Lavania & Balan Chambers

Two Leave Questions

Question 1 (i): Whether the true ratio of Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd [2013] 2 CLJ 277 ("Jet-Tech") is that breach of a shareholders' agreement ("SHA") can be actionable under Section 181 of the Companies Act 1965 ("Section 181") when accompanied by findings of oppression, disregard of interest, unfair discrimination or unfair prejudice.

Question 2 (ii): Whether the proposition adopted by the Federal Court in Jet-Tech (holding that SHA breaches cannot be a basis for a Section 181 petition because they are private matters) is correct in law, by reference to Ho Yew Kong v Sakae Holdings Ltd [2018] SGCA 33; Gue See Saw v Heng Tang Hai [2020] MLJU 46; and The Wei Kian v Golden Plus Holdings Berhad [2020] MLJU 1050.

Background Facts

ISM Sendirian Berhad ("ISM"), a company owned by Dato Ray Cheah and Datin Teoh Lye Chan, established five joint venture companies ("JV") with a publish listed company known as MPHB Capital Berhad ("MPHB"), to acquire land for the rehabilitation of an abondoned project, later labelled as the 'Imbi Project'.

The undisputed equity structure of the JV is through a 30:70 arrangement, with 30% held by ISM and 70% held by MPHB. A draft SHA was presented by MPHB to ISM for consideration, but a partnership clause was objected to by ISM, leading to both parties' failure to formally sign on it and only reached to the extent of an oral agreement.

The dispute regarding funding obligations arose and prompted ISM's filing of consolidated suits for minority oppression under Section 181. The grounds related to (i) the disproportionate funding arrangement; (ii) dilution through the rights issues shares, (iii) interest imposed on shareholder advances; (iv) Dato Ray Cheah's directorship relection refusal; and (v) transfer of shares.

The High Court ruled in favour of ISM, holding that there was an oral agreement between shareholders ("the Agreement"), enabling the first three grounds to be considered as minority oppression towards ISM.

This decision was later overtuned by the Court of Appeal, distinguishing the Agreement as a private matter instead of company affairs. Section 181 was therefore inapplicable, applying the ration from Jet-Tech. The Court of Appeal also examined each of the five grounds and held that none constituted minority oppression.

Decision

The Federal Court upheld the Court of Appeal's decision, affirming Question 2 (ii) and consequently finding it unnecessary to answer Question 1 (i).

Analysis

(a) Minority Oppression

In dismissing the appeal, YA Dato' Nordin bin Hassan in delivering the judgement of the Federal Court held that the correct legal position is not that breaches of SHA are categorically excluded from Section 181, but that any such breakch must relate to the 'affairs of the company' before it can ground an opression claim.

The Federal Court clarified that the statement in Jet-Tech was contect-specific and should not be read as imposing an absolute bar; rather, the determinative inquiry is whether the impugned conduct concerns the company's affairs as opposed to private rights inter se shareholders.

Here, the dispute between ISM and MPHB were rooted in their private contractual arrangement and therefore did not engage with the company's affairs to constitute oppression. In that regard, the alleged acts did not meet the statutory threshold of oppression under Section 181 and were instead enforceable in private law.

The Federal Court went on to hold that there is no statutory definition of 'affairs of the company', but that the analysis is fact-specific. The Federal Court surveyed: Re Cumberland Holdings Ltd 1(1976) ACLR 361, specifically the phrase 'as wide as one could well have', extends to capital structure, dividend policy, voting rights and matters that may come before the board; and Re Neath Rugby Ltd (No 2) Hawkes v Cuddy [2009] EWCA Civ 291 where the words must be constued liberally with regard to 'business realities', and may extend to matters capable of coming before the board even if not actually considered.

On the facts of Jet-Tech itself, refusal to allow removal of nominees as directors was not considered as company affairs. It effectively disqualified the breach of the Agreement here from being considered as a locus standi under Section 181 because of the incompatible factual matrix. This incompatibility was further endorsed by the JV merely being holding vehicles for the Imbi Project, lacking substantive business affairs overall.

(b) Quasi-Partnership

The Federal Court also addressed quasi-partnership status (relevant because it triggers the 'just and equitable' /equatbale considerations doctrine from Ebrahimi v Westbourne Galleries [1972] 2 All ER 492 in Section 181 cases). Adopting Strahan v Wilcock [2006] EWCA Civ 13, the FC held that quasi-partnership requires an association 'formed and continued' on the basis of a personal relationship.

MPHB was a public listed company with 33,406 shareholders regulated by Bursa Malaysia and the SC; ISM was a small private company; Dato Ray and Madam Kheoh had only met two months before the first acquisition; their dealings were brief and Madam Kheoh required full MPHB Board approval for decision-making acts. It was eventually deduced that the relationship was a 'purely commercial relationship and arm's length and not a quasi-partnership.'

Conclusion

ISM Sendirian Berhad v Queensway Nominees (Asing) Sdn Bhd & Ors reinforces the ratio of Jet-Tech, whereby the overriding requirement for a successful application of minority oppression remedies under Section 181 of the Companies Act 1965 must involve a complaint on matters relating to the affairs of a company. Minority shareholders should not assume that equitable quasi-partnership considerations will apply in circumstances where the relationship lacks the necessary hallmarks of mutual trust and confidence.

This article is authored by Lavinia Kumaraendran (Partner), Sulakhni Kaur Khosa (Pupil-in-Chambers), and Raja Karim Adli Bin Raja Amin (Paralegal) of the Commercial Litigation Practise of Lavania & Balan Chambers. It contains general information only. The contents are not intended to constitute legal advice on any specific matter nor is it an expression of legal opinion  and should not be relied upon as such.