My Say: A commission on private law reform is an urgent need

This article first appeared in Forum, The Edge Malaysia Weekly on July 31, 2023 – August 6, 2023

There is an urgent need for the government to support reform in private law.Malaysian law is saddled by a legacy of legislation that is increasingly antiquated and unable to cope with contemporary commercial complexities.

The regulatory framework and legislation that were enacted to deal with industries have large gaps. Multiple industries today have converged as a result of technology. Laws should follow function and not focus only on each specific industry. As things stand, adroit market players are able to arbitrage between segregated regulators.

When the Federation of Malaya gained independence, our written laws were sparse. The need to deal with many legal issues in an emergent economy was overcome by way of reception of English common law and rules of equity.

Sections 3 and 5 of the Civil Law Act 1956 provide for the reception of English law with different cut-off dates. Therefore, English law that is to be received in Peninsular Malaysia is that as administered in England on April 7, 1956. In Sabah, it is the laws of England together with statutes of general application as administered or in force in England on Dec 1, 1951. In Sarawak, it is the laws of England that are in force in England on Dec 12, 1949.

The reception of English law is qualified that:

“Provided always that the said common law, rules of equity and statutes of general application shall be applied so far only as the circumstances of the States of Malaysia and their respective inhabitants permit and subject to such qualifications as local circumstances render necessary.”

The uncertain scope of this qualification is unacceptable especially in commerce.

Section 5 of the Act provides for what is called “continued reception” of English law in commercial matters touching on the law of partnerships, corporations, banks and banking, agency, carriers by air, land and sea, insurance and mercantile law. This means that such law as applicable to these areas generally shall be the law as administered in England, “unless in any case other provision is or shall be made by any written law”.

Professor Jason Chuah, the dean of the Faculty of Law at the University of Malaya, has cogently pointed out in the recently concluded International Malaysia Law Conference that the law of admiralty in the former Straits Settlements and Sabah and Sarawak has contemporary English law while ports and shipping rules for Peninsular Malaysia are governed by cut-off dates in the 1940s and 1950s. This is an example of the discordances in law that need to be addressed.

This gives rise to an anomalous situation where an applicable commercial law has differing norms in Peninsular Malaysia between the former Malay States and the Straits Settlements and also that of Sabah and Sarawak. Our Malaysian courts have valiantly wrestled with such anomalies, which have resulted in inconsistent judicial rulings.

The law of commerce in Malaysia is rendered uncertain by this situation. Business decisions, which include investment decisions by transnational corporations, and commercial disputes that may arise cannot be determined by a clear body of rules, leading to unpredictability, which is inimical to the nation’s interest.

The general law of contract in Malaysia is governed by a 19th-century piece of legislation, which was drawn from the Indian Contract Act 1872. Many principles as articulated in the Malaysian Contracts Act 1950 have evolved judicially and by way of legislative reform in both the UK and the Commonwealth. In financial and capital markets, for example, in major loan syndication and shipping contracts, the English law that third parties cannot have any legal rights in a contract has been statutorily modified in all Commonwealth jurisdictions while Malaysia has not done so. There are also developments in litigation funding, including third-party funding in arbitration, which is a fact but remains unregulated in Malaysia. The issue of access to justice and the shaping of litigation funding cannot be left unregulated, with detriment to the administration of laws and justice.

Malaysia’s drive to be a first-world destination providing world-class physical infrastructure must be matched by a focused development in legal infrastructure in private law. There are inadequate resources that are brought to bear on many aspects of private law reform. The Bahagian Hal Ehwal Undang-Undang (Legal Affairs Division) under the minister in charge of law together with the Attorney-General’s Chambers have to deal with multiple claims on public law reforms. The neglect of private law reform means that in many areas, there are only fragmentary reforms instigated by the demands of particular sectors.

The formation of a Law Reform Commission that will draw up a proper agenda for law reform and to align, contextualise and rationalise the fragmented applicability of common law will be a boon to all law practitioners and judicial-arbitral decision-makers. It will save the courts and arbitral tribunals from having to navigate anachronistic rules and provisions. Bringing Malaysia up to the status of a globalised legal-business community and concurrently addressing the Malaysian private law context is a dire imperative.