Business Law: The Nature of the Legal System

Business Law (LAW 2213) - Chapter 1: The Nature of the Legal System

Learning Outcomes

• Explain the nature of the legal system
• Understand what constitutes a legal system
• Understand the purpose of law, the evolution of law, and the different sources of law
• Describe the division and key terminology of the legal system, specifically court structures
• Differentiate between civil and criminal law
• Describe the roles of government in law-making and the justice system

What Constitutes a Legal System in Malaysia?

• Law, from a layman's perspective, is a general rule of conduct
• The Oxford English Dictionary defines law as the body of enacted or customary rules recognized by a community as binding
• John Austin defined law as a command set by a superior being to an inferior being and enforced by sanctions or punishments
• The state (government) is the superior being, and the individual is the inferior being
• Sanctions or punishments may include imprisonment, fines, damages, and injunctions
• Law, in simplified terms, is a body of rules enforced by the state
• Articles 160(2) of The Federal Constitution and Item (43C) of Section 2(1) of the Interpretation and General Clauses Ordinance 1948 state that law includes written law, common law (in operation in the Federation), and any custom or usage having the force of law
• Article 4(1) of the Federal Constitution Act 1957 declares the Federal Constitution as the supreme law of the Federation

Introduction to Malaysia

• Malaysia consists of Peninsular Malaysia, Sabah, and Sarawak and is one political unit with differing sets of laws
• Two important links unite the two parts of Malaysia, these are Parliament and Federal Courts
• Malaysia practices Parliamentary Democracy and is ruled by a Constitutional Monarchy where the Yang Di-Pertuan Agong (YDPA) presides ceremonially as the Head of the Country

Yang di-Pertuan Agong and Heads of State

• The Yang di-Pertuan Agong is elected by the Conference of Rulers for a five-year term from among the hereditary Rulers of the nine states in the Federation ruled by Sultans
• In Melaka, Pulau Pinang, Sabah, and Sarawak, the Head of State is the Yang di-Pertua Negeri or Governor of the State
• The Yang di-Pertua Negeri is appointed by the Yang di-Pertuan Agong for a four-year term

Division of Law-Making Authority

• The Federal Constitution of Malaysia divides the law-making authority of the Federation into legislative, judicial, and executive authorities

Separation of Powers

• The separation of powers occurs at both federal and state levels
• Federal laws enacted by the Parliament of Malaysia apply throughout the country
• State laws governing local governments and Islamic law are enacted by the state legislative assembly

Legislative Authority

• The functions are the power to make laws, raise taxes, and authorize expenditure
• At the federal level, this power is vested in the Parliament
• The Parliament is divided into three components, these are Yang Di-Pertuan Agong who is the Head and Paramount Ruler, the Senate (Dewan Negara) that is the Upper House and reviews legislation and the House of Representatives (Dewan Rakyat) which is the lower house
• General Elections occur every five (5) years to elect members of the Dewan Rakyat
• The party with the most votes can form a government to rule the country
• Parliament passes federal laws, amends existing laws, examines government policies, approves government expenditures, and approves new taxes
• At the state level, legislative power is vested in the respective State Legislature, with elections held every five (5) years

The Executive

• This is the most powerful branch in Malaysia
• Executive Authority or the authority to rule is vested in the Yang Di-Pertuan Agong as provided for in Article 39 of the Federal Constitution 1957, but is exercised by a Cabinet of Ministers headed by the Prime Minister
• The Cabinet is directly responsible to the Yang Di-Pertuan Agong

The Judicial Authority

• The judiciary is entirely separate from and independent of the other branches, this includes the Legislative Authority and the Executive Authority
• Judicial power in Malaysia is vested in the Federal Court, Court of Appeal, The High Court of Malaya, The High Court of Borneo, and subordinate courts as provided by Federal Law
• The Head of the Judiciary is the Chief Justice of the Federal Court
• The Federal Court has jurisdiction to determine the validity of any law made by the Parliament or by a State legislature and disputes between States or between the Federation and any State, and it can interpret the Federal and State Constitution

The Purpose of Law in Malaysia

• Law raises equality, fairness, and justice issues, and the proposition that all are equal before the law
• The aims of law is to maintain justice, which is the abstract idea of right and wrong, fairness and equality

Justice

• Justice is defined as the fairness in protection of rights and punishment of wrongs
• All legal systems aim to uphold this ideal through fair and proper administration of the law, it's possible to have unjust laws
• The concept of justice differs in every culture
• Thinkers have argued that justice is derived from the mutual agreement of everyone concerned meaning equality and absence of bias

Idea of Right and Wrong

• Law encourages doing what is right or just in a given situation such as morally good, justified, or acceptable in doing business
• Law deters what is not correct or true, such as deceitful or immoral actions that affect business

Fairness

• Law creates fairness, this means making judgements free from discrimination

Equality

• Law encourages equality, especially in status, rights, and opportunities
• Law applies to all individuals citizens, public authorities, governmental departments, private bodies, profit making organizations and non-governmental organizations
• Law protects the basic individual rights and freedom such as liberty, equality, and freedom of speech, and it prevents those in powerful positions from unfairly taking advantage of others
• Law ensures a safe and peaceful society, where individual rights are preserved
• Law develops and changes as the norms and needs of society change
• Law regulates the economic and social behavior of society
• Laws serve to preserve and protect the economic and social welfare of society by implementing controls into daily activities of both citizens and businesses

Ethical Considerations

• Law is important for establishing rules of conduct, it is not enough to ensure a functional society without moral standards, which are often called 'Ethical Considerations'
• Law and ethics are different but are interdependent and relevant
• Law governs the conduct of all members of society, both natural and artificial such as companies
• Ethics guides individuals in ascertaining the soundness of rules, and their impact upon relationships

Example of Business Law with Ethics

• Legal rules relevant to business law have ethical considerations
• It's usually assumed that all parties will exercise good faith when entering into a contract
• Laws include the Consumer Protection Act
• Laws regarding Intellectual Property considerations involving copyrights, patents, designs, trademark, use of confidential information and passing-off
• Regulations of directors under the Companies Act 1965 (Now: Companies Act 2016)
• Regulations in forming up the contract under Contracts Act 1950

The Evolution of Law in Malaysia

• Malaysian legal history spans approximately 600 years and has 3 major periods of influence:
• 1st Era includes the Malacca Sultanate in the beginning of the 15th century
• 2nd Era include Islam in the indigenous culture
• 3rd Era include the most significant influence that includes British colonial rule which brought constitutional government and the common law system

Malacca Sultanate as Malay-Muslim Empire

• During the Sultanate, Malacca was an important trading port where the maintenance of law and order was crucial to its prosperity
• The legal system practiced a combination of Muslim law and Customary Law such as “Adat Temenggung", where the law was established by the rulers and later adopted in the other regions in Peninsular Malaysia and forms the basis of law found in Malay legal digest compiled between the 15th and 19th centuries
• Formal legal text included the laws of Malacca that is called as Hukum Kanun Melaka and Undang-Undang Laut Melaka (Maritime Laws of Malacca)

Islam in the Indigenous Culture

• The laws in Malacca Sultanate evolved and were shaped by three main influences that include early non-indigenous Hindu/Buddhist tradition, Islam and the indigenous “adat”
• The British colonial rule was the most significant influence and it brought constitutional government and the common law system
• The legal history of Malaysia begins with the acquisition of Penang which starts in 1786
• The Federation of Malaya received independence from the British in 1957
• The first Federal Constitution of Malaya (before it is called Malaysia) came into force on August 27, 1957, just a few days before independence day on August 31, 1957

British Colonial Rule

• Subsequently on September 16, 1963, the Constitution of Malaya was amended to accommodate 11 states of the Federation of Malaya, the former colonies of Sarawak and Sabah on the western coast of Borneo and the state of Singapore to form the Federation of Malaya
• Singapore seceded in August 1965 to become an independent republic, and Malaysia today consists of the eleven peninsular states that constituted Malaya, along with Sabah and Sarawak
• The reception of English law evolved during British colonization but became statutory with the Civil Law Enactment of 1937
• Before independence in 1957, the laws of the United Kingdom were adopted and incorporated into local legislation or applied as case laws
• The application of English law or common law is specified in the Civil Law Act 1956 through Sections 3 and 5, allowing for the application of English common law, equity rules, and statutes in Malaysian civil cases lacking specific laws
• Section 5 of the Criminal Procedure Code also states that English law could be applied in civil law where no specific legislation is enacted
• Malaysian law is modeled on other jurisdictions' laws, such as Australia and India, with the Malaysian Criminal Procedure Code based on the Indian criminal code
• Similarly, Labour Law and the Contracts Act are based on the Indian model, while Malaysian Land Law is based on the Australian Torrens system
• Basic arrangement of the current Malaysian legal system and the concept of separation of (law-making) powers will assist individuals in understanding how Malaysian legal resources are organized
• Although predominantly based on English common law, the Malaysian legal system integrates other secondary legal systems affecting certain sections of the law, like Islamic and customary law

Different Sources of Law in Malaysia

• Sources of Malaysia law include historical, textbook/authorities, and legal sources

Different Sources of Law

Historical Sources

• There include factors like religious beliefs, local customs, and legal expert opinions that are influential in the development of law but are not themselves recognized as law

Textbook and Authorities

• Authorities are recognized as a source of law, for example, textbooks by Blackstone

Legal Sources

• Includes written and unwritten laws

Written Law

• Written law is written black and white
• Written law is embodied in the Federal and State Constitution and in a code or a statute (legislation), including subsidiary legislation
• It is divided into:
  • Federal Constitution
  • State Constitution
  • Legislation
  • Subsidiary Legislation

Federal Constitution

• This is the Supreme Law of the country
• It applies to the whole of Malaysia
• It defines the powers of the Federal and State Government as well as the basic or fundamental rights of the individuals
• Articles include Article 159 and Article 161E of the Federal Constitution 1957, in order to amend the Constitution the following is necessary:
  • Requires a two-thirds (2/3) majority agreement from both houses of Parliament - This can apply to many articles including
    • Name, states and territories of the Federation
    • Religion of the Federation
    • Supreme law of the Federation
    • Fundamental liberties
    • Citizenship
    • The Federation-YDPA, rulers, executive, Federal Legislature, Legislative procedure
    • The states -Rulers and Yang Di-Pertuan Agong Negeri Legislative
    • Relations between the Federation and the States
    • Financial Provisions
    • Elections
    • The Judiciary
    • Public Services
    • Special powers against subversions
    • General and Miscellaneous
    • Additional Protection for states of Sabah and Sarawak
    • Traditional and transitional provision
    • Saving for Ruler's Sovereignty

State Constitution

• Only applies to the particular state
• Conflicts between the Federal Constitution and the State Constitution are addressed by Article 4(1) Federal Constitution Act 1957.
• The Federal Constitution takes precedence, and State Constitution matters enumerated in the Eight Schedule to the Federal Constitution Act 1957 include matters concerning the Rulers, Executive Council, Legislature, Legislative Assembly, Financial Provision, State Employees, and Amendments to the Constitution
• Under Article 71 Federal Constitution 1957, Parliament can make provisions related to such provision or remove inconsistencies, as the case may be, if essential provision are missing, or if any provision is inconsistent with them

Legislation

• In Malaysia, laws are legislated by Parliament at the federal level and by State Legislative Assemblies at the state level
• Legislative Proceedings occur and to become an Act of Parliament, the Bill must be passed by both the Dewan Rakyat and Dewan Negara and finally obtain the Royal Assent via the Yang Di-Pertuan Agong's seal or signature
• Legislation made by Parliament after Independence 1957 is called Acts, and prior to that, they were called Ordinances
• Laws made by the state legislative assemblies (except in Sarawak) are called Enactments
• In Sarawak, the laws are called Ordinance

Subsidiary Legislation

• Subsidiary legislation is made by persons or bodies under powers conferred on them by Acts of Parliament or State Assemblies (Rules and Regulations, By-law)
• Subsidiary legislation, also known as delegated legislation and subordinate legislation, it involves legislation by Parliament and the insufficient State Legislature requires the the laws govern everyday matters
• Subsidiary legislation deals with the details about which legislature has neither the time nor the technical knowledge to enact the law
• Subsidiary legislation cannot be made in contravention of the parent Act or the Federal Constitution, and if there is a contravention, subsidiary legislation is void
• If there is a conflict between parent legislation and subsidiary legislation, the parent legislation will always take precedent
• Housing Development (Tribunal for Homebuyer Claims) Regulations 2002 is an example

Unwritten Law

• Unwritten law does not mean the law is literally unwritten.
• It is a reference to that portion of Malaysia Law which is not enacted by the legislation (Parliament and State Assemblies) and which is not found in the written Federal and State Constitutions.
• Unwritten Law is divided into divisions such as English Law, Judicial Precedents, and Customs

English Law

• English law is found in English Common Law and was introduced informally and indirectly through the residential system, via the British Administrators
• English Law is today applied throughout the country. The provision of Section 3 and Section 5 Civil Law Act 1956 is today applied
• By virtue of Section 3(1) Civil Law Act 1956, in Peninsular Malaysia the court applies the English Common Law and the rules of equity as administered in England on 7th April 1956
• In Sabah, the courts apply the common law and the rules of equity together with statutes of general application as administered or in force in England on 1st December 1951
• In Sarawak, the courts apply the common law of England and the rules of equity, together with the statutes of general application, as administered or in force in England, from 12th December 1949
• Section 5(1) Civil Law Act 1956 introduces to Peninsular Malaysia (Except the States of Penang and Malacca) the principles of English Commercial Law as they stood on 7th April 1956, which applies if there is an abscence of local legislation and it can be adopted by the local circumstances of the Malaysia,
• Since Statutes that deal with commercial subjects have passed such as the Companies Act 2016, Partnership Act 1961 and Bills of Exchange Act 1949, there is no total reliance on English Commercial Law

Case Law as Judicial Precedents

• Judicial precedent means that the decisions of higher courts automatically bind the lower courts
• Federal Court decisions automatically bind the Court of Appeal, High Court, Sessions Court and Magistrates Court, since decisions made by judges previously in similar situations are binding upon future cases depending on the hierarchy of the courts
• Also known as the doctrine of stare decisis, here judges are obliged to respect previous cases
• The principle of stare decisis comprises:Ratio Decidendi (Reason for the decision), which is binding on the lower courts, and Obiter Dictum ("Incidental Remarks by a judge"), which is persuasive only

Advantages & Disadvantages of Judicial Precedents

• Advantages include uniformity (everyone is treated equally), certainty (creates certainty in the law), flexibility (new rules arise), time saving ( saves court time), minimized legal costs and a lack of influence from Judges
• Disadvantages include loss of rigidity/free will, a potential for illogical actions, too few resources (bulky) and a slow or potentially expensive response in litigation
• Finding the ratio decidendi of a case is difficult

Customs

• Customs that have been inherited over multiple gernerations, the different customs consist of traditions from different races
• Customs include both Adat Perpatih and Adat Temenggong customs, which are the Malay Customs
• Adat Perpatih appliees in Negeri Sembilan and Nanning in Malacca to maintain a matrinlineal system where property can only be inherited by female people
• Adat Temenggong Applies to all other Malay State, mainly to keep the male people to inherit.
• Chinese and Hindus are respectively covered by Chinese and Hindu and Native Law which is related to family and land matters in native locations such as Sabah and Sarawak

Islamic Law

• Only applies to muslims in syariah courts
• Islamic law are known as Syariah Court
• Has been applied in both modern and more diverse ways, such as the more diverse application of banking and land laws
• Head of the home state in Ismalic Law, Yang Di-Pertuan Agong is also known as the head of all states.
• For other states, the one in charge is known as Sultan.

Regulations

• There are documents that had gained much consensus in many ways
• regulations can be used to define both methods of enforcement, rules and the rules that dictate them.

Standards.

• Standards are used in order to conform to laws and official procedure.
• In other to conform to certain standards, it's either in rule or in the official procedure.

Directives

• There are both official and executive commands which could either encourage or discourage activity.

Treaties

• There are written agreements which may subject itself to international law to allow and ratify conventions via governing.

1.3. Division and Key Terminology of the Legal System

• Has many hierarchical tiers of sub courts such as Sessions(lower level) and Appeal Courts for the cases that don't apply here.
• Court Structure occurs in Malaysia, in 2021
• Is headed by a respective judge chief, and it has both 2 tier coordinate systems which also function to manage the respective courts(Malaya and Sarwak)
• Has separate divisions of court which also involve Syariah

1.4. Division and Key Terminology of the Legal System

• Has many tiers and administrative oversight due to the vast amounts of cases it takes

Section 3(2)Subordinate Courts Act

• Is governed and also known as civil and criminal law, in respective divisions like the Sessions and Magistrates that are implemented on levels to determine the best courts to determine civil actions amongst the population

Civil and Criminal Law

• Criminal Law and Civil Laws are vastly different
• Civil law is when issues occur with judicial and cases, and the criminal actions are subjected to Penal Codes.
• Civil can be actions to protect people vs criminal law which helps the protection of property.
• Civil usually has a means of harm being taken due to action from an organization or party, and thus seeks to punish the offender.
• Criminal case will act for plaintiff during trial. and also has a mean to allow defendant to have defense to get better action compared to their peers.
• Standard of proof is dependent on certain things in mind in order to get better trial and to see where the blame lies
• Civil verdicts happen when things can happen regardless of innocence vs guilt, and actions can also seek to compensate the person with things to fix to get through harm during the injury/trial

The Justice System: 1.5. The Role of Government in Law-Making and the Justice System

Legislative Proceeding

• Bills must first be presented by the minister while going though a parliamentary committee.
• Proceed though it based on which case it involves.
• Actions must be considered in either house in order ot get through
• Accepted bill must get approved, and it becomes known as Royal Assent

Role of Justice System

• Based on British Common Law that lasted as an influence from the British Empire colonization during the 19th century to the 1960s
• Framework designed to protect citizens for the country
• Australian and Indian law are integrated into justice, such as land
• Justice system are a mix of Civil and Shariah Law(Islamic)
• Islamic law must apply to muslims and must get judged by common practice

ROLE OF JUSTICE SYSTEM

• Most common rules for stat interpretion can carry definition and terms,
• Three mains includes: Literal, Golden and MIchief

Literal Meaning

• The clear law means that the laws must be done no more than given back to those words.

Golden

• Must be done where legislators are clear and the act can prevent injustice

Mischief

• Occurs when language in impossible and vague, and courts cannot read the Acts as a whole