Competition Law As A Hindrance to the Bar’s Implementation of Minimum Remuneration?

by | Sep 21, 2021 | Law

Disclaimer: The author is not a competition lawyer and merely analysed the issue at hand utilising statutory interpretation, from the perspective of a civil litigator

During the 75th Annual General Meeting of the Malaysian Bar, inter alia, two resolutions in relation to minimum remuneration for pupils were adopted (“The Resolutions”).[1]

Recently, vide Circular No 340/2021, the National Young Lawyers and Pupils Committee (“NYLPC”) provided a progress update on The Resolutions.[2]

In the circular, the NYLPC points out the following:

“There may also be a competition law issue in which the Bar Council is awaiting independent legal opinion on the matter.  It is pending ongoing deliberations internally”[3]

During a Clubhouse talk titled “Bar Council Action Plan: Waras or Wayang?” on 15th September 2021,[4] a Bar Councillor (in his individual capacity) expounded on the competition law issue at play.

The Bar Councillor also provided examples of organisations which were found to have engaged in anti-competitive practices when it had fixed salaries.

Section 4(1) of the Competition Act 2010 (“CA 2010”) is the relevant provision in question.

It provides that, “A horizontal or vertical agreement between enterprises is prohibited insofar as the agreement has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.” (emphasis mine)

The elements of Section 4(1) of the CA 2010 can be summarised as follows:

i. there must be an agreement;

ii. the agreement must be between enterprises; and

iii. the agreement must have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.

Is there an agreement between “enterprises”?

Section 2 of the CA 2010 defines an “enterprise” as:

“… any entity carrying on commercial activities relating to goods or services, and for the purposes of this Act, a parent and subsidiary company shall be regarded as a single enterprise if, despite their separate legal entity, both form a single economic unit within which the subsidiaries do not enjoy real autonomy in determining the actions of the subsidiaries on the market.” (emphasis mine)

Advocates and Solicitors of the High Court of Malaya could be construed as enterprises for the purposes of CA 2010 since they are entities which carry out “commercial activities relating to … services,” namely the provision of legal services.

The Resolutions, meanwhile, could be construed as a horizontal agreement between Advocates and Solicitors of the High Court of Malaya for the purposes of Section 4(1) of the CA 2010.

If that is the case, then the Resolutions would appear to contravene Section 4(1) of the CA 2010 unless it can be shown that the Resolutions do not “have the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services.”

The Resolutions are for the creation of minimum remuneration to be paid to pupils, the Resolutions would significantly prevent, restrict, or distort the ability of legal firms currently paying below the minimum remuneration to be implemented to compete with other legal firms for pupils.

Is there an alternative perspective/approach?

One possible option to sidestep the application of Section 4(1) of the CA 2010 is to view the entire matter as the Malaysian Bar, a regulatory body, or the Bar Council as the management arm of the Malaysian Bar, imposing a minimum remuneration for pupils on all of its members.

After all, the Malaysian Bar is not an “enterprise” for the purposes of the CA 2010 as it does not “[carry] on commercial activities relating to goods or services.”

The purpose of the Malaysian Bar, amongst others, is “to represent, protect and assist members of the legal profession in Malaysia and to promote in any proper manner the interests of the legal profession in Malaysia.”[5]

If the Malaysian Bar is not in fact an “enterprise,” then an arguable case can be put forth that Section 4(1) of the CA 2010 does not apply and the implementation of minimum remuneration for pupils does not give rise to a competition law issue.

If the implementation of The Resolutions would violate Section 4(1) of the CA 2010 by virtue of The Resolutions being an agreement between legal firms to fix a floor wage, the Malaysian Bar can pass a subsequent resolution to revoke The Resolutions

Notwithstanding the revocation of The Resolutions, the Bar Council presses ahead with the imposition of minimum remuneration for pupils in line with the above mentioned purpose of the Malaysian Bar, and pursuant to Sections 56 and 57 of the Legal Profession Act 1976.

Would the implementation of minimum remuneration be in line with the long title of the CA 2010?

In the long title of the CA 2010, one of the purposes of the CA 2010 is “… protecting the interests of consumers.”

Section 2 of the CA 2010 defines a “consumer” as “any direct or indirect user of goods or services supplied by an enterprise in the course of business …”

In the context of the legal profession, pupils use the services provided by legal firms as a means of obtaining training, obtaining qualification for entry to the Bar, obtaining livelihood, etc.

As such, it could be argued that the interests of the consumers (for the purposes of the CA 2010 and in the context of the legal profession) would include the interests of pupils.

If the implementation of minimum remuneration for pupils would be in line with one of the objectives of the CA 2010, Section 4(1) of the CA 2010 could (and should) be interpreted in a less restrictive manner so as to not render The Resolution nugatory.

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The Alternative Legal Fees Structure: Basic Fees + Success Fees

by | Sep 2, 2020 | Law

Contingency fee agreements, between lawyers and clients, are agreements wherein lawyers are only paid if a suit, action or proceeding is won.

For example, the Plaintiff and Defendants in Federal Furniture Industries Sdn Bhd v Chim Yiam Lee, Tan & Associates (Dahulunya dikenali sebagai Chim Yiam, Lee & Associates)(Disaman sebagai firma guaman) [2012] MLJU 1629 entered into an agreement whereby:

“… the Plaintiff is to pay the Defendants a sum equivalent to 20% of the debt amount recovered from the proceedings initiated by the Defendants.”[1]

Learned authors David W. Neubauer and Stephen S. Meinhold point out, in the context of the United States of America, that “lawyers representing plaintiffs in personal injury cases typically work under a contingency fee agreement.”[2]

Contingency fee agreements are expressly prohibited by Section 112 of the Legal Profession Act 1976 (“LPA 1976”):

“Except as expressly provided in any written law, or by rules made under this Act, no advocate and solicitor shall—

…

(b) enter into any agreement by which he is retained or employed to prosecute any suit or action or other contentious proceeding which stipulates for or contemplates payment only in the event of success in such suit, action or proceeding.” (emphasis mine)

The rationale behind the prohibition stems from the “… abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses.”[3] (emphasis mine)

Lawyers, however, have creatively circumvented Section 112 of the LPA 1976 by introducing agreements which involve the payment of a basic fee coupled together with the payment of a success fee (“Basic Fees + Success Fees Agreement“). The former is payable notwithstanding the outcome of the suit, action or proceeding.

The Basic Fees + Success Fees Agreement has been tested in the courts and have been upheld as being valid.

In Chai Chee Chin and Others v Tetuan Zahari Ong & Co [2005] MLJU 623 (“Chai Chee Chin“), the agreement was for 20% of the monies awarded by the Land Administrator subject always to a minimum legal fee of RM1,000.00.

Azmel bin Haji Maamor J (later FCJ) held that the agreement was not contrary to Section 112(1)(b) of the LPA 1976 as the Defendant will be paid regardless of the circumstances and decision made in the proceedings before the Land Administrator.[4]

The Court of Appeal in Lua & Mansor (suing as a firm) v Tan Ah Kim [2017] 3 MLJ 371 (“Lua & Mansor“) affirmed the decision of the High Court in Chai Chee Chin and remarked that:

“… the pre-agreed costs by the parties in this case is known as success fees, and not contingency fees because the agreed 15% fees is not contingent upon the defendant winning the case but it was additional fees agreed, in addition to the RM20,000 basic fees.”[5] (emphasis mine)

Recently, in Jacob and Toralf Consulting Sdn Bhd & Ors v Siemens Industry Software Gmbh & Co Kg (previously known as Comos Industry Solutions GmbH and previusly known as Innotec GmbH) & Ors [2018] MLJU 767 the agreement between the respondents and their lawyer was for:

“… payment of an agreed fee of a fixed sum of RM 200,000.00 and 5% of any award from a successful conclusion of the trial of the plaintiffs’ claim or of any sum agreed to by way of an out of court settlement of the plaintiffs’ claim.”[6]

The learned High Court judge made no reference to Chai Chee Chin or to Lua & Mansor but nevertheless held that the champerty, as embodied in s. 112 of the LPA 1967, was not proven.[7]

Unfortunately, the Basic Fees + Success Fees Agreement has not been tested at the apex court. Having said that, the Basic Fees + Success Fees Agreement remains a valid legal fee structure until and unless Lua & Mansor is overruled by the Federal Court.

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