Attention pays
01 October 2014
Malaysian fiduciaries and investors must grasp all opportunities to participate in relevant securities class actions, even though the country’s own domestic securities legislation is not yet fully established, says Jonathan Hu of Goal Group
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The securities class action scene outside of the US has been developing fast. In a number of legislatures, including Germany, the Netherlands and Canada, US style securities litigation is evolving and frameworks are already in place to allow non-US investors, in shares listed on a non-US exchange, to pursue their securities class actions in those countries’ courts.
The international diversification of class actions can be recognised as a combination of restrictions on jurisdiction definitions in US federal courts, along with a growing desire to develop domestic class action procedures in many countries around the globe.
This is also a result of the US Supreme Court’s ruling in the 2010 Morrison v National Australia Bank case. It ruled that US securities laws only apply to companies listed on US exchanges, eradicating the eligibility of f-cubed actions, which involve a non-US shareholder suing a non-US company whose shares were purchased on a non-US exchange, in a US court.
Although the US is still the most recognised class action legislature, plaintiffs are very much now instigating litigation in more flexible jurisdictions around the globe. International businesses listed on multiple stock exchanges must be aware of the possibility of securities class action cases against them from multiple legislatures.
In conjunction with this development, greater emphasis has also been placed on the importance of fiduciary duty and corporate governance reform where disregard or negligence can lead to a significant loss in investment value. Fiduciary duty also increasingly includes the responsibility of identifying and ensuring participation in relevant securities class actions to enable clients to reclaim rightful returns.
Failure to engage in class actions leaves billions in unclaimed settlements, which not only compromises fiduciary integrity but can also present a legal risk with clients potentially entitled to legal redress.
In Malaysia, representative actions have served as an equivalent of class actions. These actions are conducted according to Order 15, Rule 12, of the Rules of the High Court 1980. In 2008, Malaysia’s Corporate Law Reform Committee acknowledged in its Member’ Rights and Remedies recommendations that Order 15, Rule 12, holds several faults in the protection of minority shareholders and that a class action procedure would provide stronger accountability. It specified that the ability to pool resources would likely provide a better outcome for shareholders as the cost of bringing separate proceedings would be reduced, and as a result, increase the amount of compensation obtained.
However, despite these recommendations, the committee decided against introducing a framework for class actions in Malaysia, believing that amendments concerning derivative actions would provide enough of a solution to the issues.
It is important to acknowledge Malaysia’s development towards class actions and the court’s appreciation of the potential benefits of this kind of legislation. Despite this decision, specific securities class action litigation may well be fostered in the near future, especially due to the international diversification of class actions, which has motivated activity in the Asia Pacific region.
With Malaysian investors now investing $35 billion in foreign equity shares, up from $25 billion at the end of 2010 and $1 billion in 2005, it is clear that there is a duty to monitor and participate in securities class actions and collective redress opportunities in various countries around the world. Investment in the UK in 2012 from Malaysian investors was $1 billion, $11 billion in the US, $10 billion in Singapore and $2 billion in China.
Goal Group’s analysis of its class actions knowledge base predicts that by 2020 annual securities class action, group and collective redress settlements outside the US will reach $8.3 billion. The analysis predicts that an estimated $2.02 billion of global investors’ rightful returns will be unclaimed each year by non-participation.
Therefore, it is clear that there are still significant amounts being left unclaimed each year due to non-participation. At this point, it becomes the responsibility of fund managers and custodians to monitor and pursue opportunities to participate in securities litigation. There are now also a number of specialist services available that automate the process of class action participation, which in turn minimises the complexity and cost of recovery. On this basis, there becomes no real viable excuse for non-participation from fund managers and institutional investors.
While some jurisdictions, including Malaysia, still may not have as robust securities litigation frameworks as countries such as the US and Canada, these recent developments across different regions supports the need for global firms to monitor securities class actions and potential litigation across the world. Goal Group has calculated that securities class action settlements for the Asia Pacific market will reach $3.435 billion by 2020. As a result, Malaysian fiduciaries and investors must still grasp all opportunities to participate in relevant securities class actions, even though the country’s own domestic securities legislation is not yet fully established.
The international diversification of class actions can be recognised as a combination of restrictions on jurisdiction definitions in US federal courts, along with a growing desire to develop domestic class action procedures in many countries around the globe.
This is also a result of the US Supreme Court’s ruling in the 2010 Morrison v National Australia Bank case. It ruled that US securities laws only apply to companies listed on US exchanges, eradicating the eligibility of f-cubed actions, which involve a non-US shareholder suing a non-US company whose shares were purchased on a non-US exchange, in a US court.
Although the US is still the most recognised class action legislature, plaintiffs are very much now instigating litigation in more flexible jurisdictions around the globe. International businesses listed on multiple stock exchanges must be aware of the possibility of securities class action cases against them from multiple legislatures.
In conjunction with this development, greater emphasis has also been placed on the importance of fiduciary duty and corporate governance reform where disregard or negligence can lead to a significant loss in investment value. Fiduciary duty also increasingly includes the responsibility of identifying and ensuring participation in relevant securities class actions to enable clients to reclaim rightful returns.
Failure to engage in class actions leaves billions in unclaimed settlements, which not only compromises fiduciary integrity but can also present a legal risk with clients potentially entitled to legal redress.
In Malaysia, representative actions have served as an equivalent of class actions. These actions are conducted according to Order 15, Rule 12, of the Rules of the High Court 1980. In 2008, Malaysia’s Corporate Law Reform Committee acknowledged in its Member’ Rights and Remedies recommendations that Order 15, Rule 12, holds several faults in the protection of minority shareholders and that a class action procedure would provide stronger accountability. It specified that the ability to pool resources would likely provide a better outcome for shareholders as the cost of bringing separate proceedings would be reduced, and as a result, increase the amount of compensation obtained.
However, despite these recommendations, the committee decided against introducing a framework for class actions in Malaysia, believing that amendments concerning derivative actions would provide enough of a solution to the issues.
It is important to acknowledge Malaysia’s development towards class actions and the court’s appreciation of the potential benefits of this kind of legislation. Despite this decision, specific securities class action litigation may well be fostered in the near future, especially due to the international diversification of class actions, which has motivated activity in the Asia Pacific region.
With Malaysian investors now investing $35 billion in foreign equity shares, up from $25 billion at the end of 2010 and $1 billion in 2005, it is clear that there is a duty to monitor and participate in securities class actions and collective redress opportunities in various countries around the world. Investment in the UK in 2012 from Malaysian investors was $1 billion, $11 billion in the US, $10 billion in Singapore and $2 billion in China.
Goal Group’s analysis of its class actions knowledge base predicts that by 2020 annual securities class action, group and collective redress settlements outside the US will reach $8.3 billion. The analysis predicts that an estimated $2.02 billion of global investors’ rightful returns will be unclaimed each year by non-participation.
Therefore, it is clear that there are still significant amounts being left unclaimed each year due to non-participation. At this point, it becomes the responsibility of fund managers and custodians to monitor and pursue opportunities to participate in securities litigation. There are now also a number of specialist services available that automate the process of class action participation, which in turn minimises the complexity and cost of recovery. On this basis, there becomes no real viable excuse for non-participation from fund managers and institutional investors.
While some jurisdictions, including Malaysia, still may not have as robust securities litigation frameworks as countries such as the US and Canada, these recent developments across different regions supports the need for global firms to monitor securities class actions and potential litigation across the world. Goal Group has calculated that securities class action settlements for the Asia Pacific market will reach $3.435 billion by 2020. As a result, Malaysian fiduciaries and investors must still grasp all opportunities to participate in relevant securities class actions, even though the country’s own domestic securities legislation is not yet fully established.
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