The Federal Court in Bar Council of Malaysia v. Michael Joseph Carvalho & Anor. [2023] MLJU 1873; [2023] 1 LNS 1663; [2023] 6 MLRA 50 (“the Appeal”) recently delivered a decision to clarify the extent of the Bar Council’s discretion to regulate and administer its Compensation Fund under s. 80 Legal Profession Act 1976 (“LPA”).
The Compensation Fund is a Fund contributed to by members of the Malaysian Bar. Payments are made out from the Fund to approved claimants in the form of grants to mitigate losses sustained by members of the public caused by the acts of dishonesty of an advocate and solicitor.
The Federal Court was to decide upon 8 questions of law that had been admitted in the Appeal. Those 8 questions of law are set out below in the end notes.
The crux of the Appeal was whether the Bar Council had the power to formulate guidelines governing a lay client’s eligibility for grants to be paid out of the Compensation Fund and whether paragraph 2(b) of the “Guidelines on Making a Claim for Compensation” (“the Guidelines”) was ultra vires s. 80 LPA.
Paragraph 2(b) of the Guidelines had sought to limit the making of grants from the Compensation Fund solely to cases involving defrauding solicitors practicing as sole proprietors, and not to cases involving defrauding solicitors who were practicing in partnerships. It was stated that this was because of the finite nature of the Compensation Fund and the availability of alternative legal recourse against the partners of the defrauding solicitor under the provisions of the Partnership Act 1961.
The High Court had ruled in favour of the Bar Council in Michael Joseph Carvalho lwn. Majlis Peguam Malaysia [2022] 10 MLJ 70 by holding that the Respondents were not entitled to grants from the Compensation Fund as they did not meet the eligibility criteria under the Guidelines. The decision at first instance was however overturned in Michael Joseph Carvalho v. Majlis Peguam Malaysia [2023] 1 MLJ 139 where the Court of Appeal, inter alia, observed that the Bar Council did not have the power to issue the Guidelines in the absence of any express power under the LPA. The Bar Council then filed the Appeal against the Court of Appeal’s decision.
The Federal Court dismissed the Appeal and held that paragraph 2(b) of the Guidelines was ultra vires the LPA as s. 80(8) LPA envisaged grants to be paid out of the Compensation Fund even for losses arising from the dishonest acts of clerks and servants of an advocate and solicitor and because the said provision made no distinction between defrauding solicitors practicing as sole proprietors and those that practiced in partnerships.
This decision nevertheless assuages the findings of the Court of Appeal as the Federal Court observed that the Guidelines were in fact made by the Bar Council pursuant to the Advocates and Solicitors Compensation Fund Rules 1978 read with s. 80(12) LPA and further clarified that the Bar Council has the discretion to formulate guidelines to administer the Compensation Fund to the extent that they are not inconsistent with s. 80(8) and s. 80(9) LPA.
The Federal Court also answered Questions 1, 3 and 7 in the affirmative “so long as they are in conformity with the provisions of section 80(8) and (9) of the LPA, which in this case they are not. In that sense the questions are academic but answers are needed due to their public importance”. Questions 2, 4, 5 and 6 were answered in the negative and the Court declined to answer Question 8.
The effect of the Questions answered in the affirmative is that, amongst others, the Bar Council is entitled to enact guidelines to govern the exercise of its discretion under s. 80(8) LPA and the Bar Council has the latitude to determine the circumstances under which a grant from the Compensation Fund is to be made, as long as the exercise of that discretion accords with s. 80(8) and s. 80(9) LPA.
As a consequential order, and in accordance with the doctrine of prospective overruling, the Federal Court also pronounced that its decision was to only have effect prospectively and is to take effect from 28 August 2023.
Gregory Das (of Messrs. Cyrus Das) and Jeremiah Rais and Leah Samuel of Messrs. Steven Thiru and Sudhar Partnership appeared for the Bar Council in the Federal Court.
End Notes
(1) Whether the duty cast upon the Bar Council to act in a “fair and reasonable” manner under s. 80(8) LPA would entitle it to enact guidelines to govern the exercise of discretion so as to prevent an arbitrary or non-uniform exercise of the power by successive office-bearers of the Bar Council?
(2)(a) Whether the second of the two (2) conditions in s. 80(8) LPA, namely, that the Bar Council may make a grant out of the Compensation Fund if it “thinks fair and reasonable”, would justify the Bar Council to restrict the making of grants to persons who have an alternative remedy to recover any loss from the fraudulent act of an Advocate and Solicitor?
(2)(b) Arising from the above, whether it would therefore be “fair and reasonable” to differentiate between a law firm which is a sole proprietorship from that which is a partnership on the basis that the liability in respect of the latter is a partnership liability recoverable from the partnership and duly insured thereon?
(3) Whether the principle that a wide deference is to be accorded to professional bodies to regulate their affairs applies in the context of s. 80(8) LPA to empower the Bar Council with the latitude in determining the circumstances under which a grant out of the Compensation Fund can be made whether by administrative guidelines or rules?
(4) Whether the power of the Bar Council under s. 80(8) LPA to make a grant out of the Compensation Fund “Where it is proved to the satisfaction of the Bar Council” and where “…the Malaysian Bar may, if the Bar Council thinks fair and reasonable…” to do so, confers upon the Bar Council a discretion to limit the circumstances under which such a grant can be made?
(5) Whether the Bar Council may justifiably decline to make a grant out of the Compensation Fund under the “fair and reasonable” condition in s. 80(8) LPA if the complainant seeking the grant had already obtained from the Advocates and Solicitors Disciplinary Board an order of restitution under s. 100(10) LPA against the defrauding solicitor, which the complainant is entitled by the said section to enforce as an order of the High Court?
(6) Whether the power of the Bar Council under s. 80(8) LPA to make a grant out of the Compensation Fund must be read with s. 100(10) LPA, which entitles a complainant to enforce an order of restitution made by the Advocates and Solicitors Disciplinary Board for the dishonest acts of an advocate and solicitor, where such order of restitution has been made for the dishonest acts that form the basis of the claim for a grant under s. 80(8) LPA?
(7) Whether s. 80(12) LPA empowers the Bar Council to make rules whether called guidelines that relate to the substantive rights of persons who make a claim for a grant out of the Compensation Fund?
(8) Whether a Court of law is empowered to compel the Bar Council to make a grant out of the Compensation Fund under s. 80(8) LPA which overrides the discretion vested in the Bar Council to decide if it is “fair and reasonable” to do so?
