Common and sharia law systems are both in operation in the Sultanate

Two parallel systems of law operate in Brunei Darussalam. Statutory laws, which regulate mercantile activities and disputes between persons, are generally referred to as the common law system and are based on English Acts and codified laws. These courts are also known generally as civil courts, and have exclusive jurisdiction over all civil and criminal cases. The rules of procedure used in the higher courts are based on pre-1999 English Supreme Court practice.

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 doctrine 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 the said common law, doctrine 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 based on English common law.

Sharia Law

The second independent system of courts in the Sultanate is based on sharia law. Until the introduction of the Sharia Penal Code Order, 2013 in April 2014, the sharia court system in Brunei Darussalam 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 Order has vastly expanded the jurisdiction of the sharia courts to include offences such as murder, rape and theft. Such offences were once within the jurisdiction of civil criminal courts. Brunei Darussalam now has a criminal justice system which allows both the existing Penal Code (Cap 22) and the Sharia Penal Code Order, 2013 to be in force. 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, but 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 unclear how the relevant authorities will work to decide which jurisdiction to prosecute commonly shared crimes under and who is to make such a decision.

Parts of the 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 stoning to death if the offence is proven by confession, or the testimony of four eyewitnesses. The code does not make it clear whether the testimony has to come exclusively from a male Muslim or whether it may come from any respectable adult, regardless of sex or religion.

As there does not appear to be any principle of stare decisis in sharia law, it would be a challenge for lawyers and the sharia court judges alike to know how a case is likely to be decided. Unlike the concurrent civil law system, one cannot refer to case law precedent in sharia law, and 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 proved a wise decision. It has allowed for a stable and prosperous economy, and the principle of stare decisis has helped reassure commercial law transactions. As judges and lawyers are well trained in civil procedure and the evidence laws, foreign investors will be comfortable with the decisions of the civil law courts as they are in line with judgments from other Commonwealth countries, such as the UK and Singapore.

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 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 were mainly educated and obtained their professional qualifications in the UK.

For civil matters, parties to a dispute can 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 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, the laws of the country 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 that the laws of the Sultanate are up to date with neighbouring countries and complement the business environment. 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 the laws themselves are seen as the cornerstone of a healthy business environment. Investors in Brunei Darussalam, 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 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. The government-related companies have entered into joint ventures with foreign partners, while BINA has been successful in attracting foreign direct investment.

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. Sungai Liang Industrial Park (SPARK) was intended to eventually host a number of petrochemicals projects and include downstream small and medium-sized enterprises. However, since the formation of Brunei Methanol Company by the government and Japanese stakeholders, there does not appear to have been any foreign investment at time of press.

To boost the effectiveness of the park, His Majesty the Sultan and Yang Di-Pertuan Negara 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, 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.

To coordinate international trade matters in cooperation with Brunei Darussalam’s foreign affairs, the international trade division of the Ministry of Industry and Primary Resources has been 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 2000 and 2013, 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 key industries. An outline of recent and relevant legislation is provided here by order of industry.

In the financial, banking, international financial and investment management sectors, a range of laws were 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 (IBC) Order, 2000; the International Limited Partnerships Order, 2000; the International Trust Order, 2000; the Registered Agents and Trustees Licensing Order, 2000; the International Banking Order, 2000; the Banking Order, 2006; the International Insurance and Takaful Order, 2002; the Money Laundering Order, 2000; the Anti-Terrorism (financial and other measures) Order, 2002; the Emergency (drug trafficking) Recovery of Proceeds Order, 1996; the Brunei Economic Development Board Act (revised 2003); the Criminal Conduct (recovery of proceeds) Order, 2000; the Sungai Liang Authority Act (revised 2009); the Distress Act (revised 2009); the Asian Development Bank Act, 2009; and the Securities Market Order, 2013.

With regard to Islamic financial transactions, the Sharia Financial Supervisory Board Order, 2006 ensures that banking and financial products and services being offered in the Sultanate as Islamic are in compliance with Islamic principles. Legislation that facilitates the establishment of businesses, and encourages and protects business activities in manufacturing, industry and intellectual property, includes: the Industrial Coordination Order, 2001; the Patents Order, 2011; the Industrial Designs Order, 1999; the Trade Marks Order, 2000; the Layout Designs Order, 1999; and the Investment Incentives Order, 2001. Earlier legislation relevant to these sectors includes the Companies Act (CAP 39) and the Business Names Act (CAP 92).

Telecoms

The telecoms law was updated with a clearer list of requirements to cater to a more regulated environment, and 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 it 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 – based on the English company law model and 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 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 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 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. Because firms did not receive sufficient time to review their tax status and contracts, and mitigate the 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 businesses, 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 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. These two goals have not yet been achieved. It is not known how much foreign investment has been brought into the country by the BEDB. Many BEDB projects have focused on the sale of low-priced hydrocarbons at below market rates to attract foreign contractors into developing the downstream sector.

The BEDB has been successful in its more recent focus on building low-cost houses under the Brunei National Housing Scheme, as well as in building infrastructure for the country. There have since been a number of new downstream projects in the planning pipeline to be built on Pulau Muara Besar Island.

However, there is currently no way to verify when the proposed facilities would be built, nor when commercial production of such projects would begin.

Sungai Liang Authority (SLA)

The SLA Act was enacted 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 act is an important component of the government’s drive towards long-term economic diversification.

The act established the SLA, which has the powers under the provisions of the act to acquire and dispose of property. The authority can 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 Brunei National Petroleum Company.

Similar to the BEDB, the SLA is 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 and Yang Di-Pertuan Negara. There is provision for the minister overseeing the SLA to exercise (with approval from the Sultan and Yang Di-Pertuan Negara) rights under a wide range of laws listed under 20 different pieces of legislation with respect to SPARK. The duties and responsibilities of the SLA were transferred to the BEDB on December 19, 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 of any article or substance.

Through this legislation the Industrial Coordination Advisory Council was established. This council is composed of representatives 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 regarding 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 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, many of which are now obsolete.

The World Bank has stated in its “Doing Business” report that reform of the land registration system is one area where the Sultanate could make it easier for entrepreneurs, as at present companies cannot own land in their own name. Compared with neighbouring countries, there is often very little or no transparency with 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 among Bruneian citizens. Land policies in the Sultanate forbid non-Bruneian 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 have been a series of articles issued by highranking officials in the local newspapers on the possibility of updating the current Land Code. Part of the problem stems from a lack of transparency and difficulty of transferring land. Unlike in 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.

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 has taken the position that PA contracts were no longer valid after the Minister of Development made an announcement in March 2011 during the eighth session of the Legislative Council, stating 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 PA and equity, banks throughout the country have limited lending and mortgages to permanent residents and foreign nationals for the purpose of property acquisition.

International Companies

There are two company law regimes in Brunei Darussalam. Companies that are onshore are governed by the Companies Act (CAP 39), while companies that are offshore are governed by the IBC Order, 2000.

The provisions of the memorandum and articles of association of the IBC Order 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 unable 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 that party is indeed a shareholder. Before one can proceed with the formation of a company under the IBC Order, all trust companies must carry out due diligence procedures on the proposed directors and beneficial owners of the intended company, and make 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, regulating domestic arbitrations, both came into effect in February 2010. Both 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 the national courts may only support but not interfere with the arbitration process. Under both legislations, 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 and the International Centre for Settlement of Investment Disputes Convention. The UNCITRAL Rules of Arbitration 2010 are commonly adopted by parties in their agreements and in practice.

Intellectual Property

The country has also been ensuring that the intellectual property 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 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 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 Ł Łthe respective enforcement agencies. The Patents Order, 2011 is a recent piece of legislation to be added to the arsenal of intellectual property laws in Brunei Darussalam, and makes the Sultanate’s laws compatible with the Paris Convention, the WTO and TRIPS Agreement, the Berne Convention for the Protection of literary and Artistic Works, the Paris Convention for the Protection of Industrial Property, the 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 has issued a number of press statements during the past few years to confirm that police and the authorities have long been responsive to complaints lodged by intellectual property rights holders, and that action has been taken in every reported case.

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 seek to infringe them.

The Patent Registry Office commenced operations on January 1, 2012, administered under the BEDB. The Patents Order, 2011 now regulates the filing of patents. It is an offence for any person who is not licensed to practice law as an advocate and solicitor in Brunei Darussalam to attempt to assist in the filing of patents.

Landlord's 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 to the landlord by a tenant of any premises for a period not exceeding 12 completed months of tenancy. The Employment Order, 2009 was also implemented to protect employees’ rights, particularly in the private sector.

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 the Sultan and Yang Di-Pertuan Negara) to shares of capital stock in the Asian Development Bank. It also allows the minister (with the approval of the Sultan and Yang Di-Pertuan Negara) 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.

The main goals of the Monetary Authority of Brunei Darussalam are to ensure the stability of domestic prices of the financial system by formulating financial regulation and prudential standards. The authority is to assist in the establishment and functioning of efficient payment systems, 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 is aimed at preventing money laundering and terrorism financing. It makes it necessary for financial institutions and those affected to have in place measures for identification and verification of their customers when entering into business relations with them. It also imposes additional duties such as record-keeping.

The order is somewhat onerous as it reverses the burden of proof, and requires a person that is prosecuted to prove that their property or wealth is not unlawfully acquired. This reversal goes against the grain of the common law that one is innocent until proven guilty. The order may potentially cause an increase in banking charges from financial institutions that may pass the costs onto their customers.

Construction & Education

In terms of 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 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.

Meanwhile, in the field of education, an order in 2011 established the National Accreditation Council, which is tasked with supervising and regulating the quality and standard of higher education institutions, as

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The Report: Brunei Darussalam 2014

Legal Framework chapter from The Report: Brunei Darussalam 2014

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