Malaysia
The Malaysian litigation landscape has seen a significant rise in commercial, employment and insolvency cases. The aftermath of the COVID-19 pandemic has contributed significantly to the rise of these cases and there are increased demands for alternative fee structures and planning which will be required in order to facilitate the administration of justice in handling these cases without financial pressures affecting such client-bases.
1. Is third party funding permissible for disputes?
In Malaysia, the general position taken by case law is that third-party funding is not permitted pursuant to the common law doctrines of maintenance and champerty which operates against the possibility of third party funders involving themselves in the administration of justice for personal gain or benefit.
However, there are some aspects of third party litigation funding which are recognised, examples of which include the law of subrogation which permits insurers to fund and take control of litigation on behalf of the insured, the right of trade unions to act on behalf of its members and legal aid schemes.
2. Are lawyers able to work on a contingent basis in the jurisdiction and are there any restrictions?
The Legal Profession Act 1976 (“LPA”) strictly forbids lawyers from working on contingency fees by entering into any champerty agreement where payment is contingent upon success. Contingency fee arrangements will be declared void for illegality.
However, there are some accepted practices related to legal fees which do not violate the prohibition on contingency fees, which include, among others:
- the application of conditional fees pursuant to the Legal Profession Conditional Fee (Personal Injury) Rules where lawyers may opt for a contingency fee from settlements of personal injury claims; and
- success fee arrangements where a basic agreed fee is charged alongside such additional success fees.
3. Can the court or tribunal order one party to pay the other’s legal costs?
Yes, the Court or arbitral tribunal in civil litigation or arbitration can order an unsuccessful party to pay the costs of the successful party, where such costs ordered include legal fees, court fees, hearing fees and other disbursements associated to the conduct of the litigation.
The court has discretion in whether to award costs and if so, the quantum of such costs to be awarded. Factors considered in determining cost orders include the complexity of the case, the parties’ conduct during the proceedings, the importance of the matter, and the reasonableness of the costs claimed. While costs orders may not comprise of the full extent of legal fees borne by the successful party in engaging lawyers, there are exceptional instances where the Court may also order for costs to be paid on an indemnity basis.
Any labour or industrial relations disputes are not subject to costs orders made by the Industrial Court and the Labour Court.
4. Is insurance available to protect against adverse outcomes for funded litigation?
Most insurance options in Malaysia in relation to third party funded litigation tend to focus on liability insurance, which indemnifies third parties for damages suffered from the insured upon a finding of liability. These liability insurances generally do not cover the full costs of pursuing litigation offensively unless the rights of the insured are subrogated to the insurer to fund and control the process of litigation.
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