The Arbitration (Amendment) Bill 2024 (“Bill”) was passed by the Dewan Rakyat on 16 July 2024, and passed by the Dewan Negara on 24 July 2024.
There are a few key changes to the Arbitration Act 2005 proposed under the Bill that aims to elevate the arbitration scene in Malaysia to a higher standard amongst the international arbitration community.
Third Party Funding
One of the key features that this Bill is the introduction of the third party funding in arbitration. Third party funding is where a party with no prior connection to the arbitration agrees to finance all or part of the legal costs of the arbitration, in return for a fee payable from the damages or settlement sum recovered by the funded party.
Third party funding is likened to the doctrines of champerty and maintenance which are illegal under common law. In Malaysia, litigation funding via champertous agreements is not allowed. This is partly due to public policy reasons where such funding is feared to promote frivolous and vexatious litigation, or cause a deterioration of ethical standards in the legal profession.
However, third party funding has been allowed and regulated in a few countries such as Australia, Hong Kong and Singapore. There are few reasons behind the attractiveness of third party funding and amongst them is that it offers claimants who do not have sufficient financial capability with financial assistance to pursue meritorious claims. Another advantage of third party funding is the opportunity given to a claimant to allocate its resources to grow its business, rather than fund the cost of a dispute – this is viewed as something that would be beneficial to the economy as a whole.
The Bill intends to introduce third party funding provisions via the new sections 46A-I. Under these sections, third party funders can finance any costs or expenses incurred prior or during the arbitral proceedings (including for court proceedings relating to arbitration):
- Section 46C provides that the common law rule against champerty and maintenance does not apply to third party funding. However, these new provisions under the Bill will only apply to third party funding agreements made after the said Sections comes into force.
- Section 46D envisages a code of practice for third party funding to be issued by the Minister responsible for arbitration matters. This code of practice may set how third party funding is to be promoted, the requirements for a third party funding agreement and the criteria of a third party funder.
- Under Section 46E, non-compliance with this code will not in itself render a third party funder liable to any action or legal proceedings. However, compliance or non-compliance with the code may be taken into account by any arbitral tribunal or court, if such compliance or non-compliance is relevant to a question being decided by the tribunal or court.
- Section 46F allows a party to disclose information relating to the arbitral proceedings for the purposes of seeking third party funding.
- If a party is subsequently funded by a third party funder, then pursuant to Section 46G, the funded party shall disclose to the other party and the arbitral tribunal (or the court before which proceedings are brought in respect of the arbitration) that there is a third party funding agreement, and the identity of the third party funder.
- Section 46H provides that where a third party funding agreement is terminated or has come to an end, the funded party must notify the other party and the tribunal/court about this termination and the date of termination.
Law of the Arbitration Agreement
The Bill introduces a new Section 9A which provides that parties to the arbitration agreement are free to agree on whichever law to govern the arbitration agreement. If they fail to do so, the law of the seat of the arbitration agreement shall then be the applicable law of the arbitration agreement.
Section 9A also makes it clear that the law governing the main agreement (in which the arbitration agreement is part of), shall not automatically be the law governing the arbitration agreement.
The Role of the President of the Asian International Arbitration Centre Court of Arbitration
The responsibilities and role played by the Director of the Asian International Arbitration Centre (AIAC) (e.g.: such as appointment of arbitrators) will be shifted to the President of the AIAC Court of Arbitration, a new role created pursuant to the AIAC’s restructuring initiatives.
The Bill provides that all appointments, decision or any other acts done by the Director of the AIAC before the operation of the amendments shall be deemed to have been done by the President of the AIAC Court of Arbitration when the amendments eventually come into force.
This reflects the institutional reforms outlined in the Supplementary Agreement to the Host Country Agreement signed on 20 February 2024 between the Malaysian Government and the Asian-African Legal Consultative Organization (AALCO). The reforms aim to delineate the operational responsibilities of AIAC, which now fall under the AIAC Board of Directors, from the appointment of arbitrators, mediators, and adjudicators, which is to be overseen by the AIAC Court of Arbitration.
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This article was written by Sean Ferdinand Ng (Senior Associate) from Donovan & Ho’s dispute resolution practice.
Donovan & Ho is a law firm in Malaysia. Our dispute resolution provides advice and legal representation in the civil and industrial courts. We also represent clients in both domestic and international arbitration, as well as other forms of alternative dispute resolution. Our experienced lawyers are also able to assist in commercial and civil disputes (such as debt recovery, shareholders’ or directors’ disputes, breach of contract and claims for injunctive relief), constructive disputes (arbitration and/or adjudication proceedings, disputes relating to delays, liquidated damages, defects and rectification work) and employment disputes (unfair dismissal claims, judicial review proceedings, and employment-related civil claims). Have a question? Please contact us.
