Class action litigation in corporate and securities law: lessons for Malaysia

Abstract

Shareholder class action originated in U.S.A and is rapidly being adopted in many jurisdictions worldwide. Outside U.S.A, Australia is the jurisdiction where shareholder class action lawsuits are most likely to occur. With the financial meltdown, liberalization of rules and introduction of third party commercial litigation funding, shareholder class action has become the focal point of corporate lawsuits in Australia. In Malaysia, a shareholder can institute an action on behalf of the company by either bringing a common law derivative action or through statutory derivative action under section 181A of the Companies Act 1965. Also a shareholder can bring a personal action and seek relief under the “oppression remedy”. In addition, shareholders can bring representative action under Order 15 Rule 12 of the Rules of High Court 1980. Even with the amendments to the Companies Act 1965 in 2007 and the introduction of statutory derivative action which removed some of the impediments under the common law derivative action, there has not been a positive response from the shareholders who are still habitually reliant on the public enforcement bodies to initiate action against the corporate wrong-doers. An optimal level of deterrence though enforcement is most likely when both public and private enforcement work together which can lead to good corporate governance in the country. To promote private enforcement of rights by shareholders, it is vital to remove the impediments which exist under the current laws. With the CLRC’s program of modernizing the company law in Malaysia and the reforms which have taken place, there is a need to examine shareholder class action as a mechanism for private enforcement of shareholder rights in Malaysia. Introduction of shareholder class action in Malaysia can lead to better access to justice, reduced costs for plaintiffs and better bargaining power for the shareholders against the defendants. As a social utility, shareholder class action lawsuits can lead to increased judicial efficiency as well. However, introduction of shareholder class action in Malaysia can have an adverse effect on the capital market, lead to an increase in litigation and burden on the judiciary unless care is taken to prevent the misuse of the mechanism. Also, to further promote private enforcement in Malaysia, the costs rules need to be re-examined and introduction of commercial litigation funding needs to be explored as an alternative means of funding lawsuits in Malaysia. The researcher has adopted a descriptive approach to explain the mechanism of shareholder class action in Australia. Also, an analytical and critical approach has been taken to highlight the impact of introduction of such laws in Malaysia. The researcher also has undertaken a comparative study between the jurisdictions of Malaysia and Australia to look at the consequences of adopting shareholder class action in Malaysia.