All questions

Private enforcement

i Forms of action

Under the CMSA, an aggrieved investor may seek his or her own remedies against an alleged wrongdoer for market misconduct. Sections 199, 201, 210, 248, 249 and 357 of the CMSA provide that persons who have suffered loss or damage by reason of market misconduct under securities laws may recover the amount of loss or damage, by civil proceedings. These private remedies are available regardless of whether criminal prosecution has been instituted against the alleged wrongdoer for the offence committed.

In addition to statutory civil liability under the CMSA, Malaysian law continues to recognise common law duties and claims. Depending on the relevant circumstances, claims for negligence or misrepresentation may be available to investors. This means that in cases where it is unclear that investors have recourse against the alleged wrongdoer under the CMSA (which if available, may be a more straightforward claim), recourse under the common law may still be available to investors.

In relation to market misconduct in respect of offer documents, due diligence is a statutory defence available to statutory civil and criminal liability under the CMSA. Under Section 250 of the CMSA, it is a defence against claims from persons to recover for loss or damage resulting from a false or misleading statement in a disclosure document or prospectus under Section 248 of the CMSA, if the person shows that he or she had made all enquiries as were reasonable in the circumstances and after making such enquiries, the person had reasonable grounds to believe and did believe until the time of making the statement or provision of information that the statement or information was true and not misleading, or there was no material omission.

In relation to market misconduct in respect of listed securities, statutory defences that are available under the CMSA include the Chinese wall defence.

Class action is possible by way of representative action in Malaysia. Order 15, Rule 12 of the Rules of Court 2012 (ROC) provides for procedural requirements that apply to representative actions. Generally, three conditions must be met to initiate a representative action under Order 15, Rule 12 of the ROC:

  1. the claimants are members of a class;
  2. they have a common grievance or interest; and
  3. the relief sought must be beneficial to all.

Representative action, however, is not a common choice of vehicle to facilitate securities claims in Malaysia considering the high litigation costs involved and the rule against contingency legal fees in Malaysia.2

In cases where market misconduct is committed against a company and the alleged wrongdoer has control over the board of directors of the company such that the company itself is unwilling to institute proceedings, the shareholders of the company may, with the leave of the court, institute a statutory derivative action under Section 347 of the CA, on behalf of the company against the alleged wrongdoer. The test for leave under Section 347 of the CA is that the complainant is acting in good faith and it appears prima facie to be in the best interest of the company.3 The Malaysian courts, however, have applied a narrow interpretation for statutory derivative action. The leading authority in Malaysia is the Court of Appeal decision in Celcom (M) Bhd v. Mohd Suhaib Ishak [2011] 3 MLJ 636 (Celcom). In Celcom, the Court of Appeal held that leave to bring a derivative action must not be given lightly and a low threshold of merely determining if there existed a prima facie case is a wrong basis for granting leave. There is a lack of reported cases involving statutory derivative action in Malaysia and this could be attributed to the high threshold for leave applied by the Malaysian courts and the fact that the company is the party that directly benefits from any remedy or award granted from the statutory derivative action.

ii Procedure

A civil proceeding may be commenced by the filing and service of a writ of summons (if there are substantial dispute of facts) or an originating summons (if there is unlikely to be any substantial dispute of facts). The claimant must state the material facts relied on, and the remedies claimed in his or her pleadings. After pleadings are closed, the parties are subject to a pretrial case management where the court will issue directions to prepare the matter for trial. Trial of the matter is then fixed, and after conclusion of the trial, the lawyers will prepare their submissions and reply submissions before a post-trial submission hearing is fixed. A judgment will then be delivered by the court.

The court can order discovery of documents that the party relies on or will rely on, or documents that could adversely affect the party's or the other party's case. In an application for discovery of documents, the application must specify or describe the documents sought for and show that the documents are relevant to the issue of the claim and the person against whom the order is sought is likely to have or have had them in his or her possession, custody or power.

iii Settlements

Generally, parties in civil actions may agree to settle based on their own terms. Order 22B of the ROC encourages parties to settle as it imposes costs and interests penalties on a party for not accepting a settlement offer if the judgment is not more favourable than the terms of offer to settle.

In relation to claims against a licensed capital markets intermediary, the Securities Industry Dispute Resolution Centre (SIDREC) provides an avenue for an aggrieved investor who has a monetary claim not exceeding 250,000 ringgit. The SIDREC is a specialised dispute resolution body that facilitates prompt settlement of claims against certain licensed capital market intermediaries in relation to a dealing or transaction involving capital market products or services. The process generally involves mediation, and where necessary, adjudication. The mediator's decision is binding on the licensed market intermediary. The claimant, however, may pursue his or her claim by civil proceedings if he or she is dissatisfied with the mediator's decision.

iv Damages and remedies

Generally, damages for breach of contract and breach of statutory obligations under the CMSA are governed by the Contracts Act 1950 and the CMSA respectively. The basis of awarding damages, for an action based on tort, is to put the claimant in the position as if the wrong had not been done. In addition to payment of damages, the court may grant equitable remedies such as specific performance and injunction.