CORPORATE/M&A
IN THIS ARTICLE, FATIMAH ZAHIRAH MOHD DAMANHURI CONSIDERS THE GROWTH OF LEGAL TECH INNOVATIONS IN MALAYSIA
Introduction
The Chief Justice of Malaysia at the Opening of the Legal Year 2019 on 11 January 2019 had the following message:
“ … the legal profession must embrace technology. There is no option. It is coming soon to the legal profession. Adapt or be Dropped.”[efn_note]See www.kehakiman.gov.my/sites/default/files/OLY%202019%20CJ%27s%20Speech%20-%20Final_0.pdf.[/efn_note]
The message was delivered in the context of technological reforms that have been or will be introduced into the judicial ecosystem which include[efn_note]See note ii.[/efn_note]:
- Video conferencing between Kuala Lumpur, Penang and Shah Alam with plans for expansion to other areas;
- Virtual court and the use of hologram technology in the pipeline for future implementation;
- Paperless Malaysian Courts by June 2019, where bundle of documents will be stored as virtual files within the case management system; and
- Data sentencing, which utilises Artificial Intelligence (“AI”) to guide judges and judicial officers in delivering sentences, in a bid to ensure consistent sentencing for similar offences.
The rapid development of technology goes beyond the courts. There have been increasing calls for the legal fraternity as a whole — from legislators and regulators to legal practitioners — to keep up with and embrace technology.
Legal tech innovations worldwide
Legal tech innovation and start-ups are flourishing in countries like the United States of America, United Kingdom and Australia where regulators lead the way by allowing legal tech innovations to operate in the legal ecosystem, and legal practitioners are willing to adopt legal tech innovations in their private practices[efn_note]See www.theedgemarkets.com/article/new-horizons-innovation-and-legal-profession.[/efn_note].
Examples of legal tech innovations and services include[efn_note]See www.cbinsights.com/research/legal-tech-market-map-company-list/.[/efn_note]:
- legal documents automation and creation;
- use of AI for contracts audit, to assist in due diligence exercises and to summarise legal findings;
- contract management tools;
- litigation finance; and
- online marketplace providing matching services for lawyers and clients.
Reception of legal tech innovations in Malaysia
The Malaysian legal industry has been relatively slow in the growth of new legal tech start-ups and introduction of legal tech innovations[efn_note]See note iv.[/efn_note]. This may be attributed to several factors such as[efn_note]See note vi.[/efn_note]:
- The restrictive regulatory framework
The Legal Profession Act 1976 (“LPA”) prohibits unauthorised persons from directly or indirectly carrying out acts of an advocate and solicitor, including the preparation of legal documents, in expectation of fee, gain or reward[efn_note]Section 37 of the LPA.[/efn_note]. The Legal Profession (Practice and Etiquette) Rules 1978 (“LPPER”) further prohibits touting (hiring of someone to introduce or solicit clients) and division of costs or profits between legal practitioners and unqualified persons[efn_note]Rules 51 and 52 of LPPER.[/efn_note].
Services by legal tech start-ups like Answers-In-Law (legal expenses indemnity service provider)[efn_note]See www.malaysianbar.org.my/legal_profession/2013/2014_legal_profession_committee_interim_report.html,www.malaysianbar.org.my/legal_profession/answers_in_law_summary_of_actions_taken_by_bar_council.html and https://www.bfm.my/open-for-business-richard-devaraj-answers-in-law.html[/efn_note], DragonLaw (legal template provider)[efn_note]BC’s Annual Report 2017/2018 and BC’s Annual Report 2016/2017.[/efn_note], BurgieLaw (clients and lawyers matching service provider and legal templates provider)[efn_note]BC’s Annual Report 2017/2018.[/efn_note], CanLaw (clients and lawyers matching service provider)[efn_note]See note xv.[/efn_note], and NeedLawyer (project-based lawyers matching service provider)[efn_note]See note xv.[/efn_note] have been deemed by the Malaysian Bar Council (“BC”) to be in breach of the LPA and/or LPPER.
The strict interpretation of the LPA and cautious treatments by the BC towards the above legal tech start-ups appear to be founded on the need to:
“protect the legal profession from unscrupulous vendors and/or access to products and services that flout the [LPA] and related legislation, or violate the rules and ruling of the [BC]. It is also due to the need to ensure that access to legal services is properly regulated so that the general public is protected in terms of their access, including with reference to the quality of legal services.”[efn_note]As stated by the BC’s president, George Varughese, as quoted in www.theedgemarkets.com/article/new-horizons-innovation-and-legal-profession.[/efn_note]
- Fear of legal market disruption
Legal tech innovations may have also been viewed as a disrupter to the legal market seeking to replace the services of legal practitioners.
Further research and education are needed to displace this perception and to clarify the use of such technology to promote productivity and efficiency, working side by side with legal practitioners.
For example, the use of AI to assist due diligence exercise and documents review would assist in efficient flagging of out of common and pre-set issues (which would still require input from the legal practitioners), and should not be viewed as rendering the services of legal practitioners redundant. Technology would still be subject to limitation in identifying issues beyond the pre-set settings, which would require the experience of, and further analysis by, legal practitioners.
- Lack of legal tech innovation products and choices
The cautious treatment towards legal tech start-ups and restrictive regulatory framework may have also discouraged entry into the Malaysian market by legal tech innovators and start-ups, resulting in slower growth and fewer choices of legal tech innovations, products and services. This is not limited to services to the public, but also in terms of technology adoption by law firms to improve productivity and efficiency of its work processes.
- Cost implication
As this area is still new, adoption of legal tech innovations and services may not be attractive due to the cost.
Lessons from other regulators and industries
The regulators for other sector-specific industries are also facing similar issues and are expected to keep up with the changing landscape spurred and accelerated by technological advances and innovations.
For example, financial technology (“fintech”) is growing steadily. The trends towards a cashless society has witnessed increasing entry of players into the Malaysian market offering e-wallet services and other new fintech solutions.
The Central Bank of Malaysia and the Securities Commission Malaysia have been receptive in introducing measures to facilitate and regulate the fintech industry through, among others, the launch of regulatory sandbox frameworks for deployment of fintech innovations within specified parameters[efn_note]See www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4273&lang=en and www.bnm.gov.my/index.php?ch=57&pg=137&ac=533&bb=file.[/efn_note], the introduction of a regulatory framework for equity crowdfunding and peer-to-peer financing[efn_note]See Guidelines on Recognised Market dated 31 January 2019 issued by Securities Commission of Malaysia.[/efn_note], and the introduction of a regulatory framework to regulate initial coin offerings[efn_note]See www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4783, Capital Markets and Services (Prescription of Securities) (Digital Currency and Digital Token) Order 2019, and Guidelines on Recognised Market dated 31 January 2019 issued by Securities Commission of Malaysia.[/efn_note].
In the transportation industry, the Land Public Transport Act 2010 has been amended to bring e-hailing intermediary services like GrabCar under regulatory purview[efn_note]See Land Public Transport (Amendment) Act 2017.[/efn_note]. This is an example of how technological innovation is recognised and allowed to continue, but within the boundary of necessary measures and precautions introduced through legal requirements and regulation.
It has also been reported in the news that the Tourism, Arts and Culture Ministry is in discussions with the Housing and Local Government Ministry to regulate services like AirBnB, an online platform-based intermediary service within the tourism and accommodation industry[efn_note]See www.thestar.com.my/news/nation/2019/02/14/operators-of-unlicensed-hotels-airbnb-told-to-register-or-face-legal-action.[/efn_note].
The challenge is of course for the laws to keep up with the fast-paced changes brought by technological advances, yet ensuring that the public interest is protected and the rights of stakeholders are balanced.
Security and privacy are also common concerns applicable across different industries. This is especially so in this age of big data and in view of the increasing use of cloud systems to store and process personal data, which increase the risk of security breaches and abuses. Hence, legal recognition of tech innovations should come with measures to regulate and mitigate such concerns and risks.
Conclusion
The growth of legal tech innovations in Malaysia is not expected to remain stagnant. The increasing acceptance of legal tech innovations by the judiciary may be a catalyst towards wider acceptance of legal tech innovations by the legal fraternity[efn_note]See www.thestar.com.my/tech/tech-news/2019/02/11/tomorrows-law-today/.[/efn_note]. The setting up of the Innovation and Future of Law Committee[efn_note]See www.malaysianbar.org.my/innovation_and_future_of_law_committee/.[/efn_note] in the BC to deliberate on the regulatory framework for legal tech start-ups[efn_note]See note iv.[/efn_note] is also very much welcomed.
There was also the first Malaysian legal hackathon organised by LawTech Malaysia in October 2018, where lawyers, students and programmers were sorted into groups to pitch for proposals “to solve four problems: reducing overhead cost for law firms, increasing access to justice, improving communication among industry stakeholders, and cultivating innovative culture”, and where a contract automation chatbot has emerged as the winning pitch[efn_note]See www.thestar.com.my/tech/tech-news/2019/02/11/changing-perceptions/.[/efn_note].
The event saw the Perak Bar, Penang Bar, Sabah Law Society and Asian International Arbitration Centre as collaborating partners, in addition to sponsors from law schools and firms[efn_note]See note xix.[/efn_note]. Such and similar events could provide avenues to learn more on legal tech innovations, bridge the gap between regulators and stakeholders, and create platforms for legal tech innovations to flourish.
The adoption of legal tech innovations by lawyers in their practices will serve to improve productivity and efficiency in the work processes which could help the adopters maintain a competitive edge and provide more value to their existing and potential clients. As various industries are becoming more receptive towards technology and seek to incorporate it into their processes and legal documentation, lawyers are also encouraged to keep up with technological development across different industries so as not to be left behind. Corporate and transactional lawyers, for example, will be increasingly required and expected to incorporate new technological concepts into their clients’ legal documentation and processes.
In summary, lawyers and law firms would benefit from staying abreast of technological development and innovations — both within and beyond the legal industry — to better serve the changing and evolving client base and landscape, and to remain relevant.
FATIMAH ZAHIRAH MOHD DAMANHURI
CORPORATE/M&A PRACTICE GROUP
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