The liberalisation of legal services in Malaysia

As a result of the amendments, there are now three entry routes into Malaysia for foreign law firms and foreign lawyers, namely, via (a) international partnerships (IP), which is a joint venture between a foreign law firm and a Malaysian law firm; (b) qualified foreign law firms (QFLF), in which a foreign firm may be licensed to operate in Malaysia on a stand-alone basis; and (c) the employment of a foreign lawyer by a Malaysian law firm.

IPs, QFLFs and foreign lawyers in Malaysian firms will be regulated by the Malaysian Bar Council (BC). A Selection Committee will make recommendations to the BC in granting such licenses.

The Selection Committee, which is established by the amendments to the Legal Profession Act, will consist of five members, two of whom are the Attorney General of Malaysia and the President of the Malaysian Bar. The Selection Committee will be responsible for considering all applications, and for making recommendations for approval to the Bar Council. The Bar Council will serve as the Secretariat for the Selection Committee.

Licences and regulations
Licenses for IPs and QFLFs are issued for a period of three years and are renewable; while a Malaysian law firm will be granted a three-year licence to employ a foreign lawyer and such licence may be renewed annually.
All individual foreign lawyers working in an IP, QFLF or Malaysian firm will have to register as foreign lawyers and are subject to the same rules and regulations applicable to Malaysian lawyers relating to professional conduct and ethics.

Permitted practice areas
IPs, QFLFs and foreign lawyers are allowed to practice only in ‘permitted practice areas’. A ‘permitted practice area’ 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.

Equity and employment
Equity and voting rights of IPs, QFLFs and foreign lawyers shall be determined by the Selection Committee.

Although an IP is entitled to bill its client as a single law firm and recover costs and retain payments in respect of such practice, it is the recommendation of the Bar Council that voting rights of an IP should be split 60:40 in favour of the Malaysian firm.

As regards a QFLF, the number of Malaysian lawyers shall not be less than 30 percent of the total number of lawyers in that firm, and that the foreign lawyers will have to be resident in Malaysia for 182 days. It is suggested that only a maximum of five QFLF licenses should be granted to foreign law firms with expertise that is established in international Islamic finance, and which would be able to support and contribute to the Malaysian government’s Malaysian International Islamic Finance Centre (MIFC).

In relation to foreign lawyers employed by a Malaysian firm, the number shall not be more than 30 percent of the total number of lawyers in that firm.

‘Fly-in – fly-out’
New subsections 37(2A) and (2B) of the Legal Profession Act will relax the previous prohibition on foreign lawyers flying in and out of Malaysia providing legal advice. Now they may do so for up to 60 days per year, subject to immigration approval. Section 37A of the Legal Profession Act also states that foreign lawyers advising or rendering any other assistance in an arbitration, or who appear as counsel or arbitrators in an arbitration in Malaysia will be permitted to enter the country at any time and with no limit on the duration of their stay.

Conclusion
Although several quarters have expressed their reservations in permitting the entry of foreign lawyers, there may be more advantages in the liberalisation exercise such as technology transfer from large international law firms, greater competition in the marketplace, diversity of choice for clients and employees, and increase in salary of associates. The liberalisation is also expected to develop Malaysia into an international Islamic financial hub and expand the work, expertise and specialisation of the legal profession here.