How Malaysia's Arbitration (amendment) Act 2024 Changes Third‑party Funding, What In‑house Counsel and Companies Must Do in 2026

Third party funding in Malaysia has moved from legal grey area to regulated reality. The Arbitration (Amendment) Act 2024, which came into force on 1 January 2026, introduces a statutory framework that expressly recognises and regulates third‑party funding (TPF) in arbitration seated in Malaysia. Alongside the Act, the Code of Practice for Third Party Funding 2026 and the updated AIAC Arbitration Rules now impose concrete disclosure obligations and professional standards on funded parties, funders and counsel alike. For general counsel, commercial directors and SMEs with Malaysia‑linked contracts, these changes demand immediate action: clause audits, compliance protocols and a revised approach to dispute strategy.

Executive Summary: What GCs Must Do This Quarter

If your organisation has contracts that are governed by Malaysian law, seated in Malaysia for arbitration purposes, or involve Malaysian counterparties, the following action items should be on your agenda now. Use this quick‑reference checklist, designed to circulate internally to legal ops and business stakeholders, as your starting point.

• Audit your dispute‑resolution clause inventory. Identify every template and live contract that references arbitration in Malaysia. Flag clauses that are silent on third‑party funding.
• Prioritise high‑value and cross‑border contracts. Contracts exceeding RM 5 million in exposure, or with enforcement targets in multiple jurisdictions, need immediate review.
• Update standard arbitration clauses. Insert funding‑disclosure and confidentiality provisions (see sample clauses below) aligned with the Code of Practice for Third Party Funding 2026.
• Brief your dispute team on AIAC disclosure obligations. The AIAC Arbitration Rules 2026 mandate early disclosure of any TPF arrangement to the tribunal and opposing parties.
• Assess whether TPF is a viable tool for your own claims. For dormant or underfunded claims, TPF may now unlock access to international arbitration that was previously cost‑prohibitive.
• Review privilege and confidentiality protocols. Sharing case materials with a funder can create privilege‑waiver risk, establish ring‑fenced access controls before any funder engagement.
• Train procurement and commercial teams. Ensure non‑legal stakeholders understand that counterparties may now use funded claims, and know how to escalate early warning signs.
• Calendar a 90‑day review. The regulatory environment is evolving; schedule a follow‑up review by Q3 2026 to capture any supplementary guidance from the AIAC or the Malaysian Bar.

What Changed: The Arbitration (Amendment) Act 2024

The Arbitration (Amendment) Act 2024 represents the most significant reform to Malaysia’s arbitration framework in over a decade. Passed by Parliament in 2024, the Act came into force on 1 January 2026, amending the Arbitration Act 2005 in several critical respects.

The centrepiece of the arbitration amendment in Malaysia is the formal recognition of third‑party funding as a lawful mechanism in arbitral proceedings. Before the amendment, the common law doctrines of maintenance and champerty cast doubt on the enforceability of TPF arrangements in Malaysia. The Act abolishes these doctrines as they relate to arbitration, providing statutory certainty that funding agreements will not be struck down on public‑policy grounds alone.

Beyond TPF recognition, the Arbitration (Amendment) Act 2024 also clarifies the default law of the arbitration agreement (aligning it with the law of the seat unless parties agree otherwise), modernises provisions on interim measures and introduces procedural updates that strengthen Malaysia’s position as a competitive arbitral seat in the region. Industry observers expect these reforms to accelerate Malaysia’s growth as an arbitration hub, particularly for disputes involving ASEAN cross‑border trade and infrastructure projects.

For in‑house counsel, the practical effect is twofold. First, your counterparties now have a clear legal pathway to fund claims against your organisation. Second, your own organisation can access TPF to pursue meritorious claims that might otherwise be uneconomical. Both scenarios require updated clauses and risk controls.

Does Malaysian Law Now Allow Third‑Party Funding in Arbitration?

Definition of TPF Under the Code of Practice

The Code of Practice for Third Party Funding 2026, issued by the Attorney General’s Chambers (Bahagian Hal Ehwal Undang‑undang), provides the operative definition. Third‑party funding refers to an arrangement where a person or entity that is not a party to the arbitration agrees to fund part or all of the costs of the proceedings, in return for a share or other financial benefit linked to the outcome of the dispute. The Code distinguishes TPF from insurance products, loans without outcome‑contingent returns, and pro bono arrangements, each of which falls outside the regulated framework.

Scope: Arbitration vs Litigation

A critical boundary: the statutory framework for third party funding in Malaysia applies specifically to arbitration proceedings. The Act and Code of Practice do not extend the same recognition to court‑based litigation, where the common law position on maintenance and champerty remains largely intact. This distinction matters when drafting dispute resolution clauses for Malaysia, choosing arbitration over litigation now carries a tangible funding advantage. For a broader comparison of forum options, see our guide to the key differences between arbitration and litigation.

The likely practical effect for commercial teams is this: where TPF availability is a strategic consideration, for example, in high‑value construction disputes or shareholder claims, arbitration seated in Malaysia is now the preferred forum.

AIAC Arbitration and Mediation Rules 2026: Disclosure and Procedural Effects

Mandatory Disclosure Obligations for Funded Parties

The AIAC Arbitration Rules 2026 introduce mandatory disclosure requirements that go beyond the Code of Practice’s general standards. A funded party must disclose the existence of a TPF arrangement, the identity of the funder, and any change in that arrangement, to the tribunal and all other parties. This disclosure must be made promptly upon the commencement of the arbitration or, if the funding arrangement is entered into during proceedings, without delay after conclusion of the agreement.

The disclosure obligation is designed to allow the tribunal to manage conflicts of interest (for example, where an arbitrator has a professional relationship with the funder) and to inform costs decisions. Failure to disclose may give rise to adverse inferences and, in a worst‑case scenario, could be raised as a ground for challenge or set‑aside of the award.

Sample disclosure notice wording (adapt with local counsel):

“The [Claimant/Respondent] hereby discloses, pursuant to the AIAC Arbitration Rules 2026 and the Code of Practice for Third Party Funding 2026, that it has entered into a third‑party funding arrangement with [Funder Name], a [jurisdiction] entity. The Funder has agreed to fund [specify: all/part] of the costs of this arbitration. The funded party undertakes to notify the Tribunal and all parties of any material change to this arrangement without delay.”

AIAC Mediation Rules 2026

The AIAC Mediation Rules 2026, while primarily focused on facilitated settlement, also incorporate transparency provisions relevant to funded parties. Where a mediation is conducted under AIAC auspices in parallel with or as a precursor to arbitration, the funded party should consider voluntary disclosure to the mediator to avoid procedural objections if the matter subsequently escalates to a full arbitral hearing. Early indications suggest the AIAC will issue supplementary practice notes on this intersection in the latter half of 2026.

Practical Compliance: The Code of Practice for Third‑Party Funding 2026

The Code of Practice, the primary regulatory instrument issued under the authority of the Act, imposes obligations on funders, funded parties and legal practitioners. Its key provisions can be summarised as follows:

• Funder standards and conduct. Funders must maintain adequate capital to meet their funding commitments. The Code sets out expectations for funder conduct, including the duty not to seek to influence the funded party’s legal strategy or settlement decisions beyond the terms of the funding agreement.
• Confidentiality obligations. The Code requires funders to maintain the confidentiality of all information received in connection with the funded proceedings. Funded parties and their counsel must ensure that any information shared with the funder is subject to contractual confidentiality protections.
• Conflict‑of‑interest checks. Both the funder and the funded party’s legal team must conduct conflict checks before entering into a funding arrangement. The Code requires disclosure of any relationship between the funder and any arbitrator, counsel or party to the proceedings.
• No assignment of claims without consent. The Code restricts funders from requiring assignment of the funded party’s cause of action as a condition of funding, preserving party autonomy.
• Termination safeguards. The Code sets out the grounds on which a funder may terminate a funding arrangement and requires reasonable notice to be given, ensuring that the funded party has time to seek alternative funding or reassess its position.

For counsel managing TPF compliance, the action step is clear: before engaging any funder, verify that the funder’s terms comply with the Code, conduct documented conflict checks, and establish a confidentiality protocol that limits funder access to privileged material.

Contract and Clause Playbook: Audit, Drafting Checklist and Sample Clauses

When to Amend Existing Templates

Not every contract requires an immediate overhaul. Use the following priority framework when drafting a dispute resolution clause for Malaysia‑seated arbitration:

• High priority: Contracts with exposure above RM 5 million; cross‑border contracts requiring enforcement in New York Convention jurisdictions; joint‑venture and shareholders’ agreements; construction and infrastructure contracts.
• Medium priority: Recurring supply and distribution agreements; technology licensing agreements with IP dispute provisions; employment contracts for senior executives with arbitration clauses.
• Lower priority: Short‑term, low‑value service agreements; contracts nearing expiry without renewal; contracts governed by non‑Malaysian law with a non‑Malaysian seat.

Sample Clause A, TPF‑Permissive (With Disclosure)

Drafting template, legal team to adapt. Review with local counsel before use.

“Either party may enter into a third‑party funding arrangement in connection with any arbitration arising under this Agreement, provided that: (a) the funded party discloses the existence of the funding arrangement, the identity of the funder, and any material changes thereto to the tribunal and all parties in accordance with the AIAC Arbitration Rules and the Code of Practice for Third Party Funding 2026; (b) the funder agrees to be bound by the confidentiality obligations set out in this Agreement; and (c) the funder does not acquire the right to control or direct the funded party’s conduct of the proceedings.”

Sample Clause B, TPF‑Protective (Consent and Funder Covenants Required)

Drafting template, legal team to adapt. Review with local counsel before use.

“No party shall enter into a third‑party funding arrangement in connection with any arbitration arising under this Agreement without providing [30] days’ prior written notice to all other parties, which notice shall include: (a) the identity of the proposed funder; (b) a summary of the material terms of the funding arrangement (excluding the quantum of funding); and (c) a written undertaking from the funder: (i) to comply with the Code of Practice for Third Party Funding 2026; (ii) to maintain the confidentiality of all information received in connection with the proceedings; (iii) not to seek control of the funded party’s legal strategy or settlement decisions; and (iv) to provide security for adverse costs upon application by any non‑funded party, if ordered by the tribunal.

Failure to comply with this clause shall entitle the non‑funded party to apply to the tribunal for appropriate relief, including adverse costs orders.

10‑Item Contract Audit Checklist

Use this checklist to systematically assess and update your dispute clauses. Each item maps to a compliance or risk‑mitigation objective under the new framework.

1. Does the clause specify arbitration (not litigation) as the dispute forum? [Essential for TPF availability]
2. Does the clause identify the AIAC as the administering institution and reference the AIAC Arbitration Rules 2026?
3. Does the clause address whether TPF is permitted, restricted or subject to notice requirements?
4. Is there a mandatory disclosure obligation aligned with the AIAC Rules and Code of Practice?
5. Does the clause require the funder to provide a confidentiality undertaking?
6. Is there a mechanism for the non‑funded party to apply for security for costs from the funder?
7. Does the clause prevent the funder from acquiring control of the claim or directing strategy?
8. Is the seat of arbitration specified as Malaysia (necessary for the Act to apply)?
9. Does the clause include a governing‑law provision consistent with the Act’s default rules?
10. Has the clause been reviewed against the latest AIAC model clause and any supplementary AIAC practice notes?

For a deeper dive into preparing for and conducting arbitration hearings, including procedural preparation that accounts for TPF disclosure timelines, see our companion guide.

Risk Matrix: How Third‑Party Funding Affects Strategy

The introduction of third‑party funding in arbitration in Malaysia creates distinct risk profiles depending on whether your organisation is the claimant, respondent or funder. The table below maps the key risks and provides mitigation steps for each.

For organisations exploring how TPF and conditional fee agreements enhance access to international arbitration, the risk matrix above provides a starting framework for internal approvals.

Litigation vs Arbitration After the Amendment: Decision Framework for GCs

The arbitration amendment in Malaysia has widened the gap between the two principal dispute‑resolution forums. The decision table below provides a structured comparison to guide forum selection when drafting dispute resolution clauses for Malaysia‑connected contracts.

The practical takeaway: for high‑value, cross‑border disputes where TPF availability and enforcement efficiency matter, arbitration seated in Malaysia is now the stronger default. For domestic, lower‑value claims where TPF is not a factor, litigation may still be appropriate.

Enforcement and Local Courts: What to Expect When Enforcing Funded Arbitral Awards

Malaysian courts enforce arbitral awards under Part III of the Arbitration Act 2005, which incorporates the UNCITRAL Model Law framework. The key question for funded awards is whether funder involvement introduces grounds for refusal of enforcement, specifically under the public‑policy exception.

The position following the Arbitration (Amendment) Act 2024 is clear in principle: because the Act expressly permits TPF and abolishes the champerty/maintenance bar in arbitration, a Malaysian court should not refuse to enforce an arbitral award solely because one party was funded. However, industry observers expect that respondents may test the boundaries by arguing that specific funder conduct, such as exercising undue control over strategy or settlement, constitutes a procedural irregularity or public‑policy breach.

To mitigate enforcement risk, funded parties and their counsel should preserve comprehensive records of the funding arrangement, maintain evidence that litigation strategy was directed independently of the funder, and ensure the funding agreement includes express provisions confirming the funded party’s exclusive control over the proceedings. Including assignment and indemnity clauses in the funding agreement also helps to insulate the award from challenge.

Action Plan and Negotiation Playbook: 30/60/90‑Day Roadmap

Translate the guidance in this article into a phased implementation plan.

• Days 1–30 (Audit): Compile a register of all contracts with Malaysia‑seated arbitration clauses. Classify by priority (see checklist above). Identify clauses that are silent on TPF and flag for review.
• Days 31–60 (Clause rollout): Issue updated standard clause language (Clause A or Clause B, depending on your risk posture). Begin renegotiating key counterparty contracts. Circulate a one‑page briefing note to business stakeholders explaining the change and its commercial implications.
• Days 61–90 (Training and review): Conduct training sessions for legal, procurement and commercial teams. Update internal dispute‑management policies to incorporate TPF screening, privilege protocols and AIAC disclosure procedures. Set a calendar reminder for Q3 2026 to review any new AIAC practice notes or supplementary regulatory guidance.

Sample internal email to business owners: “Subject: Action required, updated arbitration clause for Malaysia contracts. Our standard dispute‑resolution clause requires updating following changes to Malaysian arbitration law effective 1 January 2026. Please forward all current contracts and templates containing Malaysia‑seated arbitration clauses to the legal team by [date] for review. No immediate action is required on your part beyond providing the documents, the legal team will manage all clause updates.”

Preparing for What Comes Next

The introduction of a regulated framework for third party funding in Malaysia is one of the most consequential changes to Malaysian dispute resolution in recent years. For general counsel and commercial teams, this is not a “wait and see” development, it is an immediate compliance and strategic priority. Contracts must be audited, clauses updated, privilege protocols established and teams briefed. Organisations that act quickly will be better positioned to both leverage TPF for their own claims and defend against funded claims from counterparties. Those looking for experienced litigation counsel in Malaysia can connect with practitioners through Global Law Experts’ directory to ensure that their dispute‑resolution frameworks are fully aligned with the 2026 requirements.

Last reviewed: 12 May 2026. This guide will be updated within 90 days or upon the issuance of new amendments, AIAC practice notes or supplementary regulatory guidance.

Sources

1. Code of Practice for Third Party Funding 2026, Bahagian Hal Ehwal Undang‑undang
2. AIAC, Workshop on Third‑Party Funding Legislation in Malaysia
3. Malaysian Bar, Press Release on Third‑Party Funding and Arbitral Integrity
4. Skrine, Third‑Party Funding in Malaysia: History and Regulation
5. Wolters Kluwer Arbitration Blog, Malaysia Legislates on Third‑Party Funding
6. ICLG, Malaysia Ushers in Revamped Third‑Party Funding Framework
7. 2KBW, Third‑Party Funding in Malaysia (Practitioner Note)
8. Zul Rafique & Partners, The Arbitration (Amendment) Act 2024 and Key Changes
9. Practical Law / Thomson Reuters, AIAC Arbitration Rules 2026 Commentary