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23 Jan 2024

Addressing Copyright Infringement and Challenges in AI Training

©️ Addressing Copyright Infringement and Challenges in AI Training. In this article, we highlight the overlooked risk of copyright infringement in the training process and offers best practices to safeguard against legal challenges.

Navigating Competition Law in the Expanding Technology Industry: A Focus on Hardcore Horizontal Restrictions

As the technology industry expands at a rapid pace, it brings with it a multitude of legal issues that accompany the growth of both companies and the sector as a whole. In this article, we aim to highlight an area of law that may have been overlooked by companies and general counsel: competition law. This area has increasingly drawn the attention of regulators intent on ensuring that the market remains fair and undistorted for the benefit of consumers.   Heightened Competition Law Scrutiny: A Global Perspective Competition law, or antitrust investigations, is becoming ubiquitous globally, a trend that companies and their legal teams cannot afford to neglect. Recently, U.S. regulators signaled their intention to open antitrust investigations into three major players in the artificial intelligence industry: Microsoft, Nvidia, and OpenAI. These companies, which are rapidly gaining dominance in the AI market with their software and semiconductors, are under scrutiny to determine if their practices are anticompetitive.   Understanding Hardcore Restrictions in Malaysia As Malaysia positions itself as a regional technology hub—particularly in data centers, digital infrastructures, semiconductor manufacturing, and technology software—companies must be vigilant about competition law.   The Competition Act 2010 governs competition law in Malaysia, and it outlines strict regulations against practices that prevent, restrict, or distort competition. In the realm of competition law, context is crucial in determining whether any conduct, agreement, or arrangement has a significant anti-competitive effect. However, certain horizontal agreements are deemed to have anti-competitive objects outright, eliminating the need for further examination of their effects. These agreements, known as "hardcore restrictions," are critical for technology companies to avoid.   Four Types of Hardcore Restrictions: 1. Price Fixing - Price fixing occurs when competing firms at the same market level conspire to set prices for their products or services, bypassing market competition. This disrupts free market competition and can lead to artificially high prices for consumers. In a scenario where software companies conspire to fix subscription prices, it would involve multiple companies in the same market agreeing to maintain a certain price level for their subscription services, thereby eliminating competitive pricing dynamics. For instance, if several cloud storage providers agree to set their monthly subscription fees at $20, regardless of features or quality of service, they would be engaging in price fixing. . 2. Market Allocation - Market allocation involves competitors agreeing to divide customers, markets, or geographic territories to avoid competition. This practice restricts competition and can lead to higher prices and reduced choices for consumers. In the technology industry, market allocation among competing firms might involve agreements to divide up specific customer segments, target demographics, or even technological niches to avoid direct competition. For instance, if two major social media platforms agree to exclusively target different age groups or demographics, such as one platform focusing solely on users aged 18-25 and the other targeting users aged 26-50, they would effectively be engaging in market allocation. . 3. Limiting Production, Market Outlets, Technical Development, or Investment - This type of agreement occurs when competitors agree to restrict production, market outlets, technical development, or investment to reduce competition and maintain higher prices or market shares. In the technology industry, limiting production, market outlets, technical development, or investment could manifest as agreements among competing firms to constrain the release of new products or features, restrict the expansion of distribution channels, or curb investments in research and development to maintain dominance or artificially inflate prices. For example, if several major smartphone manufacturers agree to limit the release of new models to only one per year and refrain from investing in emerging technologies, they would effectively be restricting market supply and impeding technological progress. This would result in consumers having fewer options for innovative devices and features, potentially leading to higher prices and stifling industry advancement. . 4. Bid Rigging - Bid rigging involves competing firms conspiring to manipulate the outcome of a bidding process, typically to ensure each firm wins contracts in turn. This can include agreements to refrain from bidding or submitting deliberately non-competitive bids. For instance, if multiple technology companies bid for digital infrastructure projects and agree that only one will submit a competitive bid while others submit artificially high or substandard bids, they engage in bid rigging. This practice undermines fair competition and can lead to inflated project costs and suboptimal outcomes for the contracting entity. . Conclusion These four types of horizontal agreements are deemed to have anti-competitive objects and are prohibited under competition law, regardless of the market shares of the companies involved. It is crucial for general counsels and organizations within the technology sector to ensure that they do not engage in any of these practices. Vigilance in adhering to competition laws not only avoids legal repercussions but also promotes a fair and competitive market environment that benefits consumers and fosters innovation.   Should any inquiries or concerns arise regarding competition law matters, especially within the technology sector, we encourage reaching out to our experienced legal team. With a deep understanding of both the intricacies of the technology industry and competition law, our lawyers stand ready to provide guidance and support tailored to your specific needs. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. More of our Tech articles that you should read: • GPU-AS-A-SERVICE – BENEFITS AND LEGAL CONCERNS • Real-World Assets in Blockchain: Why Companies Should Pay Attention • CYBER SECURITY ACT IMPLEMENTATION – Things for the National Critical Information Infrastructure Entities to Take Note of

GPU-AS-A-SERVICE – BENEFITS AND LEGAL CONCERNS

Artificial intelligence (“AI”) has been the talk of the town for more than a year now. The hype surrounding AI and the potential (think increased revenue and commercial advantages) that it may bring pretty much “convinced” many companies to now also brand themselves as “AI companies”, looking to deploy their own AI models. It is an established fact that training and deploying AI models require a vast amount of computing power. Graphics processing unit (“GPU”) is a type of electronic circuit traditionally used for videos rendering, image creation and to process games with high quality graphics. Owing to its ability to perform and process many operations in parallel, GPU is also very suitable for AI training and generally any tasks that would require high computing power. The increase in the number of AI companies inevitably also translates to an increased demand for advanced GPUs, which in turn results in a supply shortage – like it or not, there are only that many companies globally capable of producing and supplying advanced GPUs. GPU-as-a-Service, or “GPUaaS”, is an attempt by some companies to address the GPU shortage faced by the industry. GPUaaS is essentially a cloud-based solution that rents out access to GPUs to organisations that need them, on-demand. In this article, we will be breaking down some benefits of subscribing to GPUaaS and laying down some of the key considerations to take note of for companies thinking of resorting to GPUaaS.   Benefits of GPU-as-a-Service Apart from allowing quicker access to GPU, GPUaaS also provides several other benefits to its subscribers, allowing easy justification to the stakeholders of companies in its adoption. Cost efficiency is often one of the main benefits cited by companies when opting for GPUaaS as opposed to its on-premise counterpart. Instead of having to invest in and maintain physical infrastructure and specialised hardware, which also attracts other operational costs caused by energy consumption and cooling requirements, companies utilising GPUaaS only pay for subscription fees based on their project requirements. Just like other cloud services, GPUaaS also offers the same flexibility and scalability to its subscribers. Users are often given the option to scale up (or scale down in some instances) their computing needs based on their project requirements, all without the need for having to invest in physical infrastructure and hardware only for that temporal increase in usage need. Given the technicalities and specialised know-how that may be required to operate and maintain an on-premise GPU facility, it may not be worthwhile and commercially viable for companies that are not traditionally involved in this space to set up a new business unit just for this purpose. This is also one of the reasons why GPUaaS became the preferred choice of many companies traditionally involved in other businesses but now decide to venture into the AI space. By paying professional service providers for GPUaaS, companies can better focus their resources and attention on building their business and expanding their topline.   Legal Concerns of GPUaaS We certainly cannot talk about all the advantages of GPUaaS without highlighting some key legal considerations that companies looking to offer or adopt GPUaaS should take note of. 1. Data Security For companies that may have concerns on storing their data on cloud or companies that are under strict regulatory requirements on data security, GPUaaS may not be the most suitable option. Granted that it provides flexibility, scalability and cost-savings, companies subscribed to GPUaaS are essentially relying on the GPUaaS providers to take charge on the security of their data. Companies with data security concerns should ensure that there are adequate data security assurances provided in the GPUaaS agreement with the service providers so that risks are allocated appropriately. Companies may also want to consider retaining the contractual rights to conduct audit on the security measures put in place by the GPUaaS providers. Where regulations impose data localisation requirements, companies should then enquire about the location of the physical facilities of the GPUaaS providers to ensure that the data localisation requirements can be met.   2. Termination Assistance It is of no surprise that companies subscribed to GPUaaS may actually store a vast amount of data on the cloud infrastructure of the GPUaaS provider. Considering the possibility that these data may be of mission-critical to the companies, it is crucial that the companies secure some commitments from the GPUaaS provider for the rendering of termination assistance covering the migration or transition of these data, either to the companies’ own GPU facilities, or a third party outsource service providers in the event of a termination or expiry of the GPUaaS agreement, including stating clear timelines and responsibilities for the termination process to ensure a smooth transition and minimize the risk of data loss or downtime.. This is all to ensure that in the event of a termination or expiry of the GPUaaS contract, the companies will not suffer any unplanned interruption of its business operation.   3. Service Levels In a GPUaaS arrangement, given that the operation of the GPU is beyond the direct control of the companies, the agreement for GPUaaS should address the service level that the GPUaaS provider is committed to. It would be of utmost importance that the GPUaaS agreement at the very minimum provides for the service levels of remedial action that the GPUaaS provider should take in the event of an unplanned service interruption or downtime.   4. Licensing Requirement GPUaaS at its core is essentially a form of infrastructure-as-a-service (“IaaS”). Some countries may actually require the providers of IaaS to obtain certain licence(s) before they can operate within the jurisdiction. Malaysia for one, imposes a legal obligation on either the IaaS provider with locally incorporated company, or a foreign IaaS provider that utilises a local data centre, to obtain an Application Service Provider (Class) licence before it can offer its services here in Malaysia. As such, it is important for companies looking to deploy GPUaaS in any jurisdiction to ensure appropriate due diligence is conducted prior to commencing operation. Conversely, companies looking to subscribe to any GPUaaS should also conduct simple verification to ensure that the service provider indeed has the required licences to conduct its business, so that unwanted interruption to the subscribed services can be avoided. . Conclusion GPUaaS is certainly a creative way to address the GPU crunch suffered by the industry. That being said, companies considering subscribing to GPUaaS should not dive headfirst, but should instead work with internal stakeholders and external advisers to evaluate the needs of the business against what GPUaaS could offer, in order to ascertain whether GPUaaS is the right fit for the organisation, or whether the organisation would be better off securing its own physical infrastructure and hardware. Considering the nuances of GPUaaS, companies should conduct a holistic review of the GPUaaS agreement offered by the service provider to ensure that the companies’ needs and requirements are sufficiently addressed in the agreement.   If you wish to enquire more about GPUaaS, or if you are thinking of subscribing to GPUaaS, please feel free to reach out to the lawyers from our Technology Practice Group. We would certainly be delighted to assist in this exciting endeavours. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my More of our Tech articles that you should read: • Achieving Net Zero: The Crucial Role of Climate Technology • AI Deepfake Technology: Understanding Its Business Use Case, Legal Considerations, and Best Practices in Modern Marketing • Choosing Between Open Source and Closed Source AI: Considerations for Companies Looking to Onboard AI

High Court clarifies Item 22(1) of the First Schedule of the Stamp Act 1949 and the Stamp Duty (Remission) (No. 2) Order 2012

A case study on Ann Joo Integrated Steel Sdn. Bhd. v Pemungut Duti Setem [2023] 8 MLJ   Introduction This case is a stamp duty appeal under Section 39(1) of the Stamp Act 1949 ("Act") made by way of a case stated pursuant to Section 39(2) of the Act. The Plaintiff is seeking for inter alia a declaration from the High Court that the Notice of Stamp Duty Assessment dated 13 February 2019 on the letter of offer which was executed between Alliance Bank Malaysia Berhad (“Alliance Bank”) and the Plaintiff (“LO”) issued by the Defendant ("assessment") is erroneous, null and void.   Background Facts  On 27 December 2018, the Plaintiff accepted the LO for credit from Alliance Bank which offered to the Plaintiff trade facilities amounting to RM105,000,000.00 (“Trade Facilities”). The LO was submitted to the Defendant for adjudication of stamp duty where the Plaintiff sought for the remission of the stamp duty granted under the Stamp Duty (Remission) (No. 2) Order 2012 (“Remission Order”). On 31 January 2019, the Plaintiff was informed by the Defendant that the LO did not qualify for remission of stamp duty under the Remission Order. Subsequently, the Defendant took the position that the LO is subject to stamp duty pursuant to Item 22(1)(a) of the First Schedule of the Act. Thereafter on 13 February 2019, the Plaintiff received the assessment from the Defendant.. Unhappy with the assessment, on 14 February 2019 the Plaintiff had paid the stamp duty to the Defendant under protest in accordance with Section 38A(7) of the Act vide letters dated 14 February 2019 and 11 February 2019. Subsequently, the Plaintiff submitted an application to the Defendant on 28 February 2019 to object against the assessment pursuant to Section 38A of the Act. However on 8 March 2021, the Plaintiff’s application was rejected by the Defendant with no reasons were provided. Being aggrieved by the assessment, the Plaintiff filed an appeal to the High Court by way of a case stated under Section 39(1) of the Act, to seek the opinion of the High Court as to whether the LO falls within the Remission Order.   Legislation Stamp Act Sub-item 22(1) of the First Schedule of the Stamp Act 1949, upon being amended by the Finance Act 2018, states the following: BOND, COVENANT, LOAN, SERVICES, EQUIPMENT LEASE AGREEMENT OR INSTRUMENT of any kind whatsoever: (1) Being the only or principal or primary security for any annuity (except upon the original creation thereof by way of sale or security, and except a superannuation annuity), or for any sum or sums of money at stated periods, not being interest for any sum secured by a duly stamped instrument, nor rent reserved by a lease or tack: (a) for a definite and certain period so that the total amount to be ultimately payable can be ascertained. (b) for the term of life or any other indefinite period: for every RM100 and also for any fractional part of RM100 of the annuity or sum periodically payable. . Remission Order Paragraph 2 of the Stamp Duty (Remission) (No. 2) Order 2012 states that: The amount of stamp duty that is chargeable under sub-subitem 22(1)(b) of the First Schedule to the Act upon a loan agreement or loan instrument without security for any sum or sums of money repayable on demand or in single bullet payment under that sub-subitem which is in excess of zero point one per cent (0.1%) is remitted.   The Defendant's Contentions The Defendant takes the position that there is no error in the assessment and the LO was correctly charged  for stamp duty under Item 22(1)(a) of the First Schedule of the Act, and thus the Remission Order is therefore not applicable to the LO. It is contended that the LO does not spell out the sums of money that must be paid by way of demand or single bullet payment and is, therefore, liable to stamp duty as a loan agreement or loan instrument under Item 22(1)(a) of the First Schedule of the Act.   The Plaintiff’s Contentions The Plaintiff takes the position that the LO clearly states that the loan instrument has no security whatsoever and must be repayable on demand or in a single bullet payment. Therefore, the Plaintiff believed that the LO they had accepted from Alliance Bank was eligible for remission of the stamp duty in excess of 0.1%. It is contended that the correct approach to be adopted in interpreting a taxing statute is that it should be given a strict interpretation, by giving their plain, natural and ordinary meaning, and no intendment can be made in favour of tax liability.   Findings The High Court is making a distinction between two different items in the First Schedule of the Act, specifically Item 22(1)(a) and Item 22(1)(b) of the First Schedule to the Act. The High Court highlights that the material difference between these two Items is that Item 22(1)(a) applies to bond, covenant or instrument within a specific and defined period of time, which allows the total amount payable to be determined. On the other hand, Item 22(1)(b) applies to bond, covenant or instrument that have an indefinite period of time, such as for the term of life. Upon perusal of the LO, the High Court found that the availability of the facility granted by Alliance Bank to the Plaintiff is subject to Alliance Bank’s right to recall/cancel the facility or any part thereof at any time Alliance Bank deems fit whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand. The High Court then cited the relevant provisions of the LO, which are as follows: SPECIFIC CONDITIONS FOR TRADE FACILITIES (i) Repayment Notwithstanding any other provisions herein stated related to the availability of the Facility or any part thereof, the Bank reserves the right to recall/ cancel the facility or any part thereof at any time it deems fit without assigning any reason thereto by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand. ……… (ii) Forward Foreign Exchange (“Forex”) Specific Condition: Repayment Notwithstanding any other provisions herein stated related to the availability of the Facility or any part thereof, the Bank reserves the right to recall/cancel the facility or any part thereof at any time it deems fit without assigning any reason thereto by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand.   Based on the above provisions, the High Court finds that there is in fact no definite or certain period of time prescribed under the LO for the Trade Facilities given to the Plaintiff. The LO thereof, falls under Item 22(1)(b) of the First Schedule of the Act, thus qualifying for remission of stamp duty under the Remission Order. The High Court rejected the Defendant’s contention that the LO does not spell out the specific provision on how repayment of the loan is to be made in the ordinary course, i.e. if the Trade Facilities or Forex is not recalled or cancelled by Alliance Bank and that in any event the LO must clearly show that under the LO, the mode of repayment of the loan is either upon demand or a single bullet repayment. According to the learned Judge, there is no specific requirement under the Remission Order for the sums of money to be paid under the LO to be by way of demand or single bullet repayment in the ordinary course. The LO clearly states that the security is on clean basis.   Conclusions The High Court concluded that the LO fell within the ambit of Item 22(1)(b) of the First Schedule of the Act and that on a plain reading of paragraph 2 of the Remission Order, the Plaintiff had fulfilled all the requirements stipulated thereunder as the LO clearly stated that the Trade Facilities and Forex facilities are granted on clean basis i.e. without any security, and that Alliance Bank reserves the right to recall/cancel the facility or any part thereof at any time it seems fit without assigning any reason by giving written notice of the same, whereupon the facility of such part thereof shall be cancelled and the whole indebtedness or such part thereof be repayable on demand. Premised on the reasons above, the High Court allowed the Plaintiff’s appeal with costs and held that the LO qualifies for remission of stamp duty under the Remission Order and ought to be stamped at the rate of 0.1%. Thus, the assessment raised by the Defendant was held to be erroneous.   Comments The two (2) material points that can be extracted from the above case are as follows: - (i) To come within the ambit of Item 22(1)(b) of the First Schedule of the Act, there is no requirement for a LO or agreement for credit facilities to state that the facilities are to be repaid in the ordinary course by bullet repayment or upon demand. Thus, it is sufficient that the credit facilities are repayable on demand at the discretion of the lender. (ii) A LO or agreement for credit facilities in respect of which the stamp duty is payable under Item 22(1)(b) of the First Schedule of the Act will qualify for remission of the stamp duty under the Remission Order if the credit facilities are granted without any security. About the author Norsuriati binti Mohd NoorSenior AssociateReal EstateHalim Hong & Queknorsuriati@hhq.com.my More of our articles that you should read: Cause Papers for Matrimonial Proceedings May Be Filed in the English Language Only Clarifying Developer Voting Rights in Management Corporation Meetings Enforcement of Companies (Amendment) Act 2024

Limitation of Licenced Manufacturing Warehouse Conditions

The High Court in Pan International Electronics (M) Sdn Bhd v Menteri Kewangan Malaysia and Ketua Pengarah Kastam, Jabatan Di Raja Malaysia (PA-25-65-08/2023) quashed the decision of Ministry of Finance ("MoF") in rejecting the appeal of Pan International Electronics (M) Sdn Bhd (“Taxpayer”) for the remission of import duty and sales tax as it is tainted with illegality and irrationality as the conditions under the licensed manufacturing warehouse (“LMW”) cannot be imposed on the ASEAN Trade in Goods Agreement (“ATIGA”) order. The salient facts of Pan International Electronics (supra) are as follows: a) The Taxpayer is a licensed LMW under Sections 65 and 65A of the Customs Act 1957. b) Pursuant to the ATIGA, the Taxpayer had been importing decoders at 0% import duty and 0% sales tax. c) However, the Royal Malaysian Customs Department (“RMCD”) issued a bill of demand against the Taxpayer for the import duty of RM8,432,282.51 and sales tax of RM841,342 because the Taxpayer had exceeded the local sales quota by 7.21%. This disqualified the decoders from the ATIGA rate of 0%. d) The Taxpayer appealed to the MoF by way of a letter dated 27.3.2023 but such appeal was rejected by the MoF on 22.5.2023. e) Dissatisfied, the Taxpayer filed a judicial review application to challenge the decision (the rejection).   The High Court held that, amongst others: a) The RMCD only has the power under Sections 65 and 65A of the Customs Act 1957 to impose conditions on LMW license. b) The condition of decoders’ local sales quota of 20% is only limited to LMW license. c) The ATIGA rate under the ATIGA order in an order made by the MoF pursuant to the exercise of his powers under Section 11(1) of the Customs Act 1957. d) Under Article 41 of the ATIFGA, each member state undertakes not to adopt or maintain any quantitative restriction on the importation of any goods of the other member states or on the exportation of any goods destined for the territory of the other member states. e) A company is entitled to the ATIGA rate so long the goods imported are classified as such and are imported from the ASEAN countries, regardless of whether the company is clothed with LMW status. f) RMCD does not have any power to alter the ATIGA rate under the ATIGA order, only the MoF has the power to impose conditions in the ATIGA order under Section 11(1) of the Customs Act 1957. g) There are no conditions imposed by the MoF in the ATIGA order that in order for the decoders to be entitled for import duty at the ATIGA rate of 0%, the Taxpayer must not exceed 20% local sales quota. h) LMW status has nothing to do with the goods that are classified under the ATIGA order. i) Hence, the RMCD’s imposition of the LMW conditions into the ATIGA order is illegal and irrational as the RMCD does not have any jurisdiction to fix the customs duty to be levied on any goods imported into or exported from Malaysia under Section 11(1) of the Customs Act 1957. j) The MoF has failed to exercise his discretion to remit the customs duty ‘just and equitably’ as envisaged under Section 14A of the Customs Act 1957 as the MoF had rejected the Taxpayer’s remission application based on the same ground of breach of the LMW condition. k) The MoF had allowed the LMW condition to be imposed on the ATIGA order, albeit no express condition was passed by the MoF under the ATIGA order or the Customs Act 1957. Comments This case, perhaps, is the first case that addressed the limitation of the conditions under the LMW license and the exercise of the MoF’s power under Section 14A of the Customs Act 1957. It is not uncommon for the tax authorities and/or authorities in Malaysia to conflate the conditions under different licenses (or approvals). This case serves as a reminder to taxpayers to always be vigilant and check whether the condition of one license can be imposed into another.   About the author Desmond Liew Zhi HongPartnerTaxHalim Hong & Quekdesmond.liew@hhq.com.my More of our articles that you should read: Defence of Limitation cannot be raised in Recovery of Tax Action? Constructive Dismissal: The Applicable Test – “Contract Test” vs The “Reasonableness Test” Can an Adjudication Decision, After Having Been Enforced Pursuant to Section 28 CIPAA 2012, Be Stayed Pursuant to Section 16(1)(b) CIPAA 2012?

建造可负担房屋的豁免费用不可抵扣税

在近期的Ketua Pengarah Hasil Dalam Negeri Malaysia v Ehsan Armada Sdn Bhd [2023] MLJU 2906中,上诉庭裁定由Ehsan Armada Sdn Bhd(此案的发展商)(以下简称“纳税人”)向雪兰莪州房屋与房地产局(Lembaga Perumahan dan Hartanah Selangor,简称“LPHS”)所支付的豁免可负担房屋建设的费用,不可在1967年所得税法令(“所得税法”)第33条文下抵扣税,因为该费用属于资本性质。 本案的主要摘点如下: 1.根据1976年的城镇与乡村规划法令,雪兰莪州政府对包括纳税人在内的房地产开发商实施了建设可负担房屋的政策。 2.在批准84英亩的土地赋予纳税人后,雪兰莪州对纳税人设下条件,要求纳税人建造低价,中低价,和中价的房屋,旨在解决社会问题, 相对的获得较低的利润。 3.纳税人向雪兰莪州房屋与地产局支付了6,226,981.00令吉(“豁免费用”),以豁免其在Mutiara Indah 房屋项目(“项目”)中建设可负担房屋的州政策和要求,并随后用该豁免费用来抵扣税务。此举目的是为了建造利润率更高的自由市场房屋。 4.马来西亚国内税收局(“税收局”)进行了的税务审计后,税收局不同意豁免费用可抵扣税,驳回了该豁免费用的抵扣,并随后向纳税人发出了2007年/2008年/2009年和2010课税年的通知书。 5.因此,纳税人向所得税审裁处特委(“所得税特委”)提出上诉,但被驳回。 6.随后,纳税人向高等法院提出了上诉,并在高等法院胜诉。 7.出于对高等法院判决的不满,税收局针对该判决向上诉庭提出了上诉。 上诉庭的判决 8.上诉庭的判决如下: I.     所得税法第33(1)条下抵税的主观标准 (a)高等法院法官的判决存在错误,因为在所得税法第33条下判断支出可抵税性的标准不应该是客观的标准。 (b)该标准应为主观标准,而并非客观标准。适当的主观问题需要在考量该费用的性质和目的后被确定。 (c) 在本案中,建设可负担房屋的细微之处和技术性质必须被确定。为了判断一项费用是否属于普通业务支出,该业务的完整背景和性质与该项目本身的性质必需被主观地审查和考虑。 (d)该豁免费用不属于纳税人在房地产建设和开发业务的普通费用。该项目在性质上是可负担房屋政策下的综合型开发。因此,正常的预期是该业务的一部分应以承担社会责任为主,而盈利为其次。由于可负担房屋政策,纳税人无法建造和销售自由市场房屋,利润率也应随之降低。 (e)获得可负担房屋政策的豁免是一项非同寻常的特征,因为它将纳税人从社会责任中免除了。 (f)除此之外,纳税人在项目中划分了一个特定的三级坡度区域来建造可负担房屋。然而该区域并不适合建造可负担房屋。纳税人本可以(但故意未)将项目中其他更合适的地区划分出来建造可负担房屋。因此,支付的豁免费用是纳税人自行引发的,纳税人从一开始就没有打算建造可负担房屋。 (g)通过支付豁免费用,纳税人将获得持续性优势,使其业务更具盈利性。因此,该费用不可被定义为普通的业务支出,而是一项资本支出。 II.     以善意为抗辩 (h)纳税人(尽管已获得专业税务建议)的行为并不足以构成“善意”,因此不能根据所得税法第 113(2) 条文的“善意”进行抗辩。真正的善意行为包括——将情况书面告知税收局,或至少与税收局沟通,以寻求关于豁免费用的立场。 (i)由于纳税人并未这样做,纳税人未能和税收局进行诚实和直接的询问和沟通。 评论 根据上诉庭的裁决,所得税法第33(1)条文下的抵扣税标准似乎有了进一步的演变。在判断费用是否可抵扣时,需要应用主观测试。换句话说,如果费用是单纯为了使业务能够继续盈利,而非为了扩大利润率,该支出是可以在所得税法第33(1)条文下被抵扣税的。在区分支出是否具有资本性质时,该费用必须使业务获得持久性的优势,和使业务更具盈利性(而不是仅仅使业务或贸易能够进行)。 一个值得注意的发展是所得税法第113(2)条文下的善意抗辩。上诉庭似乎提高了这种抗辩的门槛。如今,纳税人不再仅仅需要获得专业的税务建议;他们必须将税务问题以书信或通过其他方式与税收局沟通,特别是对于看似具有争议性的税务问题。现在,问题出现了—如果税收局在纳税人提交税务申报后才做出回应,纳税人是否能以善意进行抗辩呢?接下来是另一个实际的问题—税收局是否有足够的人力来回应每各个纳税人的询问?针对所得税法第113(2)条文下的善意抗辩施加如此高的门槛似乎违背了马来西亚税收制度的本质和精神,因为该税收制度本应以自我评估为基础。 如需了解更多详细信息,可随时与我们的团队联系。 作者简介 Desmond Liew Zhi Hong廖智鸿伙伴律师 (税务,企业与制造业海外投资)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:desmond.liew@hhq.com.my Khew Gerjean丘紫情实习律师 (一般诉讼)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:k.gerjean@hhq.com.my

Achieving Net Zero: The Crucial Role of Climate Technology

Net zero should not be unfamiliar territory, particularly for chief sustainability officers, general counsels, and boards of directors. Failing to consider net zero emissions can have significant and multifaceted impacts on an organization’s performance, including regulatory and compliance risk, brand reputation, and financial and investment risk. Companies that overlook climate risks may struggle to attract investment, potentially facing higher capital costs or even divestment. Additionally, sustainability-linked financing, such as green bonds and loans with favorable terms, may be out of reach without a clear net zero strategy. Therefore, companies can no longer ignore this issue. Achieving net zero emissions requires a concerted effort, with climate technology playing a central role. In this article, we explore how climate technology is pivotal in driving forward this initiative.   Understanding Net Zero "Net zero" refers to the balance between the amount of greenhouse gases (GHGs) emitted into the atmosphere and the amount removed from it. Achieving net zero means that any human-caused emissions (anthropogenic emissions) are counterbalanced by an equivalent amount of GHG removal.   Currently, there isn't a single standardized formula for calculating net zero, as it can vary depending on the context, the scope of emissions being considered, and the methodologies used for measurement and accounting. Generally, the steps involve quantifying all GHG emissions from various sources within a defined boundary, including direct emissions from activities like energy production, transportation, industry, and agriculture, as well as indirect emissions associated with purchased electricity and other goods and services. Additionally, any GHG removals or sinks, such as carbon uptake by forests, oceans, soils, and technological solutions like carbon capture and storage, are identified and quantified. The net balance is then calculated by subtracting total emissions from total removals, determining whether an entity is contributing to climate change (positive net balance) or offsetting emissions (negative net balance).   The Role of Climate Technology in Achieving Net Zero Technology is critical in assisting companies in achieving net zero, frequently referred to as climate technology. Here, we highlight five types of climate technology that can help achieve the net zero objective:   1. Renewable Energy Technology: Transitioning from traditional energy sources to renewable energy sources such as solar, wind, hydro, and geothermal power is essential for reducing carbon emissions. These renewable energy sources offer several advantages over traditional fossil fuels in the context of achieving net zero emissions. Unlike fossil fuels, renewable energy sources produce little to no greenhouse gas emissions during operation, thereby significantly reducing carbon footprints. Most importantly, renewable energy technologies are inherently sustainable and abundant, providing a reliable and long-term solution for powering communities and industries without contributing to climate change.   2. Energy Efficient Technology: Energy efficient technology focuses on optimizing energy use to achieve the same or higher levels of performance while consuming less energy. This includes advanced appliances and lighting systems like LED bulbs, high-efficiency HVAC systems, and better insulation materials for buildings. By reducing energy consumption, these technologies decrease the demand for electricity generation, which often relies on fossil fuels, thus lowering greenhouse gas emissions. Compared to conventional energy technologies, which typically operate with higher energy waste and inefficiencies, energy efficient technologies enable significant reductions in overall energy use and emissions.   3. Smart Grid Technology: Smart grid technology enhances the traditional electrical grid by incorporating digital communication, advanced sensors, and automation systems to improve the efficiency, reliability, and sustainability of electricity distribution. Unlike the conventional grid, which is largely one-way and lacks real-time monitoring, smart grids enable two-way communication between utilities and consumers, allowing for dynamic management of electricity flows. This includes real-time monitoring of energy usage, automatic rerouting of power in case of outages, and integration of renewable energy sources like solar and wind into the grid. Smart grids facilitate demand response programs where consumers adjust their usage during peak times, reducing the strain on the grid and lowering emissions. By improving the efficiency and flexibility of the electricity network, smart grids play a critical role in achieving net zero emissions, enabling a more resilient, sustainable, and cleaner energy system compared to traditional grid infrastructure.   4. Carbon Capture, Utilization, and Storage (CCUS): CCUS is a set of technologies designed to capture carbon dioxide (CO2) emissions from industrial processes and power generation, prevent it from entering the atmosphere, and either utilize it in various applications or store it underground. The process begins with capturing CO2 at its source, such as a factory or power plant, using chemical solvents or other methods. The captured CO2 is then compressed and transported, typically via pipelines, to a utilization site where it can be used in products like concrete or biofuels, or to a storage site where it is injected into deep geological formations, such as depleted oil and gas fields, for long-term storage. This technology is particularly suitable for heavy industries that are difficult to decarbonize, providing a means to significantly reduce their emissions while maintaining operational viability.   5. Circular Economy Technology: Circular economy technology revolves around designing products and systems to minimize waste, extend product lifecycles, and regenerate natural systems. This includes advanced recycling processes that break down materials into their basic components for reuse, biodegradable materials that reduce waste, and industrial symbiosis where waste from one process becomes input for another. Companies can employ circular economy principles by designing products for durability, reparability, and recyclability, implementing take-back schemes, and optimizing resource use through digital platforms that track material flows. This approach helps companies achieve net zero by reducing the demand for virgin materials, transforming waste into valuable resources, thereby closing the loop and significantly cutting down the overall carbon footprint compared to conventional, linear business models.   Conclusion Net zero has swiftly transitioned from an optional consideration to an imperative for every company. Climate technological advancements are pivotal in enabling companies to reach this goal, making it an aspect that demands universal attention. Harnessing the potential of innovation and technology, we can overhaul our energy systems, industries, and societies, forging a sustainable and resilient future.   If you have any needs related to ESG, especially in the technology field, do not hesitate to reach out to our legal professionals who specialize in technology law and related areas. Our team is well-equipped to guide you through the complexities of sustainability initiatives, helping you leverage climate technology to achieve your net zero goals while ensuring compliance and maximizing your competitive advantage. Let us partner with you in creating a sustainable and resilient future for your organization. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my   Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my.   Tan Zhen ChaoAssociateReal Estate, Project Development, Strata Management, Dispute Resolutionzctan@hhq.com.my. More of our Tech articles that you should read: • Structuring Effective Service Level Agreement • E-Waste and ESG Compliance: What Companies Need to Know • Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case

Structuring Effective Service Level Agreement

Service Level Agreement, commonly referred to as “SLA”, is one of the key aspects of technology outsourcing that is frequently negotiated between service providers and customers. An SLA would set out the agreed standards at which the outsourced services are supposed to be provided, how the standards will be measured, and the consequences for failing to meet the agreed standards. When it comes to technology outsourcing, SLA can normally be found in contracts involving the provision of Software-as-a-Service or information technology (IT) managed services. Given the increased reliance on technology in today’s age, it is crucial for a customer to ensure that the new S-a-a-S that it has just subscribed to, or that new service provider engaged to manage its core business IT system, is able to meet the level of service that the customer expects. If the services provided are not satisfactory, the customer should then receive, in one way or another, some form of rebate or credit from the service provider for the less than satisfactory services rendered. Due to this very nature of SLA that may potentially reduce the remuneration that a service provider receives, SLA regularly becomes the subject of contention. In this article, we set out some considerations that businesses should take into consideration when structuring an SLA.   Service Level Objectives From a customer’s perspective, the first thing when structuring SLA is to identify the service level objective that is sought to be achieved from the services outsourced. Depending on the type of services outsourced, the objective could be to ensure high system availability, or that service disruptions are attended to and get resolved promptly. Once the objective has been identified, it then allows clear communication of the objective to the service provider, and to facilitate the determination of appropriate metrics to be used to measure the standards of the services being performed. Failure to properly identify the objectives may result in the service provider’s attention being diverted to aspects of the services that are actually of lesser importance to the customer, hence translating into a mismatch in the level of services being delivered by the service provider.   SLA Metrics Upon the identification of the service level objectives to be achieved, one will then be able to establish the most appropriate metrics to be used to evaluate the quality of the services rendered. Assuming that the service level objective is to ensure that a particular system or software has a high availability, “uptime” would then be the metric of choice. When a customer is looking to ensure that service disruptions are promptly attended to, the most common metrics that the customer can use are response time, resolution time, and/or mean time to recovery. Depending on the metrics chosen, the way that they are being measured may also differ. Take uptime for example, it is typically measured across a period of time, potentially on a quarterly basis, half yearly basis, or annual basis. The customers will have to determine the desired uptime of the system, be it at 99.7% a year, or 99% in a month. For incident response on the other hand, it has to be measured on a case-by-case basis, typically depending on the severity level of the incident, which would in turn affect the expected response and resolution time by the service provider. On top of that, SLA metric should also incorporate flexibility to adapt to changing commercial circumstances, such as business growth, evolving technology, or shifts in the economic landscape, and by incorporating customizable or flexible SLA metric, this adaptability ensures that the SLA remains a living document that continues to serve the interests of the parties over time. The SLA metric is an important component in an SLA as it sets the expected standards at which the service providers should be achieving when delivering their services. Additionally, it allows for clear and objective evaluation of the standards of services provided by the service providers, and paves the way for the implementation of the service credit regime.   Service Credit Regime In an SLA, failure by a service provider to meet the agreed service level objectives based on the agreed metrics would normally result in the customer being entitled to service credits. Service credits can take the form of cash payment by the service provider to the customer, or a rebate in the subsequent fees payable by the customer to the service provider. The rationale of a service credit regime is that a customer should not have to pay the service provider 100% of the agreed fees, since the service provider has failed to perform the services at the level or standard expected. In other words, service credit regime should rightfully reflect the lowered standard of services actually performed by a service provider, as opposed to what the service provider was initially offered to be paid to perform. Many have the misconception that service credit regime is a tool for customers to potentially achieve cost savings or getting huge discount from the fees otherwise payable to the service providers. This thinking often results in the misguided approach of affixing high price tag to service credit that is disproportionate to the magnitude of the corresponding service level failure. It can potentially derail and delay the finalisation of the contract for technology outsourcing, or prompting the service provider to mark up its fees, or worse – causing reluctance among service providers to agree to undertake a particular service. An effective service credit regime will have to take into account the nature and extent of the service level failure – more severe service level breaches should translate into higher service credit, while minor service level breaches should only result in lower service credit.   Creative Structuring of SLA Structuring and negotiating SLA for technology outsourcing requires careful planning. A well-crafted SLA would facilitate service providers to deliver services that meet the expectations of the customers, allowing customers to achieve their business goals. As technology advances, it may not be so easy at times for service providers to meet the service level requirements of the customers, especially when cutting edge technologies are involved. These circumstances may then call for creative structuring of SLA, such as incorporation of service credit holiday, incremental service levels, assigning weightings and multipliers to different type of service level breaches, or potentially allowing service credit earn-back, in order to incentivize the service providers to deliver their best games. Businesses should consult legal professionals in crafting a meaningful SLA that would help in directing the service providers to deliver services at the level and standard expected of them.   Please feel free to reach out our partners from the Technology Practice Group should you have any enquiries in relation to your next technology outsourcing initiative or if you would like a consultation on your service level agreement. Our team of professionals are always here to help. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my.   Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . More of our Tech articles that you should read: • CYBER SECURITY ACT 2024 – STATUTORY OBLIGATIONS OF NCII ENTITIES • E-Waste and ESG Compliance: What Companies Need to Know • Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility  

AI Deepfake Technology: Understanding Its Business Use Case, Legal Considerations, and Best Practices in Modern Marketing

The Rise of Deepfake Technology As artificial intelligence (“AI”) continues to advance, one of its subfields, deepfake technology, is also garnering significant attention. Deepfake is a form of AI that can manipulate digital media, such as images, videos, and audio, to create highly realistic but fabricated content. It is undeniable that the initial attention surrounding deepfakes has centered on their misuse in spreading disinformation, pornography, and perpetrating scams. For example, scammers generated deepfake robocalls using the voice of President Joe Biden earlier this year to discourage voters from voting, and additionally, a Hong Kong firm fell victim to a $25 million fraud scheme orchestrated through deepfake technology, wherein fraudsters impersonated the company’s chief financial officer during a video conference call. However, savvy businesses and organizations are also beginning to explore the transformative opportunities this technology presents for marketing and advertising campaigns. By harnessing the power of deepfakes, companies can tap into the star power and influence of renowned personalities without the need for their direct and active involvement, potentially revolutionizing the industry. As always, there are always two sides to a coin, and as with any emerging technology, there are legal considerations that companies and their general counsels must navigate carefully, and in this article, we aim to explore the use case of deepfake technology in marketing, legal concerns and best practices that general counsels should take into account. . What are Deepfakes? Before we begin, it would be essential for us to understand what deepfakes are. Deepfakes are a form of AI-generated synthetic media that employs deep learning algorithms to manipulate or fabricate images, videos, or audio recordings. These algorithms are trained on extensive datasets of real media, enabling them to learn and replicate a person's face, voice, or mannerisms with remarkable precision. The resulting deepfake media can be virtually indistinguishable from genuine content, posing a challenge in discerning authenticity. Currently, a simple online search for deepfakes reveals a staggering number of videos circulating on the internet, many of which viewers may not even realize are deepfakes. . The Business Case for Deepfakes in Marketing Traditional celebrity endorsements and influencer collaborations can be prohibitively expensive, often requiring significant financial investments and complex negotiations, as traditional marketing, photoshoots, and video recordings necessitate the direct and active physical involvement of the celebrities and influencers in order to produce the desired content. Deepfake technology now offers a cost-effective alternative, enabling companies to create compelling content featuring the likeness and voices of popular figures without the logistical hurdles and exorbitant costs associated with securing their participation. This approach not only reduces marketing and advertising budgets but also opens up new avenues for creative storytelling and engaging campaigns, all without requiring the direct, actual, and active physical involvement of those celebrities and influencers as in traditional marketing and video shoots, which can be both time and resource-consuming. This democratizes access to star power, allowing smaller businesses and startups to compete on a more level playing field by leveraging the influence of renowned personalities without the financial constraints of traditional endorsement deals. . Legal Considerations and Best Practices for Businesses Utilizing Deepfakes While the potential benefits of deepfakes in marketing are alluring, companies and their general counsels must exercise caution and address several legal considerations before employing this technology. The legal landscape surrounding deepfakes is still evolving, and here are the top five key legal concerns and best practices that should be taken into account:   1. Misrepresentation and Misleading Advertising: The use of deepfakes in advertising and marketing campaigns may be construed as misrepresentation or misleading advertising, especially if it is presented as a genuine endorsement or testimonial from a celebrity without proper disclosure and actual agreement by the celebrity. Therefore, companies should be transparent about the use of deepfake technology and ensure that their campaigns do not deceive or mislead consumers. Also, different jurisdictions may have specific regulations governing the use of deepfakes in advertising, which companies must carefully navigate to avoid legal violations and potential fines or penalties. . 2. Data Protection and Privacy: Deepfakes typically involve processing and using personal data, such as an individual's facial features, voice, or likeness, which can raise data protection concerns and potentially violate privacy laws if not handled properly. Therefore, any attempt to harness individuals' personal data, whether influencers or celebrities, for deepfake purposes without their explicit consent not only risks legal repercussions but also undermines trust and integrity. In the era of stringent regulations like GDPR, companies must navigate deepfake territory with utmost caution, ensuring full compliance with local privacy laws. Securing explicit consent and adhering to relevant data protection laws are non-negotiable steps for businesses venturing into deepfake territory. . 3. Intellectual Property Rights: Besides privacy concerns, it is also essential to recognize that unauthorized utilization of an individual's likeness, voice, or image in deepfake media can constitute significant infringement upon intellectual property (“IP”) rights. Beyond privacy breaches, this includes potential violations of copyright, passing off, and trademarks infringement. Many jurisdictions also recognize a legal right of publicity, especially when it involves the likeness of celebrities, granting individuals control over the commercial use of their identity, and failure to obtain consent for these rights in deepfake media could result in legal repercussions. Therefore, companies must diligently secure all necessary rights and licenses from individuals before engaging in the creation or distribution of deepfake content, obtaining explicit consent for the use of their likeness, voice, or image, and ensuring compliance with relevant IP laws and regulations to mitigate the risk of potential disputes and legal liabilities. . 4. Compliance with AI Laws and Regulations: With the emergence of AI regulations across various jurisdictions, it is imperative for companies to pay particular attention to the development of legislation governing the use of AI. Many jurisdictions are actively drafting and implementing their own regulations to address the ethical and legal implications of AI technologies, hence, staying abreast of these evolving regulations is essential to ensure compliance and shield businesses from accusations of deceptive practices. For instance, in certain jurisdictions, there is a requirement for companies to disclose the use of artificially generated or manipulated content, mandating transparency to prevent deception. Consequently, in marketing practices involving deepfakes, disclosure becomes paramount. Thus, companies must stay updated on AI-related laws and regulations, understanding the dos and don'ts to navigate this evolving landscape effectively. . 5. Comprehensive Contractual Arrangements: Given the nascent and evolving nature of deepfake technology, it's imperative for businesses to establish robust contractual agreements governing the licensing and authorization of individuals' likeness, images, voices, and other personal attributes for deepfake purposes. These contracts should encompass a wide array of considerations such as (i) terms of use to clearly define the scope and limitations of the authorized use of the individual's likeness, image, voice, etc., in deepfake content, (ii) licensing rights to specify whether the license is exclusive, non-exclusive, or limited in any way, and detail any royalties or compensation arrangements, (iii) ownership of IP rights to specify whether the license is exclusive, non-exclusive, or limited in any way, and detail any royalties or compensation arrangements, and (iv) limitation on the distribution channels or platforms of the deepfake content. . As deepfake technology continues to advance, it presents both immense opportunities and significant challenges for businesses. By leveraging the power of deepfakes in marketing campaigns, companies can unlock new frontiers of creativity, cost-efficiency, and brand engagement, by offering businesses a powerful tool for innovative marketing and advertising strategies. However, navigating the legal landscape surrounding deepfakes requires a proactive approach and close collaboration with legal professionals who specialize in emerging technologies and AI regulations. As the technology continues to advance, companies should remain vigilant, seek legal counsel, and prioritize transparency and ethical practices in their use of deepfakes. By doing so, companies can leverage the potential benefits of this technology while mitigating risks and fostering trust with their customers and stakeholders. . If your organization intends to leverage AI deepfake technology in your business, our team is poised to provide expert assistance. Leveraging our proficiency in AI technology and legal frameworks, we offer tailored guidance to safeguard your organization and ensure compliance with legal standards. Contact us today to proactively address these critical considerations. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. More of our Tech articles that you should read: • Choosing Between Open Source and Closed Source AI: Considerations for Companies Looking to Onboard AI • Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective • The European Union Artificial Intelligence Act – Should Artificial Intelligence Be Regulated?

CYBER SECURITY ACT 2024 – STATUTORY OBLIGATIONS OF NCII ENTITIES

It has been more than a month since the passing of the Cyber Security Bill 2024, and many are eagerly waiting for the list of the national critical information infrastructure sector leads (“NCII Leads”) to be published, which is the very first step before a series of implementation under the Cyber Security Act 2024 can be rolled out.   That being said, we believe that many of the stakeholders who own or operate national critical information infrastructure (“NCII”) from the eleven (11) NCII sectors (“NCII Sectors”) would already have some idea as to whether they will be designated as NCII entities (“NCII Entities”). Our article this week seeks to assist soon-to-be NCII Entities to understand better what are the statutory obligations under the Cyber Security Act 2024 that will be imposed upon them once the designation as NCII Entities is finalised, as well as the exposure that the NCII Entities may face for non-compliance with these statutory obligations.   Statutory Obligations of NCII Entities If the Cyber Security Act 2024 is to be described as a screenplay, then the NCII Entity no doubt is the most important role with the most screentime for this play. A quick count of the Cyber Security Act 2024 and one will see that NCII Entities have a total of 13 distinct statutory obligations imposed upon them, and this is not including any additional obligations that they may have under the codes of practice that are to be drawn up for each NCII Sectors. The attention given to the NCII Entities under the Cyber Security Act 2024 is understandable, as they are the ones that either own or actively operating the NCIIs.   To simplify things, the statutory obligations of the NCII Entities can be categorised into four (4) broad categories as follows:   1. Information Disclosure Obligation Upon being designated as an NCII Entity, the NCII Entity will have to provide information relating to the NCII owned or operated by it to the NCII Leads upon request. The objective of this obligation would appear to be so that the relevant NCII Leads would have a clear picture of the type and nature of NCIIs owned or operated by each NCII Entities. To ensure that the information is up to date, NCII Entities will also have a continuing obligation to notify the NCII Leads when the NCII Entities procure or come into possession or control of additional computer or computer system which are believed to be NCIIs, as well as when there are material changes to these NCIIs owned or operated by the NCII Entities.   The NCII Entities also have an obligation to notify the NCII Leads when the computer or computer system owned or operated by the NCII Entities cease to be NCII or when they no longer own or operate any NCII.   2. Codes of Practice Implementation One of the most critical statutory obligations of NCII Entities is the requirement to implement the Codes of Practice put in place for each NCII Sectors. The Codes of Practice will presumably contain the minimum standards and requirements for the NCII Entities to comply with in order to strengthen the cyber security of the NCIIs owned or operated by the NCII Entities.   The Codes of Practice are to be prepared by the NCII Leads appointed for each NCII Sectors. Given that the list of NCII Leads has yet to be finalised, it may still be some time before any Codes of Practice will see the light of day. That said, we believe that the Codes of Practice to be drawn up will likely contain provisions or requirements pertaining to Business Continuity Management and preparation of disaster recovery plan, which are essential for the mitigation of any impact that a cyber security incident may have towards NCIIs.   3. Cyber Security Risk Assessment and Preparation NCII Entities will also be required to conduct cyber security risk assessment from time to time in respect of the NCII owned or operated by them to ensure that appropriate cyber security safeguards are in place as per the requirement of the Codes of Practice and any directives as may be prescribed. Additionally, NCII Entities will also have to allow external auditor to audit their compliance with the Cyber Security Act 2024 from time to time. Reports will have to be drawn up following the conduct of cyber security risk assessment and/or audit and be submitted to the Chief Executive of the National Cyber Security Agency (“Chief Executive”). If the Chief Executive is not satisfied with the result of the cyber security assessment or is of the view that the audit report provided pursuant to an audit is insufficient, it may require the carry out of further cyber security assessment or the rectification of the audit report. NCII Entities may also be required by the Chief Executive to carry out additional cyber security risk assessments or audit where there have been material changes to the design, configuration, security, or operation of the NCIIs owned or operated by the NCII Entities. In addition to the above, NCII Entities will also be required to participate and cooperate with the Chief Executive in any cyber security exercise that the Chief Executive elects to conduct.   The obligations of NCII Entities pertaining to risk assessments, audits and cyber security exercises are important to ensure that the cyber security measures in place appropriately and sufficiently account for all possible cyber security risks out there. As technology advances, threat actors will continuously innovate and deploy new ways and new technologies to breach the cyber security of NCIIs. As such, it is important that the cyber security measures are updated constantly to address any new threats that malicious actors will take advantage of, thereby enhance the cyber security readiness and preparedness of the NCII Entities.   4. Cyber Security Incident Notification and Response Apart from enhancing the cyber security of NCIIs, the Cyber Security Act 2024 also seeks to establish a cyber security incident notification and response regime. Upon detecting a cyber security incident or potential cyber security incident in respect of the NCII owned or operated, an NCII Entity will have an obligation to report the same to the Chief Executive and the NCII Leads within a prescribed period. If further investigation confirms that the relevant NCII(s) has indeed suffered a cyber security incident, any response to the cyber security incident and measures to be taken by the relevant NCII Entity(ies) to recover from the incident, will have to be coordinated with the Chief Executive.   Effectively, NCII Entities will no longer have the discretion to respond to any cyber security incidents without first consulting the Chief Executive, and any measures to be implemented in responding to, recovery from and the prevention of cyber security incident will have to be consistent with the directive given by the Chief Executive.   Exposures for Non-Compliance with Cyber Security Act 2024 Under the Cyber Security Act 2024, penalties for non-compliance vary depending on the type and severity of the violation.   For general non-compliance with the statutory obligations under the Cyber Security Act 2024 by NCII Entities, such as failure to conduct additional cyber security risk assessment or rectify an audit report upon request by the Chief Executive, or failure to notify the NCII Leads of any material changes to the NCII owned or operated, the penalties are generally as follows: 1. a fine of up to Ringgit Malaysia One Hundred Thousand (RM100,000) or Two Hundred Thousand (RM200,000), or 2. either no imprisonment or imprisonment up to three (3) years; or 3. both of the above.   However, for more serious violations involving critical statutory obligations, such as failure to implement the applicable Codes of Practice or failure to notify a cyber security incident, will carry a heavier penalty of fine not exceeding Ringgit Malaysia Five Hundred Thousand (RM500,000) or imprisonment for a term not exceeding ten (10) years or both, upon conviction.   To demonstrate the seriousness of an offence under the Cyber Security Act 2024, management personnel of an NCII Entity can also be made personally liable for any non-compliance by the NCII Entity. The Cyber Security Act 2024 also makes it clear that where an offence is committed by the employee, agent or employee of the agent of an NCII Entity, the NCII Entity will also be made liable to the same punishment or penalty of its employee, agent or employee of its agent.   Conclusion Considering the impact of a cyber security incident in respect of an NCII, the dire need for a robust cyber security regime in respect of the NCIIs in the country and strict compliance and enforcement of the same are no laughing matters.   NCII Entities stand on the frontline of any cyber warfare that may be waged against our nation’s NCIIs, and expectation towards the NCII Entities to safeguard the NCIIs are definitely high. Given the key role that the NCII Entities play, it is advisable that the (soon to be) NCII Entities carefully consider their statutory obligations under the Cyber Security Act 2024 to better prepare for the eventualities. Upon the finalisation of the Codes of Practice for each NCII Sectors, the NCII Entities should consider working with cyber security professionals and legal professionals who are well-versed with technology and cyber security matters to assess their compliance readiness and to put in place internal policies and procedures to meet their obligations under the Cyber Security Act 2024.   Please contact the partners from our Technology Practice Group should you have any enquiries pertaining to the Cyber Security Act 2024 or if you would like to enquire more about the obligations of an NCII Entity under the Cyber Security Act 2024. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my More Tech articles: • Cyber Security Bill 2024 Decoded: 5 Key Insights for Strategic Compliance • CYBER SECURITY ACT IMPLEMENTATION – Things for the National Critical Information Infrastructure Entities to Take Note of • E-Waste and ESG Compliance: What Companies Need to Know

Unpacking Shareholders' Pre-emptive Rights and Minority Oppression: A Case Analysis of Concrete Parade v Apex Equity

IntroductionThe Federal Court's recent judgment in the case of Concrete Parade Sdn Bhd v Apex Equity Holdings Bhd & Ors [2021] 9 CLJ 849 marked the end of a protracted legal battle that reverberated through Malaysia's corporate landscape. In this article, Lum Man Chan and Khew Gerjean provides an overview of the case, shedding light on the complexities surrounding pre-emptive rights of shareholders and the obtaining of shareholder’s approval in corporate exercises pursuant to the Companies Act 2016 (“the Act”). In summary, the Federal Court’s answers to the legal questions that arise in this case are as follows:1) Under S.85 of the Companies Act 2016 (“CA 2016”), pre-emptive rights of the shareholders is not mandatory but subject to the constitution of the company, which may renounce, disapply, or fortify such pre-emptive rights. 2) S.223(1)(i) and (ii) of the Act should be read disjunctively, so shareholders' approval could be obtained either before entering into an agreement for the transaction or before the actual transfer of ownership of the asset. 3) The oppression action was not properly brought by the Concrete Parade Sdn Bhd because the shareholders who had voted in favour of the corporate exercises were not named in the oppression suit. Background of the caseConcrete Parade Sdn Bhd (“Concrete Parade”) initiated a minority oppression action under S.346 CA 2016 against Apex Equity Holdings Berhad (“Apex Equity”) premised upon the following grievances:a) proposed merger transaction between Apex Equity and Mercury Securities which would see Mercury Securities emerging as the largest shareholder in Apex Equity through shares allotment; andb) Apex Equity has conducted share buy-back transactions in 2005 to 2017 in violation of its own M&A. Proposed Merger Transaction Apex Equity, along with its subsidiary JF Apex, planned a merger with Mercury. The proposed merger aimed to transfer Mercury's stockbroking business to JF Apex in exchange for:i. RM48 million cashii. RM100 million worth of new shares in Apex Equity The parties entered into a Heads of Agreement (HOA) on 21 September 2018, followed by a Business Merger Agreement (BMA) on 18 December 2018. Additionally, subscription agreements (SAs) were signed with seven placees for a private placement of new shares (collectively referred as “the Merger Agreements”). After the execution of these documents, the shareholders’ resolutions were passed. Share Buy-back TransactionsBetween 2005 and 2017, Apex Equity undertook multiple shares buy-back transactions (“the transactions”). These transactions were conducted based on mandates and approvals granted by the company's shareholders. However, in 2018, Concrete Parade brought to the attention of the Apex Equity's management that the company's Memorandum and Articles of Association (M&A) did not permit such transactions. Despite the shareholder's objection, the Apex Equity's board sought a further mandate in 2018 to continue with the transactions. However, this resolution was voted against by the shareholders. Hence, Apex Equity filed a proceeding to validate the share buy-back transactions undertaken between 2005 and 2017 and it was eventually allowed by the High Court. The Key Issues and the High Court Findings1. FIRST ISSUE: Whether Apex Equity breached S.85 and S.223 of CA 2016.Concrete Parade argued that it was denied its statutory and contractual pre-emptive rights to be offered new shares in Apex Equity. S.85(1) mandates that existing shareholders should be offered new shares before they are offered to outsiders. However, Apex Equity's memorandum and articles of association, particularly Article 11, did not expressly ensure the protection of Concrete Parade's pre-emptive rights. The High Court Judge concluded that there was no breach of pre-emption rights since shareholders had approved the proposed placement. The shareholders would reasonably understand that a private placement would dilute their interest, even without explicit mention in the circular. Thus, the absence of specific language denoting pre-emption waiver couldn't be deemed as oppressive as long as the transaction's effects were reasonably clear to Apex Equity's shareholders. Further it was held that the shareholder’s approval sufficed either through prior general meeting approval or documentation specifying approval as a condition precedent. Since the BMA required shareholder approval for the acquisition of Mercury’s business, there was no violation. S.223(1) applies only when transactions create enforceable obligations on a company to acquire or dispose of substantial assets. The HOA, although legally binding, did not commit parties to the sale and purchase, thus not mandating shareholder approval. Even if the HOA breached S.223(1), it was superseded by the BMA, which complied with shareholder approval requirements. S.223 should be construed in a disjunctive manner to allow for flexibility, stating that it suffices if either the entry into the arrangement is made conditional on shareholder approval OR if the carrying into effect of the transaction is approved by shareholders. 2. SECOND ISSUE: Whether the Share Buy-Back Transactions are valid and legal.Concrete Parade contended that the share buy-back transactions were illegal due to the contravention of S.67 of the Companies Act 1965 and/or S.123 of the Companies Act 2016. The directors' actions in seeking validation from the Court without amending the M&A were a blatant disregard of the company's governing documents. The directors of Apex Equity should have obtained consent and authority from the shareholders before filing for validation proceedings. They argued that the filing of validation proceedings without prior knowledge or approval of the shareholders resulted in unfair prejudice to Concrete Parade, as it impinged upon their substantive rights. The High Court ruled that the share buy-back transactions undertaken by the Apex Equity between 2005 and 2017 were valid, despite objections raised by the shareholder. While it is acknowledged that Concrete Parade were not notified of the validation proceedings, but it could not establish prejudice to its shareholder rights for recourse under S.346 of the CA 2016. Dissatisfied with the High Court’s decision, Concrete Parade appealed to the Court of Appeal. Court of Appeal FindingsThe Court of Appeal found that Article 11 did not amount to a complete waiver of Concrete Parade's pre-emptive rights. It was held that the Merger Resolutions passed after the execution of several agreements related to the proposed merger did not effectively waive the Concrete Parade's statutory pre-emptive rights. For the Merger Resolutions to constitute an operative direction waiving the pre-emptive rights, specific information regarding the shareholders' rights under the CA 2016 needed to be included. This information should have clarified that existing shareholders had a statutory pre-emptive right to be offered any new shares and that by voting in favour of the Merger Resolutions, they would be indirectly waiving these rights. Since this information was not provided, the court concluded that Concrete Parade's pre-emptive rights had been unfairly denied, resulting in an unjustified dilution of their shareholding. Next, it was held that S.223 is to be read conjunctively notwithstanding the use of the phrase ‘or’ between the two provisos. It imposes two separate requirements: one for entering the transaction and another for carrying it into effect. The Court of Appeal found that the Merger Agreements formed one composite transaction. For compliance with S.223, the HOA should have been subject to or contained a condition precedent for shareholder approval. Additionally, since the BMA was executed before shareholder approval was obtained, it failed to comply with the requirement of prior approval. Therefore, the Court concluded that Apex Equity had failed to fulfil the shareholder approval requirement under S.223, rendering the proposed merger invalid. The Court of Appeal imposed a duty on directors to inform shareholders at both the entry and execution stages of the transaction. It held that failure to obtain prior shareholder approval at either stage renders the transaction void. The Impact of the Court of Appeal’s DecisionThe Court of Appeal's interpretation, where S.223(b)(i) and (ii) are read conjunctively, requires the directors to secure shareholder approval twice: once before entering into any form of agreement for a proposed acquisition or disposal of a substantial asset and again before executing it. This approach seems overly burdensome and impractical, potentially leading to the abandonment of many transactions and necessitating the preparation of two sets of documents. Such a requirement could hinder business operations and create unnecessary complexities. The Court of Appeal further held that the share buy-back transactions remained illegal despite the validation order granted by the High Court due to the contravention of relevant sections of the Companies Act and the failure to obtain shareholder approval. Moreover, the filing of validation proceedings without prior shareholder consent or approval was unjust and prejudicial to the Concrete Parade's rights. It emphasised the importance of obtaining shareholder authorisation before taking actions that significantly affect the company's operations or financial transactions. Analysis of the Federal Court’s Judgment1) S.85 – Pre-emptive rights are subject to company’s constitution S.85(1) grants shareholders the privilege to maintain their proportional ownership by offering them the opportunity to purchase shares before they are issued to outsiders. However, this right is subject to the constitution of the company, which may renounce, disapply, or fortify such pre-emptive rights. The Federal Court disagreed with the Court of Appeal interpretation that the pre-emptive rights are mandatory and pointed out the Court of Appeal’s failure to consider the purpose and intent of the Act in interpreting the provisions. It was held that S.85(1) allows for discretionary application of pre-emptive rights based on the company's constitution. The constitution prevails over statutory pre-emptive rights, allowing shareholders to determine whether to relinquish or retain such rights. Shareholders have the flexibility to determine the extent of their pre-emptive rights, as reflected in the constitution. Parliament did not intend to restrict directors' powers or mandate pre-emptive rights but provided shareholders the freedom to decide through general meetings. Interpretation of S.75 and 85: The Federal Court discussed the relationship between sections 75 and 85. S.75 deals with the power of directors to allot shares, requiring prior approval by the company before directors can proceed. However, exemptions in S.75(2) allow for issuance without general meeting approval for certain purposes, such as financing acquisitions. When read together, S.75 and 85 establish the framework for pre-emptive rights of existing shareholders in the issuance of new shares. S.75 guarantees the general principle of pre-emptive rights, while S.85 allows companies to specify the details of these rights in their Articles of Association. The Articles of Association, as mentioned in S.85, can provide exceptions or modifications to pre-emptive rights, subject to the company's constitution. Interpretation of Article 11: The Court of Appeal interpreted the phrase "subject to direction to the contrary by the company at general meeting" as requiring the company to inform shareholders of their pre-emptive rights before any proposed issuance of new shares for raising capital. This interpretation imposes obligations on the company to seek explicit consent from shareholders before deviating from standard procedures regarding share issuance. However, the Federal Court disagreed with this interpretation. It asserted that pre-emptive rights are discretionary and can be applied based on the company's constitution. The Federal Court emphasised that the phrase allows flexibility for the company to adapt its operations or decision-making processes as required by specific circumstances. Rejecting the imposition of additional conditions on the company could hinder its ability to efficiently conduct corporate transactions. 2) S.223 should be read disjunctively and there is no requirement for 2-tier approval The Federal Court disagreed with the Court of Appeal’s interpretation. It argued that the word "or" should be read disjunctively, meaning that compliance with either sub-paragraph (b)(i) or (b)(ii) sufficed. According to this interpretation, shareholders' approval could be obtained either before entering into an agreement for the transaction or before the actual transfer of ownership of the asset. The Federal Court reasoned that requiring compliance with both sub-paragraphs would lead to impractical consequences for companies. It emphasised the importance of upholding the purpose and intent of the Companies Act, which aims to balance regulatory requirements with the efficient operation of businesses. This interpretation aligns with the overarching goal of ensuring transparency and shareholder awareness without unduly hindering corporate activities. In conclusion, the Federal Court held:- S.223(1)(i) and (ii) of the Act can be read disjunctively, meaning compliance with either sub-paragraph suffices.- At least one agreement forming a composite transaction must contain an express condition precedent requiring shareholder resolution, and shareholder approval in a general meeting satisfies S.223(1)(ii).- S.223(1) of the Act does not impose an incumbent duty on directors to inform shareholders of an intention to enter into or carry out an acquisition or disposal of substantial assets based on previous court decisions. 3) Was Concrete Parade unfairly prejudiced?The Federal Court disagreed with the Court of Appeal's assessment of whether the Concrete Parade suffered unfair prejudice compared to other shareholders. The Federal Court argued that since the majority of shareholders had approved the merger, there was no unfair prejudice. It suggested that the oppression claimed may have been more indicative of a management versus shareholder conflict rather than a minority-majority shareholder dispute. Additionally, the Federal Court questioned the Court of Appeal's decision not to include the majority shareholders, who approved the transactions, as parties to the oppression action. This omission, according to the Federal Court, could have influenced the assessment of whether the Concrete Parade was unfairly prejudiced. It emphasised the principle of majority rule in corporate governance and stated that claims of oppression under S.346 of the CA 2016 cannot be used to circumvent legitimate decisions made by the majority. 4) Was the oppression action properly brought by Concrete Parade?Given the lack of established contraventions of relevant sections of CA 2016 and the failure to conclusively establish illegality regarding the share buy-back transactions, the Federal Court questioned the suitability of the oppression remedy. It was asserted that an oppression finding couldn't be made under S.346 when shareholders had the opportunity to vote on transactions, approved them, and weren't party to oppression proceedings. The Federal Court highlighted the failure of the Court of Appeal to grasp this fundamental issue. Concrete Parade's failure to join the majority shareholders, who allegedly oppressed them, was deemed fatal to the oppression action. By solely targeting the directors, Concrete Parade's complaint lacked grounds for oppression action, suggesting it should have been brought against the officers or directors for contravening CA 2016. The Federal Court argued that Concrete Parade's grievance was essentially against majority rule, disguised as an oppression action, constituting an abuse of statutory remedy. The conduct of Concrete Parade was scrutinised, particularly its decision to pursue an oppression action despite majority approval of transactions. The Federal Court questioned whether the action was filed to hinder the proposed merger rather than to address actual unfair prejudice. Concrete Parade's failure to demonstrate how it uniquely suffered prejudice, coupled with its attempt to hold directors accountable for majority decisions, indicated an abuse of the statutory process. In essence, the Federal Court concluded that Concrete Parade 's oppression action lacked merit and appeared to serve a collateral purpose, constituting an abuse of the statutory process under S.346 of the Act. 5) S. 582: Share Buy-Back Transactions are not illegal under CA 2016 The Federal Court upheld the High Court's decision. Despite finding that the transactions lacked proper authorisation under CA 2016, the Federal Court disagreed with Court of Appeal conclusion that they were unlawful and void. Instead, the Federal Court criticised the Court of Appeal's legal interpretation, arguing that the transactions, while ultra vires, did not automatically constitute illegality. The Federal Court refrained from definitively addressing whether S.582(3) could rectify an illegality, citing the conclusion that oppression wasn't established. Nonetheless, Federal Court acknowledged the general view, that S.582 should not rectify illegality. It was highlighted that uncertainty regarding whether the lack of authorisation for share buy-backs amounted to illegality under S.67A and 127 of the Act. Since the focus was on whether the transactions unfairly prejudiced Concrete Parade, this issue wasn't deemed crucial for resolution. Regarding the High Court's validation order, the Federal Court emphasised that while certain aspects of the transactions were unauthorised, it didn't automatically render the entire process void. Ultimately, even if the transactions are contravened the company constitution/ rendered as void, there is no oppression on Concrete Parade because this would affect all the shareholders instead of Concrete Parade alone. 6) The Importance of Accurate Legal Citations in Judicial ProceedingsFederal Court also took the opportunity to address an important issue regarding the citation of legal precedents. They highlighted a case where incorrect and outdated decisions were cited to the Court of Appeal, potentially leading to an erroneous judgment. Such errors, they emphasised, could have significant consequences, impacting corporate transactions and potentially causing confusion in legal interpretations.Federal Court stressed the responsibility of legal counsel to ensure the accuracy and relevance of cited cases, emphasizing the importance of thorough research. They noted that failure to do so could range from mere oversight to misleading the court, which is unacceptable conduct for any legal practitioner. Federal Court also referenced a previous case to underscore the importance of well-researched advocacy, particularly in appellate proceedings. It is emphasised that judges rely heavily on the arguments and authorities presented by counsel, and any inaccuracies could lead to misinterpretations of the law and undermine the administration of justice. In Malaysia, where legal professionals can appear before courts at various levels, maintaining high standards of advocacy is crucial for ensuring the accuracy and integrity of legal proceedings. ConclusionIn complex transactions like mergers, the interpretation and application of provisions in CA 2016 require careful consideration of legal nuances and procedural requirements. The Federal Court's analysis provides clarity on the scope and application of the provision, guiding companies and legal practitioners in navigating the intricacies of company law. The Court of Appeal's failure to recognize the significance of majority rule in the context of the merger approval is a critical oversight. By overlooking the fact that shareholders collectively voted in favor of the merger at a general meeting, the Court of Appeal failed to grasp that any alleged prejudice suffered by Concrete Parade would have affected all shareholders equally. Moreover, it is essential to emphasise the paramountcy of majority rule in corporate governance. While S.346 of the CA 2016 introduces a statutory mechanism to address oppression, it is incumbent upon claimants to substantiate claims of unfairly prejudicial conduct. Attempting to invoke S.346 to circumvent situations where majority rule legitimately prevails, as demonstrated in this case, undermines the integrity of corporate decision-making processes. In essence, the principle of majority rule serves as the cornerstone of corporate governance, and statutory remedies for oppression should not be misused to challenge bona fide decisions made by the majority of shareholders. About the authors Lum Man ChanPartnerDispute ResolutionHalim Hong & Quekmanchan@hhq.com.my Khew GerjeanPupil-in-ChambersDispute ResolutionHalim Hong & Quekk.gerjean@hhq.com.my More of our articles that you should read: Cause Papers for Matrimonial Proceedings May Be Filed in the English Language Only Land Reference Proceedings: Written Opinions of Assessors Must Be Made Available to the Parties Determinants of Share Unit & Its Significance in Strata Development

Enforcement of Companies (Amendment) Act 2024

The Companies (Amendment) Act 2024 (“Amendment Act 2024”) came into operation on 1.4.2024. Following the Amendment Act 2024, the Companies Commission of Malaysia (“CCM”) had issued some guidelines pertaining to the amendments introduced by the Amendment Act 2024. In this article, we will address and highlight some salient amendments to the Companies Act 2016 (“CA 2016”) brought by the Amendment Act 2024. 1) Introduction of new Beneficial Ownership Reporting FrameworkThe new Division 8A of Part II introduced by the Amendment Act 2024 brought in the new beneficial ownership reporting framework. The new sections 60A, 60B, 60C, 60D, 60E and 60F of the CA 2016 cover the following: -i) The criteria of a beneficial owner;ii) Register of beneficial owners;iii) Company has power to obtain beneficial ownership information from its members and any person identified as beneficial owner or has information relating to a beneficial owner of the company; andiv) The obligation of beneficial owners to notify companies of their status as beneficial owners of the companies including any changes to the beneficial ownership information recorded in the register of beneficial owners kept by the companies at the registered office. According to the “Guidelines For The Reporting Framework For Beneficial Ownership Of Companies” issued by CCM, the introduction of the new beneficial ownership reporting framework aims to promote corporate transparency through a disclosure regime. This is due to the rising cases where businesses are misused to carry out illicit activities such as money laundering, terrorism financing, proliferation financing and other serious crimes and that the individual perpetrators hiding behind such businesses employ devious means to avoid their identity from being easily detected. What is a “beneficial owner”? Section 60A of the Companies Act 2016 defines a beneficial owner as “a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company.” Based on the “Case Studies and Illustrations of the Guidelines For the Reporting Framework For Beneficial Ownership of Companies” issued by CCM, an individual is a beneficial owner in a company limited by shares if he meets one or more of the following criteria:a) Criteria AIf he holds directly or indirectly in not less than 20% of the shares of the company. b) Criteria BIf he holds directly or indirectly in not less than 20% of the voting shares of the company. c) Criteria CIf he has the right to exercise ultimate effective control whether formal or informal over the company or the directors or the management of the company. d) Criteria DIf he has the right or power to directly or indirectly appoint or remove a director(s) who holds the majority of the voting rights at the meeting of directors. e) Criteria EIf he is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company. f) Criteria FIf he has less than 20% of shares or voting shares but exercises significant control or influence over the company. For company limited by guarantee (without shares), the assessment will be based on Criteria C, D and E stated above only. Pursuant to Section 60B of the CA 2016, it is mandatory for companies to maintain a register of beneficial owners which must be kept at the registered office of the company, or any other place in Malaysia, as notified to the CCM. Section 60C of the CA 2016 provides that a company has power to require its members to disclose their beneficial owner of company and to provide certain information as specified in the Act. A failure to disclose or the provision of false information is an offence under the CA 2016. In addition, Section 60D of the CA 2016 requires any person who has the reason to believe that he is a beneficial owner of a company to notify the company as well as to provide the necessary information prescribed by the Act to the company. Any person who contravenes this section commits an offence. It shall be highlighted that at the time of this article is written, no company is exempted from the application of new Division 8A of the Companies Act 2016. The beneficial ownership reporting framework is a necessary requirement under the new Division 8A of the Companies Act 2016, which all companies must comply with even though they may incur more cost and take more time. Once again, any non-compliance with the beneficial ownership reporting framework is an offence. 2) Amendments to the Corporate Rescue Mechanism ProvisionsAccording to the “Frequently Asked Questions – Companies (Amendment) Act 2024” issued by CCM, there are two policies underlying the amendments to the Companies Act 2016: Policy 1: Widening the Application of Corporate Rescue Mechanism - Corporate Rescue Arrangement (CVA) and Judical Management (JM) Policy 2: Strengthening the Corporate Rehabilitation Framework Policy 1The amendment to Section 395 of the Companies Act 2016 aims at widening the application of CVA to all companies including public listed companies and companies which have created a charge over their property or undertaking. AmendmentsPre-Amendment Amendment Act 2024  Section 395 –   Substitution for Section 395Non-application of this Subdivision 395. This Subdivision shall not apply to— a)a public company; b)a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; c)a company which is subject to the Capital Markets and Services Act 2007; and d)a company which creates a charge over its property or any of its undertaking.Non-application of this Subdivision 395. This Subdivision shall not apply to— a)a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; b)a company which is approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA or recognised under Part VIII of the Capital Markets and Services Act 2007; and c)a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991. In addition, the amendment to Section 403 of the Companies Act 2016 is aimed to clarify that judicial management can be applied by all companies including public listed companies. AmendmentsPre-Amendment Amendment Act 2024  Section 403 – Amendment to Section 403    403. This Subdivision shall not apply to— a)a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; and   b)a company which is subject to the Capital Markets and Services Act 2007.403. This Subdivision shall not apply to— a)a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia; b)a company which is approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA or recognised under Part VIII of the Capital Markets and Services Act 2007; and c)a company which is approved under Part II of the Securities Industry (Central Depositories) Act 1991. Policy 2The salient amendments to the Companies Act 2016 for the purpose of strengthening corporate rescue mechanism are as follows: - SectionDescription / Remarks    368The new subsection 368(1A) will give companies applying for restraining order under a scheme of arrangement or compromise an automatic moratorium upon filing of such application for a maximum of two months or until the Court decides on the application, whichever is earlier. To prevent abuse of process whereby the application for restraining orders can be used to continuously deprive the rights of creditors, Section 368(3B) provides that no restraining order would be granted by the Court if an order has been granted in the preceding 12 months involving a rescue financing, a cram down, an approval of the proposed scheme without a meeting of creditors or when a related company makes an application for a restraining order in relation to a proposed scheme.368AIn some circumstances, restructuring does not involve just one company. In a larger restructuring of a group of companies, some other entities may be involved although they may not be part of the scheme of arrangement. Section 368A provides that a related company can apply for a restraining order on similar terms with the company undergoing scheme of arrangement provided that the company plays an integral part in the scheme of arrangement.368B   415A    ‘Rescue Financing’ is defined as financing that is necessary for the survival of a company that obtain the financing or that the financing is necessary to achieve a more advantages realisation of the assets of a company.In cognizance of the fact that often financially distressed companies face higher cost of borrowing as banks or financial institutions become more wary to provide fresh loans without some of protection, a new policy is introduced to provide better protection to parties giving the rescue financing.As such, under these sections, the Court is empowered to order the debt arising from any rescue financing to be secured against the property of the company on certain conditions. In the event the company is wound up, debts arising from rescue financing are given super priority over all other debts in the event of a winding up.368DA cram down is a mechanism that will allow the Court to compel dissenting creditors to be bound by the proposed scheme of arrangement. The aim of a cram down is to ensure that companies in distress will have a successful scheme with less interference and at the same time accord protection to the dissenting creditors.An application for cram down could be made to the Court provided that: -i . The scheme i s approved by a majori ty of 75% of the t ot al value of the credi tors ormembers presenti i . The scheme i s fair and equitable to each c lass of dissenting creditors367The amendment to Section 367 of the Companies Act 2016 imposes a mandatory requirement for the appointment of insolvency practitioner to oversee the proposed scheme and report its status to the Court before the scheme is approved. The objective of this amendment is to ensure higher chance that the proposed scheme would be successful.430AFor a company that becomes subject to the proceedings in relation to a compromise or arrangement, a voluntary arrangement or a judicial management, Section 430A provides that an insolvency related clause in any contract for the supply of essential goods and services cannot be exercised against the company merely because the company becomes subject to those proceedings. What this means is that under the new section 430A, suppliers will have to continue to fulfil their commitments under their contract so that companies can continue trading through the rescue process, including making it easier for companies to maintain supply of contracts that are essential for the continuation of the business. Essential supply of contracts proposed under this new section would include supply of water, electricity or gas. ConclusionThe Amendment Act 2024 has brought many important amendments to the CA 2016. The new beneficial ownership reporting framework is introduced to enhance the gaps in the CA 2016 to be in line with the international standards i.e. the Financial Action Task Force (FATF) and the Organisation for Economic Co-Operation and Development (OECD) as well as international best practices. The main objective of those standards is to combat money laundering, terrorist financing and shall include other illegal activities such as corruption and tax evasion. In addition, the amendments to the corporate rescue mechanism aim to facilitate the scheme of arrangement and judicial management. With the Amendment Act 2024, all the public listed companies are allowed to also apply for the corporate rescue mechanism available under the CA 2016. About the author Jessica Wong Yi SingSenior AssociateDispute ResolutionHarold & Lam Partnershipjessica@hlplawyers.com More of our articles that you should read: Disposal of Real Properties Subject to Income Tax? Security Issues in the Secondary Market Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd (Case No. BA-12AC-3-07/2023)

Clarifying Developer Voting Rights in Management Corporation Meetings

Management Corporation (MC) meetings serve as crucial forums for decision-making in condominium and strata-titled developments, where stakeholders discuss various aspects of property management. One contentious issue often debated is the extent of voting rights held by developers over parcels they own as proprietors. This article aims to thoroughly analyse the legal framework surrounding this issue, shedding light on the nuances of developer entitlement to voting rights in MC meetings. The determination of developer voting rights in MC meetings is guided by statutory provisions that outline the rights and obligations of property stakeholders. Section 21 of Strata Management Act 2013 (SMA 2013) explicitly states that each proprietor, provided they meet eligibility criteria, has the right to vote on matters during MC meetings, whether on a show of hands or on a poll. Furthermore, Section 22(2)(c) identifies proprietors as parcel owners, underscoring their importance in property governance. Central to the interpretation of voting rights is the definition of a parcel owner as outlined in Section 2 of the legislation. According to this provision, a parcel owner is defined as either the purchaser or the developer of a parcel. This definition serves as the foundation for understanding the developer's entitlement to voting rights, particularly concerning both sold and unsold units within the property. Section 22(2)(g) is instrumental in delineating the developer's voting rights over unsold units. It explicitly states that developers possess voting rights equivalent to purchasers in respect of unsold units. This provision acknowledges the developer's ongoing involvement in managing and overseeing unsold parcels until they are transferred to individual purchasers. However, the crux of the issue emerges when considering the developer's voting rights over sold units. Despite being the proprietor of these parcels, the developer's classification as the parcel owner is subject to interpretation. This ambiguity stems from the definition of a purchaser as someone who has acquired an interest in the parcel. In the case of sold units, the interest in the parcel has been transferred to individual purchasers, thereby raising questions about the developer's status as the parcel owner in this context. Moreover, the transition of ownership from the developer to individual purchasers alters the dynamics of property management and governance. While the developer retains control during the development phase, their role evolves upon the sale of units. The transfer of ownership confers rights and responsibilities upon individual purchasers and diminishes the developer's direct involvement in the management of sold units. In conclusion, the issue of developer voting rights in MC meetings requires a meticulous examination of relevant legal provisions. While developers enjoy voting rights akin to purchasers concerning unsold units, their entitlement to vote over sold units hinges on their classification as parcel owners. This classification is influenced by the transfer of ownership to individual purchasers, which diminishes the developer's direct stake in the management of sold units. By elucidating these distinctions, property governance can proceed in a manner that fosters transparency and equitable decision-making within the management corporation. About the author Noorvieana LimAssociateReal EstateHalim Hong & Queknoorvieana.lim@hhq.com.my More of our articles that you should read: Determinants of Share Unit & Its Significance in Strata Development Stranded in Strata: How Unpaid Maintenance Fees Impact Tenants under the Strata Management Act 2013 (SMA) Stamp Duty for Foreign Currency Loan

Cause Papers for Matrimonial Proceedings May Be Filed in the English Language Only

On 9.2.2024, the Federal Court in the case of Robinder Singh Jaj Bijir Singh v Jasminder Kaur Bhajan Singh [2024] 2 MLJ 126; [2024] 3 CLJ 647 ruled that the cause papers for matrimonial proceedings, including petitions, interlocutory applications and associated affidavits, filed under the Law Reform (Marriage & Divorce) Act 1976 and the Divorce and Matrimonial Proceedings Rules 1980, can be filed solely in English without an accompanying translation in the National Language. In Malaysia, marriage and divorce matters of non-Muslims are governed by the Law Reform (Marriage and Divorce) Act 1976. This Act does not apply to Muslims and the natives of Sabah & Sarawak. BACKGROUND FACTSThe marriage between the parties, the Appellant (Husband) and Respondent (Wife) had irretrievably broken down. On 7.1.2022, the Respondent filed an ex-parte application in the High Court for interim sole custody, care and control of their son (“Enclosure 6”). On 24.1.2022, the High Court granted certain orders in Enclosure 6. However, the order lapsed after 21 days as it was not served on the Appellant. On 27.1.2022, the Respondent filed another application which was similar to Enclosure 6. On 24.3.2022, the Appellant filed an application to set aside the ex-parte order granted by the High Court on 24.1.2022 (“Enclosure 20”). Enclosure 20 was filed in the English Language without an accompanying translation in the National Language. On 18.4.2022, the Appellant filed an application for the interim guardianship, custody, care, control and access. The parties subsequently recorded a consent order. Thereafter, the Appellant requested for Enclosure 20 to be heard, which the Respondent also agreed to as the only matter outstanding was whether damages ought to be granted. HIGH COURTThe High Court dismissed Enclosure 20 based on the following grounds: - The Appellant failed to file the translation for Enclosure 20 within the time ordered. - The Appellant failed to comply with Order 92 Rules 1(1) and (4) of the Rules of Court 2012 (“ROC 2012”) which requires a translation of the documents in the National Language to be filed within two weeks or within such extended time as allowed by the Court. - The unavailability of a translation of the DMP Rules 1980 into the National Language is not a valid reason to not file a translation of Enclosure 20 and the related cause papers. COURT OF APPEALThe Court of Appeal upheld the decision of the High Court and held that Registrar’s Circular No. 5 of 1990 (“Registrar’s Circular”) is administrative in nature and cannot possibly prevail over the language requirement in Order 92 Rules 1(1) and (4) of ROC 2012. ISSUES BEFORE THE FEDERAL COURTThe Federal Court granted leave to appeal in relation to the following questions of law: 1) Whether petitions for judicial separation or divorce (matrimonial proceedings) filed pursuant to the provisions of the Law Reform (Marriage and Divorce) Act 1976 (“LRA 1976”) and Divorce and Matrimonial Proceedings Rules (“DMP Rules 1980”) may be filed in the English Language only; 2) if so, whether all other cause papers filed in the matrimonial proceedings may be filed in the English Language only; and 3) if the answers to either one or both of the questions above are in the negative, whether the filing of the documents in English only is an irregularity that can be cured with the necessary directions by the Court that the said cause papers be filed in Bahasa Malaysia. ANALYSIS AND DETERMINATION OF THE FEDERAL COURTThe Federal Court answered the first two questions in the affirmative, leaving the third question unnecessary for determination. (1) The Registrar’s Circular Remains ValidSection 2 of the National Language Act 1963/67 (Revised 1971) (“NLA 1971”) provides that the National Language shall be used for official purposes “Save as provided in this Act and subject to the safeguards contained in Article 152(1) of the Constitution relating to any other language and the language of any other community in Malaysia”. Section 8 of the NLA 1971 (as amended vide Act A765/1990 with effect from 30.3.1990) permitted the continued use of English for proceedings in court. To facilitate the amendment to Section 8 of NLA 1971, the Chief Judge of Malaya issued Practice Direction No.2 of 1990 (“PD 2/1990”), whereby the substance of PD 2/1990 was substantially reflected in the amended Section 8. Shortly after the issuance of PD 2/1990, the Registrar’s Circular No. 5 of 1990 (“Registrar’s Circular”) was issued, which allows the cause papers relating to divorce and matrimonial proceedings, insolvency and winding up proceedings to be filed in English until such time as the relevant rules are translated into the National Language and the translations are gazetted. In Circular No. 153 of 2019 captioned “Filing of Documents in English for Family Law Matters” dated 6.8.2019, the Managing Judge of the High Court in Kuala Lumpur confirmed that the Registrar’s Circular remains valid, as far as matrimonial proceedings are concerned. The Registrar’s Circular is still in effect today as the DMP Rules 1980, relevant to this appeal, have yet to be translated and gazetted. (2) Order 92 of ROC 2012 Does Not Apply to Matrimonial Proceedings under LRA 1976The High Court Judge dismissed Enclosure 20 as there was no translation of these cause papers into the National Language. The High Court relied on Order 92 Rule 1(1) of the Rules of Court 2012 (“ROC 2012”) which stipulates that “any document required for use in pursuance of these Rules shall be in the national language”. However, Order 1 Rule 2(2) of ROC 2012 provides that “these Rules [ROC 2012] will not have any effect in or to those proceedings where separate rules have already been made or may be made under written law specifically for the purpose of such proceedings”. Further, Order 94 Rule 2(2) of ROC 2012 provides that in the event there is any inconsistency between any of the rules made under the specific written law in Appendix C and the ROC 2012, the former shall prevail. Matrimonial proceedings under LRA 1976 are one of the exempted written laws set out in item 5 of Appendix C. Therefore, ROC 2012 and in particular Order 92 does not apply to the matrimonial proceedings in this case. CONCLUSIONThe Federal Court allowed the appeal and set aside the decisions of the High Court and Court of Appeal. The Federal Court’s ruling resolved the lack of uniformity of practice in matrimonial proceedings. Prior to this decision, the High Court in Kuala Lumpur and Penang are said to accept cause papers for matrimonial proceedings in English while the High Court in Malacca has rejected cause papers that are not translated to the National Language. The position of the law on this issue is now settled – the cause papers for matrimonial proceedings under the LRA 1976 may be filed in English only, until the DMP Rules 1980 are officially translated and gazetted. About the authors Chew Jin HengAssociateDispute ResolutionHalim Hong & Quekjhchew@hhq.com.my Khew GerjeanPupil-in-ChambersDispute ResolutionHalim Hong & Quekk.gerjean@hhq.com.my More of our articles that you should read: Disposal of Real Properties Subject to Income Tax? Private Hospitals to pay for their Doctor’s Negligence Constructive Dismissal: The Applicable Test – “Contract Test” vs The “Reasonableness Test”

Can an Adjudication Decision, After Having Been Enforced Pursuant to Section 28 CIPAA 2012, Be Stayed Pursuant to Section 16(1)(b) CIPAA 2012?

The Federal Court has in its grounds of judgment for the case of ECONPILE (M) SDN BHD v ASM DEVELOPMENT (KL) SDN BHD [Civil Appeals Nos.: 02(f)-2-01/2023(W) and 02(f)-34-05/2023(W)] answered the following questions of law: Question 1 (answered in the negative)“Whether an adjudication decision, after having been enforced pursuant to Section 28 of CIPAA 2012 as an Order of the Court, can be stayed pursuant to Section 16(1)(b) of the CIPAA 2012” Question 2 (answered in the positive)“Whether the Court of Appeal in so deciding to allow the stay application pursuant to section 16(1)(b) CIPAA 2012 has overruled or disagreed, or gone beyond the ratio decidendi of the Federal Court decision in View Esteem Sdn Bhd v Bina Puri Holdings Sdn Bhd [2018] MLJ 22; [2019] 5 CLJ 479.” The Facts Adjudication DecisionsEconpile obtained 2 separate adjudication decisions against ASM for the respective sums of RM59,767,269.32 (CIPAA 1) and RM5,959,024,99 (CIPAA 2). High Court (CIPAA 1)Due to ASM’s failure to pay the sums awarded under the CIPAA 1 Adjudication Decision, Econpile had made an application to enforce the CIPAA 1 Adjudication Decision as a judgment of the High Court under Section 28 CIPAA 2012. Consequently, ASM had filed applications to set aside and/or stay the CIPAA 1 Adjudication Decision under Section 15(b), 15(d), and 16(1)(b) of CIPAA 2012. On 29.11.2019, the High Court dismissed ASM’s applications for setting aside and stay of the CIPAA 1 Adjudication Decision, and allowed Econpile’s application to enforce the CIPAA 1 Adjudication Decision. In relation to ASM’s stay application, the High Court found that:a) the fact that ASM has a claim which exceeds Econpile’s payment claim in arbitration cannot be regarded as a special circumstance unless it can be shown that there is a real danger that Econpile would not be able to pay ASM, which ASM failed to do so.b) further, there were no clear and unequivocal errors on the part of the learned Adjudicator in arriving at the adjudication decision, nor were there cogent reasons why a stay is warranted to meet the justice of the case or that the discretion ought to be exercised in ASM’s favour. Court of Appeal (CIPAA 1)ASM appealed against all three of the High Court’s decisions to the Court of Appeal. On 26.4.2022, the Court of Appeal dismissed ASM’s appeal against the High Court’s decision to enforce the adjudication decision, and ASM’s appeal against the High Court’s dismissal of ASM’s setting aside application. However, despite the Court of Appeal’s affirmation of the High Court’s enforcement order, the Court of Appeal allowed ASM’s appeal against the High Court’s dismissal of ASM’s stay application (“CIPAA 1 COA Stay Order”), and amongst others, held that there are no express prohibitions in the CIPAA stating that stay applications cannot be allowed after the enforcement order has been made. On 3.1.2023, Econpile was granted leave to appeal against the CIPAA 1 COA Stay Order to the Federal Court. ASM did not file an appeal against the Court of Appeal’s dismissal of ASM’s other two appeals. High Court (CIPAA 2)Similarly, due to ASM’s failure to pay the sums awarded under the CIPAA 2 Adjudication Decision, Econpile had made an application to enforce the CIPAA 2 Adjudication Decision as a judgment of the High Court under Section 28 CIPAA 2012. ASM also filed applications to set aside and/or stay the CIPAA 2 Adjudication Decision under Section 15(b), 15(d), and 16(1)(b) of CIPAA 2012. On 28.10.2020, the High Court allowed Econpile’s application to enforce the CIPAA 2 Adjudication Decision and dismissed ASM’s applications to set aside the CIPAA 2 Adjudication Decision. On 4.2.2021, the High Court dismissed ASM’s application to stay the CIPAA 2 Adjudication Decision. In relation to ASM’s stay application, the High Court found that there are neither instances of disregarding nor wrong interpretation of statute or misreading and/or application of case authorities that resulted in the CIPAA 2 Adjudication Decision as being erroneous and there are no unequivocal errors to justify the stay. Court of Appeal (CIPAA 2)ASM appealed against all three of the High Court’s decisions to the Court of Appeal. The appeal was heard before a different panel from the CIPAA 1 Appeals. On 28.10.2022 and 25.11.2022 respectively, the Court of Appeal after considering the circumstances of the individual case, dismissed ASM’s appeals against the High Court’s decision which enforced the adjudication decision, the High Court’s dismissal of ASM’s setting aside application and the High Court’s dismissal of ASM’s stay application (“CIPAA 2 COA Dismissal of Stay Order”). On 13.4.2023, ASM was granted leave to appeal CIPAA 2 COA Dismissal of Stay Order to the Federal Court. ASM did not file an appeal against the Court of Appeal’s dismissal of ASM’s other two appeals. Federal Court’s Findings (CIPAA 1 & CIPAA 2)Leave to appeal was granted for both cases. At the appeal proper, the Federal Court allowed Econpile’s appeal against the CIPAA 1 COA Stay Order, and dismissed ASM’s appeal against the CIPAA 2 COA Dismissal of Stay Order, with global costs of RM100,000.00 to be paid by ASM to Econpile. Question 1 (answered in the negative)The Federal Court found that the Court of Appeal’s (CIPAA 1) decision in finding that there is no express provision in CIPAA prohibiting the granting of a stay after an enforcement order is granted, an application for stay can be considered and granted, is flawed for the following reasons: A court must favour construction of a statute which promotes the purpose, object or intent of the legislation. CIPAA is a legislation crafted to address issues common in the construction industry in particular relating to cash flow problems for the unpaid party and only as temporary finality to the payment claims. It is not the end of the end. The Act was designed with the ultimate aim to assist the parties in construction dispute to be paid expeditiously for the work which they had carried out and for adjudication proceedings for payment claims that are due and payable before the determination of the contract. There is no provision for a stay of adjudication decision (S.16) after an enforcement order is given. Applying the principles of interpretation of statutes, in the absence of a specific provision the court is not statutorily empowered to grant a stay if the adjudication decision is not set aside. To do so would be incongruent to the intent and purpose of CIPAA. Question 2 (answered in the positive)In answering Question 2, the Federal Court held that the principles enunciated in View Esteem must be followed in an application for a stay of an adjudication decision pursuant to Section 16 CIPAA if an application to set aside the adjudication decision under Section 15 of the same Act has been made or the subject matter of the adjudication decision is pending final determination by arbitration or the court. KEY TAKEAWAYSIn view of the Federal Court’s decision that after an enforcement order under Section 28 CIPAA 2012 is made, an adjudication decision cannot be stayed under Section 16(1)(b) of CIPAA 2012, it is prudent for legal practitioners to ensure that a stay application under Section 16(1)(b) of CIPAA 2012 to be decided before / together with an application under Section 28 of CIPAA 2012. In the circumstance where a party wishes to appeal to the Court of Appeal against a dismissal of a Section 16(1)(b) stay application, it is also prudent for the party to ensure that where an enforcement order has already been made, an appeal should also be filed against the enforcement order. However, one must also bear in mind that the Court’s jurisdiction to grant stay of execution of a court order, based on the special circumstances test, is not curtailed by this Federal Court decision. The Federal Court's decision on this issue is important to the development of the statutory adjudication framework in Malaysia as it has provided clarity to the relationship between Section 28 CIPAA 2012 and Section 16(1)(b) CIPAA 2012. About the author Lim Ren WeiAssociateConstruction & EnergyHarold & Lam Partnershiprenwei@hlplawyers.com More of our articles that you should read: (Section 35 of CIPAA 2012) Overview of Authorities on Conditional Payment Land Reference Proceedings: Written Opinions of Assessors Must Be Made Available to the Parties Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd (Case No. BA-12AC-3-07/2023)

Determinants of Share Unit & Its Significance in Strata Development

Owning a strata property comes with the entitlement of share units which entails varying rights and liabilities depending on the value of the share unit owned. The Court of Appeal in the case of Muhamad Nazri Muhamad v. JMB Menara Rajawali & Anor [2020] 4 MLRA 288 (“JMB Rajawali case”) provides a comprehensive explanation of the concept of share unit and the extent of the power of a management committee of a Joint Management Body (“JMB”) or Management Corporation ("MC") concerning share units. According to Section 4 of the Strata Title Act 1985 (“STA”), “share unit” in respect of a parcel means the share units determined for that parcel as shown in the schedule of share units. Section 18 of the STA further provides that every parcel shall have a share value as approved by the Director and expressed in whole numbers to be known as share units. Vernon Ong, one of the panel of judges of the Court of Appeal (“JCA”) (as he then was), explained in the judgment the concept of share unit which is a feature peculiar to strata development. Share unit is an essential method in determining each parcel owner’s: (i) voting rights, (ii) share in the common property, (iii) contribution to maintenance and administrative expenses, and (iv) proportional liability for the debts of the JMB or MC. Concerning voting rights, a matter to be decided in a general meeting is generally on a show of hands, unless a poll is demanded by a proprietor or the proxy, as provided in Section 17(1) of the Second Schedule of Strata Management Act 2013 (“SMA”). In this sense, different amounts of share units determined the extent of voting power in the general meeting, depending on the mode of decision-making. To illustrate, each parcel owner shall have one vote on a show of hands at a general meeting of the JMB or MC. But, on a poll, each parcel owner shall have such number of votes, corresponding to the number of share units, as provided in Section 22(2) of the Second Schedule of SMA. This means parcel owners with higher share value will enjoy more voting power on voting on a poll. Vernon Ong JCA further clarifies that on the flip side, the higher share value translates into a liability to pay higher aggregate maintenance charges and contributions to the sinking fund. Another question begs to be asked is how the share units are determined. Vernon Ong JCA put simply that the share units of a parcel are the area of that parcel multiplied by the weightage factor for that type of parcel, and the weightage factor for the entire floor parcel. If there is any accessory parcel, the area of the accessory parcel is multiplied by a weightage factor for that accessory parcel. If there is more than one accessory parcel, the calculation formula shall apply to each accessory parcel, and it shall then be added accordingly. Both the value of the parcel and accessory parcel are then added to determine the total share units for each parcel. Furthermore, as to how the share unit is calculated, it shall be per the formula under the First Schedule of the SMA, as provided in Section 8(1) of the SMA. The calculation takes into account the area of the parcel and accessory parcel and three weightage factors namely WF1, WF2 and WF3. The formula for the computation of allocated share units can be clearly described as follows: The allocated weightage factors are based on different sets of criteria. In weightage factor WF1, there are 3 main differentiations including (i) type of parcels; (ii) between parcels with or without air-conditioning to the common areas or corridors, lobbies and foyers; and (iii) between parcels having benefit or no benefit of common lift/escalator facility. Weightage factor WF2 is related to the whole floor parcel with differentiation between parcel inclusive or exclusive of lifts or escalator, while weightage factor WF3 is related to an accessory parcel with differentiations between the accessory parcel outside or within buildings. These different weightage factors are taken into account in determining the value of the share unit. In short, this confirmation of share unit, in turn, determines the amount of, among others, the contribution to the management fund by each parcel, which is to be determined by the JMB as required under Sections 21, and 25 of SMA. These provisions mandated that contributions to the management fund be determined on a share-unit basis. On the other hand, as mentioned by Vernon Ong JCA in the JMB Rajawali case, flexibility is conferred on an MC where it can fix different rates for different types of parcel, not necessarily on a share unit basis, as provided in Section 60(3)(b) of SMA, in 2 specific situations including, (i) parcels which are used for significantly different purposes, and (ii) provisional blocks. About the author Muhammad Aiman Anuar bin Mohd Ali AzharAssociateReal EstateHalim Hong & Quekmuhammad.aiman@hhq.com.my More of our articles that you should read: Payment for Exemption from Building Low-Cost Housing is NOT Tax-Deductible 房地产买卖需知–第一部:房地产及土地背景 Credit Reporting Agencies Are Not Authorised to Formulate Their Own Credit Score

Defence of Limitation cannot be raised in Recovery of Tax Action?

The recent case of Kerajaan Malaysia v Dreamedge Sdn Bhd & Anor [2024] MLJU 473 was a straightforward case where the Government of Malaysia (“Government”) sought to recover outstanding income tax amounting to RM3,292,579 from Dreamedge Sdn Bhd (“Taxpayer”) and its director (“Director”) and the High Court held that, amongst others, the defence of limitation cannot be raised in the recovery of tax action. Background FactsThe Government issued Notices of Additional Assessments dated 31.5.2021 for the years of assessment 2011, 2012, 2013, 2014, and 2015. The Taxpayer and its Director sought to strike out the Government’s claim, relying on Section 91(1) of the Income Tax Act 1967 and/or Section 6(1)(d) of the Limitation Act 1953. The Director also argued that the Notices of Additional Assessments were not properly served on him. The Government sought to enter summary judgment against the Taxpayer and its Director. DecisionThe High Court held that, amongst others:Section 6(1)(d) of the Limitation Act 1953 is an Act of general application, and the proviso in Section 33 of the Limitation Act 1953 clearly states that limitation does not apply to an action by the Government for the recovery of tax. Matters like fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 are matters for the Special Commissioners of Income Tax’s (“SCIT”) consideration. Besides, the normal argument of triable issues has no application in tax recovery claims filed by the Government. On the issue of service, the High Court held that service on the Taxpayer could not be deemed as service on its Director and found that the Director had not been served in accordance with Section 145 of the Income Tax Act 1967. The summary judgment application against the Taxpayer is allowed but the Director’s striking out application is allowed. CommentaryThis case reaffirms that the defence of limitation cannot be raised in the recovery of tax action. However, it is highlighted that the defence of limitation is still a good ground of defence in challenging a notice of assessment where the burden of proof is on part of the Inland Revenue Board of Malaysia to prove fraud, wilful default, or negligence under Section 91(3) of the Income Tax Act 1967 before the SCIT. Hence, it is imperative for the taxpayers to appeal against the notice of assessment within the statutory timeframe. This case also serves as a reminder that the service of notice of assessment plays a crucial role in proceedings involving income tax, and improper service could (and does) result in a claim being struck out. This is a valid and arguable defence for taxpayers who are otherwise severely handicapped in summary judgment proceedings. Thus, taxpayers are encouraged to be cognizant of the procedural requirements regarding income tax proceedings and consult a tax lawyer on the same (if required). About the authors Desmond Liew Zhi HongPartnerTaxHalim Hong & Quekdesmond.liew@hhq.com.my Boey Kai QiAssociateTaxHalim Hong & Quekkq.boey@hhq.com.my More of our articles that you should read: Real-World Assets in Blockchain: Why Companies Should Pay Attention 网络安全法案2024解读:合规的5个关键见解 Disposal of Real Properties Subject to Income Tax?

Constructive Dismissal: The Applicable Test - “Contract Test” vs The “Reasonableness Test”

The recent Federal Court judgment in Tan Lay Peng v RHB Bank Berhad (Civil Appeal No.01(f)-10-04/2023(P), brings into focus the intricate balance between the contract test and the reasonableness test in cases involving constructive dismissal cases in Malaysia. Our Apex Court reaffirmed the traditional reliance on the contract test, aligning Malaysian position with longstanding common law principles. The Principle of Constructive DismissalConstructive dismissal occurs when an employee resigns/walk out of the employment allegedly due to the employer's conduct which can be regarded as fundamentally breaching the terms of the employment contract thus creating an untenable work environment for the subject employee. Unlike straightforward summary dismissals, constructive dismissal encapsulates situations whereby the termination is forced/triggered by the employer’s actions. Brief background factsThis case involves a former employee one Mr. Tan (“Mr Tan/Appellant”) of RHB Bank Berhad (“the Bank/Respondent”). Mr. Tan was later deceased and was represented by his administratrix, one Ms. Tan. Mr. Tan was employed by the Bank as its Operations Head, Thailand Operations in Bangkok, the sole branch of the Bank at the material time. In November 2013, the Bank opened its second branch in Sri Racha which was placed under the supervision of Mr. Tan. Not long after, the bank issued a transfer order for Mr. Tan to assume the role of Branch Manager of the Ayutthaya branch. The order stipulated that such assignment is for a period not more than 9 months. Mr Tan complied and transferred to the Ayutthya branch since then. However, despite such assignment, the bank subsequently appointed a Thai national as the Branch Manager and issued another transfer order to Mr Tan to the International Infrastructure, PMO and Operation Support, Group International Business in Malaysia. Mr Tan objected vigorously to his repatriation to Malaysia because he opined that such transfer will ‘kill his career’ and was done without any reasonable justification. Therefore, he did not comply with the order and claimed that he was constructively dismissed by the bank. The Industrial Court gave an award in favour of Mr Tan, which the decision was maintained by the High Court. The Bank being dissatisfied with the decision, appealed to the Court of Appeal. Court of AppealThe Court of Appeal reversed the decision on the ground that the Industrial Court had applied the wrong test ie the reasonableness test in determining whether there was constructive dismissal. Question of law posed before the Federal Court“Is there a difference in the contract test or reasonableness test in light of major developments in industrial jurisprudence?” Grounds of judgement of the Federal CourtThe Federal Court upheld the decision of Court of Appeal. It referred to the trite law in Pan Global Textiles Bhd Pulau Pinang v Ang Beng Teik [2002] 1 CLJ 181 whereby the following observation was made, that the court ought to apply the contract test to determine if the employer was guilty of any breach which went to the root of the contract or had evinced an intention not to be bound by it. In the present case, the Federal Court unanimously reaffirmed the primacy of the contract test being the settled law for the applicable test for constructive dismissal cases, The reasonableness of an employer's actions, while relevant, should not alone determine constructive dismissal. The test of reasonableness refers to what a reasonable man, in his right mind considers fair and proper based on the particular facts and circumstances of the case. The assessment must relate to the contract of employment and its fundamental breach or repudiatory breach. The rationale is that the reasonableness of an employer’s conduct is very subjective and depends on the circumstances of the situation and other related factors. It is too wide and indefinite to be made as a legal requirement for a constructive dismissal case. The reasonableness of the employer’s conduct could also be easily subject to different opinions by tribunals or courts. Any departure from the contract test to reasonableness test will entail unsettled industrial relations by introducing uncertainty and confusion. ConclusionThe adherence to the contract test in fact aligns with other jurisdictions like the UK, Singapore and Australia, where the contract test remains foundational, notwithstanding the contextual assessment of reasonableness in determining whether an employer's conduct amounts to a fundamental breach. Put it simple, our court in determining constructive dismissal cases, should consider whether there was a breach of contract by the employer on such conduct/exercise being complained of instead of go in the bone fide and reasonableness of such conduct. About the authors Thoo Yee HuanSenior PartnerDispute ResolutionHalim Hong & Quekyhtoo@hhq.com.my Esther Lee Zhi QianPupil-in-ChambersDispute ResolutionHalim Hong & Quekesther.lee@hhq.com.my More of our articles that you should read: E-Waste and ESG Compliance: What Companies Need to Know (Section 35 of CIPAA 2012) Overview of Authorities on Conditional Payment Security Issues in the Secondary Market

E-Waste and ESG Compliance: What Companies Need to Know

Introduction In an era of rapid technological advancement, companies are expanding quickly, driven by the efficiencies provided by the latest technology. To stay competitive, companies are constantly upgrading their electrical and electronic equipment; however, this constant upgrading leads to a critical question that too often goes unasked: "Where does our e-waste go?" As Environmental, Social, and Governance (“ESG”) issues become increasingly important, this is a topic that companies, general counsels, chief sustainability officers, and even boards of directors cannot afford to overlook. This article explores the significance of electronic waste (“e-waste”) and how companies should address it within the context of ESG and the legal framework. . What is E-Waste and Why Does it Matter for ESG? To grasp the concept of e-waste, it is important to first note that there isn't a single standardized definition of 'e-waste'. Generally, e-waste refers to discarded electronic and electrical devices. Common corporate e-waste includes computers, laptops, monitors, networking equipment, servers, and storage devices. As technology progresses, these devices quickly become obsolete, and companies frequently update their hardware to keep pace with advancements in software and security, thereby generating significant amounts of e-waste, and as technology continues to advance, the problem only escalates. So, what is the big deal with e-waste? While the responsibility for handling and disposing of e-waste often falls to facilities management or the IT department, the issue is far from straightforward. E-waste typically contains hazardous substances like lead, mercury, and cadmium. Therefore, improper handling and disposal of e-waste can lead to severe environmental damage, including soil contamination, water pollution, and air pollution. Hazardous substances from e-waste can leach into the soil, disrupting plant growth and ecosystems; when e-waste is disposed of near water sources, toxins can seep into groundwater or flow into rivers and lakes, impacting aquatic life and drinking water supplies. Moreover, burning e-waste releases toxic fumes, contributing to respiratory issues and air pollution. Given these impacts, companies committed to ESG principles must take responsibility for managing their e-waste in ways that minimize environmental risks. . E-Waste Regulations in Malaysia: A Checklist for E-Waste Compliance As companies commit to being more ESG-responsible, addressing e-waste has become an unavoidable priority. In Malaysia, the disposal, treatment, storage, and labelling of e-waste are regulated by the Environmental Quality (Scheduled Wastes) Regulations 2005. We will simplify this complex topic into a checklist of five straightforward questions that all companies should ask themselves when it comes to e-waste management: . 1. How is e-waste being disposed of? When it comes to the disposal of e-waste, companies may often choose efficiency or convenience over compliance, such as using illegal landfills, unregulated recyclers, or unauthorized locations like rivers, forests, or vacant land. Legally, e-waste must only be disposed of at licensed facilities, including licensed land treatment facilities, landfills, or waste incinerators. It is crucial to ensure that these facilities are properly licensed, as disposing of e-waste at unlicensed sites is illegal. .  2. How do companies store e-waste? Some companies may store e-waste in non-specialized locations such as regular storehouses, basements, or parking lots, which will lead to potential fire hazards and toxic leaks. Proper storage of e-waste requires containers that are compatible with the nature of the e-waste, designed to prevent spillage and leakage. .  3. Is e-waste being properly labelled? It is essential for companies to label e-waste containers clearly with the name, address, and telephone number of the generating company. Labelling not only facilitates tracking the lifecycle of electronic products but also ensures that companies remain accountable for their products from production to disposal. . 4. Is there an inventory of e-waste? Companies should maintain an accurate and up-to-date inventory of e-waste, including details on the quantities generated, treated, and disposed of, and keep these records for at least three years from the date the e-waste was generated. An inventory not only ensures compliance with environmental laws but also aids in efficient waste management by identifying reusable, recyclable, or specially disposable components. . 5. Are training programs organized about e-waste? Companies must ensure that their employees attend training programs that cover e-waste identification, handling, labelling, transportation, storage, and spill response. . Conclusion Given the growing focus on ESG, companies can no longer afford to ignore e-waste. Proper management and disposal of e-waste are not just about compliance but also about corporate responsibility and minimizing environmental impact. By following the checklist above, companies can ensure they are on the right path toward responsible e-waste management. For further guidance, companies are encouraged to work with external legal counsels familiar with the technology industry and ESG compliance. . If your company is interested in learning more about responsible e-waste management, ESG compliance, or requires legal guidance in addressing any related concerns, please don't hesitate to reach out to our team of experienced lawyers. We are well-versed in regulations governing e-waste and can provide tailored advice to ensure your company aligns with the latest ESG standards. Contact us today to discuss how we can support your sustainability journey and help you navigate the complexities of environmental compliance. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. . Tan Zhen ChaoAssociateReal Estate, Project Development, Strata Management & Dispute Resolutionzctan@hhq.com.my. More Tech articles: • Exploring Bitcoin Halving and its Significance • Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility • Real-World Assets in Blockchain: Why Companies Should Pay Attention

Real-World Assets in Blockchain: Why Companies Should Pay Attention

Introduction As the global acceptance and adoption of blockchain technology accelerates—highlighted by the U.S. approval of Spot Bitcoin ETFs—many companies remain hesitant to engage with this burgeoning field. This reluctance often stems from a lack of familiarity with blockchain’s benefits and its potential applications. While cryptocurrencies often dominate headlines, a quieter yet significant transformation is underway: the tokenization of real-world assets (RWAs). This development has profound implications for businesses across sectors.   In this article, we aim to demystify RWAs tokenization and outline why they deserve more than just cursory attention from corporate strategists.   Understanding Real-World Assets (RWAs) Tokenization To grasp the concept of RWAs tokenization, it is essential to acknowledge that there is no fixed definition, given its evolving nature. Generally, RWAs tokenization can be understood as any asset—physical, digital, tangible, or intangible— from the real world that is tokenized and represented on a blockchain. Tokenizing an asset involves creating a digital twin on the blockchain, facilitated through digital tokens that represent ownership or a share of the RWAs. These tokens can then be traded, transferred, and integrated into smart contracts, offering novel ways to manage and leverage assets in a digital economy.   Why Should Companies Pay Attention to RWAs Tokenization? Companies might then wonder why they should pay attention to RWAs tokenization and what the benefits are for their businesses. In this article, we will explore five key advantages of RWAs tokenization that can drive innovation and growth for companies:   1. Speed and Efficiency: Tokenizing RWAs enables assets to be traded 24/7 globally on the blockchain without any time restrictions. This capability significantly increases the speed and efficiency of transactions since the system operates continuously, even outside traditional trading hours and on holidays. 2. Utilization of Smart Contracts: RWAs tokenization benefit from the integration of smart contracts, which are self-executing contracts with the terms of the agreement embedded in lines of code. Smart contracts are self-executing contracts with terms directly written into lines of code. Stored on a decentralized blockchain network, they automatically execute when predefined conditions are met. Smart contracts facilitate, verify, and enforce contract terms without intermediaries, providing efficiency and security, thus removing the need for third parties to facilitate, verify, or execute contracts, thereby ensuring full transparency and security between parties. 3. Reduced Costs: Since tokenized RWAs operate on blockchain and are supported by smart contracts, they eliminate the need for middlemen to facilitate, verify, and execute contracts, reducing traditional administration costs and transactional costs significantly. 4. Transparency: Transactions involving tokenized RWAs are recorded on blockchains, making all operations, deals, and activities fully visible to network participants. Furthermore, once a smart contract is deployed on a blockchain, it cannot be tampered with or changed, ensuring immutability in a transparent environment that fosters trust among parties and stakeholders. 5. Fractionalization: A largely underemphasized yet revolutionary benefit of tokenized RWAs is their ability to be fractionalized. This means assets can be divided into smaller portions, allowing multiple investors and individuals to co-own parts of the assets. Beyond efficiency, low transaction fees, speed, and transparency, the revolutionary benefit of tokenized RWAs lies in their ability to fractionalize assets, and it is a feature that companies cannot afford to overlook.   Potential Real-World Applications of Tokenized RWAs Companies can harness the benefits of fractionalization by exploring various real-world applications of tokenized assets. Here are three examples of how companies can leverage the fractionalization of tokenized RWAs:   1. Tokenizing Carbon Credits: Companies involved in environmental projects can tokenize carbon credits by converting them into digital tokens on a blockchain. For example, a company that manages reforestation or afforestation projects can receive certification from recognized environmental organizations for the carbon offsets generated. The certified carbon credits are then tokenized on a blockchain, with each token representing a specific quantity of carbon offset—typically, one metric ton of CO2 equivalent. These tokens can be traded, allowing companies and individuals to buy or retire them to offset their carbon footprint. 2. Tokenizing Real Estate: In this scenario, a property developer can tokenize an entire building, such as a corporate tower, offering token holders a share in the rental income generated by the property. This approach opens the door for a broader range of investors to participate in large-scale real estate projects. Instead of relying on a single major funder, who might require significant discounts, the fractionalization of real estate allows multiple investors to contribute smaller amounts. This flexibility can accelerate the funding process and make large real estate projects more accessible. 3. Tokenizing Financial Products: Tokenization can make financial products, like bonds or sukuks, accessible to a wider audience. Traditionally, some of these financial products have only been available to institutional or high-net-worth investors, limiting participation for those who don't meet strict asset or income requirements. However, by tokenizing financial products, they can be divided into smaller, more affordable units. This democratization of financial products allows more investors to participate, thereby increasing market liquidity and diversifying the investor base.   These examples demonstrate how fractionalizing tokenized RWAs can create new opportunities for companies and investors by making assets more accessible, reducing barriers to entry, and promoting broader participation. The shift toward tokenization could lead to greater market efficiency, increased liquidity, and smoother investment processes across various sectors.   However, RWA tokenization remains a relatively new concept, subject to ongoing exploration and testing across different jurisdictions. While the potential benefits are significant—opening new business possibilities for companies—the novelty of the approach brings with it uncertainty in regulations. As a result, companies and, particularly, their general counsels should work closely with lawyers who have a deep understanding of blockchain and RWA tokenization. This collaboration will help ensure that companies navigate regulatory complexities and legal requirements safely and effectively. About the authors   Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my   Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. More Tech articles: • Understanding Spot Bitcoin ETF and Its Potential • Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case • Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility

网络安全法案2024解读:合规的5个关键见解

网络安全法案2024解读:合规的5个关键见解 在我们日益互联的世界中,网络安全威胁对国家安全构成重大风险。从国家支持的黑客到网络犯罪组织和恐怖分子,恶意行为者试图利用关键基础设施、政府系统和军事网络中的漏洞来干扰重要服务和窃取敏感信息的案例越来越多。这些网络攻击不仅破坏了企业、金融机构和供应链,还直接影响了国家和全球经济稳定。因此,在本文中,我们将从《2024年网络安全法案》提炼出五个核心要点,这些要点是每家企业及其总法律顾问都应当了解的。 1.《2024年网络安全法案》的目标和当前状态 第一个要点围绕着了解《2024年网络安全法案》(以下简称“法案”)的核心目标和当前状态。该法案是为了确保国家关键信息基础设施的网络安全设立的监管框架。它引入了国家关键信息基础设施的概念,并为网络安全服务提供商的许可设置了规定。 值得注意的是,该法案在2024年4月3日经过国会上院(Dewan Negara)三读后被全体一致通过。随后,在获得国家最高元首(Yang di-Pertuan Agong)的同意后,该法律将在《政府公报》上公布后生效。鉴于其潜在影响,公司有必要积极监测这些发展,以确保与即将出台的法律规定保持一致,否则可能会令公司面临重大风险和责任。 2.定义国家关键信息基础设施 法案中的第二个重要要点是引入了国家关键信息基础设施(“NCII”)的概念。该法案将NCII定义为“电脑或电脑系统,其瘫痪或破坏将对马来西亚的安全、国防、外交关系、经济、公共卫生、公共安全或公共秩序的任何服务的提供或对联邦政府或任何州政府有效履行其职能的能力产生有害影响。” 必须注意的是,法案界定了NCII框架内包含的11个领域,具体如下(“NCII领域”): (i)政府 (ii)银行和金融 (iii)交通运输 (iv)国防和国家安全 (v)信息、通信和数字 (vi)医疗保健服务 (vii)水、污水和废物管理 (viii)能源 (ix)农业和种植业 (x)贸易、工业和经济 (xi)科学、技术和创新 3. 指定NCII领域负责人和NCII实体 第三点强调了数字部长为每个NCII领域指定领域负责人的任命(“NCII领域负责人”)。这些被指定的领域负责人的姓名将在国家网络安全机构(“NACSA”)的官方网站上披露。随后,各个NCII领域负责人将为各自的领域制定具体的实践准则,并将拥有或运营NCII的实体指定为国家关键信息基础设施实体(“NCII实体”)。 尽管法案并未明确规定“拥有或运营NCII”的注释,但字面解释表明,符合一定标准的公司将会被指定为NCII实体。这些标准可能包括(a)具有对NCII的所有权、控制权或法律权利的公司,包括对相关NCII的使用、安全协议、数据访问和第三方使用条款具有决策权的公司;和(b)参与NCII的日常运营、管理、维护和安全管理的公司,包括对相关NCII的功能、安全性和与其他网络的集成具有决策权的公司。 因此,在等待官方确认的同时,公司可以根据以上的标准进行内部审查,以便公司可以更好地进行内部准备,并确保符合即将实施的法律规定。 4.NCII领域负责人和NCII实体的监管义务 第四点尤为重要,特别是对于属于NCII领域的公司,因为它们可能被指定为NCII实体。一旦获得这一指定,NCII实体有责任实施NCII领域负责人准备的实践准则中概述的措施、标准和流程(“实践准则”)。 然而,可以想象的是,由于各种原因,一些NCII实体可能会在严格遵守实践准则中的所有指定措施方面遇到挑战。例如,财务限制可能对一些NCII实体构成重大障碍,因为实施这些措施可能需要大量投资先进的技术基础设施、专业软件或硬件升级。为了解决这一挑战,该法案允许NCII实体实施替代措施、标准和流程,提供相同或更高水平的保护,前提是这些替代措施、标准和流程需经NACSA首席执行官批准。 鉴于监管框架内实施替代措施的灵活性,建议NCII实体与精通技术法的专业律所合作,以确保任何提议的替代措施是已经过彻底的审查,以满足适用实践准则的标准。外部法律专业人员也可以协助提出令人信服的论点,以取得NCII领域负责人和NACSA首席执行官的批准。 此外,该法案要求NCII实体根据实践准则和指令进行网络安全风险评估,并进行审查以确保符合法案要求。 必需强调的是,在网络安全事件发生时,该法案还要求NCII实体通知NACSA首席执行官和各自的NCII领域负责人(“网络安全事件通知”)。 在网络安全事件发生时进行此类网络安全事件通知对于有效的网络安全事件响应至关重要。但是,如果NCII领域负责人恰好是NCII实体的竞争对手,则可能会出现重大的法律问题,因为将敏感信息与竞争对手共享可能会引发对数据安全、信任和NCII领域内合作的担忧,可能会妨碍对事件的及时和协作响应。值得注意的是,目前该法案并没有明确规定解决这个问题的条款,但我们相信NCII领域负责人和NACSA首席执行官已经有了相对的措施来解决这个潜在问题。 考虑到这种网络安全事件通知的敏感性质,其中可能涉及将NCII实体的专有或机密信息披露给NCII领域负责人,因此建议聘请律师来促进网络安全事件通知流程,确保进行适当的通知同时保护NCII实体的敏感、专有和机密信息。外部律师还可以在监督通知流程、提供遵守法规要求和合同义务的法律指导以及确保保护NCII实体利益方面发挥重要作用。 5.网络安全服务提供商的许可制度 该法案的第五个关键要点涉及向提供网络安全服务的公司颁发许可证的要求。根据该法案,除非持有提供此类服务的有效许可证,否则任何公司都不得提供任何网络安全服务或将自己宣传为网络安全服务提供商。 网络安全服务的定义和范围将由部长确定,这一许可要求肯定会对网络安全行业的公司产生重大影响。此外,尚待观察的是是否会通过许可制度对网络安全服务提供商施加额外的许可条款。 需要强调的是,这一新的许可要求将对所有网络安全服务提供商产生深远影响,因为任何未持有适当许可证提供网络安全服务的公司都将受到严厉处罚。一旦定罪,这样的公司可能面临不超过RM500,000的罚款、不超过十年的监禁或两者兼而有之。这突显了政府对网络安全服务监管的重视程度,并强调了遵守许可要求的重要性。 结论 该法案是马来西亚在加强国家网络安全方面的关键里程碑。其影响不仅涉及到关键基础设施领域,而且影响到在网络安全领域开展业务的复杂结构。随着监管环境的发展,公司越来越需要精准和远见地应对这些复杂性。上述五个要点突出了公司应优先考虑并彻底了解的法案的关键重点。鉴于网络安全的复杂性和不断发展,公司有必要与精通技术法的法律专业人员密切合作。 凭借我们对卓越的承诺和对法律细节和技术细微差别的深刻理解,我们经验丰富的法律专业团队已准备好指导您的组织应对《2024年网络安全法案》所带来的改变。 如需了解更多详细信息,可随时与我们的团队联系。 作者简介 Lo Khai Yi罗恺育伙伴律师 (科技、媒体与电信、知识产权、公司/并购、项目与基础设施、隐私和网络安全)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:ky.lo@hhq.com.my

CYBER SECURITY ACT IMPLEMENTATION – Things for the National Critical Information Infrastructure Entities to Take Note of

Building on our last article on the key takeaways of the new Cyber Security Bill 2024, titled “Cyber Security Bill 2024 Decoded 5 Key Insights for Strategic Compliance”, this article sought to expound on some of the key considerations that soon-to-be national critical information infrastructure (“NCII”) entities (the “NCII Entities”) should pay attention to. As we have covered in our previous article, any government entity or person (legal or natural) that owns or operates any NCII will highly likely be designated as an NCII Entity. Once an NCII Entity, it will have to, among other things, (i) take part in the preparation of the code of practice applicable to the NCII sector that the NCII Entity is in; (ii) provide information, particulars or document potentially relating to the function and design of the computer or computer system owned or operated by the NCII Entity; (iii) provide information relating to the NCII that the NCII Entity owns or operates; and (iv) conduct periodic cyber security assessment and audit and report the same to the Chief Executive of the National Cyber Security Agency (“NACSA”). With this article, we hope that we could draw the attention of the NCII Entities to some of the points to take note of while complying with the obligations under the Cyber Security Act 2024 (the “Act”). Disclosure Requirements As explained earlier, NCII Entities have certain obligations under the Act to disclose certain information and documents to the corresponding NCII sector lead(s) upon request. Information and documents disclosure obligations are also relevant when an NCII Entity encounters cyber security incident and upon completion of cyber security risk assessment and audit. When fulfilling the obligations, it is crucial that the NCII Entities ensure that it does not disclose any information that would jeopardise its business interests or unknowingly translate into risk or liability to the organisations. Assessments should be made during each disclosure to ensure (i) confidential information and sensitive information of the organisation are not inadvertently included in the disclosure; (ii) when disclosing information relating to the computer system of the organisations, and especially where some of the computer systems are proprietary, their source code should not be disclosed unless strictly necessary; (iii) that personal data of data subjects being processed by the NCII Entities are not included or are at least anonymised to avoid potential non-compliance with the personal data protection law, and (iv) only relevant information are disclosed, by applying the principle of data minimisation - NCII Entities should only provide the minimal amount of data necessary for the compliance with regulatory requirements or for effective response to a cyber security incident, and not over share information just for the sake of getting through the regulatory obligations but undermine its business interests in the process.   Potential Centralisation Risk By disclosing information requested by the NCII sector lead(s), especially those relating to the function and design of the computer or computer system owned or operated by the NCII Entities, has the potential of creating centralisation risk. To the extent that the information disclosed could potentially be used to better understand an NCII Entities’ computer’s or computer system’s architecture and design, and to find out the exact software and hardware used by the NCII Entities, it would undeniably become a treasure trove for cyber criminals and advanced persistent threat actors. Gathering these information at one single location, be it with the NCII sector lead(s) or the Chief Executive of NACSA, will draw the attention of malicious actors. While technical measures will certainly be put in place to safeguard these information, NCII Entities should also consider, to the extent permissible, encrypting the information disclosed to the NCII sector lead(s) to better secure the information. Coordinated Incident Response Under the Act, the Chief Executive of NACSA has the power to direct the NCII Entities on how to respond to a cyber security incident, and indirectly, this may mean that an NCII Entity no longer has the full discretion to decide on its incident response measures. Decisions such as whether or not to make ransom payment, how to address the public, whether or not to temporarily shut down the network, negotiation with threat actors, etc., may potentially have to be cleared by the Chief Executive of NACSA before proceeding. Incident response is always a race against time. As such, it is very common for organisations to call the shots quickly while in a war room when faced with cyber security incident to cut losses or to mitigate and contain risks. With the passing of the Act, it would be crucial for the NCII Entities to first communicate its action plan with the Chief Executive of NACSA prior to execution, so as not to attract additional liabilities. Therefore, in addition to coordinating the incident response plans with the Chief Executive of NACSA, NCII Entities should work on establishing pre-defined communication protocols and contact points at NACSA. This preparation should include clear guidelines on how to quickly communicate and escalate incidents to the NACSA. Pre-established communication channels, such as dedicated hotlines, encrypted messaging systems, or secure email gateways, can significantly reduce the response time during a cyber security incident. By having these protocols in place, NCII Entities can ensure that they can swiftly reach the necessary contacts within NACSA and relay critical information without unnecessary delays, thus maintaining the pace needed for an effective response to cyber threats. Closing Remarks Given the importance of NCII to the economy of a country, it is expected that the Act when in force, will be actively enforced by the authorities. In case readers are unable to fully grasp the extent of disruption that can be caused by an NCII-targeted cyber security incident, the Colonial Pipeline ransomware attack that took place back in 2021 in the U.S. offers a good example. Colonial Pipeline, one of the largest and most vital oil pipelines in the U.S. was hit with a ransomware attack in May 2021, which forced Colonial Pipeline to shut down part of its network for several days to contain the incident. Colonial Pipeline eventually paid the ransom and resumed operation of the pipeline, but the damage of the incident was not limited to just monetary loss to Colonial Pipeline. The shutdown of the pipeline caused panic-buying of gas, disruption of the supply chain, as well as the increase of gas price to the highest level since 2014. Several states in the U.S. declared states of emergency due to this incident. No doubt the incident had a direct impact on the daily lives of U.S. citizens, which highlights the importance of NCII and the criticality of ensuring its cyber security preparedness. The Act in itself is not sufficient to increase the cyber security preparedness and readiness of the NCII in Malaysia. It however provides an important framework for the establishment of codes of practice for each NCII sectors, the implementation and compliance of which would ensure certain minimum standards on cyber security are met. NCII Entities form the main line of defence against cyber threat actors from causing disruptions to Malaysia economy, and the stakes are definitely high should they fail to do so. Navigating through compliance with new legislation is never an easy feat. Where there is any doubt or uncertainty as to the newly imposed obligations under the Cyber Security Act 2024, or to what extent must an organisation as the designated national critical information infrastructure entity comply with the provision of the legislation, please feel free to reach out to the partners at the Technology Practice Group of Halim Hong & Quek: About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my More Tech articles: • Choosing Between Open Source and Closed Source AI: Considerations for Companies Looking to Onboard AI • Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case • Whether AI-Generated Work Could be Protected by Copyright Law

Cyber Security Bill 2024 Decoded: 5 Key Insights for Strategic Compliance

In our increasingly interconnected world, cyber security threats pose a significant risk to national security. Malicious actors, ranging from state-sponsored hackers to cybercriminal organizations and terrorists, exploit vulnerabilities in critical infrastructure, government systems, and military networks to disrupt essential services and steal sensitive information. These cyberattacks not only disrupt businesses, financial institutions, and supply chains but also directly impact economic stability at both the national and global levels. Therefore, in this article, our focus is on the Cyber Security Bill 2024. Rather than just providing a comprehensive summary, we aim to distill the essence into five key takeaways that every company and general counsel should be aware of. 1. The Objective and Current Status of the Cyber Security Bill 2024 The first takeaway revolves around grasping the core objectives and current status of the Cyber Security Bill 2024 ("Bill"). Essentially, the Bill is designed to establish a regulatory framework aimed at bolstering national cybersecurity. It introduces the notion of national critical information infrastructure, a concept we will delve into shortly, and also sets out provisions for licensing cyber security providers. Notably, the Bill achieved a significant milestone when the upper house of Parliament (Dewan Negara) unanimously passed it after the third reading on 3 April 2024. Subsequently, upon receiving assent from the King (Yang di-Pertuan Agong), the law will come into effect upon publication in the Government Gazette. Given its potential impact, it is imperative for companies to proactively monitor these developments to ensure alignment with the forthcoming legislation, as failure to do so could expose companies to significant risks and liabilities. 2. Defining National Critical Information Infrastructure The second significant takeaway in the Bill is the introduction of the concept of national critical information infrastructure (“NCII”). The Bill defines NCII as "computer or computer system which the disruption to or destruction of the computer or computer system would have a detrimental impact on the delivery of any service essential to the security, defense, foreign relations, economy, public health, public safety or public order of Malaysia, or on the ability of the Federal Government or any of the State Governments to carry out its functions effectively." Notably, the Bill delineates 11 sectors encompassed within the NCII framework, which are as follows (“NCII Sectors”): I. Banking and finance, II. Transportation, III. Government, IV. Defense and national security, V. Information, communication and digital, VI. Healthcare services, VII. Water, sewerage and waste management, VIII. Energy, IX. Agriculture and plantation, X. Trade, industry and economy, and XI. Science, technology and innovation. 3. The Designation of NCII Sector Leads and NCII Entities The third point emphasizes the appointment of sector leads by the Minister for each of the 11 NCII Sectors (“NCII Sector Leads”). These appointed sector leads' names will be publicly disclosed on the official website of the National Cyber Security Agency (“NCSA”). Subsequently, the respective NCII Sector Leads will develop specific codes of practice for their respective sectors and designate entities that own or operate NCII as national critical information infrastructure entities (“NCII Entities”). Although the Bill does not explicitly define what constitutes "owning or operating NCII" for designation as NCII Entities, however, a literal interpretation suggests that companies meeting certain criteria may fall under this NCII Entities designation. These criteria may include (i) companies with ownership, control or legal rights over NCII, including those with decision-making authority regarding the relevant NCII’s use, security protocols, data access, and terms of third-party usage; and (ii) companies involved in the day-to-day operation, management, maintenance, and security of NCII, including those with decision-making authority affecting the relevant NCII’s functionality, security, and integration with other networks. Therefore, companies can conduct internal checks based on these criteria while awaiting official confirmation to avoid surprises upon designation as NCII Entities. By doing so, companies can better prepare internally and ensure readiness to comply with forthcoming legislation. 4. Regulatory Obligations of NCII Sector Leads and NCII Entities The fourth point is of utmost importance, especially for companies within the NCII Sectors, as they may be designated as NCII Entities. Upon receiving this designation, NCII Entities are obligated to implement the measures, standards, and processes outlined in the code of practice as prepared by the NCII Sector Leads (“Code of Practice”). However, it is conceivable that some NCII Entities may encounter challenges in strictly adhering to all specified measures within the Code of Practice due to various reasons. For instance, financial constraints could pose a significant hurdle for some NCII Entities as implementing these measures may demand substantial investments in advanced technological infrastructure, specialized software, or hardware upgrades. To address this challenge, the Bill allows NCII Entities to implement alternative measures, standards, and processes, subject to approval by the Chief Executive of the NCSA, provided they offer an equal or higher level of protection. Given the flexibility within the regulatory framework to implement alternative measures instead of strictly complying with the Code of Practice, it is advisable for NCII Entities to collaborate with professional legal counsels well-versed in technology law to ensure that any proposed alternative measures undergo thorough scrutiny to meet the standards of applicable Codes of Practice. External legal professionals could also assist in presenting compelling arguments for the approval of alternative measures that not only satisfy the Chief Executive of the NCSA but also uphold the integrity and security of NCII operations. Additionally, the Bill mandated NCII Entities to conduct cybersecurity risk assessments as per the Code of Practice and directives, along with performing audits to ensure compliance with the Cyber Security Act 2024. It is crucial to highlight that in the event of a cybersecurity incident, the Bill also imposes a duty on the NCII Entities to notify both the Chief Executive of the NCSA and the respective NCII Sector Lead(s) (“Cyber Security Incident Notification”). Such Cyber Security Incident Notification in the event of a cybersecurity incident is paramount for effective cyber security incident response. However, if the NCII Sector Lead(s) happens to be a competitor of the NCII Entities, significant legal concerns may potentially emerge as sharing sensitive information with a competitor may raise apprehensions regarding data security, trust, and cooperation within the NCII Sector, potentially hindering timely and collaborative responses to incidents. It is notable that the Bill currently does not have explicit provisions addressing this issue, however, we trust that additional measures should be put in place by the NCII Sector Lead(s) and the Chief Executive of the NCSA to address this potential concern. Considering the sensitive nature of such Cyber Security Incident Notification, where it may potentially involve the exposure and disclosure of proprietary or confidential information of NCII Entities to NCII Sector Leads, it is, therefore, advisable to engage lawyers to facilitate Cyber Security Incident Notification processes, ensuring that appropriate notifications are made while safeguarding sensitive, proprietary, and confidential information of the NCII Entities. External lawyers can also play a vital role in overseeing the notification process, providing legal guidance on compliance with regulatory requirements and contractual obligations, and ensuring that the interests of the NCII Entities are protected. 5. Licensing Regime for Cyber Security Service Providers The fifth key takeaway in the Bill pertains to the licensing requirement for companies providing cyber security services. According to the Bill, no company shall offer any cyber security service or advertise itself as a cyber security service provider unless it holds a valid license to provide such services. The definition and scope of cyber security services will be determined by the Minister, and this licensing requirement will definitely have a significant impact on companies operating in the cyber security sector. It also remains to be seen whether additional licensing terms will be imposed on cyber security service providers through the licensing regime. It is crucial to underscore the profound impact that this new licensing requirement will have on all cyber security service providers, as any company providing cyber security services without a proper license is subject to severe penalties. Upon conviction, such a company may face a fine not exceeding RM500,000, imprisonment for a term not exceeding ten years, or both. This emphasizes the gravity with which the government views the regulation of cyber security services and highlights the importance of adhering to licensing requirements. Conclusion In conclusion, the Bill stands as a pivotal milestone in Malaysia's journey towards bolstering national cyber security. Its implications reverberate not only across critical infrastructure sectors but also through the intricate fabric of businesses operating within the cyber security landscape. As the regulatory landscape evolves, it becomes increasingly imperative for companies to navigate these complexities with precision and foresight. The above five points highlight critical aspects of the Bill that companies should prioritize and understand thoroughly. Given the complex and evolving nature of cyber security, it is imperative that companies collaborate closely with legal professionals who possess a deep understanding of technology law. With our unwavering commitment to excellence and a deep understanding of both legal intricacies and technological nuances, our team of seasoned legal professionals stands ready to guide your organization through the nuances of the Cyber Security Bill 2024. Let us empower your organization to thrive amidst evolving cyber security challenges, ensuring compliance while fortifying your resilience against emerging threats. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and Cybersecurityky.lo@hhq.com.my. Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my More Tech articles: • Air Canada Case Exposes AI Chatbot Hallucination Risks: A Mitigation Guide for General Counsel • Addressing Copyright Infringement and Challenges in AI Training • The European Union Artificial Intelligence Act – Should Artificial Intelligence Be Regulated?

(Section 35 of CIPAA 2012) Overview of Authorities on Conditional Payment

Introduction The Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) was passed by the Malaysian Parliament in 2012 and CIPAA 2012 came into force on 15.4.2014. CIPAA 2012 was introduced to facilitate regular and timely payment in respect of construction contracts and to provide for speedy dispute resolution through adjudication. The primary objective of CIPAA 2012 is to address critical cash flow issues in the construction industry and to facilitate payments for those down the chain of construction contracts for work done or services rendered. Section 35 of CIPAA 2012 – Prohibition of Conditional PaymentCIPAA 2012 introduced Section 35 which prohibits the practice of conditional payment terms that inhibit cash flow: “35 Prohibition of conditional payment 1. Any conditional payment provision in a construction contract in relation to payment under the construction contract is void. 2. For the purposes of this section, it is a conditional payment provision when- a) the obligation of one party to make payment is conditional upon that party having received payment from a third party; or b) the obligation of one party to make payment is conditional upon the availability of funds or drawdown of financing facilities of that party.” What constitutes a “conditional payment provision/ clause/ term”?The High Court in the case of Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd and another case [2017] 7 MLJ 732; [2016] 5 CLJ 882 enunciated that Parliament had left it to the Courts to determine on a case by case basis as to whether conditional payment provisions in a construction contract would defeat the intent and purpose of CIPAA 2012. The High Court in the case of Terminal Perintis Sdn Bhd v. Tan Ngee Hong Construction Sdn Bhd [2017] MLJU 242; [2017] CLJU 177; [2017] 1 LNS 177 ruled that the question of whether a payment term in a construction contract constitutes a conditional payment clause under Section 35 of CIPAA 2012 is a mix finding of fact and law and the Courts would not interfere in the adjudicator's interpretation. Overview of Cases/ AuthoritiesA) “Pay When Paid”/ “Pay If Paid”/ “Back to Back” CIPAA 2012 expressly prohibits “pay when paid”/ “pay if paid” clauses which makes the obligation of the main contractor to pay a subcontractor conditional upon the main contractor having received payment from the principal. Such contractual clauses are void and unenforceable pursuant to Section 35 of CIPAA 2012. The High Court in the case of Khairi Consult Sdn Bhd v GJ Runding Sdn Bhd [2021] MLJU 694; [2021] CLJU 571; [2021] 1 LNS 57 held that a contractual provision which provided for the payment to be on “back to back” basis is void under Section 35 of CIPAA 2012. The Defendant in this case was the main consultant for a construction project. By way of a contract/ letter, the Defendant appointed the Plaintiff as a consultant to provide engineering consultancy services for the project. Clause 9 of the contract provides that: “Payment shall be on a back to back basis i.e you [Plaintiff] shall be paid within 7 days upon [the Defendant's] received [sic] payment from the client." The High Court held that: Clause 9 is void as it is a “conditional payment provision” within the meaning of Section 35 of CIPAA 2012. This is because the Defendant's payment to the Plaintiff is on a "back to back" basis i.e. the Defendant is only required to pay the Plaintiff when the Defendant has received payment from a third party (the employer/ client). The High Court in the case of KS Swee Construction Sdn Bhd v BHF Multibina (M) Sdn Bhd [2019] MLJU 1508; [2019] CLJU 1849; [2019] 1 LNS 1849 held that a contractual provision which stipulated that payment to the subcontractor is “back to back” to the payment from the main contractor is a conditional payment under Section 35 of CIPAA 2012. The Plaintiff in this case was engaged by the Defendant to carry out construction works. Clause 7 of the contract provides that: “Bayaran kemajuan kerja kepada Sub Kontraktor adalah secara timbal balik (back to back) dengan bayaran kemajuan daripada Kontraktor Utama” Therefore, the Plaintiff will only be paid on a “back to back” basis i.e. the Plaintiff's payment becomes due only when the Defendant receives payment from the main contractor. The High Court held that Clause 7 is a conditional payment within the confines of Section 35 of CIPAA 2012. The High Court in the case of Sinwira Bina Sdn Bhd v Puteri Nusantara Sdn Bhd [2017] MLJU 1836; [2017] CLJU 1819; [2017] 1 LNS 1819 held that a “back to back” clause is a “conditional payment provision” provided under Section 35 of CIPAA 2012. The subcontract entered between the Plaintiff and Defendant in this case contained the following clause: “The Sub-Contract Sum shall be paid to the Sub-Contractor on the basis of back-to-back payment, as and when received by the Contractor from the Client. Unless a special arrangement is made, the Employer shall not be liable to pay the Sub-Contractor in the event that no corresponding payment is paid by the Client.” The High Court found the said clause to be a "conditional payment provision" as provided in Section 35 of CIPAA 2012 and is therefore void. (B) Termination and Final Accounts In the case of Maju Holdings Sdn Bhd v Spring Energy Sdn Bhd and other cases [2021] MLJU 541; [2021] CLJU 367; [2021] 1 LNS 367 the High Court held that the contractual clause in the subcontract which provided that, payment to the subcontractor shall be withheld upon the termination of the subcontract until the final accounts have been determined, is a conditional payment provision which runs afoul of Section 35 of CIPAA 2012. The High Court in the case of Econpile (M) Sdn Bhd v IRDK Ventures Sdn Bhd and another case [2017] 7 MLJ 732; [2016] 5 CLJ 882 held that Clause 25.4(d) of the industry-based standard form PAM Contract 2006 is a conditional payment provision which is prohibited under Section 35 of CIPAA 2012. Clause 25.4(d) of the PAM Contract 2006 provides as follows: “25.4(d) the Contractor shall allow or pay to the Employer all cost incurred to complete the Works including all loss and/or expense suffered by the Employer. Until after the completion of the Works under Clause 25.4(a), the Employer shall not be bound by any provision in the Contract to make any further payment to the Contractor, including payments which have been certified but not yet paid when the employment of the Contractor was determined. Upon completion of the Works, an account taking into consideration the value of works carried out by the Contractor and all cost incurred by the Employer to complete the Works including loss and/or expense suffered by the Employer shall be incorporated in a final account prepared in accordance with Clause 25.6.” The High Court held that Clause 25.4(d) has the effect, upon the termination of the contract, of postponing payment due until the final accounts are concluded and the works completed. This clause defeats the purpose of the CIPAA 2012 and is thus void and unenforceable. (C) “Pay If Certified” The Court of Appeal in the case of Lion Pacific Sdn Bhd v Pestech Technology Sdn Bhd and another appeal [2022] 6 MLJ 967; [2022] 9 CLJ 488 clarified and ruled that “pay-if-certified” provisions cannot be construed as a conditional payment clause under Section 35 of CIPAA. In 2013, the Government of Malaysia accepted a tender submitted by a consortium for a construction project. The appellant was appointed as a subcontractor for the system works package parcel for the project. The appellant then appointed the respondent as a subcontractor by way of a subcontract. The subcontract in this case contained a clause whereby certification by the Ministry of Transportation (“MOT”) is required prior to any payment to the respondent. Particularly, Clause 4.1 of the subcontract provides that: “Verification and approval by ICC-MOT 15th - 24th every month. Payment to Sub-Contractor 40 days after certification by MOT” The Court of Appeal held that: The "pay-if-certified" provision in Clause 4.1 of the subcontract cannot be construed as a conditional payment clause under Section 35 of CIPAA 2012, as the mutual agreement of the parties was that the appellant's obligation to make payment would only arise upon certification of the works done by the MOT, failing which the works cannot be considered as having been carried out. Notwithstanding the objective of CIPAA 2012 to facilitate prompt payment, the contractual obligations of the parties expressly agreed upon cannot be disregarded. Whilst CIPAA 2012 was intended to alleviate cash flow problems of contractors and prohibited conditional payments, it was clearly not intended to replace the certification or valuation to assess the progress of works carried out by the relevant authority for payment to be affected. About the authors Rohan Arasoo JeyabalahPartnerCorporate Disputes, Employment & Industrial RelationsHarold & Lam Partnershiprohan@hlplawyers.com Chew Jin HengAssociateDispute ResolutionHalim Hong & Quekjhchew@hhq.com.my More of our articles that you should read: Disposal of Real Properties Subject to Income Tax? CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd (Case No. BA-12AC-3-07/2023)

Land Reference Proceedings: Written Opinions of Assessors Must Be Made Available to the Parties

Introduction The Federal Court in the case of Tegas Sejati Sdn Bhd v Pentadbir Tanah dan Daerah Hulu Langat & Anor [2024] MLJU 416; [2024] CLJU 330; (Civil Appeal No.01(f)-46-11/2022(B)) held that the written opinions of assessors that assist the High Court Judge during land reference proceedings must be provided to the parties involved in the proceedings. The Federal Court in this case found that there was non-compliance of Section 40C of the Land Acquisition Act 1960 (Act 486) (“LAA 1960”) as the written opinions of the assessors were never made available to the parties. The Federal Court ruled the non-compliance to be serious warranting appellate intervention and ordered the matter to be remitted to the High Court for a rehearing. Background FactsIn 1987, the Appellant, Tegas Sejati Sdn Bhd (“TSSB”) entered into a joint venture agreement with Perbadanan Setiausaha Kerajaan Selangor (“PSKS”) to develop several lots of land located at Section 15, Daerah Hulu Langat in the State of Selangor. PSKS is the registered proprietor of the lands. Pursuant to the joint venture agreement, PSKS relinquished its rights to the land to TSSB. Several lots of the land were acquired by the State Government for the purpose of the project known as “Projek Lebuhraya Bertingkat Sungai Besi – Ulu Kelang” (SUKE Expressway). The 2nd Respondent, Lembaga Lebuhraya Malaysia (“LLM”) was the paymaster for this acquisition. After the enquiry held on 16.5.2027, the 1st Respondent, the Land Administrator handed down an award for compensation on 16.5.2017. The award was objected by both LLM and TSSB. Land Reference Proceedings (High Court)Both LLM and TSSB filed their objections via Form N, culminating in two land reference proceedings before the High Court. Both land reference proceedings were consolidated and heard together. On 22.9.2020, TSSB applied to strike out the LLM’s land reference proceedings. TSSB’s application was heard together with the merits of the land reference proceedings with the assistance of two assessors. On 14.2.2020, the High Court dismissed TSSB’s striking out application. The High Court also dismissed TSSB’s land reference and allowed LLM’s land reference. TSSB appealed against the decision of the High Court to the Court of Appeal. On 4.10.2022, the Court of Appeal dismissed TSSB’s appeal and allowed LLM’s cross-appeal. Questions/ Issues Before The Federal CourtTSSB appealed to the Federal Court. The Federal Court heard submissions from the parties on 18.8.2023. However, the proceedings were adjourned to ascertain whether there was compliance of Section 40C of the LAA 1960. Section 40C the LAA 1960 provides that: “40C. Opinion of assessors The opinion of each assessor on the various heads of compensation claimed by all persons interested shall be given in writing and shall be recorded by the Judge.” The Federal Court registry requested from the registry of the High Court for a sight of the written opinion of the assessors involved in the land reference proceedings in the High Court. Upon obtaining the written opinions, the Federal Court registry sent them to the parties. One of the main issues before the Federal Court in this case is whether the written opinions of the assessors which are to be recorded by the judge hearing a land reference, necessarily for the eyes of the judges of the High Court, Court of Appeal and Federal Court only, and not the parties? Grounds Of Judgment Of The Federal Court1. Role of Assessors in Land Reference Proceedings Section 40A (2) of LAA 1960 provides that for land reference proceedings concerning an objection over the adequacy of compensation, the Court shall appoint two assessors for the purpose of aiding the Court in determining the objection and in arriving at a fair and reasonable amount of compensation. The two assessors will sit with the High Court Judge in hearing the objections over the amount of compensation. The written opinions of the assessors are intended to assist the Court in arriving at a decision on the amount of compensation. These written opinions form and must be part of the records of the land reference proceedings. 2. Adequacy of Compensation Article 13(2) of the Federal Constitution provides that “no law shall provide for compulsory acquisition or use of property without adequate compensation”. In the interpretation and construction of Section 40C of LAA 1960, the Courts must give real meaning and adopt a construction which preserves the rights enshrined under Article 13(2) of the Federal Constitution. Although Section 40C does not explain in detail how the written opinions of the two assessors are to be handled, it cannot be denied that the written opinions form part of the proceedings. The High Court in assessing the complaint of adequacy of compensation is bound to balance competing interests of TSSB, the landowner and LLM, the acquiring authority or paying master. Therefore, it is necessary that all relevant material is placed before the Court for that assessment and determination. If these written opinions of the assessors are not made available, the question of adequacy of compensation cannot be properly addressed, which would be contrary to the right enshrined in Article 13(2) of the Federal Constitution. 3. Availability of the Written Opinions The question of adequacy of compensation can only be properly determined if all the parties concerned have had the opportunity to address the reasons, factors or circumstances which are relevant and necessary when computing or calculating that compensation. Therefore, the written opinions of the assessors who assisted the High Court Judge in determining there is adequate compensation must be made known to the landowners and those affected by the compulsory acquisition. The obligation to make known the reasons or factors extends to everyone who has any role to play in that decision, be it the judge or the assessors. Land reference proceedings are open Court proceedings and it is integral to the rule of law that there is transparency and fairness not just in the conduct of those proceedings but in the manner any evidence, including opinion evidence is received and treated by the Court. Once available, the written opinions of the assessors must be provided to the parties. The Federal Court found that there was non-compliance of Section 40C in this case as the written opinions of the assessors were never made available to the parties or even called for by the Court of Appeal. The Federal Court set aside the orders of the High Court and Court of Appeal and ordered the matter to be remitted to the High Court for a rehearing before another judge. About the author Chew Jin HengAssociateDispute ResolutionHalim Hong & Quekjhchew@hhq.com.my More of our articles that you should read: Private Hospitals to pay for their Doctor’s Negligence Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd (Case No. BA-12AC-3-07/2023) Security Issues in the Secondary Market

Stranded in Strata: How Unpaid Maintenance Fees Impact Tenants under the Strata Management Act 2013 (SMA)

What is Maintenance fees and Sinking fund? Under the Strata Management Act 2013 (SMA), the management body of a condominium needs to provide proper maintenance and management for the buildings and common property, as well as other related matters. To achieve this, each condominium unit owner will need to pay fees to these management bodies. Section 25 (1) of the Strata Management Act 2013 states that: “Each purchaser shall pay the Charges, and contribution to the sinking fund, in respect of his parcel to the joint management body for the maintenance and management of the buildings or lands intended for subdivisions into parcels and the common property in a development area.” Service charges are the monthly payments of ongoing maintenance fee for keeping the common facilities and common property. It includes swimming pools, services lifts, lighting, air conditioning, cleaning and landscaping services, security services and etc. Meanwhile, sinking fund is maintained in a separate account from maintenance fees. Typically, it is calculated as 10% of the maintenance fee and is allocated for anticipated future expenses, such as extensive repairs or significant improvements to the property. These funds serve as a reserve for emergencies as well as for major works like repainting the exterior of the building or repairing the damage caused by flood. What are the consequences if the owners fail to make any payment charged by the Management Body including the Charges and Contribution to Sinking Fund? Failure to settle the outstanding sum due and payable to the management body after 14 days from the date of receiving the notice requesting said outstanding sum from the management body will give the management body the right:- i. to charge an interest on outstanding sum;ii. to include the owner’s name, parcel and total outstanding amount in a defaulters' list and display the said list on the notice board;iii. to deactivate any electromagnetic access card, tag or transponder;iv. to stop you and/or your occupiers)/visitors) from using any common facilities or common services; andv. to take action against you before the court or Strata Management Tribunal But the one who defaulted is my landlord. I’m just the tenant. Will I also be affected? The Third Schedule of Strata Management (Maintenance and Management) Regulations 2015, specifically regulation 6, outlines the definition of a defaulter and the potential consequences that may ensue. a. a defaulter is a proprietor who has not fully paid the Charges or contribution to the sinking fund in respect of his parcel or any other money imposed by or due and payable to the management corporation under the Act at the expiry of the period of fourteen days of receiving a notice from the management corporation; and b. any restriction or action imposed against a defaulter shall include his family or any chargee, assignee, successor-in-title, lessee, tenant or occupier of his parcel. Regulation 6 clearly specifies that the defaulter may be subject to restrictions or legal action, including ‘his family, charge, assignee, successor-in-title, lessee, tenant or occupier of his parcel’. Therefore, it is clear that if your landlord fails to pay the maintenance costs, the management body may take specific measures against you as a tenant. Nevertheless, even though they have the right to deactivate your access card, as tenant, you cannot be prevented from entering your unit. Conclusion In conclusion, residing (be it owning or renting) in a strata property such as condominium entails being part of a community. It comes with its own set of rights and responsibilities that every landlords and tenants should understand. The payment of maintenance fees is crucial to maintaining harmony and ensuring the upkeep of the property. As a tenant, it's imperative to remain vigilant and inquire about the tenancy agreement and determining whether your landlord has fulfilled their obligation to pay these fees, thereby avoiding potential hassles down the line. About the author Nur Anis Amani binti Mohd RazaliAssociateReal EstateHalim Hong & Queknur.anis@hhq.com.my More of our articles that you should read: Choosing Between Open Source and Closed Source AI: Considerations for Companies Looking to Onboard AI Credit Reporting Agencies Are Not Authorised to Formulate Their Own Credit Score “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order

Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility

Bank Negara Malaysia (“BNM”) has on 29 February 2024 issued a new Policy Document (“PD”) on Financial Technology Regulatory Sandbox Framework (the “Framework”) to replace the earlier version that was issued back in 2016. The new PD came into force on the date of its issuance, and it seeks to enhance the Framework so as to ensure proportionate regulatory facilitation and improving the operational efficiency of the existing sandbox procedures. This article attempts to provide a brief outline of the Framework and the enhancements introduced by the PD. Financial Technology Regulatory SandboxAs most would no doubt agree, the financial services industry is one of the most regulated industries anywhere in the world. This is hardly surprising given the importance of stability in the money market. That being said, it is also equally important for the financial services industry to keep pace with the development of technology to ensure innovation and service improvement. Due to its disruptive nature, financial technology (“Fintech”) providers often find themselves facing difficulties in the deployment of their solutions, owing to potential archaic or non-accommodative regulatory framework. The Fintech regulatory sandbox (“Sandbox”) established under the Framework is an attempt by BNM to address this pain point. The purpose of the Sandbox is essentially to allow Fintech solutions providers to have temporary rights to deploy and operate their solutions in a live environment, with more “relaxed” regulatory treatment. Participants in the Sandbox would have identified a series of regulatory requirements that they are unable to meet due to the nature of their solutions or business model, and exemptions would be granted to them for a limited duration from having to comply with these regulatory impediments. Upon the expiry of the “playtime”, BNM will then make an assessment as to whether a Sandbox participant should be allowed continued operation of its solution. Enhancements to the Fintech Regulatory Sandbox FrameworkThe PD introduces two (2) enhancements to the Framework: i. A fast-track application and Fintech solutions testing approval process called the “Green Lane”; andii. A simplified process to assess the eligibility of an applicant to participate in the “Standard Sandbox”. We will provide a summary of each of the enhancements in turn below. 1. Green LaneThe Green Lane is a fast-track approval process set up especially for financial institutions (“FIs”) only. FIs with proven track records in strong risk management, compliance and governance, can utilise the Green Lane to shorten the time required to obtain approval to test their Fintech solutions in the Sandbox. Interested and eligible FIs can make an application to participate in the Sandbox through the Green Lane by demonstrating their past records in risk management, compliance and governance. Once the BNM is satisfied of an FI’s track record in risk management, compliance and governance, a Green Lane approval will be issued. Thereafter, the FI will only have to register its Fintech solutions with BNM for testing in the Sandbox, at least 15 days prior to the intended testing commencement date. FI with Green Lane qualification can register multiple Fintech solutions for testing over the subsistence of its Green Lane qualification, and there is no need for the FI to make fresh Green Lane application each time. Overall, the Green Lane is a new path to Fintech solution testing in the Sandbox that is much simpler than the Standard Sandbox process (which we will get to in the next section). The Green Lane affords FIs a faster process to test their Fintech solutions in the Sandbox, subject to the FIs first proving their eligibility to be in the Green Lane. Notwithstanding the easier access to the Sandbox however, the FIs in the Green Lane will still have to adhere to certain parameters and safeguards prescribed under the PD, primarily for customer protections, and BNM still reserves the right to revoke an FI’s Green Lane qualification or reject the registration of Fintech solutions to be tested, particularly where adverse developments have been observed during the testing of Fintech solutions. Fintech companies or non-FIs can make use of the Green Lane by collaborating with FIs (e.g., outsourcing of Fintech solutions to FIs, equity participation, joint venture, etc.), subject however to the discretion of BNM. 2. Simplified Eligibility Assessment for the Standard SandboxThe Standard Sandbox entails a 2-tiered assessment process. In the first stage, applicants are first assessed on whether they are eligible to take part in the Standard Sandbox. Once the first stage has been passed, the applicants are then assessed on their readiness or preparedness in satisfying BNM’s considerations to test the Fintech solutions. Under the new PD, the stage 1 assessment is simplified to the extent that an applicant will only have to demonstrate (amongst others) its ability to identify and mitigate risks associated with the Fintech solution testing, and a semi-functional prototype of the Fintech solution within 3 months from the date of application for participation in the Standard Sandbox. This is a much-welcomed change from the regulator’s past approach of requiring applicant to have a ready product before making any application to participate in the Sandbox. Now, an applicant will only be required to come up with a fully functional prototype during the second stage of the assessment process, allowing greater flexibility to the applicant. The effort of BNM in ensuring the regulatory framework keeps pace with technology evolution certainly deserves applause. The enhancements to the Framework brought by the new PD effectively make the Sandbox more accessible to innovators and Fintech solutions providers. This should drive innovations and hopefully boost investment into the Fintech sector in Malaysia, giving Malaysians better financial services experience enhanced by technology, as well as extending the reach of financial services to the financially underserved. About the author Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and CybersecurityHalim Hong & Quekjohnson.ong@hhq.com.my More of our articles that you should read: Compulsory Acquisition: Landowners Are Not Entitled To Compensation For Illegally Constructed Buildings CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order

Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd (Case No. BA-12AC-3-07/2023)

In the recent High Court decision of Pembinaan Federal Sdn Bhd v Biaxis (M) Sdn Bhd, the High Court of Malaysia examined, amongst others, whether a liquidator of a wound-up company is bound by any arbitration agreement which was not entered by the liquidator, but the wound-up company prior to liquidation. Brief Backgrounds FactsPembinaan Federal Sdn Bhd, the Appellant, and Biaxis (M) Sdn Bhd, the Respondent, had entered into the following two (2) contracts on a development (phase 2A and 2B) on a piece of land in Mukim Petaling for Messrs Masteron Sdn Bhd:- i. Piling Contract; andii. Pile caps and Basement 2 Slab Contract (hereinafter referred as “the Contracts”) Pursuant to clause 3 of the Contracts, the parties had agreed to enter into a contract based on the Agreement and Conditions of PAM Contract 2006 (“PAM Contract”). The Respondent was wound up on 20.4.2022 by the Penang High Court and consequentially, one Dato’ Dr. Shanmughanathan a/l Vellanthurai was appointed as the Liquidator (“Liquidator”). The Liquidator had discovered that there was a sum of RM703,640.97 which was due and unpaid by the Appellant to the Respondent under the Project (“Outstanding Sum”). Therefore on 2.3.2023, the Respondent (the Liquidator initiated an action in the name of the Respondent) commenced a suit against the Appellant at the Sessions Court, claiming for said Outstanding Sum. On 19.4.2023, the Appellant filed an application for a Stay of Proceedings pursuant to Section 10 of the Arbitration Act 2005, for which the Sessions Court Judge had dismissed the Appellant’s application with cost of RM 2,000.00 to be paid by the Appellant to the Respondent. Being unsatisfied with the decision of the Sessions Court, the Appellant had filed an appeal to the High Court against said decision. Findings of the High CourtThe issues to be considered by the High Court are as below:i. Whether the Liquidator is a party to the arbitration agreement entered between the parties (“Arbitration Agreement”);ii. Whether the Arbitration Agreement is inoperative;iii. Whether the nature of arbitral proceedings is contrary to the purpose of insolvency law; andiv. Whether there is any dispute between the parties which warrants an arbitral proceeding to be commenced pursuant to the Contracts. Whether the Liquidator is a party to the Arbitration Agreement entered between the partiesOn this issue, it was held by the High Court that: i. It is not disputed by the parties that there is an Arbitration Clause in the PAM Contract entered between the Respondent and the Appellant. Therefore, whether there is a valid and enforceable Arbitration Agreement pursuant to Section 9 of the Arbitration Act, the answer is in the affirmative; ii. As the Respondent has been wound up, the Liquidator appointed steps into the Respondent’s shoes in dealing with matters related to the wound-up company. These powers are conferred to the Liquidator pursuant to Section 486 of the Companies Act 2016; iii. There is no where in the Companies Act 2016 which requires for there to be a separate agreement duly signed by the Liquidator in order for him to be bound to the terms and conditions of the original contract. Therefore, since the cause of action arose from the Contracts, the parties including the Liquidator are subjected to the terms and conditions of the Contracts and the Arbitration Agreement; iv. It cannot be agreed that the Arbitration Act 2005 is irrelevant to the Liquidator. Therefore, even if the Liquidator is not directly named in the Arbitration Agreement, by virtue of the Liquidator having stepped into the shoes of the Respondent, he becomes a party to it. Whether the Arbitration Agreement is inoperativeSection 10 of the Arbitration Act states as follows: “(1) A court before which proceedings are brought in respect of a matter which is the subject of an arbitration agreement shall, where a party makes an application before taking any other steps in the proceedings, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” The High Court in this case, having adopted the definition of “inoperative” in the case of Peace River Hydro Partners v Petrowest Corp [2022] SCJ No. 41, held that:i. the Arbitration Agreement between the Respondent and the Appellant is inoperative because the Respondent has been wound up and as such, is subject to insolvency protection; ii. since it is found that the Arbitration Agreement is inoperative, it is not necessary to determine whether the Arbitration Agreement is null and void, or whether it is incapable of being performed; and iii. Therefore, Section 10(1) of the Arbitration Act 2005 cannot be invoked against the Respondent by the Appellant. It can also be concluded that the Plaintiff is subjected to the relevant insolvency proceedings having established that the Arbitration Agreement is inoperative against the Respondent. Whether the nature of arbitral proceedings is contrary to the purpose of insolvency law/ Whether there is any dispute between the parties which warrants an arbitral proceeding to be commenced pursuant to the Contracts On whether the nature of arbitral proceedings is contrary to the purpose of insolvency law, it was held by the High Court that: i. Arbitration proceedings generally involve higher cost and delay in time; ii. Considering the Liquidator’s primary function is to manage the wound-up company’s assets and liabilities, an increase in cost and delay would certainly be detrimental to the interest of the creditors and the shareholder of the wound-up company. On whether there is any dispute between the parties which warrants an arbitral proceeding to be commenced pursuant to the Contracts, it was held by the High Court that based on the given facts, the Respondent’s claim sum is based on an undisputed sum which had been certified. In the absence of any dispute, the arbitration clause cannot be invoked and as such, the Respondent had the power to commence a court action against the Appellant pursuant to Section 486 of the Companies Act 2016. Based on the reasons above, the High Court had dismissed the Appellant’s Appeal. COMMENT It is interesting to note that whilst the High Court has decided that the Liquidator is essentially a party to the Arbitration Agreement entered between the parties, the Arbitration Agreement is nonetheless inoperative in view that one of the parties in the Arbitration Agreement has been wound up. This raises the question of whether all ongoing arbitration proceedings will automatically be deemed as “inoperative” the moment any of the parties in the arbitration proceeding is wound up. As at the date of this article, we understand that the Appellant, being unsatisfied with the decision of the High Court, had filed an appeal to the Court of Appeal. About the author Ooi Hui YingSenior AssociateArbitration, Construction & Engineering DisputesHarold & Lam Partnershiphuiying@hlplawyers.com More of our articles that you should read: Compulsory Acquisition: Landowners Are Not Entitled To Compensation For Illegally Constructed Buildings CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order

Security Issues in the Secondary Market

What is Secondary MarketThe secondary market refers to a financial market where investors trade previously issued financial instruments and securities after a company has made an initial public offering of its securities on the primary market. It is a market where securities that were previously sold in the primary market are traded among investors rather than being sold directly by the issuing company. The secondary market facilitates liquidity for investors, allowing them to sell their securities readily and expeditiously should the need arise to access funds. As such, the terms ‘secondary market’ and ‘stock market’ or ‘stock exchange’ are used interchangeably. Capital Raising SecuritiesUpon successfully floating its securities through a primary market transaction and securing a listing of its securities on Bursa Malaysia, a diverse array of alternative capital-raising opportunities emerges. These avenues allow the company’s shareholders and the market at large to be approached for additional issuances of equity and debt securities. Modes of Issuing SecuritiesListed companies have at their disposal a range of methods to issue additional securities. While some of these issues may be aimed at raising equity capital to facilitate business expansion or diversification, others serve different purposes. The following are brief discussions of some of these modes of issuing securities on the secondary market. Public IssueA public issue represents the issuance of new shares available for public sale at a price agreed by the issuer and its Principal Adviser. Rights IssueThe issuance of new shares to existing shareholders for cash, typically at an advantageous price (discounted from the current pre-announcement market price), constitutes a right issue. It is a requirement that a rights issue is renounceable, allowing shareholders to either subscribe to the new shares or sell their rights, in whole or in part, to a third party on Bursa Malaysia. Additionally, any rights issues without irrevocable written undertakings from shareholders to subscribe to their full entitlement must be underwritten. Private PlacementA private placement involves the issuance of securities that are not available to the general public but are instead offered to independent parties who are not under the control or influence of the issuer’s directors or substantial shareholders. The pricing of these securities is typically based on the weighted average market price of the shares over the preceding five days before the placement takes place. Issues for Acquisitions, Take-overs, MergersThe issuance of shares for acquisitions, take-overs, mergers of another company involves offering shares to acquire assets or capital from the other entity. This process may lead to dilution of existing shareholders’ holdings, prompting the listed issuer to negotiate for the highest possible value for their shares to mitigate the dilution impact. Issue of Shares from Conversion of Warrants and ConvertiblesThis is an additional issue of shares to holders of other classes of securities (such as warrants and convertible securities) upon exercise or conversion of securities held. When they are issued, warrants are usually bundled together with debt securities (particularly bonds). The holder of a warrant has the right to purchase a proportional quantity of shares from the issuing company at a pre-established price during a specified timeframe. Convertible securities, on the other hand, are a form of deferred equity. The company can secure funds upon issuance, while the holder of convertible loans has the option to convert them into company shares at a predetermined price within a specified timeframe. Warrants and convertible securities are commonly issued by companies undertaking projects with extended development periods. The issuance is strategically timed so that the expiration of warrants or convertible securities, which results in the issuance of additional company shares, aligns with the period when potential earnings from the projects begin to materialize. As a result, the subsequent issuance of shares is anticipated to be strengthened by the increased earnings of the company. Issue of shares from ESOSCertain companies offer Employee Share Option Scheme (ESOS) to their staff, aiming to, amongst other things, foster allegiance and loyalty to the organization. This grants employees the opportunity to acquire a specified quantity of company shares within a timeframe, up to a maximum of 10 years, at a predetermined exercise price. Bonus IssueThis is an offer given to the existing shareholders of the company to subscribe for additional shares at zero cost in specified proportion of shares that they already held. Bonus issue does not involve any cash outflow, rather only book entries in the accounts of the company for the transfer of the company’s retained profits or reserves available to the share capital account to pay up the bonus shares which are to be distributed to the shareholders. Thus, there are no changes to the worth of the company. Legal dimensions, their Objectives, and Safeguarding InvestorsThe legal dimensions pertaining to securities issuance in the secondary market in Malaysia encompass a diverse array of regulations and factors, all directed towards the objectives of fostering transparency, equity, and safeguarding the interests of investors. Essential legal facets governing this area is discussed below. Regulatory FrameworkSecurities issuance within the secondary market is governed by an extensive regulatory framework established by authorities such as the Securities Commission Malaysia (SC) and Bursa Malaysia. These regulations outline the requirements and processes on the issuance, trading and listing of securities on the secondary market. Chapter 6 of Bursa Malaysia’s Listing Requirements sets out the requirements that must be complied with by the company for any new issue of securities. Companies seeking to issue new securities is required to submit to Bursa Malaysia an application for the listing of and quotation of the new shares to be issued as well as seek its shareholders’ approval prior to such issuance of securities and adhere to the specific requirements as set out in Chapter 6 of the Listing Requirements. Disclosure ObligationsIssuers of securities on the secondary market are typically mandated to furnish exhaustive and precise information to investors. This entails providing, inter alia,financial statements, reports, prospectuses, information memorandums and other pertinent disclosures to enable investors to make informed investment decisions.Chapter 9 of the Listing Requirements mandates that any proposed issue or offer of securities must make an immediate announcement to Bursa Malaysia and such announcement must contain all information as set out in Part A of Appendix 6A of the Listing Requirements. Prevention of Insider Trading and Market ManipulationLegislative and regulatory provisions are in place to prohibit insider trading and market manipulation, safeguarding against the unauthorized exploitation of confidential information or the manipulation of security prices for personal gain. These measures are implemented to maintain market integrity and ensure fair treatment of all investors. Insider trading happens when an individual holds confidential information that, if disclosed, would significantly impact the price or value of the company’s securities, and then engages in trading or transactions involving those securities. According to the Capital Markets Act 2007, insider trading constitutes a criminal offence. If convicted under sections 188(2) or (3), the perpetrator faces a minimum fine of RM1,000,000 and a maximum prison sentence of 10 years. Corporate Governance StandardsMalaysia has made significant strides in enhancing corporate governance practices with the aim of promoting transparency, accountability and ethical behavior. The Malaysian Code on Corporate Governance (MCCG) sets out principles and best practices to guide companies in improving their corporate governance standards. It covers areas such as board composition, responsibilities of the board and management, risk management and disclosure practices. Regulatory authorities do actively monitor and enforce compliance with such corporate governance regulations with penalties and sanctions in place on companies and individuals found to be in violation of these regulations. Enforcement Mechanisms and PenaltiesEntities such as SC and Bursa Malaysia possess authority to enforce securities laws and regulations, enabling them to investigate and impose penalties for any breaches. Violations may lead to consequences such as fines, sanctions and legal actions to ensure that the integrity of the marketplace and in turn, reflect genuine market supply and demand. Authorities are equipped with numerous enforcement actions against violations of regulations concerning market misconduct and abusive trading practices. These actions were taken in response to activities that lead to false or misleading appearances of active trading or manipulated the prices or markets for securities and derivatives. The type of penalties taken is determined on a case-by-case basis depending on considerations such as the severity of the misconduct or breach, its duration and frequency, its impact on the public or market, any ill-gotten gains and whether the actions were intentional or reckless. Violations that significantly impact the market, causing harm and disrupting its orderly operation, are subject to a more severe penalty. In a Nutshell The legal framework governing securities issuance in the secondary market is comprehensive and meticulously crafted to address various aspects of market operation and investor protection. The regulations are designed to instill confidence among investors by setting clear guidelines and standards to provide the necessary assurance their investments are being conducted in a transparent and regulated environment. Preservation of market integrity is also a key focus of the regulatory framework. Market integrity ensures that transactions are conducted fairly and that prices reflect supply and demand dynamics. Regulations against market manipulation and insider trading help maintain a level playing field for all participants. The regulatory framework too, aims to facilitate the efficient operation of capital markets. By establishing rules for timely and accurate disclosure of information and standards for corporate governance and market conduct, the framework ensure that capital flows smoothly and efficiently between investors and companies. Overall, the legal intricacies governing securities issuance in Malaysia’s secondary market are essential for fostering investor confidence, preserving market integrity, and ensuring the efficient operation of capital markets. Compliance is crucial for all stakeholders to uphold the integrity of the securities market and contribute to its long-term sustainability. About the authorLaurel Lim Mei YingAssociateCorporate & CommercialHalim Hong & Queklaurel.lim@hhq.com.my More of our articles that you should read: Disposal of Real Properties Subject to Income Tax? CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order

Private Hospitals to pay for their Doctor’s Negligence

Non-delegable duty of care1. The claim in this case is based on the tort of negligence. The law of tort is based on a fault-based system where it imposes liability on the wrongdoer, also known as the tortfeasor. Ordinarily, the law does not hold one accountable for the actions or inactions of another. 2. Conversely, a non-delegable duty of care is where the usual principle is displaced under certain circumstances. While a party can generally assign its responsibilities to an independent third-party contractor, the principle of non-delegable duty of care arises in situations where such duty cannot be delegated away, even if the duty is performed by an independent contractor. Brief facts3. The Appellant patient underwent a series of medical procedures including tonsillectomy, palatal stiffening and endoscopic sinus surgery at the Subang Jaya Medical Centre (‘SJMC’) on 10.3.2010. At about 3.30 a.m. on 22.3.2010, the Appellant experienced bleeding at the operation site and was brought to the emergency department of Columbia Asia Hospital (Puchong), the Respondent. 4. He was attended to by a medical officer and later by a Consultant Ear, Nose, and Throat surgeon (“Dr. M”), and a Consultant Aaesthetist (“Dr. N”). 5. Complications arose before the surgery began. In the airlock area outside the operating theatre, the Appellant started vomiting copious amount of blood and there was profuse bleeding leading to the Appellant’s collapse and the subsequent emergency resuscitation. 6. The intended surgery was performed. Unfortunately, the Appellant suffered hypoxic brain damage. After surgery, the Appellant was admitted to the intensive care unit of the Respondent for continued post-surgical care and management, and was later transferred out to SJMC on 28.3.2010. 7. The Appellant is now permanently mentally and physically disabled due to massive cerebral hypoxia. Through his wife, the Appellant initiated a suit against Dr. M, Dr. N and the Respondent hospital at the High Court for negligence and breach of duties under the Private Healthcare Facilities and Services Act 1998 (‘Act’). 8. The Appellant alleged that the Respondent is vicariously liable for the negligence of Dr. M and Dr. N, and is also directly liable for breach of its non-delegable duty of care. 9. In response, the Respondent asserted that its responsibility was merely to ensure the provision of facilities and medical equipment, including nursing staff. The 2 medical practitioners carried out their respective medical practice at the Respondent hospital as independent contractors under contracts for services. As such, all diagnosis, medical advice including material risks and known complications, medical treatments, operations and referrals are the doctors’ own responsibilities. High Court and Court of Appeal10. Both the High Court and Court of Appeal found that only Dr. N was liable for negligence due to her conduct falling below the standard of skill and care expected from an ordinary competent doctor professing the relevant specialist skills based on which she was entrusted to treat the Appellant. 11. On the issue of vicarious liability and direct non-delegable duty of care, the court found that Dr. M and Dr. N were carrying out their practice at all material times in the hospital not as employees, servants or agents of the Respondent but as independent contractors. Hence, the Respondent is not liable for the negligence of Dr. N.12. The High Court awarded damages of approximately RM1.9 million to the Appellant. The Court of Appeal later increased the damages to approximately RM2.1million to the Appellant. 13. Both the Appellant and Dr. N appealed. The Court of Appeal dismissed the appeal against the Respondent hospital. Dr. N’s appeal was also dismissed. Analysis and findings of the Federal Court14. The appeal filed by the Appellant at the Federal Court is only in respect of the Respondent only. 15. A total of 7 questions were posed to the court and as summarised by the majority of the Federal Court Judges, the focus of the appeal was whether the hospital owes an independent duty of care which is non-delegable, regardless of whom it may have delegated that duty to, irrespective of who may have performed the act or omission complained of, whether under a contract for service or due to the patient’s own choice. 16. It was emphasised by the court that the principle of non-delegable duty of care becomes relevant only if presence of negligence is shown in the first place. Here, the High Court and the Court of Appeal had held Dr. N to be negligent. 17. In affirming that the principle of non-delegable duty of care applies to the present appeal, the Federal Court adopted and refined the five features laid down by Lord Sumption in the English case of Woodland v Swimming Teachers Association & Others [2014] AC 537. The court held:- a. Firstly, the Appellant is in a vulnerable position and is totally reliant on the Respondent for its care and treatment, more so when the Appellant was admitted to its emergency services. b. Secondly, the existence of an antecedent relationship is affirmed by the assumption of positive duties by the Respondent in ensuring that reasonable care is taken to persons who knock on its door and seek treatment and care. Echoing its judgment in Dr Kok Choong Seng & Anor v Soo Cheng Lin & Another Appeal [2018] 1 MLJ 685, the court emphasised Act and the related regulations clearly envisage that private hospital is and remains responsible for not just the efficacy of premises or facilities, but also for the treatment and care of patients, regardless of how and who the responsibility may have been delegated to. Furthermore, the hospital held itself out as a one-stop-centre for all treatments and procedures on its website. Unlike the English case of Woodlands which applied a further consideration as to ‘whether it is fair, just and reasonable to impose the non-delegable duty of care’ in addition to the five features, our Federal Court held that such elements of fair, just and reasonable had already been considered and embedded in the Act and its related regulations. Hence, there is no need for a separate exercise of consideration. c. Fourthly, the Appellant had no control over how the Respondent was to perform its function rendering emergency care and treatment. d. Fifthly, Dr. N was undeniably negligent in the performance of the very function of rendering proper emergency care and treatment of the Appellant that was assumed by the Respondent but which was delegated by the Respondent to her. 18. In short, the Federal Court held that private hospitals cannot put the blame on its doctors in the name of contracts. They have a duty of care which cannot be delegated. The Federal Court allowed the Appellant’s appeal against the Respondent, and increased the damages to RM4.5million. Conclusion The Federal Court ruling would have an impact on the private hospitals and doctors in Malaysia in the following ways:- a. The indemnity clause within consultant agreements between private hospitals and their doctors may now seem to be redundant. b. Private hospitals would now be the ultimate paymaster for their consultants’ negligence. c. It is essential for private hospitals to reassess their insurance coverage and implement systems and procedures to prevent medical errors. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the Authors Chan Jia YingSenior AssociateDispute ResolutionHarold & Lam Partnershipjiaying@hlplawyers.com Damia AmaniLegal ExecutiveDispute ResolutionHarold & Lam Partnershipdamia@hlplawyers.com More of our articles that you should read: Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective STAMP DUTY FOR FOREIGN CURRENCY LOAN Failure to Plead the Relevant Contractual Clause in Adjudication Proceedings (CIPAA 2012) is Fatal

Credit Reporting Agencies Are Not Authorised to Formulate Their Own Credit Score

On 7.3.2024, the Kuala Lumpur High Court in the case of Suriati binti Mohd Yusof v CTOS Data Systems Sdn Bhd [2024] MLJU 437; CLJU 440; (Civil Suit No. WA-23NCvC-8-01/2020) ruled that credit reporting agencies are not empowered to formulate a credit score or create their own criteria/ percentage to formulate a credit score. The High Court found that the credit reporting agency in this case provided inaccurate/ false credit information and awarded a sum of RM200,000 as general damages to the person whom the credit information was related to. Background FactsThe Plaintiff, Suriati Binti Mohd Yusof, is the director and shareholder of a resort situated in Terengganu. The Defendant, CTOS Data Systems Sdn Bhd, is a credit reporting agency registered under the Credit Reporting Agencies Act 2010 (Act 710) (“CRAA 2010”). The Defendant is responsible for collating credit reports from various sources for the purpose of disseminating the information to its subscribers. On or around May 2019, the Plaintiff discovered that her loan application for a car was rejected due to a negative report from the Defendant. The Plaintiff further discovered that the data collated and kept by the Defendant was inaccurate and false, which led to her negative credit rating. The Defendant also gave the Plaintiff a low credit score leading to loss of confidence from financial institutions. The Plaintiff filed a civil suit in the High Court against the Defendant to claim for damages suffered as a result of the Defendant’s negligence and breach of fiduciary duty in misrepresenting her credit rating leading to a loss of reputation, personal losses as well as business losses. The Plaintiff contended that as a result of the inaccurate information and wrong credit score provided by the Defendant, the Plaintiff was considered as not creditworthy and suffered losses. The Defendant contended that the Defendant’s role was merely to collate the information and it was not the duty of the Defendant to verify the accuracy of the information. Grounds of Judgment of the High Court1. Accuracy of Credit Information The High Court observed that pursuant to the CRAA 2010, the Defendant as a credit reporting agency is tasked with the main role of collecting, recording, holding and storing credit information. The Defendant is also empowered to disseminate the information to its subscribers, which includes financial institutions. The High Court ruled that Section 29 of the CRAA 2010 imposes a duty upon the Defendant to verify and to ensure the accuracy of the credit information/ credit report. Further, CRAA 2010 was enacted to empower credit agencies such as the Defendant to provide accurate information to financial institutions in approving and disbursing financial aid to applicants. Therefore, the Defendant had a duty of care to provide accurate credit information to financial institutions and the persons concerned against whom the information was related to. The Defendant owed a duty of care towards the Plaintiff in providing accurate credit information. The evidence in this case showed that the Plaintiff alerted the Defendant that the information against her was inaccurate. However, the Defendant ignored the communication from the Plaintiff and continued to maintain the inaccurate information. The High Court was of the view that the Defendant could have suspended the information pending verification or notify subscribers that the information was pending verification. The High Court ruled that the Defendant breached the duty of care owed towards the Plaintiff as the Defendant was indifferent even after being alerted by the Plaintiff. 2. Credit Score Formulated by Credit Reporting Agencies The Defendant formulated a credit score based on certain criteria which include payment history, amount owed, credit history length, credit mix and new credit. Using this criteria, the Defendant classified the Plaintiff as a serious delinquent. The High Court held that there is no provision in the CRAA 2010 which empowered the Defendant to formulate a credit score or create its own criteria/percentage to formulate a credit score. The Defendant is just supposed to be a repository of the credit information to which its subscribers have access to. By formulating a credit score, the Defendant has gone beyond its statutory functions. The Plaintiff suffered losses as a result of being labeled as a delinquent by the Defendant when the Defendant did not have the right to do so. 3. Compensation Awarded by the High CourtThe High Court held that the Defendant had (i) breached the duty of care owed to the Plaintiff; and (ii) overstepped the functions they were registered for under the CRAA 2010. The High Court ruled that the Plaintiff suffered personal losses. The Plaintiff’s reputation and relationship with her spouse had broken down as a result of the Defendant’s negligence and breach of fiduciary duties. The High Court awarded the sum of RM200,000 as general damages and costs of RM50,000 to the Plaintiff. Note: The Defendant has filed an appeal against the decision of the High Court to the Court of Appeal. This matter will be heard before the Court of Appeal. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the authorChew Jin HengAssociateDispute ResolutionHalim Hong & Quekjhchew@hhq.com.my More of our articles that you should read: Compulsory Acquisition: Landowners Are Not Entitled To Compensation For Illegally Constructed Buildings CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order

Disposal of Real Properties Subject to Income Tax?

Background Facts 1. International Naturopathis Bio-Tech (M) Sdn Bhd (“the Taxpayer”) was involved in naturopathic medicine, which bought six different shop lot units (3 shoplots in Block A and 3 shoplots in Block B) (“Properties”). 2. The delivery of vacant possession of the Properties was made in August 2010 and the Taxpayer sold the Properties respectively in June 2011 and August 2011. 3. The Director of Inland Revenue (“DGIR”) in 2014 raised a notice of assessment in respect of the disposal of the properties amounting to RM543,906 for the year of assessment 2011. 4. The issue in dispute was whether the disposal of the properties was subject to RPGT or income tax. 5. The Special Commissioner of Income Tax (“SCIT”) and the High Court (“HC”) held that the disposal of the properties was subject to income tax. Being dissatisfied, the Taxpayer filed the appeal to the CoA. Decision 6. The CoA confirmed the decision of the SCIT and HC and held that, amongst others, the disposal of the Properties subject to income tax and not RPGT as: a) the Properties were sold within a short period of time (i.e. 6 months and 12 months after delivery of vacant possession; b) no effort was done to look for a tenant; c) disposal of the Properties was not undertaken to help pay for the Taxpayer’s medical bills; d) the intention of buying the Properties is to trade as (i) the purchase of the Properties was financed by the loans taken by a director and not the Taxpayer; and (ii) the Properties located at a strategic business location area; e) the Taxpayer gave no evidence of a change in the ‘intention’; f) the Taxpayer face no difficulty in selling the Properties within such short period of time; and g) accounting evidence is not conclusive. Comments This is a classic RPGT vs income tax case. For decades, taxpayers have been in tug-of-war with the DGIR in determining whether a disposal of a real property is subject to income tax or RPGT. In this case, the CoA succinctly laid down the following badges of trade: i. Intention or the motive of the purchase of the property which is subsequently disposed of; ii. Subject matter/nature of the asset disposed of; iii. Interval of time between purchase and sale/Length of period of ownership; iv. Number or frequency of transactions; v. Changes made to the asset would make it more saleable; vi. The circumstances responsible for the realisation of the property; vii. Method of finance for the purchase of the property; viii. Existence of similar trading transactions or interests; and ix. The way the sale or disposal was carried out. Notably, CoA also made the following key observations on the application of the badges of trade: a) these badges are merely a guide which assists the deliberation as to whether a set of facts and circumstances would constitute a trade or an adventure in the nature of trade; b) no one single badge of trade is usually conclusive or determinative; c) it is also not uncommon that the application of one badge may lead to one answer but that of another results in another, potentially contradictory conclusion; d) deliberation involves the interplay of the combination of the various badges of trade, and the weight attached to each badge of trade will depend on the precise circumstances of the case; and e) it is also fair to say that the more badges of trade can be fastened on a transaction making it more likely that the transaction will be construed as a trade and thus subject to income tax. This case serves as good guidance in applying the badges of trade and understanding the interaction between these badges. Remember, no one single badge of trade is conclusive and accounting evidence itself is not conclusive. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the Authors Desmond Liew Zhi HongPartnerTaxHalim Hong & Quekdesmond.liew@hhq.com.my Boey Kai QiAssociateTaxHalim Hong & Quekkq.boey@hhq.com.my More of our articles that you should read: Payment for Exemption from Building Low-Cost Housing is NOT Tax-Deductible Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility Whether AI-Generated Work Could be Protected by Copyright Law

Choosing Between Open Source and Closed Source AI: Considerations for Companies Looking to Onboard AI

The concept of “open source” and “closed source” artificial intelligence (“AI”) have attracted increasing public attention ever since Elon Musk filed a lawsuit against OpenAI, the company behind ChatGPT, alleging among others, OpenAI’s breach of its founding agreement. During the Musk and OpenAI saga, the billionaire has called on OpenAI to change its name to “ClosedAI”, seemingly taking a swipe at the lack of transparency and the “closed” nature of OpenAI’s large language model, ChatGPT. . Dissecting the Concept of Open Source and Closed Source AI In order to appreciate the grievances raised by Elon Musk in this upcoming legal drama with OpenAI, we need to first understand the concept behind “open source” and “closed source”. The terms are not unique to AI but are used commonly to refer to the manners in which technologies (most commonly, software) are made available by their developers. Open source software generally refers to software where the source code is readily accessible, customisable, adaptable and/or distributable, either with little or no costs, but subject at all times to the compliance of the open source licensing terms, which typically require users to also make public the modified version of their software which incorporates the open source software. Closed source software on the other hand, generally refers to proprietary software that are licensed by the vendors or software principals for use at a cost under limited or defined licensing terms, and the source code of the proprietary software are usually kept inaccessible. . In the context of AI, open source refers to practices where the core aspects of an AI model – its model structure, training process, training data, and source code, are shared publicly for anyone to use, modify and distribute. In contrast, a closed source AI is where most, if not all, of the aforementioned aspects of an AI model are kept private by the developers or owners. . Pros and Cons of Open Source and Closed Source AI As explained above, the terms “open source” and “closed source” essentially refer to the manner in which a technology is made available. Despite heated debates between the proponents of open source and closed source AIs, there is not necessarily a “one-size-fits-all” approach here. Be it open source or closed source AI, they each have their own sets of pros and cons, which should be carefully evaluated by businesses looking to deploy or adopt AI. The table below illustrates some of the pros and cons of open source and closed source AI:   1. Open Source AI (i) Pros - As with all open source initiatives, the concept promotes a higher level of community collaboration and would in turn drive creativity, innovation and improvements to the technology placed under open source. When one user has a breakthrough, the community as a whole benefits from that breakthrough. - Due to the ease of access of open source technology, it creates a level playing field for businesses looking to deploy the technology but lacks the scale of funding that big corporations have. - Given the transparency to the model structure, training process, training data and source of the AI, it would be easier for vulnerabilities to be fleshed out by the community. - Where the training data and data provenance are made public, it provides an avenue for users to verify the legitimacy and ethical aspects of the data used to train the AI. . (ii) Cons - Owing to its accessibility, open source AI also lowers the barrier of entry for cybercriminals and malicious actors to build so-called “AI without guardrails”. - Sustainability of an open source initiative is also a key concern. Given that there is usually little to no cost for the access of open source technology, the community is usually not paid to maintain the initiative and is doing it purely out of passion. An open source project that fails to maintain adequate attention from the community will have a high likelihood of failure. - Due to the lack of dedicated personnel in an open source initiative, businesses in need of technical support after adopting the open source technology may struggle to receive timely support services. - The potential legal risk associated with open source AI is intellectual property disputes. When multiple contributors collaborate on an open source project, there is inherently a risk that someone may inadvertently or unintentionally contribute code or other intellectual property that they do not have the legal right to share. This could lead to legal challenges regarding ownership, licensing rights, or infringement claims, particularly if the project gains significant traction or commercial use. .    2. Closed Source AI (i) Pros - A private owned AI model is usually easier to use and integrate into existing systems, offering a plug-and-play solution to businesses that may not have high-level of technical capabilities. - Due to the proprietary nature of a closed source AI, it provides some level of control as to who can license, access and use the AI, thereby reducing risks for misuse or abuse. - Organisations deploying closed source AI would typically have dedicated teams providing support to users. As such, users of closed source AI can expect certain service levels from the licensors. - Closed source AI is also often the preferred model of distribution for companies looking to maintain competitive edge in the market, by keeping their technology behind walled garden, treating them as trade secrets. . (ii) Cons - Owing to lack of transparency in the data provenance of a closed source AI, users will not be able to independently verify the legitimacy of the data used to train the AI model. - Use of closed source AI may also lead to vendor lock-in, making it challenging for users to switch to another AI provider. - Costs required to access a closed source AI may also be a concern, and this is often a stumbling block for companies with limited budget. . Choosing Between an Open Source or Closed Source AI There is no fixed answer as to whether an open source or closed source AI is better. Ultimately, it all depends on what is the company’s objective for the use AI, its in-house AI capability, and the specific concerns that the company has when it comes to AI deployment. . A company that lacks the capabilities and resources to modify and customise an open source AI may be more suitable to license a closed source AI with focus on user-friendliness. On the other hand, a company with a very unique AI needs may not be able to find a closed source AI that is suitable for its intended usage, and may be better off building on an open source AI on its own. . Another crucial factor in choosing between open source and closed source AI is the legal consideration, including, but not limited to regulatory compliance and data privacy requirements. Depending on the jurisdiction, there may be specific regulations or code of ethics governing the use and deployment of AI, particularly regarding data handling, privacy protection, ethical considerations and/or risk assessments. Companies must carefully assess whether the chosen AI solution, whether open source or closed source, aligns with these legal regulatory frameworks and considerations, and what are the additional obligations imposed under applicable laws before an AI can be implemented. . Adoption of open source and closed source AI both present their own sets of challenges. The open source licensing terms of an open source AI may have express requirements to be met before users can enjoy the AI for its intended open source benefits. For example, users could be required to make public the result of its customisations of the open source AI, failing which certain payment obligations may be required. For private owned, closed source AIs, the vendors may be imposing terms that could be onerous or unfavourable to the users in its licensing agreement. It is as such extremely crucial that businesses employ a legal team that is well familiar with the AI industry and software licensing terms to advise on the risks involved and how to mitigate them. . Before any form of AI adoption, the best practice is always to procure legal advice on the risks associated with the AI project and what are the legal requirements that would apply. Legal counsels that are familiar with the AI industry and software licensing would also be able to assist on the reviewing and/or structuring of the AI licensing terms, ensuring your objectives are met and that risks are well addressed and mitigated. If you have any questions or needs when it comes to AI adoption, please feel free to reach out to the team of technology lawyers at Halim Hong & Quek. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my. . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . More of our Tech articles that you should read: • Air Canada Case Exposes AI Chatbot Hallucination Risks: A Mitigation Guide for General Counsel • Addressing Copyright Infringement and Challenges in AI Training • The European Union Artificial Intelligence Act – Should Artificial Intelligence Be Regulated?  

房地产买卖需知--第一部:房地产及土地背景

概述 根据《2020年修订国家土地法典》第5条的规定 “土地”包括了:(1)土地表面及构成该表面的所有物质; (2)土地以下及其内部的所有物质; (3)所有植被和其他天然产品,不论其生产是否需要定期的劳动投入,且不论是在土地上还是土地下; (4)附着于土地上或永久固定于附着于土地上的任何物体,无论是土地上还是土地下;及 (5)被水覆盖的土地。 在签订购买合同之前,深入了解和掌握该房地产及土地的详细背景信息是关键的首要步骤。本篇文章将探讨如何查询房地产及土地的背景信息。 1.房地产的个别或分层地契:这是交易中确认主要房地产转移文件和起草合同的第一步。个别或分层产地契未发放的情况下,交易方会采用转让契约(Deed of Assignment),通过这种方式,买方能够获得房地产的全部权利,包括在个别或分层地契发放前赋予买方出售财产的权利。当地契存在并且需要正式转让时,必须采用土地法典所规定的转让备忘录(Instrument of Transfer)。转让备忘录需要相关土地当局的认可,以正式变更土地所有权,并最终将买方的名字注册为产权文件上财产的新所有者。 2.土地所有权期限:土地所有权既可以是无限期的,即永久性的,也可以是有期限的,期限最长不得超过99年。有期限的土地所有权可以申请延期,土地所有者需要在地契上规定的期限到期前向州政府提出延期申请,最终由州政府决定是否同意延期。如果申请被批准,土地所有者需支付由州政府确定的溢价费用。不同州属的提交表格、流程和费用可能会有所不同。 3.地契的土地用途类别:土地会被划分为3个土地用途类别,即“农业”、“建筑”和“工业“。每一类土地都可能受到明示条件和默示条件的约束。州政府可以根据以下情况施加其认为合适的条件: (i)要建设的土地面积或占地比例; (ii)在土地上建造的任何建筑的类型、设计、高度和结构; (iii)建筑的开工或完成日期; (iv)建筑的用途。 所有房地产的土地所有者或开发申请人都必须按照以上的类别使用或建造建筑物。 4.利益限制(Restriction In Interest):  如果土地证明书规定转让土地需事先获得相关州政府的书面批准,那么卖方必须在签订买卖合同后向该州政府提交申请。若申请未获批准,买卖合同通常将被取消。不同州属的提交表格、流程和费用可能会有所不同。 5.土地所有者:在地契上注册的所有者可以保障他们对房地产的所有权是合法和有效的。在研究房地产时,必须谨记,土地所有者有可能已经通过各种法律合同,如授权书(Power of Attorney)、合资企业协议(Joint Venture Agreement)、转让契约(Deed of Assignment)或开发权协议(Development Rights Agreement),将其对土地的使用权和收益权转让给了第三方。此外,还需要留意注册的所有者是否仅为受托人(Trustee)。如果房地产交易涉及其他法律文件,在签署买卖合同前,建议全面了解这些文件,以确保所有权链清晰,避免第三方索赔导致的交易失败或不必要的法律纠纷。 6.房地产的交易及记录:通过地契查询或土地搜查,买方可以了解到包括土地抵押、租约、留置权、地役权等在内的土地交易信息。此外,地契查询或土地搜查还可以提供土地用途变更、土地分割或合并申请、土地或其部分是否遭受强制征用的信息。若房地产的个别或分层地契尚未颁发,买方可以向开发商查询关于当前权益所有者的信息、以及房地产权益是否已转让给银行作为贷款抵押的详细资料。 7.房地产租赁:由于《国家土地法典》规定租期3年或以下的租赁免予注册,因此买方需要向卖方核实该房产或土地是否受租赁限制。市场上一些租约可能赋予租户优先购买权。如果租约中包含此类条款,建议买方要求卖方提供证明租户已放弃购买权或卖方已向租户发出充分通知的书面证明。若存在着租赁,需要注意的事项包括租期、租户的基本背景、租金、租期、租赁的条款及业主的义务、已被收取的押金、租赁是否存在着违约时间等, 因为一般上当买卖交易完成后,租约都会被转让给买家。 8.房地产出售条件:建议在签署任何购买意向书之前实地考察房地产的实际状况。如果存在需要卖方在完成买卖合同之前进行修复、移除或清理的事项,建议在购买意向函中明确指出。若这些事项未被记录,马来西亚的通常做法是,房地产将按照“现状原地”(as is where is)的基础出售给买方。 我将在房地产买卖需知--第二部的文章将探索买卖合同的主要条款。如需了解更多详细信息,可随时与我们的团队联系。 作者简介 Lim Yoke Wah 林玉华伙伴律师 (企业房地产、土地开发、产业园、租赁、银行与金融)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:yokewah@hhq.com.my

Air Canada Case Exposes AI Chatbot Hallucination Risks: A Mitigation Guide for General Counsel

In the current business landscape, the race to harness the power of Artificial Intelligence (“AI”) is in full swing. One of the most straightforward and cost-effective strategies is the integration of AI Chatbots into company websites, as these AI Chatbots are capable of interacting with customers and answering their queries, which can significantly reduce expenses tied to traditional customer service. However, while many companies are eager to adopt AI Chatbots, there is a critical issue that often goes overlooked or remains unaddressed: the problem of AI Chatbot hallucinations. This issue can lead to severe legal complications, such as negligent misrepresentation, and in this article, we aim to delve deeper into this serious concern.  . Understanding AI Chatbot Hallucinations To fully grasp the issue at hand, it is essential to understand what “hallucination” means in the context of AI. While many might expect AI to provide perfect and flawless answers, the reality often falls short, with AI-generated outputs frequently being inaccurate—a phenomenon referred to as "hallucination." In the realm of AI, especially in machine learning and neural networks, hallucination refers to the generation of incorrect, nonsensical, or entirely fabricated information during data processing or generation. This issue is often most prevalent in generative models, such as GPT (for text) or DALL-E (for images), where the AI might produce outputs that do not accurately reflect the input data or real-world knowledge. These inaccuracies can stem from biases in the training data, overfitting, underfitting, or limitations in the model’s architecture. For instance, an AI trained on a dataset of images might “hallucinate” objects in generated images that weren’t present in the original prompt, or it might combine features of different objects in nonsensical ways. Similarly, in natural language processing, an AI might generate plausible-sounding but factually incorrect statements based on patterns it learned during training, which don’t actually represent real-world knowledge.  . The Air Canada Case: Legal Implications of AI Chatbot Hallucinations The hallucination effect of AI Chatbots could land companies in hot water legally, especially when customers rely on the information provided by the AI chatbot to make decisions, and this is exactly what happened in the very recent decision of Moffatt v. Air Canada, 2024 BCCRT 149 (“the Air Canada case”) where Air Canada faced legal consequences due to the hallucination effect of their AI Chatbot. The Air Canada case, while seemingly straightforward, carries profound implications and offers invaluable lessons for companies implementing AI Chatbots on their websites, apps, or other platforms. The Air Canada case revolves around a customer who, following the death of a family member, sought to book a flight with Air Canada. The customer interacted with the AI Chatbot on the Air Canada website, which advised that the customer could apply for bereavement fares retroactively by submitting a request within 90 days of ticket issuance. Relying on the advice and information provided by the AI Chatbot, the customer purchased the ticket and then applied for the bereavement reduction within the 90 days stipulated period as advised. However, the situation took a turn when Air Canada denied the bereavement fare claim, explaining that the AI Chatbot had provided "misleading words" that contradicted the information on the bereavement travel webpage, as according to the webpage, the bereavement policy does not apply retroactively, rendering the customer ineligible for the bereavement fares. Air Canada attempted to absolve itself of liability for the wrong information provided by the AI Chatbot by arguing that the AI Chatbot is a separate legal entity that is responsible for its own actions. This argument, however, was rejected by the Civil Resolution Tribunal ("CRT") in Canada. The CRT unequivocally stated that "while a chatbot has an interactive component, it is still just a part of Air Canada's website. It should be obvious to Air Canada that it is responsible for all the information on its website… I find Air Canada did not take reasonable care to ensure its chatbot was accurate." The CRT further ruled that the customer had relied on the chatbot to provide accurate information, which the AI Chatbot failed to do. Therefore, this is a case of negligent misrepresentation on the part of Air Canada, and the customer is entitled to damages. The Air Canada case serves as a critical examination of how companies utilize AI Chatbots and the potential legal ramifications. Indeed, Air Canada attempted to make an interesting argument by claiming that the AI Chatbot is a separate legal entity and should be responsible for its own actions. However, it is a concept that is often misunderstood that AI is a sentient entity capable of independent thought and action. In reality, AI operates through neural networks that undergo continuous training and adjustment of weights and biases based on the input data. It is crucial to grasp that AI doesn't possess consciousness or autonomy; rather, its functionality is entirely determined by the parameters set during its training. The outcomes produced by AI are essentially predictable and controllable, as they are guided by the patterns and information ingrained within the training data. In essence, AI should be viewed as a sophisticated tool that executes tasks based on predefined algorithms and learned patterns, rather than exhibiting genuine cognitive processes or decision-making abilities. Given that companies owe a duty of care to ensure that the representation, advice or answers provided by the AI Chatbot to be true, accurate and not misleading, the next question is at the current state of "hallucinations" condition in AI, is it even possible for companies to completely eliminating "hallucinations" or errors in AI-generated content. The truth is eliminating hallucinations entirely in AI systems is a daunting task. Even reducing these errors and striving for greater accuracy would demand significant resources and effort, as it involves the acquisition of high-quality data, the training of sophisticated models that require substantial computational power, and the continuous development of new model architectures or training techniques that can better handle the nuances of human language and knowledge. While many companies are keen to employ and leverage AI in their technology, most may not be prepared to invest such high costs in ensuring the accuracy and correctness of AI-generated answers due to the extremely high costs of investment and resource-intensive work involved. Therefore, companies need to find a balance between leveraging AI technology in their offerings to reduce costs and investing resources to eliminate hallucinations in AI. This involves ensuring that the representations made are true, accurate, and not misleading to potential customers. This issue also poses a significant concern for general counsels, as traditionally, legal teams would provide training to business units and employees to ensure that representations made to customers are accurate and to avoid negligent misrepresentation. However, general counsels cannot provide training to AI Chatbots, posing a potential risk and crisis management issue that should now be considered by general counsels. . Addressing the Challenge: Strategies for Risk Mitigation In response to the challenges arising from potential inaccuracies and distortions in AI-generated content, companies utilizing AI Chatbots can adopt several strategic insights to effectively address and mitigate these concerns:   1. Strengthening Terms of Use: Companies should promptly reinforce their terms of use or terms of service agreements on their platforms. These updates should explicitly acknowledge the potential for inaccuracies in AI Chatbot responses, and customers should be informed of their responsibility not to solely rely on AI Chatbot information and to cross-reference data from official website sources. . 2. Implementing Robust Disclaimers: It is imperative for companies to incorporate clear and comprehensive disclaimers and terms of use notices for users engaging with AI Chatbots. These disclaimers should unequivocally state the possibility of inaccuracies in the advice or information provided by the AI Chatbot, and users should explicitly acknowledge and agree that such responses cannot be construed as misrepresentation, thereby protecting the company from liabilities stemming from inconsistencies or inaccuracies. . 3. Providing Training and Developing Internal Policies: Collaboration between legal and technology teams responsible for AI Chatbot deployment is paramount. Legal counsel should conduct training sessions to enhance the understanding of the data inputs driving the neural network systems behind AI Chatbots. Moreover, these interdisciplinary teams should collaborate to devise internal policies aimed at continuously enhancing the accuracy and reliability of the AI system's outputs. . 4. Regular Auditing, Monitoring, and AI Model Red Teaming: Implementing regular audits, monitoring procedures, and AI model red teaming can collectively help identify and mitigate potential legal risks associated with AI Chatbot interactions. Companies should establish protocols for monitoring the performance and behavior of AI Chatbots, including reviewing chat logs, analyzing user feedback, and conducting periodic assessments of accuracy and compliance with legal standards. Additionally, integrating AI model red teaming, where teams simulate adversarial attacks to uncover vulnerabilities, can provide valuable insights into potential weaknesses and enhance overall robustness. . 5. Transparent Communication Channels: Providing transparent communication channels for users to report inaccuracies or raise concerns about AI Chatbot responses can help mitigate legal risk. Companies should establish clear avenues for users to provide feedback or seek assistance when they encounter misleading or incorrect information from AI Chatbots. Additionally, companies should communicate openly with users about the limitations of AI technology and the steps being taken to improve accuracy and reliability. By fostering transparency and accountability, companies can build trust with users and minimize the risk of legal disputes related to AI Chatbot interactions. . Conclusion By adopting these strategic insights, general counsels can effectively mitigate the risks associated with AI-generated content, ensure transparency with their customers, and proactively enhance the accuracy of their AI Chatbot interactions. As this field continues to evolve, it is advisable for companies and general counsels to collaborate with legal professionals well-versed in technology law to develop the right internal policies and strengthen the current terms and conditions on their webpages. In doing so, companies can continue to advance their technology while simultaneously reducing the risk of potential lawsuits arising from AI Chatbot hallucinations by ensuring a balance between technological advancement and legal safety.   If your organization is grappling with concerns regarding the accuracy of AI Chatbots and the potential legal risks associated with misrepresentation, our team is poised to provide expert assistance. Leveraging our proficiency in AI technology and legal frameworks, we offer tailored guidance to safeguard your Chatbot's outputs and ensure compliance with legal standards. Contact us today to proactively address these critical considerations. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my. . More of our Tech articles that you should read: • Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility • LICENSING OF DATA FOR AI MODEL TRAINING – Things to Take Note of • Whether AI-Generated Work Could be Protected by Copyright Law

Updated Financial Technology Regulatory Sandbox Framework Enhancements Introduced to Increase Accessibility

Bank Negara Malaysia (“BNM”) has on 29 February 2024 issued a new Policy Document (“PD”) on Financial Technology Regulatory Sandbox Framework (the “Framework”) to replace the earlier version that was issued back in 2016. . The new PD came into force on the date of its issuance, and it seeks to enhance the Framework so as to ensure proportionate regulatory facilitation and improving the operational efficiency of the existing sandbox procedures. This article attempts to provide a brief outline of the Framework and the enhancements introduced by the PD. . Financial Technology Regulatory Sandbox As most would no doubt agree, the financial services industry is one of the most regulated industries anywhere in the world. This is hardly surprising given the importance of stability in the money market. . That being said, it is also equally important for the financial services industry to keep pace with the development of technology to ensure innovation and service improvement. Due to its disruptive nature, financial technology (“Fintech”) providers often find themselves facing difficulties in the deployment of their solutions, owing to potential archaic or non-accommodative regulatory framework. The Fintech regulatory sandbox (“Sandbox”) established under the Framework is an attempt by BNM to address this pain point. . The purpose of the Sandbox is essentially to allow Fintech solutions providers to have temporary rights to deploy and operate their solutions in a live environment, with more “relaxed” regulatory treatment. Participants in the Sandbox would have identified a series of regulatory requirements that they are unable to meet due to the nature of their solutions or business model, and exemptions would be granted to them for a limited duration from having to comply with these regulatory impediments. Upon the expiry of the “playtime”, BNM will then make an assessment as to whether a Sandbox participant should be allowed continued operation of its solution. . Enhancements to the Fintech Regulatory Sandbox Framework The PD introduces two (2) enhancements to the Framework: (i) A fast-track application and Fintech solutions testing approval process called the “Green Lane”; and (ii) A simplified process to assess the eligibility of an applicant to participate in the “Standard Sandbox”.   We will provide a summary of each of the enhancements in turn below.   1. Green Lane The Green Lane is a fast-track approval process set up especially for financial institutions (“FIs”) only. FIs with proven track records in strong risk management, compliance and governance, can utilise the Green Lane to shorten the time required to obtain approval to test their Fintech solutions in the Sandbox. . Interested and eligible FIs can make an application to participate in the Sandbox through the Green Lane by demonstrating their past records in risk management, compliance and governance. Once the BNM is satisfied of an FI’s track record in risk management, compliance and governance, a Green Lane approval will be issued. Thereafter, the FI will only have to register its Fintech solutions with BNM for testing in the Sandbox, at least 15 days prior to the intended testing commencement date. FI with Green Lane qualification can register multiple Fintech solutions for testing over the subsistence of its Green Lane qualification, and there is no need for the FI to make fresh Green Lane application each time. . Overall, the Green Lane is a new path to Fintech solution testing in the Sandbox that is much simpler than the Standard Sandbox process (which we will get to in the next section). The Green Lane affords FIs a faster process to test their Fintech solutions in the Sandbox, subject to the FIs first proving their eligibility to be in the Green Lane. Notwithstanding the easier access to the Sandbox however, the FIs in the Green Lane will still have to adhere to certain parameters and safeguards prescribed under the PD, primarily for customer protections, and BNM still reserves the right to revoke an FI’s Green Lane qualification or reject the registration of Fintech solutions to be tested, particularly where adverse developments have been observed during the testing of Fintech solutions. . Fintech companies or non-FIs can make use of the Green Lane by collaborating with FIs (e.g., outsourcing of Fintech solutions to FIs, equity participation, joint venture, etc.), subject however to the discretion of BNM. . 2. Simplified Eligibility Assessment for the Standard Sandbox The Standard Sandbox entails a 2-tiered assessment process. In the first stage, applicants are first assessed on whether they are eligible to take part in the Standard Sandbox. Once the first stage has been passed, the applicants are then assessed on their readiness or preparedness in satisfying BNM’s considerations to test the Fintech solutions. . Under the new PD, the stage 1 assessment is simplified to the extent that an applicant will only have to demonstrate (amongst others) its ability to identify and mitigate risks associated with the Fintech solution testing, and a semi-functional prototype of the Fintech solution within 3 months from the date of application for participation in the Standard Sandbox. This is a much-welcomed change from the regulator’s past approach of requiring applicant to have a ready product before making any application to participate in the Sandbox. Now, an applicant will only be required to come up with a fully functional prototype during the second stage of the assessment process, allowing greater flexibility to the applicant. . The effort of BNM in ensuring the regulatory framework keeps pace with technology evolution certainly deserves applause. The enhancements to the Framework brought by the new PD effectively make the Sandbox more accessible to innovators and Fintech solutions providers. This should drive innovations and hopefully boost investment into the Fintech sector in Malaysia, giving Malaysians better financial services experience enhanced by technology, as well as extending the reach of financial services to the financially underserved. . If you wish to know more about the Financial Technology Regulatory Sandbox Framework or need assistance in your application to take part in the Sandbox, you may reach out to our partners below. About the authors . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . More of our Tech articles that you should read: • Exploring Bitcoin Halving and its Significance • Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case • Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective  

Exploring Bitcoin Halving and its Significance

In continuation of our exploration into the intricacies of the cryptocurrency market, particularly in the wake of recent developments such as the approval of Spot Bitcoin ETFs in the United States, our focus shifts this week towards a phenomenon that has historically proven to be a pivotal event in the world of Bitcoin: the Bitcoin halving. . Building upon our previous discussions on "Understanding Spot Bitcoin ETF and Its Potential" and "Spot Bitcoin ETF Approval: A Rollercoaster 48 Hours and Its Global Regulatory Implications", we delve deeper into the significance of Bitcoin halving and its potential implications. . Understanding Bitcoin Halving Bitcoin halving, occurring approximately every four years within the Bitcoin network, entails a reduction in the reward granted to miners for validating and appending new blocks to the blockchain. With each halving event, the miner reward is slashed in half, resulting in a gradual reduction in the rate of new Bitcoin issuance. . To grasp the significance of Bitcoin halving, it is imperative to comprehend the underlying mechanics of the Bitcoin network. Fundamentally, Bitcoin operates on blockchain technology, a decentralized ledger maintained by a network of computers, or nodes. These nodes validate transactions and ensure their integrity before appending them to the blockchain. “Mining”, a crucial aspect of the Bitcoin ecosystem, involves participants using specialized hardware to validate transactions and secure the network. In return for their efforts, miners are rewarded with Bitcoin. . The History of Bitcoin Halving Since its inception in 2009, Bitcoin has undergone several halving events, each marked by a reduction in the block reward. From the initial reward of 50 Bitcoins per block, subsequent halvings in 2012, 2016, and 2020 have progressively decreased the reward to 25, 12.5, and 6.25 Bitcoins per block, respectively. The upcoming halving, slated for April 2024, is expected to further reduce the block reward to 3.125 Bitcoins. . The significance of Bitcoin halving lies in its profound impact on the supply dynamics of Bitcoin. As the rate of new Bitcoin issuance decreases with each halving, it results in a gradual reduction in the inflation rate of the Bitcoin supply. This scarcity mechanism often leads to increased demand and, consequently, upward price pressure on Bitcoin. . Moreover, the recent approval of Spot Bitcoin ETFs in the United States, though distinct from the halving event, is perceived by many as a catalyst for heightened institutional interest and investment in Bitcoin. The convergence of Spot Bitcoin ETFs approval which shores up institutional demand of Bitcoin, and the upcoming Bitcoin halving which will reduce supply of Bitcoin on the other hand, amplifies the potential implications for the cryptocurrency market. . Potential Impacts of Bitcoin Halving We anticipate three primary impacts stemming from the upcoming Bitcoin halving and the recent ETFs approval: 1. Institutional Adoption and Regulatory Implications: The combination of reduced Bitcoin supply and increased institutional interest driven by the Spot Bitcoin ETFs approval may catalyze greater institutional adoption of Bitcoin. This influx of institutional capital could prompt regulators worldwide to reassess their approach to cryptocurrency regulation, potentially leading to more comprehensive frameworks to govern the burgeoning industry. . 2. Market Volatility and Increased Public Attention: Historically, Bitcoin halving events have been accompanied by heightened market volatility and increased media attention. The convergence of the halving with the ETFs approval is likely to amplify these effects, drawing renewed interest from retail investors and businesses alike. This renewed attention could further fuel market dynamics and shape broader perceptions of cryptocurrencies. . 3. Business Integration of Blockchain Technology: With Bitcoin and blockchain technology gaining prominence, businesses may increasingly explore opportunities to leverage these innovations. The scarcity created by the halving, combined with institutional endorsement through ETFs approval, may incentivize businesses to integrate blockchain technology or even incorporate cryptocurrencies into their operations. However, this trend could also prompt regulators to impose tighter regulations to manage associated risks adequately. . The Intersection of Innovation and Regulation In conclusion, the evolving regulatory landscape, coupled with significant market events such as the Bitcoin halving and Spot Bitcoin ETFs approval, underscore the need for institutions and businesses to navigate the cryptocurrency space with vigilance. . As regulations continue to evolve in tandem with technological innovation, stakeholders must prioritize compliance and risk management to thrive in this dynamic ecosystem. The forthcoming Bitcoin halving event serves as a poignant reminder of the interconnectedness of regulatory developments and market dynamics, urging stakeholders to remain proactive in their approach to navigating the evolving crypto landscape. . For comprehensive guidance and legal insights regarding the dynamic landscape of cryptocurrency and/or Fintech, our team of experts is ready to assist you. Feel free to reach out to us for further assistance and a tailored approach to navigating the complexities of this decentralized future. We look forward to being your trusted partner on this transformative journey. About the authors . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my . More of our Tech articles that you should read: • Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case • The European Union Artificial Intelligence Act – Should Artificial Intelligence Be Regulated? • Whether AI-Generated Work Could be Protected by Copyright Law

Exploring the Patentability of Artificial Neural Networks (ANN) under UK Patent Law: The Emotional Perception AI Case

This week, we aim to delve into one of the most intriguing and arguably significant developments in the field of AI: whether Artificial Neural Networks (ANN) would be subject to exclusion as invention under the UK Patents Act 1977. . It is well established that Section 1(2)(c) of the Patents Act 1977 excludes 'a program for a computer' as an invention and thereby denies patent protection in relation thereto.  However, the pivotal question at hand is whether ANN falls within this exclusion. This precise issue was examined in the UK High Court case of Emotional Perception AI Ltd v Comptroller-General of Patents, Designs, and Trade Marks [2023] EWHC 2948 (Ch). The case focuses solely on the matter of exclusion, and in this article, we aim to meticulously examine and analyze this critical judgment. . The Emotional Perception AI Case holds particular significance and interest as it represents the first authoritative examination of the exclusion concern pertaining to patent protection for ANN. For this reason, the case extensively addresses the nature of ANN and their operational mechanisms before delving into the question of whether ANN falls within the exclusion under Section 1(2)(c) of the Patents Act 1977. . Examining the Structure and Functionality of ANNs The case begins by dedicating an entire section to elucidating and clarifying the structure of ANN and its functionality. The UK High Court explains that an ANN 'can be envisaged as a black box which is capable of being trained on how to process an input, learning through that training process, retaining that learning internally, and subsequently processing input in a manner derived from that training and learning.' . The UK High Court further elaborated that a hardware ANN essentially constitutes a physical box containing electronic components. The ANN ‘consists of layers of neurons which, anthropomorphising somewhat, are akin to the neurons in the brain. They are arranged in layers and connected to each other, or at least some others, and to layers below. Each neuron is capable of processing inputs and producing an output which is passed on to other neurons in other layers, save that the last layer produces an output from the system and not to another layer. The processing is done according to internal instructions and further processes such as weights and biases applied by the neurons. Thus one feeds data in at the "top" and it is processed down through the layers in accordance with the states of the neurons, each applying its weights and biases and passing the result on, until the result of the processing is reflected in an output at the bottom.' . Additionally, the court elucidated the training process of an ANN, highlighting that once an ANN has completed its training and learning process, the ANN’s structure becomes fixed and ready for use with real data. At this stage, no further adjustments or programming activities occur. The data passing through the ANN undergoes processing solely through the ANN’s nodes, with no human intervention in determining their state or operations, as ‘the state of the nodes, in terms of how they each operate and pass on data, is determined by the ANN itself, which learns via the learning process described above.’ . Summarizing the nature of a hardware ANN, the UK High Court stated, 'What I have just described is a hardware ANN. That is to say, it is a piece of hardware which can be bought off the shelf and which contains the nodes and layers in hardware form. However, an ANN can also exist in a computer emulation. In this scenario a conventional computer runs a piece of software which enables the computer to emulate the hardware ANN as if it were a hardware ANN.' . Whether a Hardware ANN is a Computer? Unexpectedly, while addressing the exclusion issue, one of the pivotal aspects scrutinized by the UK High Court was to actually determine the definition of a 'computer' for the purpose of exclusion, and whether a hardware ANN qualifies as a ‘computer’ or a ‘program for a computer’. Referring to the Oxford English Dictionary, the court found that a hardware ANN aligns with the definition of a computer, and consequently, the judge asserted, 'I consider that in everyday parlance it would be regarded as a computer, and ought to be treated as one within the exclusion.' In essence, since the ANN itself isn't a program for a computer, the entirety of the claim wouldn't fall under the exclusion stipulated in Section 1(2)(c) of the Patents Act 1977. . Technical Contribution and Patentability After concluding that ANN was not a program for a computer, but indeed a computer itself, the UK High Court proceeded with caution by further analyzing a series of cases on technical contribution and concluded that a trained hardware ANN ‘can be regarded as a technical effect which prevents the exclusion applying… insofar as necessary, the trained hardware ANN is capable of being an external technical effect which prevents the exclusion applying to any prior computer program. There ought to be no difference between a hardware ANN and an emulated ANN for these purposes.’ . Conclusion and Outlook The Emotional Perception AI Case holds particular significance for two distinct reasons. Firstly, it establishes that a hardware ANN should be classified not as a program for a computer, but as a computer itself. Secondly, even if the first determination were to be considered inaccurate, the High Court further ruled that a trained hardware ANN could be deemed to possess a technical effect, thus preventing the exclusion from applying to any preceding computer program. This judgment marks a significant milestone in AI development, offering a fresh perspective and opening up new possibilities for the patentability of AI inventions. . With that being said, we still maintain a cautious approach and will continue to monitor legal developments in this area, and as we continue to navigate the complexities of AI patent law, this ruling serves as a beacon of progress, fostering optimism for future legal developments that accommodate and encourage innovation in AI. . If you are looking to develop AI tools and have concerns about intellectual property protection or safeguarding the output, please reach out to our dedicated team of professionals. With a deep understanding of both AI technology and intellectual property law, our lawyers are well-equipped to assist you throughout the entire process, ensuring that your AI-generated work receives the protection it deserves in the rapidly evolving legal landscape. About the authors . Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my . Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my . More of our Tech articles that you should read: Licensing of Data For AI Model Training - Things to Take Note of Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective Artificial Intelligence and Cybersecurity: A Double-Edged Sword Fight

建设项目合资企业协议:快速指南

概述 在成立合资企业以承接建设项目时,制定一份书面形式的合资企业协议 (JVA)对于参与竞标该项目的双方团队至关重要。 一般而言,JVA将阐明双方的义务、目标及合资企业的范围、风险分配、利润分配方式以及项目的其他方面。与任何其他法律文件一样,如果JVA经过精心起草,涉及的合资企业伙伴可以最大程度地减少由JVA引发的未来纠纷的可能性。 在起草JVA之前,项目中的合作方应当鉴定并评估潜在问题,以确保能够在JVA中针对这些问题或细节进行探讨和解决。 建设项目的合资企业协议中应包括的关键条款 每份JVA都具有其独特性。不同的合资企业结构适用于不同的情况或环境,这取决于双方的安排及特定项目的要求 。 以下是在起草建设项目的JVA时应考虑的一些关键条款:- 合资企业结构 - 首先,合资企业合作伙伴需要明确以下内容:参与合资企业的各方名称、合资企业的商业名称、合资企业的负责人、项目的持续时间、合资企业目的的项目描述。通常,合资企业是为了承接单一项目而形成的。然而,如果各方将承接多个项目,这些项目也应在JVA中明确标识和规定。 工程安排 - 其次,对于合资企业合作伙伴而言,确定他们在项目中的各自权利、工作范围、职责和责任至关重要。这将包括合作伙伴负责的具体工作部分、这些工作的估算价值以及项目的目标完成日期。 资本投入/利润分配/风险分担 - 第三,合资企业伙伴还应在JVA中清楚讨论并规定以下事项,例如: a) 每位合资伙伴的资本投入; b) 利润分配方式; c) 每位合资伙伴的风险分担。 这可能包括每位合资伙伴将对项目工作负责的估计比例。 保险 - 除了上述事项,合资企业伙伴还应商讨并就即将进行的项目的保险事项达成一致。重要的是商讨并决定谁将负责支付保险费用,同时明确规定要购买的保险政策类型。 竞业禁止条款 - 在JVA中包含这一条款同样至关重要。竞业禁止条款本质上是限制合作方参与与合资企业相竞争活动的条款。在JVA中加入此条款是为了避免或限制合资企业各方之间的竞争(通常受范围、期限和地理区域的限制)。此条款在限制方面必须得到妥善起草。 管辖法律 - 对于合资企业,在纠纷发生时明确规定管理合资企业的司法管辖区和法律是非常关键的。"管辖法律"条款是用于规定在发生争议时适用哪个国家法律的协议条款。通过在JVA中加入此条款,合资企业伙伴将知道在JVA下关于他们的权利与义务的问题时将依据哪种法律。 争议解决 - 除了“管辖法律”条款外,合资企业伙伴应考虑他们希望如何解决争议,即在法院还是通过替代性争议解决方式(“ADR”)如仲裁。在起草争议解决条款时,决定在在JVA下发生争议时选择哪个法式非常重要。当事方可以选择一个方式或不同方式的组合。作为起点,通常JVA中的各方会决定仲裁或法院诉讼是解决争议更合适的方式。基本上,合资企业伙伴需要了解这些方式的优势和劣势。 终止条款 - 最后,起草一份措辞正确的终止条款非常重要,因为它定义了合资企业结束的方式。合资企业伙伴需要考虑在何时以及如何一方能够终止JVA,以及什么构成“触发事件”(即,允许一方终止JVA的特定事件)。在这方面,需要全面而谨慎地起草“触发事件”,包括但不限于以下内容:一方的破产、实质性违约以及如何处理终止后的工程、缺陷等。 请留意,以上并非JVA中所有条款的详尽列表。因此,我们强烈建议您咨询我们建筑部门的律师,以确保JVA根据您的需求正确起草,并妥善处理所有相关问题与对风险的把控。 结论 综合而言,建设项目的合资企业协议是一份复杂的法律文件,需要精心制定,以确保其能够满足合资企业伙伴的需求,并最大限度地减少因合资企业引发的未来争议的可能性。在起草JVA时,应考虑上述提到的关键条款,以确保合资企业的顺利运作。 作者简介Lynn Foo符玲合伙人 (建筑与能源法律部)Harold & Lam Partnershiplynn.foo@hlplawyers.com More of our articles that you should read: Whether AI-Generated Work Could be Protected by Copyright Law Different Rates of Charge on Residential and Commercial Parcels During the Preliminary Management Period and During the Management Period Settlement Agreement attracts ad valorem stamp duty? Artificial Intelligence and Cybersecurity: A Double-Edged Sword Fight

Payment for Exemption from Building Low-Cost Housing is NOT Tax-Deductible

In the recent case of Ketua Pengarah Hasil Dalam Negeri Malaysia v Ehsan Armada Sdn Bhd [2023] MLJU 2906 , the Court of Appeal held that payment made by Ehsan Armada Sdn Bhd

A QUICK GUIDE ON “NOTICE PROVISION” IN A CONTRACT

Introduction The "notice provision" tends to be overlooked by the parties entering into agreements as these clauses often seen as a standard boilerplate clause, presumed to have minimal significance or impact. However, the notice provision/clause found in the miscellaneous clauses at the end of the contracts or sometimes appears as a standalone section, deserves more attention. The intention of this article is to encourage a careful examination of this clause/provision each time it surfaces in a contract. . Purpose of a “Notice Provision” Unlike many other terms in an agreement, the notices provision is rarely subject to negotiation and it is not crafted to benefit one party over the other. Instead, its purpose is to minimise potential disputes by defining the criteria or requirements for giving a valid contractual notice. A “Notice Clause” usually outlines the necessary details on how and to whom notices must be delivered for the contract to be legally binding. These clauses are essential in specifying notice periods for various scenarios, such as term renewals, exercising a right under the contract, event of default, termination, etc. hese clauses ensure that one party gives fair warning to the other when exercising their legal rights under the contract. Essentially, the notice provisions establish the methods and recipients for communication, ensuring that critical matters are brought to the attention of the involved parties in accordance with the terms of the contract.   Things to note when reviewing the “Notice Provision” When reviewing the notice provision, the key elements to focus on are, as follows: Examples of “Notice Provisions” Below are some examples of “notice provisions/clauses” extracted from different types of agreements. While these examples may not encompass the entire spectrum of notice clauses encountered, they serve to demonstrate the diversity of these provisions across different contracts. . Sample Notice Clause No.1 (a)    All notices, demands or other communications required to be given or made in connection with this Agreement shall be in writing and shall be sufficiently given or made if – (i)     delivered by hand; (ii)    sent by pre-paid registered post; or (iii)   sent by email (provided that there has been successful transmission),  addressed to the person authorised to receive the notice as set out in Schedule 1 or at such address or email address as may be notified in writing by one Party to the other Party from time to time.  . (b)   Any such notice, demand or other communication shall be deemed to have been duly served if it is (i) delivered by hand or sent by pre-paid registered post, at the time of delivery; or (ii) if made by email transmission, at the time of email transmission (provided that there is no non-delivery notice received by the sender), provided that if the time of delivery or transmission falls beyond 6.00 pm on a Business Day, such notice, demand or other communication shall be deemed to have been duly served at 9.00 am the next Business Day.  . Sample Notice Clause No.2 1.1  Any notice to be given under this Agreement shall be in writing and either be delivered personally or sent by registered post or, by courier or email.  . 1.2  Unless earlier notified to the other Party of any other address for service, the address for service of each Party shall be as follows:   (a) ABC  Sdn Bhd No. 123, Wembley Street, 60000 Kuala Lumpur  Email address: ABC@email.com Attention to: Contract Manager (b) XYZ Sdn Bhd No. 888, Lorong Kenari, 47000 Petaling Jaya, Selangor Tel No.: 03-8888888 Email address: XYZ@email.com Attention to: Legal Manager 1.3  A notice shall be deemed to have been served: (a) If delivered personally, at the time of delivery; (b) If posted by way of registered post, three (3) Business Days after posting; or (c) If made by email transmission, at the time of email transmission (provided that there is no non-delivery notice received by the sender)   1.4  A party may change its address, email address for notices by giving written notice to the other party. . Sample Clause No. 3 NOTICES a) Any notice to be given by either party to the other in connection with this Agreement shall be in writing and may be given personally or sent by fax or by prepaid registered post to the other party at the address contained in this Agreement.   b) Any notice sent by facsimile shall, in the case of a facsimile sent before 5.00 pm on a Business Day, be deemed served on receipt of a successful transmission notice and, in the case of a facsimile sent after 5.00 pm on a Business Day, at 10 am on the next following Business Day. If delivered by hand, any notice shall be deemed to have been served at the time and date of delivery. Any notice served by registered post shall be deemed served 5 Business Days after posting. In proving the service of any notice it will be sufficient to prove, in the case of a letter, that such letter was properly stamped, addressed and placed in the post and, in the case a facsimile, that such a facsimile was duly dispatched to a current fax number of the addressee. Notice given under this Agreement shall not be validly served if sent by email.   Conclusion Failing to adhere to the requirements of a notice clause in the contract can lead to significant consequences. Hence, it is crucial for the parties involved in the contract to ensure that they meet all the contractual requirements/obligations when issuing the notice under the contract. Further, this process becomes straightforward when the notice clause is drafted in a clear and concise manner. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the author Lynn Foo Partner Construction & Energy Unit Harold & Lam Partnership lynn.foo@hlplawyers.com More of our articles that you should read: Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective STAMP DUTY FOR FOREIGN CURRENCY LOAN Failure to Plead the Relevant Contractual Clause in Adjudication Proceedings (CIPAA 2012) is Fatal Protecting Yourself: A Legal Perspective on Online Scams

STAMP DUTY FOR FOREIGN CURRENCY LOAN

Introduction Stamp duty is chargeable on instruments but it is not chargeable on transactions. The instruments that are liable to stamp duty are listed in the First Schedule of the Stamp Act (Act 378) (“the Act”). Any unstamped or insufficiently stamped instruments are inadmissible as evidence in the court of law, nor will it be acted upon by a public officer. . Ad Valorem Stamp The rates of the stamp duty payable vary based on the nature of the instrument, i.e.  whether the instrument will be stamped ad valorem (that is, according to the value) or in fixed stamp duty. In the case of ad valorem stamp, the amount of the considerations stated in the instruments or the market value of the property plays a vital role in deciding the amount of the stamp duty. According to the guideline provided by Lembaga Hasil Dalam Negeri (“LHDN”)[i], the imposition of ad valorem duty is on: 1. Instruments of transfer (implementing a sale or gift) of property including marketable securities (meaning loan stocks and shares of public companies listed on the Bursa Malaysia Berhad), shares of other companies and of non-tangible property (e.g. book debts, benefits to legal rights and goodwill); 2. Instruments creating interests in property (e.g. Tenancies and Statutory Leases); 3. Instruments of security for monies, including instruments creating contracts for payment of monies or obligation for payment of monies (generally described as `Bond`); and 4. Certain capital market instruments (e.g. Contract Notes). . Foreign Currency Loan Agreement/Loan Instrument The calculation of stamp duty on the loan agreements for foreign currency loan is different from Malaysian Ringgit loan. Malaysian Ringgit loan agreements generally attract stamp duty at 0.5% whereas for foreign currency loan, there will be a flat rate stamp duty of RM5 per RM100 or part thereof. The RM2,000 stamp duty ceiling cap is no longer applicable ever since the enforcement of Section 27(iii) of the First Schedule of the said Act on 1 January 2024. The wordings of Section 27(iii) of the First Schedule of the said Act are as follows: For illustration purpose, please see the example below regarding the calculation for the stamp duty on a facility agreement dated 2 January 2024 (the facility agreement as the principal agreement will be subject to ad valorem duty) for a loan of USD100,000.00: [i] https://www.hasil.gov.my/en/stamp-duty/ This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the author Loong Shi Yi Associate Real Estate, Banking & Finance Halim Hong & Quek syloong@hhq.com.my More of our articles that you should read: Compulsory Acquisition: Landowners Are Not Entitled To Compensation For Illegally Constructed Buildings CASE SUMMARY: CAUSE OF ACTION (CLAUSES IN THE CONTRACT) MUST BE SPECIFICALLY STATED IN THE PAYMENT CLAIM “Garnishee Order to Show Cause” Does Not Affect / Freeze Monies Paid After Service of Order LICENSING OF DATA FOR AI MODEL TRAINING – Things to Take Note of

Failure to Plead the Relevant Contractual Clause in Adjudication Proceedings (CIPAA 2012) is Fatal

Anas Construction Sdn Bhd v JKP Sdn Bhd & Another Appeal  [2024] MLJU 53; [2024] CLJU 63; (Civil Appeal No.: 02(f)-4-01-2023(P) (Federal Court) . This recent Federal Court decision confirms the position that an Adjudicator can only decide on the cause of action (provisions in the contract) that have been specifically referred to him/her pursuant to the Payment Claim. The Court held that the Adjudicator had exceeded his jurisdiction by referring to another provision in the contract that has not been referred by the claimant in the Payment Claim.. In coming to this decision, the Federal Court, in a majority judgment (2:1), found that the plain meaning of section 27(1) of the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) is that the jurisdiction of an Adjudicator is limited to matters referred to by parties pursuant to sections 5 and 6 of CIPAA 2012. Since section 5(2)(b) of CIPAA 2012 requires the claimant to include in the Payment Claim the cause of action and the provision under the contract to which the payment relates, the Federal Court stated that the claimant must identify all the provisions in which it seeks to rely on, and the Adjudicator cannot rely on other provisions which have not been referred by parties. . Background Facts The Respondent appointed the Appellant as the main contractor for the construction and completion of a project in Penang, for a sum of RM67,994,500.00. In carrying out the Project, the Appellant had engaged independent professional Consultants to provide a report in regards to cracked beams and a safety report. The consultants’ fees incurred by the Appellant were RM855,074.21. As the Respondent had allegedly failed, neglected, or refused to pay the consultants’ fees, the Appellant brought a payment claim against the Respondent to adjudication under CIPAA 2012. The Appellant served the Payment Claim on the Respondent on 6.3.2019. In the Payment Claim, the Appellant pleaded clauses 28, 55 and 56 of the Contract to establish its cause of action against the Respondent. In the Payment Response dated 22.3.2019, the Respondent contended, among others, that the Appellant’s claim does not fall within the meaning of “construction contract” under section 5(1) of CIPAA 2012. Thereafter, in the Adjudication Claim, the Appellant again referred to and relied on clauses 28, 55and 56 of the Contract in support of its claim for the consultants’ fees. On the other hand, in the Adjudication Response, the Respondent contend that the relevant clause in relation to the Appellant’s claim would be clause 36.5 of the Contract which was not relied upon by the Appellant. On 12.9.2019, the Adjudicator handed down the Adjudication Decision in favour of the Appellant. The Adjudicator awarded the sum of RM806,673.78 being the adjudicated sum, to the Appellant. In coming to the decision, the Adjudicator relied on clause 36.6 of the Contract rather than clauses 28, 55 and 56 of the Contract as submitted by the Appellant in the Payment Claim and Adjudication Claim. The Adjudicator found that clause 36.6 was most applicable to the Appellant’s claim. At the High Court, the Appellant’s application to enforce the Adjudication Decision was allowed. Consequently, the High Court dismissed the Respondent’s application to set aside the Adjudication Decision. The High Court was of the view that the Adjudicator did not act beyond his jurisdiction and had acted fairly and independently. However, the High Court’s decision was reversed on appeal. The Court of Appeal held that the Adjudicator had acted in excess of his jurisdiction when deciding the adjudication on a clause of the Contract that was not relied upon by the Appellant in the Payment Claim and Adjudication Claim. Further, the Court of Appeal found that the omission of the Adjudicator to invite the parties to submit on clause 36.6 of the Contract is a denial of natural justice. Hence, the Adjudication Decision was set aside. On 3.1.2023, the Federal Court granted the Appellant’s leave to appeal on the following questions of law, namely: . Q1: Do the strict rules of pleadings, as applicable in civil claims before the Malaysian Courts, apply in adjudicating proceedings under the CIPAA 2012? Q2: Whether the dicta in View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22 prohibits an adjudicator from referring to a specific clause in a construction contract when allowing the claim when the said clause was not specifically stated in the Payment Claim and Adjudication Claim by the claiming party? Q3: In a CIPAA Award, does the adjudicator’s consideration of a specific clause in the construction contract, not specifically stated in the Payment Claim or Adjudication Claim, without inviting parties to submit further on the said clause, amount to a breach of natural justice or an act excess in the jurisdiction, such that the said Award ought to be set aside. . Summary of the Majority Grounds of Judgment by Nordin Bin Hassan, FCJ In determining the appeal, the Federal Court found that the main issue relates to the jurisdiction of an Adjudicator under CIPAA 2012. Section 27 of CIPAA which speaks on the jurisdiction of the Adjudicator is held to be plain and unambiguous; in that the jurisdiction of an Adjudicator is limited to matters referred to by parties pursuant to sections 5 and 6 of CIPAA 2012. Section 5 of CIPAA 2012 relates to Payment Claim, whereas Section 6 of CIPAA 2012 is in relation to Payment Response. Amongst others, section 5(b) of CIPAA 2012 requires the claimant to include in the Payment Claim the cause of action and the provision under the contract to which the payment relates. On this point, the Federal Court held that the cause of action in a contract must relate to a provision or provisions in the construction contract to support the claim. The cause of action arises when there is a breach of a provision of the contract and therefore, the cause of action is subject to the agreed provisions in the contract. On the facts, the Federal Court found that the Adjudicator had relied on clause 36.6 of the Contract in allowing the Appellant’s claim, and did not rely on any of the clauses referred by the Appellant in the Payment Claim filed pursuant to section 5 of CIPAA 2012. The Court further commented that the parties did not give written consent to extend the jurisdiction of the Adjudicator to adjudicate the matters relying on clause 36.6 of the Contract, as required under section 27(2) of CIPAA 2012, which the Court opined should have been done. Since the Adjudicator’s jurisdiction is limited to matters referred to the Adjudicator under Sections 5 and 6 of CIPAA 2012, the Adjudicator exceeded his jurisdiction in deciding the dispute based on Clause 36.6 of the Contract (not pleaded/ relied upon by the parties). As the Federal Court found that the Adjudicator had acted in excess of his jurisdiction, the Adjudication Decision can be set aside under section 15(d) of CIPAA 2012. On the issue of denial of natural justice, the Federal Court found that it is undisputed that parties were not given the opportunity to submit on the cause of action under clause 36.6 of the Contract before the Adjudication Decision was delivered. Further, submissions by the parties may have persuaded the Adjudicator in the present case to decide differently. The principle of natural justice includes allowing parties to present their case effectively. The failure of the Adjudicator to provide an opportunity to the parties to submit on the cause of action under Clause 36.6 of the Contract before arriving at his decision in the Adjudication Decision, is a denial of natural justice. In light of the above, the Court found that the issue of strict rules of pleadings does not arise as the Adjudicator’s jurisdiction is governed by section 27(1) of CIPAA 2012. Therefore, the Federal Court affirmed the decisions of the Court of Appeal. . Summary of the Minority Grounds of Judgment by Mary Lim Thiam Suan, FCJ The learned Federal Court Judge (FCJ) foremost opined that the analysis and resolution of the 3 questions of law requires a return to the fundamental principles of statutory adjudication introduced in Malaysia, and that it is a regime solely and exclusively for and in the realm and practice of construction contracts as defined in section 4 of CIPAA 2012. Further, the learned FCJ stated that the adjudication regime is only available to payment disputes, and that it is meant to resolve disputes relating to claims of non-payment for work done or services rendered under the express terms of a construction contract. Another facet of the adjudication regime as highlighted by the learned FCJ is that persons who are qualified to sit or be appointed as adjudicators are not necessarily legally qualified. This feature has, in the learned FCJ’s view, a substantial bearing against any argument or insistence of likening adjudication proceedings to proceedings in a Court of law. Having set out the basic principles of statutory adjudication in Malaysia, the learned FCJ went on to discuss the 3 questions posed: . Question 1 The learned FCJ was of the view that the answer must be in the negative as there are no pleadings in statutory adjudication as generally understood and practised in Court proceedings. Under CIPAA, there are only 2 sets of documentation. The first set of documentation is known as the payment claim and the payment response, provided under sections 5 and 6 of CIPAA. The learned FCJ likened payment claim to a letter of demand, as at that stage, there is no payment dispute as yet to refer to adjudication. The second set of documentation would be the adjudication claim, adjudication response and adjudication reply. The learned FCJ referred to View Esteem and stated that the difference between a payment claim and an adjudication claim is that the adjudication claim broadly outlines the “nature and description of the dispute along with the remedy sought” whereas the payment claim contains the details of the claim so that the cause of action can be discerned. Hence, it is the dispute that arises from the payment claim that the adjudicator is required to adjudicate upon, decide and deliver the adjudication decision. And because it is the dispute arising from the payment claim that is being referred to adjudication, the learned FCJ took the position that it would be erroneous and misleading to describe the payment claim and payment response as pleadings. On the facts, the learned FCJ found that it was not the case that the Appellant failed to cite any provisions of the Contract and/or that the Appellant had failed to comply with section 5(2)(b) of CIPAA 2012. Even if the Adjudicator had determined the claim upon clause 36.6 of the Contract, which the learned FCJ opined he did not, the learned FCJ was of the view that this is not at all fatal to the Appellant. Thus, the learned FCJ disagreed with the Court of Appeal when it concluded that the Adjudicator’s reference or reliance to clause 36.6 of the Contract was fatal to the Appellant. The learned FCJ also opined that the Court of Appeal had failed to give proper and due regard to the whole statutory adjudication scheme, the intent of CIPAA, its operation and application. Specifically on section 5(2)(b) of CIPAA 2012, the learned FCJ is of the view that the inclusion of the words “including the provision in the construction contract to which the payment relates” is intended to be illustrative of what those details may be. The reason for this is so that the non-paying party can respond to the claim for work done or services rendered. In this case, the learned FCJ found that the Respondent had no difficulty at any stage to respond to the Appellant’s claim. As regards section 27 of CIPAA 2012 on the jurisdiction of an adjudicator, the learned FCJ stated that the matter in dispute which was referred to adjudication was the claim for professional fees due under the terminated contract, and the Respondent was fully aware of that being the real and sole issue. Hence, the learned FCJ was of the view that the non-citing or even the citing of a wrong clause or provision of the contract does not render and cannot render the adjudicator bereft of jurisdiction. In addition to the above, the learned FCJ found that on the examination of the correspondence exchanged, especially the letters sent by the Appellant, the letters show that the Appellant had actually invoked, among others, clause 36.6 of the Contract. The relevant correspondence was also cited in the Payment Claim, and also form part of the Adjudication Claim. Hence, clause 36.6 of the contract was quite clearly cited, and the Adjudicator’s reference to this clause was not done in the frolic of his own. The learned FCJ further added that the whole construction contract was already before the Adjudicator, “pleaded” as it were, and it would be naïve to suggest that the Adjudicator is not entitled to look at the whole contract for its full terms and effect. . Question 2 The learned FCJ stated that in view of Her Ladyship’s reasons in relation to Question 1 and Her Ladyship’s finding that clause 36.6 of the Contract was actually “pleaded” or raised in the Payment Claim as well as Adjudication Claim, this question does not arise. In any case, the learned FCJ was of the view that even if the Adjudicator had referred to or relied on clause 36.6 and such clause was not raised by the Appellant in the Payment Claim or Adjudication Claim, such reference or reliance is not fatal to the Appellant’s cause by reason of section 5(2)(b) of CIPAA 2012. The learned FCJ disagreed with the Court of Appeal’s interpretation of the dicta in View Esteem. The effect of View Esteem in respect of section 27 of CIPAA 2012 is simply that the adjudicator’s jurisdiction in relation to any dispute is limited to the matter of the claim which was referred to adjudication under sections 5 and 6 of CIPAA 2012. As such, Question 2 is in the negative. . Question 3 In light of the learned FCJ’s findings that clause 36.6 of the Contract which purportedly formed the basis of the Adjudicator’s decision was actually cited in the Payment Claim, this Question was also answered in the negative. In discussing this Question, the learned FCJ stated that it is only if the adjudicator goes off on a frolic of his own, decide the case on a factual or legal basis which has not been argued or put forward by either side, without giving the parties an opportunity to comment or put in relevant evidence, if appropriate, that the breach may be said to be material rendering the decision reached liable to be set aside. However, if the “frolic” of the adjudicator makes no difference to the outcome, the decision must be enforced. On the facts, the learned FCJ found that the reference by the Adjudicator to clause 36.6 of the Contract did not have the same materiality or significance. In addition to the fact that the Respondent was fully aware of the entire clause 36 of the Contract, the learned FCJ found that it was a matter of contractual construction which the Adjudicator was entitled to decide. The learned FCJ concluded that it should only be in rare circumstances that an adjudication decision is set aside. . Comments In light of the majority decision of the Federal Court, the non-paid party/ claimant must be careful to refer and rely on all relevant clauses of the construction contract in the payment claim as well as adjudication claim, to avoid the adjudication decision being set aside on the grounds of excess of jurisdiction and/or breach of natural justice. The adjudicator is strictly confined to adjudicate on matters pleaded within the adjudication pleadings. Therefore, parties involved in adjudication proceedings must be meticulous and ensure that the relevant clauses in a contract and/or cause of action is pleaded in the adjudication pleadings. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the author Amy Hiew Kar Yi Partner Corporate Disputes, Construction, Projects & Energy Harold & Lam Partnership amy@hlplawyers.com . Chew Jin Heng Associate Dispute Resolution Halim Hong & Quek jhchew@hhq.com.my More of our articles that you should read: LICENSING OF DATA FOR AI MODEL TRAINING – Things to Take Note of Different Rates of Charge on Residential and Commercial Parcels During the Preliminary Management Period and During the Management Period Settlement Agreement attracts ad valorem stamp duty? ISSUANCE AND SERVICE OF NOTICE OF ARBITRATION: A SUFFICIENT TRIGGER? Examining the Interpretation of a “Stay Pending Final Determination by Arbitration” under Section 16(1)(b) of CIPAA 2012

LICENSING OF DATA FOR AI MODEL TRAINING – Things to Take Note of

AI Model Training It has been more than a year since the launch of ChatGPT and the hype that the chatbot has brought to artificial intelligence (“AI”) does not seem to be slowing down. In fact, the momentum seems to be through the roof with OpenAI, the company behind ChatGPT, recently teasing the release of ChatGPT 5.0 that is promised with overall enhanced performance compared to the current versions of ChatGPT 3.5 and ChatGPT 4.0. The proliferation of generative AI has also sparked debates on “legal” AI models training. As we have briefly mentioned in our earlier article on “Addressing Copyright Infringement and Challenges in AI Training”, AI does not inherently develop its own “intelligence”, rather it requires a substantial amount of data for training. Consensus is divided on whether it is acceptable or legal for companies to train AI models using publicly available information scraped from the internet, without the permission of the publishers or authors. Scraping Public Internet Information for AI Training – Is It Fair? OpenAI’s stance in this regard is clear - “Training AI models using publicly available internet materials is fair use, as supported by long-standing and widely accepted precedents. We view this principle as fair to creators, necessary for innovators, and critical for US competitiveness”. There are many however that do not agree with OpenAI and have taken OpenAI and some other companies to court for using their content or data to train AI models without authorisation. Adversaries of using publicly available information for AI training typically rely on copyright infringement as the main argument. Some of their concerns are that they have no control over how their materials and contents will be used. Their life work could end up becoming the fuel of a generative AI without guardrails, spouting disinformation, biased and discriminating remarks, sexual and explicit content, or worse – generating actual harmful content such as teaching others how to build an explosive or engineering a fatal car crash. Given that there is still no absolute certainty on whether scraping copyright-protected content from internet sources to train AI model would constitute copyright infringement, websites and database operators have resorted to implementing technical and/or technological measures to prevent web scraping, as well as contractually prohibiting web scraping in their online terms and conditions. These efforts may have been part of the reasons why AI companies are increasingly entering into licensing deals with publishers and content providers to use their content and data for AI training. Despite its hard stance, OpenAI has also entered into licensing agreements with The Associated Press and Axel Springer SE for the licensing of content for AI training. Reddit has also announced the signing of a content licensing deal with Google for the licensing of its content to Google for AI training. The trend does more than just allowing AI companies to secure legitimate sources of training content, it also creates new revenue streams for organisations with content banks under their management. Licensing of AI Training Dataset – Key Points to Consider Whether you are a company looking to license content to train your AI model, or you are a company looking to commercialise your content bank, there are a few considerations that you should be mindful of before entering into a deal: i) What is the value of the dataset being licensed: One key consideration is of course the licensing fee. This is directly affected by the value of the dataset, which in turn is determined based on its size and quality. While it is easy to assess the value of the dataset at the point of licensing, one must not forget that the dataset will grow over the licensing term, as new content gets published. The license fee to be agreed upon should take into consideration the value of the existing content, as well as future content to be added to the library or database. Services of an IP valuer would be helpful in this connection.   ii) Exclusivity: Exclusivity of the training license should be clarified and agreed upon up front. The licensor should be allowed to license its dataset to third parties for AI training, or even use it for training of its own AI that it may want to deploy in the future as business diversifies.   iii) Consequences of Contract Expiration or Termination: Parties often overlook details on how to unwind a licensing deal. This point is particularly crucial for licensing of AI training dataset, given the difficulties and challenges that come with removing datasets from a trained AI model or “Machine Unlearning”. Complete removal of datasets from a trained AI model may not be possible with current technology, or even if it is possible to achieve, it may require retraining of the AI model, which is expensive and time consuming, or it might affect efficiency, utility and accuracy of the AI model. Licensor may have to be prepared to leave its datasets with the AI model.   iv) Continuing Obligation: This is more of a consideration for the licensor. Oftentimes, AI companies would expect the underlying dataset to grow, as the content under management of the licensor expands. While AI companies commit to paying a fixed amount of license fee each year, they may be inclined to impose a service level or an undertaking to expand the dataset. Licensor should carefully consider the reasonableness of the service level or undertaking before agreeing.   v) Rights of the Licensor to Grant License: As with all licensing deals, licensors’ ability to grant the required license is crucial, and this is often reflected as a key warranty in the agreement. In the context of AI training dataset licensing, the licensors are usually publishers or administrators of a collective database or library. Mandates given to the publishers or administrators may not include rights to grant licenses in respect of the materials of the contributors and as such, permissions of the individual contributors may have to be sought before entering the licensing deal, along with options to opt out of the training regime.   vi) Terms of Use: It would also be in the licensors’ interest to regulate how the training dataset will be used, particularly on the type of AI that will be trained. The last thing that licensors would want is obviously for its dataset to be used to train an unethical AI.   vii) Data Privacy and Security: With the increasing scrutiny on data privacy regulations, it is imperative for the parties to clearly address data privacy and security concerns in the licensing agreement. This includes specifying how the data will be processed, transferred, stored, and protected throughout the duration of the agreement. Licensors may even want to go a step further to consider whether to anonymise the dataset prior to delivering the same for AI training. Given how AI training works, it is always easier to sanitise the training dataset prior to it being fed to the AI algorithm.   viii) Intellectual Property Rights Ownership: Clarifying the ownership of intellectual property rights related to the trained AI models will be crucial in the licensing agreement. Parties should clearly define who retains ownership of any new intellectual property created as a result of using the licensed dataset for AI training, and having clear ownership provisions could help avoid unnecessary future disputes and to ensure that each party retains the legal rights they are entitled to under the agreement. With AI deployment gaining traction, there are bound to be more companies looking to deploy their own AI, who are in need of training dataset. Given how AI model training works, AI training dataset licensing should not be treated just like any other intellectual property licensing deal. The licensing agreement should be carefully crafted to suit the nuances of each deal so that parties are able to achieve their respective goal while at the same time protecting their interests. If you are in need of legal advice or assistance in relation to licensing of content for AI training or in relation to your next exciting project involving AI, our dedicated team of professionals in the Technology Practice Group is here to help. You may reach out to our partners below to discuss more on how we may assist. We look forward to working with you on your exciting venture. About the authors Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my More of our Tech articles that you should read: Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective Whether AI-Generated Work Could be Protected by Copyright Law Addressing Copyright Infringement and Challenges in AI Training Artificial Intelligence and Cybersecurity: A Double-Edged Sword Fight

Exploring the Legal Implications of AI as Inventors: UK Patent Law Perspective

The complexities surrounding intellectual property and artificial intelligence (“AI”) continue to unfold. While our previous article explored the murky waters of copyright protection for AI-generated works, this week we delve into another pivotal question: can AI be designated as the "inventor" under UK patent law? This issue has recently been addressed by the UK Supreme Court, offering some much-needed clarity on a subject rife with legal implications. The Case Study: Dr. Thaler and "DABUS"Filing of patent applications requires the inventor(s) to be named. Now imagine a scenario where an AI autonomously creates an invention, without any human interference or control. Could this AI be named as the "inventor" under UK patent law?This is more than an academic discussion but an actual case in the United Kingdom, where Dr. Thaler filed two patent applications under the Patents Act 1977 for (i) a new kind of food or beverage container, and (ii) a new kind of emergency light beacon. Notably, neither application named a human inventor, nor did Dr. Thaler file a separate document designating one. In fact, Dr. Thaler emphasized and clarified that these inventions were created by his AI machine, called "DABUS", in which Dr. Thaler claimed that "DABUS" is the 'inventor', and since he is the owner of DABUS, he also claimed that he should be granted the right of patents for those applications.This case doesn't focus on whether AI-generated technical advances are patentable or whether the term "inventor" needs broadening. Instead, it explores two key questions: (i) can AI ever be named as the "inventor," and (ii) can the owner of an AI machine obtain patents for inventions autonomously generated by that AI machine? It is crucial to note that this is not a case where Dr. Thaler is claiming that he was the inventor and used DABUS as a highly sophisticated tool, but a case where the claim is made on the basis that all inventions were made by his AI machine, DABUS, and since he owned DABUS, he should be granted the patent rights for those inventions. Can AI be Designated as an "Inventor" under UK Patent Law?Turning to the first question on whether AI could be named as the inventor under UK patent law.The UK Supreme Court examined Sections 7 and 13 of the Patents Act 1977 and unanimously affirmed that the context of the Patents Act 1977 permits only one interpretation: an inventor must be a natural person. It allows no other interpretation to permit DABUS to be named as the inventor because "an inventor within the meaning of the 1977 Act must be a natural person, and DABUS is not a person at all, let alone a natural person... Accordingly, it is not and never was an inventor for the purposes of Sections 7 and 13 of the 1977 Act."From the above, it is clear that the current UK patent law leaves no room for an AI to ever be named as the "inventor" given the strict requirement that an "inventor" must be a natural person. Ownership of AI Machines and Patent RightsNow we will turn to explore the second question: whether the owner of the AI machine is entitled to apply and obtain the patent in respect of any invention or any technical advance autonomously generated by the AI machine.This is closely linked to the first question. The UK Supreme Court reiterated that the patent law is clear that the inventor must be a person. In this case, it is without doubt that DABUS was not and is not a person, and hence DABUS could not be named as the "inventor" under the patent law. It went on to clearly explain that "Section 7 does not confer on any person a right to obtain a patent for any new product or process created or generated autonomously by a machine, such as DABUS, let alone a person who claims that right purely on the basis of ownership of the machine." Therefore, given that DABUS could not be the "inventor", there is technically no "inventor" through whom Dr. Thaler could claim the right to obtain a patent for any technical advance.From the above, two strong conclusions are made: (i) AI could not be named as the "inventor", as it must be a natural person, and (ii) the owner of the AI machine could not apply for and obtain patents for the technical developments purely on the basis that he has ownership of the AI machine when the inventions were wholly created by the AI machine autonomously. Differentiating Human Oversight from Autonomous AI InventionsIt is crucial to highlight an important remark made by the Supreme Court that in cases where the inventor uses DABUS as a highly sophisticated tool, the outcome of these proceedings might well have been different.This indicates that under the current law, inventions autonomously created by AI without any human inventor are not patentable in the UK. However, in cases where there is human oversight of AI in directing its work, the human inventor could then be named and be granted patent protection for the invention. Implications and RecommendationsIn conclusion, the UK Supreme Court's ruling has provided unequivocal clarity on the matter: AI cannot be designated as an inventor under current UK patent law. Furthermore, the ownership of an AI machine does not confer the right to obtain patents for inventions autonomously generated by the AI. These decisions underscore the necessity for organizations investing in AI to collaborate closely with legal experts to navigate the evolving landscape of intellectual property rights.As technology continues to advance and AI plays an increasingly significant role in innovation, it is imperative for policymakers and legal frameworks to adapt accordingly. The current limitations highlight the urgency for legislative updates that address the unique challenges posed by AI-generated inventions. Until such reforms are enacted, organizations must prioritize comprehensive strategies for protecting their AI-driven innovations, ensuring that the contributions of both human inventors and AI systems are recognized and safeguarded within the bounds of existing legal frameworks. If you are looking to develop AI tools and have concerns about intellectual property protection or safeguarding the output, please reach out to our dedicated team of professionals. With a deep understanding of both AI technology and intellectual property law, our lawyers are well-equipped to assist you throughout the entire process, ensuring that your AI-generated work receives the protection it deserves in the rapidly evolving legal landscape.This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the authors Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my

Whether AI-Generated Work Could be Protected by Copyright Law

In the current era, artificial intelligence (AI) has evolved from mere buzzword to a tangible advancement with an expansive

马来西亚强制土地征收流程

《2020年修订国家土地法典》、 《1963年槟城与马六甲土地法令》、《砂劳越土地法令》及《沙巴土地法令》均详细规定了马来西亚的土地的保有权、土地产权登记

Addressing Copyright Infringement and Challenges in AI Training

In the current era, artificial intelligence (AI) has evolved from mere buzzword to a tangible advancement with an expansive

Artificial Intelligence and Cybersecurity: A Double-Edged Sword Fight

The release of ChatGPT brought along with it a wave of Artificial Intelligence (“AI”) driven revolution. It is no exaggeration to say that AI has infiltrated almost every industry in existence. Some view AI as a harbinger of doom; some see it as a bearer of good news, here to ease our daily lives. For the cybersecurity market, it seems to have found itself in a love-hate relationship with AI. In this newsletter, we will be looking at how AI has single-handedly enhanced the efficiency and effectiveness of cybersecurity efforts, but at the same time also created more cybersecurity threats to individuals and organisations. AI-Enhanced Cybersecurity The underlying feature of AI is always to imitate human behaviour and actions, whether it is spotting trends and anomalies, or content writing and generation. When it comes to cybersecurity, AI can also be trained to facilitate and assist in the work of cybersecurity professionals. Oftentimes, the attack vectors that cybercriminals use to gain a foothold in their target’s IT environment are zero-day vulnerabilities in software used by the target. Zero-day vulnerabilities are hard to protect against because they are legacy issues unknown even to the owners or developers of the software. A specially designed and trained AI can be used to detect zero-day vulnerabilities in software, thereby helping cybersecurity researchers to flesh out potential attack vectors and to deploy patches and fixes accordingly, before actual exploitation by malicious actors. When AI is deployed in an organisation’s network server, it can also be used to flag potential phishing emails. Other than predictive initiatives, AI can also be trained to perform malware detection and tracing in the event of a cybersecurity breach. During a cybersecurity incident, the response team is always racing against time to mitigate damage. AI can substantially cut down the time in locating the root cause of the breach or to detect malware. AI Posing Cybersecurity Risks While there are many use cases of AI in enhancing cybersecurity, the flip side is also true in that AI itself is presenting new cybersecurity risks. Phishing emails crafted with AI are more convincing and sophisticated than ever, making them harder to be noticed. AI can also be used to learn the behaviour of a particular person before deploying phishing email to increase the chances of the phishing email being clicked on. For example, if an AI gathered that the target will normally receive and open emails sent by tax agents to his or her work email, a phishing email can then be crafted to imitate one sent by tax agents. The proliferation of AI also prompted the creation of the dark-side of ChatGPT – introducing the likes of WormGPT and FraudGPT. Unlike ChatGPT, these generative AI models do not have any safety guardrails. They are deployed to help cybercriminals to write malware and convincing phishing emails, thereby lowering the barrier to execute an attack. AI, just like any piece of software, if integrated and embedded in an organisation’s IT environment, can also potentially be used by cybercriminals as a possible attack vector if there are loopholes or vulnerabilities in the system. In an effort to deploy AI, an organisation may actually unknowingly create a way into its IT environment for threat actors. If cybersecurity researchers can use AI to locate zero-day vulnerabilities and to patch them, then cybercriminals can also use AI to find vulnerabilities in software to exploit and compromise. Fighting AI with AI AI has proven time and again that it can perform better (or at least faster) than human in many of the tasks that involve pattern and anomaly spotting, as well as information gathering and sorting. Crucially these are the nature of the work of cybersecurity professionals. There is a saying that to beat evil, one must become a greater evil. It seems a quick solution to cybersecurity risks exacerbated by AI is to deploy more advanced AI to strengthen cybersecurity. It will be a matter of the sharpest spear against the toughest shield. Malaysia Cybersecurity Bill Given the importance of cybersecurity, the Malaysia Cybersecurity Bill that is currently in the work will be a vital bullet in the fight against cyber threats. It remains to be seen what sort of tools the legislation will offer to defend the digital landscape, but it is definitely a move in the right direction. If you wish to know more about cybersecurity best practices, legal requirements relating to cybersecurity, personal data and breach notification requirements, please feel free to reach out to our team of experts. We look forward to working with you on your digital transformation journey.This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the authorsLo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my Ong JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my

Spot Bitcoin ETF Approval: A Rollercoaster 48 Hours and Its Global Regulatory Implications

Follow-up to the Previous Article: "Understanding Spot Bitcoin ETF and Its Potential" In a historic move, Gary Gensler, the Chair of the U.S. Securities and Exchange Commission (SEC), has officially confirmed the approval and impending listing of Spot Bitcoin ETFs. This development marks the debut of the first Spot Bitcoin ETF in the U.S., shaping up to be one of the most anticipated and significant regulatory decisions in January 2024. The following chronicle outlines the dramatic 48 hours leading to the SEC's approval, shedding light on cybersecurity lessons and global regulatory implications. Rollercoaster 48 Hours: A Chronicle of Events Leading to ApprovalOver the past 48 hours, the journey towards the SEC's official approval of Spot Bitcoin ETFs has been nothing short of dramatic. On January 9, 2024 (US time), the SEC posted a now-deleted tweet on X (formerly Twitter), announcing the approval of #Bitcoin ETFs for listing on all registered national securities exchanges. However, the excitement was short-lived as the SEC swiftly deleted the tweet, attributing the action to a compromise of their official X account. Both the SEC and Gary Gensler later clarified in a subsequent tweet that the @SECGov X account had been compromised, emphasizing that no approval had been granted for spot bitcoin exchange-traded products.Further investigation by X revealed that the compromise was not due to any breach of X’s systems but rather a case of an unidentified individual gaining control over a phone number associated with the @SECGov account through a third party. Notably, the compromised account lacked two-factor authentication at the time.Finally, a few hours ago, the SEC officially published Record No. 34-99306 on its website, formally approving Spot Bitcoin ETFs, in which Gary Gensler also concurrently released an official statement, marking the historic and authorized approval of the Spot Bitcoin ETFs. Key Takeaways and Global Regulatory ImplicationsThe recent events surrounding the approval of Spot Bitcoin ETFs offer several crucial insights with potential global regulatory impacts.1. Emphasis on Cybersecurity: The foremost lesson from this rollercoaster ride is the critical importance of cybersecurity. Regardless of whether the compromise originated internally or from an external third party, this incident underscores the paramount need for robust cybersecurity measures. In the digital age, any compromise can lead to irreparable damage to a company, the market, and, significantly, the organization's reputation. It serves as a stark reminder that investing in cybersecurity is not just prudent but imperative in safeguarding against unforeseen challenges. 2. Verification of Official Announcements: The second takeaway revolves around the necessity to verify the source of official announcements diligently. The unauthorized tweet from the SEC's compromised account highlights the vulnerability of relying solely on social media for crucial information. Legal due diligence demands a thorough examination of official legal sources, including but not limited to websites and supporting materials. Organizations and individuals alike should exercise caution, and when in doubt, consult legal advisors to verify the authenticity of information disseminated through unofficial channels. 3. Global Regulatory Shift: With the official approval of Spot Bitcoin ETFs by the SEC, a potential paradigm shift in the global regulatory landscape for digital assets is imminent. This positive development suggests that other countries may follow suit in embracing similar regulatory approaches to cryptocurrencies, stablecoins, and NFTs. ConclusionIn conclusion, the approval of Spot Bitcoin ETFs by the US SEC has not only marked a significant milestone for cryptocurrency enthusiasts but has also triggered a cascade of lessons and considerations for organizations, regulators, and investors alike in navigating the dynamic intersection of finance and technology on a global scale. Organizations are advised to stay vigilant, collaborate with legal advisors, and actively engage with regulators as local frameworks adapt to the evolving global regulatory landscape.For comprehensive guidance and legal insights regarding the dynamic landscape of cryptocurrency and/or Fintech, our team of experts is ready to assist you. Feel free to reach out to us for further assistance and a tailored approach to navigating the complexities of this decentralized future. We look forward to being your trusted partner on this transformative journey.This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.About the authorsOng JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.myLo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my

The European Union Artificial Intelligence Act - Should Artificial Intelligence Be Regulated?

Since the European Union Artificial Intelligence Act (the “EU AI Act”) was proposed by the European Commission in 2021, the European Parliament and Council have finally reached a provisional agreement on the final version of the EU AI Act on 9 December 2023. The final text of the EU AI Act will go through technical review and refinements before being released to the public. From the European Parliament’s press releases however, one can have some preliminary idea of the general scope of the EU AI Act.  Should Artificial Intelligence be Regulated? The EU AI Act is often touted as a “global first” legal framework for the regulation of artificial intelligence (“AI”) with clear rules for its usage. This definitely begs the question “Should AI be regulated?”. Consensus reached on this question seems to be skewed largely towards a “YES”, when even the industry players, the technology companies and the developers of AI themselves are calling for regulation, or at least some industry standards as to the ethical and safe development of AI. The reasoning for regulation goes beyond doomsayers’ fear of AI potentially dominating humanity or even destroying it, like what we saw in The Terminator franchise. What is actually driving the call for regulation is much more imminent – ethical concerns as well as safety and security reasons. Depending on the data sets used to train an AI model, its usage may cause discrimination against marginalised group of people (e.g., rating a person with darker skin tone as being more likely to default on loan, or a facial recognition AI model that cannot recognise certain skin tone as well as it does the others). Inappropriate usage of AI may also cause the spread of misinformation and disinformation or wrongful arrest of suspects by law enforcements. In the face of these imminent threats of AI, regulation seems necessary to provide a guardrail in ensuring the development of ethical and safe AI, which is what the EU AI Act sets out to achieve. The EU AI Act: A friend or a foe? Regulations on AI must be delicately crafted – too stringent, it may become a stranglehold that stifles innovation and development; too loose, it may become a stingless bee. The EU AI Act’s solution to a balance in regulation can be seen in its risk-based approach to AI. To start with, the EU AI Act seems to adopt a neutral and broad definition of “AI systems” that is aligned with what was proposed by the Organisation for Economic Co-Operation and Development: “A machine-based system that can, for a given set of human-defined objectives, make predictions, recommendations, or decisions influencing real or virtual environments”. Within this definition of AI systems, AI is further categorised based on the risk level the AI system poses: (i) minimal / no risk (e.g., AI-enabled recommender systems in Netflix and Instagram); (ii) limited risk (e.g., simple chatbots and AI-enabled sorting systems); (iii) high risk (e.g., AI-enabled medical devices, AI for law enforcement purposes, etc.); and (iv) unacceptable risk (predictive policing AI, AI that processes sensitive personal information such as sexual orientation, political and religious beliefs). Depending on the category of the AI systems, they are subject to different levels of scrutiny. The AI systems with the highest level of risk are banned outright; whereas those with acceptable and manageable risks are subject to high-level of oversight and reporting requirements; while those with low to minimal risks are being given a free-pass or with simple obligations to at least inform its users that they are dealing with AI generated content. The EU AI Act also seeks to impose additional obligations in respect of “general purpose AI systems” (“GPAI”) – AI systems that have a wide range of possible uses, both intended and unintended by the developers (think ChatGPT, Dall-E, Bing AI, PaLM). Deployer or provider of these GPAI may be required to conduct risk evaluation of the AI systems before launch, disclose the source of the training data set, monitoring and reporting on its energy efficiency, conducting red teaming, etc. These additional guardrails on GPAI appear to seek to prevent unauthorised exploitation of third-party work that have been made available online, minimise unintended usage of the GPAI, and to address ESG concerns posed by proliferation of large language models. Scope of Applicability of EU AI Act Based on the version of the EU AI Act that was proposed by the European Commission back in 2021, the EU AI Act was intended to have an extraterritorial application. In addition to users and providers of AI systems who are based in the European Union, providers and users of AI systems that are based outside of EU but the output produced by their AI systems are used in the EU are also subject to the EU AI Act. If this scope of the EU AI Act in the proposal draft makes its way to the final text, the EU AI Act will have an overarching reach and as long as an AI system is to be used in the EU, compliance with the EU AI Act will be compulsory. Failure to comply with the EU AI Act may attract fines based on a certain percentage of the violator’s global annual turnover. Conclusion As one of the first (if not the first) comprehensive regulations on AI, the EU AI Act will likely become the model of similar regulations in many other countries and influence how the rest of the countries around the world shape their AI legal framework. Deployers and builders of AI systems outside of the EU will definitely be paying close attention to the implementation and enforcement of the EU AI Act in the EU. We would even recommend that the deployers and builders of AI systems outside of the EU benchmark their AI models and practices against the EU AI Act, in anticipation of similar rules being drawn up closer to home. It is no doubt that AI is a powerful tool with wide ranging possibilities of applications in our daily lives. It can affect our social behaviour, determine which candidates get hired, improve accessibility to medical treatment, and impact human lives in many other ways. Like it or not, the technology is here to stay. To ensure the ethical and safe development of the technology, regulation is inevitable. Industry players should not see regulation as a force against innovation, but rather a guardrail to foster and nurture sustainable growth of the technology to maximise its potential for the betterment of humankind. To better understand the regulatory landscape in relation to AI, or if you need legal assistance in adopting or deploying AI in your organisations, our team of experts is ready to help. Feel free to reach out to us for further information or to schedule a discussion. We look forward to being your trusted partner on your digital transformation journey. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.About the authorsLo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.myOng JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my

Understanding Spot Bitcoin ETF and Its Potential

In the midst of the ongoing crypto winter, characterized by disillusionment and skepticism in the cryptocurrency market, a potential game-changer emerges—the Spot Bitcoin ETF. As we progress through the crypto winter in 2022 and 2023, the prospect of Spot Bitcoin ETF gaining approval in the United States has sparked renewed interest in the crypto space. This article delves into what Spot Bitcoin ETF entails, its key differentiators from Bitcoin Future ETFs, and the potential impact of its approval on the broader regulatory landscape. Spot Bitcoin ETF vs. Bitcoin Futures ETF Spot Bitcoin ETF operates akin to traditional Exchange-Traded Funds (ETFs), with a crucial distinction—the underlying asset is Bitcoin. However, to fully understand the "spot" designation, it is essential to contrast Spot Bitcoin ETF with Bitcoin Futures ETF - while both involve Bitcoin, their operational mechanisms diverge significantly. Spot Bitcoin ETFs denote direct ownership and exposure to Bitcoins, which are securely stored in digital vaults. In contrast, Bitcoin Futures ETFs derive their value from Bitcoin futures contracts, introducing complexities like contango and backwardation. Contango is a futures market occurrence marked by futures contract prices rising above spot prices, whereas backwardation is when the current price of an underlying asset is higher than prices trading in the futures market. Investors choosing Bitcoin Futures ETFs may exploit market nuances, but those seeking direct correlation with Bitcoin's market price movement will opt for Spot Bitcoin ETFs. Advantages of Spot Bitcoin ETF The key question then arises: Why invest in Spot Bitcoin ETF when one can directly purchase Bitcoin from the market?  “Convenience” emerges as a compelling answer for one to opt for Spot Bitcoin ETFs – Spot Bitcoin ETFs offer a hassle-free alternative to managing wallets, navigating crypto exchanges, and safeguarding private keys, rendering it easier for adoption by traders accustomed to conventional trading. Investors can gain exposure to Bitcoin's price movements without operational intricacies by simply paying management fees and brokerage commissions, making it an appealing option for those prioritizing ease of access. However, it is equally crucial to consider potential limitations compared to direct ownership, including counterparty risk, lack of control over private keys, and other fees involved. Concentration of large amount of the underlying assets – Bitcoin in this case, in one digital vault may also make it a high-value target for mouth-watering cybercriminals. Current Status and Implications As of the time of writing, Spot Bitcoin ETF approval in the United States is still pending SEC review, while attracting applications from reputable global issuers like BlackRock, Ark Investment, WisdomTree, Invesco, and VenEck. Even though the outcome remains uncertain, industry players and all regulators around the globe are closely monitoring this development, as the approval of Spot Bitcoin ETFs could reshape the global regulatory landscape, signifying stronger recognition for Bitcoin and other cryptocurrencies, potentially leading to increased institutional investment and thereby shoring up trading activities in general as well. Conclusion In conclusion, the evolving landscape of Spot Bitcoin ETFs presents both challenges and opportunities for investors. While awaiting regulatory approval in the United States, industry participants, especially those in the financial sector, are advised to closely observe, strategize and prepare for potential shifts in the regulatory framework to leverage the advantages offered by Spot Bitcoin ETFs as and when its approval comes through, as it could mark the beginning of a new era in cryptocurrency investment. The key lies in staying informed, adaptable, and proactive in navigating the evolving cryptocurrency ecosystem. For comprehensive guidance and legal insights regarding the dynamic landscape of cryptocurrency and/or Fintech, our team of experts is ready to assist you. Feel free to reach out to us for further assistance and a tailored approach to navigating the complexities of this decentralized future. We look forward to being your trusted partner on this transformative journey. This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.About the authorsOng JohnsonPartnerHead of Technology Practice GroupTransactions and Dispute Resolution, Technology,Media & Telecommunications, Intellectual Property,Fintech, Privacy and Cybersecurityjohnson.ong@hhq.com.my Lo Khai YiPartnerCo-Head of Technology Practice GroupTechnology, Media & Telecommunications, IntellectualProperty, Corporate/M&A, Projects and Infrastructure,Privacy and CybersecurityHalim Hong & Quekky.lo@hhq.com.my

马来西亚国家银行外汇政策: 担保 (Guarantee)

根据2013年《金融服务法》的第214(2)、214(5)、214(6)和261节,以及2013年《伊斯兰金融服务法》的第225(2)、225(5)、225(6)和272节的授予权限,马来西亚国家银行发布了一系列关于外汇政策通告。在我们之前的文章中(马来西亚外汇政策(Foreign Exchange Policy(FEP)):居民与非居民在马来西亚借贷),我们探讨了马来西亚国家银行的外汇政策,特别是通告二 (Notice 2),阐述了居民和非居民在境内外的借贷限制。而今,我们将对该通告中关于财务与非财务担保的条款与限制进行详细解读。在外汇政策通告的序言时和解释中,“财务担保”(Financial Guarantee)被定义为任何形式的保证、赔偿或承诺以确保借款的偿还,而“非财务担保”(Non-financial Guarantee)是指为非借款担保目的而发行或获得的任何担保、赔偿或承诺(财务担保除外),包括履约保函、投标保函、货物或服务供应保证或船运担保。获取财务担保  1. 在马来西亚,居民享有向非居民(包括非本地金融机构)获得财务担保的自由,无需事先获得国家银行外汇政策的批准。这种灵活性不仅为个人和企业提供了更广泛的金融选择,同时也反映了国家银行对于推动经济多样性和活力的承诺。发放财务担保2. 居民通常可自由向非居民提供财务担保或协助其获取借贷,但在特定情况下需事先获得国家银行的许可。这些情况包括:a.当居民担保人发放财务担保是以协助非居民特殊目的实体(Non-resident Special Purpose Vehicle) 从居民担保人集团外的非居民实体获得外币借贷,或者如果借贷款项是被居民担保人使用,或是被居民担保人同一集团内的另一非居民实体使用时,这种情况下的财务担保将被视为居民担保人的借款。居民担保人将受制于国家银行通告二规定的的贷款限制;b.当居民担保人已达成正式或非正式安排,以外币形式偿还借款,而不是在发生违约事件时由债权人启动的“启用”时,此偿还将被视为对外币资产的投资,并将受制于外汇政策通告三的外币资产限制。(“启用”应由贷款人以书面形式通知担保人发起,且担保人不得主动启动财务担保的“启用”。在担保人的指示下清算了财务担保时,担保人必须获得银行的事先批准。)如果担保协议中的条款附有“支付契约”的条款,说明担保人有责任在不触发违约事件的情况下偿还借贷人的外币借款,此类的条款足以构成以上述说的正式或非正式安排。在这种情况下,这类型的财务担保发放将被被视为居民有义务代表非居民借款人偿还外币借款,因此,这样的财务担保也将受到外汇政策通告三规定的外币资产投资限制的约束。3. 另外,居民放贷人可以在无需事先得到国家银行许可的情况下,从非居民担保人处获得任何金额的外币或马来西亚令吉的财务担保,以担保居民或非居民的借款。此外,在通告二中获得批准的,或经银行书面批准的,以马来西亚令吉或外币获得的居民借款的情况下,用于担保此类借款的财务担保将被自动视为已获国家银行的批准。放款与还款4. 居民之间外币的财务担保引起的任何付款应以马来西亚令吉支付。然而,符合以下范畴的居民担保人则可选择以马来西亚令吉或外币进行付款:a.借款人集团内的实体;b.借款人的直接股东;c.直系亲属;或d.持牌离岸银行。5.另外,任何为协助非居民借款人发放的财务担保必须以外币进行支付。然而,非居民担保人可以在获得外汇政策通告二批准或经银行书面批准的情况下,在以马来西亚令吉计价的财务担保中向居民放贷人支付马来西亚令吉或外币。6.在处理偿还由非居民担保人提供的财务担保所导致的附带债务时,任何付款必须以外币进行。持牌境内银行有关的财务担保7. 持牌境内银行可自由为其账户获取任何金额的马来西亚令吉或外币的财务担保,同时也可代表其金融集团或客户发放任何金额的马来西亚令吉或外币的财务担保,而无需事先获得国家银行外汇政策的批准。非财务担保8. 居民和非居民:无论是向非居民还是从非居民,居民都可以以任何金额的外币或马来西亚令吉发放或获得非财务担保,并且无需得到国家银行的许可。居民可以向非居民担保人支付马来西亚令吉,前提是所涉及的非财务担保是以马来西亚令吉计价的,且发行的非财务担保是为在马来西亚使用的。此外,支付的马来西亚令吉必须划入非居民担保人的外部账户。对于在驻外账户中的马来西亚令吉资金使用也需遵守外汇政策的通告四的规定。9. 居民之间:居民之间发放或获得以外币计价的非财务担保是无需得到国家银行的许可的。然而,两名居民之间的任何非财务担保所产生的付款必须以马来西亚令吉进行。申请、查询,修改必须通过在线方式进行10. 最后,通过这篇文章,我们也提供了简要的在线申请程序供参考。居民在进行任何外汇政策通告二允许之外的交易前,必须通过在线提交门户进行申请,纸质申请将不予受理。任何批准、通知和查询的申请也都需要通过在线方式提交。11. 申请人需先通过此链接完成注册账户(非注册用户在提交查询之前也需完成简单的注册过程):https://fep.bnm.gov.my/fep-pub/sign-up12. 与通告二相关的申请表格如下供参考: 13. 申请表格可以由申请人或代表申请人的第三方提交。第三方提交表格可以通过申请人的注册帐户进行,并同时附上一封经过签署的授权/委任信函。14.更多详情以及用户指南,申请人可以游览:https://www.bnm.gov.my/submission-of-application以上所述规定反映了截至2023年的情况。如需了解更多详细信息,可随时与我们的团队联系。作者简介Noelle Low Pui Voon 刘佩焕伙伴律师(企业房地产、产业园、租赁、银行与金融)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:noelle.low@hhq.com.my

Key Amendments to Restructuring and Insolvency

In a significant move to refine corporate governance, the Companies (Amendment) Bill 2023, recently passed by both Houses of Parliament, signals a transformative shift in the corporate landscape. This Bill, aligning Malaysia with global standards, introduces comprehensive changes aimed at enhancing transparency, simplifying restructuring processes, and strengthening insolvency frameworks. Such reforms are not just legislative updates but strategic steps towards fostering a resilient and investor-friendly business environment in Malaysia.In this article we explore the key highlights which is set to introduce various changes to the laws of restructuring and insolvency.1. Enhanced Restraining Order Section 368(1A) introduces an immediate moratorium period which takes effect upon filing of an application for restraining order, up to two (2) months or until the application is decided by the Court, whichever earlier. Section 368(3A) provides protections to a company with the effect to prevent or discontinue actions taken against the company such as winding up proceedings, appointment of receiver, execution process and etc. Section 368(3B) disallows granting of further restraining order to a company if an order under Sections 368(1), Sections 368B, 368D or 369C has been granted to a company or its related company under Section 368A, in the preceding 12 months. This amendment seeks to prevent abuse of process which might prejudice the rights of members and creditors. Section 368A allows a related company to apply for a restraining order if the related company plays an integral role in a proposed scheme of arrangement.  2. Cross-class Cram down Section 368D empowers the Court to cram down on a class of creditors if it is satisfied that the dissenting class of creditors are not prejudiced when approving a scheme of arrangement. Under Section 368D(2) and Section 368D(3), the Court may make an order to approve the scheme of arrangement and order the company and all classes of creditors concerned shall be bound by the scheme provided that: (a) a majority of 75% of the total value of creditors or class of creditors present and voting either in person or by proxy at the relevant meeting, have agreed to the scheme; and (b) the Court if satisfied that the scheme does not discriminate unfairly between two or more classes of creditors and is fair and equitable to the dissenting class. Section 368D(4) sets out the conditions of what is fair and equitable to a dissenting class.  3. Approval of Scheme without Meeting of Creditors Section 369C empowers the Court to issue an order to approve a proposed scheme of arrangement even without meeting of creditors if it is satisfied that the creditors would have agreed to such scheme had the meeting of creditors been convened. Under Section 369C(3), the Court may approve a scheme in fast-tracked manner if: (a) The company has provided the creditors with an explanatory statement which contains the information stipulated under Section 369C(3)(a) and Section 369C(6). (b) The Court is satisfied that had a meeting of creditors been summoned, the scheme would have been agreed by a majority of a majority of 75% of the total value of creditors under Section 366(3).4. Super Priority Rescue Financing Section 368B and Section 415A introduces super priority rescue financing to a company in a scheme of arrangement and under judicial management, and that rescue financing is given greater priority ranking in the event of a winding up. A company may make an application to the Court for the following orders: Section 368B(1)(a) & Section 415A(1)(a) An order that the debt arising from any rescue financing obtained by the company shall be paid immediately after costs and expenses of winding up [pursuant to Section 527(1)(a)] are paid. This “super priority debt” is to have priority above all other unsecured debts referred to in Sections 527(1)(b) to (f) Section 368B(1)(b) & Section 415A(1)(b) An order to secure debt arising from any rescue financing by the creation of security interest over unsecured assets. Section 368B(1)(c) & Section 415A(1)(c) An order to secure debt arising from any rescue financing by the creation of security interest of the same priority or a higher priority over existing security interest. This order is subject to the protection of the interests of existing security interest holder.  5. Procedure for Schemes of Arrangement Section 368(1A) provides that all meetings held pursuant to an order of the Court under Section 366 shall be chaired either by an insolvency practitioner or a person elected by the majority in value of the creditors or members. Section 369A empowers the Court to order a company to hold another meeting of the creditors or class of creditors to revote on the compromise or arrangement subject to such terms as the Court thinks fit. Section 369B requires creditors to file the proof of debt with the company and the period within which the proof is to be filed in order to allow them to vote in the meeting to consider the proposed scheme or arrangement.Section 369D empowers the Court to clarify the termsof a scheme of arrangement which has been approved, uponan application the company or creditor bound by the scheme.  6. Insolvency Practitioner in Schemes of ArrangementSection 367(3) makes it mandatory for the Court to appoint an insolvency practitioner for the company in cases where: (a) The company makes an application under Sections 368B (super priority rescue financing), 368D (cram down), or 369C (approval of scheme without meeting); or (b) A related company applies for a restraining order under Section 368A.  7. Wider Application of Corporate Voluntary Arrangement and Judicial Management Section 395 has shrunk the scope into excluding only the companies which are approved and registered under:- (a) The Central Bank of Malaysia.(b) Certain parts of the Capital Markets and Services Act 2007 (Act 671).(c) Securities Industry (Central Depositories) Act 1991 (Act 453). This amendment extends the application of the CVA to all companies including companies which have created a charge over their property or undertaking. Section 403 allows wider application of judicial management including certain public listed companies.  8. Extension of Judicial Management Section 406 allows a judicial management order to be extended for a period of six (6) months or longer as the Court may allow.9. Protection for Essential Goods and Services Under Section 430(2), a supplier who wishes to exercise his rights pursuant to an insolvency related clause in a contract shall communicate his intention to do so to the company in writing at least thirty (30) days before exercising his rights under the insolvency related clause. Subject to the above, any insolvency related clause under any contract for the supply of essential goods and services shall not be exercised against any company. The Ninth A Schedule lists the types essential goods and services under Section 430: - Supply of water- Supply of electricity- Supply of gas- Point of sales terminals- Computer software and hardware- Information, advice and technical assistance in connection with the use of IT- Data storage and processing- Website hosting Please do not hesitate to get in touch with the authors of the article and / or the firm if you have any queries on the amendments.This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.About the authorLum Man Chan PartnerDispute Resolution, Employment, Liquidation & Restructuring, Regulatory & Corporate ComplianceHalim Hong & Quekmanchan@hhq.com.myChew Jin HengAssociateArbitration & Adjudication, Debt Recovery and General Litigation, Construction Disputes, Contractual Disputes, Land Disputes, Family LawHalim Hong & Quekjhchew@hhq.com.my

马来西亚: 合资(Joint Venture)

近年来,越来越多的马来西亚企业选择与本地或外资企业进行合资 (Joint Venture)。合资是一种以双方或多方共同合作于特定项目或追求共同业务目标为形式的商业安排。在马来西亚,合资所采取的形式和结构取决于业务的性质、合作的目标、以及有关法律的考虑因素。以下是一些马来西亚常见的合资类型:(a) 股权合资企业(Equity/Incorporated Joint Venture)合资企业可选择成立一家特殊项目公司 (特殊项目公司) ,以进行特定项目或投资。参与方将其资源和资产投入特殊项目公司,以共享特殊项目公司的所有权和掌控权。特殊项目公司是一个仅为合资企业项目而成立的独立法律实体。通常一旦项目完成或达到约定的时间期限,除非参与方选择延长合作,否则合资企业将会解散特殊项目公司。特殊项目公司的法律实体可以是依据《2016年马来西亚公司法 》(Companies Act 2016) 而成立的有限公司 (有限公司),或是根据《2012年马来西亚有限责任合伙企业法 》(Limited Liability Partnership Act 2012) 而成立的有限责任合伙企业(LLP)。若特殊项目公司是根据公司法所成立的有限公司,合资企业须准备一份合资协议和股东协议来阐明合资企业的运营模式,内容须包含参与方、资金投入、股权分配、管理与控制、利润与亏损分配、期限、推出机制、争议解决等 。如果特殊项目公司是以有限责任合伙企业的形式组建,每个合作伙伴的责任有限,利润和亏损通常按照事先协商的所有权百分比分配,并在合资协议中阐明。无论是有限公司还是LLP的法律实体,参与方通常都会选择参与特殊项目公司的管理和决策发表。参与程度一般会根据其投资或权益的比例而异。尽管股权合资企业涉及多个实体之间的合作,但特殊项目公司本身是独立于合资企业的“母”方,拥有自己的管理结构,以一个独立的法律实体在马来西亚运营。(b) 合同合资企业(Contractual/Unincorporated Joint Venture)合同合资企业(也称为契约合资企业或合作合资企业)是一种不同于股权合资的合作模式。在这种安排中,参与方通过签订合同而不是成立一个新的独立法人实体来合作。这种类型的合资企业主要在那些法律环境或商业实践不利于或不允许成立股权合资企业的情况下使用。 这种合作形式通常针对特定的项目或任务,而不是长期的、不确定的业务活动。合作的条款和条件完全由合同规定,包括资源的投入、责任分配、利润分配、管理和运营方式等。合作伙伴根据合同协议共享资源、技术、市场渠道等,并共同承担项目风险。参与方通常继续作为独立的法律实体运营,各自承担自己的财务和法律责任。合同中会详细说明如何在合作伙伴之间分配利润和成本。相比于股权合资企业,合同合资企业通常在操作上更加灵活,更容易适应变化和调整合作条款。(c) 联合体 (Consortium)联合体是指两个或多个独立的实体(如公司、组织或政府机构)为了实现一个共同的目标或项目而形成的临时性合作伙伴关系。这种合作关系通常不涉及创建一个新的独立法人实体,而是基于合作各方之间的协议或合同。在联合体的形式中所有参与的实体共同追求一个特定的目标,如完成一个大型项目、参与一个招标、开发一个新产品等、参与方之间通常会签订一份合作协议,明确各方的责任、贡献、收益分配、决策过程等。联合体在建筑工程、国际贸易、研发合作、大型事件组织等领域非常普遍。通过联合体,各成员可以结合各自的优势,共同完成无法单独承担或需要多方专业技能的大型和复杂项目。 (d) 战略联盟 (Strategic Alliance)战略联盟是指两个或多个组织之间为了实现共同的战略目标而形成的合作关系。这种联盟可以在不同的组织(如公司、政府机构或非营利组织)之间形成,并且不一定涉及资本投资或新实体的创建。参与方通过合作来实现各自的长期战略目标,这些目标通常与市场扩张、技术发展、产品开发等相关。不同于项目特定的合作,战略联盟通常关注长期合作关系的建立。战略联盟可以采取多种形式,包括但不限于合作研发、共同市场营销、供应链合作等。 在马来西亚参与合资企业,必须遵守当地的法律和法规。以下是在马来西亚参与合资企业时所需考量的一些常见法律相关因素:(a) 业务实体的结构和组建:每种结构类型有着不同的合规要求和影响,因此需确保所选择的业务实体和结构符合该合资企业的需求和目标。不同的结构类型可能会影响责任、税收和管理控制等事项。请参考以上合资企业类型。 (b) 合资协议:草拟一份全面的合资企业协议,详细表列各方的权利、责任和义务,且涵盖所有关键条款,例如合资企业目的、资本贡献、利润分享、管理结构、退出战略包括买断条款、优先购买权和出售或转让所有权的流程等。参与方应在协议中建立纠纷解决机制如调解、仲裁或诉讼,确立解决各方之间争端的机制,并规定在发生分歧时应采取的方案。 (c) 本地法律条规:不同的业务性质涉及不同的法规和许可要求,这可能会影响合资企业的结构和运作,例如合资企业可能受到反垄断和竞争法的约束;若合资企业涉及土地的收购或使用权,土地法规可能对土地的外国所有权存在一些限制;若涉及雇员,合资企业需遵守马来西亚的雇佣法规,了解员工权利、福利以及现有员工待遇等相关问题。 (d) 税收影响: 参与方需了解合资企业结构在实体层面和个体参与方层面的税收影响,包括优化税收效益、遵守马来西亚消费税或销售和服务税等法规。 (e) 知识产权的保障: 参与方应考量所涉及的知识产权,包括商标、专利、版权和商业机密等的所有权、使用权和保护措施,,并协议与现有知识产权以及在合资企业过程中新开发的知识产权相关事项。 (f) 保密准则: 参与方需制定有关机密讯息和数据的保护准则,以防止其他参与方未经授权的使用或泄露。 (g) 外来投资相关的批准: 根据合资的性质和外国方的参与程度而定,某些行业设有对外国股权参与的限制,因此需获取马来西亚投资发展局(MIDA)等监管机构的批准方可进行投资。 (h) 政府机构的批准: 某些合资企业的业务性质可能需要从政府机构获得特定批准。例如,电信或能源行业可能需要向马来西亚通信和多媒体委员会(MCMC)或能源委员会申请获得批准。 合资企业在马来西亚各个领域越来越普遍,这包括制造业、科技电子、技术、金融和再生能源等领域。它们为企业提供了一种灵活而协作的多方合作方式,选择具体的合资类型将取决于合作的目标、对业务所需的掌控度和风险分担水平等,以及各方所涉及的法律和税收影响。各方之间的约定、条款和条件,应在进入合资前,在协议中详细说明,并确保协议草拟得当以及符合相关的法律法规,以确保合资企业可以在合规的情况下,顺利地在马来西亚落地及运营。以下为在参与合资之前,我们建议您考量的其中先决条件的事项(非详尽):• 您即将参与的合资建立以及资产转让是否需要政府或相关监管机构批准?• 所涉及的业务是否需要特定的许可证?• 是否需要第三方同意,以使关键合同、知识产权等可被纳入合资企业?• 是否需要税务许可?• 是否需要从抵押债券或其他借款人处获得批准?• 是否需要参与方完成尽职调查?• 是否需要取得参与方的股东批准?• 是否需要为完成先决条件设定期限?• 如需了解更多详细信息,可随时与我们的团队联系。作者简介Tan Lee Weei陈莉惟资深助理律师 (股权资本市场、公司/并购、监管与合规)Halim Hong & Quek 翰林律务所lwtan@hhq.com.my Details

马来西亚:产权转让登记及抵押程序的重要性

许多购房者误以为一旦他们与开发商签署了买卖合同,即正式成为房产的注册和实际所有者。然而,若购买的房产尚未颁发个别或分层产权地契,该房产仍在整个项目发展的主产权地契下持有。在此阶段,购房者在法律上被视为房产的实际所有者但项目发展主产权地契上登记的所有者仍然是开发商。根据《国家土地法典》第340条规定,产权地契对其被登记的所有者具有无可辩驳的效力。土地登记是产权人所有权和权益的确凿证据。但若该产权地契或权益是通过欺诈或伪造等手段获得,其产权地契或权益可被撤销。第340(2)(a)条规定,若产权人或其代理是欺诈的一方或与欺诈有关, 该产权地契或权益可被撤销。第340(2)(b)条规定, 若该土地登记涉及伪造,该产权地契或权益可被撤销。这与产权人或受让人是否在获得产权地契或权益时是否出于善意并提供了有价值的考虑无关。  若转权登记和抵押的程序尚未完成,购房者在将房产出售至第三方的买卖交易将面临额外的延迟。这是因为该程序需要开发商确认所述房产详细信息,并获得开发商同意直接将房产转让至第三方。此外,大多数金融机构不愿意批准贷款以融资尚未完善产权地契的房产,尤其是在个别/分层产权地契已颁发的情况下。因此, 潜在购房者在申请贷款购买房产时可能会面临一些困难。开发商也有可能在转权登记程序尚未完成前被清盘或清算。在这种情况下,购房者需要与指定的清算人合作,以完成转权登记和抵押。这个过程不仅会浪费时间,购房者还需要支付额外的费用给指定的清算人,以进行转权登记程序。此外,若购房者未能对转权登记和抵押的通知作出回应,购房者的贷款金融机构可能会根据与购房者签署的授权书行使其权利,作为购房者的代理签署转权登记和抵押所需的文件。在这种情况下,该贷款金融机构将会把所有费用和成本计入贷款人现有的融资中,这将影响贷款期限和贷款利息。综上所述,购房者需在收到开发商的通知后及时办理转权登记和抵押,以保护其在房产中的权益,防范任何对房产的不利主张。如需了解更多详细信息,可随时与我们的团队联系。作者简介Goh Li Fei吴丽斐伙伴律师(房地产,银行与金融)Halim Hong & Quek 翰林律务所lfgoh@hhq.com.my Details

马来西亚: 2024财政预算案

马来西亚首相兼财政部长安华(Dato' Seri Anwar Ibrahim)于10月13日提交了以“改革经济,强化人民”(Economy Reforms, Empowering the People) 为主题的2024年马来西亚财政预算案。第二份昌明预算案(Madani Budget)彰显了团结政府提升国民经济和人民福利的决心。2024年财政预算案是马来西亚史上规模最大的财政预算案,拨款高达3938亿令吉。其中,3038亿令吉用于行政开销,发展开销为RM900亿。以下是2024年马来西亚政府财政预算案的主要内容:资本利得税- 自2024年3月1日起,脱售本地非上市公司的股份所得的净盈利将被征收10%资本利得税。- 对于2024年3月1日之前收购的股份,脱售本地非上市股份的净盈利将被征收10%的资本利得税;或者,总销售额的2%。- 政府正在考虑特定的投资活动如首次公开发行 (IPO),内部重组和符合特定条件的风险投资公司将豁免资本利得税。服务税服务税率从6%提高至8%(不包括餐饮和电讯等服务),并扩大至物流、经纪、承保以及卡拉OK。奢侈品税政府将在明年成立新法令对高价位的奢侈品,包括珠宝与手表等,将征税5%至10%。全球最低税政府预计在2025年对全球收入至少7亿5000万欧元(37亿4000万令吉)的公司实施全球最低企业税 (GMT)。电子发票的实施从2024年8月1日起,对年收入或销售额超过1亿令吉的纳税人强制实施电 发票。对于其他类别的纳税人则分阶段落实,并于2025年7月1日全面实施。豁免制造辅助设备的进口税和销售税从2024年1月1日起,对符合条件的制造商在进口和本地采购的制造辅助设备(用于特定行业和商品)将获得进口税和销售税的豁免。《1967年所得税法》第44(6)条款根据《1967年所得税法》第44(6)条款获得批准的机构、组织或基金,可选择将其累积资金使用限额从25%提高至35%,条件是将其慈善活动支出门槛从至少50%提高至60%;或者维持现状(即累计资金使用限额保持在25%,但仍需要至少花费50%用于慈善活动支出)。新工业大蓝图(NIMP)成立投资与贸易行动协调委员会成立投资与贸易协调行动委员会(JTPPP),其职责是直接向由财政部长担任主席的国家投资委员会(MPN)汇报。新工业大蓝图资金新工业大蓝图总投资额的10% 将用于推动该蓝图,并在2024年提供2亿令吉的启动资金。高新技术产业区将在霹雳州北部的吉辇建立高科技工业区,以在北马的的电子与电气 (E&E)产业构建更广泛的生态系统。新工业大蓝图的分级再投资税务优惠期望提高生产能力并投资于高价值活动但已充分消耗再投资津贴的现有公司,可以在2024年1月1日至2028年12月31日期间向马来西亚投资发展局(MIDA)申请分级再投资税收优惠 - 第 1层级:100% 合格资本支出( QCE)抵销 100% 法定收入(SI);第 2 层级:即60%合格资本支出抵销70%法定收入。净零碳排放的税收措施自愿碳排放交易市场的额外税收减免公司在发展碳项目相关的监测、报告与核查(MRV)支出,可享有高达30万令吉额外税务减免。电动汽车(EV)租赁租赁电动车的公司享有最高300,000令吉的扣税优惠延长至2027年。电动汽车充电设施购买电动车设施可享有2500令吉个人所得税减免的政策延长4年至2027年。环境、社会与监管(ESG)的税收减免与环境、社会与监管而产生的相关开销可享有5万令吉的扣税优惠。优惠有效期从2024年到2027年的课税年。大马森林研究院(FRIM)认证项目的税收减免根据1967年所得税法案第34(4)(6)条款,将给予为树木种植项目或受到大马森林研究院认证的环境保护和保育意识项目的私人领域,将能够享受税收减免。申请应于2024年1月1日至2026年12月31日期间提交至财政部。娱乐业税收措施对在马来西亚拍摄电影的电影制作公司、外国电影演员、和电影剧组,设定0%至10%的特别所得税。联邦直辖区的豁免娱乐税:- 本地艺术家所进行的舞台表演完全豁免娱乐税;- 主题乐园、家庭娱乐中心、室内游乐场或虚拟游戏的娱乐税从25%减至5%。- 国际艺人的舞台表演、电影放映、体育节目和游戏节目等其他娱乐节目的娱乐税从25%减至10%。如需了解更多详细信息,可随时与我们的团队联系。 作者简介Desmond Liew Zhi Hong 廖智鸿伙伴律师(税务,企业与制造业海外投资)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:desmond.liew@hhq.com.my

马来西亚: 非马来西亚公民和外国公司购置房地产需知的法律规定

在购置马来西亚的房地产时,非马来西亚公民和外国公司应留意并遵守以下规定:(a) 必须获得《2020年修订国家土地法典》相关的购置批准;(b) 必须符合由州政府规定的房地产最低购买价格门槛和房地产类型要求;(c) 必须遵守首相署经济策划组(EPU)发布的购置房地产指南。以下是《2020年修订国家土地法典》第433A条规定的非马来西亚公民和外国公司的定义:(a) 非马来西亚公民- 指的是非马来西亚国籍的个人;(b) 外国公司- 包括根据《2016年公司法》在马来西亚注册的外国公司,或者在马来西亚注册的公司,其50%或更多的表决股由非马来西亚公民持有。根据《2016年公司法》第2条的规定,外国公司被定义为在马来西亚以外注册的公司、法人、社团、协会或其他组织,或者是根据其原籍地法律具备在法律下起诉或被起诉权利的未注册社团、协会,且其主要办公处或主要经营地点不在马来西亚。《2020年修订国家土地法典》根据第433B条的规定,非马来西亚公民或外国公司购置马来西亚房地产时,必须向相关州政府提交书面申请,以获得该州政府的购置许可。获得州政府的许可后,可能需遵守该州政府规定的条款和条件,并支付规定的征费(levy)(除非获得国家土地委员会的豁免)。房地产最低购买价格门槛和房地产类型要求在本文中,我们将探讨在吉隆坡联邦直辖区、雪兰莪、彭亨和柔佛购置房地产的最低购买价格门槛、非马来西亚公民和外国公司可购置的房地产类型,以及是否需要向非马来西亚公民和外国公司征收征费。 EPU发布的购置房地产指南自2014年3月1日起,非马来西亚公民或外国公司需要在以下情况下获得EPU的事前书面批准:(a) 房地产购置价格超过2000万令吉,且可能导致土著权益和/或政府机构持有的房地产土著拥有权的稀释;以及(b) 通过股权收购间接取得房地产,导致土著权益和/或政府机构持有的公司控制权发生变化,且该公司拥有房地产总额超过其总资产的50%并且房地产价值超过2000万令吉。此外,外国公司还需留意,EPU对其在马来西亚购置房地产实施了一些限制,如外国公司必须拥有至少30%的土著权益股份,并且外国权益持有的本地公司的实收资本必须不低于250,000令吉。EPU也对非马来西亚公民和外国公司在马来西亚购置以下类型的房地产施加了限制,包括:(a) 每单位房地产价值低于1百万令吉;(b) 由州政府确定为低成本和中低成本(low and low-medium cost)住宅单元;(c) 建筑位于马来人保留土地上的房地产;以及(d)州政府确定的任何产业开发项目中分配给土著权益的产业。上述规定反映了截至2023年的情况。如需了解最新的法律和政策,建议您咨询马来西亚相关的法律部门或寻求专业律师的帮助,以获取准确和最新的信息。如需了解更多详细信息,可随时与我们的团队联系。Lim Yoke Wah 林玉华伙伴律师 (企业房地产、产业园、租赁、银行与金融)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:yokewah@hhq.com.my

马来西亚:如何设立私人医疗机构

在马来西亚设立且运营私人医疗设施及服务需遵守多项法律条规与要求。我们在下文中列出一些必须遵从的基本事项:医疗服务公司注册在马来西亚,公司的注册和设立皆由马来西亚公司委员会(CCM)监管。外国公司必须在马来西亚公司委员会注册,以便在本地合法运营业务。根据《2016年马来西亚公司法》的定义,”外国公司” 包括在马来西亚以外注册成立的公司、法人、协会、组织或其他机构, 且该协会、组织或其他机构并没有在马来西亚设立其总公司或主要营业场所。因此,若在马来西亚设立私人医疗或保健相关设施及服务,须依据马来西亚公司法的规定,在公司委员会注册分支机构,注册合伙人业务实体,或设立一家本地公司。医疗服务许可证尽管在马来西亚有多项法规规范着私人医疗设施的建立与运营,但主要的相关许可证是根据《1998年私人医疗设施与服务法》所批准及颁发,并由马来西亚卫生局监管。在马来西亚设立和经营私人医疗设施或服务,例如私人医院或私人疗养院(除了私人医疗诊所和私人牙科诊所以外),首先需获得卫生局局长的事先批准。在决定是否批准在马来西亚设立私人医疗设施或提供服务时,卫生局局长将综合考虑以下相关事项:(i)所提供的医疗设施或服务的性质(ii)该医疗设施或服务是否已在某个区域实施以及其实施的范围和程度(iii)该医疗设施或服务在某个区域的现阶段需求性(iv)该医疗设施或服务在某个区域的未来需求性申请私人医院许可证的程序和要求: 注册私人医疗诊所和私人牙科诊所与私人医院和其他私人医疗设施和服务不同,在马来西亚设立、经营或提供私人医疗诊所或私人牙科诊所,须根据《1998年私人医疗设施与服务法》申请注册,并以规定的形式和方式提交给卫生局长。其他相关机构除了卫生部的批准,在马来西亚设立私人医疗设施和服务也涉及其他不同的监管机构**,例如: **具体涉及的机构会依据医疗设施的类型、提供的服务和地点而有所差异。建议咨询法律专业人士、顾问和医疗法规专家,以确保全面遵守所有相关的法律和法规。外国股权与参与为促进本地企业和外国投资者之间更多的合资,马来西亚政府已经在某些服务领域放宽了外国股权参与限制,其中包括以下医疗服务领域:(i)私人医院服务(ii)专业医疗诊所服务(iii)专业牙科诊所服务(iv)兽医服务(v)(通过居住机构)提供给老年人,残障人士或儿童的的社会救济服务(vi)儿童日托服务,包括残障儿童的日托服务(vii)职业性的残障人士康复服务虽然马来西亚已放宽了外国股权的限制,但任何涉及外国股权参与的医疗服务机构,仍需向卫生部外国股权参与特别委员会申请批准。其他相关要求(i)维护患者基本人权与安全《1998年私人医疗设施与服务法》和《2006年私人医疗设施与服务法规》规定了设立,维持及运营私人医疗设施与服务的最低标准,以确保本地医疗消费者的医疗可及性,并规范了私人医疗提供者须维护患者安全和权利的法规。(ii)遵守马来西亚就业法律,包括遵从雇佣,聘请或解雇医疗专业人员等的相关法规。(iii)遵守马来西亚数据保护法,确保患者信息及数据的机密性。如需了解更多详细信息,可随时与我们的团队联系。作者简介Tan Lee Weei 陈莉惟伙伴律师(公司/并购、就业与劳工、监管与合规)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:lwtan@hhq.com.my

马来西亚国家银行外汇政策 (Foreign Exchange Policy (FEP)):居民与非居民在马来西亚借贷

在马来西亚投资,境内或境外的借贷以及资金的汇入及汇出,都需遵守马来西亚国家银行(“国家银行”)规定的外汇政策。国家银行外汇政策通告二(Notice 2) 细述了马来西亚居民和非居民,包括个人和实体,在马来西亚获取外币和马来西亚林吉特(“马币”)借贷的条款与限制。此文章将略述国家银行外汇政策以内居民与非居民包含的定义,以及通告二中各组别的借贷限制。首先,以下定义(根据外汇政策的定义)针对了解此文以及通告二是非常重要的:居民 • 马来西亚公民,不包括持有国外永久居民身份以及居住在国外的马来西亚公民;或 • 在马来西亚已取得永久居留权并在马来西亚永久居住的非马来西亚公民;或 • 在马来西亚成立,经任何马来西亚授权机构或单位注册或批准的公司;或 • 经任何马来西亚授权机构或单位注册或批准的非团体;或 • 马来西亚政府或任何州政府。 非居民 • 居民以外的任何主体;或 • 海外分公司企业、子公司企业、区域办事处、销售办事处和居民公司企业的代表处; 或 • 大使馆 、 领事馆、高级专员公署、 跨国组织、国际组织(包括马来西亚大使馆、领事馆、高级专员公署);或 • 持有国外永久居民身份以及居住于国外的的马来西亚公民。 实体 • 任何在马来西亚以内或以外实体或非法人实体的公司、法定机构,、地方政府、社会团体、合作社团、有限责任合伙企业以及任何团体、机构、协会或个人组织;或 • 马来西亚联邦政府、州政府或其他政府。 集团 • 其最终控股公司; 或 • 其母公司或总部; 或 • 其分支; 或 • 其母公司拥有超过50%的子公司股权的情况下的子公司; 或 • 其本地公司拥有联营公司10%至50%股权的情况下的联营公司; 或姐妹公司,本地公司和其姐妹公司具有共同的股东(拥有至少10%的股权)。 居民实体向非居民获取马币借贷在马来西亚注册的外国公司,根据现行外汇政策,将被视同本地公司。例如,在马来西亚注册的中国子公司,在马来西亚注册的香港分公司,都包括在外汇政策内居民的定义。所以说,居民的定义甚广。只要借贷目的是为在马来西亚实业领域的活动而进行融资,居民实体可以通过实体集团中的非居民公司和非居民直接股东获得无限制的马币数额借贷。马来西亚的实际部门活动是指与以下相关的活动:(一) 在马来西亚生产或消费商品或服务,不包括: 1. 金融服务部门的活动,无论是以伊斯为主的金融还是以其他方式; 或 2. 证券或伊斯兰证券的购买; 或 3. 购买金融文件或以伊斯为主的金融文件; (二) 在马来西亚建设或购买住宅或商业物业,不包括购买不用于建设或生产商品或服务的土地。 外汇政策也允许居民实体通过以下条件从任何非居民处获取无限制的马币数额借贷: (一) 马来西亚证券委员会有关指引规定发行的可流通私人债务证券或伊斯兰私人债务证券(不包括任何非交易债券);或 (二) 马来西亚联邦政府发行的马币或伊斯兰债务证券;或 (三) 以马币发行的可赎回优先股或伊斯兰可赎回优先股。 另外,居民实体也可以向非居民(不包括境外金融机构)获取马币数额借贷总计高达一百万马币,以供在境内使用。居民外币借贷居民实体可以无限制的从以下机构借贷任何外币数额: (一) 持牌境内银行;或 (二) 集团旗下的居民或非居民实体或公司集团旗下的居民或直接股东;或 (三) 通过发行外币计价的公司债务证券(CORPORATE BOND)或伊斯兰固定收益证券(SUKUK)给与另外居民。 如果说居民实体想向非居民金融机构(比如说持牌国外银行),或者向不属于其集团旗下的非居民实体进行外币借贷,借贷数额则被审慎的限制为总计(包括居民集团总借贷数额)一亿马币。居民个人马币和外币借贷至于居民个人,向其非居民直系亲属获取马币或外币借贷都是无数额限制的。“直系亲属”指的是合法配偶、父母、合法子女(包括合法领养)或合法兄弟姐妹(姻亲关系不被视为直系亲属)。如果居民个人必须向非直系亲属的非居民借贷,外汇政策允许的货币数额借贷限制将如下: (一) 向非直系亲属的非居民借贷,马币数额借贷只限于总计最高一百万马币;或 (二) 向非直系亲属的非居民或者持有执照的境内银行借贷,外币数额借贷只限于总计最高一千万马币。 此外,外汇政策也允许居民个人无限制的向马来西亚雇主(须遵守其就业或服务条款)获取马币借贷以供境内使用而已。非居民马币借贷非居民(实体或个人)可以无限制的通过以下方式获取或借贷任何数额马币: (一) 向居民(实体或个人,包括在岸持牌银行)获取融资以供马来西亚实体领域的活动资金;或 (二) 向直系亲属居民获取借贷供任何用途;或 (三) 根据马来西亚的就业、服务条款向马来西亚雇主获取借款以供境内用途;或 (四) 从持有股票经纪的在岸银行、居民股票经纪公司和居民保险公司获取借款以供购买马来西亚证券交易所的交易性的证券或财务金融工具; 或 (五) 获取高达向持牌保险公司或持牌回教保险经营者购买的人寿保险保险或回教保险保单的退保金額. 非居民外币借贷非居民(实体或个人)可以无限制的通过以下方式获取任何外币借贷数额供境内或境外的用途: (一) 向持牌境内银行获取外币借贷;或 (二) 通过发行外币债务证券(包括伊斯兰债务证券)。 非居民可否在马来西亚以马币借款以用于任何目的?非居民仅被允许以马币融资或针对马来西亚实业领域的活动,包括购买不动产,但不包括仅购买土地的情况进行再融资*。非居民也可以向持有执照的境内银行获取马币贸易融资,以便与居民结算货物或服务有关的国际贸易。尽管如上所述,非居民可以从境内银行获得信用卡或记账卡,用于支付境外的零售商品或服务。(*“再融资”包括针对已用于马来西亚实业领域活动或最终将用于马来西亚实业领域活动的现有马币进行再融资,或于同一集团内或直系亲属居民之间进行借款。)总结在马来西亚进行任何借贷,若是根据通告二限制以外进行,借贷人是需向国家银行提交外汇政申请的。至于评估外汇政策的申请时,国家银行一般上将考虑以下几项因素: (一) 其债务性质和其国际收支的风险; (二) 其借款的目的是支持具有生产力的实际经济活动,对马来西亚经济带来切实且正面的效应;和 (三) 申请人的财务状况,其过往合规记录,财务能力以及其管理境外借款风险的风险管理能力。 以上所述规定反映了截至2023年的情况。如果您对最新的法律和政策有疑问,建议您咨询马来西亚相关的法律部门或寻求专业律师的帮助,以获取准确和最新的信息。如需了解更多详细信息,可随时与我们的团队联系。 作者简介 Noelle Low Pui Voon 刘佩焕伙伴律师(企业房地产、产业园、租赁、银行与金融)Halim Hong & Quek 翰林律务所电话:+603 2710 3818电邮:noelle.low@hhq.com.my

马来西亚:物业租赁简介

马来西亚:物业租赁简介; 马来西亚:物业租赁简介

马来西亚劳动法概述:雇主的关键要点

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马来西亚:设立有限责任公司结构

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实用指南: 建筑文件管理

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马来西亚土地法律简介

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Federal Court rejects Purchaser's leave application to appeal on issue of "ready for connection"

INTRODUCTION On 22.6.2023, the Federal Court in the case of Govindan Kumar A/L Muniandy & Anor v Eco Green City Sdn Bhd [Civil Application No.: 08(f)-521-11/2022(B)] unanimously dismissed the Purchaser’s application for leave to appeal to the Federal Court against the Court of Appeal’s decision dated 17.10.2022 [Civil Appeal No.: B-01(A)-467-09/2020], which held that the phrase “ready for connection” found in the Sale and Purchase Agreement (Schedule G) entered between the Developer and Purchaser shall be interpreted to mean that the electrical points and water fittings and fixtures have been installed and supply is available for tapping i.e. ready for connection of supply, and does not mean that supply is actually connected. The Developer, Eco Green City Sdn Bhd was represented by our partner, Ankit R Sanghvi and our associate, Chew Jin Heng. . FACTS On 28.10.2015, the Developer and the Purchaser entered into a Sale and Purchase Agreement for the purchase of the Property for a purchase price of RM663,800.00 (“SPA”). The SPA (Schedule G) is prescribed under the Housing Development (Control and Licensing) Regulations 1989 (“HDR”) and Housing Development (Control and Licensing) Act 1966 (“HDA”). Pursuant to Clause 22 of the SPA, vacant possession of the Property is to be delivered to the Purchaser in the manner stipulated in Clause 23 within 36 months from the date of the SPA. Liquidated damages (“LD”) shall be calculated from day to day at the rate of 10% per annum of the purchase price, from the expiry date of the delivery of vacant possession until the date the Purchaser takes vacant possession of the Property. Clause 23 of the SPA reads: (1)     The Vendor [Developer] shall let the Purchaser into possession of the said Property upon the following: (a)  … (b) water and electricity supply are ready for connection to the said Building;  . Clause 31 (e) of the SPA reads: “ready for connection” means electrical points and water fittings and fixtures have been installed by the Vendor [Developer] and tested and commissioned by the Appropriate Authority or its authorised agent and supply is available for tapping into individual building units; Time for the delivery of vacant possession of the Property was 36 months, which started from 28.10.2015 and ended on 27.10.2018. Notice of delivery of vacant possession of the Property was issued on 15.11.2018 by the Developer to the Purchaser. The electricity meter of the Property was installed on 6.3.2019. . TRIBUNAL On 12.3.2019, the Purchaser filed a claim in the Tribunal against the Developer for LD. On 2.5.2019, the Tribunal decided in favour of the Purchaser and awarded LD in the sum of RM23,642.19, calculated from 27.10.2018 to 6.3.2019 (date of installation of electricity meter) (“Award”). . HIGH COURT On 26.7.2019, the Developer filed a judicial review application to seek for an order of certiorari to quash the Tribunal’s Award. On 19.8.2020, the High Court in Eco Green City Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor [2020] MLJU 1670 allowed the judicial review and held that: (1) Vacant possession of the Property was delivered on 5.2018 upon the issuance of the notice. Therefore, LD shall be calculated from 27.10.2018 to 11.5.2018 (date the notice of vacant possession of the Property was issued). (2) The Tribunal had committed an error in law by concluding that vacant possession was delivered when the electricity meter was installed. (3) The Tribunal failed to give effect to the clear and unambiguous provision in the SPA, and over-stretched the meaning of the words “ready for connection”. . COURT OF APPEAL Aggrieved by the decision of the High Court, the Purchaser appealed to the Court of Appeal for the determination of one principal issue – What is the correct cut-off date for the calculation of LD i.e. (a) date the notice of vacant possession of the Property was issued; or (b) date of installation of electricity meter. On 17.10.2022, the Court of Appeal unanimously dismissed the Purchaser’s appeal and upheld the High Court’s decision. The Court of Appeal held that: (1) “Ready for connection” does not mean that the unit in question must be installed with actual supply and it does not require actual connection. (2) There is no such requirement for meter installation by the Developer in Clause 31(e). This provision only compels the Developer to install the electrical points, and not the electrical meters. . FEDERAL COURT On 16.11.2022, the Purchaser filed a leave application to appeal to the Federal Court against the Court of Appeal’s decision. The Purchaser relied on the Federal Court’s recent decision in the case of Remeggious Krishnan v SKS Southern Sdn Bhd (formerly known as MB Builders Sdn Bhd) [2023] 3 MLJ 1 which made a finding on the interpretation of “ready for connection” under the statutory agreement (Schedule H) prescribed under the HDR and HDA. During the hearing before the Federal Court on 22.6.2023, the Developer submitted that the case of SKS Southern is distinguishable from the facts in this case: (1) Unlike the developer in SKS Southern that made an application to Tenaga Nasional Berhad (“TNB”) after vacant possession was delivered, the Developer in this case made an application to TNB 3 months BEFORE vacant possession was delivered to the Purchaser. Therefore, the Developer in this case had carried out its obligation to ensure the property was “ready for connection” before the notice of vacant possession was issued. (2) The developer in SKS Southern was early and delivered vacant possession of the property before the expiry of the time to do so. However, the developer was found to be liable for “compensatory damages” due to its breach on the manner of delivery of vacant possession. (3) This is different from the facts in this case as the Purchaser in this case is claiming from additional liquidated damages due to the late installation of the electricity meter after vacant possession was already delivered. . After hearing the submissions from both parties, the Federal Court unanimously dismissed the Purchaser’s application for leave with costs of RM30,000.00, as the questions posed by the Purchaser did not meet the threshold and requirements for leave to be granted under Section 96 of the Courts of Judicature Act 1964. . COMMENTS With the decision of the Federal Court, the decision of the Court of Appeal dated 17.10.2022 remains final. The cut-off date for the calculation of LD shall be date the notice of vacant possession of the Property was issued, NOT the date of installation of electricity meter. However, it is important to highlight that since the Purchaser’s leave application was dismissed, the Federal Court did not make any findings or delve into the issues and merits of this case, including the interpretation of the phrase “ready for connection”. As such, the Federal Court’s decision in SKS Southern remains to be the leading authority and law on the phrase “ready for connection” in relation to the supply of electricity and water which is present in all the SPAs (Schedules G, H, I & J) prescribed under the HDR and HDA. This decision, much to the dismay of developers, appears to be a new added burden placed on the heads of developers to ensure that there is actual supply of water and electricity to the property in question at the point of time the notice for delivery of vacant possession is given. Failure to ensure the same would result in the delivery of vacant possession to be deemed invalid and a developer similarly circumstanced would be exposed to compensatory damages, even if the developer actually delivery the notice for delivery of vacant possession within the prescribed time permitted under the SPA in question.    Please do not hesitate to get in touch with the authors of the article and/or the firm if you have any queries on how this recent decision may impact your business or if you require legal advice on this issue.   This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice. About the author Ankit R Sanghvi Partner Arbitration & Adjudication, Asset & Debt Recovery, Banking Litigation, Commercial & Corporate Litigation, Insurance Law, Land Law Litigation, Liquidation & Insolvency, Tort & Negligence Halim Hong & Quek ankit.sanghvi@hhq.com.my . Chew Jin Heng Associate Arbitration & Adjudication, Debt Recovery & General Litigation, Construction Disputes, Contractual Disputes, Land Disputes, Family Law Halim Hong & Quek jhchew@hhq.com.my

马来西亚公司设立:当地法律顾问的重要性与必要性

{:en}探讨企业法律顾问的重要性与必要性,为您在马来西亚设立公司的旅程中驾驭法律要点。{:}{:zh}探讨企业法律顾问的重要性与必要性,为您在马来西亚设立公司的旅程中驾驭法律要点。{:}

The Real Estate Law Review: Malaysia

A person owns real estate by registering his or her ownership or interest in the issue document of title. Generally, there are two types in real estate ownership, which can be categorised according to their respective land tenure, namely leasehold and freehold. A freehold title vests ownership of real estate in perpetuity for an indefinite period within the bounds of Malaysian law. On the other hand, a leasehold title vests the right to real estate for a term not exceeding 99 years. Commonly granted leasehold tenures are for a period of 30 years, 60 years or 99 years, depending on the state authority's policies then in place. A leasehold title may require a lengthier process to acquire and dispose as compared to a freehold title as the state authority's consent is usually required prior to the title registration. Leasehold tenures are mostly renewable with payment of a premium to the state authority. As such, generally, the transaction price of freehold real estate is higher as compared to leasehold real estate due to the land tenure and the conditions on the title required prior to real estate acquisition and disposal. In Malaysia, we have adopted the Torrens System for a record of ownership and dealings of real estate. Under the Torrens System, registration of title is everything and the indefeasibility of title is guaranteed to the proprietor whose name is registered on the document of title. The Torrens System allows a proprietor to hold the document of title officially issued by the land authority, with the details accurately described via a proper land survey. The boundaries and exact size of the property will be marked on a plan attached together with the document of title. The registration of all dealings is done via the statutory forms prescribed under the National Land Code. Consequently, any person who wishes to look for the details of a title, including the ownership, may conduct searches through the respective local land office. Click here to read more.

Amendments to the Employment Act of Malaysia

BACKGROUND All eyes are on the Employment (Amendment) Act 2022 (“Amendment Act”) and the Employment (Amendment of First Schedule) Order 2022 (“Amendment Order”) which will be in force from 1 September 2022 to amend the Employment Act 1955 (“Employment Act”). The Employment Act (as amended by the Amendment Act and the Amendment Order) are only applicable to Peninsular Malaysia (being the states of Johore, Kedah, Kelantan, Malacca, Negeri Sembilan, Pahang, Perak, Perlis, Selangor and Terengganu and the Federal Territory of Kuala Lumpur and Putrajaya[1]) and Labuan, excluding Sabah and Sarawak which are governed by separate laws.   WHAT ARE THE KEY AMENDMENTS MADE TO THE EMPLOYMENT? (1) The Employment Act will apply to all employees regardless of their monthly wages subject to certain exceptions The Employment Act will apply to all employees regardless of their monthly wages, except that the following provisions will not apply to employees whose monthly wages exceed RM4,000: (a) Section 60(3) of the Employment Act which provides the rates of payment to employees who are required to work during their rest days; (b) Section 60A(3) of the Employment Act which provides the rate of payment to employees who work overtime during a normal working day; (c) Section 60C(2A) of the Employment Act which gives the power to the Minister of Human Resource to make regulations relating to the entitlement of allowance during the employees’ shift work; (d) Section 60D(3) of the Employment Act which provides the rates of payment to employees who are required to work during a public holiday; (e) Section 60D(4) of the Employment Act which provides that if any holiday that falls on a half working day, the ordinary rate of pay shall be that of a full working day; and (f) Section 60J of the Employment Act which provides for termination, lay-off and retirement benefits[2].   “wages” means basic wages and all other payments in cash payable to an employee for work done in respect of his contract of service but does not include: (a) the value of any house accommodation or the supply of any food, fuel, light or water or medical attendance, or of any approved amenity or approved service; (b) any contribution paid by the employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme established for the benefit or welfare of the employee; (c) any travelling allowance or the value of any travelling concession; (d) any sum payable to the employee to defray special expenses entailed on him by the nature of his employment; (e) any gratuity payable on discharge or retirement; (f) any annual bonus or any part of any annual bonus; or (g) any payment by way of commission, subsistence allowance and overtime payment[3].   (2) Paid Maternity Leave will be increased Paid maternity leave will be increased from 60 days to 98 days[4]. - What happens if employers fail to comply? Any employer who terminates the service of a female employee during the period in which she is entitled to maternity leave commits an offence provided that such termination shall not include termination on the ground of closure of the employer's business[5]. Any employer who fails to grant maternity leave to a female employee commits an offence, and shall also on conviction, be ordered by the court before which he is convicted to pay the female employee the maternity allowance to which she may be entitled in respect of every day on which the female employee had worked during the eligible period, the payment so ordered being in addition to the wages payable to her, and the amount of maternity allowance so ordered by the court to be paid shall be recoverable as if it were a fine imposed by such court[6]. Further, any condition in a contract of service whereby a female employee relinquishes or is deemed to relinquish any right under Part IX of the Employment Act (which includes the paid maternity leave above) shall be void and of no effect and the right conferred thereunder shall be deemed to be substituted for such condition[7]. Please also refer to the implications highlighted in the conclusion section below. - (3) Termination of Pregnant Female Employee because of Her Pregnancy or Illness arising out of Pregnancy will be prohibited Where a female employee is pregnant or is suffering from an illness arising out of her pregnancy, it shall be an offence for her employer to terminate her services or give her notice of termination of service, except on the grounds of: (a) wilful breach of a condition of the contract of service; (b) misconduct; or (c) closure of the employer's business. Where the service of a female employee above is terminated, the burden of proving that such termination is not on the ground of her pregnancy or on the ground of illness arising out of her pregnancy, shall rest on the employer[8]. - What happens if employers fail to comply? Any condition in a contract of service whereby a female employee relinquishes or is deemed to relinquish any right under Part IX of the Employment Act (which includes the termination of pregnant female employees due to her pregnancy or illness arising out of her pregnancy above) shall be void and of no effect and the right conferred thereunder shall be deemed to be substituted for such condition[9]. Please also refer to the implications highlighted in the conclusion section below.   (4) Weekly Working Hour will be reduced The weekly working hour of an employee will be reduced from 48 hours in one week to 45 hours in one week[10]. Overtime rates (at least one and half times the employee’s hourly rate) will therefore be charged for any hours in excess of the revised total 45 hours per week[11]. Please note that overtime rates will not apply to employees whose monthly wages exceed RM4,000. - What happens if employers fail to comply? Any employer who fails to pay to any of his employees any overtime wages as provided under the Employment Act or any subsidiary legislation made thereunder commits an offence, and shall also, on conviction, be ordered by the court before which he is convicted to pay to the employee concerned the overtime wages due, and the amount of overtime wages so ordered by the court to be paid shall be recoverable as if it were a fine imposed by such court[12]. Please also refer to the implications highlighted in the conclusion section below.   (5) Paid Sick Leave (when hospitalisation is not necessary) will be excluded when using 60 days of Paid Hospitalisation Leave Employees will not be required to use any of their paid sick leave entitlement (when hospitalisation is not necessary) when using their 60 days of paid hospitalisation leave in each calendar year[13]. The paid sick leave (when hospitalisation is not necessary) in each calendar year under the Employment Act depend on the length of service as follows: (a) 14 days if the employee has been employed for less than 2 years; (b) 18 days if the employee has been employed for 2 years or more but less than 5 years; or (c) 22 days if the employee has been employed for 5 years or more[14]. - What happens if employers fail to comply? Any employer who fails to grant sick leave, or fails to pay sick leave pay, to any of his employees, commits an offence, and shall also, on conviction, be ordered by the court before which he is convicted to pay to the employee concerned the sick leave pay for every day of such sick leave at the rate provided under the Employment Act, and the amount so ordered by the court to be paid shall be recoverable as if it were a fine imposed by such court[15]. Please also refer to the implications highlighted in the conclusion section below. - (6) Paid paternity leave of 7 consecutive days per confinement limited to 5 confinements will be introduced Married male employee will have the right to 7 consecutive days of paid paternity leave per confinement up to a maximum of 5 confinements irrespective of the number of spouses. To qualify such paternity leave, a married male employee is required to fulfil the following requirements: (a) he has been employed by the same employer at least 12 months immediately before the commencement of such paternity leave; and (b) he has notified his employer of the pregnancy of his spouse at least 30 days prior to the expected confinement or as early as possible after the birth[16].   What happens if employers fail to comply? Please refer to the implications highlighted in the conclusion section below.   (7) Employers to obtain prior approval from the Director General of Labour before employing foreign employees Employers shall obtain the prior approval from the Director General of Labour before employing foreign employees. An application for the approval shall be made in the form and manner as may be determined by the Director General of Labour. Upon approval of the Director General of Labour, an employer shall, within 14 days from the date of the employment of a foreign employee, furnish the Director General of Labour with the particulars relating to the foreign employee in such manner as the Director General of Labour may direct. The Director General of Labour may, subject to any written law, approve an application if the employer complies with the following conditions: (a) the employer satisfies the Director General of Labour that on the date on which he makes the application: (i) he has no outstanding matter relating to any decision, order or directive issued under the Employment Act; or (ii) he has no outstanding matter or case relating to any conviction for any offence under the Employment Act, the Employees' Social Security Act 1969, the Employees' Minimum Standards of Housing, Accommodations and Amenities Act 1990 or the National Wages Consultative Council Act 2011; or (b) the employer has not been convicted of any offence under any written law in relation to anti-trafficking in persons and forced labour[17]. - What happens if employers fail to comply? Employers who contravene commits an offence and shall, on conviction, be liable to a fine not exceeding RM100,000 fine and/or 5 years imprisonment[18]. Please also refer to the implications highlighted in the conclusion section below.   (8) Employers to inform the Director General of Labour of the Termination of Employment of Foreign Employees If the service of a foreign employee is terminated: (a) by his employer; (b) by reason of the expiry of the employment pass issued by the Immigration Department of Malaysia to the foreign employee; or (c) by reason of the repatriation or deportation of the foreign employee, the employer shall, within 30 days of the termination of service, inform the Director General of Labour of the termination in the manner as may be determined by the Director General of Labour. On the other hand, if a foreign employee terminates his service or absconds from his place of employment, the employer shall, within 14 days of the termination of service or after the foreign employee's absence, inform the Director General of Labour in the manner as may be determined by the Director General of Labour[19]. - What happens if employers fail to comply? Please refer to the implications highlighted in the conclusion section below.   (9) Flexible Working Arrangement (subject to the discretion of the Employers) will be introduced Employees can apply for flexible work arrangement with their employers to vary the hours of work, days of work or place of work in relation to his employment. Where there is a collective agreement, any application made by the employee above shall be consistent with the terms and conditions in the collective agreement[20]. Further, the employee shall make an application for flexible working arrangement above in writing and in the form and manner as may be determined by the Director General of Labour. Upon the application, an employer shall, within 60 days from the date such application is received, approve or refuse the application. The employer shall inform the employee in writing of the employer's approval or refusal of the application above and in the case of a refusal, the employer shall state the ground of such refusal[21]. - What happens if employers fail to comply? Please refer to the implications highlighted in the conclusion section below.   (10) Director General of Labour has the power to inquire on Complaints relating to Discrimination The Director General of Labour is given the power to inquire into and decide any dispute between an employee and his employer in respect of any matter relating to discrimination in employment, and the Director General of Labour may, pursuant to such decision, make an order[22]. What amounts to “discrimination” is however not provided for in the Employment Act. - What happens if employers fail to comply? Employers who fail to comply with the Director General of Labour’s order commit an offence and shall on conviction, be liable to a fine not exceeding RM50,000 and for continuing offence, a daily fine not exceeding RM1,000 for each day the offence continues[23]. Please also refer to the implications highlighted in the conclusion section below.   (11) Exhibit of Notice of Sexual Harassment at the Workplace Employers must exhibit conspicuously a notice to raise awareness on sexual harassment at the workplace[24]. - What happens if employers fail to comply? Please refer to the implications highlighted in the conclusion section below.   (12) Prohibition of Forced Labour Any employer is prohibited from forced labour, i.e. threatening, deceiving or forcing an employee to do any activity, service or work and prevents that employee from proceeding beyond the place or area where such activity, service or work is done[25].   What happens if employers fail to comply? Employers shall commit an offence and shall, on conviction, be liable to a fine not exceeding RM100,000 or to imprisonment for a term not exceeding 2 years or to both[26].- Please refer to the implications highlighted in the conclusion section below.   Conclusion It was reported that the Malaysian Employers Federation has urged the government to delay implementing the amendments to the Employment Act 1995 from 1 September 2022, which it estimates will cost employers nationwide an extra RM110.99 billion per year which derived from the following: (a) increase in overtime costs to RM4,000 per month from RM2,000 (RM80.87 billion); (b) reduction of hours of work to 45 hours per week, from 48 hours (RM26.88 billion); (c) increase maternity leave to 98 days, from 60 days (RM2.97 billion); and (d) paternity leave of seven continuous days per birth (RM275 million).[27] - With the above Amendment Act and Amendment Order that are going to bring about more protection and advantages for the employees with effect from 1 September 2022, all employers should get themselves prepared and consider engaging their lawyers to review their existing employment contracts and employment handbook/policies to ensure that they comply with the Employment Act taking into account that: (a) Any term or condition of a contract of service or of an agreement, whether such contract or agreement was entered into before or after the coming into force of the Employment Act, which provides a term or condition of service which is less favourable to an employee than a term or condition of service prescribed by the Employment Act or any regulations, order or other subsidiary legislation whatsoever made thereunder shall be void and of no effect to that extent and the more favourable provisions of the Employment Act or any regulations, order or other subsidiary legislation whatsoever made thereunder shall be substituted therefor[28]. (b) Further, apart from the specific penalties highlighted above, any person who commits any offence under, or contravenes any provision of, the Employment Act, or any regulations, order, or other subsidiary legislation whatsoever made thereunder, in respect of which no penalty is provided, shall be liable, on conviction, to a fine not exceeding RM50,000[29]. (c) Where an offence under the Employment Act has been committed by, amongst others, body corporate, any person who is a director, manager, or other similar officer of the body corporate at the time of the commission of the offence shall be deemed to have committed the offence and may be charged jointly or severally in the same proceedings as the body corporate[30]. (d) If any person fails to comply any decision or order of the Director General of Labour pursuant to an enquiry, such person commits an offence and shall be liable, on conviction, to a fine not exceeding RM50,000; and shall also, in the case of a continuing offence, be liable to a daily fine not exceeding RM1,000 for each day the offence continues after conviction[31]. (e) Where an employer has been convicted of an offence relating to the payment of wages or any other payments payable to an employee under the Employment Act, the court before which he is convicted may order the employer to pay any payment due to the employee in relation to that offence. Where an employer fails to comply with an order, the court shall, on the application of the employee, issue a warrant to levy the employer's property for any payments due in the following manner: (i) by way of distress and sale of employer's property in accordance with the same procedure of execution under the Rules of Court 2012 and this execution shall apply mutatis mutandis notwithstanding the amount in the order; or (ii) in the same manner as a fine as provided under section 283 of the Criminal Procedure Code[32]. - - - [1] Section 2 of the Employment Act and Section 3 of the Interpretation Acts 1948 and 1967. [2] Section 2 of the Amendment Order (as incorporated in the First Schedule of the Employment Act). [3] Section 2(1) of the Employment Act and First Schedule of the Employment Act. [4] Section 12 of the Amendment Act (as incorporated in Section 37(1)(d)(ii) of the Employment Act). [5] Section 37(4) of the Employment Act. [6] Section 94 of the Employment Act. [7] Section 43 of the Employment Act. [8] Section 13 of the Amendment Act (as incorporated as a new Section 41A of the Employment Act). [9] Section 43 of the Employment Act. [10] Section 20 of the Amendment Act (as incorporated in Section 60A(1)(d) of the Employment Act). [11] Section 60A(3) of the Employment Act. [12] Section 100(2) of the Employment Act. [13] Section 22 of the Amendment Act (as incorporated in Section 60(F)(1) of the Employment Act). [14] Section 60(F)(1)(aa) of the Employment Act. [15] Section 100(5) of the Employment Act. [16] Section 23 of the Amendment Act (as incorporated as a new Section 60FA of the Employment Act). [17] Section 24 of the Amendment Act (as incorporated as a new Section 60K of the Employment Act). [18] Section 24 of the Amendment Act (as incorporated as a new Section 60K(5) of the Employment Act). [19] Section 25 of the Amendment Act (as incorporated as a new Section 60KA of the Employment Act). [20] Section 27 of the Amendment Act (as incorporated as a new Section 60P of the Employment Act). [21] Section 27 of the Amendment Act (as incorporated as a new Section 60Q of the Employment Act). [22] Section 30 of the Amendment Act (as incorporated as a new Section 60F of the Employment Act). [23] Section 30 of the Amendment Act (as incorporated as a new Section 60F(2) of the Employment Act). [24] Section 36 of the Amendment Act (as incorporated as a new Section 81H of the Employment Act). [25] Section 41 of the Amendment Act (as incorporated as a new Section 90B of the Employment Act). [26] Section 41 of the Amendment Act (as incorporated as a new Section 90B of the Employment Act). [27] https://www.theedgemarkets.com/article/mef-urges-govt-delay-enforcing-employment-act-amendments-estimated-cost-rm111-bil-year [28] Section 7 of the Employment Act. [29] Section 99A of the Employment Act. [30] Section 101B of the Employment Act. [31] Section 69 of the Employment Act. [32] Section 40 of the Amendment Act (as incorporated as a new Section 87A of the Employment Act). . About the Author Maple Chieng Hea Fong Partner Halim Hong & Quek maple.chieng@hhq.com.my This article dated 19 August 2022 is contributed by Maple Chieng for general information/guidance only and is not meant to be exhaustive, and it is not a substitute for legal advice.
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