Sponsored briefing: Dispute resolution in Malaysia

The team at Shook Lin & Bok discuss areas handled by the various sections of its dispute resolution department

Dispute resolution is playing an increasingly prominent role in Malaysia both in the civil courts and by way of arbitration.

This article seeks to set out, briefly, the areas handled by the various sections of the dispute resolution department of the firm and also to highlight some of the cases in which the firm has acted.

General and corporate litigation

The general litigation section deals with contractual and tort disputes including claims in defamation and fraud.

The section also provides representation in respect of proceedings brought under various statutory and regulatory provisions including securities legislation. The corporate litigation section deals with applications under the Companies Act 2016 (including applications for reduction in share capital) and company disputes relating to shareholders, directorships and winding-up of companies (encompassing all the circumstances in which a company may be wound up pursuant to the Companies Act).

Judicial review applications are also being regularly sought where issues relating to planning permission approvals, development orders and the rights of land owners to be heard on such matters are considered by the courts.

The Federal Court has, in a recent case involving a local authority, held that damages for pure economic loss are not recoverable, in tort, against a local authority. The Federal Court in doing so, relied on decisions in several commonwealth jurisdictions and also on general policy considerations including the specific funding provisions of local authorities.

Banking and finance litigation

The banking and finance litigation section is dedicated to assisting banking and financial institutions and securities companies in disputes, where they may be claimant or defendant. The section regularly handles matters concerning banking and securities laws, various aspects of the institution’s operations and dealings including regulatory issues, claims against the institution be it civil or of a quasi-penal nature under anti-money laundering/anti-drug trafficking legislations and schemes/arrangements for transfer/vesting of its assets and business.

The section also handles retail, trade and corporate debt recovery (under conventional or Islamic financing, ranging from loans, hire purchase, leasing, syndication and margin/trade financing) and enforcement/realisation of security such as charges/mortgages over land, shares, maritime vessels or other assets.

The section was involved in a recent Federal Court matter where the issue was whether a statutory referral provision contravened the constitution.

In that case, a dispute arose as to whether a clause in an Islamic finance agreement was shariah-compliant. The High Court referred that clause to the Shariah Advisory Council (SAC) of the Central Bank pursuant to section 56 of the Central Bank of Malaysia Act 2009 (CBMA) to obtain a ruling on its validity under Shariah law.

The Federal Court considered whether sections 56 and 57 CBMA had the effect of vesting judicial power in the SAC and was therefore unconstitutional. It was contended that section 56 CBMA (which requires the court to take into consideration a SAC ruling or to refer a question on Islamic law to the SAC), as well as section 57 CBMA (which provides that any SAC ruling shall be binding on the court), had effectively usurped the court’s judicial power to hear expert evidence itself and determine whether an Islamic banking transaction was shariah-compliant.

The Federal Court, by a majority, held those provisions were valid and constitutional and that the role of the SAC did not usurp the powers of the court as the SAC only ascertained the shariah law applicable to any Islamic banking transaction, with the final determination of the dispute still within the jurisdiction of the civil court. It was also held that the SAC provided certainty to Islamic banking business.

Insolvencies, receiverships and restructuring

Insolvencies, receiverships and restructuring issues handled by the section include insolvency proceedings (personal/corporate insolvencies and receiverships), disputes concerning priorities to assets/payments, challenges to validity of dealings with assets (fraudulent/arising due to breach of insolvency laws) and asset distribution. With the recent amendments to the Companies Act 2016, the section has also acted in matters concerning the newly introduced corporate rescue mechanisms such as the appointment of judicial managers and schemes to restructure debts/turn around business.

Land disputes

The section also deals with disputes concerning land/real estate including disputes over rights to land and ownership issues (ie beneficial interests/trusts over land), land acquisitions/land reference and issues concerning land compensation, fraudulent disposals of land, land title issues, disputes concerning land use, tenancies/leases and the rights of landlord/tenants/leaseholders.

The section was involved in a landmark decision where the Federal Court (i) struck down section 40(D) of the Land Acquisition Act 1960 which provided that the opinions of two assessors assisting the court in determining compensation for land acquisition was final and binding on the court, in effect, restoring judicial independence as statutes that curtailed the power of the courts in contravention of the constitution may be struck down as unconstitutional, and (ii) held that compensation must be assessed and awarded for the extinguishment of business due to the acquisition on land.

Family, probate and trusts

This section acts in contentious litigation including divorce, judicial separation, adoption, annulment proceedings, maintenance for spouse and children, division/distribution of matrimonial property, custody disputes and settlement agreements. The section also deals in probate matters which include disputes on challenges to the validity of wills, construction of wills, advising beneficiaries for an account and inspection of documents, acting for beneficiaries in the removal of trustees.

Insurance

The insurance section deals with claims under general, life and also re-insurance policies. These include motor, industrial, maritime and aviation, construction risk, professional indemnity, product liability and workmen’s compensation and business interruption claims.

The firm had occasion to appear for insurers in a fire policy claim where the Federal Court had to consider the principle of whether an ‘agreed value clause’ in a policy could apply where fraud was raised in view of disputes over the amount claimed and documents seeking to support the claim under the policy.

Conclusion

The broad ranging and diverse disputes which come before the courts will ensure that dispute resolution will continue as an important role in the Malaysian legal landscape.