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International Litigation - Malaysia

posted 1 year ago

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Datin Jeyanthini Kannaperan

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+603 2*****
Datin Jeyanthini Kannaperan
Shearn Delamore & Co.

Shearn Delamore & Co. is one of the oldest and largest full-service law firms, situated at the heart of Kuala Lumpur, Malaysia, that renders premium legal services to local and foreign clients alike since 1905. At Shearn, our lawyers are committed to providing sound, creative and pragmatic solutions to meet our clients’ legal needs.

Locally, we tap into our multidisciplinary practice areas, and internationally, we tap into our global networks to provide the depth and breadth of experience and expertise to each client. We pride ourselves on being the market leader in the areas of law in which we practice; testimony to this is our consistent high rankings in all the major legal directories and publications.

The ebbing of the COVID-19 pandemic has brought about a spike in dispute resolution briefs that the firm receives. We have been enjoying an extremely busy 2022, after the slight slowdown during the “COVID lockdown”, wherein courts and arbitrators put the brakes on dispute resolution cases.

We are seeing an increased number of disputes relating to insolvent companies suffering losses arising from badly managed projects, tenancy-related disputes and breaches of agreements relating to the provision of goods and services.

Large corporations are taking the lead in shifting the focus back to dispute resolution to hold vendors, partners, contracting parties and employees liable for losses caused to commercial operations. Private individuals, on the other hand, have not been as steadfast in this regard, which has, in turn, brought in a large volume of litigation-related advisory work to the firm.

As the Malaysian economy is poised for recovery, we do note that large commercial entities are beginning to take stock of their organisational health. This has, in turn, prompted some of these entitles to review the large-scale infrastructure projects that they have undertaken with a view to instilling accountability and introducing greater transparency as a matter of good governance.

Recently, we have been active in advising many such entities in relation to litigation risks arising from these projects, which saw substantial losses being recorded due to project failure.

The firm is currently most active in insolvency, restructuring work and construction disputes. We are also experiencing an influx of litigation and arbitration briefs arising from infrastructure projects, IT contracts and general commercial contracts. This phenomenon is not a surprise.

For the past two years, the COVID-19 pandemic brought with it a severe financial crunch, and budgets for litigation were severely slashed; meanwhile, courts were moving slowly, making the commencement of proceedings less of a priority.

The political instability that permeated through the region in the 2020–2021 period placed a damper on the economy. This, in turn, affected commercial entities’ ability to meet contractual payments, resulting in various contract breaches. Litigation has now ensued to address the disputes that have been in the pipeline.

The restructuring and insolvency work that we have been busy with includes the very public litigation of the Serba Dynamic group of companies, the oil & gas service provider that was previously the darling of the stock markets. What started out as disputes with its auditors and the regulators quickly morphed into a dismal failure to meet domestic and international debts (for the full financial year ending 30.6.2022, a whopping annual net loss of RM1.09 billion and a loss of RM1.35 billion in revenue were reported). Yet, the Board has insisted that restructuring helmed by the directors was possible.

Apart from advising a number of creditors and FIs on this single largest insolvency in the nation in recent years, we acted for the largest caucus of domestic debt lenders – the syndicated lenders owed RM1.7 billion in the successful challenges as to the Board-led restructuring (judicial management, schemes of arrangement) and are responsible for the recent appointment of court-appointed interim liquidators. A number of other large conglomerates in the region are also on the watch of our FI clients, and the firm’s sought-after restructuring and insolvency practice has already been engaged to advise and act in these large recoveries and rescue schemes, whether creditor-led or otherwise.

Domestic players are less keen to write arbitration clauses into their contracts (save where they have large infrastructure or other related contracts), as the need to have international recognition of an arbitral award is less relevant in a domestic context, particularly when the parties and their assets are in Malaysia. That said, most large contracts and smaller contracts that have an international flavour (either where they involve a foreign party or the performance of services offshore) are well suited for arbitration and have arbitration clauses written into the contract.

Bank disputes are typically handled in the courts, and our commercial courts hear both conventional and Syariah financing disputes. While banks were previously ready or required to exercise restraint in initiating recovery of non-performing loans through the pandemic, all gloves are now off if rescheduling of loans is not intended or possible.

Family- and trust-related disputes, and disputes involving land ownership, are often handled in the courts and are not well suited for arbitration.

Separately, where a dispute is taken up against a regulatory body exercising a public function, a litigant may generally be looking at commencing a judicial review proceeding. Thus, individuals or commercial entities aggrieved by decisions of such bodies do challenge these decisions in the courts.

Unlike more mature jurisdictions such as the UK, ESG development is in its early stages in Malaysia. Nonetheless, we expect ESG to take a step forward and the resultant ESG-related litigation to pick up momentum as Malaysia commits to be carbon neutral by 2050 as part of the 12th Malaysia Plan.

On 25.8.2022, the Ministry of International Trade and Industry (MITI) announced its intention of introducing a national ESG framework for the manufacturing sector in line with the country’s carbon neutral target. The ESG framework will include four main components – ESG standards, financial support and incentives, capacity building and market mechanisms, including carbon trading and carbon pricing. As Malaysia steadily positions itself in the ESG sphere, commercial entitles will have to take stock of their ESG compliance and take appropriate action to support the country’s carbon neutral target.

In terms of challenges, the elephant in the room would be to appreciate the nature and extent of the ESG development, particularly in the Malaysian context, wherein the developments in this sphere may be ever-changing as Malaysia takes on the learnings of ESG. The next challenge is to be in compliant with any frameworks and regulations as a result of government intervention. To this end, we at Shearn have a dedicated ESG team that regularly provides ESG advice to foreign entitles operating in Malaysia with a view to ensuring that they are informed of the changing ESG drivers, frameworks and regulations in Malaysia.

The COVID-19 pandemic has no doubt accelerated our transformation to a more digitalised economy. We witness the most obvious changes in terms of the rise of digital banks and wallets, and the integration of remote working, which may either pose a threat to the traditional establishments or may instead give them the perfect opportunity to reinvent themselves.

Irrespective, it is unquestionable that the way we do things and conduct businesses has been profoundly changed, and the legal industry as a whole has been bracing itself for such changes since the start of the pandemic. In this regard, the legal industry is entering into a new era of virtual hearings and meetings, which in reality, provides a greater flexibility to the industry, not merely in terms of time and cost savings.

However, this shift to “do things virtually” has its pros and cons – most notably, this inevitably has made an inroad into the opportunity of young litigation practitioners attending court proceedings and honing their advocacy skills. This shift also means that there may be an increased dependence by the courts on the written submissions filed by the parties as litigation practitioners adjust themselves to arguing cases virtually.

As pointed out by the Chief Justice of Malaysia, these remote hearings are here to stay, and as such, the legal industry will have to continue to adapt to this new shift and undertake the necessary investment in this regard.

On the other end of the spectrum, the legal industry has largely embraced the idea of remote working. Moving forward, it will have to undertake a thorough study in understanding the workability of such a working arrangement in the long run.

It is vitally important.

The ever-changing global economy, coupled with the many ramifications following COVID-19, has necessitated litigation practitioners to be more creative, flexible and dynamic in the performance of their roles.

The sharing of information and industrial insight – be it in the form of legal publications or networking events and conferences – enables the exchange of big ideas and the learning of some of the industry’s best practices to take place without being hindered by our geographical differences.

This does not only benefit the budding litigation practitioners as they gear themselves up for new challenges ahead, but also the seasoned ones as they take in some of these best practices and put them in motion in their respective fields.

A few recent legislative developments are noteworthy – for instance, the Malaysian Anti-Corruption Commission Act 2009, the Rules of Court 2012, the Rules of the Court of Appeal 1994, the Rules of the Federal Court 1995, the Occupational Safety and Health Act 1994, the Courts of Judicature Act 1964 and the Competition Act 2010.

Malaysian Anti-Corruption Commission Act 2009 (“MACC Act 2009”)
In 2018, the Parliament of Malaysia enacted s.17A of the MACC Act 2009, which introduced corporate liability of commercial organisations as well as personal liability of officers and directors in relation to bribery offences. This new Section came into effect on 1.6.2020.

With the COVID pandemic, some respite was given to commercial organisations to take adequate measures to fortify themselves against bribery within the organisation. Thus far, we have seen one prosecution under this regime, in March of 2021.

In terms of workflow, we have experienced an influx of enquiries and advisories as to how commercial organisations should become s.17A-compliant.

Moving forward, we expect to see more requests for assistance to implement adequate measures and more prosecutions being initiated for breaches of the MACC regime.

Rules of Court 2012 (“ROC 2012”), Rules of the Court of Appeal 1994 (“ROCA 1994”), Rules of the Federal Court 1995 (“ROFC 1995”)
The amendments to the ROC 2012, ROCA 1994 and ROFC 1995 were largely driven by the need to conduct hearings and legal proceedings online due to the COVID-19 pandemic.

These amendments now allow various proceedings to be conducted through a remote communication technology as approved by the courts. The ROC 2012 further allows for the service of certain documents using electronic filing service.

This facilitates the dispute resolution practice and reduces formalities in finding and tracing potential defendants.

Courts of Judicature Act 1964 (“CJA 1964”)
The CJA has recently been amended to restrict the appellate jurisdiction of the High Court and the Court of Appeal in respect of interlocutory applications decided by the subordinate courts.

The amendment removes the right to appeal against dismissals of summary determination decisions such as a decision to strike out a claim or to enter judgement in respect of a claim, without a determination at trial. The purpose is to shorten the time taken to complete each case and to limit the appeal opportunities where summary determination has been unsuccessful.

This change took effect as of 1.10.2022.

This will require more careful consideration in taking summary disposal proceedings where the facts are less than clear. That apart, we do not see an impact to our litigation practice in this respect.

The courts have continued with virtual proceedings, which has facilitated the quick determination and disposal of cases involving foreign parties, some of whom are still limited or hampered by the COVID-19 regimes in their jurisdictions.

Occupational Safety and Health Act 1994 (“OSHA 1994”)
The amendment to the OSHA 1994 introduces more accountability within commercial organisations.

Most significantly, the application of OSHA 1994 has been extended to “all places of work” and is no longer limited to a certain industry, enlarging the scope of liability of employers.

In this regard, we expect to see more regulatory and advisory work relating to corporate responsibility in this field and how the courts will enforce such statutory duties.

Competition Act 2010 (“CA 2010”)
Another recent development is the introduction of, among other things, a merger control regime by virtue of the pending amendment to the Competition Act 2010.

While at the time of writing, the amendment bill has yet to be tabled to Parliament, it is expected that the amendment bill would seek to greatly enhance the Malaysia Competition Commission (MyCC)’s investigation and enforcement powers in tackling anti-competitive mergers.

This incoming legislative change will result in an increased number of merger control advisories and filings for our competition law practice.

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