Liberalising legal services sector – does it matter? Part 1

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The Association of South East Asian Nations (Asean) is gradually moving towards achieving its goal of a common market by 2015. Malaysia, as a major trading nation has to find its place in this new regional alignment in order to benefit from this scenario of economic integration. With economic power and influence shifting from East to West, in particular the Asia Pacific region, the Asean economies are expected to pose a vibrant contrast to their counterparts in Europe in the foreseeable future.

By 2015, the members of the Asean Economic Community (AEC) would have removed almost all the tariffs as well as other non-tariff barriers previously upheld on a range of goods and services. For the average Malaysian consumer they would already have noticed the tangible effects and benefits of the liberalization of the nation’s economy, such as the impact of the “open skies” aviation policy as an increasing number of airlines operate into and out of the country, and the gradual lowering of tariffs on imported cars.

Perhaps less tangible and obvious to the average consumer is the impending liberalization of the legal services industry. In mid-2012 the Legal Profession (Amendment) Act 2012 (the “Amendment Act”) was passed by Parliament and subsequently gazetted. However the Amendment Act has yet come into force. Once enforced it would apply to West Malaysia only.

It provides conditions under which foreign individual lawyers can be engaged by local law firms. It also spells out the conditions under which foreign law firms can be licensed to operate in Malaysia either in joint partnerships with a Malaysian-based law firm, or as a Qualified Foreign Law Firm (“QFLF”). Such foreign lawyers and firms are allowed to provide legal services in permitted practice areas, and the QFLF are specifically required to provide relevant experience and proven expertise on international Islamic finance.

Datuk Azlin Shaharbi, a partner of
Azlin Shaharbi and Associates

This is not to say that Malaysia has not already benefited from foreign-based legal expertise.

  • Firstly, a number of big law firms in the Klang Valley already offer access to foreign expertise through affiliations.
  • Secondly, the Kuala Lumpur Regional Center for Arbitration (KLRCA), which provides an alternative form of dispute settlement or mediation for parties engaged in international trade, commerce and investment with and within the Asia-Pacific, operates independently from the Malaysian judicial system, allows for parties to be represented by foreign lawyers and whose International Panel of Arbitrators includes experts in various fields from all over the world.
  • Thirdly, even without the benefit of QFLFs, Malaysia has over the last three decades developed a vibrant, modern and viable Islamic banking and financial industry regarded as a global model for others to emulate. Currently Malaysia’s sukuk issuance accounts for almost three-quarters of total global sukuk issuance.
  • Fourthly, statistics indicate that 98% of law firms in Malaysia have less than five lawyers. A majority of them would not have the interest or capacity to practise in the permitted practice areas offered by the Amendment Act. For such reasons Datuk Azlin Shaharbi, a partner of Azlin Shaharbi and Associates, expects no or minimal impact to her business once the Amendment Act is enforced.

Another legal practitioner with almost 30 years of experience is of the same view. Nevertheless he is keen to gain access to a part of a larger market offered by the permitted practice areas if given the chance, but laments his limited influence and marketing power compared to his larger and established peers. Like many of his peers he expresses dissatisfaction over the quality of local law graduates entering the legal profession, even those with foreign law degrees obtained through local twinning programs. This overall dissatisfaction was revealed in a survey initiated by the Bar Council in late 2011. In order for smallish firms such as his to grow and adapt in an opening market, the quality of local law graduates has to improve.

Tomorrow: If most Malaysian law firms do not have the interest or capacity to practise in the permitted practice areas offered by the Amendment Act, would it matter and make any difference then whether the Amendment Act is enforced and implemented?

 

 

Photo Credit: darrenjsylvester via Compfight cc

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