The High Court decision in Gue See Sew & 2 others v Heng Tang Hai & 2 others (see the Grounds of Judgment dated 2 January 2020 and at Gue See Sew & Ors v Heng Tang Hai & Ors [2020] MLJU 46) deals with important legal issues on whether a beneficial owner of shares can initiate an oppression action and whether breaches of a shareholders’ agreement can be grounds for oppression.
Lee Shih and Joyce Lim discuss the effect of the Singapore Court of Appeal’s decision in the Sakae Holdings case. This article was originally published in Skrine’s Legal Insights Issue 03/2018.
In the recent case of Ho Yew Kong v Sakae Holdings Ltd [2018] SGCA 33 (“Sakae Holdings”), the Singapore Court of Appeal had the opportunity to clarify the distinction between personal wrongs committed against shareholders of a company and corporate wrongs against the company. This distinction directly relates to the question of whether the appropriate relief in each respective scenario would be by way of an oppression action or a statutory derivative action.
The Singapore Court of Appeal set out a framework to determine whether an aggrieved shareholder could maintain an oppression action or ought to have pursued a statutory derivative action instead. Continue reading
The Malaysian High Court in Tob Chee Hoong v Tob Chee Choong & Ors [2017] MLJU 1303 has confirmed that the shareholders’ oppression remedy (section 181 of the Companies Act 1965, and section 346 of the Companies Act 2016) would extend to both the holding company and the subsidiary company.
An aggrieved shareholder may be a member of only the holding company but the oppressive conduct may only be at the subsidiary level. In line with other jurisdictions, this High Court decision confirms that the aggrieved shareholder can still seek relief. Continue reading
Within the corporate sphere, there is an ever-present tension between majority rule, where the majority shareholders are allowed to dominate the decision-making process, and that of protection of minority shareholders. Where majority rule is abused and is wielded in the majority’s self-interest rather than the interest of the company, then the minority shareholder may be able to seek court intervention for relief.
I have always found this area of company law fascinating and I will be writing more on this in future. This article will serve as a primer on some of the forms of shareholder remedies, especially in a Malaysian context.
[Republishing my old article from March 2013.]
The Federal Court in Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd & Ors and another appeal [2013] 2 MLJ 297 (see the Federal Court Grounds of Judgment) set out an important (and another possibly controversial) clarification on the law concerning oppression proceedings under section 181 of the Companies Act 1965 (“the Act”).
Raus Sharif PCA (delivering the judgment of the Court) first held that the just and equitable principle under 218(1)(i) of the Act, being principles emanating from the House of Lords decision of Ebrahimi, would equally apply in a situation involving section 181 of the Act. This is very useful. It helps streamline our Malaysia approach to the English approach already set out in the House of Lords decision of O’Neill v Phillips. In O’Neill v Phillips, the concept of unfairness under section 210 of the English Companies Act (the equivalent of section 181 of the Act) is parallel to the concept of “just and equitable” expounded in Ebrahimi.
But the Federal Court seems to have made a sweeping finding at [37] that matters concerning a shareholders’ agreement and the breach of such an agreement are not matters relating to the affairs of the company. Therefore, such breaches cannot form the basis for a section 181 action. It was held that these are only private matters enforceable by the parties to the shareholders agreement. I do not think other jurisdictions and other cases in Malaysia have actually made such a far-reaching finding.
Oppression under section 181 of the Act revolves around whether there is commercial unfairness. Such unfairness is judged by the agreement, both formal and informal, reached among the parties. That is why the Articles of Association and, I would have thought, any shareholders’ agreement would be the primary assessment of whether any of the acts are unfair and are in breach of those formal agreements.
So say for instance, a typical situation where a shareholders’ agreement provides that there are reserved matters that will require the vote of the minority shareholder / nominated director of the minority shareholder. The shareholders’ agreement could contain a clause that the Articles of Association would be amended to reflect the terms of the agreement but it is quite common to see, due to an oversight, that the Articles of Association was not amended. If the majority shareholder pushes through certain resolutions (for instance to transfer out assets) which is oppressive against the minority, a direct application of the Jet-Tech decision would mean that the minority shareholder would not be able to rely on section 181 of the Act. The minority’s remedy may only be to sue for damages for a breach of the shareholders agreement.
I don’t think any Malaysian case or authorities from other jurisdictions have made such a sweeping finding before, in that breaches of a shareholder agreement cannot form the basis of oppression.
On a related note, this statement by the Federal Court, applied directly, may be used in support of the conflict between an arbitration clause in a shareholders agreement and statutory relief under section 218/181 of the Act (see for instance, the English Court of Appeal decision in Fulham Football Club (1987) Ltd The Football Conference Ltd [2011] EWCA Civ 855). It is now quite common to find an arbitration clause in a shareholders’ agreement. Therefore, if a breach of the shareholders agreement is only a private matter, then there may not be section 181 relief and parties may only be able to rely on the arbitration clause and have the dispute (for instance, the above example of the resolutions passed in breach of the agreement) referred to arbitration.
