1. Minority shareholders claim damages for failure to undertake a mandatory general offer after crossing the 33% shareholding threshold under the Take-Over Code and Securities Commission Act. (Para 1 , 2 , 3 )
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2011 MarsdenLR 1246
HIGH COURT (KUALA LUMPUR)
NALLINI PATHMANATHAN, J
Tuan Hj Zulkifli bin Hj Hussain & Ors – Plaintiff
Versus
IOI Corp Bhd & Ors – Defendant
SUIT NO D4–22–438 OF 2003
Advocates:
Robert Lazar (Lai Wai Fong with him) (Shearn Delamore & Co) for the plaintiffs.
Rutheran (R Sivagnanam & Assoc) for the first defendant.
M Pathmanathan (M Pathmanathan & Co) for the second defendant.
Loh Siew Cheang (Brian Foong with him) (Cheang & Ariff) for the third defendant.
Robert Lazar (Lai Wai Fong with him) (Shearn Delamore & Co) for the plaintiffs.
Rutheran (R Sivagnanam & Assoc) for the first defendant.
M Pathmanathan (M Pathmanathan & Co) for the second defendant.
Loh Siew Cheang (Brian Foong with him) (Cheang & Ariff) for the third defendant.
A breach of the Malaysian Code on Take-Overs and Mergers does not automatically create a private law cause of action for damages. Such a right exists only if legislative intent clearly confers it, which is negated by the existence of regulatory sanctions and the act's general regulatory purpose.
Headnote:(A) Securities Commission Act 1993 - Sections 33A(9) and 33A(10) - Malaysian Code on Take-Overs and Mergers 1987 - Rule 34.1 - Breach of statutory duty - Mandatory general offer - Whether failure to comply with a take-over code confers a private law cause of action for damages - A breach of statutory duty does not, by itself, give rise to a private law cause of action unless it is shown through statutory construction that the duty was imposed for the protection of a limited class and Parliament intended to confer a private right of action (Paras 31, 35). Section 33A(9), which allows a failure to observe the code to be relied upon in proceedings to establish or negate liability, presupposes the existence of another cause of action and does not create a standalone right to damages (Paras 72-73). The existence of regulatory sanctions, such as public reprimands or deprivation of stock exchange facilities under Section 33A(10), indicates that the legislature provided adequate enforcement mechanisms, militating against the inference of a private right of action (Paras 77-78).
(B) Estoppel - Collateral attack - A party who fails to challenge the findings of a regulatory body via judicial review at the material time is precluded from later challenging those findings in a separate civil suit, as such an action would amount to an abuse of process and a breach of natural justice (Paras 92-97).
Facts of the case:
Minority shareholders of a company brought a claim for damages against an acquirer and its directors for failing to make a mandatory general offer after acquiring more than 33% of the issued share capital, in breach of the applicable take-over code. The regulatory body had issued a public reprimand but did not force the offer. A previous application for a writ of mandamus to compel the regulatory body to enforce the code was unsuccessful as the relevant enforcement powers were not retrospective.
Findings of Court:
The court found that the relevant legislation and the take-over code did not confer a private law cause of action in tort for breach of statutory duty. Furthermore, the plaintiffs failed to demonstrate that they suffered the specific type of loss the statute was intended to prevent, as some had increased their holdings after the breach and others had sold shares due to margin call foreclosures rather than the failure to make a mandatory offer.
Issues: Whether the provisions of the Securities Commission Act 1993 and the 1987 Take-Over Code confer a private law cause of action for damages upon minority shareholders for a breach of the obligation to make a mandatory general offer.
Ratio Decidendi: The court ruled that the legislative intent was to provide a regulatory framework for the public interest rather than to create a private right of action for damages. Section 33A(9) allows a breach to be used as evidence in other proceedings but does not create a cause of action. The availability of administrative sanctions under Section 33A(10) further suggests that no private remedy was intended. Additionally, damages are not recoverable if the harm suffered is not of the kind the statute intended to prevent.
Result: Claim dismissed with costs.
Legal Category Hierarchy
- tort
- administrative law
- securities law
- practice and procedure
Table of Contents
2. Plaintiffs contend breach of statutory duty under the Take-Over Code entitles them to damages; defendants deny the existence of a private law cause of action. (Para 9 , 24 , 26 )
3. The court analyzed legislative intent, finding that regulatory sanctions and the wording of the Act do not imply the creation of a private law remedy in tort. (Para 25 , 27 , 29 , 31 , 42 , 46 , 67 , 69 , 70 , 72 , 76 , 77 , 79 , 81 , 83 , 86 )
4. Breach of a statutory regulatory obligation does not create a private law cause of action in tort unless Parliament clearly intended to confer such a right. (Para 32 , 42 , 72 , 88 )
5. The plaintiffs' claim is dismissed for disclosing no cause of action. (Para 88 , 98 )
6. Does a breach of the Take-Over Code automatically create a private law cause of action for damages?
No. A breach of statutory duty only amounts to a tort if Parliament intended that the breach be actionable in tort. The court found the Securities Commission Act 1993 and the 1987 Code did not confer such a private right of action. (Para 32 , 72 , 88 )
7. How should Section 33A(9) of the Securities Commission Act 1993 be interpreted regarding civil liability?
The provision allows a breach of the Code to be used as evidence to establish or negate liability in other existing proceedings, but it does not itself create a separate cause of action for damages. (Para 71 , 72 , 73 )
8. Does the existence of regulatory sanctions preclude a private law remedy?
Yes, where the statute provides adequate regulatory sanctions or other means of enforcement, it typically indicates that the statutory right was intended to be enforceable by those means rather than by private action. (Para 35 , 42 , 77 )
9. Can a party collaterally challenge a regulator's finding of a breach in a subsequent civil suit?
No. If a party fails to challenge a regulator's decision via judicial review at the material time, they are precluded by issue estoppel from launching a collateral attack in subsequent proceedings. (Para 91 , 92 , 93 , 97 )
Nallini Pathmanathan J:
INTRODUCTION
[1]The plaintiffs’ claim against the defendants is for damages arising from a breach of statutory duty. The breach in issue is the failure or refusal of the defendants to undertake a mandatory general offer to purchase the remaining voting shares in Palmco Holdings Bhd (‘Palmco’) after having acquired, between March 1997 and August 1998, allegedly in concert, slightly more than 33% of the issued share capital of Palmco.
SALIENT FACTS
[2]The plaintiffs in this suit were, in 1997, minority shareholders in Palmco Holdings Bhd (‘Palmco’). In March 1997 the board of directors of the first defendant, IOI Corp Bhd (‘IOI’) resolved to acquire some 52,463,000 equivalent to 32.96% of the issued share capital of Palmco from Mega First Corp Bhd at the price of RM4.35 per share. On 24 March 1997 IOI announced its commitment to make the said acquisition. On 25 March 1997 IOI acquired a further 38,000 shares representing 0.024% of the issued share capital of Palmco. On the same day the second defendant, Tan Sri Dato’ Lee Shin Cheng (‘the second defendant’) who is the managing director of IOI, acquired 77,000 or 0.048% of the issued share capital of Palmco. He subsequently disposed of these 77,000 shares on 8 April 1997. The plaintiffs contend that the cumulative effect of the acquisitions at this stage by IOI in March 1997, directly or indirectly through its director, who was acting in concert with it, amounts to 33.032% of the issued share capital of Palmco. This triggered the 33% threshold level prescribed in r 34.1 of the Malaysian Code on Take-Overs and Mergers 1987 (‘the 1987 Take-Over Code’) which required the first and second defendants to undertake a mandatory offer.
[3]Subsequently on 23 June 1998, the third defendant, Lee Yeow Chor, (‘the third defendant’) a director of IOI and the son of the second defendant, acquired 20,000 Palmco shares and on 12 August 1998 a further 50,000 Palmco shares from the open market. The aggregate number of shares acquired therefore amounted to 70,000 or 0.046% of the issued share capital of Palmco. The plaintiffs contend that as there was an unfulfilled duty on the part of IOI and LSC to undertake a mandatory offer which remained unfulfilled as of August 1998, the third defendant likewise became obliged to undertake a mandatory offer on terms no less favourable that that incumbent upon the first and second defendants. The plaintiffs’ claim is premised on the rebuttable presumption that the second and third defendants who were the managing director and director respectively of the first defendant, were acting in concert with the first defendant.
INVESTIGATIONS BY THE SECURITIES COMMISSION
[4]Further to requests for investigation by the first plaintiff, the Securities Commission sought explanations from the first and second defendants in relation to the first set of acquisitions in March 1997. On 5 February 1999, the Securities Commission made a ruling requiring the first and second defendants to undertake a mandatory offer. These two defendants appealed against the decision of the Securities Commission in April 1999. The Securities Commission responded by issuing a statement on 28 May 1999 stating that:
(a)The first and second defendants had breached s 6(4) of the Malaysian Code on Take-Overs and Mergers 1998 (‘the 1998 Take-Over Code’); and
(b)having considered the appeals the appropriate remedy to be handed out was a public reprimand.
[5]No mandatory offer was undertaken by the first and second defendants. On 1 June 1999, the Securities Commission informed the first and second defendants that notwithstanding the public reprimand they remained under an obligation to undertake a mandatory offer.
[6]The first plaintiff took up the failure of the defendants to undertake a mandatory offer with the Securities Commission urging them to ensure compliance with the Securities Commission Act and the Take-Over Code. The response from the Securities Commission was that the public repri
