Amended Act ensures fairness in arbitration law

PARLIAMENT’S enactment of the Arbitration (Amendment) Act 2024, which came into force on Jan 1, 2026, reflects a conscious policy choice to legitimise third-party funding in arbitration while embedding safeguards intended to preserve ethical standards, procedural fairness and the integrity of the arbitral process.

The statutory abolition of the common law rule against maintenance and champerty for arbitration, coupled with mandatory disclosure obligations and the introduction of a code of practice for third-party funding, demonstrates a balanced approach that accepts funding as a reality but subjects it to transparency and oversight.

Recent international arbitration developments, including high-profile investor-state disputes, have prompted public debate on whether third-party funding encourages speculative or abusive claims.

The Malaysian Bar is of the view that such cases do not establish that funding itself is unethical or improper. Rather, they highlight the risks that arise where funding operates in an environment that lacks clear disclosure requirements, effective tribunal oversight or early scrutiny of jurisdictional and procedural issues.

Third-party funding does not create weak claims. It can, however, expand the scope of disputes and prolong proceedings if underlying jurisdictional or procedural weaknesses are not identified and addressed promptly.

The ethical concern, therefore, lies not in the existence of funding but in the absence of robust institutional checks to ensure independence of arbitral decision-making, manage conflicts of interest and prevent undue influence over the conduct of proceedings.

The Malaysian framework addresses these concerns directly. Mandatory disclosure of the existence and identity of funders promotes transparency, allowing arbitrators to assess potential conflicts at an early stage.

The code of practice provides a structured mechanism to regulate funder conduct, including issues of capital adequacy and control over proceedings. It does so while preserving flexibility for tribunals to respond proportionately through procedural directions, including orders for security for costs, adverse costs orders or other appropriate procedural sanctions, in instances of non-compliance.

The new framework also reinforces the principle that funders must not direct the conduct of the arbitration, including decisions on strategy, evidence or settlement, and that counsel’s professional duties remain owed exclusively to the client and the tribunal.

The Malaysian Bar emphasises that arbitration derives its legitimacy from fairness, neutrality and respect for the rule of law. Third-party funding must operate within these boundaries.

When used responsibly and regulated effectively, it supports access to justice and reinforces confidence in arbitration. However, when used without transparency or accountability, it risks undermining the very system it seeks to support.

The Malaysian Bar recognises that the effectiveness of this framework will ultimately depend on consistent enforcement, judicial support and principled application by arbitral tribunals.

Ongoing vigilance by all stakeholders will therefore be essential to ensure that the objectives of transparency, fairness and integrity are realised in practice.

The Malaysian Bar calls on all stakeholders, including counsel, funders, arbitrators and institutions, to uphold both the letter and the spirit of the law. When grounded in transparency and disciplined by oversight, ethical funding is not a threat to arbitration; it is a tool that must be handled with care, integrity and responsibility.

MOHAMAD EZRI ABDUL WAHAB

President

Malaysian Bar