[Slide 7] Rayfield v Hands (1960) Facts The company`s articles provided that a member who wished to transfer shares had to inform the directors, who were to • take the shares equally between them at a fair value. Rayfield wanted to transfer the shares. • He brought an action to compel the defendant directors (which were also members to purchase the shares in accordance • with the articles.
!ere re the defendant directors obliged to purchasing the shares from Rayfield" Issue – !e Decision # $es Reasonin The %rticles constitute a contract between the individual members of the company, and they regulate the member&s mutual rights and duties as members The court held that there was a contract between Rayfield and the defendants constituted by the articles. The court then ordered that the defendants purchase Rayfield`s shares in accordance with the articles. [Slide 7] !on !on "i# Fatt v $eon % &o Sdn 'd (1976) Facts The articles provided that the holders of seven'tenths of the issued capital of the company had a right to requisition for the • transfer of the shares of the remaining members. The second defendant held )*k shares out of +**k. • He served a requisition to t o buy out !ong`s !ong`s shares. • !ong !o ng obected to this. • Issue – -id the second defendant have the rights to buy out !ong`s shares" Decision # $es Reasonin The fairness or unfairness of an article is not relevant in deciding whether it can be enforced. % member`s rights and liabilities under the articles of association are a matter of contractual obligation. The court held that !ong was bound to comply with the de mand as it was part of what the defendant had bargained for. t • was purely a matter of contractual obligation and !ong !ong must be held to the obligation he had undertaken. [Slide ] Raffles Hotel $td v *alayan 'an+in 'd (1966) Facts /00 was the lessor of the land on which Raffles Hotel was built. • t was provided in the hotel`s constitution that the lessor has a right to appoint a director of the company (hotel) (hotel).. • /00 appointed itself as director. • Raffles Hotel 1td went to get this appointment declared invalid. • Issue – 2an /00 appoint itself as director of the hotel" Decision # 3o Reasonin 4utsiders are not privy to the constitution because the constitution does not form the basis of a contract between the company and outsiders, and outsiders hence cannot enforce any rights that the t he constitution purport to confer upon them. The court held that the constitution could not constitute a contract between a company and outsiders. 5ince /00 was not a member of the company co mpany,, the articles did not confer upon it any enforceable right to appoint a director of the company. %ccordingly, %ccordingly, the appointment was invalid.
[Slide ] Soute,n Found,ies (19-6) $td v Si,la. (19/0) Facts 5hirlaw had been appointed /- under a written contract, for a period of 6* years. • !hile the agreement was not e7pressed to be subect to the constitution, one clause in the constitution provided that the • /- was entitled to the benefit of the provisions of any contract between himself and the company. The constitution was altered to allow 5hirlaw to be removed as a director and, as a consequence, as /-. • Issue – 2an 5hirlaw be removed as a director" Decision # $es, according to the altered constitution, but there is a breach of contract so he is entitled to damages compensation. Reasonin % company has statutory power to alter its articles, even if by such alteration a breach of contract will be involved. However, if thereby the company acts on the altered constitutions which amount to a breach of contract, it may be liable in damages to the other party to the contract. The breach will be a breach of the independent contract to the constitution, rather than the statutory contract. 0y effecting alteration in its articles, a company cannot defeat or escape from its contractual obligations. %s the removal of 5hirlaw from office through the alteration of the constitution made it impossible for him to complete his contract of service, the court held that the alteration was an actionable breach of contract, and hence awarded damage compensation to 5hirlaw for breach of contract.
IMPORTANT!!! It appears that there are two distinct cases which contradict each other. Eley case suggests that a member cannot enorce rights other than membership rights or insider rights" #almon case suggests that a member may enorce outsider rights" as long as he sues the company in his capacity as a member$ and not as an outsider. It may seem both cases contradict each other$ but what is rather interesting in Eley%s case is that$ although Eley was a member at the time o the court case$ he did not choose to sue as a &ua member' to enorce the articles. (hat is also urther interesting is that the court did not address the point o Eley's membership in the ruling$ so it is unclear i this was intentionally ignored by the court since the suit was rom an outsider rights perspecti)e$ or i the membership matter was not brought to the courts attention at all. The &uestion remains$ what would ha)e happened i Eley had indeed sued to enorce his membership rights*
Astbury J addresses this exact point in Browne v La Trinidad [23] !The actual decision a"ounts to this# An outsider ri$ht to who" ri$hts purport to be $iven by the articles in his capacity as such and outsider % whether he is or subse&uently beco"es a "e"ber% cannot sue on those articles treating them as contracts between himsel and the company to enorce those rights # Those ri$hts are not part o' the $eneral re$ulations o' the co"pany applicable alie to all shareholders and can only exist by virtue o' so"e contract between such person and the co"pany% and the subse&uent allot"ent o' shares to an outsider in whose 'avour such an article is inserted does not enable hi" to sue the co"pany on such an article to en'orce ri$hts which are res inter alios acta and are not part o' the $eneral ri$hts o' the corporators as such #* [2+] On the other hand$ the court decision held in #almon case can be interpreted as allowing a member to enorce a constitution that ga)e him right in his capacity as a M+. This decision also supports the )iew t hat each member has the right to ha)e the constitutions obser)ed by the company. ,onclusion A member can enorce any pro)ision in the constitution e)en though this may incidentally also enorce a right gi)en to a person in a capacity other than as a member. Member%s action must be brought in his or her capacity as a member and the enorcement o the nonmember right must be incidental to the enorcement o the member%s contractual right.
[Slide 9] Hic+#an v "ent or Romney /arsh 5heepbreeders` %ssociation (191) Facts The company`s constitution included a clause to the effect that all disputes between the company and its members • were to be referred to arbitration. Hickman, a member, brought court proceeding against the company. • The company applied for a stay of the action on the grounds that the member was bound by the constitution to • submit the dispute to the arbitration. Issue – !as Hickman bound by the constitution" Decision # $es Reasonin The court granted the sta y. The constitution is a contract between the association and its members. The provision for arbitration was a binding arbitration agreement and obliged the parties to refer the matter to an arbitrator. [!!] Sal#on v uin % 23tens $td (1909) Facts The constitution provided that certain contracts could not be entered into without the assent of both /-, 5al mon • and %7tens. 04- proposed to acquire certain properties and to let other properties, but 5almon dissented. • The company called a general meeting and %7tens passed an ordinary resolution resolving to acquire the • properties. 5almon sued for an inunction to restrain the company and directors from acting on the resolution. • Issue – !as the veto e7ercised by 5almon valid" Decision # $es Reasonin % member may enoin the company and its directors from acting in breach of the constitutions. • The court allowed 5almon suing as a member, to obtain an inunction stopping the company from completing a transaction, because the constitution stated that the transaction required the consent of two /-, and the company had acted on a decision which was taken unconstitutionall y. This essentially 8showed that a member had a membership right to require the company to act in accordance with • its constitution, which right could be enforced by the member even though the result was indirectly to protect a right which was afforded to him as a director9, but 8only so long as he sues qua member and not qua outsider9. •
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4rdinary resolutions passed by members could not affect the powers conferred by constitutions, as this would permit the members to alter the constitutions indirectly by ordinary resolution. t follows from this that a direction from the members passed b y a special resolution should be valid, and this is reflected in 5:(6.
[Slide 9 ] 4ley v 5ositive ove,n#ent $ife 2ssu,ance &o (176) Facts The company`s constitution provided that ;ley was to be the company`s solicitor and could not be removed from • office e7cept for misconduct. ;ley later became a member of the company. • ;ley worked for the company for some time, before the company ceased to employ him. • ;ley sued the company for breach of contract, relying on the constitution. • Issue – !as there a breach of contract" Decision # 3o Reasonin % member cannot enforce provisions of the articles in some capacity other than that of member. The court held that ;ley could not bring action against the company because he was attempting to enforce his • rights as solicitor, not as a member. The right which ;ley attempted to enforce was conferred upon him in a ca acit other that of a member and that the constitution do not constitute a contract between the com an and the
[Slide -] 2uto#atic Self8&leanin Filte, Syndicate &o $td v &unnina#e (1906) Facts The company`s constitution conferred on the board the powers of management and the specific power to sell company • property on such terms as it thought fit. Relying on these provisions, the board refused to comply with a general meeting resolution that certain property be sold, • asserting that the sale was not in the company`s best interest. The members sought a declaration that the directors were bound to carry into effect the resolution passed. • Issue – 2ould the members override the directors` decisi on" Decision # 3o Reasonin /embers cannot override the directors and make themselves involve in the management of the company. The court held that the 04- was properly e7ercising the powers of management vested in it b y the constitution and the general meeting could not usurp this power.
The court believed that the 8management article9 in the constitution constituted an agreement on the part of membership to confer the powers of management solely on the board. f the members wished the 8mandate of the directors < to be altered, it can only be under the machinery of the constitution itself9. =ntil the constitution was so altered, the membership could not override the board`s decisions. [Slide -] :& Invest#ent 5te $td v ay :un &.an Hen,y (-01/) [Slide -] &an Sie. $ee v :; Invest#ent 5te $td (-01) Facts The case concerned a family holding company, T$2, and a deadlock board comprising ust two directors, Tay and 2han, • who are also e7'spouses. There`s a clause in the business contract that states, either of them could unilaterally cause T$2 to withhold payments of • apparently legitimate e7penses by simply refusing to sign a corresponding voucher. The company`s constitution also provided that both Tay and 2han were to be the permanent directors of T$2 until they • resigned from office, so they can`t be removed by shareholders. Issue – Decision # Reasonin !here there is deadlock in the board of directors which cannot be broken in any other wa y, shareholders may be vested with reserve powers of management under the common law in order to break such deadlock.
The general rule is that the powers of management are vested in the directors of a company and not its shareholders. The corollary of this is that shareholders may not, as a general rule, usurp management powers of the directors. This position is enshrined in 5ingapore law under 56)>% and in the case Auto"atic ,el'-.leansin$ (6?*:. The question was therefore company law recogni@es that there e7ist reserve powers of management vesting in shareholders that may arise where the board is deadlocked or otherwise refuses to act. Arom the T$2 case, it can be concluded that reserve powers of management are to be given to the shareholders only in e7ceptional circumstancesB where it is necessary in order to overcome a deadlock in the board and where there is no contractual remedy available under the constitution.
[Slide -] Re "on ai Sa.#ill (/iri 5dn 0hd (197) Reasonin t was held in /e 0on$ Thai ,aw"ill (14) that the decision of the maority must be honoured by the minority members, • but in the condition that the maority cannot e7ercise their rights oppressively against any member. n /e 0on$ Thai ,aw"ill (14) it was held that 8only when maority passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked.9 This position is enshrined in 5ingapore law under 56:.
n /e 0on$ Thai ,aw"ill (14), 1ord !ilberforce in the Crivy 2ouncil stated that for the case to be brought within the /alaysian equivalent provision, 56D6 2ompanies %ct (/alaysia, the complainant mustB •
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[Slide -7] =>?eill v 5illi
The court held that there was no basis to 4&3eill claim that Chillips had acted unfairly, that Efairness& depended on the conte7t, and that Ea 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, while accepting that Ethere will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rel y upon their strict legal powers&. /r 4&3eill may have had a legitimate e7pectation that /r Chillips, the maority shareholder, would confer various benefits upon him (eg an increased share of profits and more shares in the company, but he had no formal grounds upon which to base a claim. Chillips never agreed to give the shares, and did not make an unconditional promise about the sharing of profits. He onl y agreed to share the profits while 4&3eill managed the company. Therefore, on equitable principles, Chillips did not act unfairly in withdrawing from the negotiations to give 4&3eill more shares, or refusing to continue to share profits after he came back to run the business. The court advocated a Econtractual approach& to determine whether there was commercial unfairness, thus ensuring that agreements are honoured and promises kept. They would first look for formal agreements (eg constitutions, and then to
continue looking for informal agreements (often having the characteristics of quasi'partnerships which supplement t he formal agreements. f there was a serious breach of the terms of such agreements, it was open to the court to grant an appropriate remedy to the aggrieved party. [Slide -] Si# &ity v ? "e+ !ee (-01)B 5n appeal 6 ? "e+ !ee v Si# &ity (-01/) Reasonin iven the persuasion rationales for keeping 56: as a residual remedy, it would seem that this option would generally be foreclosed to a maority shareholder. The 2ourt of %ppeal in 5im 2ity has astutely noted that there is no blanket prohibition against a maority shareholder making a 56: claimI rather, the question of standing is to be determined by a fact'sensitive inquiry of whether the claimant lacks the power to stop the allegedly oppressive acts. t follows that there remains scope for the maority shareholder to access 56: remedy where self'help remedies are unavailable. n this case, the 2ourt of %ppeal held that the maority shareholder was not entitled to relief under 56: because it had the power to stop the appellants` oppressive conduct, as it eventually did, by e7ercising its rights as a shareholder to remove the appellant as a director. [Slide 0] Scottis &o8o
0efore considering the two maor obstacles to relief under 56:, we should note in passing two general questions as to the operation of the section. The first requirement is that the relief under 56: will onl y be granted if the petitioner is complaining of oppression towards him qua member, and not in the character of director or employee of the company. This requirement caused no problem in this case, since the oppressive conduct resulted in a depression of the value of the respondents` shareholding in the company and thus inured them as members. The second question goes to the meaning of the word 8oppressive9. n this case, Jiscount 5imonds considered that Eoppression& should be given its dictionary meaning as being the e7ercise of authority in a manner which was 8burdensome, harsh and wrongful to the other members of the company or some of them9. The court felt that the diversion of business from the company by the 5cottish 5ociety could be fairly described as oppressive conduct of the company`s affairs, because the oppressive conduct has caused t he company`s operations to be ceased and no profits made, leading to a depression in the value of t he company`s shares. The two petitioners were therefore entitled to relief by way of compulsory purchase of the shares by the 5cottish 5ociety. [Slide 0] Re S !on Holdins (5te) $td (197) Facts -irectors deliberately refused to make dividend payments. Their motive was to preserve their dominance (because some • strange rules in %rticles that if they did not issue dividends, they retained power to vote. Issue – s there abuse of voting powers" Decision # $es Reasonin Relief may be obtained under 56: where the maority shareholders or directors abuse their voting powers by voting in bad faith or for a collateral purpose because oppression can be said to have been established. The court held that the discretion of directors whether or not to recommend a dividend even on the preference shares must be e7ercised fairly and honestly in the interests of the company, and for proper purposes. This discretion was not meant to be used as a device to enable the preference shareholders to retain voting control indefinitely.
The court further held that the directors had not acted for the benefit of the company. There was therefore Ea visible departure from the standards of fair dealing and a violation of fair play& which the petitioners were entitled to e7pect from the directors. % case of oppression was made out and relief was granted under 56:. [Slide 0] =ve, % =ve, $td v 'onvests Holdins $td and 2note, (-010) Facts Richvein was a company set up as a oint venture between two families, with 1auw family`s 4ver K 4ver 1td as the • minority shareholder holding +*F of its shares, and the 5ianander family`s =nicurrent Ainance 1imited initially holding the remaining >*F shares. 4K4 claimed that three actions taken by respondents amount to oppressionB • a % transfer of Richvein shares by =nicurrent to its related company, 0onvests. b % rights issue in Richvein which allegedly was partly intended to dilute 4K4`s shareholder in Richvein. c 5everal related party transactions involving Richvein which allegedly benefitted the respondents. Issue – s there abuse of voting powers" Decision # $es Reasonin Relief may be obtained under 56: where the maority shareholders or directors abuse their voting powers by voting in bad faith or for a collateral purpose. The court found that there was a deliberate course of oppressive conduct. t noted that the transformation of Richvein as a private oint venture company to a semi'public one in which 0onvests would hold =nicurrent`s shares in Richvein constituted a radically different entity and legal proposition, which amounted to a loss of substratum. The court also determined that the rights issue, which was done in the abs ence of commercial ustification and amounted to a scheme to dilute 4K4`s shareholding in Richvein, was in and of itself an abuse of rights. This alone would have been sufficient grounds to find oppression.
[Slide 0] Re 2 &o#
[Slide 0] 4A,ai#i v !estAou,ne alle,ies $td (197) Facts 3a@ar and ;brahimi ran a business as partners for a long time before forming a company to take over the business. • 1ater 3a@ar`s son oined the company as a shareholder and director. • There was a disagreement between the parties, and 3a@ar and his son combined their voting power to re move ;brahimi • from his office as director. ;brahimi petitioned for relief under 56:. • Issue – s there e7clusion from management in breach of an agreement" Decision # $es. Reasonin n many companies, the rights of the members would be e7haustively stated in the company`s constitution. However, certain companies, known as quasi'partnerships, also conducted business based on legitimate e7pectations and agreements made between the members, and in such companies, effect should be given to such e7pectations and agreements. The court stated that typically quasi'partnerships would display all or some of the characteristicsB a) The company will be an association formed on the basis of mutual trust and confidence. A) There will be an agreement that some, or all, of the shareholders will be involved in management. c) % restriction upon the transfer of the members` s hares in the company. The court suggested that a company can be wound up on the ust and equitable ground not only where there is a breach of rights and obligations defined by 2% and the constitutions, but also where there is a breach of equitable rights, obligations and legitimate e7pectations. This is the case if the company was formed or continued on the basis of a personal relationship, involving mutual confidence, or if there is an agreement or understanding giving members equitable rights, obligations, or e7pectations that all or some of the members participate in the conduct of the business, or i f there is a restriction on the transfer of shares in the company.
This case demonstrates that where a company is a quasi'partnership, the conduct of the maority should not be udged purely based on the rights of the parties, but also by the legitimate e7pectations of the parties and any informal agreements that e7isted between them. t was legitimate for the court when considering the ust and equitable ground for winding up a company to take into account the personal relationship between the parties which may suggest it to be inequitable for one part y to insist on his or her legal rights and e7ercise them in a certain manner. !hile the removal was pursuant to the constitution, ;brahimi had a legitimate e7pectation that the members` powers would not be so e7ercised in the manner to remove him from his office as director due to disagreements, and that the shared management of the business would continue. n light of ;brahimi`s legitimate e7pectations, the company was clearly a quasi'partnership since it had been formed on the understanding that all of the shareholders would participate in management. %s this understanding has been breached, the court held that it was ust and equitable to wind up the company.
[Slide 0] Re ee Hoe &an ,adin &o 5te $td (1991) Facts /aority shareholders caused the company not to declare dividends for five years, while at the same ti me lined their • pockets with the profits of the company either in the form of salaries, bonuses or directors` fees. Issue – s there oppression" Decision # $es Reasonin The payment of low or no dividends coupled with other instances of unfair conduct on the part of the maority have been held to constitute unfair conduct. The court held that, contrasting the substantial benefits the maority had gained from the company with the nil return for the minority, the maority had acted oppressively or in disregard of the minority`s interests. t is clearly unfair to the minority if the maority receive large sums of money from the company while the y get nothing. •
