Brief Update On The Key Amendments To The Arbitration Act 2005 And The Construction Industry Payment And Adjudication Act 2012

Effective 1^st January 2026, two key statutes governing the construction industry welcome long-awaited amendments.

These amendments embrace modern dispute resolution frameworks and respond to evolving commercial realities within the construction and infrastructure sector, in particular the introduction of third-party funding into the Arbitration Act 2005.

Below are the key amendments to the Arbitration Act 2005 (“AA 2005”) and Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”).

ACT A1737: ARBITRATION (AMENDMENT) ACT 2024

Section 2 : The Organisational Restructuring of Asian International Arbitration Centre (AIAC) to Asian International Arbitration Centre Court of Arbitration (AIAC Court of Arbitration)
As the AIAC has been restructured to AIAC Court of Arbitration, the role of “President of AIAC Court of Arbitration” has been introduced, as reflected in section 2 of AA 2005. Accordingly, all reference of “Director of Asian International Arbitration Centre (Malaysia)” will be removed and to be replaced by the “President”.

Section 9(4) : Inclusion of arbitration agreement in any other forms
Section 9(4) of the AA 2005 has been amended to include “any other documents” (apart from statement of claim and defence) in which the existence of an agreement is alleged by one party and not denied by the other.

This amendment broadens the scope of what constitutes a written arbitration agreement, recognising that arbitration clauses may be contained in exchanges of documents between parties, without being confined to formal pleadings.

Section 9A : Applicable law to the arbitration agreement
Under the new Section 9A of the AA 2005, where the parties fail to agree on the law applicable to the arbitration agreement, the default applicable law would be the law of the seat of arbitration.

This provides clarity and certainty, reducing disputes over governing law and avoiding delays and costs arising from preliminary jurisdictional arguments.

Section 13(3A) : Appointment of arbitrator
In circumstance where there are multiple claimants or multiple respondents, all claimants shall jointly appoint one arbitrator and all respondents shall jointly appoint one arbitrator.

This amendment addresses practical confusion / difficulties in multi-party disputes and encourages efficiency on the constitution of arbitral tribunal.

Section 17(2) : Repeated hearings now discretionary when sole arbitrator is replaced
The mandatory obligation to repeat any hearings previously held when a sole / single arbitrator is replaced is removed. Hearings may now be repeated at the discretion of the arbitral tribunal or through express agreement between the parties. This amendment improves efficiency, and reduces the time and cost taken to conclude arbitral proceedings.

Section 33 (2A) and 33(9) : Introduction of digital and electronic signature on arbitration award
Digital and electronic signatures are now expressly recognised for the signing of arbitral awards. This amendment aligns with the rapid technology development promoting efficiency in arbitration.

This also eliminates the need for physical signing or the exchange of hard-copy documents, significantly accelerating the issuance of awards—particularly in international arbitrations involving arbitrators and parties across multiple jurisdictions.

This streamlines the arbitral process towards greater efficiency especially in the context of international arbitration across jurisdictions.

Section 38(1) : Automatic recognition of arbitration award as binding, without needing to be applied to the High Court
All arbitral awards (Malaysian arbitration award or international arbitration award) will be automatically recognised as binding, without the need for an application to be made to the High Court.

Note: An application for enforcement of the arbitral award still required to be made to the High Court.

Section 46A – 46I : Institutionalisation of Third-Party Funding in Malaysian Arbitration
With the addition of Chapter 2 of Part III of the AA 2005, the third-party funding mechanism is now formally institutionalised within Malaysia’s arbitration framework.

A party to an arbitration can now receive funding from a third-party funder for all or part of the costs and expenses of the arbitration, in return for the third-party funder receiving a financial benefit in the event the arbitration is successful within the meaning of the third-party funding agreement. In order to govern the third-party funding in the arbitration, the Minister is now empowered to issue a code of practice[1].

The rule of common law against maintenance and champerty shall cease to apply in relation to the third-party funding and a third-party funding agreement shall not be treated as contrary to public policy on the grounds of maintenance and champerty.[2]

What does it mean for the commercial industry?

The introduction of third-party funding regime enhances Malaysia’s arbitration framework by:

improving access to arbitration, particularly for parties facing cash-flow problems;
increasing transparency and procedural integrity through mandatory disclosure obligations.[3]

For parties involved in construction and commercial disputes, these changes make arbitration a more financially viable option.

This Chapter 2 shall apply in cases of international arbitration (where the seat of arbitration is not in Malaysia), or if there is no seat of arbitration, but any of the services in relation to the arbitration are provided in Malaysia.[4]

Note: this Chapter 2 shall not apply to any third-party funding agreement made before 01.01.2026.[5]

Section 48 : Immunity of arbitral institutions
The amendment has offered broader immunity by replacing “The Director of the Asian International Arbitration Centre (Malaysia) or any other person” to “Any person”.

This amendment provides immunity to any person or institution acting as an appointing authority in discharging their duties or functions.

ACT A1738: CONSTRUCTION INDUSTRY PAYMENT AND ADJUDICATION (AMENDMENT) ACT 2024

Similarly, the role of the “President of the AIAC Court of Arbitration” was formally introduced pursuant to the recent amendments to the CIPAA 2012, which came into force on 1 January 2026. The amendments also reflect the change of name from the Kuala Lumpur Regional Centre for Arbitration (KLRCA) to the Asian International Arbitration Centre (AIAC).

Note:
The amendments to the Arbitration Act 2005 and the CIPAA 2012 demonstrate a new phase of institutional reform by enhancing efficiency, certainty, and accessibility. Parties engaged in construction and commercial contracts should take this opportunity to seek for legal advice and assistance in reviewing their dispute resolution clauses and strategies, to ensure alignment with the updated statutory framework taking effect from 1 January 2026.

Co-written by

Koh Yi Ting, Partner
(Construction Dispute Resolution)
koh.yiting@azmandavidson.com.my

Zephyrus Chong Saow Ching, Associate
(Construction Dispute Resolution)
saowching.chong@azmandavidson.com.my

[1] Section 46D of AA 2005

[2] Section 46C(1) of AA 2005

[3] Sections 46G and 46H require disclosure of the existence of a third-party funding agreement, the identity of the funder and the termination of such third-party funding agreement.

[4] Section 3(3A) Arbitration Act 2005

[5] Section 46B Arbitration Act 2005