This item has been updated since initial publication.
Parliament, in its sitting in July 2012, passed the Legal Profession (Amendment) Act 2012 (“Amendment Act”). This new legislation amends the existing Legal Profession Act 1976 (“LPA”). The Bill for the Amendment Act was passed on 13 June 2012, and the Amendment Act was gazetted on 20 Sept 2012. However, the Minister has not (by notification in the Gazette) appointed the date on which the Amendment Act is to come into operation. When it is brought into force, foreign law firms and foreign lawyers will be permitted to practise in Peninsular Malaysia in the manner set out in the new legislation.
Three categories of licences
Under the newly-created Part IVA of the LPA, licences may be issued to foreign law firms to operate either an International Partnership with a Malaysian law firm, or as a Qualified Foreign Law Firm (“QFLF”). Alternatively, a Malaysian law firm may choose to employ a foreign lawyer.
As its name connotes, an International Partnership will be a partnership between a foreign law firm and a Malaysian law firm. Approval shall be given for the name of the International Partnership to be a combination of the names of the foreign law firm and the Malaysian law firm.
A foreign law firm licensed as a QFLF will not require a Malaysian law firm as a partner. However only up to five QFLF licences will be granted, as this avenue has been created to support the Malaysian Government’s Malaysian International Islamic Finance Centre (“MIFC”) initiative, as announced by the Prime Minister in his policy speech on 22 Apr 2009.1 QFLF licences will therefore only be granted to international law firms that have proven expertise in international Islamic finance, and which would be able to support and contribute to the MIFC.
Licences for International Partnerships and QFLFs will be for a period of three years and are renewable. Application and registration fees will apply. Licences may be granted subject to terms and conditions.
If approved, a Malaysian law firm will be granted a three-year licence to employ a foreign lawyer.
All individual foreign lawyers working in an International Partnership, QFLF or Malaysian law firm will have to register as a foreign lawyer. Application and registration fees will apply. Registrations may be granted subject to terms and conditions, and will have to be renewed annually.
Foreign lawyers working in International Partnerships and QFLFs will have to reside in Malaysia for not less than 182 days in any calendar year.
(a) Permitted Practice Areas
International Partnerships, QFLFs and foreign lawyers employed by Malaysian law firms can only practise in the permitted practice areas. This is defined as a transaction regulated by Malaysian law and at least one other national law, or a transaction regulated solely by any law other than Malaysian law. In the case of a QFLF, the Malaysian Bar has stated that there should be a proviso that such aspect of work regulated by Malaysian law shall be undertaken in conjunction with one or more advocates and solicitors of the High Court of Malaya holding a valid and subsisting Practising Certificate.
Practice in the permitted practice areas will specifically exclude: constitutional and administrative law; conveyancing; criminal law; family law; succession law, including wills, intestacy, probate and administration; trust law, where the settlor is an individual, and the law relating to charities and foundations, whether the settlor is an individual or a corporation; retail banking, including corporate or commercial loans to small and medium enterprises; registration of patents and trademarks; appearing or pleading in any court of justice in Malaysia; representing a client in any proceedings instituted in such a court or giving advice, whether or not the main purpose of which is to advise the client on the conduct of such proceedings; and appearing in any hearing before a quasi-judicial or regulatory body, authority or tribunal in Malaysia.
(b) Qualifying Criteria
Foreign law firms and foreign lawyers will have to show that they have the relevant legal expertise and experience in the permitted practice areas. In addition, the Malaysian law firm in a proposed International Partnership will also have to show that it has the relevant legal expertise and experience in the permitted practice areas.
As stated earlier, a foreign law firm applying to be licensed as a QFLF will have to prove that it has the relevant expertise and experience in international Islamic finance and would be in a position to support and contribute to the Government’s MIFC initiative.
(c) Equity and employment considerations
The equity and voting rights of International Partnerships, QFLFs and foreign lawyers employed by Malaysian law firms shall be as determined by the Selection Committee. This will be determined by reference to a business plan that must be submitted as part of the application process. The Malaysian Bar will recommend that the Selection Committee adopt the following guidelines in respect of this area:
i) The Malaysian law firm should not have less than 60%, and the foreign law firm no more than 40%, of the equity and voting rights and of the total number of lawyers in the International Partnership;
ii) The number of Malaysian lawyers in a QFLF shall not be less than 30% of the total number of lawyers in that firm; and
iii) The number of foreign lawyers employed by a Malaysian law firm shall not be more than 30% of the total number of lawyers in that firm.
(d) Reporting and prudential requirements
There will be annual reporting and accounting requirements in respect of International Partnerships and QFLFs, and annual performance reporting in respect of foreign lawyers employed by Malaysian law firms.
International Partnerships and QFLFs will also be subject to prudential requirements in terms of professional indemnity insurance at a level appropriate to the nature and extent of their business.
International Partnerships, QFLFs and foreign lawyers employed by Malaysian law firms will be regulated by the Bar Council. The new legislation provides for the establishment of a Selection Committee that will be responsible for considering all applications, and for making recommendations for approval/non-approval to the Bar Council.
The Selection Committee will be co-chaired by the Attorney General and the President of the Malaysian Bar, and will have five members in all. The Bar Council will serve as the Secretariat for the Selection Committee. All applications should therefore be directed to the Bar Council, using the forms prescribed by the new legislation and the rules to be made thereunder. These are still in the process of being finalised. In addition, the Selection Committee will draw up guidelines and notes — which will be made publicly known — to indicate how it intends to apply the regulations.
All International Partnerships, QFLFs and foreign lawyers employed by Malaysian law firms will have to comply with the same rules and regulations governing advocates and solicitors in Peninsular Malaysia.
The Legal Profession (Amendment) Act 2012 introduced a new subsection, which reads as follows:
Any unauthorized person who either directly or indirectly, does or solicits the right to do any act which is customarily within the function or responsibility of an advocate and solicitor, including but not limited to advising on law (whether Malaysian or otherwise) shall, unless he proves that the act was not done for or in expectation of any fee, gain or reward, be guilty of an offence under this subsection.
The Malaysian Bar has received feedback, from both foreign law firms and Malaysian banking and corporate entities, that the above prohibition is too wide and unnecessarily restricts the latter’s freedom to instruct counsel of its choice in international transactions that do not involve Malaysian law.
The Bar Council is deliberating on this issue.
A major consideration undergirding the new legislation is a desire to ensure that the liberalisation of the Malaysian legal services market and the entry of foreign lawyers is balanced with the need for the development of Malaysian law firms, and to enable these firms to achieve a level of expertise that will allow them to compete with foreign law firms on a level playing field. This consideration means that the process of liberalisation will continue to be gradual and progressive.
The above represents an overall description of the intended regulatory framework in relation to the liberalisation of the Malaysian legal services market. Apart from the new legislation that has already been passed by the Malaysian Parliament, rules, guidelines and guidance notes are currently being finalised.
Trade in Legal Services Committee
Bar Council Malaysia
Date: 31 Jan 2013
1“As part of the measures to develop Malaysia as an international Islamic financial hub, the legal profession will be liberalized to allow up to five top international law firms with expertise in international Islamic finance to practice in Malaysia. These firms will only be allowed to offer legal services in international Islamic finance. Successful law firms will be determined based on credentials and the business plans in respect of the office to be established in Malaysia.”
This statement was reiterated during the debate on the Legal Profession (Amendment) Bill 2012 and appears in the Hansard dated 11.6.2012. The statement on page 44, para 1 states as follows: “Sehubungan dengan itu, profesion undang-undang di Malaysia akan diliberalisasikan bagi membolehkan lima firma guaman antarabangsa terulung yang mempunyai kepakaran dalam bidang kewangan Islam antarabangsa menjalankan amalan mereka di Malaysia. Akan tetapi firma-firma tersebut hanya akan dibenarkan untuk menawarkan perkhidmatan perundangan dalam bidang kewangan Islam antarabangsa.”