitral tribunal or court if the non-compliance is relevant to a question being decided by it.[7]
- New disclosure requirements, whereby a funded party must now disclose the existence of third-party funding and the name of the third-party funder to the other party and the tribunal or court, with timing rules that address arrangements entered into at different points.[8]
A new rule also provides that for international arbitrations not seated in Malaysia (or where no seat is designated), the Chapter 2 third-party funding provisions shall still apply where “any of the services in relation to the arbitration are provided in Malaysia”.[9]
This addition now gives parties and counsel a clearer statutory footing for funding in arbitrations, and funders can expect their conduct and terms to be assessed against an emerging compliance framework rather than only general law arguments. As Kho Yii Ting of the AIAC highlighted, “the ambition of this latest legislative reform stretches beyond merely ‘regulating’ the funding industry, and is one that focuses on fostering prudence and sustainability that furthers long-term results.”[10]
2. New statutory default for the law governing the arbitration agreement
The 2024 Act inserts a new provision addressing a perennial issue: what law governs the arbitration agreement when the contract and the seat point in different directions. New Section 9A provides that parties may agree on the law applicable to the arbitration agreement.[11] If they do not, the applicable law defaults to the law of the seat.[12] It also clarifies that selecting a governing law for the main contract does not, by itself, amount to an express choice for the arbitration agreement.[13]
This should reduce uncertainty and satellite disputes at the jurisdiction and enforcement stages, and it gives parties a clearer drafting target if they want to establish the arbitration agreement law. This approach aligns with recent legal reform in the United Kingdom, which “prioritises the law of the seat over the contract law in the absence of an express choice in that arbitration agreement.”[14]
3. Clarification of appointment in multi-party cases
Multi-party arbitrations often raise practical issues at the tribunal constitution stage, especially in a three-member tribunal. The 2024 Act inserts a rule that, where there are multiple claimants or multiple respondents (for the default three-member appointment mechanism), all claimants jointly appoint one arbitrator and all respondents jointly appoint one arbitrator.[15] This reduces ambiguity and tactical manoeuvring in multi-party cases and supports more efficient tribunal formation.
4. Re-hearings after arbitrator replacement
Whereas the 2005 Act included a more rigid rule in certain scenarios, requiring the repetition of hearings when a single or presiding arbitrator was replaced, while allowing discretion for other replacements,[16] the 2024 Act moves to a unified, discretionary approach. Under the 2024 Act, if an arbitrator, including the presiding arbitrator, is replaced, earlier hearings may be repeated at the tribunal’s discretion, unless the parties agree otherwise.[17] This may serve to reduce delay and cost in long proceedings, while preserving flexibility to repeat evidence where fairness or credibility assessment requires it.
5. Modernising the form of awards
While the 2005 Act required awards to be in writing and signed,[18] the 2024 Act clarifies that “signatures” include digital signatures and electronic signatures and ties those concepts to statutory definitions.[19] This supports remote practice and reduces formalistic challenges based on signing mechanics, particularly in cross-border matters.
6. Institutional update
Finally, the 2024 amendments introduce into the statutory framework the role of the “President” of the AIAC Court of Arbitration.[20] They also replace references to the “Director of the AIAC (Malaysia)” with the “President” throughout the arbitrator appointment provisions in section 13.[21] A saving clause provides continuity by deeming earlier acts of the Director to have been done by the President upon commencement, with continued effect until changed.[22]
In addition, section 48’s immunity wording is amended so it applies to “any person” involved in appointment or nomination functions, subject to a bad faith carve-out.[23]
This update aligns the statute with updated institutional structures discussed in the next section and reduces “technical” disputes over who holds appointment authority at a given time.
The Updated AIAC Arbitration Rules
This legislative reform was also accompanied by a comprehensive reform of Malaysia’s most prominent arbitral institution, the AIAC.
The AIAC was first established in 1978 under the name of the Kuala Lumpur Regional Centre for Arbitration by the Asia-African Legal Consultative Organisation (“AALCO”). In 2018, under an amendment to the 2005 Act, the name was changed to the present version, consistent with efforts of the Malaysian government to make Kuala Lumpur an international hub for arbitration.[24] The 2026 AIAC Rules further advance that goal.
Whereas the prior version of the AIAC Rules, the 2023 AIAC Rules, included two parts: Part I – AIAC Arbitration Rules and Part II – UNCITRAL Arbitration Rules, the 2026 AIAC Rules consolidate these two parts into one streamlined and unified procedural framework.[25]
Additional notable changes introduced by the 2026 AIAC Rules included: (1) a new institutional architecture, including an AIAC Court of Arbitration, as mentioned above; (2) the expansion of access to expedited “Fast Track” arbitration; (3) the strengthening of the emergency arbitration provisions; (4) the restructuring of consolidation procedures; (5) clarified summary determination procedures; and (6) expanded third-party funding disclosure requirements in line with the new third party funding provisions in the 2024 Act. Each of these updates is set out below.
1. A new institutional architecture
The 2026 AIAC Rules explicitly provide for the AIAC Court of Arbitration[26] and emphasise “better delineation of roles and functions”.[27] A practical transitional point for users is that references to the “Director” in earlier editions are to be read as references to the “President of the AIAC Court of Arbitration”.[28]
The 2026 AIAC Rules also expressly state that (unless the Rules say otherwise) decisions by the President, AIAC Court, Registrar, and AIAC on matters relating to the arbitration are “conclusive and binding”, and that reasons generally need not be given unless required by a court order or the Rules.[29]
In light of this new structure, retired Federal Court judge Datuk Mary Lim Thiam Suan, who is also the immediate past director of the AIAC, has been appointed President of the Court.[30] The 25-member panel that now makes up the Court also includes Tan Sri Abdul Rahman Sebli (Malaysia), Álvaro López de Argumedo (Spain), Aníbal Martín Sabater (United States), Bronwyn Lincoln (Australia), Dr. Christopher To (Hong Kong SAR), Tan Sri David Wong Dak Wah (Malaysia), Prof. Emilia Onyema (United Kingdom), Datuk Lee Heng Cheong (Malaysia), Hiroyuki Tezuka (Japan) and Kamiliah Kasim (Malaysia).[31]
As noted above in the context of the 2024 Act, this new structure should bring the AIAC closer to other leading arbitral institutions by clarifying who exercises key administrative and supervisory functions and by reducing scope for procedural challenges based on institutional authority or internal role allocation. For parties, this should mean greater predictability in appointment, challenge, and administrative decisions, although the fact that reasons generally need not be given may also limit opportunities to scrutinise those decisions.
2. Expansion of Fast Track arbitration
The 2026 AIAC Rules fold fast track, which was previously contained in a schedule to the 2023 AIAC Rules, into the main rulebook as a “Fast Track Procedure”[32] and broaden access substantially by setting a higher monetary threshold: less than USD 3,000,000 (international) or less than RM 2,000,000 (domestic), plus an “exceptional urgency” gateway.[33] For context, the 2023 Fast Track threshold was far lower: USD 300,000 (international) and RM 1,000,000 (domestic).[34]
This follows a trend in increased expedited arbitration thresholds among arbitral institutions such as the HKIAC, which raised its threshold from HKD 25 million (approximately USD 3.2 million) to HKD 50 million (approximately USD 6.4 million) effective 1 January 2026,[35] and the ICC, which raised its threshold from USD 2 million to USD 3 million, effective 1 January 2021.[36]
The 2026 Fast Track regime also adds more detailed deposit mechanics (including a deposit intended to cover 100% of estimated costs)[37] and an express target timing for the award (within six months of tribunal constitution, unless otherwise agreed).[38]
The higher monetary threshold should make expedited proceedings available in a much broader range of cases, especially medium-value commercial disputes that previously fell outside the fast track regime. At the same time, the requirement for fuller deposits and the six-month award timetable may encourage parties to think more carefully, at an early stage, about whether the procedural efficiencies of Fast Track outweigh the tighter timetable and front-loaded cost commitments.
3. Emergency arbitration strengthened
Under the 2026 AIAC Rules, emergency arbitration is likewise newly integrated into the main Rules[39] and receives more detailed governance:
- The President seeks to appoint an Emergency Arbitrator within two days of an allowed request.[40]
- Challenge timelines are compressed: a challenge must be made within two days, and the decision on the challenge must be rendered within two days (with the AIAC Court able to decide that no reasons will be provided).[41]
- The 2026 AIAC Rules expanded the list of circumstances in which an order or Emergency Award “ceases to be binding”, adding, for example, an express 90-day limit for tribunal constitution and withdrawal of the underlying claim.[42] By contrast, the 2023 list was narrower, including non-commencement within 30 days and the making of the final award.[43]
These changes should make emergency relief under the AIAC Rules more accessible and more credible as a genuine urgent remedy, particularly where parties need interim protection before the tribunal is constituted. The compressed timelines are likely to benefit applicants seeking speed, but they will also require respondents to react very quickly and may place a premium on advance preparation where urgent measures are foreseeable.
4. Restructuring of consolidation procedures
Under the 2023 AIAC Rules, consolidation was decided by the Director, applying criteria such as party agreement, same arbitration agreement, or compatible agreements with claims arising from the same transaction(s).[44]
Under the 2026 AIAC Rules, consolidation is reframed around a “Consolidation Request” with a defined content checklist (including communications on intended consolidation and third-party funding disclosure).[45]
Key procedural governance changes include:
- The AIAC Court decides whether to consolidate and must consult with the parties (and the tribunal if constituted), considering factors such as stage, efficiency, prejudice, and other circumstances.[46]
- If all parties agree to consolidate, the President can decide in place of the AIAC Court.[47]
- If consolidation is refused in multi-contract scenarios, the claimant may be required to file separate notices and separate filing fee proof for each arbitration.[48]
The revised framework should make consolidation more predictable in multi-contract and multi-party disputes by setting out a clearer process and placing decision-making with the AIAC Court. This may improve procedural efficiency where related disputes genuinely belong together, but parties should also be prepared for the possibility that refused consolidation could lead to multiple filings, additional filing fees, and a more fragmented procedural path.
5. Updated summary determination provisions
The 2026 AIAC Rules introduce a clear timing discipline: once the tribunal allows summary determination, the decision must be made within 45 days of filing the request and in the form of an Award, with technical review provisions applying.[49] Under the 2023 Rules, summary determination existed, but without an express decision deadline, and it left the arbitration cost determination to the Director.[50]
By imposing a 45-day decision deadline and requiring the outcome to take the form of an award, the 2026 AIAC Rules make summary determination a more practical tool for disposing of unmeritorious claims or defences at an early stage. This may increase party confidence in using the mechanism, particularly because an award form may strengthen enforceability, but parties will need to present these applications in a focused and efficient way, given the compressed timetable.
6. Expanded third-party funding disclosure
In line with the new third-party funding framework reflected in the 2024 Act, the 2026 AIAC Rules specify when third-party funding disclosure must be made (at commencement if in place then, or as soon as practicable after conclusion if later),[51] and require disclosure of changes, including termination.[52]
They also expressly empower the tribunal to take funding arrangements and compliance or non-compliance with disclosure obligations into account when making orders and awards, including on costs.[53]
These provisions are likely to make funding a more visible procedural issue from the outset of the case, with potential consequences for conflicts checks, security for costs applications, and costs submissions more generally. Funded parties will therefore need to think carefully about the timing and content of disclosure, while tribunals may increasingly treat compliance with funding-related obligations as relevant to procedural fairness and costs allocation.
Conclusion
Malaysia’s 2026 arbitration reforms represent a substantial and coordinated effort to modernise both its legislative framework and institutional rules. The 2024 Act provides greater clarity on issues that frequently generate procedural uncertainty, most notably third-party funding, the law governing the arbitration agreement, multi-party appointments, and the use of digital and electronic signatures. The 2026 AIAC Rules complement those statutory changes by refining the AIAC’s institutional architecture and by introducing more detailed and structured procedures for expedited cases, emergency relief, consolidation, summary determination, and funding disclosure.
These developments should enhance Malaysia’s attractiveness as a seat of arbitration by promoting greater certainty, procedural efficiency, and institutional sophistication. They also bring Malaysian arbitration practice into closer alignment with broader international trends, particularly in relation to third-party funding regulation and the growing emphasis on streamlined procedures for suitable cases. For parties and counsel, the reforms present clear opportunities, but they also require careful attention at the drafting stage and in the early procedural management of disputes.
If you require assistance in relation to an AIAC arbitration or an arbitration seated in Malaysia, please contact Aceris Law for more information.
[1] Arbitration (Amendment) Act 2024, para. 10(c).
[2] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46A.
[3] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46B.
[4] Workshop on Third-Party Funding Legislation in Malaysia: Charting a Path Forward, Special Rapporteur Report, 2024, https://admin.aiac.world/uploads/ckupload/ckupload_20240704112100_83.pdf (last accessed 6 March 2026).
[5] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46C.
[6] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46D.
[7] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46E.
[8] Arbitration (Amendment) Act 2024, para. 10(c) inserting new s. 46G.
[9] Arbitration (Amendment) Act 2024, para. 3(c) inserting new s. 3A. “Services” is not defined in the 2024 Act or the 2005 Act.
[10] K. Ting, The Law Reform Outlook: Malaysia Legislates on Third-Party Funding, 4 March 2026, https://legalblogs.wolterskluwer.com/arbitration-blog/the-law-reform-outlook-malaysia-legislates-on-third-party-funding/ (last accessed 6 March 2026).
[11] Arbitration (Amendment) Act 2024, para. 5 inserting new s. 9A(1).
[12] Arbitration (Amendment) Act 2024, para. 5 inserting new s. 9A(2).
[13] Arbitration (Amendment) Act 2024, para. 5 inserting new s. 9A(3).
[14] K. Howard and J. Brocas, Malaysia revamps arbitration rules in efficiency push, 8 January 2026, https://www.pinsentmasons.com/out-law/news/malaysia-revamps-arbitration-rules-in-efficiency-push (last accessed 6 March 2026).
[15] Arbitration (Amendment) Act 2024, para. 6(a) inserting s. 13(3A).
[16] Arbitration Act 2005 (as at 1 November 2018), s. 17(2).
[17] Arbitration (Amendment) Act 2024, para. 7 substituting s. 17(2).
[18] Arbitration Act 2005 (as at 1 November 2018), s. 33(1)–(2).
[19] Arbitration (Amendment) Act 2024, para. 8 inserting s 33(2a) and s 33(9).
[20] Arbitration (Amendment) Act 2024, para. 2.
[21] Arbitration (Amendment) Act 2024, para. 6(b)–(g) amending s. 13(4)–(9).
[22] Arbitration (Amendment) Act 2024, para. 12(1).
[23] Arbitration (Amendment) Act 2024, para. 11; Arbitration Act 2005 (as at 1 November 2018), s. 48.
[24] Arbitration (Amendment) Act 2024, para. 3(1).
[25] Compare 2026 AIAC Rules with 2023 AIAC Rules, Parts I (AIAC Arbitration Rules 2023) and II (UNCITRAL Arbitration Rules).
[26] 2026 AIAC Rules, Guideline and Application, p. 4, para. B.
[27] 2026 AIAC Rules, Guideline and Application, p. 4, para. B.
[28] 2026 AIAC Rules, Guideline and Application, p. 4, para. D.
[29] 2026 AIAC Rules, Rule 55 (Decision of the AIAC).
[30] Bernama, AIAC court appointments boost Malaysia’s global arbitration standing, 28 February 2026, https://thesun.my/news/malaysia-news/aiac-court-appointments-boost-malaysias-global-arbitration-standing/ (last accessed 6 March 2026).
[31] Bernama, AIAC court appointments boost Malaysia’s global arbitration standing, 28 February 2026, https://thesun.my/news/malaysia-news/aiac-court-appointments-boost-malaysias-global-arbitration-standing/ (last accessed 6 March 2026).
[32] 2026 AIAC Rules, Rule 7 (Fast Track Procedure).
[33] 2026 AIAC Rules, Rule 7.1 (Fast Track Procedure).
[34] 2023 AIAC Rules, Schedule 4, Clause 1(2)(b) (Scope of Application).
[35] P. Hanusch, Effective 1 January 2026: increased monetary threshold for Expedited Procedure under HKIAC Rules and other monetary changes, 2 January 2026, https://www.globalarbitrationnews.com/2026/01/02/effective-1-january-2026-increased-monetary-threshold-for-expedited-procedure-under-hkiac-rules-and-other-monetary-changes/ (last accessed 6 March 2026).
[36] The 2021 ICC Arbitration Rules: clarity, efficiency and technology, 5 January 2021, https://www.gide.com/en/news-insights/the-2021-icc-arbitration-rules-clarity-efficiency-and-technology/ (last accessed 6 March 2026).
[37] 2026 AIAC Rules, Rule 7.5 (Fast Track Procedure).
[38] 2026 AIAC Rules, Rule 7.6 (Fast Track Procedure).
[39] 2026 AIAC Rules, Rules 11-14 (Interim Measures and Emergency Arbitration).
[40] 2026 AIAC Rules, Rule 12.6 (Emergency Arbitrator Request).
[41] 2026 AIAC Rules, Rule 12.8 (Emergency Arbitrator Request).
[42] 2026 AIAC Rules, Rule 13.16 (Emergency Arbitration).
[43] 2023 AIAC Rules, Schedule 3, Clause 1.7(d) (Binding effect of emergency decisions).
[44] 2023 AIAC Rules, Rule 10.1 (Consolidation of Proceedings).
[45] 2026 AIAC Rules, Rule 8.1 (Consolidation of Arbitrations).
[46] 2026 AIAC Rules, Rule 8.4 (Consolidation of Arbitrations).
[47] 2026 AIAC Rules, Rule 8.6 (Consolidation of Arbitrations).
[48] 2026 AIAC Rules, Rule 8.7(b) (Consolidation of Arbitrations).
[49] 2026 AIAC Rules, Rule 9.3 (Summary Determination).
[50] 2023 AIAC Rules, Rule 11 (Summary Determination).
[51] 2026 AIAC Rules, Rule 31.2 (Third-Party Funding).
[52] 2026 AIAC Rules, Rule 31.3 (Third-Party Funding).
[53] 2026 AIAC Rules, Rule 31.4 (Third-Party Funding).