DATO DR CHANG SENG KOOI v DATO TAN WEI LIAN

Case Significance

Illustrates the use of Order 14A to dispose of a discrete illegality defence, and the limits of the market-manipulation provisions of the Capital Markets and Services Act 2007 when applied to a private off-market share buy-back arrangement.

This High Court decision in the Commercial Division at Kuala Lumpur, delivered by Wan Muhammad Amin bin Wan Yahya J, determines a preliminary question of law under Aturan 14A dan Aturan 33 kaedah 2 Kaedah-Kaedah Mahkamah 2012 (Order 14A and Order 33 rule 2 of the Rules of Court 2012). The plaintiff's claim rested on an alleged buy-back arrangement concerning shares in a listed company: having acquired 50 million shares in TWL Holdings Bhd at RM0.065 per share from the defendant's nominees at the defendant's request, the plaintiff said the defendant had agreed to buy those shares back at RM0.08 per share — amounting to RM4,000,000 — if the market price fell to RM0.065. The defendant denied any such agreement and, by the application before the Court, asked whether, even assuming the pleaded agreement were proven, it would be illegal and unenforceable by reason of sections 175 and 176 of the Akta Pasaran Modal dan Perkhidmatan 2007 (the Capital Markets and Services Act 2007), which address false trading, market manipulation and price manipulation.

The question posed for determination was thus a pure point of law: assuming the plaintiff's pleaded agreement to be true, did sections 175 and 176 of the CMSA render it void for illegality and therefore unenforceable? The Court examined the statutory elements of the market-misconduct provisions and the character of the pleaded arrangement — an off-market, private buy-back assurance rather than a scheme with a mechanism to create a false or misleading appearance of active trading or to influence the market price.

The Court answered the question in the negative: on the case as pleaded by the plaintiff, the agreement or undertaking did not contravene the law, the statutory elements of sections 175 and 176 not being established. Accordingly the plaintiff's claim was allowed to proceed to trial to prove the existence of the agreement, without the issue of illegality being raised, and the Court awarded costs of RM5,000 in favour of the plaintiff. The judgment is a useful illustration of the use of Order 14A to dispose of a discrete illegality defence, and of the limits of the market-manipulation provisions of the Capital Markets and Services Act 2007 when applied to a private off-market share buy-back arrangement.