Breakdown of legal environment in Brunei Darussalam

There are two parallel systems of law operating in Brunei Darussalam: statutory laws, which regulate mercantile activities and disputes between persons, and sharia law. Statutory laws are generally referred to as the common law system and are based upon English codified laws. 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 that are used in the higher courts are based on pre-1999 UK Supreme Court practice.

Application Of Laws Act

A important piece of legislation is the Application of Laws Act. This statute stipulates that UK common law and the doctrines of equity, along with statutes of general application, as administered or in force in England prior to April 25, 1951 shall also be in force in the Sultanate. The key 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 Act embody a codified system of contract law and laws of equity based on English common law.

Sharia Law

The second independent system of courts in Brunei Darussalam is based on sharia law. Until the introduction of the Sharia Penal Code Order 2013 in April 2014, the sharia court system had 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. The Sharia Penal Code has greatly expanded the jurisdiction of sharia courts to now include offences such as murder, rape and theft. Such offences were previously within the jurisdiction of civil criminal courts. Brunei Darussalam now possesses an interesting criminal justice system that allows both the existing Penal Code (Cap 22) and the Sharia Penal Code Order 2013 to be in force.

Courts & Jurisdiction

In the event that the relevant authorities decide to pursue charges under the penal code, the civil criminal courts that apply common law principles will apply. However, in the event that the relevant authorities decide to pursue charges under the Sharia Penal Code, then the sharia courts will have jurisdiction.

It is currently very unclear as to how the relevant authorities will work to decide which jurisdiction to prosecute commonly shared crimes under and which body is to make such a decision. Parts of the Sharia Penal Code also apply to non-Muslims, such as zina, adultery with a Muslim partner, and khalwat, close proximity with a Muslim partner. In the event of adultery between a married Muslim and a married non-Muslim, both parties can be punished by being stoned to death if the offence is proven through a confession or the testimony of four witnesses. The sharia code has not made it clear whether the testimony has to come exclusively from a male Muslim or whether testimony may come from any respectable adult regardless of sex or religion It will also be a challenge for lawyers and sharia court judges alike to know how a case is likely to be decided, as, unlike the concurrent civil law system, one cannot refer to case law precedent for sharia-related cases in Brunei Darussalam. Thus, it is not known what system of court procedural rules and evidence rules would be applicable to cases heard before the sharia 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 judges and lawyers are well trained in civil procedure and evidence laws, and their judgements are in line with those in other Commonwealth countries such as the UK, Hong Kong and Singapore.

Structure

The system of civil law within the civil courts is generally administered by judges that gained their qualifications in the UK. In addition, the vast majority of leading private legal practitioners are educated and obtain their professional qualifications in the UK. The Court of Appeal is presided over by visiting retired judges from the Hong Kong Court of Appeal, while the High Court consists of both local and former Hong Kong High Court judges.

Local judges are generally educated in the UK and tend to obtain their professional qualifications from there as well. In the case of 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 law courts is English, and laws are enacted in English, with a Malay version also made available. Legislative enactments are included as laws.

Business Regulation

Aside from the laws regulating investment funds and telecommunications firms, the laws of Brunei Darussalam 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 entrepreneurs, with minimal interference from the state authorities.

In accordance with its plans to diversify the economy away from dependence on the oil and gas sectors, the government has to ensure that the laws of the Sultanate are up to date with neighbouring countries and complement the business environment. There are currently active efforts by the Ministry of Energy and Industry to try to encourage the oil and gas industry to implement more local business development plans. The 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 the 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 govern by and in accordance with the law.

Foreign Investment

The Sultanate’s desire to welcome foreign investment has resulted in the establishment of several facilitating agencies, including: Badan Kemajuan Industry Negara Brunei Darussalam (BINA) under the Ministry of Industry and Primary Resources (MIPR); 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 encouraging foreign direct investment. In January 2016 a new statutory body, Darussalam Enterprise, was established to both nurture and support local enterprises from start-up to growth. It has appointed a governance board mainly composed of players from the private sector, with the minister of energy and industry as the chairman of the board. The objective of this body is to assist both the government and private sector to work together more closely to focus attention on the needs of the domestic business community.

Industrial Park

On February 7, 2007 the BEDB signed a contract with a local contractor to open the first phase of an industrial park. BEDB plans to develop a 271-ha site situated 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 (SMEs). However, 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 Sultan Haji Hassanal Bolkiah enacted the SPARK Authority Order 2007. This legislation was intended to provide a one-stop agency to lessen the difficulties associated with local government processes, provide a better working partnership between the law and businesses, and 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 MIPR was merged with 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, and 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 2000 and 2013 several new pieces of legislation were passed in order to cater to and facilitate the establishment, growth and the protection of businesses in various financial and industrial sectors. Several pieces of legislation have been implemented to offer incentives, including tax breaks, to certain key industries. An outline of recent and relevant legislation is provided below 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 establishment of businesses that relate to international finance, banking, insurance, funds, trusts and other similar activities and services.

These pieces of legislation include: the International Business Companies (IBC) Order 2000; International Limited Partnerships Order 2000; International Trust Order 2000; Registered Agents and Trustees Licensing Order 2000; 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; BEDB Act, (revised 2003); Criminal Conduct (recovery of proceeds) Order 2000; Sungai Liang Authority (SLA) Act (revised 2009); Distress Act (revised 2009); Asian Development Bank (ADB) Act 2009; Securities Market Order 2013; and the Competition Order 2015.

In regards to Islamic financial transactions, the Sharia Financial Supervisory Board Order 2006 ensures that the banking and financial products and services that are being offered in the Sultanate as Islamic products are in compliance with Islamic principles. The legislation that facilitates the establishment of businesses and encourages and protects business activities in the manufacturing, industrial and intellectual properties (IP) sectors include the following: Industrial Coordination Order 2001; Patents Order 2011; Industrial Designs Order 1999; Trade Marks Order 2000; Layout Designs Order 1999; and the Investment Incentives Order 2001. Earlier legislation that is relevant to these sectors include the Companies Act (CAP 39), the Business Names Act (CAP 92) and Miscellaneous Licence Act (Amendment) 2015.

Telecommunications Laws

The telecommunications law has been updated with a clearer list of requirements to cater to a more regulated environment, as well as 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 following: the Telecommunications Order 2001; Authority for Info-Communications Technology and Industry of Brunei Darussalam Order 2001; Broadcasting Order 2000; Telecommunications Successor Company Order 2001; Computer Misuse Order 2000; and 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 government in setting up and operating a deepwater 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 model of the UK’s company law 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 worked well and has encouraged foreign investors to enter into joint ventures with local counterparts wherein the shares are agreed and divided up between the contracting parties. Section 19(2) (c) of the Legal Profession Act allows only Bruneian law firms and registered accountants (in person), as well as individuals (in person), to incorporate companies.

Income Tax

The Income Tax Act (Amendment) Order 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, an area that is of major concern to foreign investors is that the order also expands the scope for withholding tax and makes it mandatory for a company to withhold a portion of payments to non-residents 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. However, because companies did not receive sufficient time to review their tax status and contracts and mitigate the withholding tax liability, this initially caused problems with implementation.

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. This relief is possible, 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 and goals include the following:

• Promote, undertake, form or participate in any residential, industrial, agricultural or commercial development in Brunei Darussalam designated for such purposes;
• 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 see fit;
• Stimulate the growth, expansion and development of the economy by promoting the Sultanate as an investment destination;
• 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;
• Promote, facilitate and assist in the development of industrial activities, including export-oriented business activities; and
• Support the development of local entrepreneurs and SMEs, and assist local companies to expand and upgrade.

In order to facilitate its various functions, the BEDB has the power, subject to the provisions of the act, to undertake the normal functions that a body corporate is 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 announced 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. 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 focus on building low-cost houses under the Brunei National Housing Scheme, as well as in building infrastructure for the country and assisting in facilitating the Telisai-Lumut Highway, as well as the Temburong Bridge, which will cross the Bay of Brunei and connect Temburong to the Brunei-Muara district. There have since been a number of new downstream projects to be built on Pulau Muara Besar Island; however, petrochemicals firm Hengyi Industries has delayed the start of operations of its refinery project in Pulau Muara Besar for at least one year from its target date.

The integrated oil refinery and aromatics cracker plant was expected to begin operations in early 2017, attract $4bn worth of investments and create 800 jobs. However, there is no way to verify the extent of these statements and when the proposed facilities will eventually be completed, nor when commercial production of such projects like the refinery will actually begin. Simpor Pharma, Brunei’s first pharmaceutical and food supplement manufacturer, has shown more potential, as it has already completed its project and has started selling energy drinks and health supplements. The firm also announced that it is bringing its product line to the US market.

SLA

The SLA Act was enacted and commenced on April 6, 2009. It updated the Sungai Authority Order 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, which is 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 to 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. The SLA’s 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 SPARK tenants. It is meant to foster a business-friendly operating environment and maintain a globally competitive industrial park. The SLA is constituted by a board, the members of which are appointed by the sultan. There is provision for the minister overseeing the SLA to exercise, with approval from the sultan, a wide range of laws listed under 20 different pieces of legislation with respect to SPARK. Oversight of the SLA was transferred to the BEDB on in December 2012.

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 MIPR and the BEDB, to advise the ministry on matters relating to industrial activities, especially on licensing and approval of industrial buildings, 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.

At present companies cannot own land in their own name. When compared with neighbouring countries in South-east Asia, 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. There was a traditional practice to allow equitable ownership through a series of Bruneian trustees and powers of attorney, but the practice was banned by the Land Department in 2011.

There has been a series of statements issued by high-ranking officials regarding the possibility of updating the current Land Code. Some of the problems stem from a general lack of transparency and difficulty in transferring land between parties. Unlike other countries following the Torrens title system, it can take several years to obtain notification from the Land Department as to whether or not a property transfer has taken place. This has also resulted in increased costs in the construction industry and the property industry as a whole.

Focus On Property Laws

In May 2012 the Law Society of Brunei Darussalam issued a strongly worded statement condemning the potential passing of any law that would have a retrospective effect on property owned through power of attorney (PA). The Land Department had taken the position that PA contracts were no longer valid after the Ministry of Development announced in March 2011, during the eighth session of the Legislative Council, that all property purchased through PA or trust deeds would be converted into temporary leases “effective immediately”. It was also stated that amendments to the Land Code were being drafted to enforce the policy.

However, there has been no amendment of the Land Code to date, and as a result of the confusion relating to the usage of PAs and equity, banks throughout the country have limited lending and mortgages to permanent residents and foreign nationals for the purpose of property acquisitions. While there is no official evidence of any direct correlation with the dead lock on the expected amendments to be made to the Land Code, there has been a slow down of banking business and legal conveyancing business in the country. During the period between 2011 and 2016 Citibank pulled out of the country and Singapore’s United Overseas Bank branch in Brunei Darussalam sold its retail banking business operations. The Law Society of Brunei Darussalam reiterated its call to the Land Department in February 2016 for a new Land Code to be released soon.

International Companies

There are currently 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 IBC Order 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 also applies to a shareholders agreement if one exists.

Generally, shareholders agreements are entered into by the shareholders of any company. If one 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 demonstrate that the party is indeed a shareholder in said company. Before one is able to proceed with the formation of a company under an 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 carry out registrations.

Arbitration

The attorney general’s chambers 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 2009, which regulates international arbitrations, and the Arbitration Order 2009, which regulates domestic arbitrations, both went into effect in February 2010. Both of these statutes are based on the UN Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration and follow the international practice and principle that national courts may only support and not interfere with the arbitration process. Under both laws, the Arbitration Association Brunei Darussalam (AABD) has been statutorily appointed as the default appointing body in the event of default or failure by the parties to appoint an arbitrator. The AABD is fully independent and is the only authority that is not funded by the government. It is still awaiting one-off financial support to set up its own designated office building to carry out its operations efficiently.

The Sultanate is also a signatory to the New York Convention and the International Centre for Settlement of Investment Disputes Convention, but it is yet to designate any representatives to the latter. Brunei Darussalam is yet to become a member state of the Permanent Court of Arbitration. The UNCITRAL Rules of Arbitration 2010 are commonly adopted by parties in their agreements and in practice.

Intellectual Property

The country ensures that the IP rights of manufacturers are protected. The Emergency Copyright Ordinance 2000 is modelled on the 1988 UK Copyright Act and provides protection for temporary copies. The enforcement provisions of the act serve to fight piracy, provide for civil and criminal remedies, and allow for the confiscation and destruction of infringing equipment and material. On December 30, 2000 the Trade Marks Act (CAP 98 Rev Ed 2000) was enacted and entered into force. The Copyright Order was recently updated to increase the powers of IP enforcement agencies.

The Patents Order 2011 was another recent piece of legislation to be added to the arsenal of IP laws in the country and it makes the laws of the Sultanate compatible with the Paris Convention, WTO and TRIPS Agreement, Berne Convention for the Protection of Literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty and the Budapest Treaty on International Recognition of the Deposit of Microorganisms for the purposes of patent procedure.

Trademark rights are actively enforced in Brunei Darussalam and the authorities are very receptive to complaints on infringement by trademark owners. The Attorney General of Brunei Darussalam has issued a number of statements over the past few years confirming that police and authorities in the country have long been responsive to complaints lodged by IP rights holders and that action has been taken in every reported case. Owners of IP and other licensed rights holders in Brunei Darussalam are generally encouraged to engage IP lawyers in order to protect themselves from unscrupulous parties that may infringe on their rights. The Patents Order 2011 came into force and the Patent Registry Office commenced operations in January 2012. 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 as an advocate and solicitor in Brunei Darussalam to attempt to assist in the filing of patents.

Landlords’ Rights

With the ongoing construction of homes and shops 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 rental properties. 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 to the landlord by a tenant of any of their premises for a period not exceeding 12 completed months of tenancy. The Employment Order 2009 was also implemented in 2009 to protect employees’ rights, particularly those employed in the private sector.

Other Relevant Acts

In 2009 the Sultanate enacted the ADB Act, allowing the minister of finance to subscribe on behalf of the government, with the approval of the sultan, to shares of capital stock in the ADB. It allows the minister, with the approval of 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 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.

Meanwhile, the main goals of the Monetary Authority of Brunei Darussalam are to ensure the stability of domestic prices and the financial system by formulating financial regulation and prudential standards. The authority is to assist in the establishment and functioning of efficient payment system, and to oversee them.

The Criminal Asset Recovery Order was introduced in 2012. It affects financial institutions, as well as designated non-financial businesses and professions, including real estate agents, advocates and solicitors, accountants and trustees. The order aims to prevent money laundering and terrorism financing. It makes it necessary for financial institutions and those affected to have in place identification measures and verification measures for 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/her property or wealth is not unlawfully acquired. This reversal of burden of proof goes against the grain of common law that one is innocent until proven guilty. This order could potentially cause an increase in banking charges from financial institutions, which might be pushed to pass the costs down onto their customers.

Construction & 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 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, and to set out the penalties to be imposed on any persons caught offering such services without a registered licence. In the field of education, a recent order in 2011 established the National Accreditation Council. This council will supervise and regulate the quality and standard of higher education institutions, as well as maintain a National Qualifications Register.

In November 2015 The Building Control Order 2014 came into force. The order requires that only qualified persons appointed by the developer may submit plans, and that qualified persons and builders are responsible for ensuring that the building works comply with the regulations and standards. The Authority for Building Control and Construction Industry (ABCI) under the Ministry of Development is responsible for the order. The objective is to bring all applications for development under the mandate of the ABCI in order to streamline the process, as well as to ensure the effective implementation of the order.

Within the field of education, the National Accreditation Council Order was established in 2011 to supervise and regulate the quality and standard of higher education institutions in the Sultanate, as well as to maintain a National Qualifications Register.

OBG would like to thank Dr Colin Ong Legal Services for its contribution to THE REPORT Brunei Darussalam 2016