The landscape of litigation, arbitration, and mediation is changing. This guide covers the most critical updates to the Arbitration Act and the new mandatory mediation protocols.
1. Arbitration: The 2025 Revolution
The Arbitration (Amendment) Act 2024 is now fully operational, fundamentally reshaping Malaysia’s standing as a global arbitration hub.
The Death of “Champerty”: Third-Party Funding (TPF)
- The Change: Sections 46A–46I of the Arbitration Act now allow Third-Party Funding (TPF). This repeals the old common law prohibitions of “maintenance and champerty.”
- Strategic Impact: Small businesses and individuals with high-value claims but limited liquidity can now partner with external funders.
- Disclosure Rule: You must disclose the existence of a TPF agreement and the identity of the funder to the tribunal/court within 15 days of signing.
The AIAC 2026 Rules & Fast-Track Upgrades
The Asian International Arbitration Centre (AIAC) has launched its 2026 Suite of Rules, introducing:
- Fast-Track Threshold: The pecuniary limit for expedited procedures has been raised to USD 3 million for international cases and RM 2 million for domestic cases. These disputes are typically resolved within 6 months.
- AIAC Court of Arbitration: All draft awards (except emergency ones) now undergo a “Technical Review” by the newly established AIAC Court to ensure quality and enforceability.
Digital Awards: Arbitrators are now expressly permitted to use digital signatures under the Digital Signature Act 1997.
2. Mediation: The New "Teeth" of Settlements
The International Settlement Agreements Bill 2025
Tabled in the Dewan Rakyat in December 2025, this Bill gives effect to the Singapore Convention on Mediation.
- Direct Enforcement: Once passed, international settlement agreements reached via mediation can be recorded by the Malaysian High Court and enforced like a court judgment.
- Business Impact: This eliminates the need to “sue on the contract” if a settlement is breached across borders.
Mandatory Court-Annexed Mediation
Under the latest Chief Justice directives, mediation is no longer just “encouraged”—it is a pre-trial standard.
- Mediation-First: Judges now actively push for mediation in almost all civil disputes before allowing a trial date to be fixed.
- Free Service: Mediation conducted by a Judge/Registrar in the Palace of Justice remains a free service for litigants.
3. Technology & AI in the Courtroom
Real-Time Transcripts (2025 Update)
The High Court and Industrial Court have upgraded to digital recording systems that provide real-time on-screen transcripts. This has effectively reduced trial durations by 30% as judges no longer need to take manual long-hand notes.
AI Governance in Legal Practice
While Malaysia has not yet passed a standalone “AI Law,” the National AI Office (NAIO) and the 2024 AI Governance & Ethics Guidelines now dictate that while AI can assist in legal research, the final “legal reasoning” must remain human-centric to avoid professional negligence.
4. Landmark Judicial Precedents (2025)
The “Ajar Door”: Appeals on Striking Out (MT Ventures v QM Print)
In a landmark September 2025 decision, the Federal Court clarified the controversial Section 68(1)(f) of the Courts of Judicature Act:
- The Rule: Normally, you cannot appeal if a High Court refuses to “strike out” a case.
- The Exception: The Federal Court ruled that if the striking-out application is based on a pure point of law (e.g., limitation period, res judicata, or lack of cause of action) that would end the case without needing oral evidence, the decision is appealable.
Why it matters: This prevents parties from being forced through a multi-year trial when the case is legally “dead” from the start.
5. Summary: Choosing Your Path
| Feature | Litigation (Court) | Arbitration | Mediation |
|---|---|---|---|
| Confidentiality | Public | Private | Strictly Private |
| Speed | 18–24 Months | 6–12 Months | 1–2 Months |
| Third-Party Funding | Generally Prohibited | Allowed (2025) | Allowed |
| Enforcement | Strong (Local) | Global (170+ countries) | Global (under 2025 Bill) |
Disclaimer: This guide is for informational purposes and does not constitute formal legal advice.
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