Entrepreneur

Why Ironically, Law Startups Face A Lot Of Legal Challenges In Malaysia

In those early days before the term “disruption” became the hot-button buzzword that it is today, Uber came into Malaysia and began operating even before it was legalised. As everyone here remembers, there was some resistance to the idea at first, especially from the taxi drivers whose livelihoods would be disrupted by ride-sharing. But Uber’s legal loophole came to pass, and the people have not looked back since.

This was in stark contrast to motorcycle ride-sharing service Dego that was effectively banned from the get-go.

The government is generally very supportive of startups here in Malaysia from a tech standpoint, but not all regulatory bodies are welcoming of change. Case in point: law startups.

Between the lawsuit against Answers-In-Law in 2011 to the more recent reviews of many law startups, and finally the outright banning of Hong Kong’s Dragon Law from entering the country altogether, there are some growing pains to the adoption of new technology in Malaysia’s law scene.

And to help explain some of the more involved details regarding the field of law in Malaysia we reached out to Jo Fan of CanLaw and Louis of BurgieLaw for some context into the standstill with the Malaysian Bar Council.

Many players among the startup scene here remember the controversy surrounding Dragon Law‘s attempted entry into Malaysia, a Hong Kong-based startup that makes drafting legal documents more accessible to the common public.

Part of the reasoning lies in a law that will come into scrutiny over the course of this article, Legal Profession (Practice and Etiquette) Rules 1978, particularly the Subsections (1) and (2) of the above-mentioned Section 37 of the LPA.

This law prohibits lawyers from participating in “touting”. This means that no lawyers can directly advertise to clients, and there can’t be a third-party who can act as an advocate and solicitor to bring clients to these lawyers.

This is to prevent against nuisances like the well-known “ambulance chasers” plaguing Malaysian roads.

Ambulance Chasers: This refers to the strangers that usually appear at accident sites to “help”. Some of them do it to refer to the victims to partnering workshops and towing services, while some also do it to refer victims to partnering lawyers. These “helpers” then take a small fee for their “services”. 

Dragon Law’s barring comes from the ability to refer users who require more detailed legal advice to their partner law firms because the Malaysian Bar Council argues that this makes them a third party recommending lawyers to clients—a big no-no in the industry.

However, Louis of BurgieLaw thinks that the banning of Dragon Law was was unnecessary.

“Since they are a legal template generator, I believe that Malaysia should allow such technology to be used here,” he said.

“I’ve spoken to a few startups who are using templates from the UK because they are cheaper, but the problem is that some of it may not be suitable for Malaysia.  I’ve spoken to a Malaysian lawyer who helped Dragon Law prepare for the Malaysian market, and I think it’s definitely better than using the UK templates.”

Startups Under Review

Many law startups have come under fire based on these crackdowns, and according to Jo Fan from CanLaw, he’s seen many startups that have been deemed illegal under Malaysian laws, due to the risk of them being seen as touting.

And some of the more recent startups hit by these reviews are BurgieLaw and CanLaw. At the time of writing, both of these startups are still under review by the Bar Council and it is still being discussed as to whether they are in breach of the aforementioned section 37 of the LPA or not.

Both startups actually approached the Malaysian Bar Council with their propositions, to let the Bar deliberate on whether they can continue to operate or not.

And in fact, they have at different points come up to say that part of the solutions they offer might help to combat touting (i.e. ambulance chasers) on the Malaysian streets. When it’s much easier for the general public to find lawyers when they need to, the public would be less likely to use the services of these ambulance chasers since they know a reliable platform where they can find lawyers.

CanLaw

CanLaw’s Homepage

This post by CanLaw on their site makes it very clear that as of now, CanLaw is legally able to operate in Malaysia. This is because CanLaw is currently free for use, both for lawyers and clients. There’s no rule that says that they can’t connect clients with lawyers for free, because if so, even friends and family shouldn’t be able to recommend any lawyers to you without breaching the law.

What they’re actually under review right now is for their proposed monetising solution.  Basically, they’re proposing that they charge the participating lawyers administration fees (or subscription fees in startup terms, according to Jo Fan).

“For lawyers on board they pay a nominal fee every month. Regardless of whether they get any clients, they’ll still pay the fee,” he said.

They approached the Malaysian Bar Council back in August 2016, and as of today are still waiting on the Bar Council’s call; breach of Section 37 or not?

BurgieLaw

BurgieLaw raises seed funding in November 2016 (Image Credit: BurgieLaw)

According to this response penned by BurgieLaw, they currently sit at a similar grey area as CanLaw.

In January 2016, they approached the Malaysian Bar Council with a PowerPoint presentation of their proposed services for the Bar’s expert advise on whether there was anything in that would break any rules of conduct.

According to BurgieLaw’s post on the issue, “It was in this regard, LPC took an issue with the 15-minute free consultation construing it as placing at the disposal of any other person the services of an advocate and solicitor.”

BurgieLaw then responded by email to state that they’re removed the 15-minute session and they’re leaving it up to lawyers to decide on the costs for those sessions. “For all intents and purposes, BurgieLaw.com opines that the section was originally drafted to combat touts and not to deal with legal tech or legal directories,” they finished.

The Position Of Law Startups In Malaysia

My “Law For Startups” workshop at MA2015 (Image Credit: Malaysian Lawyer)

One of the concerns that was raised by Foong Cheng Leong, the co-deputy chairperson of the Bar Council’s Intellectual Property Committee in this article is, “the restrictions in the LPA are very widely-worded and can be interpreted in a manner which means that all sorts of activities would breach the LPA”.

Considering the very nature of law startups, it stands to reason that they would naturally be put under more legal scrutiny as opposed to other forms of startups. However, this article by Marcus Van Gyzel paints a gloomier picture.

In his article about the Bar Council’s scrutiny of Dragon Law, Marcus firstly points out this Malay Mail Online article where he criticises the Bar Council for banning virtual offices, and the “Legal Profession Act 1976 has yet to be amended to allow lawyers to set up limited liability partnerships, even though the Limited Liability Partnerships (LLP) Act came into force three years ago in 2012”.

Marcus also brought up the lawsuit filed against Answers-In-Law, that only resolved itself in 2015—four years after it was filed. The conclusion; Answers-In-Law will not proceed with their services.

Another article written by Jo Fan somewhat resonates with with Marcus’ observations. He states that the legal industry here in Malaysia remains “cautious of any form of tech innovations that are being introduced into the profession, mostly due to the general misconception that technological innovations pose a threat to the livelihoods of law practitioners in the country”. He cites the uberisation and disruption of previous industries that raised this fear among law practitioners—implying that this crackdown is in self-protection.

According to Louis from BurgieLaw however, the oft-feared “disruption” doesn’t have to be a bad thing.

“What I can share is that legal tech will be an interesting space to watch. In Malaysia, we are just scratching the surface,” Louis said. “The disrupting technology will be in processing huge amounts of documents, especially legislation contracts. Lawyers currently go through each document manually.”

He goes on to elaborate on some of the innovations he’s seen in the law scene outside of Malaysia.

“I think somewhere in Europe, someone uploaded the country law into GitHub, hence any changes are tracked like how software developers track their codes, line by line.”

In fact just recently on American soils, Justin Kan, an entrepreneur and investor launched a new startup Atrium that is raising $10 million to disrupt the legal industry.

Meanwhile, closer to home in Singapore, Law and Home Affairs Minister K Shanmugam advised lawyers there to raise the bar, so to speak, and offer more valuable services than that of ones that can easily be done by machines and artificial intelligence.

“You have got to become highly skilled professionals—even those who are already in the profession. You have to continuously upgrade yourself. When the client walks in and speaks with you, he must know that he is speaking with a true professional who is several notches above what the client can get from an outsourced vendor in a low-cost jurisdiction or from a machine. It is critical,” he said.

Jo Fan added, “Lawyers are more orthodox kind of people. Established in 1947, the Malaysian legal profession is probably the oldest profession in the country. There are so many traditions and regulations that our legal profession inherited from the British colonial era. Lawyers take a lot of pride in the nobility and dignity of the profession. For instance, it is not proper for lawyers to be the ones seeking clients, only clients should be the ones seeking lawyers. These principles form the spirit of these rules that exist today and we can definitely understand where they’re coming from, and we respect that.”

The Takeaway

Like how the Bank Negara and the Securities Commission have come together to create the digital sandbox for FinTech, the Malaysian Bar Council has the potential to let the law innovations grow within their jurisdiction and watchful eye. It doesn’t have to be an either-or situation. Both parties will hopefully be able to find a middle ground that can only benefit everyone in the scene.

“I think instead of reacting to the changes that will happen, it will be better for regulators can take up the role leading the change, so that they can too set boundaries on it and be the ones who usher in this new technology age for the legal profession,” said Jo Fan on the issue.

Since these technological advancements are still new to the more orthodox lawyers in the scene, the deliberations and grey-areas within the startup scene for law startups may just be the necessary growing pains that they and the Malaysian Bar Council needs to go through as they figure out how C2L (client-to-lawyer, my own little self-coined term) startups will work in Malaysia.

Similarly, law startups that involve clients need to be creative with their monetising strategies. Thanks to the nature of the law, it may take some creative juice for these C2L startups to figure out a way to monetise that doesn’t step on any of the existing lawyer-conduct laws.

These laws, as stated above, do exist for a reason and for better or worse and should be upheld to preserve the sanctity of the practice as a whole. Law already has somewhat of a sketchy reputation in the public’s eye, and lawyers already have a lot to prove without also having to justify these issues.

Finally, it’s not a bad idea to take note of the measures taken by BurgieLaw and CanLaw. No matter what you do, always go straight to the Bar Council to ensure that you don’t step on any toes. Lawyer-to-public type startups are definitely an area worth innovating and developing but it runs the risk of going against the practice of law anywhere. That being said, these startups should expect deliberations on the Bar Council’s side to take some time as they pore through whether any laws are broken or not.

We’re in a bit of a rough patch now, but once more and more startups have figured out the lines that they can and cannot cross, Malaysia may one day not even remember that this was ever a problem in the first place. And I for one, look forward to that future.

Feature Image Credit: shane.araustralia.org

 

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