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Facts
The company`s articles provided that a member who wished to transfer shares had to inform the directors, who were to
take the shares equally between them at a fair value.
Rayfield wanted to transfer the shares.
He brought an action to compel the defendant directors (which were also members) to purchase the shares in accordance
with the articles.
Issue Were the defendant directors obliged to purchasing the shares from Rayfield?
Decision Yes
Reasoning
The Articles constitute a contract between the individual members of the company, and they regulate the members mutual
rights and duties as members
The court held that there was a contract between Rayfield and the defendants constituted by the articles.
The court then ordered that the defendants purchase Rayfield`s shares in accordance with the articles.
[Slide 7] Wong Kim Fatt v Leong & Co Sdn Bhd (1976)
Facts
The articles provided that the holders of seven-tenths of the issued capital of the company had a right to requisition for the
transfer of the shares of the remaining members.
The second defendant held 250k shares out of 300k.
He served a requisition to buy out Wong`s shares.
Wong objected to this.
Issue Did the second defendant have the rights to buy out Wong`s shares?
Decision Yes
Reasoning
The fairness or unfairness of an article is not relevant in deciding whether it can be enforced.
A member`s rights and liabilities under the articles of association are a matter of contractual obligation.
The court held that Wong was bound to comply with the demand as it was part of what the defendant had bargained for. It
was purely a matter of contractual obligation and Wong must be held to the obligation he had undertaken.
[Slide 8] Raffles Hotel Ltd v Malayan Banking Bhd (1966)
Facts
MBB was the lessor of the land on which Raffles Hotel was built.
It was provided in the hotel`s constitution that the lessor has a right to appoint a director of the company (hotel).
MBB appointed itself as director.
Raffles Hotel Ltd went to get this appointment declared invalid.
Issue Can MBB appoint itself as director of the hotel?
Decision No
Reasoning
Outsiders are not privy to the constitution because the constitution does not form the basis of a contract between the
company and outsiders, and outsiders hence cannot enforce any rights that the constitution purport to confer upon them.
The court held that the constitution could not constitute a contract between a company and outsiders.
Since MBB was not a member of the company, the articles did not confer upon it any enforceable right to appoint a
director of the company.
Accordingly, the appointment was invalid.
IMPORTANT!!!
It appears that there are two distinct cases which contradict each other.
Eley case suggests that a member cannot enforce rights other than membership rights or insider rights'
Salmon case suggests that a member may enforce outsider rights' as long as he sues the company in his capacity
as a member, and not as an outsider.
It may seem both cases contradict each other, but what is rather interesting in Eley`s case is that, although Eley was a
member at the time of the court case, he did not choose to sue as a qua member to enforce the articles. What is also
further interesting is that the court did not address the point of Eleys membership in the ruling, so it is unclear if this was
intentionally ignored by the court since the suit was from an outsider rights perspective, or if the membership matter was
not brought to the courts attention at all. The question remains, what would have happened if Eley had indeed sued to
enforce his membership rights?
Astbury J addresses this exact point in Browne v La Trinidad [23] : The actual decision amounts to this. An outsider right to
whom rights purport to be given by the articles in his capacity as such and outsider, whether he is or subsequently becomes a
member, cannot sue on those articles treating them as contracts between himself and the company to enforce those rights.
Those rights are not part of the general regulations of the company applicable alike to all shareholders and can only exist by
virtue of some contract between such person and the company, and the subsequent allotment of shares to an outsider in whose
favour such an article is inserted does not enable him to sue the company on such an article to enforce rights which are res
inter alios acta and are not part of the general rights of the corporators as such . [24]
On the other hand, the court decision held in Salmon case can be interpreted as allowing a member to enforce a
constitution that gave him right in his capacity as a MD. This decision also supports the view that each member has the
right to have the constitutions observed by the company.
Conclusion:
A member can enforce any provision in the constitution even though this may incidentally also enforce a right given to a
person in a capacity other than as a member.
Member`s action must be brought in his or her capacity as a member and the enforcement of the non-member right must
be incidental to the enforcement of the member`s contractual right.
Ordinary resolutions passed by members could not affect the powers conferred by constitutions, as this would
permit the members to alter the constitutions indirectly by ordinary resolution.
It follows from this that a direction from the members passed by a special resolution should be valid, and this is
reflected in S26(1).
identify and prove oppression or disregard. The mere fact that one or more of those managing the company possess
a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the
complainant does not agree, is not enough.
There must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a
shareholder is entitled to expect before a case of oppression can be made.
And similarly disregard 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
Neither oppression nor disregard need be shown by a use of the majority`s voting power to vote down the minority:
either may be demonstrated by a course of conduct which in some identifiable respect, or at an identifiable point in time,
can be held to have crossed the line.
continue looking for informal agreements (often having the characteristics of quasi-partnerships) which supplement the
formal agreements. If there was a serious breach of the terms of such agreements, it was open to the court to grant an
appropriate remedy to the aggrieved party.
[Slide 28] Sim City v Ng Kek Wee (2013); On appeal Ng Kek Wee v Sim City (2014)
Reasoning
Given the persuasion rationales for keeping S216 as a residual remedy, it would seem that this option would generally be
foreclosed to a majority shareholder.
The Court of Appeal in Sim City has astutely noted that there is no blanket prohibition against a majority shareholder
making a S216 claim; rather, the question of standing is to be determined by a fact-sensitive inquiry of whether the
claimant lacks the power to stop the allegedly oppressive acts. It follows that there remains scope for the majority
shareholder to access S216 remedy where self-help remedies are unavailable.
In this case, the Court of Appeal held that the majority shareholder was not entitled to relief under S216 because it had the
power to stop the appellants` oppressive conduct, as it eventually did, by exercising its rights as a shareholder to remove
the appellant as a director.
[Slide 30] Scottish Co-operative Wholesale Society Ltd v Meyer (1959)
Facts
Meyer and the Society formed a private company to manufacture rayon.
The purpose of the Society forming the private company is because it could not get a license to manufacture rayon.
The society held the majority of company`s shares and controlled the board.
Society transferred company`s business to itself and cut off the supply of raw materials to the company.
As a result, the company`s operations ceased and no profits were made.
Issue Is there oppression?
Decision Yes
Reasoning
Relief may be obtained under S216 when the dominant members pursue a course of conduct designed by them to advance
their own interests or the interests of others of their choice to the detriment of the company or to the detriment of the other
shareholders.
Before considering the two major obstacles to relief under S216, we should note in passing two general questions
as to the operation of the section.
The first requirement is that the relief under S216 will only be granted if the petitioner is complaining of
oppression towards him qua member, and not in the character of director or employee of the company.
This requirement caused no problem in this case, since the oppressive conduct resulted in a depression of the value
of the respondents` shareholding in the company and thus injured them as members.
The second question goes to the meaning of the word oppressive.
In this case, Viscount Simonds considered that oppression should be given its dictionary meaning as being the
exercise of authority in a manner which was burdensome, harsh and wrongful to the other members of the
company or some of them.
The court felt that the diversion of business from the company by the Scottish Society could be fairly described as
oppressive conduct of the company`s affairs, because the oppressive conduct has caused the company`s operations
to be ceased and no profits made, leading to a depression in the value of the company`s shares. The two petitioners
were therefore entitled to relief by way of compulsory purchase of the shares by the Scottish Society.
[Slide 30] Re SQ Wong Holdings (Pte) Ltd (1987)
Facts
Directors deliberately refused to make dividend payments. Their motive was to preserve their dominance (because some
strange rules in Articles that if they did not issue dividends, they retained power to vote).
Issue Is there abuse of voting powers?
Decision Yes
Reasoning
Relief may be obtained under S216 where the majority shareholders or directors abuse their voting powers by voting in
bad faith or for a collateral purpose because oppression can be said to have been established.
The court held that the discretion of directors whether or not to recommend a dividend even on the preference shares must
be exercised fairly and honestly in the interests of the company, and for proper purposes. This discretion was not meant to
be used as a device to enable the preference shareholders to retain voting control indefinitely.
The court further held that the directors had not acted for the benefit of the company. There was therefore a visible
departure from the standards of fair dealing and a violation of fair play which the petitioners were entitled to expect from
the directors. A case of oppression was made out and relief was granted under S216.
[Slide 30] Over & Over Ltd v Bonvests Holdings Ltd and Another (2010)
Facts
Richvein was a company set up as a joint venture between two families, with Lauw family`s Over & Over Ltd as the
minority shareholder holding 30% of its shares, and the Sianander family`s Unicurrent Finance Limited initially holding
the remaining 70% shares.
O&O claimed that three actions taken by respondents amount to oppression:
a) A transfer of Richvein shares by Unicurrent to its related company, Bonvests.
b) A rights issue in Richvein which allegedly was partly intended to dilute O&O`s shareholder in Richvein.
c) Several related party transactions involving Richvein which allegedly benefitted the respondents.
Issue Is there abuse of voting powers?
Decision Yes
Reasoning
Relief may be obtained under S216 where the majority shareholders or directors abuse their voting powers by voting in
bad faith or for a collateral purpose.
The court found that there was a deliberate course of oppressive conduct. It noted that the transformation of Richvein as a
private joint venture company to a semi-public one in which Bonvests would hold Unicurrent`s shares in Richvein
constituted a radically different entity and legal proposition, which amounted to a loss of substratum.
The court also determined that the rights issue, which was done in the absence of commercial justification and amounted to
a scheme to dilute O&O`s shareholding in Richvein, was in and of itself an abuse of rights. This alone would have been
sufficient grounds to find oppression.
[Slide 30] Re A Company (No 00477 of 1986)
Reasoning
The exclusion of a member from management of a company in breach of an express or implied understanding to allow
him to participate in the management of the company have been held to justify relief under S216.
However, such an exclusion may not constitute unfair conduct if it is reasonable for the majority member to ask
the minority member to leave the company by offering to purchase the shares of the minority member at a fair
value.
The court observed that the interests of a member are not necessarily limited to the strict legal rights conferred by the
constitution of a company. Accordingly, a member`s interests can encompass the legitimate expectation that he or she will
continue to participate in management.
A petitioner had to show that the oppression complained about had been suffered in the petitioner`s capacity as a
shareholder/member. Being removed from office as a director was regarded as conduct affecting the petitioner as a
director, not as a shareholder.
The court said that the exclusion from management of a MD of a large public limited company who happens to hold a few
shares would not be able to petition for relief under S216 in the event of being removed from his office as a director.
On the other hand, the same is not true of small private companies in which two or three members have invested their
capital on the footing that dividends were unlikely to be declared, but that each would earn a living by working for the
company and drawing remuneration as a director.
In such cases, if it can be said that the members had a legitimate expectation of continued employment as a director by the
company, dismissal from office and exclusion from management may constitute unfairly prejudicial conduct.