Malaysia Embraces Third Party Funding in Arbitration: A New Era Begins

Malaysia has taken a major step forward in modernising its arbitration landscape with the entry into force of the Arbitration (Amendment) Act 2024 (Act) and the Code of Practice for Third Party Funding 2026 (Code). From 1 January 2026, Malaysian parties and international investors can benefit from a clear, robust, and progressive statutory regime for third party funding (TPF) in arbitration. This reform brings Malaysia into alignment with leading arbitral jurisdictions such as Singapore and Hong Kong, and signals a strong commitment to access to justice and investor confidence.

Key Features of Malaysia’s Third Party Funding Regime

Scope

The new regime expressly recognizes and regulates third party funding in arbitration, abolishing the common law doctrines of maintenance and champerty for arbitration-related funding agreements.¹ It applies to domestic and international arbitrations seated in Malaysia, as well as arbitrations seated abroad or with no seat, where any services related to the arbitration are provided in Malaysia².

Code of Practice

The Code is comprehensive. Those familiar with the Hong Kong Code of Practice for Third Party Funding of Arbitration will notice similarities with many provisions adopted verbatim.

Key aspects of the Code include:

• Ethical Standards:³ The Code sets out ethical standards for funders, including requirements for clear promotional materials, independent legal advice for funded parties, and the incorporation of neutral, independent and effective dispute resolution mechanisms in funding agreements.
• Conflicts of Interest:⁴ The Code stipulates that funders must maintain effective procedures to detect and resolve any conflicts of interest arising from or in relation to the activities undertaken by the funder and the third-party funding agreement. Parties must disclose the existence of a third-party funding agreement and the identity of the funder to the other party and the arbitral tribunal or court within fifteen days of execution, or at the commencement of proceedings if the agreement pre-exists.Similar disclosure is required if the agreement is terminated or ends during proceedings.
• Confidentiality:⁵ The Code states that the funder and the funded party shall observe and maintain confidentiality and privilege protections for all information and documentation relating to the arbitral proceedings to the extent provided by law.
• Control, Influence, and Adverse Costs:⁶ Funders are prohibited from controlling or influenc ing the conduct or settlement of arbitral proceedings, and must not cause legal representa tives to breach professional duties. Funding agreements must clearly state the funder’s liabili ty for adverse costs, costs insurance, security for costs, and other financial liabilities.
• Minimum Capital Requirement:⁷ The Code establishes minimum capital requirement for funders of 10M MYR in capital (approximately USD 2.48M).

In short, compliance with the requirements established by the Code will not present an obstacle to credible funders especially those that are familiar with the Hong Kong regime.

Users of TPF

TPF is used by a wide range of parties. It can be used by small companies and individuals to level the playing field and provide access to justice. It is also used by major well capitalized companies seeking to manage downside risk (including recovery risk), improve profitability and protect cash f low (see here for more information).

As we have seen in other jurisdictions, innovative counsel who understand and embrace TPF will be able to use it as a tool to develop their practices and gain market share.

Get in touch

As the global leader in legal finance with the largest operation in Asia, Omni Bridgeway is well positioned and welcomes this opportunity to work with parties and law firms in Malaysia. All questions and comments welcome.

¹ Act, s.46c
² Act, s.3
³ Code, ss.6-8
⁴ Act, ss.46F-46H; Code, s.10.
⁵ Act, s.46F; Code, s.11.
⁶ Code, ss.12- 13.
⁷ Act, s46F; Code s. 9.