Class Action

What is a class action?

A class action or representative action is a term used when a number of individuals who have the same interest or endgame wish to institute an action/ defend an action against another party. It can be done via one member representing everyone else or all members except one or more of the members.

The requirements to raise a successful class action suit was first discussed in the case of Palmco Holding Bhd v Sakapp Commodities (M) Sdn Bhd & Ors. However, to illustrate the requirements in this article, we will look at the more recent case of QB Khidmat Teguh Sdn Bhd v Pembinaan Legenda Unggul Sdn Bhd & Anor. 

A brief history of the case

In the case, Pembinaan Legenda became insolvent and its directors passed a special resolution to wound up the company and appoint the second defendant in this case as a liquidator to manage the company’s affairs. This was opposed by the QB Khidmat and the rest of Pembinaan Legenda’s unsecured creditors during the creditor’s meeting. They were, amongst others:

1. Concerned that the winding-up process was not done in a proper manner, as there was a lack of explanation as to the background affairs leading to the winding up of Pembinaan Legenda;
2. Disagreed with the appointment of the 2nd Defendant as the liquidator; and
3. Contended that the creditor’s meeting had not been lawfully adjourned.

Unable to reach a consensus with Pembinaan Legenda, QB Khidmat along with 27 other unsecured creditors instituted a class action against Pembinaan Legenda to seek the court’s direction in regards to winding-up process, the appointment of the 2nd Defendant as liquidator and the adjournment of the creditor’s meeting. This was opposed by Pembinaan Legenda and the 2nd Defendant on the grounds that, amongst others, QB Khidmat and the rest of the unsecured creditors failed to meet the requirements for class action in commencing this action. 

To cut the long story short, the court allowed QB Khidmat and the rest of the unsecured creditors’ application, stating that they have satisfied the requirements in order to succeed in a class action. 

So what are the requirements?

The court, in relying on the case of Palmco Holdings and two other English cases in Duke of Bedford v Ellis and Others and Smith and Others v Cardiff Corporation, held that in order for a class action to succeed, it must fulfill three requirements, namely:

1. The person who instituted the class action and those represented by it are members of a class and they are all pursuing a common interest;
2. All the members of the class have a common grievance; and
3. The relief sought is beneficial to all members of the class.

In this case, the court held that:

1. QB Khidmat and the rest of the unsecured creditors were a member of a class as they were all the unsecured creditors of Pembinaan Legenda;
2. Their common interest was for Pembinaan Legenda to come clean as to the whole winding-up process and how and why was the 2nd Defendant being appointed as Pembinaan Legendas’s liquidator;
3. They were aggrieved by the conduct and outcome of the creditor’s meeting; and
4. They are seeking a common relief as the direction from the court in regard to the grievances mentioned above will undoubtedly benefit all the unsecured creditors of Pembinaan Legenda.  

Are there instances where the application to institute a class action fails?

Yes. In Smith and Others, the Cardiff Corporation decided upon a scheme to increase the rent payable by certain tenants earning above a certain income. Smith and 4 other tenants decided to bring a class action on behalf of themselves and other tenants. The court held that the action cannot succeed as the scheme did not affect all the tenants adversely.

In Atip bin Ali v J.D. Nunis & Another, Atip sued JD Nunis on behalf of the Alai UMNO branch for defaming the Alai UMNO branch. The court held that class actions cannot be taken in a defamation suit as:

1. The grounds and liability for damages in a defamation suit differs from one person to another;
2. Not every member of the branch was present when the statement was made; and
3. The statement was not made against all of the branch members.

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