Enter the Foreign Law Firms

It is inevitable that the Malaysian legal market will be liberalised and that foreign law firms will be allowed to practice, in some form or another, here in Malaysia.

It was in the news recently about how foreign law firms would be allowed into our legal market, although confined to practicing in the high-end ‘Tier-1’ corporate work. Due to Malaysia’s obligations under GAT and other free-trade agreements, our legal market will have to open up, and it is just a matter of when.

The legislation allowing the entry of foreign law firms is still a bit hazy, with no Bill having been tabled. But from the little information that we have, it appears that foreign law firms will be allowed into Malaysia through the Joint Law Venture (JLV) vehicle. This is similar to the JLVs and the foreign law alliances allowed in Singapore (more info on the Singapore framework here). If identical to the Singapore legislation, the JLV would involve a separate partnership being formed, consisting of local and foreign partners.

This JLV vehicle could then assist in the transfer of expertise and knowledge from the foreign firms over to its local partners. For instance, a local boutique firm in Malaysia already enjoys a strong association with a global law firm (albeit not in a formal JLV form), and it is able to harness the use of the foreign firm’s knowledge management system and training opportunities. Through the opening up of the legal market, local lawyers may then be able to enjoy secondments or even employment in foreign firms, not to mention gaining valuable experience in working on international transactions. The advantage offered to foreign firms is that they would then be able to truly offer a “one-stop” service on cross-border and international transactions, as well as enjoy cost-savings through the outsourcing of work.

Foreign firms would be limited to practicing in the ‘Tier-1’ corporate advisory work. Areas such as conveyancing and litigation would remain the exclusive right of Malaysian lawyers. Since such areas are so procedurally and locally confined within a jurisdiction, it may not be worthwhile for foreign firms to branch into these areas in any event.

I personally welcome the liberalisation of the legal market, although there have to be restrictions put in place. The areas of law such JLVs or foreign firms would be allowed to practice in would have to be set out clearly. Aside from corporate work, there may be strong arguments to allow areas such as arbitration or intellectual property to be gradually opened up as well. Presumably, foreign lawyers would also have to adhere to ethical rules governing the profession on a whole. Disciplinary proceedings would still have to apply to foreign lawyers.

I don’t foresee a flood of foreign law firms rushing in to form JLVs in Malaysia. It may be more of a case where the foreign firms gingerly assess whether to tread in. With the downturn in the economy over the past few years, many foreign firms had already cut down on its offshore presence in Singapore and in South-east Asia. There are also only 6 JLVs in Singapore, down from the original 8. Even with the improving economic climate, would these same Magic Circle firms want to set up shop here in Malaysia?

It will be interesting to see the developments that occur with the eventual liberalisation. There has been much talk but still no concrete steps forward yet.

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