F4: Corporate and Business Law

Malaysia Legal System

Sources
Malaysian law is derived from various written and unwritten sources.
The following are the written sources:
1. The Federal Constitution: The Federal Constitution is the supreme law of Malaysia. It
provides for a democratic system of government and the powers of the Federal and State
Governments. It also establishes a constitutional monarchy and entrenches fundamental
rights/liberties of the individual. The Federal Constitution is not easily amended. It provides
for special majority of two-thirds of the total number of members of the legislature in order
to amend it.
2. The State Constitutions: Every state in Malaysia has its own State Constitution. These
contain provisions pertaining to state matters as provided under the Federal Constitution.
The States Constitution largely deals with land matters, agricultures, forestry, local
government and Islamic law.
3. Legislation: Legislation comprises the laws passed by Parliament as well as the State
Legislative Assemblies. The laws passed by Parliament since 1957 (ie. after Malaysias
independence) are called Acts while those passed by the State Legislative Assemblies
(except Sarawak) are called Enactments. The laws passed in Sarawak are called
Ordinances.
4. Subsidiary legislation: Subsidiary legislation (also known as delegated legislation) refers to
the rules and regulations which are passed by some person or body under some enabling
parent legislation.
The advantages of subsidiary legislation are the following:
i. Subsidiary legislation can be passed very quickly as it does not have to undergo the various
stages of procedure which has to be followed in Parliament or the State Legislative Assemblies.
ii. Parliament does not have sufficient time to deal with detailed rules necessary to implement the
law. Subsidiary legislation fulfils this need.
iii. Some matters require the special skill and knowledge of expert in that area. Parliament itself
may not have sufficient experts for this purpose. Thus, subsidiary legislation fulfils this need as
well.
However, subsidiary legislation has several disadvantages as follows:
i. The growth of subsidiary legislation goes against the doctrine of separation of powers. This is
because law is not being passed by persons elected for that purpose. Instead it is passed by
officers of government department.
ii. As parliament cannot effectively supervise the making of subsidiary legislation, many rules and
regulations may have been passed without proper consideration of some very important factors.
iii. Too much law is passed through subsidiary legislation.
Therefore, several forms of control over subsidiary legislation have been developed. The main ones
are consultation, parliamentary control, judicial review and publicity.
Unwritten law comprises the following:
1. English common law and the rules of equity: The reception of English common law and equity in
Malaysia is specifically permitted by virtue of s3(1) and s5(1) of the Civil Law Act 1956. However this is subject to
certain exceptions. In particular, English law may only be applied where (1) there is no local law governing the
matter and (2) if it is suitable for the local circumstances.

Bys3(1) of the Civil Law Act 1956, unless there is any other written law in force in Malaysia the
courts are required to apply English law as follows:
a. in West Malaysia or any part thereof, apply common law of England and the rules of equity as
administrated on the 7th day of April,1956;
b. in Sabah, apply the common law of England and the rules of equity, together with statutes of
general application, as administrated or in force in England on the 1 st day of December, 1951;
c. in Sarawak, apply the common law of England and the rules of equity, together with statutes
of general application, as administrated or in force in England on the 12th day of December,
1949.
The following points may be noted:
i. The relevant cut-off dates for the application of English law differ for West Malaysia, Sabah
and Sarawak.
 ii. s3(1)(a) mentions only the application of common law and equity in West Malaysia whereas
s3(1)(b) and s3(1)(c) mention common law, rules of equity and statutes of general
application for Sabah and Sarawak.
iii. English law may only be applied in the absence of local statutes.
iv. In addition, English law may only be applied if it is suited to local circumstances. This is stated
in the proviso to s3(1) as follows: 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 application of English law on commercial matter is governed by s5(1). The section restricts the
English law applicable to West Malaysia other than Penang and Malacca (ie. former Malay States) to
the law as administrated in England as at 7th April 1956 while for Penang, Malacca, Sabah and
Sarawak the English law is applicable so far as commercial matters are concerned. A point to note
is that s5 does not expressly state whether its application is subject to local circumstances (unlike
s3). However, the courts seem to be accepted that it is.
In conclusion, English law as at the relevant cut-off dates continues to be applicable as a source of
law in Malaysia. However, with the increasing number of statutes being passed by the Parliament
and State Legislative Assemblies, there is a declining dependence on English law.
2. Judicial precedents: This refers to the law as developed through cases decided in the
superior courts. Sometimes referred to as judge made law. Under the doctrine of binding
judicial precedent, which is also observed in Malaysia, the decisions of the higher courts
must be followed by the lower courts in similar cases. This generally ensures a fairer and
uniform application of the law.
The doctrine of binding judicial precedent requires decisions of higher courts to be followed by
courts which are lower in the hierarchy of the court structure.
It must be noted that it is the ratio decidenci of a case that binds future courts. The ratio decidenci
refers to the rationale or principle of law on which the decision is based.
In order to better understand the operation of the doctrine, it is important to know the hierarchy of
the courts. In Malaysia, the highest court is the Federal court. Below is the Court of Appeal. Below
the Court of Appeal is the High Court. These three courts may be referred to as the superior courts.
Below the High Courts are the Sessions Courts, Magistrates Courts and the Penghulu Courts, which
are referred to as the subordinate courts.
The doctrine operates as follows:
i. Decisions of the Privy Council while the Privy Council was part of the hierarchy of Malaysian
courts are binding on all the courts in Malaysia.
ii. Decisions of the Federal Court are binding on all the courts below it. The Federal court is
probably not bound by its own decisions.
iii. Decisions of the Court of Appeal are binding on all the courts below it. It is bound by its own
previous decisions to the same extent as the latter. However this was subject to three
exceptions:
i. Where there are two conflicting decisions, the court may choose either.
ii. Where its previous decision cannot stand with a later decision the Court of Appeal is bound
to refuse to follow its own previous decision.
iii. Where its own previous decision was given per incurium it is not bound to follow the earlier
decision.
iv. Decisions of the High Courts are binding to all subordinate courts, but one High Court judge is
not bound to follow the decision of another.
v. Decisions of the subordinate courts have no binding force.
The advantages of the doctrine of judicial precedent are the following:
i. It ensures a uniform application of the law.
ii. The law developed through cases is more practical as it is based on actual situations.
iii. Flexibility in the application can be achieved. A judge may avoid following an earlier precedent if
the case was decided per incurium ie. without taking into account a relevant legal principle or
statute. He could also avoid it by distinguishing the precedent from the facts of the present
case.
3. Customs: This refers to the customs of the local inhabitants which have been accepted as
law. It mainly relates to family matters, eg. marriage, divorce and inheritance. The
 customs of non-muslims are no longer of much importance since the passing of the Law
Reform (Marriage and Divorce) Act 1976 which abolish polygamous marriage among non-
muslims. However the customary laws of the Malays (also called adat law) continue to be
an important source of law.
4. Islamic law: It is only applicable to muslims. Islamic law is administered at state levels by a
separate system of courts called the syariah courts.

The law making process

The initial step in the law making process is to prepare a draft of the proposed legislation. This is called a
bill. The bill is then introduced into Parliament. This may be done either in the Dewan Rakyat or Dewan
Negara. However, it is more commonly introduced in the Dewan Rakyat.
It will then undergo the following stages:
i. First reading this is a mere formality. At this stage, the Minister concerned would only mention the
title of the bill and give oral notice as to when the second reading would be moved.
ii. Second reading At this stage the Minister concerned would explain to the house the purpose of the
bill and the main policy issues involved. Debate on the bill is then carried out.
iii. Committee stage This is the stage during which details of the bill are discussed in a less formal
manner and amendments are proposed, if necessary.
iv. Third reading This stage is another formality. The Minister concerned would move a motion that the
bill be read a third time and passed. When the motion is accepted the bill is accordingly passed.
The bill must then be submitted to the other house where it would undergo the similar stages of
consideration.
When the bill has been passed by both Houses of Parliament, it is sent to the Yang di-Pertuan Agong for
Royal Assent. Upon receiving the Royal Assent the bill become law.
Note: By an amendment to Article 66 of the Federal constitution, the Yang di-Pertuan Agong must assent
to a bill within 30 days of it being presented to him. In the case of non-money bills, he may return the bill
to the house from which it is originated with a statement of the reasons for his objection to the bill. The
bill will then be reconsidered by both the houses and if it is passed by them again, he must give his
assent within 30 days of it being presented to him, failing which it becomes law as if had been duly
assented to.

Statutory interpretation
i. The literal rule: This is a rule by which word or phrase is given its literal or ordinary grammatical
meaning. By this rule, if the words of the statute are in themselves precise and unambiguous they
must be expounded in their natural and ordinary sense. This rule is very commonly used and
sometimes appears to give a result contrary to the intention of parliament. In Fisher v Bell, a
shopkeeper was charged under the Restriction of Offensive Weapons Act 1959 for offering for
certain weapon, including flick knives, by displaying these knives in a shop window. The court held,
applying the literal rule, that the display was not an offer for sale but merely an invitation to treat.
Thus, the shopkeeper was held not guilty.
ii. Mischief rule: This is a rule that enables the court to interpret words or phrases which are unclear an
ambiguous of the statute as a whole. In such cases the court will enquire into the overall intention of
the legislature as discovered from a reading of the statute as a whole. In Lim Moh Joo v PP, the
Criminal Procedure Code required the Public Prosecutor to deliver a copy of a report to the accused
not less than ten clear days before the commencement of the trial. The issue was whether the same
procedure applied when the prosecutor was by a private person. The court held that it did, saying
that this was a case where court must modify the language of the law to meet what must have been
the intention of the legislature.
iii. The ejusdem generis rule: This is the rule by which where a general word follows a class of specific
words, the general word is interpreted to refer to words of that class only. For example, a statute may
prohibit the sale of beer, brandy, whisky, rum and other intoxicants. Here by applying the rule, other
 intoxicants would be confined to the same class of intoxicating drinks and not all other form of
intoxicants.

Human Rights/Fundamental Liberties

The Federal Constitution contains several provisions which are designed to protect the freedom of the
individual. These are referred to as fundamental rights or fundamental liberties. These rights are said to
be entrenched or enshrined because these rights cannot be altered or taken away altogether unless the
Constitution itself is amended. This would be quite difficult as it requires a majority of two thirds of all the
members of Parliament.
The main liberties so entrenched in the Federal Constitution are as follows:
1. No person may be deprived of his life or personal liberty except in accordance with the
law. This means that the individual cannot unlawfully imprisoned or put to death. Where
the individual is unlawfully detained, he may obtain an order of the court through a writ of
habeas corpus requiring that he be lawfully charged in court or be release.
2. No person may be subject to slavery or forced labour. However, this is subject to the right
of Parliament to make laws providing for compulsory national service.
3. No person can be punished under a law, which was not in force when the alleged crime
was committed. Thus, laws against crimes cannot be passed with retrospective effect.
4. A person cannot be tried more than once for the same crime, where he has already been
acquitted or convicted earlier. However, this does not apply where a superior court has
squashed the earlier proceeding and ordered a re-trial.
5. All persons are equal before the law and entitled to his protection.
6. Citizens cannot be discriminate against in relation to appointment to any office or
employment under a public authority, or in relation to acquisition of property, establishing
or carrying on of any trade, business, profession, vocation or employment, merely on
grounds of religion, race, descent of place of birth. However, this right is subject to Article
153 of the Federal Constitution, which permits the granting of special privileges to
bumiputras.
7. Citizen cannot be discriminated against in relation to the providing education, merely on
grounds of religion, race, descent or place of birth. This is also subject to Article 153 stated
above.
8. Every person has the right to profess, practice and propagate his own religion. However, as
Islam is the religion of the country, restrictions may be placed upon the propagation of
other religions among Muslims.
9. No citizen may be banished from the country. However, this right is subject to exceptions
whereby the Federal Government is permitted to deprive a person of his citizenship under
certain circumstances.
10. Every citizen has the right to freedom of speech, peaceful assembly and association.
However, in the interests of security, public order or morality, Parliament may impose
certain restrictions.

Structure of Malaysian Court System

The Malaysian court structure is as follows:
At the apex of the court system is the Federal Court. It is headed by the Chief Justice.
Below the Federal Court is the Court of Appeal. This court is headed by the President of the Court of
Appeal.
Below the Court of Appeal are two High Courts with co-ordinate jurisdiction. One is the High Court
(Malaya), which serves West Malaysia while the other is the High Court (Sabah and Sarawak), which
serves East Malaysia. The head of each High Court is a Chief Judge.
Below the High Courts are the subordinate Courts, the highest of which are the Session Courts each of
which is headed by a Session Court Judge. This is followed by the Magistrates Courts, each of which is
presided over by a magistrate. Parallel to the Magistrates Court is the Juvenile Court, which is also
presided over by a magistrate.
In West Malaysia there are Penghulus Courts below the Magistrates Courts. The head of the Penghulus
Courts is the village headman. He has very limited jurisdiction and usually deals with local disputes in an
informal manner.
There are also some courts, which operate only at the state level. These consist of the Native Courts,
which exist only in Sabah and Sarawak dealing with native rights, and the Syariah Courts, which deal
with matters pertaining to Islamic law.
Advantages of having a hierarchy of courts:
i. It facilitates a system of appeals. The court hierarchy distinguishes between higher and lower courts
so that persons who are dissatisfied with the decision of a lower court have an avenue to have the
decision reviewed by a higher court.
ii. It facilitates the application of the doctrine of binding judicial precedent which requires the lower
courts to follow the decisions of the higher courts, thus achieving better uniformity in the application
of the law.
iii. It facilitates specialization in the judicial process. The higher courts, which are presided over by more
senior and experienced judges, handle the more serious criminal offences such as murder, and
kidnapping and more serious civil matters where larger sums of money are involved. The lower courts
are left to handle the less serious offences and civil disputes involving smaller amounts of money.
iv. It results in greater administrative convenience, efficiency and cost effectiveness. The practical effect
of a court hierarchy is that it provides for an extensive system of lower courts dispensing justice
inexpensively in local areas and superior courts are in the main centres.