Consistent practice: A look at the nation’s legal rules and statutes

There are two parallel systems of law operating in Brunei Darussalam. Statutory laws, which regulate mercantile activities and disputes between persons and are generally referred to as the common law system, are based upon English acts-codified law. These courts are also known generally as civil courts and have exclusive jurisdiction over all civil and criminal cases in the country. The rules of procedure used in higher courts are based on the pre-1999 practices of the English supreme court.

THE APPLICATION OF LAWS ACT: An important piece of legislation in the Sultanate is the Application of Laws Act. This statute essentially stipulates that the common law of England and the doctrines of equity, together with statutes of general application, as administered or in force in England prior to April 25, 1951, shall be in force in the Sultanate. The important proviso to this is that said common law, doctrines of equity and statutes of general application shall only be in force so far as circumstances permit. They are also subject to be qualified by local circumstances and customs. The Contracts Act and Specific Relief Acts embody a codified system of contract law and laws of equity that are based on English common law.

SHARIA: The second independent system of courts in the Sultanate is based on sharia law. This court system has limited exclusive jurisdiction to hear and decide matters of personal law relating to persons that belong to the Islamic faith on matters pertaining to marriage, divorce, inheritance, maintenance of dependents and the estates of deceased Muslims.

However, in the event that parties to a commercial or business transaction mutually agree that Islamic principles are to apply to the contract, then, in addition to complying with civil law, the transaction must also comply with sharia principles. Such events, however, tend to deal with very restricted areas of Islamic banking and insurance. In the event of a dispute in those circumstances, the civil courts will still have the jurisdiction to hear and determine the matter at hand. There has been an increasing tendency for state-owned companies to finance projects in accordance with Islamic principles. The security documentation relating to these sukuk Al ijara are compliant with both civil law and Islamic principles, and any disputes will be within the jurisdiction of the civil courts.

COMMON LAW LEGACY: As has been the case with successful economies in other Commonwealth countries, the adoption and application of English commercial law principles to mercantile affairs has proven to be a wise decision. It has allowed for a stable and prosperous economy, and the principle of stare decisis has helped reassure commercial law transactions.

There have, however, been recent calls for the introduction of more Islamic law into the commercial legal system. It remains to be seen if the implementation of such Islamic law principles will have any effect on inward foreign direct investment (FDI), whether any such new laws will have any effect on non-Muslims, and whether there will be a twin-tracked system of courts in both civil and criminal law.

STRUCTURE: The system of civil law within the civil courts is generally administered by UK-qualified judges.

The majority of the leading private legal practitioners were also educated and obtained their professional qualifications in the UK. The Court of Appeals is presided over by visiting retired judges from the Hong Kong Court of Appeals, while the High Court consists of both local and former Hong Kong High Court judges. Local judges were mainly educated and obtained their professional qualifications in the UK. For civil matters, parties to a dispute can mutually agree before the commencement of the trial or the Court of Appeal hearing to have the Judicial Committee of the Privy Council sitting in the UK as the court of final appeal for their case. The language of the law courts is English, and the laws are enacted in English, with a Malay version. Legislative enactments are included as laws.

BUSINESS REGULATION: Aside from the laws regulating investment funds and telecoms, laws generally reflect the principle of primary regulation as opposed to secondary regulation of business activities. This means that while the Sultanate actively regulates the registration of businesses, it is not intrusive. It administers only laws relating to public policy, safety, health and employment. The actual carrying on of business is left to the entrepreneurs, with minimal interference from the authorities.

In accordance with its plans to diversify the economy away from dependence on the oil and gas sectors, the government has to ensure the laws of the Sultanate are up to date with neighbouring countries and complement the business atmosphere. There are currently active movements by the Ministry of Energy to try to encourage the oil and gas industry to implement more local business development plans. The traditions and strengths of the Sultanate’s common law traditions have allowed it to quickly and easily import and modify the latest commercial laws from other leading common law countries, such as the UK and Singapore. The rule of law and laws themselves are seen as the cornerstone of a healthy business environment. Investors in the Sultanate, both local and foreign, can be assured that the government will conduct all its business with foreign investors in accordance with the law.

FOREIGN INVESTMENT: The desire to welcome foreign investment has resulted in the setting up of several facilitating agencies, including Badan Kemajuan Industry Negara Brunei Darussalam (BINA) under the Ministry of Industry and Primary Resources; the Brunei Economic Development Board (BEDB), a statutory body; and government-related companies such as Semaun Holdings and its subsidiaries. Government-related companies have entered into joint ventures with foreign partners, while BINA has been successful in enticing FDI.

INDUSTRIAL PARK: On February 7, 2007 the BEDB signed a contract with a local contractor to open the first phase of an industrial park. The BEDB plans to develop a 271-ha site, next to existing upstream gas refinery facilities at Mukim Liang, into an industrial park. The Sungai Liang Industrial Park (SPARK) was intended to eventually play host to a number of petrochemicals projects and include downstream small and medium-sized enterprises. Unfortunately, since the formation of the Brunei Methanol Company by the government and Japanese stakeholders, there does not appear to be any foreign investment to date.

In order to assist in the effectiveness of the park, His Majesty the Sultan enacted SPARK Authority Order 2007, which provided for a one-stop agency to lessen difficulties associated with local government processes and was also intended to provide for a better working partnership between the law and businesses, as well as to look after the welfare of the local community in and around the park’s area. To coordinate its international trade matters in cooperation with the country’s foreign affairs, the international trade division of the Ministry of Primary Resources was placed under the jurisdiction of the Ministry of Foreign Affairs and Trade.

JUDICIAL AUTONOMY: The principle of governance by and in accordance with the rule of law has been in place in the Sultanate since before its independence in 1984. The judiciary enjoys complete autonomy. On its webpage the Supreme Court of Brunei Darussalam states as its primary mission: “To decide and resolve justly; to administer effectively; to enhance public trust and confidence.” Between the years 2000 and 2012, several new pieces of legislation were passed to cater to and facilitate the establishment, growth and the protection of businesses in various financial and industrial sectors. Several pieces of legislation had been implemented to offer incentives, including tax breaks, to certain key industries. An outline of recent and relevant legislation is provided here by order of industry.

BUSINESS-RELATED: In the financial, banking, international financial and investment management sectors, a range of laws have been enacted for the setting up of businesses that relate to international finance and banking, insurance, funds, trusts and other similar activities and services. These include the International Business Companies Order, 2000; International Limited Partnerships Order, 2000; Mutual Funds Order, 2000; International Trust Order, 2000; Registered Agents and Trustees Licensing Order, 2000; Securities Order, 2001; International Banking Order, 2000; Banking Order, 2006; International Insurance and Takaful Order, 2002; Money Laundering Order, 2000; Anti-Terrorism (financial and other measures) Order, 2002; Emergency (drug trafficking) Recovery of Proceeds Order, 1996; Brunei Economic Development Board Act, (revised 2003); Criminal Conduct (recovery of proceeds) Order, 2000; Sungai Liang Authority Act (revised 2009); Distress Act (revised 2009) and Asian Development Bank Act, 2009.

In regards to Islamic financial transactions, the Sharia Financial Supervisory Board Order of 2006 ensures that banking and financial products and services being offered in the Sultanate as Islamic products are indeed in compliance with Islamic principles.

The legislation which facilitates the establishment of businesses and encourages and protects business activities in the manufacturing, industrial and intellectual property sectors include the following: the Industrial Coordination Order, 2001; Patents Order, 2011; Industrial Designs Order, 1999; Trademarks Order, 2000; Layout Designs Order, 1999; and Investment Incentives Order, 2001. Earlier legislation that is relevant to these sectors includes the Companies Act (CAP 39) and the Business Names Act (CAP 92).

TELECOMMUNICATIONS: The telecommunications law was updated with a clearer list of requirements to cater to a more regulated environment, and to offer protection for business interests in a wider range of telecoms businesses, facilities, structures and services. This was accomplished by the enactment of several statutes, including the Telecommunications Order, 2001; the Authority for Info-Communications Technology and Industry of Brunei Darussalam Order, 2001; the Broadcasting Order, 2000; the Telecommunications Successor Company Order, 2001; the Computer Misuse Order, 2000; and the Electronic Transactions Order, 2000. The enactment of the Telecommunications Successor Company Order 2001 enabled the former Brunei Telecommunications Department – which was a government department – to become a corporate body.

BUSINESS ENTITIES: The government has also been active in promoting the public-private partnership business model and is particularly interested in inviting participants to work in joint ventures with the state in setting up and operating a deep-water container port in Muara and privatising its utilities. The most common form of business entity for private business activities in Brunei Darussalam is the limited liability company (sendirian berhad). This form of legal entity is based on the English company law model and is essentially an entity that has a minimum of two shareholders and two directors, is governed by its Articles of Association, and has its authorised capital divided into shares. This model has generally been working well and has encouraged foreign investors to enter into joint ventures with local counterparts in agreements where the shares are agreed and divided between the contracting parties.

INCOME TAX: The Income Tax Act (Amendment) Order of 2008 was made known in June 2008, but became effective retrospectively from January 1, 2008. The order brought welcome changes, with a reduction in the company tax rate from 30% to 27.5% for 2008 and 25.5% for subsequent years.

However, one area that has been of major concern to foreign investors is that the order also widens the scope for withholding tax and makes it mandatory for a company to withhold a portion of payments to nonresidents for withholding tax in accordance with the rate specified, depending on the nature of the service to be paid to the collector of income tax within 14 days of payment of the invoice. Because most firms did not receive sufficient time to review their tax status and contracts and mitigate withholding tax liability, this caused problems initially.

CUSTOMS ACT: Full or partial relief from import duties under the Customs Act is available to a pioneer enterprise or an export enterprise payable on machinery, equipment, pre-fabricated building or factory structures for a plant or factory in Brunei Darussalam, provided that such materials of equal price and quality are not being produced or available in the Sultanate.

BEDB: In 2003 the BEDB was established as a body corporate with perpetual succession under the BEDB Act.

As a statutory body, its key functions are:

• To promote, undertake, form or participate in any residential, industrial, agricultural or commercial development on areas in Brunei Darussalam designated for such purposes;

• To promote or undertake any kind of business, trading and commercial enterprises including agricultural, industrial, housing and mining enterprises in Brunei Darussalam as the board may think fit;

• To stimulate the growth, expansion and development of the economy by promoting the Sultanate as an investment destination;

• To formulate investment promotion policies and plans, promotional incentives and marketing strategies to attract foreign and local investments in advanced-technology industries and skill-intensive services that enjoy good export prospects;

• To promote, facilitate and assist in the development of industrial activities including export-oriented business activities; and

• To support the development of local entrepreneurs and small and medium-sized business, and assist local companies to expand and upgrade.

To facilitate its various functions, the BEDB has the power, subject to the provisions of the act, to undertake the normal functions of a body corporate authorised by law to perform, and may sue and be sued in its corporate name. One of its principal powers is to lay out, develop and manage sites, parks and estates in identified zones and other premises for industries and businesses in the Sultanate. In January 2003 the BEDB made announcements that it had all the necessary tools in place to attract major investments. It stated its strategy to jump-start Brunei Darussalam’s diversification and announced a two pronged action plan that would draw $4.5bn in new investments and create at least 6000 new permanent jobs by 2008.

Unfortunately, these two goals have not yet materialised. It is not known how much foreign investment has actually been brought into the country by the BEDB over the last nine years. Much of the projects by the BEDB have focussed upon the sale of cheap hydrocarbons at below-market rates to attract foreign contractors into developing the downstream sector.

The BEDB has been successful in its more recent focus of building low cost-houses under the Brunei National Housing Scheme, as well as in building infrastructure. There have since been a number of new downstream projects in the planning pipeline to be built on the Pulau Muara Besar island. However, there is no way to verify the extent of these statements and when the proposed facilities would be built nor when commercial production of such projects would begin.

SUNGAI LIANG AUTHORITY: The Sungai Liang Authority (SLA) Act was enacted and commenced on April 6, 2009. It updated the Sungai Authority Order of 2007, which was enacted in April 2007 to create a one-stop agency to administer SPARK. The SLA Act is an important component in the government’s drive towards long-term economic diversification. The act established the SLA, a body corporate with perpetual succession and a common seal with power under the provisions of the act to acquire and dispose of property. The authority has the ability sue and be sued in its corporate name, and may perform other acts as bodies corporate are able to perform. SPARK has been earmarked for development into an industrial site, and to date it has encouraged the setting up of a methanol plant by a consortium comprising Mitsubishi Gas Company, Itochu Corporation and the Brunei National Petroleum Company. Similar to the BEDB, the SLA is also a statutory authority that has been set up as a body corporate with perpetual succession. Its operations are restricted to SPARK. Its primary functions are to facilitate, support and encourage private and public investment in relation to SPARK, and to undertake the procurement, construction, operation, management and regulation of the infrastructure, facilities and all other activities for the provision of industrial, commercial and social infrastructure services for users of SPARK. It is meant to foster a business-friendly operating environment for the undertaking of park activities and develop a globally competitive industrial park. The SLA is constituted by a board, the members of which are appointed by His Majesty the Sultan. There is provision for the minister overseeing the SLA to exercise (with approval from His Majesty the Sultan) rights under 20 different pieces of legislation with respect to SPARK. The objective here is to enable the SLA to administer SPARK as the sole authority to minimise bureaucracy to facilitate dealings with investors and stakeholders.

INDUSTRIAL COORDINATION ORDER: The Industrial Coordination Order 2001 was enacted to provide for and facilitate the coordination and development of manufacturing activities in Brunei Darussalam. Manufacturing is a licensed activity and is widely defined under the order to include the assembly of parts, ship repairing and the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any article or substance. Through this legislation the Industrial Coordination Advisory Council was established. This council is composed of representatives that come from various government departments and agencies – including the Brunei Industrial Development Authority of the Ministry of Industry and Primary Resources and the BEDB – to advise the ministry on matters relating to industrial activities, especially on licensing and industrial building approval, and to implement and review policies that relate to such matters.

LAND CODE: Perhaps the only legislation that has directly affected and dampened the investment climate in Brunei Darussalam in a negative way is the century old Land Code (CAP 40), which was enacted in the early 1900s. The Land Code first came into force in 1909 and has 34 sections in total. Much of these sections are now obsolete. The World Bank in its “Doing Business” report stated that reform of the land registration system is one area where the Sultanate could make commerce easier for entrepreneurs, as at present companies cannot own land in their own name. When compared with neighbouring countries, there is often no or very little transparency in regards to the policies of the Land Department, and it is often very difficult or even impossible to transfer land, private property or commercial property titles even amongst Bruneian citizens. Land policies in the Sultanate forbid non-citizens from registering titles of land and properties in their own name but allow equitable ownership through a series of Bruneian trustees and powers of attorney. There had been a series of articles issued by high ranking officials in the local papers on the possibility of updating the current Land Code. Part of the problems stem from a lack of transparency and difficulty of transferring land even amongst Brunei citizens. Unlike other countries following the “Torrens system”, it can take several years to obtain notification from the Land Department as to whether or not a property transfer may take place. This has led to increased costs in the construction industry and also the property industry as a whole. While the advantage of the current situation is that there is no overheating of the property market, the drawback is that it makes longterm investment in the country relatively unattractive.

INTERNATIONAL COMPANIES: There are two company law regimes in Brunei Darussalam. Companies that are onshore are governed by the Companies Act (CAP 39) while offshore companies are governed by the International Business Companies Order (IBC) of 2000. The provisions of the memorandum and articles of association of the IBC constitute the statutory contract between the shareholders of a company and must be given due regard. The same goes for a shareholders agreement (if one exists). Generally, there will almost always be a shareholders agreement entered into by the shareholders of the company. If a party is not able to produce a shareholders agreement and its name is not registered in the registrar of companies of the Brunei International Financial Centre, it would not be easy to prove that the party is indeed a shareholder. Before one can proceed with the formation of a company under the IBC order, all trust companies are required by law to carry out due diligence procedures on the proposed directors and beneficial owners of the intended company, and to make registrations.

ARBITRATION: The Attorney General’s Chambers has worked diligently alongside the Arbitration Association Brunei Darussalam to update the Sultanate’s existing arbitration legislation to meet the requirements of foreign and local investors. The International Arbitration Order of 2009, which regulates international arbitrations, and the Arbitration Order of 2009, regulating domestic arbitrations, both came into effect in February 2010. Both of these statutes are based on the UNCITRAL Model Law on International Commercial Arbitration and follow the international practice and principle that the national courts may only support but not interfere with the arbitration process. Under both legislation, the Arbitration Association Brunei Darussalam has been statutorily appointed as the default appointing body in the event of default or failure by the parties to appoint an arbitrator(s). The Sultanate is a signatory to the New York Convention, as well as the International Centre for Settlement of Investment Disputes Convention. The UNCITRAL Rules of Arbitration 2010 are commonly adopted by parties in their agreements.

INTELLECTUAL PROPERTY: The country has also been ensuring that the intellectual property rights of manufacturers are protected. The Emergency Copyright Ordinance of 2000 is modelled on the 1988 UK Copyright Act and provides protection for temporary copies. The enforcement provisions of the act serve to fight copyright piracy, provide for civil and criminal remedies, and allow for the confiscation and destruction of infringing equipment and material. On December 30, 2000 the Trademarks Act (CAP 98 Rev Ed 2000) was enacted and entered into force. The act in effect has been amended to update and make the laws of the Sultanate compatible with the Paris Convention, the WTO and TRIPS Agreement, and it bears much similarity to the UK Trademarks Act of 1994. Trademark rights are actively enforced in Brunei Darussalam and the authorities are very receptive to complaints on infringement by trademark owners. Owners of intellectual property and other licensed rights holders in Brunei Darussalam are generally encouraged to engage intellectual property lawyers in order to protect their rights from the unscrupulous parties that may infringe them. The Patents Order of 2011 came into force on January 1, 2012, and the Patent Registry Office commenced its operations the same day. The Patent Registry Office is administered under the BEDB. The Patents Order now regulates the filing of patents. It is an offence for any person who is not licensed to practise law in Brunei Darussalam to attempt to assist in the filing of patents.

LANDLORDS’ RIGHTS: With the ongoing construction of homes and shop houses in the Sultanate, measures have been introduced to protect landlords. The Distress Act (revised 2009) updated landlords’ rights under the original 2000 act that protected their rentals. The revised act allows for a landlord to apply ex parte to a judge for the issue of a writ of distress and for the recovery of rent due by a tenant of any premises for a period not exceeding 12 completed months of tenancy.

OTHER ACTS: In 2009 the Sultanate enacted the Asian Development Bank Act, allowing the minister of finance to subscribe on behalf of the government (with the approval of His Majesty the Sultan) to shares of capital stock in the Asian Development Bank. It also allows the minister (with the approval of His Majesty the Sultan) the right to create and issue to the bank any such non-negotiable and non-interest-bearing notes as he sees fit. The Limited Liability Partnerships (LLP) Order of 2010 was drafted to legally allow for some form of expressed or implied agreement between the partners of an LLP or between an LLP and its partners. The main objectives behind the monetary authority are to ensure the stability of domestic prices and of the financial system via financial regulation and prudential standards. The authority is to assist in the establishment, the functioning and the oversight of efficient payment systems.

The Criminal Asset Recovery Order was introduced in 2012. It affects financial institutions, as well as designated non-financial businesses and professions, such as real estate agents, advocates, solicitors, accountants and trustees. The order has the aim of preventing money laundering and terrorism financing. It makes it necessary for financial institutions and those affected to have in place identification measures and verification measures of their customers when entering into business relations with them.

However, it also imposes additional duties, such as record-keeping. It is somewhat onerous as it reverses the burden of proof and requires a person that is prosecuted to prove that his or her property or wealth is not unlawfully acquired. This reversal of burden of proof goes against the grain of the common law – that one is innocent until proven guilty. This order may potentially cause an increase in banking charges from financial institutions who may have to pass the costs down onto their end-user customers.

CONSTRUCTION AND EDUCATION: For assisting growth in the Sultanate’s building industry, perhaps one of the most important new legislative measures has been the implementation of the Architects, Professional Engineers and Quantity Surveyors Order of 2011. The main objective behind this new legislation is to prevent illegal practices in the fields of architecture, professional engineering and quantity surveying. Its goal is to ensure that all three categories of practitioners are properly qualified and licensed to dispense their professional services, and to set out the penalties that will be imposed on any persons caught offering such services without a registered licence. In the field of education, an order in 2011 established the National Accreditation Council, which supervises and regulates quality and standards in higher education institutions and maintains a qualifications register. OBG would like to thank Dr Colin Ong Legal Services for their contribution to THE REPORT Brunei Darussalam 2013