Corporate Week 2

Minority Protection

Minority Rights

1. Introduction

1.1. Not every shareholder is a member

• The fact that a person owns shares does not mean he is a member.
• Two ways to become members: s19(6) of the Companies Act
(i) Subscribers to the memorandum – they are members ipso facto on the
incorporation of the company.
(ii) Any person who agrees to become a member and whose name is on the
register of members.

• Capacity to be a member of a company is co-extensive with capacity to contract.

• Company may not be member of itself
• Subsidiary cannot purchase shares in its holding company, cannot be member of its
holding company – s21(1)

1.2. Relationship between members and board of directors

• Decisions of members of a company – reflected through the resolutions that they pass
at the general meeting.
• General meeting – board is not considered subordinate to the general meeting.
o Rule in John Shaw & Sons (Salford) Ltd v Shaw:
 If management of company is vested with board of directors by virtue
of the articles of association, the members may not give instructions to
the directors or override their decisions.

o John Shaw & Sons (Salford) Ltd v Shaw:

 if powers of management are vested in the directors, they and they
alone can exercise these powers.
 The only way in which the general body of the shareholders can
control the exercise of the powers vested by the articles in the directors
is by altering the articles, or, if opportunity arises under the articles, by
refusing to re-elect the directors of whose actions they disapprove.

o I.e. members cannot interfere with management of company if powers of

management are vested in the board of directors

o Rationale: it is the bargain among members that directors should manage

the company. Therefore, members not entitled to interfere with directors’
managerial discretion without changing the articles.

Automatic Self Cleansing Filter Syndicate Co Ltd v Cunninghame:

(i) Company articles vested management and control of business to board.
(ii) Board of directors had express power to sell company’s property.
(iii) Members passed resolution to instruct directors to sell company’s business to another
company.
(iv)Directors refused to give effect to resolution.
Court of Appeal held:
Articles had conferred mandate upon the directors and shareholders had no power to give

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instructions on a matter left to the director by the articles

2. Members’ informational rights

2.1. What are some of the members rights?

(i) Have articles and memorandum observed

• Statutory right. S39(1) CA
• Reason: Memorandum and articles are a contract among the members inter se
and between the members and the company.

(ii) Restrain ultra vires and illegal acts – s25 CA, s409A(1)

Ultra vires transactions

25.—(1) No act or purported act of a company (including the entering into of an
agreement by the company and including any act done on behalf of a company by an
officer or agent of the company under any purported authority, whether express or
implied, of the company) and no conveyance or transfer of property, whether real or
personal, to or by a company shall be invalid by reason only of the fact that the
company was without capacity or power to do such act or to execute or take such
conveyance or transfer.

• S25 preserves the validity of ultra vires act vis-à-vis outsiders, specifically
that the company’s incapacity may be raised in proceedings against the
company to restrain an ultra vires transaction.

S25(3) If the unauthorised act, conveyance or transfer sought to be restrained in any

proceedings under subsection (2) (a) is being or is to be performed or made pursuant
to any contract to which the company is a party,

the Court may,

if all the parties to the contract are parties to the proceedings and if the Court
considers it to be just and equitable,

set aside and restrain the performance of the contract and may allow to the
company or to the other parties to the contract, as the case requires,
compensation for the loss or damage sustained by either of them which may
result from the action of the Court in setting aside and restraining the performance of
the contract but anticipated profits to be derived from the performance of the contract
shall not be provides awarded by the Court as a loss or damage sustained.

Injunctions
409A.—(1) Where a person has engaged, is engaging or is proposing to engage in
any conduct that constituted, constitutes or would constitute a contravention of this
Act, the Court may, on the application of —

(a) the Registrar; or

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(b) any person whose interests have been, are or would be affected by the conduct,
grant an injunction restraining the first-mentioned person from engaging in the
conduct and, if in the opinion of the Court it is desirable to do so, requiring that
person to do any act or thing.

• As members have the right to have articles and memorandum observed, they
would therefore have a right to restrain ultra vires and illegal acts.
• However, when a third party is involved, avoidance of a transaction depends
on whether the third party knew of the breach.
• This also does not mean that every act in breach of the memorandum or
articles is ipso facto void.
o Injunction is a discretionary remedy.
o s392(6)(a) Court has power to validate any act which would
otherwise be a contravention of the memorandum or articles.
 If the breach was procedural in nature
 Or the person committed the breach acted honestly
 Public interest
 Court must also ensure that no substantial injustice has been
done or is likely to have been caused to any person.

• Procedural irregularities rule. Btw: Note that in Singapore the statutory

procedural irregularities rule is in s 392

• MacDougall v Gardiner:
o If the thing complained of is a thing which in substance:
a. the majority of the company are entitled to do, or
b. if something has been done irregularly which the majority of the company
has been entitled to do regularly, or
c. if something has been done illegally which the majority of the company
are entitled to do legally,
o there can be no use in having a litigation about it. Rationale: ultimate end is
that a meeting has to be called and the majority gets its wishes.
o Qualifier:
a. if the majority are abusing their powers,
b. depriving minority of their rights,
 then the minority has the right to maintain their rights
 but if what is complained of is something which the majority are
entitled to do has been done or undone irregularly, then nobody has the
right to set that aside except the company itself.

(iii) Access to company records and have certain information provided to

them
(iv)Attend and vote at general meetings
(v) To be treated fairly
(vi)Right to bring an action on behalf of the company.
(vii) Right to apply to court to restrain an impending breach of memorandum or
articles

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• NOTE: these are personal rights and company or any other person cannot interfere
with the exercise of such rights.
• Rule in Foss v Harbottle does not preclude a member bringing an action to enforce
his right as member (qua-member)

2.2. A members has the right to inspect the following pursuant to the Companies Act

What are some of the members’ informational rights?

• To enable members to be fully informed of what is happening in the company.

• Access to registers and records that company must maintain.
• Inspection of registers by members may be made free of charge.

(i) Rights of access to certain records

• Register of members and the number of shares they hold, amount paid on shares
etc – s192(2)
• Register of directors, secretaries, managers, auditors (without charge or payment
of $2) – s173(5)
• Register of directors’ shareholdings – s164(8)
• Register of substantial shareholders – s88(2)
• Register of debenture holders – s93(3)
• Register of charges – s138(3)

(ii) Members are entitled to be informed of the company’s financial position

• Members entitled to be sent, free of charge, a copy of the last audited profit and
loss account and balance sheet, not less than 14 days before the general meeting
at which the accounts are to be presented – s203(1)

Members of company entitled to balance-sheet, etc.

203.—(1) A copy of every profit and loss account and balance-sheet of a company
or,

in the case of a holding company,

a copy of the consolidated accounts and balance-sheet (including every document
required by law to be attached thereto), which is duly audited and which (or which,
but for section 201C) is to be laid before the company in general
meeting accompanied by a copy of the auditor’s report thereon shall —

(a) not less than 14 days before the date of the meeting; or
(b) if a resolution under section 175A is in force, not less than 28 days before
the end of the period allowed for the laying of those documents,

be sent to all persons entitled to receive notice of general meetings of the company.
• Note that members are also entitled to a copy of the auditor’s report and the
directors’ report on the accounts.

(2) Any member of a company (whether he is or is not entitled to have sent to him
copies of the profit and loss accounts and balance-sheets, or consolidated accounts

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and balance-sheet) to whom copies have not been sent and any holder of a debenture
shall, on a request being made by him to the company,

be furnished by the company without charge with a copy of the last profit and loss
account and balance-sheet of the company, or a copy of the consolidated accounts
and balance-sheet, as the case may be (including every document required by this Act
to be attached thereto) together with a copy of the auditor’s report thereon.

• Entitled to auditor’s report s203(2)

• Entitled to directors’ report on the accounts – s201(5)

201(5) The directors of a company shall cause to be attached to every

balance-sheet made out under subsection (3) or (3A) (b) a report made in
accordance with a resolution of the directors and signed by not less than 2 of
the directors with respect to the profit or loss of the company for the financial
year and the state of the company's affairs as at the end of the financial year.

• *NOTE: members have no rights to accounting records of company – only

available to directors and auditors.
Directors:

199(3) The records referred to in subsection (1) shall be kept at the registered
office of the company or at such other place as the directors think fit and
shall at all times be open to inspection by the directors.
Auditors:

207(5) An auditor of a company has a right of access at all times to the

accounting and other records, including registers, of the company, and is
entitled to require from any officer of the company and any auditor of a
related company such information and explanations as he desires for the
purposes of audit.

• Note: in theory only. In practice, members often kept in the dark

o Solutions – appoint nominee to the board of directors (but usually kept
in the dark too)

(iii) Attendance at general meetings and voting

• Member has right to attend and speak at general meeting

s177(4) So far as the articles do not make other provision in that behalf notice of
every meeting shall be served on every member having a right to attend and
vote thereat in the manner in which notices are required to be served by Table A.

• Private company may by resolution passed with unanimous consent, dispense

with holding of AGM.
• Members that are entitled to attend and vote at meeting is entitled to due notice
of general meetings – s177(4)
o Rights cannot be limited by memo and articles.

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o Ignoring members’ rights is not a mere procedural irregularity, it is

an infringement of the member’s personal rights in respect of which he can
maintain a personal action.
o These rights cannot be limited by memorandum or articles.

As to member’s rights at meetings

180.—(1) Subject to subsection (2), every member shall, notwithstanding any
provision in the memorandum or articles, have a right to attend any
general meeting of the company and to speak and vote on any resolution before the
meeting

except that the company’s articles may provide that a member shall not be entitled to
vote unless all calls or other sums personally payable by him in respect of shares in
the company have been paid.

• Two situations where members’ right to vote may be suspended by articles

(i) When member has not paid all calls or other sums payable in respect of his
shares – s180(1)
(ii) If the shares in question are non-voting preference shares – s180(2)
• Note: not all preference shares are non-voting.
o Some preference shares may be permitted votes, and they are
considered to be equity shares.
o Articles may provide in the terms of issue that the preference shares
carry no right to vote, or only restricted voting rights.
o Even non-voting preference shares have voting rights in 3 situations:

s180(2) Notwithstanding subsection (1), the articles may provide that holders of
preference shares shall not have the right to vote at a general meeting of the
company except that any preference shares issued after 15th August 1984 shall
carry the right to attend any general meeting and in a poll thereat to at least one
vote in respect of each such share held —

(a) during such period as the preferential dividend or any part thereof remains in
arrear and unpaid, such period starting from a date not more than 12 months,
or such lesser period as the articles may provide, after the due date of the
dividend;

(b) upon any resolution which varies the rights attached to such shares; or

(c) upon any resolution for the winding up of the company.

• Power to vote is not fiduciary power (Caruth v Imperial Chemical Indsutries Ltd) –
a member owes no duty to the company or to anyone else when he exercises his votes.
o He need not consider only the interest of the company as a whole, but may
vote in what he considers to be his own interests. Peter’s American Delicacy
Co Ltd v Heath, per Dixon J in HC of Australia, 1939
o Singapore: members not required by law to vote in any person’s interests,
including that of the company, other than their own. Peck Constance Emily v
Calvary Charismatic Centre Ltd

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North-Transportation Co Ltd v Beatty (1887) 12 App Cas 589 (PC on appeal from
Canada)
• Member may vote on a resolution even when he has a personal interest in its
outcome.

Facts
(i) Beatty, a director of the company, and was also substantial shareholder. He sold a
steamer which he owned to the company.
(ii) Another shareholder opposed the purchase. Resolution of members approved the
transaction. This resolution was passed by the votes of Beatty and three of the directors.
(iii) The dissentient shareholder sough to set the purchase aside, on the ground that the
resolution approving the transaction was passed by the votes of Beatty, who was
interested in the transaction.

Held, PC
(i) Declined to grant relief. Held that the fact that Beatty had an interest in the transaction did
not thereby disentitle him to vote.
(ii) He was acting within the rights to do so and the transaction was binding on the company.

Woon
• The decision accords with common sense and principle.
• Voting rights are rights of property. A person should not be restricted in the way he
exercises his vote by reference to the interests of the other shareholders

Prof
• If the steamer was at a complete overvalue – then probably it would be a breach of
director’s fiduciary duties.

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3. Exceptions to the rule that a shareholder may vote in any way he pleases

(i) Alteration of articles of association

• Member must vote bona fide for the benefit of the company as a whole when
altering the articles of association.
• Honestly what he considers to be for the benefit of the company as a whole.

(ii) When voting as a member of a class for a resolution that will affect that class
• Held in British America Nickel Corp Ltd v MJ O’Brien Ltd that a member must vote
for the purpose of benefitting the class as a whole.

(iii) A shareholder may agree with another person as to how his votes are to be exercised.

(iv) CLRFC has recommended that on a resolution to ratify or condone wrongs

committed against the company, the votes of members with an interest or subject
to the substantial influence by a person with an interest are to be discounted.

(v) Equitable considerations?

• Courts have generally been suspicious of unbridled freedom to vote.
• Suggested that member’s right to vote may be subject to equitable considerations
which may make it unjust to exercise it in a particular way.

Clemens v Clemens [1976] 2 All ER 268

Facts
(i) Pf held 45% shares in Df company
(ii) Pf’s aunt held 55% shares in Df company
(iii) Article 6: gave existing members a pre-emptive right if another member wishes
to transfer shares.
(iv) Pf had negative control (as she could block special resolution in aunt’s life time)
(v) Expected to gain full control on her aunt’s death
(vi) Aunt and four non-shareholders – Directors of company
(vii) The directors proposed that the company’s capital should be increased by issuing 200
ordinary shares to each of these four directors, and 850 ordinary shares to an
employee’s trust. Claimed that the object of resolutions was in the comp’s interest
(i.e. to give directors and employees a stake in company)
(viii) Effect of this transaction was that the Pf’s voting power would be diluted and she
could no longer exercise negative control.

Court held: real object was to deprive the Pf of her degree of control, and the resolution was
set aside.
Woon: Net result was that the aunt, who had 55% of the votes, did not get her way. Woon
questions the correctness of this decision as people do not vote in a climate of detached and
disinterested altruism.
Woon suggests that the better formulation is that minority should have the right to be treated
fairly. And the minority can complain under s216.

Foster J:
(i) Pf’s submissions: submitted that the proposed resolutions were oppressive, since they
resulted in her losing her right to veto a special or extraordinary resolution and greatly

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watered down her existing right to purchase her aunt’s shares under Art 6

(ii) Dfs’ submissions: submitted that if two shareholders vote honestly and hold differing
views, the majority must prevail and that the shareholders in general meeting are
entitled to consider their own interests and vote in any way they honestly believe
proper in the interest of the company.

(iii) Directors must not only act within his power must also exercise them bona fide in
what he believes to be the interest of the company.
• “Directors have a fiduciary duty, but is there any similar, restraint on shareholders
exercising their powers as members at general meetings?”
• “One thing which emerges from the cases (he read a line of cases) … in such a case as
the present Miss Clemens is not entitled to exercise her majority vote in whatever way
she pleases.”
• “The difficulty is in finding a principle, and obviously expressions such as “bona fide
for the benefit of the company s a whole”, fraud on a ‘minority’ and ‘oppressive’ do
not assist in formulating a principle.”

(iv) He then comes to a conclusion:

• “that it would be unwise to try to produce a principle, since the circumstances of
each case are infinitely varied. It would not … assist more to say more than that in
my judgment Miss Clemens is not entitled as of right to exercise her votes as an
ordinary shareholder in whatever way she pleases.”
• “To use the phrase of Lord Wilberforce [in Ebrahimi v Westbourne Galleries Ltd],
that right is ‘subject … to equitable considerations… which may make it unjust … to
exercise [it] in a particular way’.”

(v) Application: Are there any such considerations in this case?

• Miss Clemens is in favour of resolutions and knows and understands their purport and
effect
• Foster J does not doubt that she genuinely would like to see the other directors have
shares in the company and set a trust set up for the long service employees.
• However, he “cannot escape the conclusion that the resolutions have been
framed so as to the put into the hands of Miss Clemens and her fellow directors
complete control of the company and to deprive the Pf of her existing rights as a
shareholder with more than 25% of the votes and greatly reduce her [pre-
emptive] rights”
• “they are specifically and carefully designed to ensure not only that the Pf can never
get control of the company but to deprive her of what has been called her negative
control”
• “whether I say that these proposals are oppressive to the Pf or that no one could
honestly believe they are for her benefit matters not”
• A court of equity will in my judgment regard these considerations as sufficient to
prevent the consequences arising from Miss Clemens using her legal right to vote in
the way that she has and it would be right for a court of equity to prevent such
consequences from taking effect.

Prof: hard to justify the decision.

• Taking away the negative control – in almost every case involving the share issuance
– how to distinguish a situation to dilute shares or a breach of equitable consideration?

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• Case is to be ignored forever and confined strictly to its own facts.

Sealy
• The case has reached a just result; however, it is difficult to defend the judge’s use of
authorities.
• He applies the Greenhalgh test – which was concerned with special resolutions for
alterations of articles
• Problems: there was a long history of non cooperation by the niece.
• The events in Greenhalgh –took place before there was any statutory provision
allowing the court to grant relief to a minority shareholder on the ground of
oppression or unfair prejudice (i.e. s 216)
• Who should the court identify as the individual hypothetical member? Both are
hypothetical members.

Lujia:
In short, a decision carried by the votes of majority members may be set aside if there are
equitable considerations, e.g. oppressive of minority.

Allen v Gold Reefs of West Africa Ltd (EWCA 1990)

Prof:
• Mr Zuccani was the only shareholder who held partly paid shares and fully paid shares
o After his death, the directors envisaged some difficulty in recovering arrears of
calls.
• The articles gave the company a lien over the partly paid shares but none over the fully
paid shares.
• By special resolution the company amended the articles to extend its lien to fully paid
shares.
• Despite the fact that the amendment disadvantaged only Mr Zuccani's estate, the
Court of Appeal held the amendment valid.
• The power conferred on companies to alter articles is limited only by statute and
conditions on the memorandum
• But these powers, like all powers allowing the majority to bind the minority, must
be exercised “bona fide for the benefit of the company as a whole”, per Lindley MR
• The fact that Mr Zuccani was the only shareholder with paid-up shares was not material
• The resolution would have affected all shareholders with paid-up shares equally. It
just so happened that he was the only one.
• The directors had therefore not acted in bad faith, as their intention was to escape from
the embarrassment that resulted from the inability of Zuccani’s estate to meet its
obligations to the company for his unpaid shares

Facts
1. Zuccani, as the nominee of the vendor to the company, had a number of fully paid-up
shares allotted to him
• by way of purchase-money for the property acquired by the company under their
memorandum of association
• he held 27,885 of these shares at the time of his*660 death, these shares being his own
property.
2. In addition to these fully paid-up shares, Zuccani applied for and had allotted to him

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60,000 ordinary 5s. shares, not paid up.

• These were applied for and allotted on the terms of the company's prospectus (on
which no question turned) and articles of association.
• Calls were from time to time made in Zuccani's lifetime on these unpaid-up
shares, but he did not pay the calls when they became due, and as early as May,
1896, and thenceforward during his life letters were sent to him pressing for payment
of his arrears.
• Although he did not pay his calls, he constantly paid up quantities of shares in full
before their amounts had been called up: in other words, he from time to time not only
paid all the calls due on some of his shares, but also prepaid the uncalled-up amounts
of the same shares. He did this constantly all through 1896, and in that way he was
able to sell and transfer the shares so paid up free from all liability to calls and from
all lien in favour of the company.
• His object in fully paying up batches of these shares in the way described was to
obtain shares which he could put on the market free from all claims and demands by
the company.

3. Zuccani died on February 4, 1897, leaving a will which was proved by the plaintiffs,
his executors.
• At the time of his death he was the registered holder of the 27,885 fully paid-up
vendor's shares, and
• also of 36,435 other shares partly paid up, and
• he owed the company 6072l. 10s. for calls in respect of these, besides interest to a
considerable amount.
4. The plaintiffs did not get themselves registered as members of the company in respect
of any of Zuccani's shares, and they*661 had not sufficient assets to answer his liabilities.

Alteration of Articles:
5. In the first place, on February 9, 1897, a notice was sent out of an extraordinary general
meeting of the company to be held on February 18, for the purpose of passing a special
resolution to alter art. 29 of the articles of association (being the article giving a lien
for all debts, &c., upon shares "not being fully paid") by omitting the words "not being
fully paid."

Original article: (art. 29)

"that the company shall have a first and paramount lien for all debts,
obligations, and liabilities of any member to or towards the company
upon all shares (not being fully paid) held by such member. ... Provided
always that if the company shall register, or agree to register, any transfer of
any share upon which it has such lien as aforesaid without giving to the
transferee notice of its claim, the said share shall be freed and discharged
from the lien of the company";

If amended, the article will be:

"that the company shall have a first and paramount lien for all debts,
obligations, and liabilities of any member to or towards the company
upon all shares (not being fully paid) held by such member. ... Provided
always that if the company shall register, or agree to register, any transfer of
any share upon which it has such lien as aforesaid without giving to the
transferee notice of its claim, the said share shall be freed and discharged

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from the lien of the company";

• Lujia: I.e. if the article is amended, the company would have a first and paramount
lien over his fully paid up shares as well.

6. This notice was posted to Zuccani at his registered address, although the directors were
then aware of his death.
• The meeting was held on February 18, and the special resolution was then passed.
• Thereupon notice of a confirmatory meeting to be held on March 8 was, as before,
sent to Zuccani's registered address.
• Both notices, addressed to Zuccani personally, came to the knowledge of the
plaintiffs, his executors.

7. On March 8 the confirmatory meeting was held and the resolution confirmed.
• Thus the company claimed to extend their lien to all fully paid-up shares.
• There were in fact no fully paid-up shares except those belonging to Zuccani.

8. The next step the company took was this. On June 4, 1897, the directors, purporting to act
under arts. 22, 23, and 24, posted to Zuccani at his registered address a notice
requiring payment by June 21 of the 6072l. 10s. due for calls on the 36,435 shares, a
sum of 804l. 6s. 11d. for interest on arrears of calls, and further interest from the
date of the notice; the notice also stating that in the event of non-payment by the
time appointed those shares would be liable to be forfeited.

9. This notice was sent also to the plaintiffs, Zuccani's executors, who had not then lodged
the probate of his will with the company for registration.
• The amounts demanded were not paid, and on June 23 the directors passed a
resolution purporting to forfeit the 36,435 partly paid-up shares.

10. January 29, 1897, the directors had refused to register a transfer of some of Zuccani's
fully paid-up shares, but ultimately, finding that the articles gave no power to the
company or its*662 directors to refuse to register a transfer of fully paid-up shares,
they passed the transfer.

11. The object of the plaintiffs in bringing these consolidated actions was to obtain a
declaration that:

• the defendant company had no lien upon the fully paid-up shares, and
o Lujia: this argument hinges on the argument that the alteration was not
passed bona fide.

• an injunction to restrain the forfeiture of the partly paid-up shares.

Procedural History
1. Kekewich J. held,
(i) that the notice threatening forfeiture was bad upon the grounds (among others) that, as
the company or its directors were aware of Zuccani's death at the time they served
the notice by registered letter addressed to him at his registered address
(ii) that the notices of the meeting of the company to pass the resolution altering art. 29
were also ineffectual as having been addressed to Zuccani after the directors

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had become aware of his death.

• His Lordship therefore considered it unnecessary to decide the further question
whether the company could alter its articles so as to create a lien upon
Zuccani's fully paid-up shares.
• His Lordship accordingly gave judgment granting an injunction restraining
the defendant company from enforcing the lien.

2. Df Company appealed.

Issue:
Whether the company had power to alter its original articles by giving itself a lien upon
Zuccani's fully paid-up shares.

Held, Per Lindley M.R.

(i) Key point by Lindley MR: Company has power to alter articles.

• The articles of a company prescribe the regulations binding on its members:

Companies Act, 1862, s. 14. They have the effect of a contract (see s. 16); but the
exact nature of this contract is even now very difficult to define.
• Be its nature what it may, the company is empowered by the statute to alter the
regulations contained in its articles from time to time by special resolutions (ss. 50
and 51); and any regulation or article purporting to deprive the company of this power
is invalid on the ground that it is contrary to the statute

(ii) He then states the limitations on the powers of amendment.

i. The power thus conferred on companies to alter the regulations contained in their
articles is limited only by the provisions contained in the statute and the conditions
contained in the company's memorandum of association.
ii. Wide, however, as the language of s. 50 is, the power conferred by it must, like all
other powers, be exercised subject to those general principles of law and equity
which are applicable to all powers conferred on majorities and enabling them to bind
minorities.
iii. It must be exercised, not only in the manner required by law, but also bona fide
for the benefit of the company as a whole, and it must not be exceeded.
iv. These conditions are always implied, and are seldom, if ever, expressed. But if
they are complied with I can discover no ground for judicially putting any other
restrictions on the power conferred by the section than those*672 contained in it

(iii) Application to the case:

• whether there is in this case any contract or other circumstance which excludes
the application of the altered article to Zuccani's fully paid-up vendor's shares.
• I am unable to discover any difference in principle between one fully paid-up
share and another. Whether a share is paid for in cash or is given in payment for
property acquired by the company appears to me quite immaterial for the present
purpose. In either case the shareholder pays for his share, and in either case he
takes it subject to the articles of association and power of altering them, unless
this inference is excluded by special circumstances.
• Zuccani bargained for fully paid-up shares and he got them. The imposition of a lien
on them did not render them less fully paid-up than they were before. They remained

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what they were.

i. Zuccani did not*675 bargain that the regulations relating to paid-up shares
should never be altered, or that, if altered, his shares should be treated
differently from other fully paid-up shares. I cannot see that the company
broke its bargain with him in any way by altering its regulations or by enforcing
the altered regulations as it did.

ii. Every allottee was told by the memorandum that his rights as a shareholder were
subject to alteration, and no allottee acquired any rights except on these terms
unless, of course, some special bargain was made with him.
• The fact that Zuccani's executors were the only persons practically affected at
the time by the alterations made in the articles excites suspicion as to the bona
fides of the company. But, although the executors were the only persons who
were actually affected at the time, that was because Zuccani was the only
holder of paid-up shares who at the time was in arrear of calls.
• The altered articles applied to all holders of fully paid shares , and made
no distinction between them. The directors cannot be charged with bad
faith.

Per VAUGHAN WILLIAMS L.J.

(i) a company cannot contract itself out of the statutory power of alteration
conferred by s. 50; and the alteration of the articles in the present case involves no
contravention of the memorandum of association

i. A resolution may alter the regulations of a company but cannot retrospectively affect
existing rights
ii. the alteration must be made in good faith
iii. an alteration in the articles which involved oppression of one shareholder would not
be made in good faith

(ii) Application to the case

• Zuccani, when he took these shares as the price of the property which he was selling,
knew or must be taken to have known of the statutory power of alteration
• but it does not seem to me that it follows that the company could make alterations
which would alter the value, according to the articles in force, of the consideration
which they were giving for the property purchased.

Greenhalgh v Arderne Cinemas [1951] Ch 286

Facts
(i) Articles of Df company provided that existing members should have pre-emptive
rights if a member wishes to sell his shares
(ii) Mallard – Managing director of Df company.
(iii) Mallard negotiated with an outsider, Sol Sheckman, for the sale of a controlling
interest in the company at 6s (30p) per share.
(iv) Mallard then procured the passing of a special resolution to give effect to this
agreement.
(v) In effect, this negated the pre-emptive rights of the existing members.

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(vi) Greenhalgh (one of the members) – claimed a declaration that the resolutions were
invalid as a fraud on the minority, as the right of pre-emption to the benefit of
Greenhalgh was removed from the articles
(vii) CA, affirming the lower court Roxburgh J’s judgment, refused a declaration.

Per Evershed MR:

(i) I think it is now plain that "bona fide for the benefit of the company as a whole"
means not two things but one thing. (Sealy: this seems like a subjective test)
i. It means that the shareholder must proceed upon what, in his honest opinion, is for the
benefit of the company as a whole.
ii. The second thing is that the phrase, "the company as a whole", does not (at any rate in
such a case as the present) mean the company as a commercial entity, distinct from
the corporators: it means the corporators as a general body.

(ii) That is to say, the case may be taken of an individual hypothetical member and it
may be asked whether what is proposed is, in the honest opinion of those who
voted in its favour, for that person's benefit. (Sealy: this seems like an objective
test)

(iii) a special resolution of this kind would be liable to be impeached if the effect of it
were to discriminate between the majority shareholders and the minority
shareholders, so as to give to the former an advantage of which the latter were
deprived. When the cases are examined in which the resolution has been successfully
attacked, it is on that ground.

(iv) “It is therefore not necessary to require that persons voting for a special resolution
should, so to speak, dissociate themselves altogether from their own prospects and
consider whether what is thought to be for the benefit of the company as a going
concern.”

Application to the facts of the case:

(i) There are ground for impeaching the resolution:
• First, the resolution goes further than what was necessary to give effect to the
particular sale of shares.
• Second, it prejudiced the Pf and minority shareholders in that it deprived them of the
right which, under the subsisting articles, they would have of buying the shares of the
majority if the latter desired to dispose of them.

(ii) Mr Jennings (counsel for Greenhalgh) objects to in the resolution is that if a

resolution is passed altering the articles merely for the purpose of giving effect to
a particular transaction then it is quite sufficient (and it is usually done) to limit it
to that transaction.
• But this resolution provides that anybody who wants at any time to sell his shares can
now go direct to an outsider provided that there is an ordinary resolution of the
company approving the proposed transferee.
i. if the one selling is the majority – he would easily get an ordinary resolution.
ii. For the minority – “makes it more difficult for a minority shareholder, because
the majority will probably look with disfavor upon his choice”

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(v) However, Evershed MR qualifies the second point ii above that he made

• “when a man comes into a company, he is not entitled to assume that the articles will
always remain in a particular form; and that, so long as the proposed alteration does
not unfairly discriminate in the way which I have indicated, it is not an objection,
provided that the resolution is passed bona fide … “

Sealy
(i) First test by Evershed – seems like a subjective test (Bona fide)
(ii) Discrimination – seems like objective test

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3. Remedies for maladministration of the company

Some issues:
(i) Who may seek remedies if the company is poorly run?
(ii) Issues regarding majority rule
(iii) Double recovery

3.1. Oppression and disregard

• A person who joins a company does so on the understanding that he may be outvoted.
• A member who dislikes being a minority should sell out, he cannot normally look to
the court to change the decision of the majority. Courts do not sit ot hear appeals from
management decisions honestly arrived at.
• Qualifier: However, majority cannot abuse their power to bind the minority.
o Fraud on minority
o Alteration of articles – majority must vote bona fide for the benefit of the
company
o Class rights - majority must vote bona fide for the benefit of the class
o Just and equitable winding up of company (courts’ discretion)
o Oppression s216.
• Note that the genesis of oppression action in s216 of Singapore’s CA is in the UK
Companies Act.
o UK: require the actions of the majority to be ‘unfairly prejudicial’, need not be
‘oppresive’.
o Singapore: 4 different tests, but usually do not separate them distinctly
 Oppression
 Disregard of interests
 Unfair discrimination
 Prejudice
o S216 invoked when there is oppression of a member or when a member’s
interests are disregarded.

Personal remedies in cases of oppression or injustice

216.—(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

Re Kong Thai Sawmill (Miri) Sdn Bhd, & Ors v Ling Beng Sung

Issue:
Whether powers of directors are being exercised in a manner oppressive to one of the
members or in disregard of his interests

Facts

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1. Rp applied by originating summons in his capacity as a member of the first appellant

company for a number of orders: In a nutshell, he wanted
• 2nd and 3rd Apps be removed from office as managing director and director
respectively and
• a receiver and a manager be appointed to conduct the company`s affairs and for
repayment of various sums alleged to have been disposed of wrongfully or
without proper authorization
• alternative relief asked for that the company be wound up

2. The company was a family one in which the elder brothers (2nd and 3rd Apps) were the
majority shareholders.
• The Rp and two younger brothers were minority shareholders.

3. Allegations by Rp
Rp alleged that the 2nd and 3rd Apps had committed breaches of their powers as directors of
the company and in particular complaint was made relating to

(a) the purchase and outfitting of a motor yacht, Berjaya Malaysia;

(b) loan to Encik Harun Arifffin;
(c) donations to political parties;
(d) advances to and investments in joint ventures;
(e) drawing by the second and third appellants from the company`s funds and
(f) remuneration paid to the second appellant as managing director. It appeared that
after inquiries instituted by the respondent many of the acts of the second and third
appellants were validated by resolutions of the Company.

Procedural History
Federal Court held
(a) that the purchase by the second appellant of the yacht, Berjaya Malaysia was misuse of
the company`s funds and the moneys which he had paid out or for which he had himself
reimbursed from the company`s funds in respect of the donations to political parties were
improperly paid. The second appellant should therefore take over the Berjaya Malaysia
and pay to the company all the money spent on it and also pay the company the amount of
donations paid to the polit ical parties;

(b) that in order to protect the minority shareholders in this case the court would order
(i) that one of the younger brothers be appointed a director to safeguard their
interests;
(ii) donations be made in future only with the prior approval of the board of
directors;
(iii) no bank account be operated without the signatures of two directors, one of
whom shall be other than the elder brothers, the majority shareholders;
(iv) no moneys be drawn by any of the directors without the prior approval of the
Board;
(v) power delegated to the first respondent to make investments on behalf of the
company be cancelled;
(vi) 3 clear days` notice be given in writing of any directors` meetings and
(vii) that the bonus for the directors in future be 2% of the nett profits and that no
bonus be paid until after the passing of the company`s accounts at the Annual
General Meeting.

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The Apps appealed.

Held
(1) the courts in applying s 181 of the Companies Act, 1965, should do so according to its
terms and its purpose and should not regard themselves as necessarily bound by
United Kingdom decisions which were based upon a different section and in some
cases restrictive.
• The same would apply, though with less force, to reliance upon Australian decisions
based upon s 186 of the Australian Companies Act, 1951;

(2) Relief could not be sought under s 181 of the Companies Act, 1965 merely because facts
were established which would found a minority shareholders` action; the section
required "oppression" or "disregard" to be shown and these were not necessary
elements in a minority shareholders` action. But if a case of "oppression" or in
"disregard" were made out the section would apply and it was no answer to say that the
relief might also have been obtained in a minority shareholders` action;

(3) BURDEN OF PROOF:

• for the case to be brought within s 181(1)(a) of the Companies Act, 1965 at all, the
complaint must identify and prove "oppression" or "disregard".

• OPPRESSION:
o The mere fact that one or more of those managing the company possessed a
majority of the voting power and, in reliance upon that power, made policy or
executive decisions, with which the complainant did not agree, was not
enough.
o There must be a visible departure from the standards of fair dealing and
a violation of the conditions of fair play which a shareholder was entitled
to expect before a case of oppression could be made out.

• DISREGARD:
o Similarly "disregard" involved something more than a failure to take account
of the minority`s interest;
o 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;

(4) what was attacked by s 18(1)(a) of the Companies Act was not particular acts but the
manner in which the affairs of the company was being conducted or the powers of
the directors exercised.
• These might be held to be "oppressive" or "disregard" even though a particular
objectionable act might have been remedied.

(5) In this case none of the nine particular complaints listed by the Federal Court were
substantiated and such relief as the Federal Court decided to give in respect of four of
them could not be justified. There was no occasion to grant the ancillary relief under the
remaining heads;

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(6) The grant of winding up was in the discretion of the court.

• In exercising this discretion the court would have in mind:
(i) the character of the remedy,
(ii) if sought to be applied to a company which was a going concern; it would take
into account inter alia
a. the gravity of the case made out under s 181(1) of the Companies Act,
1965;
b. the possibility of remedying the complaints proved in other ways than
by winding the company up;
c. the interest of the applicant in the company; and
d. the interests of other members of the company not involved in the
proceedings.

• Application to the case: In this case the respondent had failed completely to make out
a case for winding up the company;

(7) The remuneration of the directors and of the managing director which had been regularly
voted and approved by the shareholders was a matter for them and no case could be
made for interfering with that decision.

Impt: On oppression and disregard: Note the elements to apply in cases.

(i) for the case to be brought within s 181(1)(a) at all, the complaint must identify
and prove "oppression" or "disregard".
o 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.
o Those who take interests in companies limited by shares have to accept
majority rule.
o It is only when majority rule passes over into rule oppressive of the minority,
or in disregard of their interests, that the section can be invoked.
o As was said in a decision upon the United Kingdom section 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

(ii) Lujia: note – that it is not merely “disregard”, but “visible disregard”
• their Lordships would place the emphasis on "visible". 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 (per Lord Clyde in Thompson Drysdale 1925 SC 311,
315).
(iii) 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.

The submissions by the Rp and the Privy Council’s decision

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(a) the purchase and outfitting of a motor yacht, Berjaya Malaysia;

(i) the originally intended use of the yacht - for visiting Niah, a place inaccessible
by ordinary means - did not materialise: the use of it by Directors` particularly
by Beng Siew and Beng Siong personally might not appeal to shareholders.
(ii) But these were all matters for decision by the members of the Company,
and if they chose to approve expenditure of doubtful value and even a
degree of extravagance that was their choice.
(iii) Neither Beng Sung nor other Directors or shareholders complained at the time.
(iv) The trial judge took the view that this expenditure was authorised by the
Directors and, impliedly that it was a matter for their discretion.
(v) The Federal Court took the opposite view. They ordered Beng Siew to repay
all money spent on the yacht with interest, upon which being done the
Company should transfer it to him.
(vi) Their Lordships consider that on this matter the decision of the trial judge was
correct and that the order of the Federal Court ought not to have been made.

(b) loan to Encik Harun Arifffin;

• insufficient evidence to substantiate any allegation of wrongdoing

(c) donations to political parties;

• It was found that
i. that donations were in fact made by Kong Thai (i.e. the Company), not by
Beng Siew, in the amounts and to the recipients disclosed in his evidence;
ii. that the Company had power in its memorandum to make donations;
iii. that all the donations were reported at board meetings and approved by the
Directors and that the accounts were audited;
iv. that the accounts containing reference to the donations were presented at the
annual general meetings of the shareholders of the Company and approved by
the members without dissent
• The trial judge had found that there was no appropriation of the funds by Beng Siew
and the Privy Council accepted it (Although the Federal court did not accept it)

(d) advances to and investments in joint ventures;

• the allegation was that Siew was making profits from investments by Kong Thai
Companies in which he had interests.
• The evidence however, did not bear this out, and in the event, except in the matter of
drawings and loans to Siew and Siong, Sung(Rp) had failed make out a case of
oppression and disregard of his interests.

(e) drawing by the second and third appellants from the company`s funds and
• this could have amounted to “oppression” or “disregard”, however, becayse they
were repaid at the time of action, no relief was granted in respect of this
complaint.
• Lujia: because oppression had ceased once the money had been repaid.
(f) remuneration paid to the second appellant as managing director. It appeared that
after inquiries instituted by the respondent many of the acts of the second and third
appellants were validated by resolutions of the Company.

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Some notes: The law

Section 181(1) and (2) of the Malaysian Companies Act, 1965, are as follows:-
(1) Any member or holder of a debenture of a company or, in the case of a declared
company under Pt 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).
(2) If on such application the court is of the opinion that either of such 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."

3.2. Discrimination

• Discrimination exists where one group of members is given a benefit to which other
members do not have, or where one group of members is subject to some detriment
or liability to which others are not subject.
• The term is ‘unfairly discriminates”.
o Thus, discrimination can be fair.
o E.g. where a class of members is conferred a benefit because of their
membership of that class.
• The test is whether as between the haves and have nots, the discrimination can be
justified in terms of benefit to the company as a whole.

s216(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).

Re A Company (No 005134 of 1986) ex p Harris:

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(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 Rp submitted that because the test is objective, it was irrelevant that the
Rp may have acted for an improper purpose or with an improper motive.
• I do not doubt that if the objective bystander observes unfairly prejudicial conduct
by a Rp, the fact that the Rp 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 Rp 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.

O’Neill v Phillips

Facts
(i) P. Ltd. a private company, employed O. as a manual worker.
• P. who owned the entire issued share capital of the company of 100 £1 shares, in 1985
gave O. 25 shares and appointed him a director.

• He expressed the hope that O. would take over the running of the company, in which
case he would be allowed to draw 50 per cent, of the profits.
• O. took over the running of the company and was credited with half the profits.

(ii) In 1989 and 1990 there were negotiations in which P. indicated that he was in
principle willing to increase O.'s shareholding and voting rights to 50 per cent,
when certain targets were reached.
• In 1991, however, he became concerned about O.'s management of the company and
decided to resume personal command.
• P told O. that he would no longer receive 50 per cent, of the profits but only his
salary and any dividends payable on his 25 per cent. shareholding.
• O. issued a petition under section 459 of the Companies Act 1985' complaining,
inter alia, of P.'s termination of equal profit-sharing and repudiation of an
alleged agreement for the allotment to him of more shares.

Procedural History
(i) The judge dismissed the petition, holding that P. had not committed himself
permanently and unconditionally to equal profit-sharing or the allotment to O. of more
shares and that accordingly it had not been unfair of him to redraw O.'s
responsibilities and remuneration and to retain his own majority shareholding. He
further held that any prejudice to O.'s interests had not been suffered by him in his
capacity as a shareholder.
(ii) Court of Appeal allowed an appeal by O. and ordered P. to purchase O.'s shares,
holding that O. had had a legitimate expectation that he would receive more shares
and 50 per cent, of the profits when the targets were reached and had suffered unfair

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prejudice as a shareholder.

P appealed

Held, allowing the appeal,

(iii) although it might in certain circumstances be unfair for those conducting the affairs of
a company to rely on their strict legal powers, ordinarily unfairness to a member
required some breach of the terms on which he had agreed that the company's affairs
should be conducted;
(iv) However, since P had not agreed unconditionally to give O. more shares or to
share equally in the profits, he could not be said to have acted unfairly in
withdrawing from the negotiations to that end; and
(v) that a member of a company who had not been dismissed or excluded from
participation in its management was not entitled to demand the purchase of his
shares simply because of a breakdown in trust and confidence between the
parties

Per Lord Hoffman

1. Unfair Prejudice
(i) Parliament has chosen fairness as the criterion by which the court must decide
whether it has jurisdiction to grant relief it chose this concept to free the court from
technical considerations of legal right and to confer a wide power to do what appeared
to be just and equitable.

• But this does not mean that the court can do whatever the individual judge
happens to think fair. The concept of fairness must be applied judicially and the
content which it is given by the courts must be based upon rational principles

• In the case of section 459, the background has the following two features.
i. First, a company is an association of persons for an economic purpose, usually
entered into with legal advice and some degree of formality. The terms of the
association are contained in the articles of association and sometimes in
collateral agreements between the shareholders. Thus the manner in which the
affairs of the company may be conducted is closely regulated by rules to which
the shareholders have agreed.
ii. Secondly, company law has developed seamlessly from the law of partnership,
which was treated by equity, like the Roman societas, as a contract of good
faith. One of the traditional roles of equity, as a separate jurisdiction, was to
restrain the exercise of strict legal rights in certain relationships in which it
considered that this would be contrary to good faith. These principles have,
with appropriate modification, been carried over into company law.

o The first of these two features leads to the conclusion that a member of a
company will not ordinarily be entitled to complain of unfairness unless there has
been some breach of the terms on which he agreed that the affairs of the company
should be conducted.
o the second leads to the conclusion that there will be cases in which equitable
considerations make it unfair for those conducting the affairs of the company to rely
upon their strict legal powers. Thus unfairness may consist in a breach of the rules or

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in using the rules in a manner which equity would regard as contrary to good faith.

(ii) It would be impossible, and wholly undesirable, to define the circumstances in which
these considerations may arise

• nonetheless he goes on to describe an example: where the literal construction of

articles cannot be enforced.

• E.g. Page Wood V.-C. in Blisset v. Danie held that upon the D true construction of
the articles, two-thirds of the partners could expel a partner by serving a notice upon
him without holding any meeting or giving any reason. But he held that the power
must be exercised in good faith.

o "It must be plain, that you can neither exercise a power of this description by
dissolving the partnership … this power is inserted, not for the benefit of any
particular parties holding two-thirds of the shares, but for the benefit of the
whole society and partnership.

• Equity takes a less literal view of "legal" construction and interpret the articles
themselves in accordance with what Page Wood V.-C. called "the plain general
meaning of the deed."
o Lujia: i.e. what is the true intention of the parties.

(iii) However, in order to give rise to an equitable constraint based on 'legitimate

expectation' what is required is:

i. a personal relationship or personal dealings of some kind between the

party seeking to exercise the legal right and the party seeking to restrain such
exercise, such as will affect the conscience of the former.
1. E.g. In a quasi-partnership company,
o they will usually be found in the understandings between the members
at the time they entered into association.
o But there may be later promises, by words or conduct, which it would
be unfair to allow a member to ignore.
o Nor is it necessary that such promises should be independently
enforceable as a matter of contract.
o A promise may be binding as a matter of justice and equity although for
one reason or another (for example, because in favour of a third party) it
would not be enforceable in law.

ii. Lujia: Loss of substratum

1. there may be some event which puts an end to the basis upon which the
parties entered into association with each other, making it unfair that one
shareholder should insist upon the continuance of the association. The analogy
of contractual frustration suggests itself. The unfairness may arise not from
what the parties have positively agreed but from a majority using its legal
powers to maintain the association in circumstances to which the minority can
reasonably say it did not agree: non haec in foedera veni. It is well recognised
that in such a case there would be power to wind up the company on the just

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and equitable ground.

2. Legitimate expectations
(i) a relationship between company members may give rise in a case when, on equitable
principles, it would be regarded as unfair for a majority to exercise a power conferred
upon them by the C articles to the prejudice of another member.

• E.g. shareholders have entered into association upon the understanding that each of
them who has ventured his capital will also participate in the management of the
company. In such a case it will usually be considered unjust, inequitable or unfair for
a majority to use their voting power to exclude a member from participation in the p
management without giving him the opportunity to remove his capital upon
reasonable terms. The aggrieved member could be said to have had a "legitimate
expectation" that he would be able to participate in the management or withdraw from
the company.

i. an association formed or continued on the basis of a personal relationship,

involving mutual confidence – this element will often be found where a pre-
existing partnership has been converted into a limited company;

ii. an agreement, or understanding, that all, or some (for there may be “sleeping”
members), of the shareholders shall participate in the conduct of the business;

iii. restriction upon the transfer of the members’ interest in the company – so that
if confidence is lost, or one member is removed from management, he cannot
take out his stake and go elsewhere.

(ii) Application to case: Did O’Neill had legitimate expectations.

i. O’Neill received shares as a gift and an incentive and I do not think that in making
that gift Mr. Phillips could be taken to have surrendered his right to dismiss Mr.
O'Neill from the management without making him an offer for the shares. Mr.
O'Neill was simply an employee who happened to have been given some shares.

• However,
a. Mr. O'Neill invested his own profits in the company by leaving some on loan
account and agreeing to part being capitalised as snares.
b. worked to build up the company's business.
c. guaranteed its bank account and mortgaged his house in support
d. Case law: re H. R. Harmer Ltd. [1959] 1 W.L.R. 62 shows that shareholders who
receive their shares as a gift but afterwards work in the business may become
entitled to enforce their equitable restraints upon the conduct of the majority
shareholder.

ii. To take the shareholdings first, the Court of Appeal said that Mr. O'Neill had a
legitimate expectation of being allotted more shares when the targets were met.
However, Mr. Phillips never agreed to give them. He made no promise on the
point.
• From which it seems to me to follow that there is no basis, consistent with
established principles of equity, for a court to hold that Mr. Phillips was

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behaving unfairly in withdrawing from the negotiation. This would not be

restraining the exercise of legal rights. It would be imposing upon Mr. Phillips
an obligation to which he never agreed.
• Where, as here, parties enter into negotiations with a view to a transfer of
shares on professional advice and subject to a condition that they are not to
be bound until a formal document has been executed, I do not think it is
possible to say that an obligation has arisen in fairness or equity at an
earlier stage.

iii. On sharing of profits:

• Mr. Phillips made no unconditional promise about the sharing of profits. He

had said informally that he would share the profits equally while Mr.
O'Neill managed the company and he himself did not have to be involved in
day-to-day business.
• He deliberately retained control of the company and with it, as the judge
said, the right to redraw Mr. O'Neill's responsibilities.

3. Minority cannot exit at will just because there is a breakdown of relations.

• It was submitted by O’Neill that trust and confidence between the parties had broken
down and it would be unfair to leave Mr. O'Neill locked into the company as a
minority shareholder.

• I do not think that there is any support in the authorities for such a stark right of
unilateral withdrawal.
o There are cases, such as In re F A Company (No. 006834 of 1988), Ex parte
Kremer [1989] B.C.L.C. 365, in which it has been said that if a breakdown in
relations has caused the majority to remove a shareholder from participation in
the management, it is usually a waste of time to try to investigate who caused
the breakdown.
o Such breakdowns often occur (as in this case) without either side having
done anything seriously wrong or unfair. It is not fair to the excluded
member, who will usually have lost his employment, to keep his assets
locked in the company.
• But that does not mean that a member who has not been dismissed or excluded
can demand that his shares be purchased simply because he feels that he has lost
trust and confidence in the others.
o Lord Wilberforce observed in In re Westbourne Galleries Ltd. [1973] A.C.
360, 380, one should not press the quasi-partnership analogy too far: "A
company, however small, however domestic, is a company not a partnership
or even a quasi-partnership”
• Law Commission report on shareholder remedies
o strong economic arguments against allowing shareholders to exit at will. Also,
as a matter of principle, such a right would fundamentally contravene the
sanctity of the contract binding the members and the company which we
considered should guide our approach to shareholder remedies."

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• Application to case

o initial gift of 25 shares in 1985 did not in my view change the essential
relationship between the parties. Mr. Phillips remained controlling shareholder
and Mr. O'Neill remained an employee who had some shares.
o A promise to give Mr. O'Neill more shares or a larger share in the profits may
well have been based not merely upon his position as an employee but on
the fact that he already had a stake in the company. no promise was made
by Phillips so this issue did not arise

4. Offer to buy

(i) Law Commission Report on Shareholder Remedies recommended that in a private

company limited by shares in which substantially all the members are directors,
there should be a statutory presumption that the removal of a shareholder as a
director, or from substantially all his functions as a director, is unfairly prejudicial
conduct.

(ii) However, Lord Hoffman felt that

• But the unfairness does not lie in the exclusion alone but in exclusion without a
reasonable offer. If the respondent to a petition has plainly made a reasonable
offer, then the exclusion as such will not be unfairly prejudicial and he will be
entitled to have the petition struck out. It is therefore very important that
participants in such companies should be able to know what counts as a reasonable
offer.

(iii) What counts as a reasonable offer:

i. In the first place, the offer must be to purchase the shares at a fair value.
ii. Secondly, the value, if not agreed, should be determined by a competent expert. The
offer in this case to appoint an accountant agreed by the parties or in default
nominated by the President of the Institute of Chartered Accountants satisfied this
requirement.
iii. Thirdly, the offer should be to have the value determined by the expert as an expert. I
do not think that the offer should provide for the full machinery of arbitration or
the half-way house of an expert who gives reasons.
iv. Fourthly, the offer should, as in this case, provide for equality of arms between the
parties. Both should have the same right of access to information about the
company which bears upon the value of the shares and both should have the right
to make submissions to the expert, though the form (written or oral) which these
submissions may take should be left to the discretion of the expert himself.
v. Fiftly, … if there is a breakdown in relations between the parties, the majority
shareholder should be given a reasonable opportunity to make an offer (which
may include time to explore the question of how to raise finance) before he
becomes obliged to pay costs. As I have said, the unfairness does not usually
consist merely in the fact of the breakdown but in failure to make a suitable offer.
And the majority shareholder should have a reasonable time to make the offer °
before his conduct is treated as unfair. The mere fact that the petitioner has

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presented his petition before the offer does not mean that the respondent must
offer to pay the costs if he was not given a reasonable time.

Pursuing claims for maladministration

Main issue: the people causing harm to company (whether directors or shareholders) are
usually the people in control of the company, and therefore unlikely to pursue litigation
against themselves.

1.1. Actionable wrongs against the company

(i) The company’s directors, acting within their normal powers of management of the
company.
• Assumption: majority of directors not aligned with wrongdoers; or new board has
taken over the old board.

(ii) Company’s administrator or liquidator (winding up)

(iii) General meeting
(iv) Individual members
• Using statutory procedures that allows them to take a derivative action
• Derivative action: taken in the name of the member, in pursuit of a claim that belongs
to the company, and the remedy accrues to the company, not the member as an
individual.

1.2. Actionable wrongs against individual members

• if wrong done to the member personally (rather than to company), then the member
may pursue his or her claim against the company/against the other members
(majority) by way of:
(i) Personal action (or representative action) – based on contract between
company and member
(ii) Personal action (or representative action) – based on contract between
members inter se
(iii) Statutory action
(iv) s 216
• look at some issues in respect of historical practices, as the genesis behind the
enactment of a particular section.

2. Majority Rule: Principles and Problems

• Issue: How the majority decision to take that action was reached?
• The general rule is majority rule – applies to decisions to pursue business activities, as
well as decisions not to pursue corporate wrongdoers.
• Right to vote

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o Is a property right and members may prima facie exercise the right to vote for
their own advantage (Peter’s American Delicacy)
o Courts usually unwilling to inquire about matters of internal administration.
o Rationale: power is lawfully enjoyed by the majority, and this is a fact of
business life.

• The law has to strike a delicate balance:

o If courts too readily support the majority, and are prepared to condone unfair
and wrongful acts and decisions, the minority will be prejudiced and in a small
company, “locked in” with unrealizable investment which majority can exploit
to their advantage.
o Counter argument: floodgates of litigation, minority will be able to obstruct
the company’s legitimate business with tiresome requisitions and objections.

• Statutory provisions that give rights to minority by formalities:

o Requiring special resolution in certain important matters e.g. alteration of
articles
o Requiring courts’ sanction, in matters like reduction of capital or scheme of
arrangement
o Giving dissentients a right to apply to court to have a resolution cancelled –
e.g. varation of class rights.
o S 216 for oppression, disregarding of minority interest, unfair discrimination,
prejudice

• Rules developed by courts

o Directors must vote bona fide for the company’s benefit in the alteration of
articles
o Directors bound by fiduciary duties
o Rule in Foss v Harbottle: minority members that complain of a wrong or
irregularity. Since a company is separate from its members, only a company
can sue to enforce its rights. Thus a member of the company is not allowed to
sue in respect of a cause of action that belongs to the company. This is known
as the “proper plaintiff” rule. Similarly, if the company sued, a member cannot
defend the action on behalf of the company.

3. Unfairness to minorities: A suggested approach

3.1. What should the courts take into account?

• Needs to strike a balance between rights of majority and rights of minorities.
• Court should ask: has the petitioner been treated unfairly in the sense that there has
been a departure from the standards of fair dealing that a member is entitled to
expect?
o There has to be some standard by which to judge whether particular behaviour
is or is not unfair to a minority shareholder.
o Courts should take into account not only members’ legal rights but also their
legitimate expectations.

3.2. Members’ Legitimate expectations

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• O’Neill v Phillips [1999] 1 WLR 1092: Lord Hoffman introduced a change in the
approach to the English equivalent of our s 216.
o Held that the test of whether a minority member has been treated unfairly is
whether, applying established equitable principles, the majority had acted, or
was proposing to act, in a manner which equity would regard as contrary to
good faith.
o The use of the term members’ ‘legitimate expectations’ was deprecated by
Lord Hoffman.
o Woon: the phrase is nothing more than a convenient description of the
circumstances under which courts have exercised their jurisdiction under s
216, and should not be taken as having an independent explanatory force of its
own.

• Woon submits: what the legitimate expectations of minority members are, is a

question of law to be determined objectively considering the nature of the company
involved.
o Not every company is the same.
o legitimate expectations of members of public company different from member
of private company.
o it is for petitioner to satisfy the court that his expectations were legitimate. (the
one who alleges must prove).

• Some circumstances of what the legitimate expectations of minority members are:

(i) It is a legitimate expectation on the part of members of a company that the

company should be run in the interests of all the members and not only of the
majority.
• If directors use position to make profits and without dividends from
members – oppression.
• Majority shareholder misuses company’s finds for personal benefit

(ii) It is a legitimate expectation of members of a company that they should

receive a fair share of profits of the business
• Unfair if majority receive large sums of money from the company whie
they got nothing (Re A Company)
• Failure to declare dividends may amount to unfairness to minority
members, especially when contrasted to the benefits the majority obtained
from the company: Re Sam Weller & Sons Ltd.

(iii) It is a legitimate expectation of a member of a company that the directors will

act honestly and diligently.
• Where transactions entered into with no apparent benefit to company and
there is a conflict of interest on the part of controllers – the evidentiary
burden shifts to them to justify what they have done; in the absence of
commercial justification, the court may infer that the minority have been
treated unfairly: Jenkins v Enterprise Gold Mines NL.
• If there are grounds to suspect breach of fiduciary duty or negligence, it is
unfair to minority members if the directors consistently refuse to provide
them with evidence that the company is indeed being properly run, or if

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the directors use their majority voting power to prevent an action being
brought against them.

(iv) In the case of an incorporated partnership or family business, it may be a

legitimate expectation of minority shareholders that they (or their faction)
should have board representation to safeguard their interests
(v) It is a legitimate expectation of a member that directors will account to
members for their stewardship of company.
• Hold AGMs, prepare audited accounts

(vi) It is a legitimate expectation of a member of a joint venture company that the

majority shareholder will not run the company as if it was his own business,
disregarding the interest of his partner
• JV – like an incorporated partnership, relationship based on trust and
mutual respect.

(vii) In the case of a guarantee company, it is a legitimate expectation that natural

justice will be observed where expulsion of a member is concerned.
• Guarantee companies with share capital – usually not money-making
ventures.
• Tend to be non-profit organisations.

4. Section 216 and the Rule in Foss v Harbottle

• s 216 embodies a member’s personal right to be treated fairly.

• Rule in Foss v Harbottle does not restrict a member’s ability to petition for relief.
• s 216: belongs in class of members’ personal rights and therefore falls outside the
scope of the proper pf rule.
o Note: member must be seeking relief to injury done to himself.
o If the injury is done to the company, the proper pf is the company.
o Injury to company is not ipso facto an injury to the members.

• s 216(2)(c): where any of the grounds set out in s216(1) are established, court may
authorise civil proceedings to be brought in the name of or on behalf of the company
by such person or persons and on such terms as the Court may direct.
o It may be equitable in some cases to allow minority to bring a corporate action
against the offending majority.
• S216 – should not be used as primary weapon for commencement of derivative
actions.
• S216A is the proper section for the purpose.
• Woon: If the primary relief sought is for the benefit of the company and not the
petitioner, s216 is inappropriate.
• In such a case, the petitioner should seek leave under s216A to commence an action
on behalf of company, or institute derivative action instead.
• If oppression made out under s216 – and evidence shows the oppressor has caused
damage to company, an order that the oppressor should compensate the company
would be within the scope of s216 (refer to pg 184 – complicated case)

s 216 (2) If on such application the Court is of the opinion that either of such grounds

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is established the Court may, with a 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 —
…
(c) authorise civil proceedings to be brought in the name of or on behalf of the
company by such person or persons and on such terms as the Court may direct; …
4.1. Scope of remedy

• s 216(2) gives court the power to make such order as it “thinks fit” – wide jurisdiction
o Wide discretion to tailor the order to remedy the mischief complained of.
o Order must be made with a view to bringing an end of remedying matters
rightly complained of.
o Most case – the practical option is that the majority buy out the minority (or
vice versa, but rarely). Reason: if they cannot get along – litigation will not
improve matters, and other measures will only be temporary relief.

4.1.1. Purchase of shares

s 216 (2) If on such application the Court is of the opinion that either of such
grounds is established the Court may, with a 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 —

(d) 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;

• Some authority (principles) to apply when valuing shares

(i) Valuation to be put on shares is courts’ decision, although assisted by
professional valuers.
(ii) Aim of order is to give money compensation to the oppressed shareholders for
the injury done to them: Scottish Co-operative Wholesale Society v Meyer.
Judge not bound by strict accounting or business rules, the key is whether the
share values is just and proper.
(iii) The alternative is the date the order was made – the date of the order or actual
valuation would be more appropriate then the date of the petition, because a
going concern should be valued at the date on which it is ordered to be
purchased.
(iv) Court has power to order valuation as of some other date if that is appropriate
(v) Where shares are ordered to be valued as of the date of the petition, some
judges have indicated that it is not a straightforward valuation that is to be
done.
(vi) Value of shares (most cases) is determined by attributing to them the
proportion of the total asset value of the company (net tangible assets) that
they represent, with no discount for a minority stake.
(vii) However, other authorities suggest that there should be a discount to NTA in
the case of a minority stake.

4.2. Winding Up

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• S216(2)(f):
s 216 (2) If on such application the Court is of the opinion that either of such grounds
is established the Court may, with a 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 — …
(f) provide that the company be wound up.
• Court has inherent jurisdiction to restrain a person from presenting a petition under
this section seeking the winding up of a company if there is an abuse of process.

• Is it necessary to ground a petition under s 216 on the basis of a violation of a

member’s legal rights? Or is it sufficient to argue that the member’s legitimate
expectations are not fulfilled?
• What are the remedies that the court may order? This is the most important
question to ask if you wish to file for a petition under s 216.
o Purchase of shares – what is the basis of valuation of the shares?

Would the following constitute grounds of the petition under s 216?

• Shareholder is excluded from management.
• Directors, who are nominees of the controlling shareholders, are paid excessively.
• Company fails to declare dividends, even though it is in a position to do so.
• Controlling shareholders divert company’s assets or opportunities for themselves
• Company has a loss of substratum

There is a huge myriad of instances which may raise issues under s 216 or s 254(1)(i). If you
are involved in the litigation, research to discover similar cases is essential.

4. Section 216 and the Rule in Foss v Harbottle

Consider the following:

• What is the principal difference between a petition under s 216 and a derivative action
brought by the shareholders?
• Can the two overlap?

5. Just and Equitable Winding Up – s 254(1)(i)

Circumstances in which company may be wound up by Court

254.—(1) The Court may order the winding up if —

(i) the Court is of opinion that it is just and equitable that the company be wound up;

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Sim Yong Kim v Evenstar Investments Pte Ltd [2006] SGCA 23

Facts

(i) App and brother (mike) pooled their shares in a company called Sinwa, into a company
(Evenstar).
• The App was sole minority shareholder (13.5%) in Evenstar while Mike was the sole
majority shareholder (86.5%), and only directors.
• Evenstar subsequently transferred a parcel of Sinwa shares to KS Energy in
exchange for KS Energy shares.
• After the share swap and Sinwa’s listing on the Singpaore Exchange limited, Evenstar
held 54.9% of Sinway’s shares, with 47.5% and 7.4% representing Mike and
petitioner’s contributions respectively.
• Both brothers remained the only directors of Evanstar, until Feb 2005, when Mike’s
son and daughter appt as directors. Brothers also held management positiosn in
Sinwa.
• Mike was CEO, petitioner was executive officer.

(ii) Appellant petitioned to have Evenstar wound up under s 254(1)(i) of the Companies
Act (Cap 50, 1994 Rev Ed), on the grounds that it was just and equitable to do so.
• The appellant claimed, inter alia, that: Mike had assured him that if he ever wanted to
pull his shares out from Evenstar, Mike would buy him out, i.e. that the appellant
would give Mike “the first right of refusal”.

Trial
The trial judge dismissed the appellant’s petition, as a result of which the appellant filed the
present appeal.

Appellant’s submissions at trial

(a) Prior to the listing of Sinwa, Mike told the petitioner that “it would be in their interest to pool
their shares in [Sinwa] together to be held by a separate holding company”.
• Mike further assured the petitioner that should he “want to pull out [his] shares
from the Company”, Mike would buy him out, ie, that the petitioner would “give
Mike the first right of refusal”.

(b) Evenstar was in substance a partnership between the two brothers, formed for the sole purpose
of holding their Sinwa shares as a nominee for them. It was only some time after their shares
were pooled that the petitioner found out that Mike had been using Evenstar to invest in other
assets contrary to their original plan.

(c) Mike now wanted to “control Evenstar and the Sinwa shares ... with [the petitioner] having no
say and no benefit”.
• In 2005, Mike had added his son and daughter as directors of Evenstar.
• Furthermore, Mike had also attempted to transfer some of his shares in the company to his
two children to enable him to hold shareholders’ meetings without the petitioner being
present, thereby rendering the petitioner “powerless” in Evenstar.
• The petitioner had opposed this attempt successfully.

(d) Through the years, various problems made it increasingly difficult for the petitioner to work

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in Sinwa, and thus impossible for him to continue his partnership with Mike. These problems
were as follows:

i. Sinwa had become a “Tan family company”, in which one Bettina Tan and her
siblings were “running the show”, rather than a “Sim family company”. One
example of this concerned how Bettina’s sister had accepted the resignation of
one of the petitioner’s employees without his consent.

ii. After the petitioner informed Mike of his desire to exit Evenstar, Mike had
intentionally harassed the petitioner by requiring that he be stationed in the office at
all times during office hours and by making him deliver a Powerpoint presentation
at extremely short notice. The petitioner felt that it was absurd to require that he be
in the office from nine to five since the nature of his job involved him leaving the
office to meet customers and going to the shipyards.

On appeal, the appellant argued that his application for the winding-up of Evenstar should be
allowed as:
(a) the trial judge had erred in dismissing his application for cross-examination of all the
deponents of affidavits submitted at the hearing of the petition;
(b) Mike was using Evenstar’s assets to make other investments in breach of the brothers’
original plan for Evenstar to function solely as a means of holding their shares in
Sinwa;
(c) Mike had breached his assurance to the appellant that the appellant would be able to
exit from Evenstar by pulling out his Sinwa shares whenever he wanted;
(d) loss of mutual trust and the appellant’s loss of confidence in Mike made it impossible
for him to continue his partnership with Mike;
(e) there was no practical alternative that would allow the appellant to take his stake out
of Evenstar at a fair and reasonable price.

Rp’s submission at trial

(a) Evenstar was not formed with the sole objective of holding the brothers’ shares in
Sinwa.
• Evenstar was intended to serve as an investment holding company, not only for Sinwa
shares, but additionally for other shares and business ventures.
• The retention of Evenstar’s profits for reinvestment was consistent with its objective as
an investment holding company.
• The petitioner, as a director and shareholder of Evenstar, had himself agreed to
the retention of profits for further investments. In addition, he had approved
payments for these investments out of Evenstar’s funds.
(b) Mike needed to get his son and daughter involved in the running of Evenstar as the
petitioner had lost interest in the company and Mike, who already had substantial
responsibilities as chief executive officer of Sinwa, needed help. The petitioner had
blocked the purported transfer of shares to Mike’s children even though he obviously had
little interest in Evenstar by then.

(c) It was untrue that Sinwa was no longer a “Sim family company” as Mike was still its
managing director. The petitioner’s role as an executive director in Sinwa was insignificant as
he had no executive functions. The petitioner’s appointment was a mistake as he was unable to
manage or command the respect of the staff working under him.

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Held, allowing the appeal:

(1) Held at (2): Whilst a company’s memorandum of association would be conclusive

evidence of its business vis-à-vis third parties, it was not necessarily so as between
shareholders such as the brothers who had entered into what was substantially a quasi-
partnership using a company merely as a vehicle for an agreed object. The inconclusiveness
of Evenstar’s memorandum of association was a fortiori given that Evenstar was initially
incorporated as a shelf company: at [14].

• 14 Tay J found that the original scope of Evenstar’s business was broader in
that the objects clause in its memorandum of association empowered it to invest in
practically any lawful business in Singapore and abroad.
• Whilst we agree that a company’s memorandum of association is conclusive
evidence of its objects vis-à-vis third parties, it is not necessarily so as between
shareholders, such as the brothers here, who have entered into what is substantially a
quasi-partnership using the company merely as a vehicle for an agreed object.
• As between the brothers, what they had agreed on as the object or objects of
Evenstar would be determinative. The inconclusiveness of Evenstar’s
memorandum of association is a fortiori given that Evenstar was initially
incorporated as a dormant or shelf company: see Goodwealth ([9] supra) at [38]–
[39].

(2) The initial object of Evenstar was to hold the brothers’ Sinwa shares as an investment
block that would allow Mike to retain majority control of Sinwa.
• However, the appellant, by his actions, had acquiesced, if not agreed, to Evenstar holding
investments other than Sinwa shares.
• Accordingly, in so far as the appellant’s case was based on a change in the original
objective of Evenstar, it had to fail: at [15].

• 15 However, the petitioner, by his actions, had acquiesced, if not agreed, to

Evenstar holding investments other than Sinwa shares. Indeed, this began at the time of
the pooling, when Evenstar transferred a parcel of Sinwa shares to KS Tech (now called
KS Energy) in exchange for KS Tech shares.
• This could only have been done with the knowledge and consent of the
petitioner… Although the petitioner has claimed that he did not know about these
investments, he was a signatory of the cheques that paid for these investments. We
therefore agree with Tay J that in so far as the petitioner’s case is based on a change
in the original objective of Evenstar, it must fail.

(3) The mutual trust and confidence between the brothers that was necessary to carry on the
business of Evenstar had not broken down.
• Any distrust and loss of confidence by the appellant in Mike did not stem from the way
Mike was managing the affairs of Evenstar.
• The appellant was unhappy because of Mike’s refusal to buy him out when his declining
health made it difficult for him to cope with his work in Sinwa and its related
companies: at [16].

• 16 The petitioner had played no role in the investment activities of Evenstar,

other than to sign cheques. Any distrust and loss of confidence by the petitioner in

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Mike did not stem from the way Mike was managing the affairs of Evenstar.
• The petitioner was unhappy because of Mike’s refusal to buy him out when his declining
health made it difficult for him to cope with his work, such as it was, in the Sinwa
companies. He wanted to exit Evenstar for this reason and retrieve his Sinwa shares held in
Evenstar. Hence, he called upon Mike to buy him out of Evenstar.

(4) The effect of Mike’s assurance was that the appellant would be able to exit from Evenstar by
pulling out his Sinwa shares whenever he wanted, provided that Mike was given a “first right of
refusal” on these shares.
• The “first right of refusal” was not meant to negate or override Mike’s fundamental
promise to pull the appellant’s Sinwa shares out of Evenstar, but was intended to explain
what would happen after those shares had been taken out of Evenstar. It was the
appellant’s infelicitous explanation of the meaning of Mike’s promise that led to his grief
before the trial judge: at [18], [21] and [23].

• It is important to have in regard to this factual matrix in determining the substance

of Mike’s assurance.

• Under the arrangement, Mike would remain free to liquidate his sinwa shares at any
time, as he had control of Evenstar, but the App would not be able to do so without Mike’s
agreement.

• The App’s apparent benefit was his retention of his executive directorship without
executive functions. But that could not have been adequate compensation for exchanging
his marketable Sinwa shares for unmarketable Evenstar shares. It was therefore not
surprising that Mike held out a carrot to the petitioner to get him to agree to pool the
Sinwa shares. This came in the form of Mike’s promise to buy the petitioner out
should he wish to “pull out [his] shares from the Company”.
• Mike’s assurance was neither made in writing, nor were the terms of the
buyout discussed, but it is reasonable to infer that the petitioner, being the younger
brother, trusted Mike to live up to his promise to buy him out in due course. After all,
Mike was his elder brother and the Sinwa shares had their origins in their family
company.

• 21 The factual matrix also explains the meaning of the petitioner’s statement that
Mike had been given “the first right of refusal” to buy his shares in Evenstar. This
statement has enabled Mike to contend that he was not obliged to buy the petitioner’s
shares at all, and that if he refused to do so, the petitioner was free to sell his Evenstar
shares to any other person.
• However, this argument is based on the literal and technical meaning of the
words “the first right of refusal” outside the context of the factual matrix. It is clearly
wrong. The fundamental question is whether Mike did promise to “buy out” the
petitioner, ie, to allow the petitioner to exit Evenstar, as a condition for the petitioner’s
agreement as to the pooling. If Mike did promise to “buy out” the petitioner from Evenstar,
which is clearly what the evidence shows, he cannot now be heard to say that he was only
given a right of first refusal. This would make no sense, as a promise to buy is a direct
contradiction of a right not to buy, which is what the right of first refusal means. What is
important here is the substance of the promise made by Mike and not what the
petitioner thought he heard or understood by his recollection of the words “first right of
refusal”.

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• This misunderstanding is not difficult to explain. The petitioner, being a

layman, might have thought that the two statements meant the same thing. More
likely, he might have understood the words “first right of refusal”

(5) The affidavit evidence showed that Mike took undue advantage of the appellant’s imperfect
recollection of his words of assurance. Mike not only refused the appellant’s request to pull
out his Sinwa shares and made the unreasonable suggestion that the appellant sell his shares
in Evenstar to a third party, he also offered an unfair and unreasonable price for the appellant’s
shares in Evenstar and on unfair terms: at [25].

The law – section 254(1)(i) and its relationship to section 216 of the Companies Act

Counsel for Mike’s submissions

• Counsel referred to O’Neill where Lord Hoffmann rejected such a submission (that
the petitioner has suffered no inequity from Mike’s refusal to buy him out as Mike
had no obligation to do to do so, and that the App made no attempt to sell his Evenstar
shares to any other person)

o I do not think that there is any support in the authorities for such a stark right
of unilateral withdrawal …
o It is not fair to the excluded member, who will usually have lost his
employment, to keep his assets locked in the company.
o But that does not mean that a member who has not been dismissed or excluded
can demand that his shares be purchased simply because he feels that he has
lost trust and confidence in the others. I rather doubt whether even in
partnership law a dissolution would be granted on this ground in a case in
which it was still possible under the articles for the business of the partnership
to be continued. [emphasis added]
• Counsel for Evenstar submitted that the same principle applies to petitions for just and
equitable winding up.
o Counsel also referred to Parker J’s decision in Re Guidezone Ltd in the
absence of unfair conduct, the court will not wind up a company just because
the aggrieved shareholder is not offered the price he would like for his shares.

Court’s observation
(iv) Examination of English Cases:
• O’Neill and Guidezone were both “unfair prejudice” cases under s 459 of the
Companies Act 1985 (c 6) (UK) (“the UK Companies Act 1985”) (corresponding to
our s 216, except for the absence of the remedy of winding up). Lord Hoffmann has in
O’Neill provided a clear analysis of the concept of unfairness as the underlying basis
of the s 459 jurisdiction

(v) Parliament has chosen fairness as the criterion by which the court must decide
whether it has jurisdiction to grant relief it chose this concept to free the court from
technical considerations of legal right and to confer a wide power to do what appeared
to be just and equitable.

• But this does not mean that the court can do whatever the individual judge
happens to think fair. The concept of fairness must be applied judicially and the

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content which it is given by the courts must be based upon rational principles

• In the case of section 459, the background has the following two features.
i. First, a company is an association of persons for an economic purpose, usually
entered into with legal advice and some degree of formality. The terms of the
association are contained in the articles of association and sometimes in
collateral agreements between the shareholders. Thus the manner in which the
affairs of the company may be conducted is closely regulated by rules to which
the shareholders have agreed.
ii. Secondly, company law has developed seamlessly from the law of partnership,
which was treated by equity, like the Roman societas, as a contract of good
faith. One of the traditional roles of equity, as a separate jurisdiction, was to
restrain the exercise of strict legal rights in certain relationships in which it
considered that this would be contrary to good faith. These principles have,
with appropriate modification, been carried over into company law.

o The first of these two features leads to the conclusion that a member of a
company will not ordinarily be entitled to complain of unfairness unless there has been
some breach of the terms on which he agreed that the affairs of the company should be
conducted.
o the second leads to the conclusion that there will be cases in which equitable
considerations make it unfair for those conducting the affairs of the company to rely
upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in
using the rules in a manner which equity would regard as contrary to good faith.

(vi) House of Lords in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360] adopted in
giving content to the concept of “just and equitable” as a ground for winding up

• It does, as equity always does, enable the court to subject the exercise of legal rights
to equitable considerations; considerations, that is, of a personal character arising
between one individual and another, which may make it unjust, or inequitable, to
insist on legal rights, or to exercise them in a particular way.

• It would be impossible, and wholly undesirable, to define the circumstances in which

these considerations may arise

• nonetheless he goes on to describe a few circumstances:

i. an association formed or continued on the basis of a personal relationship,

involving mutual confidence – this element will often be found where a pre-
existing partnership has been converted into a limited company;

ii. an agreement, or understanding, that all, or some (for there may be “sleeping”
members), of the shareholders shall participate in the conduct of the business;

iii. restriction upon the transfer of the members’ interest in the company – so that
if confidence is lost, or one member is removed from management, he cannot
take out his stake and go elsewhere.

(vii) What does s254(1) NOT allow a member to do:

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• the notion of unfairness lies at the heart of the “just and equitable” jurisdiction in s
254(1)(i) of the CA and that that section does not allow a member to “exit at will”, as
is plain from its express terms.

• Nor does it apply to a case where the loss of trust and confidence in the other
members is self-induced.

• It cannot be just and equitable to wind up a company just because a minority

shareholder feels aggrieved or wishes to exit at will. However, unfairness can arise in
different situations and from different kinds of conduct in different circumstances.
Cases involving management deadlock or loss of mutual trust and confidence where
the “just and equitable” jurisdiction under s 254(1)(i) has been successfully invoked
can be re-characterised as cases of unfairness, whether arising from broken promises
or disregard for the interests of the minority shareholder.

Relationship between 216 and 254(1)

(i) First, in contrast to the UK statutory regime, where winding up is available as a remedy
only under the court’s “just and equitable” jurisdiction, both s 254(1)(i) and s 216 of our
CA empower a court to wind up the company. These two provisions should therefore
be treated as prescribing different grounds to warrant winding up, rather than
raising the threshold of the “just and equitable” jurisdiction to allow winding up as
a higher order remedy for the more severe “oppression” cases.

(ii) Secondly, equating the scope of s 254(1)(i) with that of s 216 would be inconsistent with
the express language used in the two sections; a plain reading of ss 254(1)(i) and 216
necessitates the conclusion that relief under the two sections is founded on different
bases. Under s 216, the categories of conduct that fall within the court’s purview are
limited to:

(a) the conduct of the company’s affairs or the exercise of the directors’ powers under
sub-s (1)(a); and
(b) acts of the company or resolutions by members or debenture holders under sub-s (1)
(b).

• In contrast, s 254(1)(i) is phrased more generally as requiring the existence of “just

and equitable” grounds, and is not limited to any particular category of conduct. As a
result, the jurisdiction under s 254(1)(i) may in some cases be broader than that under
s 216.

• The most obvious example of this would be cases involving a deadlock between equal
shareholders; whilst it may be difficult to attribute oppressive or unfairly
discriminatory conduct on either party in such cases, the courts have, nevertheless,
been ready to grant winding-up orders pursuant to their “just and equitable”
jurisdiction

• 37 Hence, it is our view that the “just and equitable” and “oppression” regimes under
our CA each have their own respective spheres of application.
• However, at the same time, we also recognise that these two jurisdictions, though distinct,
do in fact overlap in many situations since they are both predicated on the court’s

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jurisdiction to remedy any form of unfair conduct against a minority shareholder.

• In this regard, although s 216 does not expressly adopt the “just and equitable”
principle, the concept of unfairness is common to both sections.
• In such overlapping situations, we agree with Parker J’s dictum in Guidezone ([27]
supra) that in order to reconcile the concurrent jurisdictions under the two provisions
in a principled manner, the degree of unfairness required to invoke the “just and
equitable” jurisdiction should be as onerous as that required to invoke the
“oppression” jurisdiction.

Legitimate expectation

• we note at the outset that the petitioner has not expressly pleaded that he had a
legitimate expectation that Mike would exercise his “first right of refusal” on a
reasonable basis

• [In] order to give rise to an equitable constraint based on ‘legitimate expectation’ what
is equired is a personal relationship or personal dealings of some kind between the
party seeking to exercise the legal right and the party seeking to restrain such exercise,
such as will affect the conscience of the former.

• This is putting the matter in very traditional language, reflecting in the word
“conscience” the ecclesiastical origins of the long-departed Court of Chancery. As I
have said, I have no difficulty with this formulation. But I think that one useful cross-
check in a case like this is to ask whether the exercise of the power in question would
be contrary to what the parties, by words or conduct, have actually agreed. Would it
conflict with the promises which they appear to have exchanged? … In a quasi-
partnership company, they will usually be found in the understandings between the
members at the time they entered into association. But there may be later promises, by
words or conduct, which it would be unfair to allow a member to ignore.

• Nor is it necessary that such promises should be independently enforceable as a

matter of contract. A promise may be binding as a matter of justice and equity
although for one reason or another (for example, because of a third party) it would not
be enforceable in law.

Prof:
• Remedies – if the application under s216 succeeds one possibility is that Sim will get his
shares work out
• If 256 succeeds – then company wound up, and the capital will go to Sim
• Speculation on Prof’s Part
• Besides, Evenstar is not a trading company, it is just an investment company
• Unlikely to have a lot of creditors, when there is a winding up, it will be extremely
detrimental to the business.
• The court considered 254 and found that the petition succeeded, but it was an order of
30days (stayed) – chances that there were compromise between them.
• Go back to the grounds

• S216 – takes into account companies affairs of directors’ power. Look at how the
members dissolve

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• S254 is based on just and equitable grounds

o would succeed under s254 but not under s216
o both may overlap

• Agreement that Mike will buy out Sim when Sim wants to get out of the transaction
• Mike offered to buy Sim out of Evenstar
• How to value the Sinwa shares – he looked at the Sinwa share values

Consider the following:

• When will the courts consider a remedy under s 254(1)(i) is appropriate?

6. Peculiar situations – M&A Transactions (not required to know in detail)

Merger and acquisition transactions usually require the approval of shareholders, either at the
shareholders meeting or by the tendering of their shares. The regulatory regime has
developed the following ways to control the voting by majority shareholders in M&A
transactions:

(1) Require “super-majority” voting in certain instances (e.g. scheme of arrangement requires
majority in number, 75% in value for approval).

(2) Ensuring that shareholders receive procedural protections in terms of informational

requirements or access to independent expert opinions to be obtained and disclosed to
shareholders. For example, where the Singapore Code of Takeovers and Mergers
(“Code”) applies, the Code ensures that target shareholders are given adequate
information and advice and all shareholders of the same class must be treated equally.

(3) Requiring certain shareholders to abstain from voting at the shareholders’ meetings or
requiring separate meetings of affected shareholders. For example, in the case of the
scheme of arrangement, the offeror which holds shares in the target company form a
separate class from the rest of the shareholders and the consent of the class of
independent shareholders is required.

(4) Giving the minority shareholders the right to exit at a fair price if certain decisions they
disagree are taken by the majority. Such exit rights are referred to as “appraisal rights”,
though this is not often used under the Companies Act.

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