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Dear valued clients and business partners,
Welcome to Shearn Delamore and Co's first electronic newsletter. You can now have easy access to our content across all devices anywhere, anytime. We hope you enjoy the newsletter.
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EMPLOYMENT & ADMINISTRATIVE LAW
Scaling Down of Backwages
IN THIS ARTICLE, JAMIE GOH MOON HOONG DISCUSSES THE SCALING DOWN OF BACKWAGES.
Backwages is awarded to an unjustly dismissed workman, irrespective of whether he is awarded reinstatement or compensation in lieu of reinstatement. It is awarded primarily to compensate the workman for the period that he had been unemployed because of his dismissal. Prior to the Industrial Relations (Amendment) Act 2007, which came into force on 28 February 2008 and introduced the Second Schedule to the Industrial Relations Act 1967 (“IRA 1967”), the awards of backwages made by the Industrial Court varied from the granting of full backwages to limiting backwages to 24 months.
The doctrine of mitigation[1] has been held to have no place in industrial adjudication. In Great Eastern Mills Bhd v Ng Yuen Ching[2], the High Court expressed the view that scaling down backwages or limiting it to two years because the workman was in gainful employment is not an application of the mitigation principle. The income earned by the workman elsewhere during the period of his enforced unemployment would be a relevant factor to be taken into consideration in denying or scaling down the quantum of backwages due to an employee who had been unfairly dismissed.
The above principle has been endorsed by the Federal Court in Dr James Alfred, Sabah v Koperasi Serbaguna Sanya Bhd, Sabah & Anor[3]. The Court held:
“…In our view, it is in line with equity and good conscience that the Industrial Court, in assessing quantum of backwages, should take into account the fact, if established by evidence or admitted, that the workman has been gainfully employed elsewhere after his dismissal…”
Pursuant to the Dr James Alfred decision, the Industrial Court had, in a plethora of cases, ruled that no deductions be made from the backwages to be awarded where there was no evidence of post-dismissal earnings[4].
The Federal Court’s view in Dr James Alfred is reflected in the Second Schedule to the IRA 1967 which provides that “where there is post-dismissal earnings, a percentage of such earnings, to be decided by the Court, shall be deducted from the backwages given”. It is noted that by virtue of paragraph 3 of the Second Schedule, the Industrial Court is now obliged by statute to make the necessary deductions by percentage basis from the backwages where there is evidence of post-dismissal income.
In the case of Yong Peng Kean v TT Electrical Electronics Corporation (M) Sdn Bhd & Anor[5], the Court found that there was no evidence of post-dismissal earnings adduced by any party and that the company failed to cross-examine the claimants in that case on their post-dismissal earnings. Although the Court stated “[b]oth the Claimants are still able-bodied and employable and the court has no doubt that they have been gainfully employed since their dismissal by the Company” the Court in Yong Peng Kean did not make any deductions on the backwages.
Recent decisions appear to have departed from the established practice of taking into account post-dismissal income only where there is evidence of the same. In the case of Lee Seong Fatt v Joint Management Body of Pearl Point Condominium[6], the Industrial Court found that there was no evidence that the claimant had obtained employment elsewhere or whether he remained unemployed from the date of dismissal until the date of the hearing. Nonetheless, the Court made a deduction of 30% on the backwages for post-dismissal earnings. In making its decision, the Industrial Court relied on an earlier decision in DTS Trading Sdn Bhd v Wong Weng Kit[7] which held:
“In a society such as ours where a person would invariably have to work in order to sustain day to day living, the court is of the view that even if no evidence is adduced as regards post dismissal earnings, the court is entitled nevertheless to make a deduction for post dismissal earnings. As such, a claimant who has not been gainfully employed since his dismissal, or who has been gainfully employed but on a woefully small salary, should clearly say so to the court. To remain silent is to risk the court making a deduction deemed reasonable by the court.”
Similarly, in the case of Mohd Irwan Bin Arifin v Aluminium Company of Malaysia Berhad[8], although the Industrial Court found that there was “no or very little evidence being adduced on post dismissal earning by the Claimant” (the claimant merely stated in his witness statement that he was not working at the time of the hearing), the Court was prepared to infer that the claimant was gainfully employed or earning some form of income during the post-dismissal period.
In arriving at their conclusions, the Industrial Court in Lee Seong Fatt and Mohd Irwan Bin Arifin appeared to have relied on the mitigation principle. These decisions mark the willingness of some divisions of the Industrial Court to depart from the established practice of taking into account post-dismissal income only where there is evidence of the same. It remains to be seen whether these decisions will pave the way for a more flexible approach on the requirement of evidence in scaling down the quantum of damages.
JAMIE GOH MOON HOONG
EMPLOYMENT AND ADMINISTRATIVE LAW PRACTICE GROUP
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For further information regarding employment and administrative law matters, please contact
Sivabalah Nadarajah
sivabalah@shearndelamore.com
Vijayan Venugopal
vijayan@shearndelamore.com
Raymond T C Low
raymond@shearndelamore.com
Suganthi Singam
suganthi@shearndelamore.com
Reena Enbasegaram
reena@shearndelamore.com
Wong Kian Jun
wongkj@shearndelamore.com
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DISPUTE RESOLUTION
A Bar to Representation in Sabah Arbitrations
IN THIS ARTICLE, SERENA ISABELLE AZIZUDDIN CONSIDERS THE FEDERAL COURT DECISION IN SAMSURI BIN BAHARUDDIN & 813 OTHERS V MOHAMED AZAHARI BIN MATIASIN.
Introduction
On 19 January 2017, the Federal Court issued its grounds of decision in the case of Samsuri Bin Baharuddin & 813 Others v Mohamed Azahari Bin Matiasin (heard together with GBB Nandy @ Gannesh v Mohamed Azahari Bin Matiasin). Through this decision, the Federal Court held that Sabah advocates have the exclusive right to represent parties in arbitration proceedings held in Sabah.
This decision is significant, as it bars non-Sabah advocates from appearing in arbitrations held in Sabah. It comes at a time where international arbitrations are increasingly common in Malaysia and where parties are represented by persons of their choice.
Facts
The Appellants (comprising more than 800 smallholders) entered into a joint venture agreement with a company known as Borneo Samudera Sdn Bhd (“BSSB”). A dispute arose out of this agreement and this dispute was referred to arbitration. This arbitration was held in Kota Kinabalu, Sabah. For the purposes of the arbitration, the Appellants and BSSB appointed advocates entitled to practice in Sabah; however, BSSB also chose to appoint an Advocate & Solicitor of the High Court of Malaya as co-counsel.
After the appointment, the Appellants raised an issue that the co-counsel, by virtue of being an Advocate & Solicitor of the High Court of Malaya, would be required to obtain ad hoc admission to the Sabah Bar if he wished to appear at the arbitration proceedings.
Decision of the High Court
An application was made by the respondent (“Mohamed Azahari bin Matiasin”), who was practising in the firm representing BSSB, to the High Court for a declaration that foreign lawyers who are not advocates within the meaning of the Advocate Ordinance Sabah 1953 (“Ordinance”) are not prohibited by the Ordinance from representing parties to arbitration proceedings in Sabah.
The High Court held that foreign lawyers who are not advocates within the meaning of the Ordinance are prohibited from representing parties to arbitration proceedings in Sabah and reached this decision by observing that “…the phrase ‘exclusive right to practice in Sabah’ means that lawyers admitted to the Sabah Bar have the exclusive rights in both ‘in and outside’ courts”.
Decision of the Court of Appeal
Mohamed Azahari bin Matiasin appealed to the Court of Appeal against the decision of the High Court. The Court of Appeal overturned the decision of the High Court and held that there was nothing in the Ordinance that states that advocates admitted in Sabah have the exclusive right to represent parties at arbitration proceedings in the State of Sabah. Further, the Court of Appeal observed that:
“… since barristers and solicitors in England have no exclusive right of representation before arbitration proceedings in England, it follows, therefore, that advocates of Sabah also have no exclusive right of representation at arbitration proceedings in the State of Sabah.”
The Appellants appealed to the Federal Court.
Decision of the Federal Court
The Federal Court granted leave for the following question of law to be considered and decided:
“Whether Section 8(1) of the Advocates Ordinance 1953 (Sabah Cap. 2) read together with Section 2(1)(a) and (b) thereof confer exclusivity of right to practice by representing and appearing for any party in arbitration proceedings in the State of Sabah to Sabah Advocates notwithstanding that Barristers and Solicitors in England do not have the exclusive right of representation in arbitration proceedings?”
Firstly, Section 8(1) of the Ordinance provides that:
“(1) Subject to subsection (2) and to section 9, advocates shall have the exclusive right to practise in Sabah and to appear and plead in the Federal Court in Sabah and in the High Court and in all courts in Sabah subordinate thereto in which advocates may appear, and as between themselves shall have the same rights and privileges without differentiation…”
Section 2(1) of the Ordinance states as follows:
“‘to practise in Sabah’ means to perform in Sabah-
(a) any of the functions which in England may be performed by a member of the Bar as such; or
(b) any of the functions which in England may be performed by a Solicitor of the Supreme Court of Judicature as such;”
The arguments taken by the Appellants included:
- Section 8 and section 2(1)(a) and (b) of the Ordinance have to be read together.
- The Ordinance should be read as a whole and a purposive interpretation is to be adopted to ascertain the legislature’s policy or object in enacting the Ordinance.
- Appearing in arbitration proceedings is one of the functions performed by English barristers and solicitors and therefore to appear in arbitration proceedings in Sabah is to “practice in Sabah”.
On the other hand, the arguments taken by Mohamed Azahari bin Matiasin, amongst others, included:
- Effect is to be given to the special meaning of the phrase “to practise in Sabah” which refers to barristers and solicitors in England who had never enjoyed such exclusivity of practice where arbitration was concerned.
- The phrase “exclusive right to practise in Sabah” and “to appear and plead in the Federal Court…” should be read conjunctively and not disjunctively by virtue of the word “and”.
- The Ordinance was only intended to apply to representations in court and not arbitration.
- The Court should take a liberal or purposive approach in deciding the issue. This is in tandem with international practice which allows parties to be represented by non-lawyers in an arbitration.
After hearing the arguments by the Appellants and Mohamed Azahari bin Matiasin, the Federal Court allowed the appeals and decided that foreign lawyers who are not advocates within the meaning of the Ordinance are prohibited by the Ordinance from representing parties to arbitration proceedings in Sabah.
The rationale behind this decision was as follows:
- Section 2(1)(a) and (b) are merely definitional provisions and do not create any substantive right.
- Section 8 and section 2(1)(a) and (b) have to be read together as the exclusive right to practice in Sabah is conferred on Sabah advocates by section 8(1).
- The statutory right given to Sabah advocates cannot be taken away by relying merely on the fact that barristers and solicitors in England have a non-exclusive right to appear for parties in arbitration proceedings.
The dichotomy
In Peninsular Malaysia, the Legal Profession Act 1976 expressly allows persons (whether local or foreign) other than Advocates and Solicitors of the High Court of Malaya to represent parties in an arbitration[1].
Representation of choice is a key feature in international arbitrations and the value of the right to have representation of choice in an arbitration cannot be underestimated. Foreign parties often prefer to be represented by lawyers from their own countries, whom they are more familiar with, even more so if language is a barrier.
The dichotomy of having the right to representation of choice in Peninsular Malaysia while being confined to Sabah advocates in arbitrations held in Sabah is confusing and is a disincentive to arbitration in the State of Sabah.
Conclusion
The Federal Court decision may lead to a decrease in international parties choosing Sabah as a seat to arbitrate. They are more likely to choose to arbitrate in Peninsular Malaysia, where there is a right to choose representation.
SERENA ISABELLE AZIZUDDIN
DISPUTE RESOLUTION PRACTICE GROUP
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For further information regarding dispute resolution matters, please contact
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TAX & REVENUE
Ketua Pengarah Hasil Dalam Negeri v Alcatel-Lucent Malaysia Sdn Bhd and Alcanet International Asia Pacific Pte Ltd
IN THIS CASENOTE, FOONG PUI CHI REVIEWS THE RECENT FEDERAL COURT DECISION IN THE CASE OF KETUA PEGARAH HASIL DALAM NEGERI V ALCATEL-LUCENT MALAYSIA SDN BHD ("ALCATEL") AND ALCANET INTERNATIONAL ASIA PACIFIC PTE LTD ("ALCANET")[1]
Brief facts
Alcanet, which is not tax resident in Malaysia, provided certain services relating to the provision of a global network for voice, data and video communication (“Services”) to Alcatel.
Subsequent to a withholding tax audit conducted by the Director General of Inland Revenue (“Revenue”), the Revenue purported to subject payments made by Alcatel to Alcanet for the Services (“Payments”) to withholding tax and increased withholding tax under “Section 109 and/or Section 109B of the Income Tax Act 1967” (“ITA”) for years of assessment 2001 to 2005 vide a letter dated 14 April 2008 (“Revenue’s decision”).
Alcatel and Alcanet (collectively “Taxpayers”) disputed that the Payments were subject to withholding tax and filed an application for judicial review in the High Court on 23 May 2008 under the then Order 53 of the Rules of the High Court 1980 (“RHC”) to quash the Revenue’s decision (“Judicial Review Application”).
Relevant statutory provisions
The relevant statutory provisions are set out below:
“(1) Where any person … is liable to pay interest or royalty derived from Malaysia to any other person not known to him to be resident in Malaysia … he shall upon paying or crediting the interest … or royalty deduct therefrom tax at the rate applicable to such interest or royalty, and … shall within one month after paying or crediting the interest or royalty render an account and pay the amount of that tax to the Director General: …”
“(1) Where any person … is liable to make payments to a non-resident – …
(b) for technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking,
venture, project or scheme; or …
which is deemed to be derived from Malaysia, he shall, upon paying or crediting the payments, deduct therefrom tax at the rate applicable to such payments, and … shall within one month after paying or crediting such payment, render an account and pay the amount of that tax to the Director General: …”
“(1) No assessment, notice or other document purporting to be made or issued for the purposes of this Act shall be quashed or deemed to be void or voidable for want of form, or be affected by any mistake, defect or omission therein, if it is in substance and effect in conformity with this Act or in accordance with the intent and meaning of this Act – …
(2) An assessment purporting to be made or issued for the purposes of this Act shall not be impeached or affected by reason of a mistake therein as to –
(a) the name of a person charged to tax;
(b) the description of any income; or
(c) the amount of chargeable income assessed or tax charged,
and a notice of assessment purporting to be so made or issued shall not be impeached or affected by any such mistake if it is served on the person in respect of whom the assessment was made or intended to be made (or served in accordance with subsection 67(5)) and contains in substance and effect the particulars contained in the assessment.”
Decision of the High Court[2]
The High Court then went on to rule that the Payments do not constitute “royalty” under section 109 read with section 2 of the ITA as the Revenue had failed to establish that the software was used to produce profits for Alcatel or that Alcatel was granted any rights to develop or exploit the software commercially.
Decision of the Court of Appeal[3]
The Revenue then lodged an appeal to the Court of Appeal against the decision of the High Court. The Court of Appeal affirmed the decision of the High Court and held that the Revenue had acted unreasonably, committed an error of law and exceeded their statutory powers by invoking both sections 109 and 109B of the ITA to subject the Payments to withholding tax because:
“…Section 109 and section 109B of the ITA are distinctly different and each section deals with different subject matter. … The appellant was indeed indecisive and could not make up his mind as to which particular section of the ITA apply in respect of payments for the ‘leased communication facilities’. So, he invoked both sections. The appellant’s affidavit-in-reply state that the payments were in the nature of royalty. Learned counsel for appellant before us also said the payments were royalty. But En. Norhisham who appeared for the appellant in the High Court said that the payments were partly for royalty and partly for services. So, both sections apply. This was a clear cut case in which the appellant had made a decision arbitrarily in exercise of this statutory power to the detriment of the 1st respondent.”
The Court of Appeal did not analyse as to whether the Payments were “royalty” under the provisions of the ITA.
Decision of the Federal Court
The Revenue then obtained leave to appeal to the Federal Court and the questions before the Federal Court were:
Question 1: Whether the letter of the Director General of Inland Revenue dated 14 April 2008 referring to both sections 109 and/or 109B of ITA is bad in law?
Question 2: If the answer is in the negative, are the payments for the services as referred in the Agreement exhibited as “PC-3” royalties under section 109 of the ITA?
More than nine months after the hearing of the Revenue’s appeal at the Federal Court, the Federal Court allowed the appeal and the grounds of the decision of the Federal Court are as follows:
The Revenue did not act unreasonably by invoking both sections 109 and 109B of the ITA to impose withholding tax
Although the Federal Court also recognised that sections 109 and 109B of the ITA deal with different types of payment, the Federal Court nevertheless held that the Revenue did not act unreasonably by invoking both Sections 109 and 109B of the ITA in their letter dated 14 April 2008 (“14.4.2008 Letter”) as the Taxpayers had already known about the issues of non-compliance of the withholding tax provisions through the earlier correspondences and meetings between the parties. Moreover, since the Taxpayers were represented by a reputable tax agent, the Federal Court held that the tax agent ought not to have been misled by something so obvious.
In other words, the Federal Court was of the view that the 14.4.2008 Letter did not give rise to any uncertainty as both sections 109 and 109B are withholding tax provisions under the ITA and, as such, the invocation of both these sections did not bar the Revenue from claiming withholding tax in this case.
The Taxpayers should have filed an appeal to the Special Commissioners of Income Tax (“SCIT”) back in 2008
The Federal Court took the position that the imposition of withholding tax amounts to an “assessment”. Thus, since the 14.4.2008 Letter was a “notice of assessment”, the Taxpayers should have appealed to the SCIT under section 99 of the ITA[4].
On the facts, since the Taxpayers had failed to avail themselves of such appellate remedy under the ITA, the Federal Court added that:
“…as there was no appeal to the Special Commissioners, this Court has no option but to accept certain facts and conclusions as not reversible (fait accompli). We cannot alter the view that the payments made by the first respondent are royalty payments and not be heard to complain, bearing in mind that they have failed to avail themselves, to echo Gill FJ, ‘of that remedy as laid down by the law’ before coming to the courts.”
The Revenue’s mistake as to the “description of any income” did not render the “assessment” void
Further, the Federal Court also referred to section 143 of the ITA and held that a defect in procedure could not displace the underlying tax liability imposed by statute:
“A perusal of appendix 1, which was attached to the letter of 14.04.2008 shows that sections 109 and 109B were referred to for payments of Leased Communication and Facilities.
… It could be observed that the error committed by the Appellant lies in the description of income which was subject to withholding tax. …
Applying section 143(2)(b) of the Act, the assessment contained in the letter dated 14.04.2008 shall not be impeached or affected merely by reason of a mistake therein as to ‘the description of any income’.
…
Applying section 143(1) of the Act, even if the Appellant was uncertain as to the exact applicable provision, it does not render the assessment void for want of form. To put it in a nutshell, the allegation of procedural impropriety ought not to be permitted to vitiate the Appellant’s statutory duty to assess and collect the correct amount of tax.”
No general duty on decision makers to give reasons for their decisions
Having referred to the statement of law that in the absence of reasons being given by an administrative body the courts are at liberty to conclude that it has no good reason in making its decision, the Federal Court nevertheless held that such statement of law must be applied cautiously and went on to state that:
“The correct application of the law concerning the duty of administrative authorities to give reasons for decisions has been explained by the Privy Council in Dr Stefan v The General Medical Council (1999) 1 WLR 1293. It must be emphasized that the law does not impose a general duty upon decision makers to give reasoned decisions. The trend of the law is towards giving reasons, but on a case by case basis. Among the determining factors when reasons ought to be given by administrative decision makes lie in the nature and character of the decision making and when the giving of reasons will be required as a matter of fairness and openness.”
The Judicial Review Application was incompetent
The final point that was raised by the Federal Court was that the Judicial Review Application was incompetent as it was made out of time. Under Order 53 Rule 3(6) of the RHC, an application for judicial review shall be made promptly or within 40 days from the date when the grounds for the application first arose or when the decision was first communicated to the applicant[5].
Referring to the chronology of events in this case, the Federal Court pointed out that prior to the 14.4.2008 Letter, the Revenue had already issued a letter to Alcatel on 28 March 2008 stating the amount of withholding tax that Alcatel is liable to pay (“28.3.2008 Letter”). Hence, the actual decision of the Revenue was already contained in the 28.3.2008 Letter and accordingly the Judicial Review Application should have been filed against the same and not the 14.4.2008 Letter, which was merely issued by the Revenue for clarification purposes and in response to the tax agent’s query.
Based on the above, the Federal Court answered Question 1 in the negative and, since no appeal was filed to the SCIT, the Federal Court did not answer Question 2 on the issue of royalty.
Conclusion
The Federal Court has once again placed great emphasis on the importance of utilising the appellate procedure available under the ITA and having the merits of the case heard by the SCIT even when the Revenue did not raise any objections against the Judicial Review Application. It would appear that the courts will be reluctant to hear tax cases by way of judicial review unless there are extenuating circumstances.
FOONG PUI CHI
TAX AND REVENUE PRACTICE GROUP
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For further information regarding tax and revenue matters, please contact
Goh Ka Im
kgoh@shearndelamore.com
Anand Raj
anand@shearndelamore.com
Irene Yong Yoke Ngor
irene.yong@shearndelamore.com
Foong Pui Chi
foongpuichi@shearndelamore.com
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CORPORATE AND COMMERCIAL LAW
Key Changes to the Take-overs Framework in Malaysia
IN THIS ARTICLE, SARAH JANE LOOKS AT THE KEY CHANGES TO THE TAKE-OVERS FRAMEWORK IN MALAYSIA.
Introduction
Take-overs in Malaysia are presently regulated under Division 2 of Part VI of the Capital Markets and Services Act 2007 (“CMSA”), the Malaysian Code on Take-overs and Mergers 2016 (“2016 Code”) and the Rules on Take-overs, Mergers and Compulsory Acquisitions (“2016 Rules”) collectively. With effect from 15 August 2016, the 2016 Code and 2016 Rules replace the Malaysian Code on Take-overs and Mergers 2010 (“2010 Code”) and its Practice Notes.
Application of the 2016 Code and 2016 Rules
In contrast to the 2010 Code, the 2016 Code is simplified and sets out 12 general principles to be observed and complied with by all persons engaged in any take-over or merger transaction. Comprehensive operational and conduct requirements in relation to take-overs are now encapsulated in the 2016 Rules which contain explanatory notes providing guidance on their application. Several general principles in the 2016 Code make reference to the requirement for persons involved in take-overs to observe guidelines issued by the Securities Commission Malaysia (“SCM”) in good faith[1] and acknowledges that such guidelines may restrict their conduct[2].
The 2016 Rules are the SCM guidelines. As before, the 2016 Code and 2016 Rules apply to listed corporations and do not apply to private companies. A change under the new take-overs framework is that the 2016 Code and 2016 Rules now apply to sizeable unlisted public companies with more than 50 shareholders and net assets of RM15 million or more[3]. A further change is that the 2016 Code and 2016 Rules are expressly extended to business trusts listed in Malaysia[4].
Triggering a Mandatory Offer (“MO”): creeping provision and netting off
As before, a MO shall apply where the acquirer has obtained control in a company or where the acquirer has triggered the creeping threshold. An offeror triggers the creeping threshold by acquiring more than 2% of the voting rights of a target in any period of six months where the offeror’s holding was more than 33% but less than 50% of the voting rights in the target.
The 2016 Rules now expressly provide that, in that situation, a person or persons acting in concert are free to acquire and dispose of further voting shares within the 2% band without triggering a MO. Within this 2% band, dispositions of voting rights may now be netted off against acquisitions[5]. An example of this is where a person who holds more than 33% voting shares in a company acquires a further 1.5% shares and subsequently disposes of 0.5%. Netting off will result in that person having acquired 1% voting shares in the company. That person will then be able to acquire up to a further 1.0% in the company to keep within the 2% band without triggering a MO.
Under the 2010 Code where netting off was not permitted[6], the person would be deemed to have acquired 1.5% in the shares and would only be able to acquire up to a further 0.5% in keeping within the 2% band.
Triggering a MO: acquisition of 50%+1 share in an upstream company
Under the 2016 Rules, a MO may apply to a person acquiring more than 50% of an upstream entity (which need not be a company to which the 2016 Rules and 2016 Code apply) thereby consolidating control in a downstream company[7]. This 50% threshold was not present in the 2010 Code as the threshold stated there was more general, namely where a person obtains “control” in the upstream entity[8]. Whether the upstream company has consolidated control in the downstream company, the test under the 2016 Rules is whether securing control in the downstream company is a “significant purpose”[9], rather than the “main purpose”[10] as used under the 2010 Code of acquiring statutory control of the upstream entity.
Triggering a MO: abolishment of 20% to 30% quantitative range and revised SCM considerations in assessing control
Under the 2010 Code, an acquirer acquiring 20% to 30% of the voting shares from a controlling vendor may have obtained control of a company[11]. The 2016 Rules have abolished this quantitative range and acknowledge the general situation whereby the acquirer acquires shares carrying “just under 33%” of the voting shares in the target thereby triggering a MO.
Under the 2016 Rules, the SCM will consider whether the vendor is acting in concert with the purchaser and/or has effectively allowed the purchaser to acquire a significant degree of control over the shares such that the purchaser should be treated as having acquired an interest in them. In determining whether such significant degree of control exists, the SCM will have regard to, among others, the following:
- there might be less likelihood of a significant degree of control over retained shares if the vendor was not an insider;
- payment of a very high price for the shares may suggest that control over the entire holding was being secured;
- where the retained shares are in themselves a significant part of the company’s capital, a greater element of independence may be presumed; and
- it is natural for a vendor to select a purchaser whose ideas on the way to direct the company are compatible and it is natural for a purchaser of a substantial holding to press for board representation, in which case the SCM will not conclude that a MO is triggered[12].
Timing for disclosure
It is a general principle under the 2016 Code that all parties involved in a take-over or merger transaction shall make full and prompt disclosure of all relevant information[13]. Under the 2016 Rules, an offeror who has a firm intention to make a take-over offer shall make an immediate announcement (“Offeror’s Announcement”) and the board of the target shall make an immediate announcement of the receipt of written notice (“Offeree’s Announcement”). Both the Offeror’s Announcement and the Offeree’s Announcement should be made within one hour of incurring an obligation to make an offer, otherwise a request should be made to the stock exchange for a temporary halt in trading of the offeree shares[14]. This signifies a move towards stricter disclosure requirements.
Enhanced take-overs framework facilitative to commercial realities
In formulating this enhanced take-overs framework in the 2016 Code and 2016 Rules, the SCM has worked with market practitioners and investors for the incorporation of the market’s view in a fast-changing environment. The SCM in its media release stated that the changes will be meant to be facilitative to commercial realities while providing protection to shareholders where required[15]. The enhanced take-overs framework is seen as a progressive step and is welcomed for its flexibility in the commercial sphere.
SARAH JANE CHIA CHEN NEE
CORPORATE AND COMMERCIAL LAW PRACTICE GROUP
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For further information regarding corporate and commercial law matters, please contact
Datin Grace C. G. Yeoh
gcgyeoh@shearndelamore.com
Dato’ Johari Razak
jorazak@shearndelamore.com
Lorraine Cheah
l_cheah@shearndelamore.com
Putri Noor Shariza Noordin
shariza@shearndelamore.com
Swee–Kee Ng
sweekeeng@shearndelamore.com
Marhaini Nordin
marhaini@shearndelamore.com
Michelle Wong Min Er
michellewong@shearndelamore.com
Nicholas Tan Choi Chuan
nicholas.tan@shearndelamore.com
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REAL ESTATE
Stamp Duty (Remission) Order 2016 and Stamp Duty (Remission) (No 2) Order 2016
IN THIS ARTICLE, ALEXIS YONG MEI LING EXAMINES THE STAMP DUTY (REMISSION) ORDER 2016 AND STAMP DUTY (REMISSION) (NO 2) ORDER 2016
Introduction
With the introduction of the Stamp Duty (Remission) Order 2016 and Stamp Duty (Remission) (No 2) Order 2016, first time home buyers are entitled to a remission of up to 100% of the stamp duty chargeable on the instrument of transfer and loan agreement, subject to the stipulated requirements. Both the Orders came into effect on 1 January 2017[1], and are applicable where a sale and purchase agreement is executed on or after 1 January 2017 but not later than 31 December 2018[2].
Stamp Duty (Remission) Order 2016
The Stamp Duty (Remission) Order 2016 provides for the remission of the stamp duty chargeable on any instrument of transfer for the purchase of only one unit of residential property the value of which is not more than RM500,000.00, subject to the stipulated conditions[3].
Conditions
The conditions to be fulfilled for the remission of the stamp duty chargeable on the instrument of transfer are provided in Paragraph 2 of the Stamp Duty (Remission) Order 2016:
“2.(1) An amount according to the value of residential property as specified in the Schedule shall be remitted from the stamp duty chargeable on any instrument of transfer for the purchase of only one unit of residential property the value of which is not more than five hundred thousand ringgit (RM500,000.00) by an individual who is a Malaysian citizen provided that –
- the sale and purchase agreement for the purchase of the residential property is executed on or after 1 January 2017 but not later than 31 December 2018; and
- the individual has never owned any residential property including a residential property which is obtained by way of inheritance or gift, which is held either individually or jointly.”[4]
The value of the residential property shall be based on the market value[5]. For the purposes of the Order, “residential property” means a house, a condominium unit, an apartment or a flat purchased or obtained solely to be used as a dwelling house and “individual” means a purchaser or co-purchasers[6].
Statutory declaration is required
A statutory declaration under the Statutory Declarations Act 1960 [Act 13] is necessary to support the application for the remission of the stamp duty. The statutory declaration shall be made by the individual referred to in Paragraph 2(1) of the Stamp Duty (Remission) Order 2016 to confirm that the individual has never owned any residential property including a residential property which is obtained by way of inheritance or gift, which is held either individually or jointly[7].
Amount remitted from the stamp duty
As mentioned earlier, an amount according to the value of residential property as specified in the Schedule shall be remitted from the stamp duty chargeable on the instrument of transfer for the purchase of only one unit of residential property the value of which is not more than five hundred thousand ringgit (RM500,000.00). The Schedule states as follows:
| Value of the residential property |
Amount remitted
|
| RM300,000.00 or less |
100%
|
| More than RM300,000.00 until RM500,000.00 |
RM5,000.00 from the total amount of stamp duty chargeable
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Example of calculations of the stamp duty payable on the instrument of transfer with remission of stamp duty
Value of the residential property: RM400,000.00
The rates of the stamp duty are as follows[9]:
For every RM100 or fractional part of RM100 of the amount of the money value of the consideration or the market value of the property, whichever is the greater-
- RM1.00 on the first RM100,000;
- RM2.00 on any amount in excess of RM100,000 but not exceeding RM500,000;
- RM3.00 on any amount in excess of RM500,000.
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Calculation of the stamp duty chargeable:
| First RM100,000.00 |
RM1.00 x RM100,000.00 ÷ RM100.00
=RM1,000.00 |
| Balance RM300,000.00 |
RM2.00 x RM300,000.00 ÷ RM100.00
=RM6,000.00 |
| Total stamp duty chargeable |
RM1,000.00 + RM6,000.00 = RM7,000.00 |
Total stamp duty payable:
= Total stamp duty chargeable - Amount remitted
= RM7,000 - RM2,000
= RM5,000
Stamp Duty (Remission) (No 2) Order 2016
The Stamp Duty (Remission) (No. 2) Order 2016 provides for the remission of the stamp duty chargeable on any loan agreement to finance the purchase of only one unit of residential property the value of which is not more than RM500,000.00, subject to the stipulated conditions[10].
Conditions
The conditions to be fulfilled for the remission of the stamp duty chargeable on the loan agreement are stated in Paragraph 2 of the Stamp Duty (Remission) (No. 2) Order 2016:
“2.(1) An amount according to the loan amount as specified in the Schedule shall be remitted from the stamp duty chargeable on any loan agreement to finance the purchase of only one unit of residential property the value of which is not more than five hundred thousand ringgit (RM500,000.00) executed between an individual who is a Malaysian citizen named in the sale and purchase agreement and –
- a licensed bank under the Financial Services Act 2013 [Act 758];
- a licensed Islamic bank under the Islamic Financial Services Act 2013 [Act 759];
- a development financial institution prescribed under the Development Financial Institutions Act 2002 [Act 618];
- a licensed insurer under the Financial Services Act 2013;
- a licensed takaful operator under the Islamic Financial Services Act 2013;
- a co-operative society registered under the Co-operative Societies Act 1993 [Act 502];
- any employer who provides an employee housing loan scheme;
- the Malaysian Building Society Berhad incorporated under the Companies Act 1965 [Act 125]; or
- the Borneo Housing Mortgage Finance Berhad incorporated under the Companies Act 1965.
(2) The remission of the stamp duty under subparagraph (1) shall only apply if –
- the sale and purchase agreement for the purchase of the residential property is executed on or after 1 January 2017 but not later than 31 December 2018; and
- the individual has never owned any residential property including a residential property which is obtained by way of inheritance or gift, which is held either individually or jointly.” [11]
For the purposes of this Order, “residential property” means a house, a condominium unit, an apartment or a flat purchased or obtained solely to be used as a dwelling house and “individual” means a purchaser or co-purchasers[12].
Statutory Declaration is required
The application for the remission of the stamp duty shall be accompanied by a statutory declaration under the Statutory Declarations Act 1960 [Act 13] by the individual referred to in Paragraph 2(1) of the Stamp Duty (Remission) (No 2) Order 2016 confirming that the individual has never owned any residential property including a residential property which is obtained by way of inheritance or gift, which is held either individually or jointly[13].
Amount remitted from the stamp duty
An amount based on the loan amount as specified in the Schedule shall be remitted from the stamp duty chargeable on any loan agreement to finance the purchase of only one unit of residential property the value of which is not more than RM500,000.00. The Schedule states as follows:
| Loan amount |
Amount remitted
|
| RM300,000.00 or less |
100%
|
| More than RM300,000.00 until RM500,000.00 |
RM1,500.00 from the total amount of stamp duty chargeable
|
Example of calculations of the stamp duty payable on the loan agreement with remission of stamp duty
Loan amount: RM400,000.00
The rate of the stamp duty is as follows[15]:-
| For each RM1,000 or part thereof RM5.00 |
Calculation of the stamp duty chargeable:
| RM400,000.00 |
RM5.00 x RM400,000.00 ÷ RM1000.00
= RM2,000.00 |
| Total stamp duty chargeable |
RM2,000.00 |
Total stamp duty payable:
= Total stamp duty chargeable - Amount remitted
= RM2,000.00 - RM1,500.00
= RM500.00
Conclusion
For first time buyers, the cost of owning a first home is reduced by the remission of the stamp duty chargeable on the instrument of transfer and loan agreement, subject to the stipulated requirements as provided in the Stamp Duty (Remission) Order 2016 and Stamp Duty (Remission) (No 2) Order 2016.
ALEXIS YONG MEI LING
REAL ESTATE PRACTICE GROUP
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For further information regarding real estate matters, please contact
Sar Sau Yee
sysar@shearndelamore.com
Aileen P L Chew
aileen@shearndelamore.com
Anita Balakrishnan
anita@shearndelamore.com
Ding Mee Kiong
mkding@shearndelamore.com
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[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8] Supra n 3.
[9]
[10]
[11]
[12]
[13]
[14] n 9.
[15]
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INTELLECTUAL PROPERTY
Trans-Pacific Partnership Agreement (“TPPA”) — Not All is Lost, At Least for the Malaysian IP Landscape
IN THIS ARTICLE, RUGHARUM SUPRAMANIUM ANALYSES THE CHANGES TO BE MADE TO THE MALAYSIAN IP LANDSCAPE.
Former US president Barack Obama envisioned that the TPPA would:
“promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in the signatories’ countries; and promote transparency, good governance, and enhanced labour and environmental protections.”[1]
The 12 countries that made up the TPPA have a collective population of about 800 million, and are presently responsible for over 40% of the world’s trade[2]. The TPPA was supposed to be one of the most remarkable trade achievements amongst Pacific nations, given the very different approaches and standards within the member countries on issues such as environmental protection, workers’ rights, intellectual property rights and others.
Today, however, the TPPA stands non-ratified following America’s withdrawal from the agreement on 23 January 2017, in accordance with the policies of the new Trump administration.
Given the significance of the Intellectual Property (“IP”) Chapter in the TPPA, America’s withdrawal leads to the question of whether the IP landscapes of the remaining 11 member countries will see any adverse effect from the failure of the TPPA.
Amongst others, the IP Chapter was set to lay down the path towards the new gold standard for IP protection in preferential trade agreements. Seeking to dismantle behind-the-border trade restrictions and foster regulatory coherence, the TPPA required the ratifying members to amend and update their IP laws to be on par with the more developed jurisdictions and in line with a number of international IP treaties and trade agreements.
Where does Malaysia stand?
Malaysia was one of the 12 countries to sign the TPPA on 4 February 2016. While the fate of the TPPA remains uncertain, nevertheless, on the IP front, Malaysia has pledged to carry on with its commitment to update its different domestic IP legislation to facilitate trade and fulfil Malaysia’s international obligations[3].
In doing so, the Malaysian IP Office (“MyIPO”) has been working towards acceding to some of the agreements required under the TPPA, including the Madrid Protocol, the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure, the International Convention for the Protection of New Varieties of Plants, the Singapore Treaty, the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty.
Malaysian IP legislation is slated to be updated as part of the preparations, namely, the Trade Marks Act 1976, the Geographical Indications Act 2000, the Copyright Act 1987, the Industrial Designs Act 1996 and the Patents Act 1983.
Trademarks
With the amendment to the Trade Marks Act 1976 (“Trade Marks Act”), it is anticipated that brand owners will enjoy broader protection, including for non-conventional marks such as shape, sound and scent marks. At present, the Trade Marks Act defines use of a mark to include only “use of a printed or other visual representation of the mark”. With the recognition of shape, sound and scent marks, Malaysia will be on par with other jurisdictions such as Singapore, USA and Europe.
Collective marks will also be introduced and will be of particular interest to organisations from the accountancy, legal, medical and other relevant industries. With the amendments to the provisions on infringement, trade mark owners will be able to commence action against infringers for goods that are simply related to that claimed under a registered mark, and not necessarily for identical or similar goods alone. Another anticipated major amendment is that it will no longer be necessary to record a licence in order to have the licence recognised and deemed valid.
Copyright
A number of amendments are also being introduced to the Copyright Act 1987 (“Copyright Act”), the most important being the duration of copyright protection which is now being extended from the current 50 years to 70 years after the creator’s death.
Other amendments to the Copyright Act may include changes to the provisions on Internet service providers (“ISPs”), wherein ISPs will now play the role of “internet police”. This may be made possible with changes to the definition of a “service provider” in the Act. With these amendments, the Government will also have to provide legal incentives for the ISPs to expeditiously remove content deemed as infringing material.
Industrial designs[4]
Amongst others, by virtue of the proposed amendments to the Industrial Designs Act 1996 (“Industrial Designs Act”), protection for industrial designs will be extended to cover designs which are embodied in a part of an article or to form a part of an article in the context of the article as a whole. Essentially, the amendments would seek to maintain the literal interpretation of an “article” which seemingly removes the present “must-fit-must-match” exclusions in the Industrial Designs Act, which has been a subject of debate in the past.
The Industrial Designs Act already allows an extension of duration of protection to 25 years, which makes it readily fully compliant with TPPA obligations on this aspect.
Geographical indications
The amendments to the Geographical Indications Act 2000 (“Geographical Indications Act”) will introduce new grounds of opposition that third parties may rely on when opposing geographical indication applications. New grounds for cancellation of registered geographical indications have also been included in the proposed amendments.
Previously, the Geographical Indications Act was silent on the “term customary in the common language”. With the amendments, guidelines have been introduced to determine whether a term is indeed “customary in the common language”.
Patents[5]
Amendments to the Patents Act 1983 (“Patents Act”), amongst others, will extend patent protection to include new uses of a known product, new methods of using a known product, as well as new processes of using a known product. This amendment will be of particular interest to pharmaceutical companies seeking second medical use of a known drug. With the above changes, a patent linkage system will be introduced, by way of a Ministry of Health notification to the applicable patent holder.
Changes will also be made to provisions on patent term, which includes an adjustment to the patent term to compensate for any unreasonable delay on the part of the Patent Office in patent prosecution.
Other changes to the Patents Act will include the extension of data and marketing exclusivity for new agricultural products to a minimum of 10 years. For new pharmaceutical products, both data and marketing exclusivity may be granted for at least five years, and for new biologics, data exclusivity may be granted for at least eight years and marketing exclusivity for at least five years.
Conclusion
Once the above amendments are in force, it would certainly seem that some aspects of the TPPA would be implemented. Malaysia’s IP landscape will certainly see far-reaching changes with the above amendments to the relevant IP legislation. With these amendments being tabled at the Parliament sometime in the first quarter of 2017, Malaysia will be on par with other jurisdictions with more advanced IP laws.
RAGHURAM SUPRAMANIUM
INTELLECTUAL PROPERTY PRACTICE GROUP
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For further information regarding intellectual property law, please contact
Karen Abraham
karen@shearndelamore.com
Indran Shanmuganathan
indran@shearndelamore.com
Timothy Siaw
timothy@shearndelamore.com
Zaraihan Shaari
zara@shearndelamore.com
Jyeshta Mahendran
jyeshta@shearndelamore.com
Janet Toh Yoong San
janet.toh@shearndelamore.com
Ameet Kaur Purba
ameet@shearndelamore.com
Michelle CY Loi
michelle.loi@shearndelamore.com
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Advocates & Solicitors
Notary Public
Registered Patent Agent
Trade Mark Agents
Industrial Design Agents
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Peguambela & Peguamcara
Notari Awam
Ejen Paten Derdaftar
Ejen Cap Dagangan
Ejen Rekabentuk Perindustrian
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This newsletter is produced by the Knowledge Management Department. Please contact the department of the newsletter editorial committee at km@shearndelamore.com if you need any information about this newsletter.
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Newsletter Editorial Committee:
Goh Ka Im
Christina S C Kow
K Shanti Mogan
Marhaini Nordin
Zaraihan Shaari
Lai Wai Fong
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