Malaysia revamps arbitration rules in efficiency push

Malaysia has introduced a comprehensive update to its arbitration rules following the passing of the Arbitration (Amendment) Act 2024 (13 Pages / 252KB) in July 2024, which introduced several significant reforms, including the introduction of the Asian International Arbitration Centre (AIAC) Court of Arbitration, and various procedures to expedite and reduce costs of arbitration proceedings.

AIAC’s new arbitration rules, which took effect on 1 January, formally established the AIAC’s Court of Arbitration as a separate arbitral court in Kuala Lumpur to oversee key procedural matters, including arbitrator appointments, challenges, consolidation and cost decisions. This follows a restructuring of AIAC to more clearly define the separate roles of the AIAC court, the president and the court’s registrar, and reflects a broader trend among Asian arbitral institutions towards structured, court-based governance.

Karah Howard, an arbitration expert with Pinsent Masons, said these changes would help improve the governance of the AIAC court and bring AIAC in line with other arbitration institutions in the region. She added that major institutions, including the Singapore International Arbitration Centre (SIAC), the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA) have long operated under similar systems. “By entrusting critical decisions – such as arbitrator appointments, challenges and seat determinations – to a dedicated arbitration court rather than a single director, institutions deliver greater transparency, consistency and independence,” she said.

Several other changes are also expected to streamline arbitration proceedings in line with efficiency and transparency objectives and other reforms adopted in the arbitration act. The 2026 AIAC rules have significantly increased the threshold for arbitrations qualifying for expedited 6-month ‘fast-track’ determination from $300,000 to $3 million for international cases. This reflects a recent similar increase in the threshold for expedited arbitration by the Hong Kong International Arbitration Centre (HKIAC) from $3m to $6.4m.

The AIAC rules on emergency arbitration have also been overhauled to provide for tighter deadlines, reducing appointment from three to two days, and mandating a determination within 14 days of the first procedural order. An express summary determination procedure has also been introduced for claims or defences that are without merit, and a more structured and detailed consolidation and joinder regime, in line with recent changes in HKIAC and SIAC rules. Digital signatures will also now be recognised on arbitral awards.

Howard added: “The efficiencies introduced into the new AIAC rules for summary determination, higher thresholds for expedited arbitration and strict timelines for emergency arbitration empower users to resolve disputes faster and with greater predictability, reducing costs and uncertainty. The changes position AIAC as a competitive, user-focused institution delivering modern, agile solutions for complex disputes.”

Other changes include the introduction of mandatory disclosure for third-party funding for arbitration proceedings in Malaysia for the first time, complementing the approach taken by several other leading Asian arbitral hubs. Singapore introduced third-party funding for international arbitration proceedings in 2017 and extended the framework to include domestic arbitration proceedings in 2021. Hong Kong SAR has permitted the use of third-party funding since February 2019.

Johanne Brocas, an arbitration expert with Pinsent Masons in Singapore, highlighted the significance of section 9A in Malaysia’s Arbitration Act. This new provision states that if parties do not agree on the law governing the arbitration agreement, the law of the seat of arbitration applies by default; and, importantly, that the parties’ choice of law for the underlying contract does not automatically apply to the arbitration agreement.

This approach aligns with the UK’s recent reform, which prioritises the law of the seat over the contract law in the absence of an express choice in the arbitration agreement. Singapore is currently consulting on similar changes, while Hong Kong SAR still defaults to the law of the underlying contract rather than the seat.

The rules also expand the form of the arbitration agreement to include “any other documents” beyond statements of claim or defence and introduce a new provision providing guidance on arbitrator appointment for multiple parties. They also introduce automatic recognition of arbitral awards, which mean that parties that obtain an arbitration award in their favour are permitted to expedite a procedure to the High Court for enforcement. Brocas said these developments would significantly “streamline the post-award phase and make Malaysia a more attractive, efficient seat for international arbitration."

The changes are expected to modernise and bring greater efficiencies and transparency to Malaysia’s arbitration framework at a time when the seat is seeing a growing number of large, complex cross-border disputes, often involving multi-party and multi-contract particularly in the infra-energy sector.

Howard and Brocas said parties wishing to commence arbitration in Malaysia should familiarise themselves with the new rules and must be mindful of AIAC’s new model clauses and fee schedule. Arbitrations commenced prior to 1 January will be governed by the 2023 arbitration rules.