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BBBL 3053 Corporate Banking Practice &.

Law (For TARC Students Only)

Chapter 1: Introduction to the Malaysian Legal System

BKL 1.0
Part 1: The Federal Constitution

Article 4 (1) of the Federal Constitution states:

‘This Constitution is the supreme law of the Federation and any law passed after Merdeka
Day which is inconsistent with this Constitution shall, to the extent of the inconsistency,
be void.’

Thus, the Federal Constitution is the supreme law of Malaysia and any law that goes
against the Constitution is invalid.

Basic features of the Federal Constitution:

i. The Federation shall be known by the name Malaysia – Art. 1.

ii. The Federation comprises 13 states controlled by a central government. (Malaysia

adopts a federal system of government).

iii. There is a constitutional Monarch called the “Yang di-Pertuan Agong” who is the
titular head of the country with 13 state rulers.

iv. It practices a system of parliamentary democracy comprising of a legislative body

called Parliament, and the Executive or cabinet.

v. The Judiciary is a separate and independent branch of the government.

Part 2: The THREE (3) Bodies of Government & the Doctrine of Separation of

Under the constitution the federation shall be govern by the THREE (3) organs of state
namely Parliament, the Executive and the Judiciary.

Doctrine of Separation of Powers

Separation of powers is a basic principle in a democratic form of government. It means
that there should be three distinct branches of government i.e. the Legislative, Executive
and Judiciary and whose functions and powers are separated and is subject to and
accountable to law. Thus this is called a government based on rule of law.

The idea of constitutionalism is to impose limitations on the organs of government i.e.

restriction of powers on the 3 branches of government. The powers of each of them must
be separated. If it is allowed to concentrate in one individual or body of government, for
example if legislative power and executive power is given to one body only, it may lead
to abuse, oppression or arbitrary misuse of powers. There will not be any check and
balance as to what they will use the power for.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

Function of each of the organs of state:

1. THE LEGISLATURE: Parliament is the legislative body whose function and

power is to make laws for the country – Article73.

The Federal Constitution states that the legislative power of the country shall be in
the hands of Parliament which consists of the Dewan Rakyat (House of
Representatives) and Dewan Negara (The Senate) – Art. 44.

Parliament make laws for the whole country while the State Legislatures or State
Legislative Assembly shall make laws for their respective states.

2. EXECUTIVE or Cabinet shall be the body whose function is to administer the

country in accordance to the laws of the country – Art. 43.

The executive shall comprise the Federal Government, the State

Government, and the Local Authorities.

3. JUDICIARY – the body whose function is to administer the law of the country –
Art. 121.

The judiciary shall comprise the Federal, the Court of Appeal, the two High
Courts, the Sessions Courts, Magistrates Courts and other subordinate courts.

The Constitution states that the judiciary is to carry out the judicial powers. In a
democracy such as Malaysia, the judiciary is the third branch of government and
plays an important role in maintaining the balance of power between the
executive and the state.

The judiciary performs the following functions:-

i. Decide on civil and criminal matters.
ii. Interpretation of the Federal and State Constitutions.
iii. Determining whether legislative and executive acts are legally correct.

The primary role of the courts is to apply the law. In order for the Judiciary to
perform its role effectively, it must be independent i.e. it has to be free from
interference of any kind.

All three branches are to operate separately and independently of each other.

The Malaysian system, however, is more like the British system. There is no separation of
executive and legislative power because of the Cabinet-style of organization. There is a fusion of
legislative and executive functions. The cabinet consists of the ministers who are also members of
Parliament. So the executive branch of government is also part of the legislature.
As the Cabinet usually controls a large majority in parliament, Parliament is controlled by the
executive. So the Cabinet usually gets its way by passing legislation along this line.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

But the judiciary is still independent of the other two branches. No Member of Parliament or the
executive can become a member of the judiciary or vice-versa.

Supremacy of the Federal Constitution

In the British system of government, the British Parliament is supreme as UK has no written
constitution. The British Parliament can make and unmake any law it likes and the validity of
such acts cannot be challenged in the courts.

However, the Malaysian Parliament came into existence only after the Federal Constitution was
‘created’. Therefore our Parliament is governed by the Constitution and it must follow the
Constitution when carrying out its function. This means that in Malaysia the Constitution, and
not Parliament, is supreme. Thus, if there is a conflict between the Constitution and an Act of
Parliament, the Constitution will prevail and must be followed. See Article 4 Federal
Constitution supra.

Part 3: The Sources of Malaysian Law.

Where do Malaysia derive its laws from?


Written Unwritten Islamic Native

Law Law Law Law

Subsidiary Court
Constitution Legislation English Law Customs
Legislation Decisions

There are basically two main sources of law in Malaysia: –

i. unwritten law and
ii. written law.

Unwritten law

Unwritten law does not mean it is not in writing. It means that these laws are not made by
Parliament and it is not part of the Constitution. It is also called non-statutory law. The
main sources of unwritten law comprise of:

1) Common law – they are judge-made laws arising from judicial decisions or court
decisions made by judges sitting in the Superior Courts. This practice is inherited
from England.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

2) Local customs – these are customs practice by the different races e.g. Malay
Adat, Chinese customs and Indian customs which has some legal force, and

3) English law which can be used in Malaysia. As a former colony of Britain, it is

natural that English law is embedded into the foundation of our legal system.
English law is adopted only in so far as they are suitable to local conditions. After
1st April 1972 all these laws have now been incorporated into our Civil Law Act
1956 (Revised 1972).

Written law – Legal sources

Written Law is the most important source of law in Malaysia and it comes from

1. The Federal Constitution

2. Legislation i.e. laws made by our Parliament.
3. State Constitutions and state laws made by respective State Assemblies.
4. Subsidiary or delegated legislation.

Federal Constitution
The Federal Constitution of Malaysia is a written document which lay down the powers
of the federal government and the rights of the citizens. It is the supreme law of the

Legislation - Acts of Parliament

Parliament legislate laws which applies throughout the country. After 1957, laws passed
by parliaments are called Acts.
Prior to 1957, the laws made between the periods of the Malaysian Union in 1946 and
1959 are called Ordinances.

*Laws made by Parliament and the State Legislatures are not supreme. They are
restricted in their law-making powers. They can only make laws within the limits set by
the Federal Constitution.

State Constitution
There are 13 states which comprises the federation. Each state has its own state
constitution and a state legislative assembly to govern the state.

Laws made by the State Legislative Assemblies are called Enactments. Exception - for
Sarawak where the laws passed by the state assembly are called Ordinances. The laws
enacted by the State Assembly is applicable to the state only.

Subsidiary or delegated legislation

Subsidiary legislation is also known as subordinate legislation (sometimes called
delegated legislation).

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

This means Parliament delegate (gives the right or power to make laws) to an authorized
body by an Act of Parliament or State Enactment e.g. local council by-laws or regulations

Reasons for delegated legislation:

1. Parliament has limited time, and as such Parliament cannot make all the laws.

2. At times there is a need for specialized expertise in certain areas of law. Since not
all members of Parliament are experts in that particular area, it would be better
for the experts in the respective government department to make the rules in those
Advantages of delegated legislation

1. One advantage of subsidiary legislation is its flexibility and speed of making law.

2. Ability to accommodate the changing needs of society quickly.

3. Ability to handle emergency or crisis situations e.g. like in an economic crisis

where the Minister of Finance has to take fast actions by making new regulations
to alleviate or control the situation. Once the regulations become outdated, the
Minister can rescind them easily, thus they are flexible.

Disadvantages of delegated legislation

1. Members of Parliament are elected by the people every five years. This means the
people have given them the mandate to decide and make laws for the country. If
this right to make law is given to civil servants, there may be abuses of this right.

2. Too much power to make laws is given to civil servants who are not elected by the
citizen and not directly accountable to Parliament.

3. Over-delegation may result in the legislature abdicating or ‘giving-up’ its actual

constitutional role i.e. to make law, to the executive.

Other Sources:
The other sources of law are Islamic law and the Native law.

Islamic law is applicable only to Muslims and administered in the Syariah Courts.
Except for the federal territories of Kuala Lumpur and Labuan, the powers to administer
Islamic law are primarily that of the States.
The Syariah Court is a state court established by state law whereas the ordinary civil
courts are federal courts. The Syariah Courts has its own hierarchy.

Native Law - this law is applicable to natives of Sabah and Sarawak. Natives are the
indigenous people of these two states. There is a hierarchy of Native Courts in both states
exercising jurisdiction over natives in respect of their personal laws e.g. native customs,
religion and matrimonial matters

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

Part 4: The Hierarchy of the Malaysian Courts

Federal Court

of Courts

Subordinate High Court High Court

Courts of of
Malaya Sabah & Sarawak

Sessions Sessions
Court Court

Magistrates Magistrates
Court Court

Hierarchy of Court – Organization of the Courts

The court system is in the form of a hierarchy like a pyramid.
The Superior Courts are the Federal Court, Court of Appeal and the High Courts of Malaya and
the High Courts of Sabah & Sarawak and they have supervisory duty over the Subordinate
The Subordinate Courts comprises the Sessions Courts and below it the Magistrates Courts.

The hierarchy is essential for an appeals system. It distinguishes between higher and lower
courts so that if a party to a case feels that injustice has been done in a lower court, that party can
have his case reconsidered by a higher court.

The appeals system is also part of the doctrine of judicial precedent. The system where the
superior courts are more authoritative than the subordinate courts ensure that courts are clear as
to which precedent is binding on them.

‘Jurisdiction’ means ‘the right to decide’ and a court’s jurisdiction means the type of cases
the court can hear.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

Part 4: Judicial Decisions: Doctrine of Judicial Precedent.

What is a precedent?
Judges, when arriving at a decision will follow certain accepted principles commonly
known as judicial precedents.

A judicial precedent can be defined as a previous ‘judgment or decision of a superior

court of law cited as an authority for the legal principle embodied in its decision’ and
which is binding on the lower courts.

Binding Precedent
A binding precedent means when determining a dispute before the courts, the judges will
follow what their predecessors had decided earlier in a similar situation. This practice is
sometimes called ‘stare decisis’ meaning a doctrine according to which previous judicial
decisions must be followed. (‘Stare decisis’ means ‘to stand by past decisions’).

How does the doctrine of precedent work?

Binding precedent works according to the hierarchy of courts. A judicial precedent or
decision made by a superior court is binding on the lower court .e.g. the decision of the
Federal Court will bind all courts below it; the decision of the Court of Appeal will bind
the High Court and the lower courts, and decisions of the High Courts will bind all courts
below it e.g. the Sessions and Magistrate Courts.

Once a precedent is made, it remains binding on the subordinate courts until it is

overruled by a higher court in a later case.
Judicial precedent is important. They make judge-make laws certain but at the same time
it gives rise to advantages and disadvantages.

The advantages of the precedent system are certainty, precision and flexibility. There is
legal certainty, in that, if the legal problem has been solved before, the court is bound to
adopt the same solution. Lawyers can thus advise their clients safely.

The disadvantage of the system is its rigidity, which may sometimes caused hardship.
Also, the judges must keep themselves updated with the ever increasing bulk of new
reported cases in order to keep up and determine the law.

Whilst judicial precedent is important because it makes the law certain but at the same
time they can be rigid and retard development of the law. Sometimes it can only be
corrected by legislation to improve on the common law.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)



Arbitration is a form of alternative dispute resolution. The governing statute is the

Arbitration Act 2005.
There is also the Institute of Arbitration, where parties seeking arbitration may
consult the institute to find a suitable arbitrator from its list of registered members.

What is Arbitration?

Arbitration is a private means of settling a dispute without having to go to court. It can

only be used where the parties have agreed to resort to arbitration as a means to dispute
resolution. It involves appointing an independent arbitrator to decide on the issues being
disputed by the parties.

Arbitration is not part of the public legal system but is governed by the Arbitration Act
2005. The Act provides that the arbitrators' award (decision) is binding and may be
enforced as if it is the judgment of the High Court.

The arbitrator will carry out his work in accordance with the terms of reference set by the
parties. However, the decision of the arbitrator may be appealed against on points of law
and this is provided the parties agree that the matter should be appealed or that they have
obtained permission of the High Court to appeal.

Arbitration is widely used for settling commercial disputes which may arise by agreement
of the parties as well as provided by statute.

Objective of Arbitration
The objective of arbitration can be sum up by looking at the United Kingdom Arbitration
Act 1996 as follows:

Section 1 of the Arbitration Act 1996 states that it is founded on the following principles:

i. the objective of arbitration is to obtain a fair resolution of disputes by an impartial

tribunal without necessary delay or expense;
ii. the parties should be free to agree how their disputes are resolved subject only to
such safeguards as are necessary in the public interest;
iii. in matters governed by this part, the Court should not intervene except as
provided by this part.

Who is an Arbitrator?
An Arbitrator is a person chosen and agreed upon by all the parties to the arbitration.
In choosing an arbitrator, the parties would want to protect their interest and ensure that:
i. He is impartial i.e. he is not connected to any of the disputing parties,
ii. He has the relevant skill and expertise in the particular field, and
iii. He has the experience in the specific area of dispute.

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BBBL 3053 Corporate Banking Practice &. Law (For TARC Students Only)

Types of Arbitration:

Quality Arbitration – which requires an arbitrator who has special knowledge on quality
of goods or services. They must be professionals who have experience in that field.

Technical Arbitration – these arbitrators are requires to have legal knowledge to

interpret laws and clauses. In this case only legally qualified barristers may serve as

Mixed Arbitration – these type of arbitration will involve both the interpretation of laws
and or clauses and knowledge of quality of goods or services, the arbitrator must be one
who possesses both qualifications.

Advantages of resorting to Arbitration

Arbitration are widely resorted to settle disputes because:

i. The parties can choose the arbitrator, agree on the procedure and venue of

ii. The arbitrator is chosen for his expertise, legal knowledge, experience and
technical skill in that particular field.

iii. The arbitration procedure is less formal and designed to minimise legal

iv. The process of dispute settlement becomes expeditious and less expensive.
(Expeditious means done with speed and efficiency).

v. The hearing is in private and confidential to the parties.

vi. Awards by the arbitral tribunal are binding and enforceable through the courts.

Disadvantages of resorting to Arbitration:

i. Powers of the arbitrators are limited to the terms of reference as agreed by the

ii. Arbitrators may lack technical knowledge and legal experience.

iii. Arbitrators have no power of control when third parties e.g. witnesses are

iv. Parties may take advantage of the informality and delay the submission of

v. Arbitration can still be costly and protracted (prolonged).


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