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August 2010

KKDN:PQ/PP/1505(13829) The articles in this newsletter are also available on our website: www.taypartners.com.my

The Malaysian Personal Data Protection Act 2010: A Brief Overview

Contents 1 The Malaysian Personal Data Protection Act

Malaysia will be among the first country in Asean to have introduced such legislation. This article is a commentary based on the Act in its current form although no extensive amendments to the same are anticipated.

~ Bill Gates, 1996 ~ Over the past decade, with the rapid development of technological advances and in the area of Information and Communication Technology, vast amounts of personal information are being transmitted, collected, stored and used daily. This in turn opens up an opportunity for processing and also mis-processing of personal data resulting in mounting pressure for data protection law to be enacted around the world. Recently, there has been considerable hype in the AsiaPacific region in relation to privacy regulations. Individual countries are particularly careful to align their domestic legislation and policies with international developments on data protection and are more likely to pass data privacy regulations in sync with global or regional standards as personal data protection law is now a trade prerequisite recognized by international communities for initiating bilateral or multilateral trades. As for Malaysia, after waiting for almost a decade, the Personal Data Protection Bill 2009 was finally tabled in Parliament on 19 November 2009 and on 5 April 2010, the Lower House passed the Bill. The Personal Data Protection Act 2010 (“PDP”) will soon be enforced, after the Royal Assent and gazetting. In introducing the Bill in the Dewan Rakyat, the Deputy Minister of the Ministry of Information, Communication and Culture acknowledged that new technologies and changing market trends have made information in the global economy, especially the personal data of individuals a valuable commodity. Once in force,

by Oan Suet Yen

4 Competition And Intellectual Property

SCOPE OF THE PDP

by Tepee Phuah

The Act primarily aims to regulate the collection, holding, processing and use of personal data in commercial transactions and also to prevent malicious use of personal information. This piece of legislation plays a crucial role in safeguarding the interest of individuals and makes it illegal for anyone, be it corporate entities or individuals, to sell personal information or allow such use of the data by third parties.

“Great deal of information is already gathered about each of us, by private companies as well as government agencies, and we often have no idea how it is used or whether it is accurate”

2010: A Brief Overview

Clause 4 defines “data user” as the person who processes or who has control over, or authorises the processing of any personal data in respect of commercial transactions. The term encompasses individuals as well as companies and other corporate and unincorporated entities. The person whose personal data is being processed is termed as “data subject”. The law is however only concerned with data relating to a living individual and does not concern a subject who is already dead. A data processor is a person, who on behalf of the data user, processes the data.

6 Overview of Debt Recovery & Civil Procedure in Malaysia by Jasmine Ong

8 Is A Higher Approval Threshold The Answer? by Tay Beng Chai

10 LAW Regional

The law applies only if the data or information processed is “personal data”. This personal data must relate directly or indirectly to a data subject, who is identified or identifiable from that information or from that and other information in the possession of a data user. The data must be capable of being processed, wholly or partly by means of equipment operating automatically or recorded as part of a filing system (including manual processing in this instant).

Meeting KL

Personal data also includes the expression of opinion about the data subject. The law will give rise to new legal rights and obligations particularly in relation to employer-employee relationship, information processed by financial institutions and patient data collected by healthcare professionals. The Minister may require by gazette a class of data users that must be registered and a Register of Data Users be maintained. No indication has been given as yet as to what category of data users would fall within this requirement.

Singapore

APPLICABILITY OF THE ACT

The law only extends to a data user/processor established in Malaysia and the user processes data, whether or not in the context of the establishment, or if the data user/processor not established in Malaysia uses equipment in Malaysia Continue on page 2

by Ronald Tan

11 Tay & Partners Hosted Exclusive Luncheon at Forlino Restaurant in by Tay Beng Chai

12 Announcement and News


The Malaysian Personal Data Protection Act 2010: A Brief Overview Partial exemptions from the law means that for some processing activities, certain principles do not apply. Some of these partial exemptions include situations where personal data are processed for the prevention or detection of crime, for preparing statistics or research or for only journalistic, literary or artistic purposes or for the physical or mental health of the data subject. Partial exemptions from the law means that for some processing activities, certain principles do not apply. Some of these partial exemptions include situations where personal data are processed for the prevention or detection of crime, for preparing statistics or research or for only journalistic, literary or artistic purposes or for the physical or mental health of the data subject.

DATA PROTECTION PRINCIPLES

At the core of the PDP law are the personal data protection principles which must be complied with by all data users. The 7 data protection principles are as follows:Continue from page 1

for purposes of processing personal data otherwise than for transit through Malaysia. The term “establishment” covers an individual who is ordinarily a resident in Malaysia, a body incorporated under the Companies Act 1965, a partnership or other unincorporated association formed under Malaysian law and a person maintaining an office, branch, agency or regular practice in Malaysia. The Act only applies to the processing of personal data in respect of “commercial transactions”. A commercial transaction is widely defined as any transaction of a commercial nature, whether contractual or not which includes any matters relating to the supply or exchange of goods or services, agency, investments, financing, banking and insurance. There must be a commercial element in the processing of the personal data to attract the application of the said Act. There will be significant changes in the way the private sector collects and keeps data and companies and organisations will need to embark on an audit exercise to examine their current policies, processes, contractual rights and obligations and third party notifications in relation to personal data.

EXEMPTIONS

The Act expressly excludes its application to the federal and state governments thus exempting these public authorities, which represent the major data controllers and processors in the country from being subjected to the Act. The Act however does not go further to define “federal government” and “state governments”. As such, it is unclear if the local municipal councils and authorities, statutory bodies or state owned corporate entities are bound by the PDP. The law is also not applicable to any data processed wholly outside Malaysia unless that personal data is intended to be further processed in Malaysia. This would mean that the law is not applicable to internet data gatherers, unless it can be shown that the said data is intended for use in Malaysia. For example, a Bruneian data user who gathers personal data from data subjects in Malaysia is not subjected to the PDP, unless it can be shown that the said data is intended to be used in Malaysia. Also, information processed for the purpose of credit reporting business by credit reporting and referencing agencies such as Credit Tip Off Service (CTOS) are not subjected to the law and are regulated separately by other laws, mainly the Credit Reporting Agencies Act 2009. The Act also provides some exemptions, total and partial exemptions. Data which is processed only for the purpose of the individual’s personal, household affairs and for recreational purposes is totally exempted. 2

a) General Principle: The Act does not allow a data user to process any personal data unless the data subject has given his consent to the processing of the personal data. The law also provides that any personal data shall not be processed unless the data is processed for a lawful purpose directly related to the activity of the data user. The processing of the data must be necessary for or directly related to that purpose and the data must not be excessive in relation to the purpose. It is regrettably noted that the law does not define consent and whether the consent must be express or can be implied. As such, arguably, consent can be oral or implied from conduct. However, it is important that in obtaining the consent, the data subject has to be clearly informed of the proposed processing and its purpose in advance before such acts can be carried out. The data user must bear in mind that the consent, once granted, may not necessarily endure forever as the data subject may by notice in writing withdraw the said consent to the processing of his personal data in respect of which he is the data subject. Any such processing of personal data must cease upon receipt of the said notice. No time limit for withdrawal of consent is stipulated. As such, the data subject is entitled to withdraw his consent at any time. Consent in this context by the data subject could be express or implied as the PDP provides for clear instances where consent by the data subject must be made explicitly. An instance when the explicit consent of the data subject is required is when the data user is processing “sensitive personal data” and this includes medical history, political opinions, religious beliefs and commission or alleged commission of any offence. b) Notice and Choice Principle: A data user is duty bound to inform the data subject by way of a written notice, about the processing of his personal data. Such notice must be given to the data subject as soon as practicable by the data user. c) Disclosure Principle: In the absence of consent by the data subject, PDP prohibits the data user from disclosing the personal data. The data user can only disclose the personal data for the purpose or directly related purpose, of which the data was disclosed at the time of collection. Also, the data user can only disclose the personal data to a third party or a class of third parties, whose existence is made aware to the data subject and the data subject’s consent had been obtained before the personal data can be processed by the third parties. d) Security Principle: The law requires the data user to protect and safeguard the personal data of the data subject by taking practical steps to implement security measures thereto. The data user must protect the personal data from any loss, misuse, modification, unauthorised or accidental access or disclosure, alteration or destruction. The data user must take steps that commensurate with the risks of processing the data while having regard to the cost for the implementation of the same. There is thus a balancing act


legalTAPS

to be done between the seriousness of the consequences of a failure to secure the personal data and the costs implications involved in protecting the same. e) Retention Principle: The personal data shall not be kept for longer than is necessary. However, the PDP does not stipulate the time frame allowed for storage of the personal data but leaves it to the discretion of the data user. Once the data is no longer required for the purpose for which it was processed, the same must be destroyed or permanently deleted. f) Data Integrity Principle: The integrity of a data is a crucial element in the law. A data user shall take reasonable steps to ensure that the personal data is accurate, complete, not misleading and kept up to date. The data user must also maintain the data current for the purpose, including any directly related purpose, for which the personal data was collected and further processed. g) Access Principle: A data subject must be given access to his personal data held by the data user and can request for the data to be corrected if the data is inaccurate, incomplete, misleading or not up-to-date.

RIGHTS OF THE DATA SUBJECT

The Act accords various rights to individuals to safeguard their personal data, such as: • The right of access to personal data; • The right to prevent processing for the purposes of direct marketing; • The right to correct the personal data; • The right to prevent the collection, holding, processing or use of any personal data which is likely to cause damage or distress; and • The right to withdraw such consent.

PENALTIES

Failure to comply with the provisions of the law is punishable by a fine not exceeding RM300,000 and/or imprisonment for a term not exceeding two years, or both. Subject to the due diligence defence, directors, managers or other similar officers have joint and several liability for non-compliance by the body corporate.

ENFORCEMENT MECHANISMS

According to the Information, Communication and Culture Minister Datuk Seri Dr Rais Yatim recently, a commission under the PDP will be created by January next year. He also stated that discussions have been conducted with the Public Service Department (PSD) on the issues of manpower

needs, emoluments and other service requirements for the commission. The commission will be closely linked to the Malaysian Communications and Multimedia Commission (MCMC) as it applied computer forensic knowledge. A Commissioner will be appointed for the purpose of supervising the implementation of the Act. The Commissioner will be responsible for implementing and enforcing the law including the formulation of the operational policies and procedures. The Commissioner will be accountable to the Minister who is empowered to dismiss the Commissioner and who determines the Commissioner’s remuneration and income, in consultation with the Minister of Finance. An Appeal Tribunal will also be established, which will have powers to review any decision of the Commissioner.

DRAWBACKS

The PDP law is a long overdue and much anticipated piece of legislation that is hoped to curb unfair and unethical practices with respect to personal data, far beyond the reaches of common law. The Act unfortunately does not extend to government and public authorities and thus, rendering its narrow application. To exclude the Government from the application of the PDP would be contrary to the objective of the PDP in protecting the personal data of its citizens as massive amounts of personal data are being processed and stored with the government such as the National Registration Department and the Inland Revenue Board. The government seems over-reliant on the Official Secrets Act to protect such information but the Official Secrets Act has a different objective and application, not suited to protecting personal data and integrity of such data generally. Data subjects are given rights under the Act which extend beyond the rights conferred on them under existing legislation or common law, such as right of access and data integrity. The Official Secrets Act empowers the Government, and does not confer rights on individual citizens or persons. Further, the PDP applies only to the processing of personal data in respect of “commercial transactions” as defined earlier. It is sometimes not easy in certain circumstances to draw the line between commercial and noncommercial transactions. For example, an individual who participates in a census or a non-profit making survey may have also submitted his personal data. The processing of his personal data in this context may not be deemed to be in pursuance of a commercial transaction as it would not include matters relating to “the supply or exchange of goods or services”, for instance. Thus, a more liberal interpretation will have to be taken of “commercial transactions” if the intent of the Act to protect personal data is not to be defeated. An otherwise restrictive construction would narrow down the reach of the PDP law to organisations which process personal data in the course of commerce only. The remedies afforded under the Act are also limited, as the Commissioner is not empowered to order compensation for damage to data subjects, and there is no express right of a data subject to pursue a civil claim for noncompliance or breach of the law. This is unlike the law in other jurisdictions such as Britain and Hong Kong where breaches of data protection law are subject to legal action under both criminal and civil law and any individual who suffers any damage or distress by reason of the breach would be entitled to file a civil suit and claim compensation for such damage or distress.

Further, since the Commissioner is only accountable to the Minister, it is arguable that the Commissioner’s position may not be independent, and there will not be the same level of transparency, compared to data privacy Commissioners in other jurisdictions. Also, there is no obligation to disclose the Commissioner’s reports, accounts and other information to Continue on page 4

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The Malaysian Personal Data Protection Act 2010: A Brief Overview Continue from page 3

Parliament or to the public, though the Commissioner is required to furnish such information to public authorities upon the Minister’s direction.

A STEP IN THE RIGHT DIRECTION

Despite the various shortcomings, the enactment of the PDP is still seen by many as a good start towards enabling Malaysians to exercise for the first time, rights to access, to correct and to generally control the use and management of their personal data by third parties. It is clearly seen as an enhancement to the sectoral approach presently adopted in Malaysia in protecting personal data. There will be significant changes to the way the private sector collects and keeps data and businesses will need to prepare for implementation costs. Establishments and organisations will need to embark on an audit exercise to examine their current policies, processes, contractual rights and obligations and third party notifications in relation to personal data. Personal data protection law is a step in the right direction in the protection of civil liberties and privacy, and its enforcement and implementation is anxiously awaited.

The long awaited Competition Bill 2010 has finally been tabled and passed by Parliament in early June and was published in the Government Gazette on 10 June 2010. Although the newly enacted Competition Act 2010 (“CA”) has yet to come into force, the enactment of this piece of legislation is in itself a quantum leap from the previous sectoral approach adopted by the government in regulating competition policies which mainly took the form of economic regulation. The enactment of the CA is aimed at promoting and protecting the process of competition which the government hopes will further encourage efficiency, innovation and entrepreneurship thereby improving the quality of products and services provided to consumers.

ESSENTIAL ELEMENTS OF THE COMPETITION ACT 2010

The following are the two key anti-competition prohibitions provided in the CA: (i) Prohibition against parties entering into anti-competitive agreements; and (ii) Prohibition against any conduct which amounts to an abuse of a dominant position. Parliament has intentionally not included in the CA prohibitions against mergers having the effect of substantially lessening competition that can be found in most competition legislations of other jurisdictions. The CA applies to all commercial activities, both transacted within and outside Malaysia which have an effect on competition in any market in Malaysia. “Commercial activity” is defined under the CA to mean any activity of a commercial nature but does not include:Written by Oan Suet Yen (suetyen.oan@taypartners.com.my) Su Siew Ling (siewling.su@taypartners.com.my) Siew Ling is a partner in the IP and Technology practice group and she may be contacted for any advice on IP and technology issues. For further information and advice on the article above or any areas of intellectual property and technology work, you may contact: Su Siew Ling (siewling.su@taypartners.com.my)

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(a) Any activity, directly or indirectly in the exercise of governmental authority; (b) Any activity conducted based on the principle of solidarity; and (c) Any purchase of goods or services not for the purposes of offering goods and services as part of an economic activity Generally, the CA prohibits concerted practices between enterprises or association of enterprises from preventing, restricting or distorting competition in Malaysia.


legalTAPS Competition And Intellectual Property

CONFLICT BETWEEN IP AND COMPETITION?

It has been much debated upon by the intellectual property (“IP”) right holders if the introduction of competition policies would affect and create conflicts between intellectual property rights (“IPRs”) and competition. Many have concluded that there are inherent tensions between IPRs and competition. In a market economy, right holders of IPRs do convey some degree of market power and IPRs are seen as a form of monopolistic privilege granted to right holders in recognition of their right to recoup the time and costs invested in the development of the IP. In the area of research and innovation, IPR holders view the monopolistic privileges granted as an important incentive for further innovation. By virtue of the monopolistic rights granted to IPR holders, competition can be restricted (albeit for a limited time period) and there is no limit as to how much right holders can charge in respect of their products which incorporate use of the IP. Since competition policies and laws are designed to restrain the use of market power, prevent excessive or monopoly profits and promote consumer interests and welfare, the monopolistic nature of IPRs can be in conflict with competition policies and laws as monopoly would prevent or deter competition.

work and public access which include amongst others such as the originality requirement, the idea-expression dichotomy, durational limits of copyright protection and the fair dealing privilege, such qualifications or requirements which are currently provided in existing copyright law may not be sufficient in view of the emergence of widespread use of mass-market contracts by copyright owners to enhance their dominance and power in the market. In the widely reported anti-competition case involving Microsoft Corporation, the government of United States has contended, among other claims, that Microsoft has illegally bundled its web browser, Internet Explorer, with its Windows operating system. Although Microsoft did not require computer manufacturers to install Internet Explorer along with its licensed Windows operating system, the licence provisions in respect of use and installation of the Windows operating system by the computer manufacturers prohibit the manufacturers from installing any other web browsers other than Internet Explorer. Whilst use of mass-market contract by copyright owners such as Microsoft to enhance market control may not technically be illegal under current copyright law, however, because such exercise of right by copyright owners is clearly beyond what is permissible in the public interest, the use of mass-market contracts to gain market control and increase sale by copyright owners may potentially constitute an abuse of dominant position which is contrary to the provisions of the CA.

There is thus a very delicate balance required to be struck between protecting and upholding the monopolistic privileges granted to right holders of IPRs and at the same time, promoting fair competition and safeguarding the interest of consumers. If the balance is tilted excessively towards upholding the monopolistic privileges of IPR holders, such privileges granted will invariably be abused for unfair commercial advantage that will be detrimental to the overall market efficiency. If on the other hand the balance is tilted excessively towards promoting fair competition to the extent IPR holders are deterred from properly exploiting their IPRs and earn sufficient profits to recoup the time and costs invested in the research and innovation, research and innovation will invariably be reduced and dynamic efficiency will decrease as a result of reduced innovation. In Malaysia, the balance is currently very much titled towards protecting the monopolistic privileges of IPR holders. For example, the rights granted to patent owners under the current Patents Act 1983 allow the patent owner the exclusive right to exploit the patent granted and no third party is allowed to exploit the patented invention without the consent of the patent owner. This gives the patent owner the prerogative to allow or refuse grant of licence to a third party to use the patented invention. Whilst the patent owner’s refusal to grant access or licence to use the patented invention by the third party may be perfectly legitimate under the Patents Act, if the reason for refusing the supply or grant of a licence to the third party is purely to deter competition and the patent owner is unable to objectively justify its conduct (i.e. that the patent owner has behaved in a proportionate way in defending its legitimate commercial interest in refusing to supply or grant the licence), the patent owner’s conduct can potentially constitute an abuse of a dominant position and be in breach of the provision of the CA. Also, in the area of copyright protection, the current Copyright Act 1987 grants to copyright owners exclusive rights in their creative works which include the right to reproduce and distribute copyrighted works, the right to publicly perform or communicate these works and the right to commercially rent these works to the public. Whilst there are many requirements and qualifications before one’s work may be protected under the current copyright regime to maintain the appropriate balance between exclusive control by the copyright owner of its copyrighted

It is clear that there are potential conflicts between our current IP legislation and the CA unless changes are made to existing IP legislation to achieve a compromise with with anti-competitive behavior. In certain jurisdictions such as the United States, the government has introduced compulsory licences to restore competition and remedy anti-competitive practices. The unfair use of patents by patent owners as a basis for price-fixing or entry-restricting cartels as well as the consummation of market-concentrating mergers in which patents played an important role and practices that extended the scope of patent restrictions beyond the bounds of the patented subject matter are some of the grounds for granting compulsory licensing by the US government. In Singapore, amendments to its IP legislation have already been made to safeguard against possible anti-competitive behavior arising from right holders’ abuse of their IPRs. Section 51(1) of the Singapore Patents Act provides for certain restrictive licensing conditions such as prohibiting the licensee from using a competitors’ patented product or process whilst Part VII of the Singapore Copyright Act mandates the Copyright Tribunal to arbitrate licensing issues arising between licensors and licensees. Anti-competitive conduct is also dealt with under Section 27(1) of the Layout Designs for Integrated Circuits Act. Under Section 27(1) of the Layout Designs for Integrated Circuits Act, the Court is empowered to Continue on page 6

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Competition And Intellectual Property Continue from page 5 make an order for the grant of a compulsory licence in relation to use of the protected layout-design on the ground that the grant of the licence is necessary to remedy anti-competitive behavior. In Malaysia, although the government is already taking steps to amend the current Copyright Act 1987 to expand the powers and jurisdiction of the Copyright Tribunal to deal with and address licensing conditions that may constitute an abuse of IPRs and have an adverse impact on competition in the relevant market, more changes will need to be made in respect of other existing IP legislation so as to ensure that they are consistent and draws a fair compromise with the force CA. Guidelines relating to the treatment of IPRs under Sections 4 (prohibition against anti-competitive agreements) and 10 (prohibition against abuse of dominant position) should also be issued by the Competition Commission once it is established. In Singapore, the Competition Commission adopts an “economic-based-cost-benefit analysis” or “rule of reason” approach in issuing its guidelines relating to the treatment of IPRs under its Competition Act. When considering whether a business activity involving the exercise of IPR would have any competition concerns, the Singapore Competition Commission will generally take a holistic view and look at the overall net welfare effects of the activity in deciding if a particular use of an IPR is likely to adversely affect and reduce welfare in Singapore. Such an approach may be adopted by the Malaysian Competition Commission since it has proven to be effective in Singapore.

Conclusion

In debt recovery matter, the most frequently asked question by a client after the issuance of a letter of demand is, “What is the next course of action to adopt? What if the debtor fails to respond to my demand?” This article is written to provide an insight of debt recovery in Malaysia particularly recovery by way of civil action in the court.

If exceptions, exemptions and limitations are adequately provided for by taking into consideration the development needs as well as the right to access essential goods and services by the consumer, IP and competition laws may not necessarily be inconsistent and incompatible, rather they can work together to develop dynamic efficiency through increased innovation.

DEMAND FOR DEBT

Most of the debt recovery actions begin from the demand of the debt. The creditor would first issue a letter of demand, demanding for the payment of the outstanding debt within a stipulated time frame. If the debtor fails to pay after the expiry of the stipulated time frame, then the creditor may consider filing an action in court for recovery of the debt or alternatively enter into a negotiation for settlement with the debtor.

JURISDICTION OF THE COURT

In deciding which court to file an action, there are several factors to be considered, for instance the amount of claim involved, the locality and the nature of order prayed for. The monetary jurisdiction of the Malaysian court1 is as follows: (a) Magistrate Court: pecuniary claim up to RM25,000.002. (b) Sessions Court: pecuniary claim up to RM250,000.003 (but unlimited monetary jurisdiction in motor vehicle accident cases, landlord and tenant disputes, distress for rent4). (c) High Court: unlimited monetary jurisdiction. On the other hand, if the remedy sought includes specific performance, declaration or injunction, the action should be commenced in the High Court of Malaysia.

The enactment of the CA by the government is laudable and is consistent with the goal of Association of Southeast Asian National (Asean) of having competition policies by all member countries by 2015. There are however potential conflicts between our current IP laws and the CA unless the present IP system is evaluated and guidelines relating to the treatment of IPRs under the CA are introduced in order to strike a balance in meeting innovation and development needs and at the same time, promote fair competition and safeguarding the welfare and interest of the public.

INTRODUCTION

LIMITATION PERIOD

Generally, the limitation period in Malaysia is 6 years from the date the cause of action accrues5 for most claims.

FILING AND SERVICE OF SUMMONS6 OR WRIT7 AND STATEMENT OF CLAIM

An action for recovery of debt is usually commenced in court by filing a summons or writ together with the statement of claim. Upon the extraction, the sealed summons or writ should be served on the defendant and defendant has to enter appearance on the return date. If the defendant entered appearance and admitted the claim, parties can enter into consent judgment. However, if the claim is contested, the defendant is required to file defence and/or counterclaim, if any. Alternatively, if the defendant failed to enter appearance, the plaintiff may proceed to apply to enter judgment in default against the defendant provided the summons or writ has been properly served on the defendant. Once the defendant entered appearance and defence is filed, the plaintiff may consider making an application to enter summary judgment against the defendant if the defendant failed to raise any triable issue or defence of merit. Summary judgment is a judgment given summarily based on hearing by way of affidavit evidence without having to go through a full blown trial where parties need to call witnesses to prove their case. If there are triable issues raised during the hearing of the summary judgment application, the court will dismiss the application and order the action to proceed on full trial.

Written by Tepee Phuah Tepee Phuah is a partner in the Intellectual Property and Technology Department with focus on IP Protection, Litigation and enforcement. For further information and advice on the article above or any areas of intellectual property and technology work, you may contact: Tepee Phuah (tepee.phuah@taypartners.com.my)

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Apart from summary judgment, there are various judgments which can be obtained by the plaintiff against the defendant prior to a full trial as summarized below: (a) Judgment in default of appearance Failure of the defendant to enter appearance after summons or writ has been successfully served on the defendant. (b) Consent judgment The plaintiff’s claim is undisputed.


legalTAPS Overview of Debt Recovery & Civil Procedure in Malaysia (c) Judgment in default of defence Failure of the defendant to file defence. (d) Judgment on admission The defendant, by his pleading or otherwise in writing, admits the truth of the whole or any part of the action.

INTERIM RELIEF

Interim Payment Interim payment in relation to a defendant means a payment on account of any damages, debt or other sum (excluding costs) which the defendant may be held liable to pay. It is ordered by the court to alleviate a plaintiff’s hardship which may exist during the period from the commencement of an action to the conclusion of the trial. The court may on an application by the plaintiff, order interim payment to be made by the defendant pending the outcome of the civil suit subject to the following requirements8: (a) That the defendants (respondents) have admitted liability for the appellant’s damages; or (b) That the appellant has obtained judgment against the respondents for damages to be assessed; or (c) That, if the action proceeded to trial, the appellant would obtain judgment for substantial damages against the respondents

ENFORCEMENT OF JUDGMENT The limitation period for enforcement of judgment is 12 years from the date judgment10. However, if the judgment is enforced after 6 years from the date of the judgment, leave of the court must be obtained and no interest can be claimed prior to enforcement11.There are various methods in enforcing a judgment. Judgment debtor summons12 is available for discovery of information pertaining to assets of judgment debtor and the Court may order payment to be made in lump sum or installment. Failure to obey a court order may result into committal proceeding. The judgment creditor may also enforce the judgment by way of writ of seizure and sale13 which is carried out by sheriff or bailiff by way of selling the judgment debtor’s movable property. If the judgment debtor has immovable property, the judgment creditor may apply for a prohibitory order14 prohibiting the judgment debtor from transferring, charging or leasing the property. On the other hand, the judgment creditor may also enforce the judgment by way of garnishee proceeding15. The judgment creditor may apply to the court to recover money belonging to the judgment creditor which is in the hand of a third party, for instance the financial institution. If the judgment creditor has assets in the form of securities, a charge may be imposed on securities such as shares, bonds or dividends which the judgment debtor is beneficially entitled to by way of a charging order16. If the judgment debtor does not have assets to satisfy the judgment debt17, the judgment creditor can enforce the judgment against an individual by way of bankruptcy proceeding. Bankruptcy is a proceeding where the State through an appointed officer (Director General of Insolvency) takes possessions of the debtor’s property, realize it and distribute it equitably among the debtor’s creditors according to the ranks of creditor. However, as the priority of distribution is given to the secured creditors, there is no guarantee that the judgment creditor will be able to recover the full judgment sum once the judgment debtor is adjudicated a bankrupt because a judgment creditor is an unsecured creditor.

Injunction Meanwhile, interim relief in the form of interim injunction can be given by the court before the action is set down for full trial. The Malaysian High Court is empowered to grant various injunctions for instance: (a) Mareva Injunction To restrain the Defendant from removing from the jurisdiction, his/her assets which may be necessary to meet the plaintiff’s pending claim (b) Prohibitory Injunction To prevent the Defendant from doing an act for example restraining the defendant from selling or dealing with shares of the company (c) Mandatory Injunction To compel the Defendant to do an act. (d) Anton Piller Order To compel the defendant to permit the plaintiff to enter the defendant’s premises to search for or seize certain documents or property (danger that the defendant will dispose of destroy all incriminating evidence in his/her possession)

FULL TRIAL Trials are conducted in open court and witnesses for the plaintiff and defendant will be called to tender oral evidence. The trial involves examination-in-chief, cross-examination, re-examination and finally, submission by the plaintiff and defendant. Upon hearing and considering the evidence and submission by both parties, the judge will deliver a decision. An order or judgment takes effect from the day it is pronounced and parties to the action are bound by it unless an appeal9 is lodged against the decision of the judge.

Alternatively, if the judgment debtor is a company, the judgment creditor may petition to wind-up the judgment debtor on the basis of disability of the judgment debtor to satisfy the judgment debt18. Once a company is wound up pursuant to a court order, the appointed liquidator will take into custody all the property and things in action to which the company is or appear to be entitled19. In order for the judgment creditor to benefit from any distribution under the winding-up in the form of dividend, the judgment creditor must file the proof of debt. Similarly, there is no guarantee that the judgment creditor will be able to recover the full judgment sum since a judgment creditor is also an unsecured creditor. Written by Jasmine Ong (jasmine.ong@taypartners.com.my) Leonard Yeoh (leonard.yeoh@taypartners.com.my) Leonard heads the Litigation and Dispute and Resolution Practice Group. For further information and advice on the article above or any areas of corporate and commercial advisory work, you may contact: Leonard Yeoh (leonard.yeoh@taypartners.com.my) (Footnotes) 1 There is proposed amendment to the Subordinate Courts Act 1948 to increase the monetary jurisdiction of the Magistrate Court (from RM25,000.00 to RM100,000.00) and the Sessions Court (from RM250,000.00 to RM1,000,000.00) 2 Section 90 of the Subordinate Courts Act, 1948 3 Section 65 of the Subordinate Courts Act, 1948 4 Section 65 of the Subordinate Courts Act, 1948 5 Section 6 (1) of the Limitation Act, 1953 6 Magistrate and Sessions Court 7 High Court 8 Order 22A Rules of the High Court, 1980 9 Malaysia has a 2-tiered appeal system

10 Section 6 (3) of the Limitation Act 1953 11 Order 46 rule 2 Rules of the High Court, 1980 12 Debtors Act 1957 13 Order 45 and 46 of Rules of the High Court, 1980 14 Order 47 of the Rules of the High Court, 1980 15 Order 49 of the Rules of the High Court, 1980 16 Order 50 Rules of the High Court, 1980 17 The debt must not be less than RM30,000.00 inclusive of interest (see section 5 of the Bankruptcy Act, 1967) 18 The debt must not be less than RM500.00 (see section 218 of the Companies Act, 1965) 19 Section 233 of the Companies Act, 1965

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Is A Higher Approval Threshold The Answer? Asset Disposal may only be carried out where a majority in number and three quarters in value of shareholders present and voting approves the deal, and provided not more than 10% of the shareholders objected to it ( the ‘triple conditions’ ).

THE OPPOSING VIEWS

Not surprisingly, the investment banking community and corporate titans are arrayed against the Minority Shareholders Watchdog Group and other advocates of greater minority protection. The corporates say that the ability to execute with relative ease and certainty has helped corporate Malaysia as evidenced by the number of deals which have brought about enhanced corporate values.

The debate on Securities Commission and Bursa Malaysia’s proposal to review the present simple majority requirement when companies sell their business When it comes to audacious acquisitions, Malaysians prefer to buy the target’s business rather than purchase the shares of the target. Included in this list are the RM 6.7bil acquisition of Southern Bank’s business by Bumiputra-Commerce Holdings Berhad in August 2007 which gave birth to CIMB Bank in its present day structure, the acquisition of Malakoff Bhd’s business by MMC Corp Bhd for RM 9.3 bil in May 2007 and the Synergy Drive Bhd RM 35 bil acquisition of several listed companies’ plantation business to emerge as the world’s largest plantation company in November 2007.

THE JOINT CONSULTATION PAPER BY SECURITIES COMMISSION AND BURSA MALAYSIA

The debate has been brewing ever since and came to a boil when Malaysian regulators, the Securities Commission and Bursa Malaysia issued a Joint Consultation Paper in March 2010 seeking views for their proposal to tighten the approval thresholds to better protect minority interests. The proponents’ arguments are: • With a simple majority ( 50% plus one vote ) a company can sell its entire assets and undertaking ( ‘Asset Disposal’ ) pursuant to Section 132C of the Companies Act, 1965 ( ‘CA’ ) to a purchaser leaving shareholders with a company with cash and little else • If the same acquisition is structured as a share tender or offer the ‘squeeze out’ provision to buy out dissenting shareholders can only be exercised when the offeror has successfully acquired at least 90% of the shares of the target it does not own at the start of the process The higher threshold under the share offer route is believe to produce a higher pricing for shareholders as it logically takes a higher price to convince a greater majority to agree to sell out. This debate is not peculiar to Malaysia. The Hong Kong Securities and Futures Commission have amended its Code on Takeovers and Mergers to raise the bar to 75% shareholders’ approval before such a deal is sanctioned. The Stock Exchange of Thailand revised its rules to achieve the same threshold and the New Zealand Companies Act has also set 75% for shareholders approval before a company can complete such a deal. The Securities Commission and Bursa Malaysia’s joint consultation paper went further in terms of suggested thresholds – it proposed that 8

On the other hand, the minority interest groups cried foul as a simple majority is easily mustered in closely held Malaysian companies. The requirement of higher thresholds had the deal being structured as a share offer, as a scheme of arrangement or amalgamation under Section 176 of the Companies Act, 1965 ( ‘CA’ ) or as a selective capital reduction proposal under Section 64 CA would have afforded them a higher level of protection. The joint consultation paper suggested triple conditions for an Asset Disposal will arguably tilt the balance of control and protection in favour of minority shareholders and risks adversely affecting M&A activities. Ironically, without healthy M&As, minority shareholders on both sides of an Asset Disposal ( i.e. both shareholders of vendor and purchaser companies ) will be affected in one way or another.

IS THRESHOLD ALL THAT IMPORTANT?

The proposal and the ensuing debate have been focused on thresholds or to be more precise, on the number of votes – is this the right approach? A higher voting threshold makes it difficult to secure the necessary approval but does not necessarily produce a fairer and more equitable outcome. It is suggested that the approach be driven by some of the same principles which underpin the Malaysian Code of Take Overs and Mergers ( the ‘Code’ ). These principles are: • Equality of treatment • Information to all shareholders • Vendor’s Board to discharge key responsibilities

Equality of Treatment One would not blame minority shareholders in an Asset Disposal if they are sometimes left wondering whether substantial shareholders are being offered deals not available to them. Equality of treatment is a key feature in the Code. It is conspicuously missing from the Asset Disposal approach. Can the gap between the two camps be narrowed by requiring all substantial shareholders ( and not just major shareholders ) who are not prohibited from voting and who wish to vote to first declare they do not have special arrangements with the purchaser in the Asset Disposal?

Information to Shareholders A prospective purchaser must not give information to some and not all shareholders of the vendor company in the same way this principle is respected in a share offer under the Code. This point is related to the first point on equality of treatment. A level playing field must exist at all times before the deal is closed.

Vendor’s Board to Discharge Key Responsibilities The Board must be proactive on pricing. In addition to engaging independent advisors, the Board must actively seek alternate bids to create


legalTAPS

CLOSING REMARKS

Section 132C Works Regulators should strive to preserve what has worked well for corporate Malaysia whilst addressing minority shareholders legitimate grievances. A veto right is not in the author’s view a legitimate call and will end up as tyranny of the majority. A prominent banker rightly noted that in an Asset Disposal both the minority and majority are on the same side. He like many others also remarked that shareholders democracy of one share one vote should not be tinkered with lightly. The distinction between privatization and business combination which uses S132C as noted above should be borne in mind in this debate.

Conclusion

competitive price tension. It must be prepared to open its books to another serious and credible vendor for due diligence if this has been afforded to the first offeror. ( In the Malaysian context, this is not always possible, for example in the banking sector where prior approval of the Central Bank is needed even before parties can talk of a deal. ) The Board must equally ensure that it does not frustrate the offers and prevent them from being brought to shareholders for consideration unless the business is not for sale or if the offers are not credible.

Vendor’s Board in an Asset Disposal should embark on price discovery and create conditions which open up price possibilities. Ultimately, it comes down to a price as the cliché goes - every shareholder has a price. Price discovery works better if regulatory and foreign equity restrictions are kept to the minimum. This will open up the field to more bidders. Fortunately for Malaysia, the regulatory landscape is heading in that direction with gradual but certain liberalization in the recent years. Finally, the necessary safeguards needed in Section 132C CA are not necessarily numbers or percentages but provisions for a level playing field managed by a vigilant and efficient Board.

MANDATORY SHARE CONSIDERATION IN ADDITION TO CASH OPTION

Some shareholders are happy to cash out whereas others prefer to stay in the business. Purchasers should be compelled to provide a share consideration option to enable those who opt for shares in the purchaser to be paid off via a selective capital reduction. In other words, the vendor company accepts consideration shares (in the purchaser company) for those of its shareholders who wish to exit simultaneously via a selective capital reduction paid through distribution in specie comprising these consideration shares. The joint consultation paper also suggested that the vendor company should concurrently undertake to acquire a viable alternate core business that passes admission requirements for listing when proposing the sale of the company’s business. This is aimed at addressing the empty shell argument in which shareholders of the vendor company find themselves in the aftermath of the sale. The unfortunate thing is that such a ‘heavy’ requirement may produce many ‘marriages of convenience’ that may not work. Shareholders who invested in a bank and its management may be adverse to or lack appreciation for a new core business in an unrelated field, for example, in bio-technology. It is submitted the share consideration option above is preferred to this in providing the minority shareholder a choice.

Distinction between privatization exercise and business combination The debate has sometimes confused an acquisition aimed at privatising a public company with an Asset Disposal in the nature of a trade sale. The threshold allowing a major shareholder to compulsorily acquire dissenting shareholders is reached when acceptance level reaches 90% of shares the offeror does not own. On the other hand, a company that acquires the assets and business is looking at business synergy and growth. It is submitted that business combination is economically more deserving of a lower threshold than privatization which simply concentrates ownership onto one person.

Written by Tay Beng Chai Beng Chai is the Managing Partner and he heads the Corporate Commercial Practice Group For further information and advice on the article above or any areas of corporate and commercial advisory work, you may contact: Tay Beng Chai (bengchai@taypartners.com.my)

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LAW Regional Meeting KL

Tay & Partners Played Host in March 2010 to the LAW Asia Pacific Regional Meeting in Kuala Lumpur

Tay & Partners played host to the Lawyers Associated Worldwide’s (LAW) Asia Pacific Regional Meeting in Kuala Lumpur during the 25th -27th March 2010, which was held at the Mandarin Oriental Hotel. LAW is an association of independent law firms located in over 145 major commercial centers throughout the world, spanning six continents. Each member firm has local expertise and firsthand knowledge of the customs and practices in its own jurisdictions. LAW affords national and global coverage to each member firm’s clients with responsive, accessible and accountable legal representation wherever it is required.

The highlight came in the form of a double feature presentation on Malaysia being a hub of International Islamic Finance. The session was conducted by our Islamic Finance specialist, Partner Ronald Tan and the very distinguished Assistant Governor Gopal Sundaram, from the Malaysia’s Central Bank.

Clients with cross-border needs are discovering that a well run association of independent law firms like LAW, having in-depth local expertise and situated in major commercial centres, is indeed a viable and cost effective alternative to the rate structures of the global law firms with far fewer offices.

Assistant Governor Gopal Sundaram spoke in great depth and provided an excellent insight into how Malaysia’s Central Bank’s Islamic Finance promotions unit, MIFC, with their comprehensive range of Islamic fund management products and the infrastructure in place showcases that Malaysia has the right and necessary tools in positioning itself as an international Islamic finance hub.

The March 2010 Kuala Lumpur meeting was set out not only to have its members discuss issues relating to LAW business matters but the meet also provided a platform to its attending members to share their respective experiences. Mr. Gaeme McFadyen, CEO of Trilby Misso spoke on creating the right working culture to drive high performance in a legal firm; Lavan Legal’s Special Counsel, Mr. John Garvey provided the attendees with an overview of mining and oil and gas projects in Western Australia; and Mr. Rajiv Maharaj, founder of Sunline Public Relations, Melbourne, Australia spoke on public relations and media engagement strategies for legal firms. Being in Malaysia, the meeting gave Tay & Partners, the opportunity, as host, to invite local industry experts to give a talk. Over the course of the 10

day sessions, the attending members were treated to a broad overview of the Malaysian economic landscape by the Chief Economist of the Malaysian Rating Corporation Berhad (“MARC”), Mr. Nor Zahidi Alias; then, they were presented with a comparison study of the Malaysian Equities Market and regional bourses by OSK Investment Bank’s Head of Equity Capital Markets, Mr. Gan Kim Khoon.

Written by Ronald Tan Ronald heads the Debt Capital Markets Practice Group For further information and advice on the article above or any areas of corporate and commercial advisory work, you may contact: Ronald Tan (ronald.tan@taypartners.com.my)


legalTAPS Tay & Partners Hosted Exclusive Luncheon at Forlino Restaurant in Singapore

Tay & Partners hosted an exclusive luncheon on the 4th May 2010 in conjunction with the Inter-Pacific Bar Association 20th Annual Conference week held in Singapore. The luncheon was held at Forlino, a fine dining Italian restaurant located at the Fullerton Road, with views of the Marina Bay, including the Fullerton Hotel, The Merlion, City Hall, Suntec City, The Esplanade and the Marina Bay Sands. This luncheon was mainly intended to bring togheter our close network of legal firms regionally and internationally. Mr. Tay Beng Chai our Managing Partner and Head of Corporate & Commercial Practise was the main host, he discussed the value and appreciation he has for the success they have achieved by working togheter. The attendees were from reputed law firms from around Singapore, the United Kingdom, India, Japan, South Korea, Indonesia etc. In the past, these firms have worked individually with Tay and Partners on various matters and this was a perfect opportunity for everyone to meet in person and exchange ideas. We would like to thank everybody who attended this event.

A Message from: Tay Beng Chai Beng Chai is the Managing Partner and he heads the Corporate Commercial Practice Group For further information and advice on the article above or any areas of corporate and commercial advisory work, you may contact: Tay Beng Chai (bengchai@taypartners.com.my)

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legalTAPS

Legal TAPs is a collective effort of the firm to bring relevant legal updates and information to you.

T&P ANNOUNCEMENTS AND NEWS

Editorial Committee Neoh Lay Choo Jeffrey Ershad Ali Su Siew Ling Ronald Tan Leonard Yeoh

This publication provides a summary only of the subject matter covered and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.

Tay & Partners Kuala Lumpur Office 6th Floor Plaza See Hoy Chan Jalan Raja Chulan 50200 Kuala Lumpur, Malaysia Tel: 603 2050 1888 Fax: 603 2072 6354 Email: mail@taypartners.com.my Johor Bahru Office Suite 15.02, 15th Floor Menara MAA 15, Jalan Dato’ Abdullah Tahir 80300 Johor Bahru, Malaysia Tel: 607 331 6136 Fax: 607 332 2898 Email: mail_jb@taypartners.com.my Published by AxcelAsia Group Sdn Bhd

6th Floor, Plaza See Hoy Chan Jalan Raja Chulan 50200 Kuala Lumpur Tel: 603 - 2050 1888 Fax: 603 - 2031 8618 Email: mail@taypartners.com.my

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TAY BENG CHAI, our Managing Partner and Head of the Corporate & Commercial Practise Group attended the Inter-Pacific Bar Association (IPBA) 20th Annual Conference, which was held in Singapore from 2 to 5 May 2010. He also attended the inaugural Capital Raising for South East Asian Companies Forum held on 23 March 2010. In April, he attended the Trowers & Hamlins organized seminar titled ‘Trade and Investment in the Middle East’ at the The British High commissioners Residence. He also attended the The Securities Commission Malaysia and Bursa Malaysia hosted the annual Corporate Governance Week (CG Week) from 28 June to 2 July 2010 to further promote good corporate governance practices among public listed companies (PLCs). Most recently in June 2010 he attended the Competition Act 2010 Forum at the Sime Darby Convention Center organized by MICCI. SU SIEW LING, our Partner in the IP & Technology Practice group attended the INTA Annual Conference in Boston in May this year. She recently presented a paper on “Basics of IP and Licensing” in a seminar held on 28 July 2010 at the Le Meridien Hotel organized jointly by Malaysian Biotech Corporation Sdn Bhd and Licensing Executive Society Malaysia aimed at Bionexus companies.

INTERNAL MOVEMENT TEPEE PHUAH, has been promoted from a Senior Associate to a Junior Partner with immediate effect. She graduated from the University of Wales, Cardiff with an LL.B (Hons) in 2000. She was admitted as a Barrister to the Bar of England & Wales in 2001 and is a member of the Honourable Society of Grayís Inn, London. Tepee was admitted as an Advocate & Solicitor of the High Court of Malaya in 2002. She practises in the areas of intellectual property and information technology laws.

ON BOARD SEAN CHUA, graduated from the Multimedia University with an LL.B (Hons) in 2009. He was admitted as an Advocate and Solicitor of the High Court of Malaya in 2010. He practices in area of general litigation, land & tenancy disputes and in the area of trusts and administration of estates.

NOTEWORTHY TRANSACTIONS • Tay & Partners advised in the recent acquisition of Natural Oleochemicals Sdn. Bhd. by Wilmar International. Wilmar will buy 91.38% of Natural Oleochemicals Sdn from Kulim (Malaysia) Bhd., Wilmar said in a statement to the Singapore Stock Exchange on 21 July 2010. Funding for the acquisition will be from internal resources and bank borrowings, it said. Malaysia, the second-largest producer of palm oil, also represented 25% of the global production capacity of fatty acids last year. Purchasing Natural Oleochemicals would give Wilmar control over a company that accounted for 20% of Malaysiaís fatty acids production capacity. The agreement is to buy a majority stake in a Malaysian producer of oleo-chemicals used in soaps for 450 million ringgit ($192 million). • Tay & Partners advised Etika International Holdings Limited (ìEtikaî or the ìGroupî) on the conditional sale and purchase agreement for the proposed acquisition of 100% equity interest in Susu Lembu Asli (Johore) Sdn. Bhd. (ìSLAJî) and Susu Lembu Asli Marketing Sdn. Bhd. (ìSLAMî) for a cash consideration of RM89.5 million (approximately S$38.5 million), The announcement was made on 20 July 2010 and the takeover of SLAJ and SLAM will enable Etika to expand to wider ready-to-drink dairy segment. [source : SBR.com.sg]

We would like to take this opportunity to wish our Muslim friends and readers …


PDPA