Members’ rights and remedies

Enforcement of corporate rights

&
Oppression, disregard of members’
interests and prejudice
• The ‘proper plaintiff’ rule
• A company as a separate legal entity – no
member can sue to enforce a company’s
rights.
• Foss v Harbottle (1843) 2 Hare 461
• 2 sh brought an action v. directors for
misapplication. Held: an injury was not to
the pf but to the co.
• The rule also may be justifiable on
practical grounds – to avoid multiplicity of
suits on the same subject matter
• Not available to members & strangers eg
creditors
• The Enforcement of directors’ duties
• Is litigation in the interests of the company?
• Rarely enforced for uncertainty in obtaining
judgment in favour of the company or rather the
director’s personal interests prevail.
• The rule in Foss v Harbottle (1843) 2 Hare 461:
Rarely will the individual shareholder be able to
initiate litigation; that is normally a decision to be
taken either by the board or the shareholders as
a whole.
• Who can sue on behalf of the Company?
• Articles may specify
• If not, the right belongs to whom the
function of management is vested –
• Board of Directors (Table A art. 73) (1965
Act)
• Or liquidator (s 445(1) & 483)
• Avel Consultants S B v Mohd Zain [1984] 2 CLJ
169 - ‘in the absence of express limitations to
the contrary, the managing director of a
company has the implied authority to commence
legal proceedings in the name of the company’.
Per VC George J
• In Contrast, see: Sarawak Building Supplies v
Director of Forests [1991] 1 MLJ 211(Haidar J);
United Investment & Finance v Tee Chin Yong
[1967] 1 MLJ 31 (Chua J)
• Where the best interests of the company
lies?
• BOD – conflict of interests
• Shareholders – majority is required
 Kaedah Majoriti & Perlindungan
minoriti
• Keputusan/tindakan majoriti tidak boleh dicabar
oleh minoriti sewenang-wenangnya. Kehendak
Majoriti mengatasi minoriti mengikut kontrak
antara ahli.
• Mahkamah tidak sewajarnya mencampuri
urusan dalaman syarikat. Re Tong Eng Sdn Bhd
[1994] 1 MLJ 451
Kaedah Majoriti & Perlindungan
minoriti
Pembelaan apabila terdapat penyalahgunaan kuasa oleh majoriti yang
menindas (oppress) kepentingan minoriti.
Lord Wilberforce in Ebrahimi v Westborne Galleries Ltd [1973] AC 360
Despite the separate entity doctrine, a company is not a monolithic
structure composed of bland interchangeable digits. A company is
more than a mere legal entity; it is composed of individuals with
rights, expectations and obligations inter se which are not
necessarily submerged in the company structure.
Iaitu: setiap ahli sesebuah syarikat berhak menerima layanan secara
adil.
Kaedah Majoriti & Perlindungan
minoriti
• Mengikut Common law, hanya syarikat sahaja yang
boleh membawa kes berkaitan ke mahkamah.
Foss v Harbottle (1843) 2 Ch 461 & 455
• Tindakan individu atas nama syarikat tidak dibenarkan
untuk mengelakkan pertindanan tindakan oleh para
pemegang syer.
• Mesyuarat syarikat boleh jadi forum yang lebih sesuai.
(suara majoriti diutamakan)
Mellish J dalam Mc Dougall v Gardiner (1875) 1 Ch D 13,
25
• ‘Exceptions’ to the rule in Foss v Harbottle
• a member’s personal rights are infringed
eg wrongful removal as a director –
Alphonsus Hii Heng Tuong v Lok Min Wah
(1995) CSLR VI
• The company acts ultra vires – eg
Hawkesbury Development v Landmark
finance (1970) 92 WN 199
• Contd..
• Majority members contravene the M&A, a
contract among the members inter se – s
33(1)
• The right to object to an alteration of the
articles – eg Lim Hean Pin v Thean Seng
Co [1992] 2 MLJ 10
• Contd..
• Excluding a member’s right to vote – eg
ibid
• To petition for relief under s 181 – eg Ting
Chong Maa v Chor Sek Choon [1989] 1
MLJ 477
• There is a fraud on the minority & the
wrongdoers are in control of the co. – Lord
Davey in Burland v Earle [1902] AC 83 …a
mere matter of procedure in order to give
a remedy for a wrong which would
otherwise escape redress….
• Fraud = in the equitable sense – where
there is an abuse of power – Estmanco v
Greater London Council [1982] 1 AER 437
– Megarry VC
• Abd Rahim v Krubong Ind. Park [1995] 3
MLJ 417 – no need to prove dishonesty…-
Gopal Sri Ram JCA
Kaedah Majoriti & Perlindungan
minoriti
• Contoh-contoh mengikut Common Law
• Apabila tindakan pengarah menjadi ultra vires:
Parke v Daily News (1962) Ch 927 – pemberian
berlebihan wang kepada pekerja;
• Apabila prosedur mesyuarat tidak dipatuhi
sebelum sesuatu ketetapan dilaksanakan: Baille
v Oriental Telephone (1915) 2 All ER 693 –
keperluan notis tidak mencukupi bagi
perlaksanaan ketetapan melalui resolusi khas.
Kaedah Majoriti & Perlindungan
minoriti
• Pencabulan hak individu pemegang syer:
Pender v Lushington (1877) 6 ChD 70 –
supaya undi dalam mesyuarat direkodkan.
• Terjadinya fraud terhadap minoriti:
• (a) Cook v Deeks (1916) 1 AC 554 – pengarah
telah mungkir tugas dengan mengalih kontrak
syarikat ke syarikat yang lain;
Kaedah Majoriti & Perlindungan
minoriti
• (b) Daniels v Daniels (1978) 2 All ER 89 –
pengambilan faedah syarikat oleh pengarah;
• (c) Eastmanco v Greater London Council (1982)
2 All ER 89 – tindakan pengarah ultra vires
dengan objektif syarikat (hak membeli flat); Re
Holder Investment Trust (1971) 2 All Er 437 –
ketetapan pengurangan modal oleh majoriti
telah menghapuskan hak pemegang syer
keutamaan.
Kaedah Majoriti & Perlindungan
minoriti
• Niat melakukan “fraud” berupa ketidakjujuran,
jenayah dsb tidaklah diperlukan, memadai
apabila berlaku kecuaian dan kesan tindakan itu
menindas minoriti: Concerts Society (1915) 2 Ch
233; Daniels v Daniels (supra). Pelaku selalunya
mereka yang mempunyai kawalan undi dalam
syarikat: Birch v Sullivan (1957) 1 WLR 1247;
Pavlides v Jensen (1956) Ch 565.
 *
• Personal rights and corporate rights
• Prudential Assurance Co Ltd v Newman
Industries (No. 2) [1982] Ch 204 An individual
shareholder cannot bring an action in the courts
to complain of an irregularity (as distinct from an
illegality) in the conduct of the company’s
internal affairs if the irregularity is one which can
be cured by a vote of the company in general
meeting.
 *
• Derivative actions : The advantages and disadvantages

• The levels of litigation against wrongdoing directors will

be increased
• - Recovery in the litigation goes to the company, not to
the individual shareholder bringing the litigation.
• - Litigation may be motivated by concerns other than to
increase the value of the company’s business
• The establishment of an independent group?
• - Derivative action is an invention of equity.
• Conditions for access to the derivative action
• the individual shareholder may not sue to
enforce the company’s rights if the wrong in
question is one which is ratifiable by the
company in general meeting by ordinary
resolution –Desire to avoid wasted litigation.
• If the wrong is not ratifiable as being a “fraud
on the minority”, the derivative action may still
not be brought unless the wrongdoers are in
control of the company – a fraud is not a wrong
done to the shareholders but is a wrong done
to the company; and that what distinguishes a
fraud from other non-fraudulent wrongs is
whether the breach of duty can be ratified by
the shareholders by ordinary resolution.
• and may not be brought in the case of
non-ratifiable wrong unless the majority of
the independent shareholders support the
bringing of the action.
• * Foss v Harbottle has to maintain a
balance between ensuring the
enforcement of directors’ duties and
preserving the collective nature of
corporate decision-making.
 Section 346. Remedy in cases
of an oppression
(1) Any member or holder of a debenture of a company or, in the case of a
declared company under Part IX, the Minister, may apply to the Court for an
order under this section on the ground—

(a) that the affairs of the company are being conducted or the powers of the
directors are being exercised in a manner oppressive to one or more of the
members or holders of debentures including himself or in disregard of his or
their interests as members, shareholders or holders of debentures of the
company; or

(b) that some act of the company has been done or is threatened or that some
resolution of the members, holders of debentures or any class of them has
been passed or is proposed which unfairly discriminates against or is otherwise
prejudicial to one or more of the members or holders of debentures (including
himself).
• s 346, CA 2016 Unfair prejudice-
• (i) disregard of members’ interests;
• (ii) unfair discrimination against &
prejudice to members.
• s 346(2) the court to order remedies as it
thinks fit
• (2) If on such application the Court is of the opinion that either of those grounds is established the
Court may, with the view to bringing to an end or remedying the matters complained of, make
such order as it thinks fit and without prejudice to the generality of the foregoing the order may—

• (a) direct or prohibit any act or cancel or vary any transaction or resolution;

• (b) regulate the conduct of the affairs of the company in future;

• (c) provide for the purchase of the shares or debentures of the company by other members or
holders of debentures of the company or by the company itself;

• (d) in the case of a purchase of shares by the company provide for a reduction accordingly of the
company's capital; or

• (e) provide that the company be wound up.

• Buckley LJ in Re Jermyn Street Turkish Baths Ltd [1971]
3 All ER 184 - ‘Oppression’ –
•
• In our judgment, oppression occurs when shareholders,
having a dominant power in a company, either (1)
exercise that power to procure that something is done or
not done in the conduct of the company’s affairs or (2)
procure by an express or implicit threat of an exercise of
that power that something is not done in the conduct of
the company’s affairs; and when such conducts is
unfair…to the other members of the company or some of
them, and lacks that degree of probity which they are
entitled to expect in the conduct of the company’s affairs.
• Lord Cooper LP in Elder v Elder & Watson
Ltd (1952) SC 49 & Lord Wilberforce in Re
Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2
MLJ 227
• Viscount Simonds Scottish Co-operative
Wholesale Society Ltd v Meyer [1959] AC
324
• ‘oppression’ – ‘burdensome, harsh and
wrongful’
• There must be a visible departure from the
standards of fair dealing and a violation of the
conditions of fair play on which every member is
entitled to rely.
• disregard’ of members’ interests involves
something more than a failure to take account of
the minority’s interest: there must be awareness
of that interest and an evident decision to
override it or brush it aside or to set at naught
the proper company procedure
• ‘Disregard’ x ‘oppression
• ‘discrimination’ where one group of
members is given a benefit which other
members do not have, or where one group
of members is subject to some detriment
or liability to which the others are not
subject.
• ‘unfairly discriminatory’ – some
discrimination can be fair; whether the
discrimination can be justified in terms of
benefit to the company as a whole
• ‘Prejudice’ to mean ‘causing prejudice,
detrimental to rights or interest’ Re a
Company [1983] Ch 176.
• Peter Gibson J in Re A Company (No 005134 of 1986):
• (1) The test of unfair prejudice is objective. (2) It is not necessary for
the petitioner to show bad faith. (3) It is not necessary for the
petitioner to show a conscious intention to prejudice the petitioner.
(4) The test is one of unfairness, not unlawfulness. Counsel for the
respondents, however, has submitted that because the test is
objective it was irrelevant that the respondent may have acted for an
improper purpose or with an unfairly prejudicial conduct by a
respondent the fact that the respondent had a proper purpose and a
proper motive will not prevent that conduct from falling within the
section. But if the objective bystander observes that the conduct of
the respondent was for an improper purpose or with an improper
motive, that may well be a relevant consideration in determining
whether the conduct is unfairly prejudicial.
• 1. Dominance– not necessarily referring to
the voting powers: Kumagai Gumi v
Zenecon-Kumagai Sdn Bhd. [1994] 2 MLJ
789
• Re Sin Lee Sang Sawmill Sdn Bhd [1990]
1 MLJ 250
• 2. The complaint has nothing to do with
the way management is carried out. Re
Kong Thai Sawmills (Miri) Sdn Bhd [1978]
2 MLJ 227
• except in cases where fraud is alleged.
Per Mohd Ghazali J in Dato’ Toh Kian
Chuan v Swee Construction and Transport
Co (Malaysia) Sdn Bhd [1996] 1 MLJ 730,
757
• 3. The unfair prejudice is against the
member in his capacity as such relating to
matters of the affairs of the company, See
Kamalanathan Ratnam JC in Dr Leela
Ratoos v Anthony Ratos [1996] 3 MLJ
167, 178;Lim Cheng Huat Raymond v
Teoh Siang Teik [1996] 3 SLR 605
• 4. The prejudice still exist: Re Kong Thai
Sawmills [1978] 2 MLJ 227 except where
the effect still continues. Owen Sim Liang
Khui v Piasau Jaya Sdn Bhd [1996] 1 MLJ
113
• 5. Relief to be petitioned as soon as
possible: Re Senson auto Supplies Sdn
Bhd [1988] 1 MLJ 3266.
• The scope of remedies
• Inter alia, Share buyback S 181(2) (c)
• Professional evaluator’ assessment: Re
Golden Bread Pty Ltd [1977] Qd R 44
• To compensate the shareholder: .Scottish
Co-operative Whole-sale Society v Meyer
[1959] AC 324.