New Horizons: Innovation and the legal profession

This article first appeared in Enterprise, The Edge Malaysia Weekly, on July 9, 2018 - July 15, 2018.

Technology can help law firms acquire more clients in the future and retain them better. > Chin

The AI predicts how a judge will make a judgment based on the precedents. > Alintissar

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Legal technology, also known as legaltech, is making headway in countries such as the US, the UK and Australia, but the Malaysian legal fraternity has been cautious about its adoption. It seems that lawyers in these markets are more willing to invest in technology and adopt innovations that have contributed to the emergence of legaltech start-ups, which use artificial intelligence (AI) to automate the more routine legal work.

And it seems to be working. The US-based legaltech start-up Law Geex, for instance, found that its special algorithm took only 26 seconds to review five non-disclosable agreements (NDAs) compared with the 96 minutes taken by regular lawyers. This was 221 times faster and with an accuracy level of 94%, which is equal to that of the highest performing lawyers and much better than the 64% accuracy of the lowest performers.

Ross Intelligence, another legaltech start-up, helps lawyers conduct research more efficiently by extracting relevant past cases from the data pool. This compares with lawyers using keywords to retrieve documents with far less accuracy.

In the UK, RAVN helps lawyers review simple legal contracts while in Australia, Lexoo and LawPath are legal marketplaces that match people and businesses with lawyers and law firms online.

But legaltech has been slow to catch on in Malaysia. Some of the younger lawyers, who are passionate about technology, are understandably frustrated.

“I required the opposing counsel to send me an email regarding a document that I needed. He sent me a fax instead,” a lawyer tells Enterprise.

Another lawyer says he saw law firms using dial-up internet services just three years ago. And many law firms still do not have their own websites, which could be a result of low technology awareness and a desire to save costs. In addition, many prefer to keep physical documents, piled high to the ceiling of their offices, rather than keep them in the cloud.

Fahri Azzat, owner of Fahri & Co, is the chief idea generator at Locum Legalis — the developer of a mobile application that helps lawyers find other lawyers to attend to simple court matters. For instance, a Kuala Lumpur-based lawyer who has a court matter to attend to in Penang can use the app to find another lawyer in the northern state to attend on his behalf. This service is known as “mention on behalf” (MOB).

Fahri comes face to face with low technology awareness among the legal fraternity based on some of the queries he receives from lawyers who are interested in using the app. “Once, a senior lawyer from another state called me up to say he wanted to do MOBs for lawyers there. He understood the function of the app, but did not know how to use it,” he says.

“The conversation went something like this: ‘Okay sir, now find Google Play. Oh, you haven’t found it? Please click Apps. Yes, it is the icon with a lot of squares.”

Marcus Van Geyzel, partner at Peter Ling and Van Geyzel, concurs. “Malaysia is slow, even compared with some countries in the region. We are very much at an early stage of development,” he says.

This partly explains why legaltech firms have not been able to raise much money in Malaysia. According to a research report by Eric Chin — an independent strategy consultant for the legal services industry — from January 2000 to February this year, legaltech firms raised US$2.1 billion in the US, US$249 million in the UK and US$35.9 million in Australia.

In Malaysia, legaltech firms only managed to raise US$200,000. This compares with US$954,000 raised in Hong Kong and US$681,700 in Singapore.

 

Why slower?

Several factors have contributed to the slow adoption of technology in the local industry. For one, the legal profession itself is conservative by nature, says Fahri.

“The law has to be stable and predictable. And legal practitioners, including lawyers and judges, are conservative in their approach by nature. Innovation, from the law perspective, is irregular and unpredictable,” he adds.

Van Geyzel resonates with Fahri’s view. “The legal industry has never been the most innovative as lawyers tend to be risk-averse and stick to tried and tested ways of doing things, where possible.”

There is also the matter of age. Senior lawyers, who are the influential decision-makers in the industry, are less willing to push for technological changes. They are less technologically savvy and nearing the age of retirement.

“They could also be thinking, ‘Hey, I am retiring in a couple of years. I will just let the younger lawyers explore it,’” says Noemie Alintissar, manager at Future Law Innovative (FLIP) — a strategic project launched by the Singapore Academy of Law (SAL) to drive legaltech and the industry forward.

Fahri agrees. “Many small firms, with five or fewer employees, are owned by senior members of the Bar Council. They are not technologically inclined,” he says.

And income does matter, says Eric Chin, an independent strategy consultant. While technology adoption can lead to higher efficiency and productivity, it does not necessarily mean a spike in income over the shorter term.

“Some firms are not seeing an instant return on the investments made into legal tech. Technology may help them be more productive, but it also means less billable hours,” says Chin.

“For instance, they previously billed their clients for 200 hours on a few cases. But now, it could only be 100 hours. Without more business coming in, the money spent on technology may not be justified in the shorter term.

“I think they should look at it from a longer-term perspective and measure their return on investment differently. Technology can help law firms acquire more clients in the future and retain them better.”

Cherilyn Tan, founder and CEO of Singapore-based Asia Law Network — an online portal that provides the public with easier access to legal services — thinks the cost can be a hindrance. “We have the same problem here in Singapore because law firms do not see the value when they cannot see the immediate results.”

Fear is another factor, says Tan. Some lawyers are worried that technology could put them out of business. They are also concerned that online listings could contravene professional guidelines in their country.

“There was a lot of fear when we started our portal. And there is still a lot today. I go across the region to onboard lawyers and the fear is everywhere, not just in Singapore and Malaysia. It is the same in Thailand, Indonesia and Vietnam,” says Tan.

“Many lawyers still do not know how to approach technology and business development. Most of them do not even know how the local bar association has evolved.”

 

Singapore taking the lead

At the end of the day, it is the market forces, shaped by the various stakeholders of the legal industry, that matter. These stakeholders include law firms, legaltech players, buyers of legal services, investors, regulators and so on, says Chin.

In the US, law firms are more inclined to invest in technology because the competition there is more heated than in other countries.

Buyers of legal services — which are mainly corporate clients, such as multinational corporations that pay big bucks to law firms — have been pushing law firms to be more efficient in their work. In other words, they are only willing to give these firms more business if they can provide cheaper and faster services.

“The legal budget for corporates has shrunk since the 2008 global financial crisis and their legal departments are allocating money more cautiously. For law firms to retain clients, they have to be really efficient,” says Chin.

That is why law firms in other countries are more inclined to invest in technology, he adds. Also, regulatory bodies play a key role in helping to create an environment that allows legaltech start-ups and innovation to flourish.

“When you look at legaltech, you have to look at the environment where regulators are important stakeholders. Like any microorganism, start-ups and innovations need a nurturing environment to grow,” says Chin.

On the role of regulators, an industry player who does not want to be named says they are crucial to the growth of the legaltech industry in this part of Asia. “Changes in industries are often driven top-down rather than bottom-up. This means the role of regulators is to set the scene, most of the time.”

The industry player says this is why Singapore leads the legaltech race in Southeast Asia. The government, through the Ministry of Law, has been making considerable effort over the past few years to drive technological advancements and innovations in the legal industry. It aims to make the city state a regional hub for legal services.

FLIP’s Alintissar says the Singapore government is indeed moving in that direction. The Ministry of Law, for instance, launched the “Tech Start for Law” programme last year together with  the Law Society of Singapore and SPRING Singapore (also known as the Standards, Productivity and Innovation Board under the Ministry of Trade and Industry of Singapore). It allocated S$2.8 million to the programme to help local law firms adopt technology to improve their practice management, online research and online marketing.

The Law Society of Singapore — a statutory body responsible for maintaining and improving the standards of conduct and learning for the country’s legal profession — recently issued guidelines on the use of cloud services. Alintissar says lawyers were unsure whether they could store documents and information in the cloud due to concerns about privacy and confidentiality, so the society came out with the guidelines. It was a progressive move to encourage law firms to adopt the technology.

In January, SAL — another statutory body that acts as the promotion and development agency of the legal industry — launched FLIP to nurture and grow the legaltech industry. Over the past three months, FLIP has launched an innovation lab, providing an open space for legal practitioners, start-up founders, investors, researchers and university students to mingle and exchange ideas. It has also designed a three-month consulting package for small law firms, mainly to guide them on how to select technology to improve their workflow.

“In the next few months, we will host a 100-day accelerator programme to help legaltech start-ups commercialise and scale their products. It will be an intensive programme that provides these start-ups with access to funding, data and mentoring,” says Alintissar.

As a result, a few notable legaltech start-ups have emerged in Singapore. For one, Lex Quanta provides law firms with legal analytics services.

“With AI, it has designed a solution that can predict the possible outcome of asset division in a matrimonial dispute. For example, the parties in a divorce case have assets to be divided. So, the AI predicts how a judge will make a judgment based on the precedents,” says Alintissar.

LegalFAB utilises blockchain technology to help law firms and businesses store and transact legal documents and data safely while Zegal, previously known as Dragon Law, provides law firms with document assembly services. This means allowing its users to automate the creation of legal documents by generating them from intelligent templates.

 

What about Malaysia?

The authorities in Malaysia do not seem to be doing much to spur the growth of this industry. And unlike Singapore, the country does not have an independent ministry in charge of developing the legal industry.

It does have the Bar Council — a professional body that regulates the legal profession in Peninsular Malaysia — but its approach to legaltech veers on the conservative side, due to its strict interpretation of the Legal Profession Act 1976 (LPA). In fact, the Bar Council has in recent years blocked three legaltech start-ups from providing their services in Malaysia.

According to the Bar Council’s 2017/18 annual report, published March 18, the three start-ups were Dragon Law (now known as Zegal, which has a presence in Singapore), CanLaw and BurgieLaw.

Zegal, which declined to be interviewed, is known to have withdrawn from the Malaysian market. According to the report, the Bar Council’s Legal Profession Committee concluded that the services provided by the start-up were in breach of section 37(2) of the LPA.

Section 37(2) essentially says that an “unauthorised person”, who is not a practising lawyer, should not perform certain legal services unless the person can prove that the act “was not done for or in expectation of any fee, gain or reward”.

The report pointed out that in July 2017, Dragon Law had “asserted that it was not in breach of Section 37(2) and that it would make a detailed submission to the Bar Council about its services. No submission has been received as yet”.

Meanwhile, CanLaw and BurgieLaw, which previously aimed to provide matching services to link clients with lawyers, were found to be in breach of Section 37(3) of the LPA. Section 37(3) says an unauthorised person, who is not a practising lawyer, shall be guilty of an offence if they authorise another person to carry out lawyer duties, unless the person “offers or agrees to place at the disposal of any other person the services of an advocate and solicitor pursuant to a lawful contract of indemnity or insurance”.

CanLaw has remained in business by changing its business model to providing technical consultancy services to law firms. BurgieLaw is in the midst of changing its business model.

One start-up that has managed to make it through the thorny legislative thicket without breaching the LPA is EasyLaw. The start-up, founded by June Low, provides land search services to law firms, property developers and government agencies.

Fahri says the LPA is one of the critical factors holding back innovation in the legal industry. “It prohibits anyone from making legal services more available to the public. You cannot have companies that set up legal profiles or connective services between lawyers and the public.”

Van Geyzel concurs. “Due to the strict stance taken by the Bar Council in recent years, many other legaltech entrepreneurs in the region are reluctant to make their services available in Malaysia. This is a shame. If industry regulators are not playing their role of encouraging development and improvement, then at the very least they should not actively create barriers to innovation,” he says.

Van Geyzel points out that encouragement and facilitation by the government and industry regulators are the main drivers of change in many jurisdictions, but this is lacking in Malaysia. “The government and regulators can provide basic education to lawyers and the general public on the types of legaltech available. They can host incubators and accelerators to encourage the development and introduction of innovations in the market. They can also offer incentives for the adoption of new technologies,” he says.

Fahri says that while the Bar Council has tried to promote technology and innovation, it has not allocated enough money or set up an appropriate structure to encourage technology and innovation in the industry. “There are talented lawyers at the Bar who are not tapped or are put off by the bureaucracy at the Bar Council and state bars,” he adds.

“For now, much of the legal innovation and development comes from lawyers who have experience in practice and have left. Some do it in a joint venture on the side, in addition to their practice.”

For technology and innovation to flourish, there must be a nurturing environment that enables talent to test out their ideas and gain support and resources, says Chin. “I was in Malaysia and Singapore recently and met with many legaltech and law firms. One of the things that struck me was how different the Malaysian and Singapore regulators were in dealing with the rise of legaltech.

“Singapore’s government is investing in building the city state into an Asian hub for legaltech while some of the legaltech firms in Malaysia that I have spoken to have received ‘cease-and-desist’ letters. However, just like any microorganism, a nurturing environment is important for technology and innovation to evolve.”

 

 

The Bar Council’s response: ‘We do not feel this is a race’

The Bar Council is not against technology. It is just against the willy-nilly adoption of innovations without considering the possible implications.

The Malaysian Bar president George Varughese tells Enterprise in an email, “[It is out of the] need to protect the legal profession from unscrupulous vendors and/or access to products and services that flout the Legal Profession Act 1976 (LPA) and related legislation, or violate the rules and ruling of the Bar Council. It is also due to the need to ensure that access to legal services is properly regulated so that the general public is protected in terms of their access, including with reference to the quality of legal services.”

On the Bar Council’s decision to block three legaltech start-ups from offering their services in Malaysia, Varughese says it “is careful and must be”.

On templated legal contracts, he says, “It is important to be cognisant of the fact that when it comes to the provision of legal services, the correct legal advice is important. While there may be, for example, opportunities to access free or cheap templates to create a variety of legal documents, the users of such templates may not understand the legal implications of the documents they sign. If something goes wrong — and it is only when something goes wrong — users then realise that they did not actually have access to proper legal advice.

“Sometimes, that realisation may come too late. Who is to blame in such situations — the user or provider of the template? What legal duties do such providers have to ensure that their products and services do not flout the law? Not just in relation to the LPA, but the law generally.”

Varughese says the decisions made by the Bar Council do not mean that it is against technology. “The Bar Council is very clear that the adoption of technology and innovation is not only advantageous but also essential to remain competitive on the road ahead.

“However, our focus is on the types of technology that are used, as well as the safeguards that should be in place for the providers and users of legal services. Disruption is inevitable and while we are not shying away from this, we are certain that there have to be clear policies and rules to regulate such innovation.”

 

The Future in Technology Committee

Varughese says the Bar Council has set up a Future in Technology Committee to look into legaltech. The committee will focus on identifying a regulatory framework for legaltech start-ups by the end of this year.

The Bar Council will then accredit the vendors and their products and services that operate within the framework. “Once we have accredited the vendors, we will provide lawyers and their law firms with access to products and services that will benefit them,” says Varughese.

He adds that it is important that law firms, regardless of their size, have access to the benefits of technology and innovation. “There are instances where smaller firms may not be able to do so because of cost implications. But with our intervention and responsiveness, we hope to make products and services more accessible and affordable to our entire community.”

Varughese says the framework is necessary to safeguard the legal industry and the public. “This is necessary because of the variety of innovations that are available. We have been concerned that there have been occasions in the past where such vendors have misled law firms. There were also some products and services provided to the public that were in direct breach of the laws that regulate the legal profession and other laws as well.”

 

Amendments to the LPA

Another change that the Bar Council could make to encourage technology and innovation in the industry is to amend the LPA, says Varughese. “We are now in a position to recommend such amendments and will work to do so. Once this is done and the law is on our side, we can proceed with confidence that both the legal profession and the people who need its services are secure.

“We do not perceive that lawyers and law firms are in a disadvantaged position. In fact, in time, we hope to provide cohesive, affordable and vetted advantages that law firms can leverage to gain more ground.”

He adds that the Malaysian legal industry is falling behind countries such as Singapore and Australia in technology, but not by much. “Admittedly, these two countries may be ahead of us, perhaps partly due to government support and even funding. However, we are not very far behind.

“We do think it is necessary to vet the providers and their products and services stringently. This is because we owe a duty to the legal profession. We do not feel that this is a race.”