Oppression remedy (Personal action, Shareholder loss)

s 216 CA
(1) Any member or holder of a debenture of a company or, in thecase 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 debenturesincluding himself or in disregard of his or their interests as members,
shareholders or holders of debentures of the company; or

(b) thatsome 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 unfairlydiscriminates against or is otherwise prejudicial to one or more of themembers 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 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 —

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

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

(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;

(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;

(e) in the case of a purchase of shares by the company provide for a reduction
accordingly of the company’s capital; or

(f) provide that the company be wound up.

s 216 provides for 4 alternative grounds for relief: oppressive, disregard of member’s interests, unfairly discriminates and prejudicial.

The basis of the petition is “unfairness”.

S 216 should be construed broadly to allow a shareholder to get a personal remedy where there has been an unfair exercise of majority power within the company, in other words, where there has been oppression:

Re Kong Thai Sawmill (Mm) Sdn Bhd [1978]

“there must be a visible departure from the standards offair dealing and a violation of the conditions of fair play which ashareholder is entitled to expect before a case of oppression can be made ...
their Lordships would place the emphasis on ‘visible’.”

- “unfairness”is objectively decided by standards set by the court, not by the parties
themselves.

The court will consider if there is a breach of:

(a) the member’s legal rights;

(b) the member’s legitimate expectations.

A member’s legal rights are set out in the company’s constitution or other relevant documents such as shareholders’ agreement.

However, in the case of companies operated onthe basis of trust and confidence, often called “quasi-partnerships”, not all rights are stated formally. The fundamental understanding shared by both / all parties on which the members have come together to set up a company may be
termed the “legitimate expectations”. A breach of such “legitimate expectations” may constitute unfairness.

Oppression must arise from the conduct of company’s affairs

Oppression will usually be founded on a continuing situation.

Examples:

• Diversion of business opportunities
• Improper exclusion from management
• Unfair schemes to retain control
• Unfair restriction of dividends
• Failure of directors to act in the company’s interests
  

Court orders – s 216(2): Court exercises discretion “with a view to bringing to an end or remedying the matters complained of”.

s 216(2)(d) – buy-out by other members or by company.

s216(2)(f) – winding up

Derivative actions under s 216A CA (Derivative action, Company Loss)

Section 216 CA provides a minority shareholderwith a remedy in cases where he has been “suffering” at the hands of the controlling majority.

Derivative Actions – s 216A CA

• Powers of management are vested in the Board of Directors. When a wrong is done to a
company, it is the company who must bring the legal action. Foss v Harbottle
(1843) ”Proper plaintiff rule”.

S157A CA (1)- Business of a company shall be managed by.. directors.

• However, if the person who commits the wrong (say, a director) has control over the
board, it is unlikely the board will authorise any legal action against the
wrongdoer.

• In cases where the company is subject to such “wrongdoer control”, the statutory
exception to the proper plaintiff rule under s 216A CA can apply, allowing an
individual member to bring an action on behalf of the company.

Derivative or representative actions

216A. —(1) In this section and section 216B —

"complainant" means —

(a) any member of a company;

(b) the Minister, in the case of a declaredcompany under Part IX; or

(c) any other person who, in the discretion ofthe Court, is a proper person to make an application under this section.

(2) Subject to subsection (3), a complainantmay apply to the Court for leave to bring an action or arbitration in the name and on behalf of thecompany orintervene in an action or arbitration to which the company is a partyfor the purpose of prosecuting, defending or discontinuing the action or arbitration on behalf of the company.

(3) No action or arbitration may be brought andno intervention in an action or arbitration may be made under subsection (2) unless the Court is satisfied that —

(a) the complainant has given 14 days’ notice to the directorsof the company of his intention to apply to the Court under subsection (2) if the directors of the company do not bring, diligently prosecute or defend or discontinue the action or arbitration;

(b) the complainant is acting in good faith; and

(c) it appears to be prima facie in the interests of the companythat the action or arbitration be brought, prosecuted, defended or
discontinued.

(4) Where a complainant on an application canestablish to the satisfaction of the Court that it is not expedient to give notice as required in subsection (3) (a), the Court may make such interim order as it thinks fit pending the complainant giving notice as required.

(5) In granting leave under this section, theCourt may make such orders or interim orders as it thinks fit in the interests
of justice, including (but not limited to) the following:

(a) an order authorising the complainant or anyother person to control the conduct of the action or arbitration;

(b) an order giving directions for the conductof the action or arbitration by the person so authorised; and

(c) an order requiring the company to payreasonable legal fees and disbursements incurred by the complainant in
connection with the action or arbitration.

(6) Where an action has been commenced or is tobe brought in the State Courts, an application for permission under subsection (2) must be made in a District Court.

Complainant under s 216A(1) may apply to court.

Remedies that a complainant may seek: s 216A(2)

3 Procedural requirement complainant must fulfill: s 216A(3)(a)

2 substantive requirements complainant must fulfill: s 216A(3)(b) & (c)

1. Substantive requirement - Good faith

Pang Yong Hock v PKS Contracts Services Pte Ltd [2004]

• ill- feeling, dislike, hostility still can begood faith
• motivated by vendetta, perceived or real, sothat his judgment will be clouded by purely personal considerations, can be no good faith
  

Ang Thiam Swee v Low Hian Chor [2013]

• applicant’s subjective motives only relevant if it shows that applicant is only acting for
  purely personal or collateral motive
• an action that is prima facie in the company’s interests may support applicant’s good faith but is not conclusive. Good faith is more dependent on purpose of the derivative action.
  

2. Substantive requirement - Prima facie in company’s interest

• a reasonable basis for complaint
• some semblance of merit; company will standto gain substantially in money or money’s worth.
• Not frivolous, vexatious. Not for small loss.
  

Ratification of wrong by shareholders is considered by court but not decisive.

s 216B CA.

(1) An application made or an action brought orintervened in under section 216A shall not be stayed or dismissed by reason only that it is shown that an alleged breach of a right or duty owed to the company has been or may be approved by the members of the company, but evidence of approval by the members may be taken into account by the Court in making an order under section 216A.

• Shareholders ratification of alleged wrong is not conclusive. But is a factor for court to decide under s.216A.

(2) : An application made or an action brought or intervened in under section 216A shall not be stayed, discontinued, settled or dismissed for wantof prosecution without theapproval of the Court given upon such terms as the Court thinks fit and,if the Court determines that the interest of any complainant may be substantially affected............ complainant.

Comparison between s216 and s216A CA.

• S.216: Ends or remedies the matters complained of.

• S.216A: Merely starts action on company’s behalf.

• S.216: Personal Action, shareholder’s loss.

• S.216A: Derivative Action, Company’s loss.

But there are possible overlaps between the twotypes of actions. Court has power toauthorize proceedings to be commenced in the name of the company pursuant to a
s 216 petition. So, you can use s.216 to get the s.216A remedy.

s.216 (2)(c) CA: (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.