The legal landscape

These are exciting times for the legal services market in Malaysia, as experts believe that the recent uptake in efforts to liberalise the sector is the beginning of the creation of a more robust system.

The liberalisation of legal services

The legal services sector in Malaysia is generally considered small, 'less mature' and much less liberalised compared to its regional peers. For example, current law still prohibits foreign lawyers from opening offices in Malaysia although in May 2008 it was reported that the country was considering letting foreign law firms operate in the country for the first time, in order to strengthen international confidence. It remains to be seen when this would be fully implemented.

Currently, international law firms which collaborate with local firms on cross-border deals do so mainly via their Singapore set-ups, where firms on a joint-venture (JV) basis, ie between a local and foreign firm, are allowed to operate.

Singapore, however, has since taken a step further by making amendments to its Legal Profession Act in August 2008, making it possible for foreign firms to now establish their presence in the city-state - without forming a JV with a local firm. In contrast to the generally unpopular JV regime, the new ruling would also allow foreign firms to employ locally-qualified lawyers.

This is good news for local lawyers because they would be exposed to an international setting and increase their knowledge in diverse areas of expertise. The establishment of foreign firms has many benefits, which include strengthening international confidence in the local legal system and attracting a healthy flow of investments from abroad.

As of October 2008, at least six UK firms have applied for new liberalised licences to practise local law in Singapore. These firms include Ashurst, DLA Piper UK, Herbert Smith and Norton Rose, according to legalweek.com. A number of US law firms are also known to have applied, it said.

Malaysia should follow suit soon, experts say, to keep up with the competition or be left far behind.

'If we want big, big foreign multinationals, big banks to come to our country, they normally would want to use the lawyers that would suit their needs. These are the realities that we have to accept,' Datuk Mohd Zaid Ibrahim - former Minister in the Prime Minister's Department in charge of legal affairs and judicial reform - was quoted as saying in May 2008.

The local scene

The legal services sector in Malaysia is led by the three 'S's, namely, Shearn Delamore & Co, Skrine, and Shook Lin & Bok, according to The Legal 500 Series, an international legal industry information provider. These firms continue to dominate, 'particularly in dispute resolution, although the chasing pack is not far behind,' noted Legal 500. Two names to watch are Lee Hishammuddin Allen & Gledhill and Kadir, Andri & Partners while Raja, Darryl & Loh ,Cheang & Ariff and ,Wong & Partners are recommended for their corporate approach, it said.

In terms of size, the biggest firm in Malaysia is Zaid Ibrahim & Co, with a pool of more than 130 lawyers located in offices nationwide. Compared with other firms in Asia, however, even our largest firm remains relatively small. In China for example, Da Cheng Law Offices, one of the country's largest, has more than 500 lawyers including partners, while the number of lawyers working in the biggest firms in Japan, Korea and India average 300 each.

Nevertheless, Malaysia has an edge over its regional peers in that it is the leader in Islamic finance. This sector is poised for 'exponential growth,' according to industry observers.

The rise of Islamic finance

The current meltdown in financial and equity markets across the globe may in fact be a blessing in disguise for this particular sector, in that investors who find it difficult to raise funds in conventional markets are turning to Islamic financing, creating a huge market for Islamic mega-deals.

According to Allen & Overy Shook Lin & Bok (a Singaporean law firm) senior counsel Hooman Sabeti-Rahmati, the key reason for this is the abundant - and increasing - investment capital available in the Middle East.

'Middle Eastern investors generally have not been averse to investing conventionally if Islamic alternatives were unavailable, but now that compliant alternatives are more available and growing, there is real demand for them, which invites further innovation and growth,' Sabeti-Rahmati told independent legal news magazine ALB in June 2008.

In line with the growth of the Islamic finance industry, Islamic law has become the latest addition to the list of common practice areas in the country, with many of the big firms beefing up their teams to ride on the development of this sector. In October 2008, Skrine announced that its modest Islamic finance team would be given a huge boost in order to leverage on the growth of this sector. ALB reported that Mohamed Ismail Shariff of local firm Mohamed Ismail & Co joined Skrine in an effort 'to kick off' its Islamic finance practice.

'To be able to compete with other international firms, and with Malaysia becoming an Islamic banking hub, there is a need for size and quality of services. That must be backed with a big set up, where other necessary services are available, to meet the present trend,' ALB added, citing quotes from the Malaysian Reserve.

Legal numbers

Malaysia has about 13,000 practising lawyers, with an additional 1,000 joining the workforce every year.

Malaysia's biggest and most established law firms are mostly located in the capital city of Kuala Lumpur, where competition is very fierce. Most large firms' practice areas are broad-based, covering the 'essentials' of banking and finance, intellectual property, taxation and employment.

In general, young lawyers find it tough to succeed in this sector. Young Malaysian lawyers with less than seven years of experience are finding the profession tough, with a recent survey indicating that more than 60% of them are considering leaving the profession within a five-year period, according to Skor Career, a local job portal, citing a survey done by the Malaysian Bar.

Reasons given for abandoning law included better remuneration as well as advancement opportunities in other sectors, according to the survey.

The survey indicated that the majority of new lawyers considered themselves underpaid, especially those working with smaller firms. Currently, the starting monthly salary for a new lawyer at a small firm ranges from RM1,500 to RM2,500, depending on the size, reputation and location of the firm. Starting monthly salaries at medium to larger firms ranged between RM2,800 and RM3,000.

Legal challenges

For years, the legal scene has been plagued by various concerns ranging from the liberalisation issue to the legal 'brain drain', where the best and brightest are leaving for better perks overseas or in other industries. The need to address all of these issues has become more pertinent than ever in the face of an increasingly challenging business environment.

© GTI Specialist Publishers. Reproduced with permission.