The accused, a director of H, was charged with offences under s 169(6) of the Companies Act (Cap 185) relating to non-disclosures in the directors' report on the consolidated profit and loss account of H and its subsidiaries; and with failure to give a true and fair view of the profits of H and its subsidiaries by not disclosing the full extent of the profits made by G, a wholly-owned subsidiary, and the particulars of the sale of G to M. The accused submitted that under s 169, there is no statutory requirement that the directors of a company should report on the consolidated profit and loss account of a company and its subsidiaries and that the requirement for the profit and loss account and balance sheet to give a true and fair view of the accounts/state of affairs of the company does not extend to the consolidated profit and loss account of the company and its subsidiaries.

Held, convicting the accused: (1) the consolidated profit and loss account and balance sheet will have to comply with para 4(4) of the Ninth Schedule. This profit and loss account of the company and its subsidiaries is nonetheless a profit and loss account of the holding company and will have to comply with all the requirements of s 169. This means that under sub-s (14), the consolidated profit and loss account should give a true and fair view of the profit or loss of the holding company and its subsidiaries for the period of accounting and the consolidated balance sheet should give a true and fair view of the state of affairs of the holding company and its subsidiaries as at the end of that accounting period; (2) similarly, the directors of a company under sub-s (5) will not only report on the profit and loss of the company for the financial year and the state of affairs of the company as at the end of the financial year but also on the consolidated profits of the company and its subsidiaries for the financial year and the state of affairs of the holding company and its subsidiaries as at the end of the financial year.

Public Prosecutor v Richard Charles Tarling (unreported) (1979) High Court, Singapore (Kulasekaram J).

[Annotation: Affirmed on appeal. See [1980-1981] SLR 156; [1981] 1 MLJ 173.]

The defendants were in the business of export credit insurance and issued policies covering commercial and political risks. The TKM group of services was keen to develop a confirming business in South-east Asia and the defendants were prepared to insure the business on attractive terms. In order to obtain from the defendants a policy, it was necessary to set up a registered office in Singapore. This resulted in the incorporation of the plaintiffs and the defendants suggested how to go about doing it. TKM-Hong Kong was responsible for the administration of the plaintiffs. In August 1980, the defendants issued its policy in favour of the plaintiffs. In January 1981, the TKM group and the plaintiffs entered into a group agency agreement appointing the plaintiffs as their agents in Singapore in their dealings with the defendants and to take advantage of the defendants' cover for the benefit of the group. In April 1981, the plaintiffs applied for a transfer of TKM-UK's business with TED in Nigeria as a special case and was accepted by the defendants who extended their coverage to include this. However, in order to avoid any problems with Nigeria, TKM-UK would continue to trade in its own name and they would act as agent of the plaintiffs. The defendants had no objections to this agency arrangement. Later, due to developments in Nigeria, the defendants suspended their credit insurance of exports to Nigeria. However, the plaintiffs pleaded with them to treat the TED business as a special case and to continue the cover. The defendants agreed to continue. The defendants reassessed the risk in 1982 and visited TKM-UK in London and they carried on with the insurance. However, in July 1983, the defendants suspended all cover to the plaintiffs due to the situation in Nigeria. When the policy was suspended, TED had deposited in Naira, the local currency, the face value of the bills with the International Merchant Bank (Nigeria) Ltd with instructions to remit to TKM-UK in sterling. The bank was unable to convert the Naira payments into sterling by reason of the prohibition against overseas remittance of sterling. Six months expired from the time of local payment to the bank in Nigeria with instruction to remit the outstanding amount in sterling but the remittance was not made. The plaintiffs therefore lodged its claims with the defendants for the loss incurred. The defendants did not pay on the claims despite negotiations. The plaintiffs issued a writ in 1986 against the defendants. In order to succeed, the plaintiffs had to proof that there was a confirming house contract which plaintiffs undertook to pay and did pay, that there was payment to the Nigerian bank of the amount due to the confirming house and that there was loss sustained by the confirming house as a result of non-remittance of foreign exchange due to the occurrence of a cause specified in the policy. Meanwhile, Nigeria had agreed to pay their debts owing to TED and interest but only to appropriate credit insurance institutions, ie the defendants. Hence the plaintiffs entered into a further agreement with the defendants (despite defendants' denial of liability) that the defendants would receive the principal and interest from Nigeria and that every instalment received would be a direct reduction of the defendants' potential liability under the insurance policy. The defendants in their defence put the plaintiffs to strict proof of their claim, ie the plaintiffs had to prove that they and not TKM-UK suffered the loss. The defendants contended that the agency agreement between the plaintiffs and TKM-UK was a sham having regard to the statutory financials (which failed to reflect the loss suffered by the plaintiffs) and group agency agreement. To prevent the defendants from denying that they were principal contracting parties and had suffered loss, the plaintiffs pleaded estoppel in that the defendants were aware and encouraged them to conduct business in such a way that TKM-UK would appear to be the confirmer rather than the plaintiffs. In the alternati ve, the plaintiffs argued that if TKM-UK was the principal, then the plaintiffs were the agent and as there was a group agency agreement, the plaintiffs could sue in their own name and recover in full. The defendants also claim that they are entitled to off-set the amount received from Nigeria against the principal claim by the plaintiffs.

Held, allowing the plaintiffs' claim: (1) by putting the plaintiffs to strict proof, the defendants were attenuated in the conduct of their defence by their failure to assert a positive case. They were also circumscribed in the adduction of their own evidence and the cross-examination of the plaintiffs' witnesses. Therefore, the defendants were not permitted to put forward some affirmative case which they have not pleaded or alleged and therefore they should not, by cross-examination of the plaintiffs or otherwise, suggest an affirmative case; (2) a sham transaction is one which is good in form but false in fact and it stems from the equitable principle that the court looks to the substance of the matter rather than the form. For acts or documents to be a sham, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. Sham cases envisage the incorporation of a clause by which neither parties to the contract intends to be bound and which is a smoke-screen to cover the real intentions of both contracting parties. The court therefore inquires into the true contractual effect of the agreement. On the facts, the documents entered into between the plaintiffs and TKM-UK were intended to create a legally binding contract and no covert arrangement was intended. Both parties to the agreement acted on the documents on the basis of TKM-UK being the agent. The plaintiffs acted in an open fashion and hid nothing from the defendants. The parties to the contract do not assert that the agency agreement was a sham but such assertion was made by the defendants who are a third party to the contract without any reasonable basis. There was no illegality or other ulterior motive nor was any deception practised on the defendants and they therefore have no cause to complain. In respect of the Nigerian risk, the parties took deliberate steps to make ad hoc arrangements and they had therefore clearly acted under the agency agreement and not the group agency agreement; (3) under s 169 of the Companies Act, directors are required to submit company financials comprising a profit and loss account and a balance sheet at intervals of not more than 15 months. Such duties are specifically imposed on the directors and they owe the duty to the company. The duties in relation to accounts are imposed on the officers of the company and for the benefit of the company. On the facts, the accounts were only evidentiary value against the plaintiffs and it paled beside the overwhelming effect of the contractual agreements the parties had entered into and all other contemporary records which proved the loss as suffered by the plaintiffs. Reflection or non-reflection of loss in the accounts would be very low in the scale of evidentiary value. If the plaintiffs had sought to prove their loss by producing the accounts showing the loss, neither the defendants nor the court would accept these self-serving accounting entries by themselves to prove the loss or damage. There is cogent evidence to show the loss by the plaintiffs and that the non-reflection of the loss in the financials was due to oversight or inadvertence which resulted from a failure in communication; (4) to support their plea of estoppel, the plaintiffs had called employees of TKM-UK who had held meetings and discussions with the defendants. They gave evidence that the plaintiffs would act as undisclosed principal and that the defendants had suggested the structure of the operation and to set up the plaintiffs as a brass plate operation. As the defendants conducted their defence by taking a negative position, no witnesses were called and no reason was given why they were not called on this issue of liability. The plaintiffs have therefore established their plea of estoppel; (5) it is established law that in insurance, a broker insuring for the benefit of others may bring an action in his own name for the benefit of those for whom he had obtained insurance. This doctrine also applies in agency law to the situation where the nominal contracting party is a fiduciary agent or trustee acting for the benefit of another person. The plaintiffs are entitled to recover substantial damages even if they were merely acting as agents. As such agents, they at all times would have acted in the interest of, and for the benefit of, TKM-UK. In consequence, they would hold the recoveries for the benefit of their principal; (6) the purpose of the policy in this case is to protect the plaintiffs against the loss in delay in late payments. The loss caused by delay are financing costs, ie interest incurred whilst the plaintiffs were kept out of the principal amount. The defendants agreed to give a waiting period of six months. As they failed to pay on time, the plaintiffs had to continue to bear the borrowing costs of the insured bills. A claim under an insurance policy is for damages and not for debt. On a true construction of the recovery agency agreement and the purpose of the policy, the receipts of interest should be set-off in satisfaction of their claim for interest, the plaintiffs waiving the interest for the period for which they have received interest from Nigeria. The money received as principal is the only amount to be deducted from the principal claim against the defendants. As the defendants had not paid anything out of their own funds towards the discharge of their liability for the principal or interest, they are not entitled to any deduction against the principal amount of the claim; (7) the court has no power to award interest under the Supreme Court of Judicature Act as the claim was for damages and not debt. The court also has no power to award interest upon interest and further interest cannot be given for a period commencing before the cause of action arose. The plaintiffs cannot claim interest as special damages as they have not pleaded it. In commercial cases involving cross-border transactions, unless there are compelling reasons, the interest rate to apply should be the rate of interest on the money of account or the money of loss and not the money of payment. This approach is also within the spirit of s 5 of the Civil Law Act. The fundamental purpose of a contract of insurance is to indemnify the assured who has suffered a loss because of the delay in payment. The interest awarded should therefore be on the indemnity principle. In the present case, the currency of loss was sterling and therefore it would be unjust to ignore the London Inter Bank Offered Rate ('LIBOR') for sterling for six months, the average, being 11% pa. Interest was therefore awarded and included in the judgment at 11% pa on each of the claims one month from thedate of their submission to 31 December 1986 and on the sum of S$14,901,212 from 1 July 1991 to date of judgment.

TKM (Singapore) Pte Ltd v Export Credit Insurance Corporation of Singapore Ltd [1993] 1 SLR 1041 High Court, Singapore (GP Selvam JC).

[Annotation: Affirmed on appeal. See [1994] 2 SLR 137]

On 14 March 1990, the defendant sold 306,000 ordinary shares in the capital of Communication Technology Sdn Bhd ('the company') to the plaintiffs, a Malaysian public listed company. As a result of the purchase, the plaintiffs acquired a 51% equity interest in the company while the defendant retained a 19% equity interest therein. The terms and conditions of the sale were contained in a written agreement dated 10 January 1990 ('the agreement') between the plaintiffs and the defendant. The plaintiffs here alleged that the defendant was in breach of the agreement in two respects: (a) warranties as to the financial standing of the company, its business position and other matters; and (b) a guarantee that the company would earn a certain aggregate pre-tax profit. The first was supported by a notice from the Customs and Excise Department of Malaysia ('the Customs') that the company had evaded customs duty and the second by cl 17 of the agreement which had overstated the aggregate profits. The plaintiffs applied for orders that the defendant pay the plaintiffs RM323,389.71 being 51% of the amount paid to the Customs and a further sum of RM1,043,298 being the shortfall in the guaranteed profit. The defendant denied liability and alleged the existence of a collateral agreement.

Held, granting the plaintiffs' application: (1) it was clear on the evidence that the defendant, who was at all material times the majority shareholder in the company, was fully aware of the company's practice in relation to the Customs; (2) the accounts did not give a true and fair view of the state of affairs and financial position of the company because, they did not disclose that the company had underdeclared the value of its goods to the Customs and had, at the least, a possible liability in respect thereof; (3) in the absence of any documents supporting it and the plaintiffs' denial of such an agreement, the existence of a collateral agreement was entirely dependent on the defendant's credibility, and on the facts no collateral agreement could be found; (4) there was no legal principle that where the damages were substantial, specific performance should not be ordered. Instead the court had to see what the parties had agreed to and give effect to such agreement; (5) on the facts, specific performance should be ordered as it was obviously important to the plaintiffs as potential investors in the company, that the company should be able to make a certain minimum profit after they took over. Their projections as to the value of their investment would be upset if such profits did not materialize; (6) where a company should be given money on a specific date, it was not adequate compensation to give the company that same sum two or three years later.

Pengkalen Holdings Bhd v Tan Cheng Hye Originating Summons No 502 of 1992 High Court, Singapore (Judith Prakash JC).

The plaintiffs, directors of the defendant company, applied under s 199 of the Companies Act (Cap 50, 1990 Ed) ('the Act') for an auditor to inspect the company's accounting and other records on their behalf. The defendant company was part of the Britannia Group. Besides the two plaintiffs, the other directors of the company were one Rajan Pillai and his wife. Rajan Pillai had majority control over the company. The plaintiffs represented the minority shareholders and were non-executive directors. Differences arose between the plaintiffs and Rajan Pillai over the direction that the defendant company was to take which resulted in the present application. In an attempt to resolve their differences, the plaintiffs had proposed reorganization of the company but Rajan Pillai had rejected it as it would result in him losing control over the company. This became a ground of objection for the defendant company in opposing the application, that the application was made mala fides and for improper motives and was an abuse of the process of court with the intention to embarrass and coerce Rajan Pillai into ceding control of the defendant company. The defendant company also contended that the second plaintiff had no locus standi as he was not validly re-elected as director at the company's annual general meeting. The defendant company contended that the meeting was invalidated by failure to notify the second plaintiff of the meeting. It was also contended by the defendant company that as the plaintiffs were facing contempt proceedings, they had no right to be heard by the court. An interlocutory application was made by the defendant company to cross-examine the plaintiffs on their affidavits in order to prove that the application was filed for improper motives and collateral reasons and that the application was an abuse of the process of court.

Held, granting the plaintiffs' application and dismissing the defendant's application: (1) the right of inspection under s 199(3) of the Act was an absolute right. However, by absolute, it did not mean that a director was entitled to inspect in all circumstances without restriction, but rather that the right flowed from his office and he did not have to justify his desire to inspect; (2) a director could not be called upon to furnish his reasons before being allowed to exercise the right, and in the absence of clear proof to the contrary, the court had to assume that he would exercise it for the benefit of his company. It was not for the court at the hearing of an application of this nature to go into the disputes between the contending parties. The court therefore would not deal with the charges and counter-charges raised in this case except to say that they showed clearly that the plaintiffs were concerned over the company's accounts before they made the application; (3) the limits of the right to inspect could not be ascertained by characterizing it as a common law right or statutory right. The question was whether the right originating under the common law had been modified in the process of enactment. There was nothing in s 199 or elsewhere in the Act that suggested that the common law rule as reflected in Edman v Ross (1922) 22 SR (NSW) 351 was modified. Section 199 should thus be read in conformity with Edman v Ross that directors would only lose their right of inspection if their intentions were to abuse the confidence reposed in them and materially to injure the company; (4) the exception to the right to inspect included improper motives of the director but they had to be motives improper against the company. An intention to wrest control of the company from Rajan Pillai could not be regarded as synonymous with an intention to injure the company. Even if there was an intention to force Rajan Pillai to yield control over the company, that intention would not deprive the plaintiffs of the right of inspection. Even if the intention to oust Rajan Pillai was inimical to the interests of the company, it had to be shown that an inspection would coerce Rajan Pillai to give up control. There was no necessary nexus between the inspection of company accounts and a change of management; (5) when there was suspicion and lack of co-operation, a director was all the more entitled, perhaps even obliged, to inspect company accounts to protect the interests of the company and its shareholders. The right was not only to be exercised or the duty imposed when there was harmony within the company. The plaintiffs should not be deprived of their right of inspection because of their disagreement with Rajan Pillai; (6) to constitute abuse of the process of court, the proceedings had to be intended to serve extortion or oppression or to exert pressure to serve an improper end. The exercise of the directors' right of inspection was not extortion or oppression, nor was an intention to remove any person from the management of a company per se an improper purpose; (7) the motives alleged by Rajan Pillai, even if proved, were not relevant to the consideration of the plaintiffs' application. Such motives being irrelevant, the further evidence via two further affidavits sought to be admitted by the plaintiffs, was also irrelevant. The defendant's application to cross-examine the plaintiffs was thus dismissed; (8) a company's annual general meeting thus came within s 392 as it was a proceeding under s 175 of the Act. Furthermore, under that provision a meeting would not be invalidated by a failure to issue a notice unless the failure had caused or may cause substantial injustice. The second plaintiff did not say that any substantial injustice was caused or was likely to be caused by the alleged failure to inform him of the adjourned meeting and he had not applied to have the meeting invalidated. Rajan Pillai had even denied any irregularity in the first place. Therefore, on the evidence, there was no basis for the defendant's annual general meeting to be impugned; (9) s 392 of the Act covered meetings and was not restricted to legal proceedings;the reliance on the alleged contempt of court by the plaintiffs at this stage of the contempt proceedings (the matter had yet to be argued and determined) was misplaced. The plaintiffs have not been found in contempt and were thus not barred from being heard. Even if the plaintiffs were found to be in contempt, that did not mean that they lose all their rights to come before the courts permanently. Those rights would be restored when the contempt was cleared.

Welch & Anor v Britannia Industries Pte Ltd [1993] 1 SLR 673 High Court, Singapore (Kan Ting Chiu JC).

[Annotation: The defendant appealed to the Court of Appeal vide Civil Appeal No 154 of 1992 and the court (comprising Yong Pung How CJ, Karthigesu and Goh Joon Seng JJ) dismissed the appeal on 18 February 1993.]

Haw Par Bros (Pte) Ltd v Dato Aw Kow [1973] 2 MLJ 169 Court of Appeal, Singapore (Wee Chong Jin CJ, Chua and Kulasekaram JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 90.

The appellant, who was the chairman of Haw Par Brothers International Ltd, appealed against his conviction of offences of wilfully failing to comply with various provisions of the Companies Act (Cap 185, 1970 Ed). As a result of dealing in shares the company had accumulated substantial profits and in order to avoid disclosing the profits, a scheme was devised to set up a unit trust. The effect of the transactions entered into was to set up a company renamed the Grey Securities Ltd and a unit trust, the Melbourne Unit Trust. The trustee of the Melbourne Unit Trust was Legis Ltd, a trustee company to whom Grey Securities Ltd was sold. The profits in the form of shares were in effect transferred to Grey Securities Ltd which carried on its activities 'below the trust'. The profits earned were paid to the Melbourne Unit Trust, who in turn would declare them as dividends from time to time to subsidiaries of Haw Par Brothers International Ltd. The accounts of Haw Par Brothers International Ltd and the consolidated accounts of the company and its subsidiaries were laid before the company at its general meeting held on 18 May 1973. Annexed to these accounts were the chairman's report signed by the appellant, the statutory directors' report and the statutory statement of the directors both of which were signed by two directors on behalf of the directors. The evidence showed that in those accounts and the notes attached to them there was no disclosure of the sale of Grey Securities Ltd to Legis Ltd the trustee of Melbourne Unit Trusts which resulted in Grey Securities Ltd going under the trust. There was also no disclosure of the phenomenal realized profits made by Grey Securities Ltd. In the directors' report there was also no mention of the facts and of the formation of the Melbourne Unit Trust or any particulars about it.

Held: (1) the non-disclosure in the directors' report of the sale of Grey Securities Ltd which resulted in its 'going under the trust', the non-disclosure of the creation of Melbourne Unit Trust and the non-disclosure of the profit of Grey Securities Ltd rendered the amount of profits stated in the consolidated accounts misleading; (2) the sale of Grey Securities Ltd at a cash valuation to Melbourne Unit Trust was a transaction of a material and unusual nature which substantially affected the results of the group's operations during the financial year 1972 and particulars of which and the effect thereof should have been disclosed in the directors' reports; (3) the profit and loss account of the group for the financial year 1972 failed to give a true and fair view of the profit of the group as shown in the accounting and other records of the group because of the non-disclosure in the profit and loss account of the realized profits made by Grey Securities Ltd prior to its sale to Legis Ltd, the trustee of Melbourne Unit Trust and of particulars of that sale; (4) there was an error in the charges in this case as reference was made only to the profit and loss account of the company, although the particulars stated in the charges and evidence showed that the charges referred to the consolidated profit and loss account of the company and its subsidiaries. The appellant was, however, not misled, prejudiced or embarrassed by the error in the charges and the error did not occasion a failure of justice; (5) s 169(5) of the Companies Act in its original form did not require the directors of a holding company to report to its shareholders on the profit or loss of the holding company and all its subsidiaries. However, the directors' reports in this case did report on the accounts of the company and its subsidiaries and the directors were obliged to comply with the provisions of paras (o) and (p) of s 169(6) of the Act; (6) having regard to the provisions of the whole of s 169, directors of any company, including a holding company are under a statutory duty to draw the attention of the shareholders, in relation to all accounts laid before the shareholders at an annual general meeting, to any circumstances not disclosed in the report or in the accounts which would render any amount stated in the accounts misleading and to draw the attention of its shareholders to any item, transaction or event of a material and unusual nature which substantially affected the results of the company's operation during the financial year; (7) on the evidence and on the findings of fact by the trial judge the non-disclosures by the appellant were intentional and deliberate; (8) on the facts the appellant could not say that he had reasonable grounds to believe that the consolidated profit and loss account prepared by the accountants gave a true and fair view of the profit of the group and that in this respect he had taken all reasonable steps to secure compliance with the requirements of s 169(14) of the Act; (9) on all the facts and circumstances and having regard to s 171 of the Act, it could not be said that the sentences imposed by the trial judge were manifestly excessive.

Richard Charles Tarling v Public Prosecutor 1980 Court of Criminal Appeal, Singapore (Wee Chong Jin CJ, Sinnathuray and Chua JJ).

In this case the respondent was a licenced housing developer and was involved in the construction and development of a housing estate. The official booking for the shophouses had not commenced but a clerk accepted cheques for $5,000 from each of the appellants and issued type written receipts acknowledging the payments. The clerk kept the cheques which were not credited to the respondent's bank account until the date of the trial. The learned trial judge was satisfied that the respondent had not represented to the appellants that the clerk was authorized to accept bookings on its behalf. He therefore dismissed their claims for specific performance of the purported sale agreements in which they alleged they had paid a booking fee of $5,000 each to the respondent's clerk. The appellants appealed.

Held, dismissing the appeal: this was a case where it would not normally be expected to be within the authority of the clerk to act as he did in the circumstances and any holding out by the clerk at the material time was done without the knowledge and consent of the respondent. There was no representation that the clerk was authorized to accept bookings on its behalf.

Chew Hock San & Ors v Connaught Housing Development Sdn Bhd [1985] 1 MLJ 350 Federal Court, Kuala Lumpur (Seah, Mohamed Azmi and Syed Barakbah FJJ).

The respondent, a bank residing and operating in Singapore, granted credit facilities to the applicant company. The applicant company failed to regularize its accounts with the respondent. To refrain the respondent from suing the applicant company, Michael Ng ('Michael') and Ng Siew Kuan ('Ng') signed a letter to the respondent dated 25 June 1985 whereby they agreed to deposit title deeds in respect of the applicant company's land with the respondent ('the document'). Subsequently title deeds in respect of the applicant company's land was deposited with the respondent in Singapore. Michael was one of the authorized signatories of the applicant company and was also one of its accredited agents in Singapore while Ng was one of its directors. The respondent entered a lien-holder's caveat over the applicant company's land on 9 August 1986. The applicant company applied to court to remove the caveat firstly on the ground that s 281 of the National Land Code 1965 only allowed the creation of a lien where the title deed was deposited as security for a loan and not when the title deed was deposited in consideration of the respondent's forbearance to withhold legal proceedings against the applicant company. The applicant company therefore alleged that it had no intention to create a lien when the title deeds were deposited. The applicant company then argued that Michael and Ng had no authority from the applicant company to execute the document and the applicant company was accordingly not bound by it. The applicant company further contended that when the title deeds were deposited, there was a contravention of s 433B(1)(b) of the 1965 Code which imposed restrictions on non-citizens and foreign companies from acquiring an interest in land and consequently s 433C of the 1965 Code rendered the creation of the lien invalid. The applicant company thus claimed that the document was unenforceable under s 24(b) of the Contracts Act 1950. The applicant company also alleged that the document was an equitable mortgage which attracted stamp duty under item 27 of the First Schedule to the Stamp Ordinance 1949 and since the document was unstamped, it could not be received as evidence. The applicant company lastly argued that the lien being an equitable charge, was void under s 108 of the Companies Act 1965 because it was not registered as a charge.

Held, dismissing the application: (1) s 281 of the 1965 Code did not prevent the respondent from entering a lien-holder's caveat; (2) forbearance by the respondent from insisting on the applicant company's repayment of the overdue loan, afforded good consideration for the additional security granted by the applicant company; (3) the intention of the applicant company in depositing the title deeds with the respondent, was to create a lien in respect of the credit facilities at the time of the deposit; (4) the facts showed that Michael and Ng must have been the accredited agents of the applicant company; (5) the applicant company allowed the respondent to alter its position to its detriment in not seeking repayment of its outstanding loans on the basis of the further security it had obtained. The applicant company was therefore estopped from denying the validity of that security; (6) until the application for the entry of the lien-holder's caveat is made and such entry entered, no lien is created within the meaning of s 281 of the 1965 Code. Deposit per se of the title deed, does not create a lien; (7) accordingly at the time when the lien was created by the entry of the lien-holder's caveat, the restrictions imposed by s 433B of the 1965 Code had ceased to apply by virtue of s 3 of the National Land Code (Amendment) (No 2) Act 1985. Consequently the document was not void under s 24(b) of the 1950 Act; (8) the document merely related to the deposit of the title deeds outside Malaysia and was consequently exempted from stamp duty under General Exemption 4 of the First Schedule to the 1949 Ordinance read with s 35 of the 1949 Ordinance because the document related to a thing done outside Malaysia; (9) the distinction between a lien and a charge exists in the 1965 Code. A lien cannot therefore be regarded as a charge under s 108 of the 1965 Act.

Heap Huat Rubber Co Sdn Bhd v United Overseas Bank Ltd (1992) CSLR VI[11] High Court, Johore Bahru (LC Vohrah J).

SPP Ltd v Chew Beng Gim & Anor [1993] 3 SLR 393; CSLR VI[22] Court of Appeal, Singapore (Yong Pung How CJ, LP Thean and Chao Hick Tin JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 152.

In this case, the plaintiff claimed the sum of S$9,000 being a secret profit made by the Malayan Union Co (Pte) Ltd of which the defendant was then the managing director as a result of a transaction in which the plaintiff claimed the defendant was his personal agent to sell a flat. The plaintiff had originally bought a flat from the company but before the sale was complete, he authorized the defendant in his personal capacity to sell the flat for S$45,000. It appeared that the flat was sold for S$54,000 and the sum of S$9,000 as the defendant was in a fiduciary position as agent and it was a breach of his fiduciary position to the defendant for the plaintiff to do otherwise than to pay the S$9,000 to his principal, the plaintiff.

Tan Kiong Hwa v Andrew SH Chang 1972 High Court, Singapore (Winslow J).

Niaz Bi Bi v Mogah Omnibus Co Ltd [1960] MLJ 22 High Court, Federation of Malaya (Good J).

See COMPANIES AND CORPORATIONS, Vol 3, para 180.

Dart Sum Timber (Pte) Ltd v The Bank of Canton Ltd 1982 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Chua JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 157.

In this case, Woodland Development Sdn Bhd (plaintiff in the present case) were payees of three cheques for RM10,000, RM50,000 and RM10,000 respectively. The first cheque was crossed generally, the last two cheques were crossed with the words 'Account Payee'. One Kim Chean Han director of the plaintiff handed over these cheques to Richard Seow and Yap Yoke Min for opening an account in the name of the plaintiff in a Petaling Jaya Bank. All the three persons were directors of the plaintiff as well as PJTV & Densun (M) Sdn Bhd (third party). The third party had an account with the Chartered Bank, Petaling Jaya Branch (defendants in the present case). The two directors, to whom the cheques were given instead of opening an account in the name of the plaintiff persuaded the manager of the defendant bank to collect the amount for the third party. The present action was brought by the plaintiff against the defendant bank and the third party for conversion and alternatively for money had and received for their use.

Held: (1) the bank was not entitled to presume merely on an oral representation that the two directors (neither of whom was the managing director) had authority to deal with the cheques; (2) the bank's officers should have been put on inquiry by the nature of the indorsement and should not have assumed that the two directors had authority to deposit the cheques in a third party's account.

Woodland Development Sdn Bhd v Chartered Bank; PJTV & Densun (M) Sdn Bhd (Third Party) [1986] 1 MLJ 84 High Court, Kuala Lumpur (Gunn Chit Tuan J).

3 [14] COMPANIES AND CORPORATIONS Agency – Indoor management – Alleged irregularity in acquisition of land – Land subject to existing charge – Land subject to existing charge – Plaintiff (chargee) applying for sale of land – Whether defendant can rely upon lack of authority – Companies Act 1965, s 20 – Rolled Steel Products (Holdings) Ltd v British Steel Corp & Ors [1985] 3 All ER 52 (distd); Royal British Bank v Turquand [1943-60] All ER Rep 435 (consd); ANZ Banking Group (NZ) Ltd v Gibson [1981] 1 NZLR 513 (cited).

X, the registered proprietor of the land in question, charged the land to P as security for credit facilities granted by P to C Sdn Bhd. D subsequently acquired the land subject to the existing charge with the consent of P. It transpired that the acquisition of the land by D was effected by X in contravention of a resolution passed by D that the land acquired must be free from all encumbrances. X was the managing director of D. Subsequently, P applied for the land to be sold by public auction pursuant to s 148(2)(c) of the Land Code (Cap 81) to satisfy the balance of the principal contending, inter alia, that P was not entitled to the order for sale on the ground that X had no authorization from them to acquire the land in question subject to the charge created in favour of P.

Held, allowing P's application: (1) in the instant case, D executed the memorandum of transfer through X and their secretary and the seal of D was used. X had also informed P that he was the major shareholder and managing director of D. In view of these facts and the documents used, P had acted in good faith when it agreed to the transfer of the land without prejudice to its rights as chargee. P was not put on inquiry as to the matters relating to the indoor management of D. There was no evidence to show that the resolution in question was ever brought to the attention of P. It was therefore appropriate for P to accept X and the secretary of D as having the authority to execute the transfer without any question; (2) in the circumstances, as D had not raised any other objections on merit, the court granted an order in terms of P's application.

Standard Chartered Bank v Central Wood Tiles Sdn Bhd [1990] 2 MLJ 361 High Court, Kuching (Haidar J).

D guaranteed the debts of V Co. P lent money to V Co under a written agreement. D was sued when V Co defaulted. Summary judgment was obtained. D appealed. He submitted, inter alia, that it was for P to prove that their seal was properly affixed to the contract pursuant to a resolution of P.

Held, dismissing the appeal: The presence or absence of a resolution of P was of no concern to D. The seal had been affixed in the presence of a director and the secretary. P had affirmed the acts of the director and secretary. The appeal was dismissed.

Mobil Oil Singapore Pte Ltd v Long Foo Yit & Anor (1988) CSLR VI[10] High Court, Singapore (Chao Hick Tin JC).

Koh Kia Hiong v Guo Enterprise Pte Ltd [1989] SLR 1166 High Court, Singapore (Chao Hick Tin JC).

See CONTRACT, Vol 3, para 1885.

In this case the plaintiff alleged that the defendant approached and invited him to purchase shares in a company to operate a supermarket in Kuantan. The plaintiff paid $15,000 to the defendant for the shares. The company later fell into difficulties and no shares were issued. A receipt for the sum paid was issued by the company. The defendant was at the material time a director of the company.

Held: whether the defendant acted as a promoter for shares of an existing company or as a director, she was an agent for the company and there was no privity of contract between her and the plaintiff and she could not be made personally liable.

Abdul Rashid bin Mohamed Salleh v Datin Hajjah Maimon bte Haji Haron [1980] 1 MLJ 128 High Court, Kuantan (Abdul Razak J).

3 [18] COMPANIES AND CORPORATIONS Arrangement, scheme of – Arrangement between company and judgment creditors – Whether contingent creditor of company can participate in arrangement – Whether contingent creditor belongs to same class as judgment creditors although contingent creditor has not yet commenced action to recover debt – Companies Act 1965, s 176(1) – Sovereign Life Assurance Co v Dodd [1891-4] All ER Rep 246, 251 (refd); Re NFU Development Trust Ltd [1973] 1 All ER 135, 140 (refd); Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213 (refd); Re United Providence Assurance Co Ltd [1910] 2 Ch 477 (refd); Midland Coal and Iron Co [1895] 1 Ch 267 (folld); Re Glendale Land Development Ltd (1982) 7 ACLR 171 (folld)

P were the judgment creditors of BPI Sdn Bhd. P applied to the High Court under s 176(1) of the Companies Act 1965 for the court to sanction a proposed scheme of arrangement between BPI Sdn Bhd and all its judgment creditors. All the judgment creditors supported the proposed scheme. MF Bhd claimed to be an unsecured creditor of BPI Sdn Bhd and also supported the proposed scheme. BPI Sdn Bhd objected to MF Bhd's participation in the proposed scheme on the ground that MF Bhd did not come under the same class of creditors as P and other judgment creditors. BPI Sdn Bhd argued that MF Bhd was in fact a secured creditor under the charge of property given by BTD Sdn Bhd which was further secured by a guarantee executed by BPI Sdn Bhd. BPI Sdn Bhd therefore argued that MF Bhd should apply for order for sale of the charged property and until it commenced such foreclosure proceedings, it could not participate in the proposed scheme. MF Bhd had not yet commenced action against BPI Sdn Bhd to recover its debt due from BPI Sdn Bhd under the guarantee.

Held, allowing MF Bhd to participate in the proposed scheme of arrangement: (1) MF Bhd was a contingent creditor of BPI Sdn Bhd because under the guarantee BPI Sdn Bhd was obliged to pay MF Bhd on demand whatever sum owed by BTD Sdn Bhd as the principal borrower; (2) 'creditors' in s 176(1) of the 1965 Act should be interpreted in the widest sense to include all persons with claims which would be entitled to be admitted to proof if the company were wound up; (3) there is no difference between MF Bhd as a contingent creditor and the other judgment creditors. MF Bhd does not belong to a different class of creditors simply because it has yet to commence action against BPI Sdn Bhd to recover its debt under the guarantee.

Re Butterworth Products & Industries Sdn Bhd [1992] 1 MLJ 429 High Court, Penang (Mohamed Dzaiddin J).

Lee Chee Ming & Anor v Superview Development Sdn Bhd Civil Suit No S7-22-916-89 High Court, Kuala Lumpur (Lim Beng Choon J).

See CONTRACT, Vol 3, para 3114.

P had obtained an ex parte order to convene separate meetings of three classes of its creditors for the purpose of considering and approving a composite scheme of arrangement pursuant to s 176(1) of the Companies Act 1965. The order also restrained all of P's creditors from proceeding against P under s 176(10) except by leave of the court. D, an unsecured creditor affected by the restraining order, applied to set aside the order on the ground that the scheme provided no safeguards to protect the interests of the unsecured creditors.

Held, allowing D's application: (1) by virtue of s 176(4), the court is given the discretion not only to order a creditor's meeting under s 176(1) but also to refuse to make an order for such a meeting. In the instant case, the court can evaluate and consider whether the scheme in question is reasonable and fair so as to benefit all three classes of creditors. This the court can do by considering the framework of the scheme itself, its significant features and their legal aspects; (2) having considered the scheme, the court found that there was no bona fide attempt to conciliate the relations between P and D for the common benefit of the other creditors to whom the scheme was also intended to be addressed. D's interest had not been securely safeguarded in that there was no provision in the scheme entitling D to enforce the terms of the scheme against those who were to implement them. In addition, it was not disputed that being hopelessly insolvent, it was against public policy to approve the scheme to be undertaken by P, even though the creditors may come to approve the scheme if it was presented to them; (3) in the result, the court set aside the ex parte order without prejudice to P introducing another proposal acceptable to all its creditors', especially D.

Sri Hartamas Development Sdn Bhd v MBf Finance Bhd [1990] 2 MLJ 31 High Court, Kuala Lumpur (Siti Norma Yaakob J).

This was an application under s 210 of the Companies Act (Cap 50, 1994 Ed) seeking the court's approval of a scheme of arrangement between a company and its unsecured creditors. The company (petitioners) faced a winding-up petition made by judgment creditors for failure to satisfy a judgment. The winding-up proceedings were stayed on an application of the company for a scheme of arrangement to be set up. The company convened a meeting with its unsecured creditors pursuant to an order of court under s 210(1) of the Companies Act to present a scheme of arrangement for their approval. Among its unsecured creditors were the judgment creditor and Jewellery Industries, the largest creditor of the company. Jewellery Industries was owed 71% of the total unsecured debt although no documents were presented at the meeting to substantiate this. Jewellery Industries also owned 45% of the issued share capital of the company. The scheme of arrangement, payment of three cents of every dollar of unsecured debt, was approved under the following circumstances Ð one creditor voted against the scheme, the judgement creditor abstained from voting, and 12 proxies were rejected on technical grounds. The company then applied to the court under s 210(3) seeking the sanction of the court for the scheme of arrangement so as to render it binding on the company and all its unsecured creditors. The judgment creditor opposed the application on the basis that they wanted to wind up the company so that there could be a full investigation into the affairs of the company by liquidators. In particular they wanted to investigate how the huge debt to Jewellery Industries was incurred and what had happened to the assets of the company.

Held, dismissing the application: (1) in an application for approval of a scheme of arrangement under s 210, the primary question the court must ask was whether the proposed arrangement was a fair one. The scheme of arrangement must be of some real benefit to the creditors and not result in the creditors getting nothing or nearly nothing or the creditors being deprived of a legitimate advantage they would get by winding up the company. The court should not put its imprimatur on what in effect was a scheme of confiscation of the rights of some minority unsecured creditors; (2) the court must look into the realities of the case and take into consideration all relevant matters. A court exercising a discretionary power must take into consideration the connection between the company and other companies and information about persons closely connected with the company, as well as the motives of such parties and ignore the fact of separate personality; (3) since s 210 did not lay down any matters on which the application must be based, it was of extreme importance that the company furnished full information to the creditors and the court before they could give their approval; (4) the company's primary purpose in making the scheme of arrangement was to bring an end to the winding-up petition presented by the judgment creditor. In effect, the company wanted to avoid an investigation by liquidators, who were independent and competent third parties, into the conduct of the directors and the affairs of the company; (5) the major creditor was a substantial shareholder in the debtor company and both companies had common directors/shareholders. It would, therefore, be in their common interest to act in concert and support the scheme; (6) another effect of the scheme of arrangement was to pay creditors like the judgment creditor a small amount in satisfaction of a large debt and then continue to operate the company for the benefit of creditors like Jewellery Industries; (7) under these circumstances it was fair and proper for the judgment creditors to wind up the company so that there could be a full investigation into the affairs of the company, in particular, to investigate how the huge debt to Jewellery Industries was incurred and what had happened to the assets of the company.

Re Halley's Departmental Store Pte Ltd [1996] 2 SLR 70; (1996) CSLR XI[4] High Court, Singapore (GP Selvam J).

Gula Perak Bhd petitioned for the sanction of the court for a scheme of arrangement pursuant to s 176 of the Companies Act 1965 (Act 25) between the petitioner and its unsecured creditors in respect of the unsecured debts of the petitioner. The principal assets of the petitioner had been charged to certain banks by the creation of a debenture (the first debenture), the benefit of which was duly assigned to Telok Plantations Sdn Bhd. Varghese Mathai contended that as a substantial minority shareholder of Telok Plantations Sdn Bhd, the biggest creditor of the petitioner, he should be added as a party to oppose the petition on the ground that the proposed scheme of arrangement was erroneous and ran foul of prudent management and business sense.

Held, dismissing the application with costs: for there to be jurisdiction to add Mr Mathai as a party, it has to be established that there is a question or issue to be tried as between Mr Mathai and one of the existing parties in the petition, and that the question or issue arises out of or relates to or is connected with any relief or remedy claimed in the petition. The court further has to be satisfied that it would be just and convenient for the question or issue to be determined as between the intervener and that party and between the existing parties to the petition. From the facts, Mr Mathai's dispute was with the petitioner's secured creditors who were not parties to this petition.

Gula Perak Bhd v Varghese Mathai [1988] 3 MLJ 358 High Court, Kuala Lumpur (VC George J).

D, the KLI Group of Companies, had obtained an ex parte order under s 176(10) of the Companies Act 1965 whereby P were restrained, except by leave of the court, from all further action or proceedings against one or more of them. P applied to set aside the order on the ground that the court had no jurisdiction to make it as an application under s 176(1) had not been filed by D. It was P's contention that unless there had been proposed a scheme of compromise or arrangement between D and their creditors, the court lacked the jurisdiction to make a s 176(10) order.

Held, dismissing the application: (1) the proposal envisaged in s 176 is not necessarily a proposal from the company to its members or to the creditors. It could emanate from anybody. Such a proposal of compromise or arrangement could come into existence and be recognized as such without it having been put to the company or to the creditors. For there to be a proposal within the meanings of s 176, it is not necessary that there should be a scheme in a complete form capable of being presented to the creditors for being voted on. The policy of the section is not such that a s 176(10) application has to be tagged on to a s 176(1) application; (2) what must be available to the court when considering a s 176(10) application is that there must be a proposal of a scheme of compromise or arrangement with sufficient particulars to enable the court to assess that it is eventually placed before them in detailed form. Further, the court has to be satisfied that there is or that there would be a bona fide s 176(1) application; (3) in the instant case, the court was satisfied that there had come into existence a proposal whereby the particulars of the scheme as exhibited gave more than a general layout of the scheme sufficient for the court to consider whether it was feasible. The court was also satisfied that the intention to use s 176(1) was bona fide. In the circumstances, the application to set aside the ex parte order was dismissed by the court.

Re Kuala Lumpur Industries Bhd & Ors [1990] 2 MLJ 180 High Court, Kuala LuMpur (VC George J).

P had filed a petition pursuant to s 176 of the Companies Act 1965 by which they sought the sanction of the court in respect of a scheme of arrangement one main feature of which was that their creditors accept some 40 cents in the ringgit by way of a compromise. All the creditors save D supported the proposed scheme. D was a creditor of P to whom was owed some M$70,000. If P were successful with their petition, D would get some M$28,000 instead of the right to the M$70,000. By the present application, D invoked s 351(1) of the Companies Act 1965 seeking an order that P provide sufficient security for the costs in respect of the petition vis-ê-vis D.

Held, allowing the application to the extent indicated below: (1) the first question to resolve was whether s 351(1) applies to a petitioner seeking a s 176 sanction. Having regard to the rules of court wherein a petition is equated with an action and a petitioner with a plaintiff and the fact that in the instant case, P by their petition was seeking a form of relief as against D and all the other creditors, the learned judge was of the opinion that s 351(1) applied to a petitioner seeking a s 176 sanction. In the opinion of the learned judge, the word 'plaintiff' in s 351(1) should be given a meaning wide enough to include the petitioner in a s 176 application; (2) whether security for costs should be ordered was in the discretion of the court. However, the court in exercising its discretion would lean in favour of the defendant applicant and the burden is on the plaintiff, once it is established that it will be unable to pay the costs, to satisfy the court why security for costs should not be ordered. In the instant case, it was admitted that P was insolvent. Accordingly, it was for P to satisfy the court why security for costs should not be ordered; (3) that the petition of P was not frivolous or lodged mala fide and in view of the competing interests of P and D. Having regard to the circumstances of the case, the learned judge was of the opinion that the lack of a prior demand by D was inconsequential, that there was no inordinate delay on the part of D in making the application and in any event such delay as there was should not be allowed to prejudice D's application for security for costs to be incurred (as opposed to such costs as had already been incurred); (4) in the context of a s 351 application, the fact that the petitioner's petition is initiated bona fide and is not frivolous are not relevant. What would be relevant is that the application opposing the petition is not made bona fide or is otherwise frivolous or vexatious. In the instant case, it could not be said that the objections raised by D were frivolous or were not made bona fide; (5) the competing interests of the parties should be weighed and in doing so the factors to be considered included whether the issues raised were bona fide questions of substance, the relationship between the parties, delay in applying for the security and the prospect of the plaintiff succeeding. On the facts of the instant case, the learned judge came to the conclusion that P should be ordered to provide security for costs; (6) counsel for P contended that the discretion should be exercised in favour of P as there had been no prior demand by D for security for costs; that the application of D was not made promptly;on the quantum of costs, the learned judge was of the view that in a s 351 application, the security for costs to be provided is for costs to be incurred post-application and not for previous costs incurred. The learned judge, accordingly, disallowed the application of D in respect of costs previously incurred and ordered that P provide, within 60 days, suitable security for payment of costs up to an amount of M$150,000 only.

Gula Perak Bhd v Agri-Projects (M) Sdn Bhd [1989] 1 MLJ 422 High Court, Kuala Lumpur (VC George J).

The plaintiff held 1,458,500 shares ('the shares') in the first defendant company, Ocean Front Pte Ltd ('the company'). The plaintiff deposited the shares with the second defendant, the Ka Wah Bank Ltd ('the bank') as security for banking facilities. Following disputes between the bank and the plaintiff over the plaintiff's alleged indebtedness to the bank regarding the facilities, the bank sold the shares to a person alleged to be a majority shareholder of the company, one Yap Sing Hock ('the purchaser'). There was no evidence, however, that the purchaser held any shares or controlled either the majority of the shares or a major or substantial portion of the shares in the company. The plaintiff disputed the right of the bank to sell the shares. Soon after the sale, the company issued a notice of an extraordinary general meeting for the purpose of passing, inter alia, a special resolution for altering the articles of association of the company. The proposed alterations included deleting the existing art 26, which restricted the transfer of shares and conferred on the members a right of pre-emption in the event of a transfer of shares to a person who was not a member of the company, and the substitution of new articles which gave to a member a right to transfer his shares to any person. The plaintiff commenced the action against the company, claiming an injunction to restrain the company from altering art 26 and a declaration that the proposed alteration, if passed, was null and void. The plaintiff obtained an interim injunction restraining the company from altering art 26. In the meantime, the bank obtained an order allowing itself to be joined as the second defendant in the action. The company argued that the statement of claim did not disclose any reasonable cause of action and therefore no injunction in the terms sought by the plaintiff should be granted and the interim injunction should be discharged. Counsel for the company suggested that an injunction restraining the company from registering the transfer of the shares be granted pending the trial.

Held, granting the interlocutory injunction: (1) the statement of claim contained sufficient averment of facts to found an action against the company claiming that the proposed alteration to the articles was not bona fide for the benefit of the company; (2) the balance of convenience lay in favour of granting the injunction. If the injunction was not granted and it was found at the trial that the alteration to the articles was not bona fide for the benefit of the company as a whole, the court may have difficulty in declaring the alteration null and void as shares in the company may have been transferred and registered on the basis of the articles as altered. The position, so far as the plaintiff was concerned, would be irreversible. As between the plaintiff and the company, the impairment of the former's right as the shareholder was not really a matter that could be adequately compensated by payment of damages. If at the trial it was found that the company would be justified in altering the articles as proposed, its right of alteration of the articles would have been delayed and it would have been inconvenienced but it would not suffer irreparable damage. In the circumstances, the status quo should be preserved; (3) the injunction proposed by the company should not be granted. The plaintiff had not asked for such an injunction. If it was granted, the company would be at liberty to pass the special resolution and proceed with the registration of the transfer of shares despite the plaintiff's right of pre-emption under art 26. That was the very right which the plaintiff sought to protect in the proceedings.

Tong Kok Chai v Ocean Front Pte Ltd & Anor [1988] SLR 642 High Court, Singapore (Thean J).

Re Petrotech Logistics Pte Ltd 1982 High Court, Singapore (Abdul Wahab Ghows J).

See COMPANIES AND CORPORATIONS, Vol 3, para 294.

In this case the proprietors and managers of three bus companies in Tawau formed a private company known as Tawau Transport Co Sdn Bhd. Certain rights and privileges were given to founder members under arts 11 and 71 of the company's articles. Plaintiffs together with two other persons were named permanent directors having an allowance of $200 per month. Plaintiff No 1 was appointed secretary of the company on a salary of $1,900 per month while plaintiff No 2 was appointed station master on a monthly salary of $1,050. The services of the plaintiffs were terminated by giving three months' notice on their reaching the age of 55 years. The articles of association of the company also provided for vacation of office of a director if he absented himself from three consecutive meetings of the board. Both the plaintiffs also ceased to be directors as they failed to attend three consecutive meetings of the board. The plaintiffs filed a suit against the company and other directors claiming that their dismissal as secretary and station master respectively was null and void. They also prayed for reinstatement as director and for a declaration that the proposed amendments to arts 11 and 71 were wrongful.

Held: (1) the plaintiffs have ceased to be directors of the company in accordance with the articles of the company as they failed to attend three consecutive meetings of the board; (2) the plaintiffs were founder members of the company and they held their respective posts by agreement and arrangement at the time of formation of the company. They were not to be treated as ordinary workers or employees of the company. Notice terminating their services were null and void; (3) the amendments to arts 11 and 71 are null and void as they infringed the rights and privileges given to some individuals on the formation of the company.

Pang Ten Fatt & Anor v Tawau Transport Co Sdn Bhd & Ors [1986] 1 MLJ 179 High Court, Tawau (Wan Mohamed J).

Wong Kim Fatt v Leong & Co Sdn Bhd & Anor [1976] 1 MLJ 140 High Court, Kuala Lumpur (Chang Min Tat J).

See COMPANIES AND CORPORATIONS, Vol 3, para 334.

In July 1933, the benefit of the lease of the land on which part of the building known as Raffles Hotel stands was assigned to the plaintiff company for the remainder of the unexpired term of 70 years subject to all the covenants and conditions contained in the original lease. Subsequently in 1963, the defendant company acquired the leasehold reversion of the said land subject to and with the benefit of the original lease. The defendant company were thus in the position of lessors and the plaintiff company lessees thereof. Clause 14 of the original lease provided that the lessee should not without the previous licence in writing of the lessors assign or sublet the premises or any part thereof such licence not to be unreasonably withheld. It also provided that if the assignee or sublessee be a limited company no consent shall be given unless the articles contained a provision that from time to time during the continuance of the demise the lessors shall have power to appoint a director not subject to retirement by rotation, but any director so appointed shall not be a person interested in or connected with any business of a similar nature to the lessees. Article 77 of the articles of association of the plaintiff company provided that the lessors may appoint themselves or one of them or any other person to be a director of the company. The defendant company in pursuance of the said article purported to appoint themselves as director of the plaintiff company and the plaintiff company sought declarations that art 77 must be read in conjunction with cl 14 of the lease and that the defendant bank's appointment as a director pursuant to art 77 was invalid and, alternatively, for a declaration that the defendant bank could not act as a director of the plaintiff company and an injunction to restrain the defendant bank from purporting to act as such director.

Held: (1) art 77 did not operate as a contract with the lessors and their assigns and, therefore, did not confer any contractual right on the defendant bank to appoint itself as director to serve on the plaintiff company's board; (2) cl 14 of the lease did not confer or impose any contractual right or obligation on either the lessors or lessees. It did not constitute an absolute covenant but merely one which was conditionally binding on the lessees and they could not assign or sublet the property in question without the consent of the lessor and unless such consent was required no such provision need be made; (3) even if the defendant bank had a right to appoint itself as director, it was disqualified under cl 14 of the lease from acting as director as it was interested in and connected with a similar business to that of the lessees.

Raffles Hotel Ltd v Malayan Banking Ltd (No 2) [1965] 1 MLJ 262 High Court, Singapore (Winslow J).

Under the terms of the lease of premises occupied by the plaintiff company, the tenant covenanted not to assign or sublet without the previous licence in writing of the lessors provided that if the assignee or sublessee be a limited company no consent shall be given unless the articles thereof contained a provision that from time to time during the continuance of the lease the lessors shall have power to appoint a director not subject to retirement by rotation but any director so appointed shall not be a person interested in or connected with any business of a similar nature to the lessees. The articles of the plaintiff company provide that the 'lessors may from time to time so long as the property so leased is held by the company appoint himself or one of themselves or any other person to be a director of the company'. Malayan Banking Ltd, the present lessors, appointed Leslie Rayner, the defendant in Suit 848 to be a director of the company. Mr Rayner sought to exercise his rights as a director and to inspect the books of the company; but such inspection was refused and an ex parte injunction obtained against him restraining him from disclosing any information relating to the affairs of the company to any person or persons entitled to appoint a director under the terms of the articles of the company. Malayan Banking Ltd then renounced Mr Rayner and appointed themselves as directors. Suit 942 of 1964 was thereupon commenced in which certain declarations as to the validity of the appointment were sought and an ex parte injunction restraining the Malayan Banking Ltd from exercising its powers as a director of the plaintiff company was obtained. Malayan Banking Ltd through their subsidiary Malayan Finance Co Ltd have a controlling interest in the Goodwood Park Hotel. A motion was brought to continue the injunction.

Held: (1) as the defendants were not members of the plaintiff company or parties to the articles of association, they could acquire no rights under the articles and although there was a clause against subletting, the consent could not be arbitrarily withheld; (2) there was a triable issue as to whether the defendants should be permitted to exercise their rights as director and the court was not precluded from making a declaration on the validity of the appointment or from restraining the exercise of powers under an appointment which it considered should not have been made; (3) the motion should be granted on the plaintiff's undertaking to pay damages for any loss sustained by the defendants should the latter succeed at the trial.

Raffles Hotel Ltd v L Rayner; Same v Malayan Banking Ltd [1965] 1 MLJ 60 High Court, Singapore (Winslow J).

This was an appeal against the decision of Winslow J (reported in [1965] 1 MLJ 262). In July 1933, the benefit of the lease of the land on which part of the building known as Raffles Hotel stands was assigned to the respondent company for the remainder of the unexpired term of 70 years subject to all the covenants and conditions contained in the original lease. Subsequently in 1963 the appellant company acquired the leasehold reversion of the said land subject to and with the benefit of the original lease. The appellant company was thus in the position of lessor and the respondent company lessee thereof. Clause 14 of the original lease provided that the lessee should not without the previous licence in writing of the lessors assign or sublet the premises or any part thereof, such licence not to be unreasonably withheld. It also provided that if the assignee or sublessee be a limited company no consent shall be given unless the articles contained a provision that from time to time during the continuance of the demise the lessor shall have power to appoint a director not subject to retirement by rotation, but any director so appointed shall not be a person interested in or connected with any business of a similar nature to the lessee. Article 77 of the articles of association of the respondent company provided that the lessor may appoint, inter alia, itself to be a director of the company. The appellant company in pursuance of the said article purported to appoint itself as director of the respondent company and the respondent company sought declarations that art 77 must be read in conjunction with cl 14 of the lease and that the appellant bank's appointment as a director pursuant to art 77 was invalid and alternatively for a declaration that the appellant bank cannot act as a director of the respondent company and an injunction to restrain the appellant bank from purporting to act as such director. The learned judge held that: (1) art 77 of the articles of association of the respondent company did not confer any contractual right on the appellant company to appoint itself a director of the respondent company; (2) cl 14 of the lease did not confer any such contractual right on the appellant company; (3) in the absence of a binding contract entitling the appellant company to appoint a director of the respondent company the right given by art 77 to the appellant company could not be enforced against the respondent company; (4) cl 14 of the lease did not confer any contractual right on the lessees. The appellant company appealed against the decision of the learned trial judge on the first and third points.

Held: (1) the articles of a company do not as between the company and a person who is not a member constitute a contract of which that person can take advantage and in this case art 77 of the articles of the respondent company was not binding on the company as between the respondent company and an outsider; (2) in the absence of any contractual right, the appellant company, being an outsider, could not take advantage of a power purporting to be given by art 77 and therefore the appellant company's appointment of itself as director of the respondent company in exercise of such power had no legal effect.

Malayan Banking Ltd v Raffles Hotel Ltd 1965 Federal Court, Singapore (Tan Ah Tah Ag CJ, Chua and Ambrose JJ).

[Annotation: Decision of High Court in [1965] 1 MLJ 262 affirmed. Related proceedings in [1965] 1 MLJ 60.]

Niaz Bi Bi v Mogah Omnibus Co Ltd [1960] MLJ 22 High Court, Federation of Malaya (Good J).

See COMPANIES AND CORPORATIONS, Vol 3, para 180.

See contract law, para VII [34].

Wan Othman bin Datuk Wan Yusof v Kewangan Utama (Malaysia) Bhd Originating Summons No KG 119 of 1992/(III)—High Court, Kuching (Ian HC Chin J).

Arunachalam & Ors v Kwality Textiles (Malaysia) Sdn Bhd [1990] 2 MLJ 167 High Court, Kuala Lumpur (VC George J).

See COMPANIES AND CORPORATIONS, Vol 3, para 567.

3 [35] COMPANIES AND CORPORATIONS Auditors – Negligence – Duty of care – Duty owed to potential investors – Duty to members of company – Extent of duty – Caparo Industries plc v Dickman [1989] 1 All ER 798 (revsd); Donoghue v Stevenson [1932] AC 562 (cited); Dorset Yacht Co Ltd v Home Office [1970] AC 1004 (cited); Anns v Merton London Borough Council [1978] AC 728 (cited); Sutherland Shire Council v Heyman [1985] 60 ALR 1 (apprvd); Candlewood Navigation Corp v Mitsui OSK Lines Ltd [1986] AC 1 (cited); Candler v Crane, Christmas & Co [1951] 2 KB 164, 179-184 (dicta of Denning LJ apprvd); Scott Group Ltd v McFarlane [1978] 1 NZLR 553 (not folld); JEB Fasteners Ltd v Marks, Bloom & Co [1981] 3 All ER 289 (dbtd); Twomax Ltd v Dickson, McFarlane & Robinson [1982] SC 113 (not folld).

A were a firm accountants who acted as auditors of F Ltd. R were a company which purchased shares in F Ltd. R alleged that the purchase were made on the faith of the accounts audited by A. R was a member of F Ltd at the material time. It was further alleged thhat A had audited the accounts negligently in that the pre-tax profit disclosed in the accounts should have in fact been a loss. R's action was dismissed by the High Court, where the trial judge decided as a preliminary point that A did not owe a duty of care to R. This decision was reversed by the Court of Appeal. A appealed to the House of Lords.

Held, allowing the appeal: (1) in order for a duty of care to exist, there must not only be foreseeability of damage but also proximity between the parties and the situation must be one in which court considers it fair, just and reasonable that the law should impose a duty upon one party for the benefit of the other; (2) the salient feature of the cases in which a duty of care in respect of negligent statements has been held to exist is that the defendant making the statement was fully aware of the nature of the transaction which the plaintiff had in contemplation, knew that the advice or information would be communicated to him directly or indirectly and knew that it was very likely that the plaintiff would rely on the advice or information in deciding whether or not to engage in the transaction. In these circumstances, the defendant could clearly be expected to anticipate that the plaintiff would rely on the advice or information given by the defendant for the specific purpose for which it was communicated. The situation is entirely different where a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker for any one of a variety of different purposes; (3) the auditors of a public company's accounts owe no duty of care to members of the public at large who rely upon the accounts in deciding to buy shares in the company. The requirement for an audit of the accounts exists to protect the members of a company and the legislative intent behind the statutory provisions does not encompass the protection of potential investors; (4) the shareholders have a collective interest in the company's proper management and in so far as a negligent failure of the auditor to report accurately of the company's financial state deprives the shareholders of the opportunity to call the directors to account and to ensure that errors in management are corrected, the shareholders ought to be entitled to a remedy. However, any loss suffered by the shareholders will in practice be recouped by a claim against the auditors in the name of the company, not by the individual shareholders. The scope of the duty owed by the auditors to the shareholders cannot extend beyond the protection of any individual shareholder from losses in the value of the shares which he holds; (5) accordingly, a member of the company who purchases additional shares stands in no better position than any other investor. No duty is owed by the auditors to such persons. The appeal was therefore allowed.

Caparo Industries plc v Dickman & Ors [1990] 1 All ER 568 House of Lords, England (Lords Roskill, Ackner, Oilver and Jauncey).

The first plaintiff was a registered company which traded in surgical and medical products. The second plaintiff owned 94% of the authorized shares and also stood as a guarantor for money advanced to the first plaintiff. The second plaintiff had charged his personal fixed deposit of S$200,000 with a bank as security. The defendant was the first plaintiff's auditor. The defendant prepared accounts for 1979, 1980 and 1981. Further, the defendant stated, as required by the Companies Act (Cap 50) ('the Act'), that the accounts gave a fair and true view of the first plaintiff's affairs and that the accounting and other records have been properly kept. The audited balance sheet for 1979 and 1980 showed losses but the balance sheet for 1981 reflected profits. However in 1983, the bank sent both plaintiffs letters of demand asking for payment of the loans given. In March 1984, the bank exercised its rights under the charge and set off the debt of the first plaintiff. The plaintiffs brought an action against the defendant alleging that the audited balance sheets for 1979, 1980 and 1981 did not give a fair and true view of the state of affairs of the first plaintiff. The plaintiffs further alleged that had the defendant discharged her duties as an auditor faithfully, the first plaintiff would have revamped its management or improved its financial position. The plaintiffs adduced evidence from two experts who examined the audited balance sheets. The first expert expressed that the 1979 accounts did not give a fair and true view. The second expert indicated that with the available accounts it would not have been possible for an auditor to state that the accounts reflected a fair and true view. The defendant elected to remain silent. The learned trial judge found that the defendant was negligent in auditing the accounts but held that she owed no duty of care to the second plaintiff under the guarantee. The judge further held that both the plaintiffs had not proven that their losses were due to the defendant's negligence. Both plaintiffs appealed against the decision. The defendant cross-appealed against the trial judge's finding that the defendant was negligent.

Held, dismissing both the appeal and cross-appeal: (1) three criteria for the imposition of duty of care are foreseeability of damages, proximity of relationship and reasonableness or otherwise of imposing the duty; (2) duty of care in tort does not depend solely on the existence of foreseeability; (3) the principle laid down in Donoghue v Stevenson [1932] AC 562 should be applied with care in situations where pure economic loss is caused to another; (4) outside a contractual or fiduciary relationship, for there to be a duty of care owing by one person to another to ensure the accuracy of any statement which one party makes and another party may foreseeably rely to his economic detriment, there must be a degree of proximity or special relationship between the two parties; (5) for a special relationship to exist the maker of the statement must have been or ought to have been aware that his information would have been made available to and be relied on by a particular person or class of persons for a particular transaction or type of transactions ; (6) s 201 of the Act which requires certification by an auditor that the accounts are true and fair establishes a relationship between the auditor and the shareholder of the company on which the shareholder may rely on for the protection of his interest; (7) the purpose for which the auditor's certificate is made is to provide those entitled to receive the report with necessary information to enable them to exercise, in conjunction, those powers which their respective proprietary interest confer upon them; (8) the duty is owed to the shareholders as a body and not as individuals; (9) accounts are not prepared for guarantors to determine whether they should continue to guarantee repayment by the company to the creditors; (10) the defendant would not know that the second plaintiff would be relying on the audited balance sheets to determine the necessary steps to protect his interest as a guarantor; (11) the second plaintiff had failed to show that the defendant owed him a duty of care; (12) individual shareholders cannot claim for loss of investment due to reliance on audited balance sheet but the claimant must be the company; (13) unqualified audited reports does not mean that whatever subsequent losses the company suffered must have been caused by the unqualified report. Further in the instant case there was no evidence that the audited reports led to the losses or whether the first plaintiff would have taken steps to rectify the situation had it been apprised of the accounts earlier; (14) the first plaintiff failed to prove it suffered damages as a result of breach of duty or what specific damages could have been avoided if the reports had been qualified; (15) the learned trial judge was right in concluding that the defendant had breached her duty as an auditor to the first plaintiff.

Ikumene Singapore Pte Ltd & Anor v Leong Chee Leng [1993] 3 SLR 24 Court of Appeal, Singapore (Yong Pung How CJ, Chao Hick Tin and Karthigesu JJ).

The second plaintiff was one of the promoters of the first plaintiff which was incorporated with the second plaintiff holding 94% of the shares of the first plaintiff. The second plaintiff also stood as guarantor for banking facilities granted to the first plaintiff. On 19 October 1981, the defendant was appointed as auditor of the first plaintiff. She prepared the auditor's report for the first plaintiff for the financial year ending 31 December 1979, 31 December 1980 and 31 December 1981.

Held, dismissing the claim of the plaintiffs: (1) the evidence revealed that proper accounting records had not been kept by the first plaintiff and it was not possible to say whether the accounts based on those accounting records gave a true and fair view of the state of affairs of the first plaintiff; (2) the auditor in her report had to state whether the accounts in her opinion had been properly drawn up in accordance with the provision of the Companies Act (Cap 185, 1970 Ed), and whether the accounting and other records required to be kept by the company had been properly kept in accordance with the Act. The defendant therefore owed the second plaintiff a duty of care under s 207; (3) the duty of the auditor is to exercise reasonable care and control. The defendant had failed in this duty but the duty was only to the first plaintiff and its shareholders in respect of their interests as shareholders; (4) on the second plaintiff's claim arising as a result of his being a guarantor, this head of claim is not within the scope of the duty owed by an auditor to a shareholder of the company as it is a wholly independent transaction having no connection with the second plaintiff's shareholding in the first plaintiff; (5) as to the second plaintiff's claim for the loss of his investment in the first plaintiff, this head of claim could be recouped through the first plaintiff; (6) the plaintiffs were not able to give clear statements as to what action they would have taken if qualified or adverse reports had been given. As such, they failed to show that their losses were due to the defendant's breach of duty, nor were they able to show that the loss could have been avoided but for the breach.

Ikumene Singapore Pte Ltd & Anor v Leong Chee Leng [1992] 2 SLR 890 High Court, Singapore (Goh Joon Seng J).

[Annotation: Affirmed on appeal. See [1993] 3 SLR 24.]

P were shareholders in F plc. They made a successful takeover bid for the company. P contended that D, the auditors, were negligent in auditing the accounts, which should have shown a loss rather than a profit. A preliminary issue was tried before the High Court, which held that the auditors had no duty of care to P. P appealed.

Held, allowing the appeal: (1) the requirements to be satisfied before a duty exists are firstly, foreseeability of harm and secondly, proximity of relationship; (2) the role of the auditor is to investigate and form an opinion on the adequacy of the company's accounting records and returns and its accounts. The auditor has then to report to the company's members whether in his opinion the company's accounts give a true and fair view of the company's financial position. The parliamentary intention behind the statutory provisions is that the shareholders should receive independent and reliable information on the financial standing of the company; (3) the auditor owes a duty to the company which appoints him to exercise reasonable care and skill in conducting the audit and making his audit report. Such a duty is plainly to be implied into the contract between auditor and company. A coincident duty in tort will also arise. If the auditor breaches his duty he will be liable to the company for any reasonably foreseeable loss the company suffers as a result of his breach; (4) the auditors knew that their report would be communicated to those who were registered as shareholders when the accounts were sent out or when the report was read in a general meeting. They must have known that some shareholders might rely on the report and accounts in making investment decisions. They must have known that an unqualified report, negligently made, might cause individual shareholders to suffer loss by selling if the accounts undervalued the company's worth or buying if the accounts overvalued the company's worth. Economic loss to P as a shareholder was foreseeable by the auditors as a result of any failure to exercise reasonable care in conducting their audit and reporting to the shareholders; (5) as for the requirement of proximity, it was inescapable that the auditors had voluntarily assumed direct responsibility to the shareholders individually. They did not have to accept appointment as auditors. Their work was not in reality unrewarded. They knew that the end-product of their audit was a report to shareholders on which they knew any shareholder might rely. There was thus sufficient proximity between the auditors and the individual shareholders for a duty on the part of the former to the latter to arise; (6) however, the auditor only owed a duty of care to the shareholders as shareholders, and not to a non-shareholding investor.

Caparo Industries plc v Dickman [1987] 1 All ER 798 Court of Appeal, England (O'Conner, Bingham and Taylor JJ).

The appellant is a public accountant registered under the provisions of the Accountants Acts. He was practising in partnership under the firm name of Wong & Teo, David Teo and Associates ('the firm'). The firm had two other partners. Although a resolution had been recorded for the first directors' meeting of Broadview Commodities, appointing the firm as the auditors of the company, nothing more appears to have been done to confirm or activate this relationship until the accounts of Broadview Commodities for the first year of operations were completed in 1982. In August 1982, the firm accepted the appointment as auditors by a letter dated 23 August 1982 and then carried out the first annual audit of Broadview Commodities. Government authorities investigated Broadview Commodities, and the investigations resulted in prosecutions against two Broadview Commodities officers. Arising out of the investigations of Broadview Commodities, a letter of complaint was sent by the Commercial Crime Division of the Criminal Investigation Department to the Singapore Society of Accountants ('the society'). It summarized the investigations into Broadview Commodities and referred to what it described as the 'deep involvement' of the appellant with Broadview Commodities. It finally expressed the view that in his involvement, he 'had failed to take reasonable care and skill', and 'could not have maintained a position of independence required of an auditor in order to be objective in forming and expressing his opinion on the accounts of Broadview Commodities'. The complaint was laid before the society's investigation committee, which in turn referred it to the disciplinary committee, which then held an inquiry. Before the disciplinary committee ('the committee'), the appellant faced seven charges under s 34(1)(b) of the Accountants Act (Cap 212, 1970 Ed) (later renumbered s 33(1)(b) of the Accountants Act (Cap 2, 1985 Ed)) ('the Act'), all of which were alleged to amount to 'grave impropriety', 'gross neglect', and 'an act discreditable to an accountant'. On two charges, he was ordered to be removed from the Register of Accountants; on three charges, he was suspended for a period of one, three and five years respectively, while no order was made as regards two charges. The suspensions imposed were to run concurrently. The appellant appealed to the High Court against these orders of the committee.

Held, allowing the appellant's appeal on all the charges: (1) the terms 'grave impropriety', 'gross neglect', and 'discreditable act' are not defined in the Act and there has also been no judicial interpretation of these terms. Neither has the society issued for the benefit of its members any rules or guidelines as to what acts of default or misconduct would be considered by the society to fall within the scope of this section. The court must therefore determine for itself what acts or omissions amount to professional misconduct which fall within the range of offences set out in the section, and whether, on a review of the evidence, the appellant was guilty of any of them. An act or default which was discreditable to an accountant need not necessarily have arisen out of his professional work as an accountant, but it should nevertheless have been an act which would have brought discredit on him as an accountant or on the profession as a whole; (2) a practical test could have been if reasonable people, on hearing about what he had done, would have said without hesitation that as an accountant he should not have done it. The court was of the opinion that a member of the society would have been guilty of gross neglect in the performance of his professional duties if, having regard to all the surrounding circumstances at the time, he did not exercise the skill and care that a reasonable client would have been entitled to expect of him; (3) for any member of the society to be guilty of grave impropriety in a professional respect under s 34, there must have been the same element of moral turpitude in the misconduct complained of, to the extent that it would have been regarded without hesitation by other accountants as being so disgraceful that his continued membership of the profession would immediately be called into question; (4) in view of the seriousness of the allegation, the committee carrying out the inquiry would have to apply a high standard of proof and not arrive at a finding of guilt merely on a balance of probabilities; (5) as for the first charge, it is clear that, at the time in late April and early May 1981, when the appellant made his visit to Hong Kong, and his firm sent the letter dated 30 April 1981 to the Gold Exchange of Singapore ('the GES'), neither the appellant nor his firm could be regarded as being the auditors of Broadview Commodities; (6) the appointment as auditors of Broadview Commodities and the contractual relationship as auditor with the company did not arise from the resolution at the first directors' meeting of Broadview Commodities. That was to come later in 1982 when the first accounts of Broadview Commodities were made available for audit. The firm merely had a limited assignment to certify as accountants to the GES that Broadview Commodities, which had only just been formed, had the paid-up capital of S$2m in connection with its application for membership of the GES. For this limited assignment, s 207 of the Companies Act (Cap 50, 1985 Ed), referred to by the committee, had nothing to do with the matter; (7) even if the court was wrong in finding that neither the appellant nor his firm had accepted appointment as auditors, his culpability or otherwise must be looked at objectively, taking the situation and circumstances as they were. It has to be borne in mind that at the time, these clients were a group of people to whom the appellant had been introduced for business; (8) at the request of his partner, the appellant had taken the trouble to go to Hong Kong from the Philippines to check on the existence and authenticity of the margin deposits. There was no reason then to go behind the margin receipts. In the court's judgment, without the benefit of hindsight and the better knowledge that would have come with it, it would not have been unreasonable for an accountant to act in the way that the appellant did in Hong Kong. The committee's finding on the first charge of gross neglect in the performance of professional duties was perverse and the finding must be set aside; (9) shares are allotted for cash, not only when they are paid for by legal tender or by cheque or by negotiable instrument on which the company may sue, but also when the company is indebted to shareholders and they agree that the debt shall be discharged by crediting shares which are paid up by an equivalent amount; (10) in this case, when the firm was asked to confirm that the S$2m had been paid up, it was entitled, on the invitation of the shareholders, to look at the evidence of the margin receipts, and the goods supplied and services rendered to Broadview Commodities, to satisfy itself prima facie that there was this consideration. There being nothing suspicious at the time, the firm was not required to go behind the margin receipts and the debts due to the allottee of the shares. The correct inference to draw from the evidence on this aspect is that both letters to the GES were not released until confirmation had been received from the appellant in Hong Kong; (11) the committee stated in its grounds of decision that in respect of this charge 'we find the defendant's conduct highly suspect'. Conduct which is highly suspect is not a basis for finding a man guilty under our legal system. Nor is it justifiable, in the case of a professional man, to use it as a basis to order that his livelihood be terminated. Accordingly, the committee's finding of guilt must be set aside; (12) the third charge itself was defective, in that it did not state the date at which it was alleged that the appellant knew or ought to have known the facts alleged. In a developing situation of the kind which arose here, it was necessary for the charge to state at least the date at which the facts were alleged to be known to the appellant; (13) the committee's finding of guilt on the third charge was perverse because the appellant gave in his evidence a full explanation of what he had done when he had picked up the items relating to payments for renovation costs in the audit papers. In finding him guilty, the committee gave no discernible reason for not accepting his explanation; (14) the third and sixth charges revolved around the central question of the duties and responsibilities of a company auditor in the audit of a company's accounts. A person practising as an accountant may be subject to certain statutory duties imposed by law under s 207 of the Companies Act (Cap 50, 1985 Ed). In addition, the accountant will have duties and responsibilities which arise from the contractual relationship between him and his client. The contract will record the nature and extent of his work and the standard of performance expected of him. Where the extent of the audit is not described in detail, the nature of his duties and responsibilities as an auditor may have to be resolved by the court, which must then have regard to the circumstances of the particular case and to precedents and accepted standards of current professional practice; (15) the auditor is not to be written off as a professional 'adder-upper and subtractor'. His vital task is to take care to see that errors are not made, be they errors of computation, or errors of omission or commission, or downright untruths. In common with other professional men, the standard required of an accountant in carrying out an engagement is that of reasonable skill and care of an ordinary skilled man carrying out the same engagement. Some recent authorities have generally recognized the more exacting nature of this standard in the light of modern conditions. The importance of this has been emphasized by considering defaults in the light of the surrounding circumstances, having regard also to professional codes of standards and guidelines and to evidence of general professional practice. In particular, a court which is determining a case must guard against hindsight and only take into account knowledge available to the auditor at the time of default; (16) the appellant and his firm were up against people who were not only completely unscrupulous but were also highly skilled in covering up their fraudulent activities. So far as the appellant and his firm were concerned, it would not be possible to come to a decision even on their culpability without taking into full account the circumstances in which they were placed. In the court's judgment, it would be unsafe and unsatisfactory to allow the findings on the third and sixth charges to stand, and they must be set aside; (17) the society has not issued any code of ethics or practice guidelines to its members on conflict of interest, and in their absence, the committee's finding is a clear misdirection to themselves on the law on this point. Whether or not a conflict of interest will arise in any particular case will depend on the nature of the appointments, and the functions required to be carried out under them, and more often than not on the manner in which the functions are to be performed. It would appear therefore that the question of conflict of interest is one of substance and a court must be satisfied in each case that real mischief and real prejudice will in all human probability result. There was no evidence at all to support the finding of guilt on the seventh charge as, apart from the minutes of the first directors' meeting, which appointed the appellant financial controller, there was no other evidence that the appellant had in fact acted in any capacity as a financial consultant; (18) domestic tribunals such as this committee, which derive their authority from Parliament, usually have a wide discretion to carry out inquiries in accordance with their own rules of procedure. At every stage, however, they must observe what are commonly regarded as rules of natural justice. An offender brought before a tribunal must not only be given a hearing, but he must also be given a fair hearing, otherwise the tribunal will be acting ultra vires. The adversarial system of justice necessarily means, in the case of a disciplinary committee of a professional body, that it must approach the issues before it with an open mind. In hearing evidence, a disciplinary committee may seek clarification on points in the evidence which are not clear, but in doing so it must at all times avoid descending into the arena, and joining in the fray. An inescapable impression formed from perusing the transcript is that, in trying to discharge its responsibilities effectively, the committee went well beyond its authority to carry out a 'due inquiry' under the Act, until the inquiry became an inquisition of its own, aimed at securing evidence to justify a finding of guilt. The manner in which the committee went about its inquiry was clearly against the rules of natural justice and was therefore ultra vires, and on this ground alone any finding and sentence by it would have been void.

Wong Kok Chin v Singapore Society of Accountants [1989] SLR 1129 High Court, Singapore (Yong Pung How CJ).

This was an application to set aside a statement of claim as disclosing no reasonable cause of action. The plaintiffs were shareholders of a company and they brought the action against the accountants and secretaries of the company (who were also auditors) alleging breach of their duties. It was argued that the action could only have been brought by the company.

Held: (1) the rule in Foss v Harbottle (1843) 2 Hare 261 was not applicable as that rule was only referrable to domestic activities and internal management of companies; (2) in this case it was alleged that there was a breach of the duty of care arising from contract, it could not be said that the claim disclosed no reasonable cause of action and therefore the application to strike out the statement of claim must be dismissed.

Mooney & Ors v Peat, Marwick, Mitchell & Co & Anor [1967] 1 MLJ 87 High Court, Kuala Lumpur (Raja Azlan Shah J).

Wong Kok Chin v Singapore Society of Accountants [1989] SLR 1129 High Court, Singapore (Yong Pung How J).

See COMPANIES AND CORPORATIONS, Vol 3, para 38.

The plaintiffs and the defendant were original shareholders of a company called Marmi Ceramica Agency Pte Ltd ('Marmi') of which 51% of the shares were sold by the plaintiffs and the defendant to a company called Yong Shuey Holdings Pte Ltd ('Yong Shuey') under a share sale agreement dated 23 May 1991. In May 1992, Yong Shuey proceeded with a claim against both the plaintiffs and the defendant for breach of warranties in the share sale agreement. In return for the plaintiffs settling the claim with Yong Shuey for both itself and the defendant, the defendant signed an agreement dated 27 May 1992. The defendant agreed to pay the plaintiffs S$628,000 on or before 27 December 1992. The defendant also agreed to transfer the interest and title in 187,500 shares in the company. Under cl 6 of the agreement, the plaintiffs were entitled to retain 187,500 shares free of any interest whatsoever of the defendant in the event that the sum of S$628,000 was not paid on or before 27 December 1992. The plaintiffs were also entitled to recover from the defendant the sum of S$628,000 after deducting the value of the said shares (as at 23 May 1991) as certified by the Company's Auditors. The agreement also provided that the value of the said shares as certified by the Company Auditors shall be deemed to be conclusive evidence. The defendant failed to pay the said sum of S$628,000 on or before 27 December 1992 and the plaintiffs commenced this action and proceeded by way of summary judgment. The defendant, inter alia, alleged that the auditors' report was not conclusive as not being in accordance with instructions and for failing to assess goodwill. The value of the shares should be assessed because there is a difference between valuation of goodwill being conclusive and failure to value goodwill on the appointed date. The valuation date was 31 May 1991 instead of 23 May 1991 as per the contract. The Assistant Registrar ordered in favour of the plaintiff on 14 February 1994. On appeal on 8 March 1994, the court ordered the sum to be paid to the defendant to be determined after the value of the shares transferred from the defendant to the plaintiffs pursuant to order of court, has been assessed by the Registrar. However, further arguments were heard at the request of the plaintiffs on 17 May 1994.

Held, the order of 8 March 1994 to stand: (1) the parties had agreed to be bound by the auditors' report. The report contained no reasons for the conclusion but it could not be challenged on the ground that mistakes had been made in its preparation unless it could be shown that the auditors had departed from the instruction given in a material respect; (2) the parties must have agreed on 23 May 1991 for some good reason. There has been a departure from the agreement and instructions given. The defendant did not agree to 31 May 1991 and the auditors' report cannot be regarded as binding. It could not have been the intention of the parties that 31 May 1991 will do just as well after they had specifically agreed that the date should be 23 May 1991; (3) the auditors were not instructed to consider only net tangible asset value and counsel for the defendant has submitted that a proper construction of cl 6 requires both tangible and intangible assets to be valued as there was no agreement to go only by tangible assets; (4) where the contract provides that the auditors' report is to be final, mistakes cannot be the basis for setting it aside but obvious errors on the face of the report may result in the report not being conclusive where injustice would be done and where the parties could not have intended the report to be conclusive; (5) it was not the intention of the parties that an auditors' report of the kind that was produced should be final.

Perlato Coreno Marmi SRL v Ee Chin Siew (1994) CSLR VIII[2756] High Court, Singapore (KS Rajah JC).

3 [43] COMPANIES AND CORPORATIONS Charges – Created by letter of hypothecation – Whether fixed or floating charge – Crystallization of floating charge – Events which result in crystallization – Registration of charges – Subsequent crystallization of floating charge does not validate unregistered charge – Hilton v Tucker (1888) 39 Ch D 669 (cited); Wrightson v McArthur & Hutchinsons [1921] 2 KB 807 (cited); Harrold v Plenty [1901] 2 Ch 314 (cited); Re Lin Securities (Pte) [1988] 2 MLJ 137 (consd); Illingsworth v Houldsworth [1904] AC 355 (cited); Re Flinders Trading Co Pty Ltd [1977] 2 ACLR 482 (cited); Re Jackson & Bassford Ltd [1906] 2 Ch 467 (cited); Esberger & Sons Ltd v Capital & Counties Bank [1913] 2 Ch 366 (cited); Re Yolland, Husson & Birkett Ltd [1908] 1 Ch 152 (cited); R v Consolidated Churchill Copper Corp Ltd [1978] 5 WWR 652 (cited); Evans v Rival Granite Quarries Ltd [1910] 2 KB 979 (cited); Re Brightlife Ltd [1986] 3 All ER 673 (cited); Re Hubbard & Co (1898) 68 LJ Ch 54 (cited); NV Slavenburg's Bank v International National Resources Ltd [1980] 1 All ER 955 (folld); Re J & D Contractors Ltd [1971] QLR 101 (folld); Re Molton Finance [1967] 1 Ch 325 (cited); Mercantile Bank of India v Chartered Bank of India [1937] 1 All ER 231 (distd)

P were the liquidators of a stock broking company, CS. CS had borrowed money from the 18 defendant banks. As security for the loans, CS had executed letters of hypothecation (except in one case, where the document was termed a 'facility letter'). Under the terms of the security documents, CS made available to the banks stocks and shares held by it. The shares hypothecated to each bank were to be listed in daily certificates. These certificates did not list shares by number, but only by counter and quantity. None of the security documents or daily certificates were registered with the Registry of Companies. When CS ran into financial difficulties, some of the banks (the 'scrip banks') managed to obtain custody of the shares held by CS. The liquidators of CS sought the court's guidance on the nature of the charges created.

Held: (1) although many of the letters of hypothecation referred to a pledge, for a pledge to arise there must be delivery of the articles or goods in question. Shares cannot be pledged. If share certificates are deposited as security, that amounts to an equitable mortgage; (2) the system of daily certificates were inconsistent with the essential nature of a fixed charge. The daily certificates were to be issued by CS and were to contain such shares as CS chose to set out. It plainly showed the shares charged were ambulatory and shifting in nature and that CS had liberty to trade in those shares; (3) accordingly, the security documents created floating charges and not fixed charges. The floating charges should have been registered under s 131(1) of the Companies Act (Cap 50). As they were not so registered, they were void against the liquidators and creditors of the company. The effect of this was that the banks ranked as unsecured creditors; (4) in order to crystallize a floating charge and turn it into a fixed charge, the chargee must terminate the chargor's licence to trade as regards the whole of the charged property. Notice to seize a particular charged asset is not sufficient, though service of writen notice under an appropriately worded clause might be. Institution of an action to seize some of the charged assets also does not crystallize the charge; (5) the chargor must crystallize the charge as a whole. Any attempt to crystallize the charge over some but not all the charged assets is ineffective; (6) the crystallization of a floating charge does not create a new charge. Accordingly, if the charge is void against the liquidator because it was not registered, the cyrstallization of the charge before liquidation would not validate it; (7) as the charges were all void for non-registration, the scrip banks could not be in a better position than the other banks by reason only of the fact that they had managed to obtain possession of some of the shares from CS.

Re City Securities Pte [1990] SLR 468 High Court, Singapore (Chao Hick Tin JC).

[Annotation: Affirmed on appeal. See [1993] 1 SLR 114.]

JB Precision Moulding Industries Sdn Bhd (in liquidation) v Asia Commercial Finance (M) Sdn Bhd [1994] 1 MLJ 734; CSLR XX[5753] High Court, Johor Bahru (James Foong J).

See COMPANIES AND CORPORATIONS, Vol 3, para 879.

The plaintiffs were a Swiss engineering company which manufactured machinery and equipment. The defendants were the receivers and managers of Allied Cocoa Industries Pte Ltd ('the company') appointed on 27 February 1984 under the deeds of debenture dated 9 April 1980 and 2 September 1981. On 9 April 1980, the company executed a deed of debenture in favour of Bank of America, whereby the company, among other things, charged by way of fixed charge 'all the freehold and leasehold property of the company both present and future and the fixed plant and machinery (including trade fixtures) from time to time thereon' and by way of floating charge 'the undertaking and all other property and assets of the company both present and future' to secure the payment of all moneys and liabilities agreed to be paid under the deed of debenture. On 2 September 1981, a further deed of debenture of a similar nature as the first deed of debenture was executed. Since the beginning of 1981, the company had purchased from the plaintiffs under six separate contracts various machinery and equipment including spare parts for installation at the company's factory. It also purchased machinery and equipment from other sources. The machinery and equipment purchased from the plaintiffs were assembled and installed together with machinery and equipment purchased from other sources, including some fabricated locally, to make up one entire processing and manufacturing plant for the making of cocoa butter and cocoa powder. From time to time spare parts for the machinery and equipment were also ordered from the plaintiffs and were delivered. All the machinery and equipment delivered by the plaintiffs to the company were sold subject to a provision reserving to the plaintiffs their title thereto until full payment was made. The company subsequently fell into financial difficulties and on 27 February 1984, the defendants were appointed receivers and managers of the company by the bank under the two deeds of debenture. In exercise of the powers contained in the deeds of debenture the defendants took possession of the factory and all the property and assets of the company, including the machinery and equipment and spare parts supplied by the plaintiffs (such machinery, equipment and spare parts being hereinafter collectively called 'the equipment'). The plaintiffs had not been paid the full purchase price of the equipment and were creditors of the company. Relying on the retention of title clause the plaintiffs claimed that they were the owners of the equipment which the defendants had sold to a third party and were therefore entitled to be paid out of the proceeds of sale the balance of the purchase price of the equipment. The defendants contended, however, that the plaintiffs did not have any title to the equipment at the time when they took possession of the company's factory and in consequence at the time when all the property and assets of the company including the equipment were sold.

Held, dismissing the plaintiff's claim: (1) in the present case, the equipment though installed and incorporated into the processing plant had not lost its identity and was identifiable; (2) the question whether the equipment had become a fixture and therefore part of the land depends on the intention of the company at the time it was installed in the factory. If it was intended that the equipment should form a permanent part of the factory then in law it became a fixture. The relevant factors were: (i) the degree of annexation and (ii) the object or purpose of annexation; (3) all or substantially all parts of the plant were fixed either directly to the factory or indirectly thereto, ie affixed to other equipment or structures which were themselves affixed directly to the factory; (4) the cocoa processing plant in the present case was installed in the factory as 'an adjunct' to the factory and to improve its usefulness as a factory for manufacturing cocoa butter and cocoa powder; (5) therefore there was physical annexation of the equipment to the land and the annexation was for the better enjoyment of the factory. In law it had become a fixture and formed part of the land to which they were affixed; (6) the equipment had become part of the land long ago, at least since October 1982. Therefore the plaintiffs had lost their title to the equipment long before the sale to the third party and what they had lost they could not and did not regain.

Gebrueder Buehler Ag v Peter Chi Man Kwong & Ors [1988] SLR 24 High Court, Singapore (Thean J).

The plaintiffs were the liquidators of Lin Securities (Pte) Ltd ('the company'). Prior to the appointment of the liquidators, the company received credit facilities from 21 banks, the present 21 defendants. The company in return gave various letters of hypothecation ('LOH') whereby the assets of the company were purportedly charged to the 21 banks. The main issue in the present case was whether each LOH created a charge and if so, whether the charge was a fixed or floating charge.

Held: (1) the LOHs issued to OCBC (and the other 20 banks) created a charge. Part I of the LOH expressly stated that in consideration of the credit and other banking facilities granted, the company charged to OCBC all shares, stocks etc. While the expression used in some of the LOHs issued to other banks was 'pledge' or 'hold under lien', these expressions meant and were intended to mean in the context very much the same thing, ie creation of a charge; (2) whether an instrument created a fixed or a floating charge does not necessarily depend on the label given to it or a particular set of words used by the parties; (3) one should not determine the effect of the LOH wholly within the four corners of the document. It must be viewed in the context of the surrounding circumstances of the transaction; (4) in construing the LOH, the court cannot ignore the essential characteristics of the business of the company. The issues raised in the present originating summons were certainly novel and there appeared to be an absence of authority on point. It seemed to be the first case of its kind. The transaction must be viewed in the commercial context in which the LOH was given; (5) the LOH issued to OCBC in its true nature created a floating charge. For much the same reasons, the other LOHs issued to the other 20 defendants created floating charges.

Re Lin Securities (Pte) Ltd; Peter Chi Man Kwong & Ors v Asia Commercial Bank & Ors [1988] SLR 340 High Court, Singapore (Chao Hick Tin JC).

Zeno Ltd v Prefabricated Construction Co (Malaya) Ltd & Anor [1967] 2 MLJ 104 High Court, Kuala Lumpur (Raja Azlan Shah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 56.

A were the liquidators of T, a stockbroking company. T obtained financing from R, a bank, for share trading on their own account. The facilities were secured by a 'pledge' of shares under a share mem-orandum. The arrangement was that the share scrip held as security for R would be kept in a safe on T's premises. The scrip could be taken out and used by T but only if other scrip was substituted. Keys to the safe were held by both R and T. A sought a declaration that the share memorandum created a floating charge over the shares which was void for non-registration under the Companies Act.

Held, granting the application: (1) the parties had intended to secure the banking facilities by a fixed charge over shares held on R's premises and a floating charge over those held on T's premises; (2) T had created an equitable charge over the shares in the safe. However, the charge did not attach to any specific share. The shares could be substituted by T without prior consultation with or permission from R. The security had all the features of a floating charge.

Re EG Tan & Co (Pte) [1990] SLR 1030 High Court, Singapore (Lai Kew Chai J).

[Annotation: Affirmed on appeal. See [1993] 1 SLR 1.]

Zeno Ltd v Prefabricated Construction Co (Malaya) Ltd & Anor [1967] 2 MLJ 104 High Court, Kuala Lumpur (Raja Azlan Shah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 56.

Re City Securities Pte [1990] SLR 468 High Court, Singapore (Chao Hick Tin JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 42.

A company being in need of funds to carry on their business, arranged for an overdraft with a bank and to secure this, it hypothecated its stock-in-trade by a letter of lien. The goods remained on the company's premises in its apparent possession and were sold and replaced in the usual course of business.

Held: the letters of lien were a floating charge and not being registered under Companies Enactment 1917, s 93 were void as against the liquidator and that the bank was only entitled to a rateable share in the distribution of assets.

Re Bonds Ltd [1921] 2 FMSLR 263 Court of Appeal, Federated Malay States (Woodward CJC, Farrer-Manby, Brown and Watson JJC).

Re City Securities Pte [1996] SLR 468 High Court, Singapore (Chao Hick Tin JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 42.

A writ of distress was issued against the defendants for the recovery of rents due to the plaintiff in respect of the demised premises which the plaintiffs have let out to the defendants. Goods were seized. The auction of the distrained goods was stayed for Park East Holdings (M) Sdn Bhd (in receivership) ('the claimant') to apply under s 10(1) of the Distress Act 1951 ('the Act') for the release of the goods claimed by them. The plaintiff knew that the purpose of renting the premises was to use it as a clubhouse for Westpoint Club. The club was established by the claimant. The plaintiff knew or should have known that all the goods and chattels purchased for the use of the said club were bought by the claimant either under their own name or under the name of Westpoint Club. Nothing was bought by the defendants or in their names. The issue is whether on a proper construction of s 10(1) and s 12 of the Act the claimant is entitled to the release of the goods. There is a further issue whether the rights of Bolton Finance Bhd, debenture holders of the claimant, can prevail when the execution is not completed since the goods have not yet been sold.

Held, allowing the claimant's application: (1) Park East Holdings are the 'any other person' within the ambit of s 10(1)(a) of the Act as they have no beneficial interest in the tenancy of the demised premises. They may have a beneficial occupation of or even a beneficial interest in the demised premises. That by itself does not necessarily mean that they must have any beneficial interest in the tenancy of the demised premises. In this connection, there is no evidence to show that the defendants have given up their power and dominion over the demised premises; (2) Park East Holdings have, on a balance of probabilities, established that the goods in question are owned by them and in their exclusive possession at the material time; (3) the defendants (immediate tenant) have no right of property or beneficial interest in the goods. Nothing was shown that the goods are held by Park East Holdings in trust for or as agent or servant of the defendants. Possession by Park East Holdings is prima facie evidence of title. That being so, onus of proof of title is on the plaintiff landlord. The plaintiff failed to show that the defendants have property in the goods; (4) there is no question of the plaintiff being made to believe that the goods would have belonged to the tenant of the demised premises; (5) further, it is proper to draw the inference that the plaintiff has at least by implication consented to the delivery of the goods to the demised premises. Its acquiescence therefore precludes it from distraining the same; (6) the defendants are strangers vis-a-vis the distress proceedings and s 12(a) can have no relevance. Even if it applies, the plaintiff knew or should have known about the purchase of the goods in question by Park East Holdings;further, when the debenture holder takes steps to enforce a floating charge (eg by appointing a receiver), the floating charge crystallizes into a specific charge and 'attaches' on the assets of the company granting the debenture. The debenture will prevail since the security has become a specific one before the goods are sold. Thus, Bolton Finance Bhd as debenture holders of Park East Holdings take priority since the floating charge given under the debenture in question has crystallized before the execution of the writ of distress is completed.

Perbadanan Pembangunan Bandar v Syabas Holdings Sdn Bhd [1990] 2 MLJ 116 High Court, Kuala Lumpur (Lim Beng Choon J).

P, who were stockbrokers, held 8,000 SPH shares registered in the name of D1. The shares had been bought by P for D2 and registered in the name of D1. D2 were put into receivership and a dispute arose among D1, D2 and D3 as to the ow-nership of the shares. D1, a director of D2, claimed to be the beneficial owner of the shares but withdrew the claim at the trial. D3's claim was founded on a memorandum of deposit and a letter of pledge under which D2 deposited the shares with them as security. The shares were, however, previously subject to a floating charge in favour of B and there was a restriction on the creation of subsequent charges. The re-ceivers and managers of D2 were in effect claiming on B's behalf. The contest was therefore between D3 and the receivers and managers of D2 acting on B's account.

Held: (1) the holder of a specific charge who has no notice of a restriction clause in a floating charge is not bound by the restriction and takes priority over the holder of the floating charge. A subsequent specific chargee who has notice of a restriction clause in a floating charge is bound by it; (2) the learned judge left open the question of whether D3 were deemed to have constructive notice of the restriction clause; (3) D3 had the onus of proving that they were not aware of the restriction clause if they wished to claim priority over B's prior floating charge. They had not adduced such evidence. It was not stated in the affidavits that they were unaware of B's debenture and the restriction in it. Accordingly, it was held that the floating charge took priority over D3's specific charge and the shares were ordered to be delivered to the receivers and managers for disposal according to the terms of the debenture.

Kay Hian & Co Pte v Jon Phua Ooi Yong & Ors [1989] SLR 963 High Court, Singapore (Chan Sek Keong J).

City Securities Pte ('City') was a private unlimited liability company which until 3 July 1986 carried on business as stockbrokers in Singapore. The appellants were bankers of City and had on diverse dates provided City with loans, advances and other credit facilities. As security therefor, the appellants, with the exception of Societe Generale, procured the execution by City at various times of instruments which were entitled 'Letters of Hypothecation' ('LOH') and were expressed to create security interests in favour of the banks respectively over all the stocks, shares and other securities ('the shares'). In the case of Societe Generale, no LOH was executed in their favour. But in their letter to City dated 19 April 1985 ('the facility letter') the bank stated, among other things, that they would have a 'pledge', by way of a 'Letter of Undertaking' over stocks and shares that were bought on behalf of City's clients over which City had a lien and that City was to furnish to Societe General a monthly list of all the 'pledged stocks and shares'. In mid-February 1986, there was a flurry of intense activities by all the appellants. Each of them was making a demand for the shares charged to them under their respective security documents and all, except Societe Generale, commenced legal actions against City and, except Tat Lee Bank Ltd ('Tat Lee'), obtained ex parte interim orders against City requiring delivery up of the certificates and blank transfers of the shares in which the banks claimed to have securities under their LOHs and restraining City from disposing of or dealing with the shares pending the delivery up thereof. At the end of February 1986 discussions took place between City and the appellants which culminated in the execution of an agreement called the 'Stand-still Agreement' dated 31 March 1986 whereby all the appellants agreed that for the period with effect retrospectively from 25 February 1986 to 5 May 1986 or such further period or periods as the appellants may from time to time in writing unanimously agree, no action whatsoever was to be taken by any of the appellants. On 3 July 1986 a petition for the winding up of City was filed, and on the following day provisional liquidators were appointed. On 31 October 1986, a winding-up order was made and the respondents were appointed liquidators. After the winding-up order was made, all shares delivered to the appellants and also all shares in the possession of the liquidators were sold pursuant to an order of court dated 27 August 1986. On 27 June 1987 the respondents took out an originating summons against the 18 banks and sought the determination of the court on whether the LOHs or the facility letter created security interests in any of the assets of City, and if they did create security interests, if such security interests were floating charges and if so, were they void against the liquidators. The High Court ruled that the LOHs and the facility letter created floating charges over all the shares of City, that there was no crystallization of each floating charge prior to the commencement of the winding up of City, and that none of the deliveries of the shares to the appellants under the ex parte interim orders created any secured or pro-prietary interest in such shares. The High Court further held that each of the floating charges was void against the liquidators and/or creditors of City for non-registration under s 131 of the Companies Act (Cap 50) ('the Act'). Against the decision of the High Court, three appeals were brought.

Held, dismissing the appeals: (1) as a stockbroker, City daily dealt in shares quoted on the Stock Exchange of Singapore Limited and such business involved daily a rapid turnover of shares held by it from time to time. Hence the shares subject to charges in favour of the appellants were changing and in some cases constantly changing. The security created was 'ambulatory and shifting in its nature'. The security created by the LOHs was not a fixed charge on any specific assets of City. They were in each case a floating charge; (2) the facility letter which was accepted by City was, an agreement by City to give security over the shares listed in the monthly certificates to be delivered by City and conferred an equitable security or charge on those shares; (3) when the appellants instituted legal actions against City and obtained interim orders and, in consequence, possession of all or most of the shares claimed by them, they had terminated the licence given to City to deal with the shares charged to them respectively. The floating charges had crystallized; (4) the object of s 131 of the Act was clearly to enable persons dealing with a company, who were minded to make a search at the Registry of Companies, to ascertain whether the company has created certain charges on its assets. It was precisely for this purpose that a requirement for registration of such charges was imposed and a sanction was attached for non-compliance therewith; (5) if an unregistered floating charge, which was potentially void against the liquidators and creditors of the company under s 131 of the Act, could escape the consequence of being avoided under that section by crystallization and becoming a fixed charge, not capable of registration, before the liquidation of the company, the creditor holding such security and also the company itself would not be too concerned with the statutory requirement of registration of the charge and the effect of non-compliance with such requirement. The security could still be saved from the consequence of non-registration so long as it crystallized before the company went into liquidation. Such a position, in so far as a floating charge was concerned, would render farcical the requirement of registration and in effect defeat the whole object of s 131 and give rise to the very mischief which that section sought to remedy; (6) crystallization was merely a process in the enforcement of a floating charge and did not retrospectively change the nature of the security. Upon crystallization, the floating charge fastened on the assets subject to the charge, and thenceforth the company was not at liberty to deal with the assets, whether in the course of business or otherwise. It was true that at that stage the charge had become a fixed charge, but the resulting fixed charge arose from the original floating charge and was in effect the same security affecting the same assets. There was no 'new' charge created on those assets. If the original floating charge was void under s 131 of the Act by reason of non-registration of the charge it remained void even after crystallization and could not avoid the consequences of that section; (7) the interim orders did not confer on the appellants any secured or proprietary interests in the shares delivered to them which they otherwise did not have. The taking of legal actions, the obtaining of the ex parte orders and the taking delivery of the shares claimed by the appellants were steps taken to enforce the floating charge.

Dresdner Bank Aktiengesellschaft & Ors v Ho Mun-Tuke Don & Anor [1993] 1 SLR 114 Court of Appeal, Singapore (Yong Pung How CJ, LP Thean and Warren LH Khoo JJ).

The plaintiffs are minority shareholders in the 11th defendant, United Securities Sdn Bhd ('United Securities'), which borrowed the equivalent of RM43,850,000 ('the said loan') from the first defendant, Overseas Union Bank Ltd ('the defendant bank'). By way of collateral, United Securities executed a loan agreement and a debenture. The plaintiffs as directors and the tenth defendant, Dato Abdullah Mohamed, as Chairman of United Securities executed a personal guarantee for the said loan. The case centres around 16 lots of land ('the said land') registered in the name of the 12th defendant, City Centre Bhd ('City Centre'). City Centre had an issued share capital of 2,500,000 shares of RM1 each. Ban Lee Sdn Bhd ('Ban Lee') was the registered owner of 1,250,000 shares or a 50% interest therein. United Securities held the other 50%. By an agreement dated 9 June 1982 between Dato Abdullah Mohamed and Ban Lee, Dato Abdullah agreed to acquire from Ban Lee its 50% interest in City Centre at RM32 per share for RM40m. In another agreement dated 15 June 1982 between Dato Abdullah and United Securities, Dato Abdullah agreed to assign the 50% interest to United Securities at cost. Since United Securities already had 50% of City Centre, this exercise when completed would have resulted in City Centre becoming a wholly-owned subsidiary of United Securities. Cheah Theam Swee, the first plaintiff, then held 200,330 shares and his brother, Dr Cheah Theam Kheng, 200,329 shares in United Securities. On 15 June 1982 Dato Abdullah entered into separate agreements with eight other shareholders of United Securities to acquire 699,850 shares of RM1 each, representing 63.6% of the issued share capital of United Securities at RM39 per share for a total consideration of RM27,294,150. The result of this acquisition was to reorder the structure of United Securities so that Dato Abdullah had 63.6% and the first and second plaintiffs had 18.2% each of the equity of United Securities. Malaysian International Merchant Bankers Bhd ('MIMB') were appointed to put the transaction through. MIMB applied to the Foreign Investment Committee for the necessary approval. On 2 October 1982 City Centre charged the said land to the defendant bank to secure its 'existing borrowings' from its Kuala Lumpur branch. The first plaintiff alleged that these 'existing borrowings' included the sum of RM4,000,000 which United Securities borrowed in order to make an advance payment of 10% for the price of RM40,000,000 for the remaining 50% of the shares in City Centre. In addition, these 'existing borrowings' also included other sums borrowed by City Centre. The bank's response to this is that the said land was charged 'for the purposes so described in the said charge' which was duly registered and the documents of title were deposited with the defendant bank, but that the borrowings of City Centre had been paid off and accordingly, the defendant bank claims no interest in the aforesaid charge or in the said land, and that since December 1982, City Centre was entitled to have the charge discharged. Prior to 11 November 1982, United Securities applied to the defendant bank for a loan of the equivalent of RM43,850,000. By a letter dated 11 November 1982, the defendant bank offered United Securities the loan facility applied for subject to certain conditions. In accordance with cl 5 of the pre-disbursement conditions, MIMB applied for and obtained a letter of approval from the FIC. The loan agreement also required the borrowers' solicitors to provide a formal legal opinion on the validity and enforceability of the loan agreement, the debenture and the guarantee. The borrowers' solicitors rendered a written opinion to the defendant bank to the effect that the whole scheme was valid. All documentation was finalized, and on 27 December 1982 United Securities drew down the said loan. On the same day, the second defendant, OUB Nominees (Malaysia) Sdn Bhd, was registered as the shareholders of all the shares in City Centre by virtue of transfers made by the respective previous registered shareholders. The debenture contained a power of attorney whereby United Securities appointed the defendant bank its attorney so that the defendant bank could appoint a receiver over the properties of United Securities and to hold general meetings of City Centre and to appoint directors to its board. Subsequently United Securities defaulted in making payment. The bank the refore activated measures to enforce the loan documents. The plaintiffs filed this suit and obtained an ex parte injunction principally upon the ground that the transaction was illegal as being in contravention of s 67 of the Companies Act 1965 (Act 125) and the guidelines of the FIC. There were 22 separate prayers in the statement of claim. The plaintiffs contended that the entire loan transaction was illegal, void and invalid and consequently, since the said loan need not be repaid, the securities therefore should be struck down. By this application, the defendant bank applied to have the injunction set aside.

Held, allowing the defendant bank's application to set aside the injunction: (1) the non-disclosure of material facts was serious. The manner in which the plaintiffs and the tenth defendant moved on 19 November 1985 was not only prima facie a contravention of the law but clearly constituted mala fides. Ex parte injunctions are not granted to enable plaintiffs to erode the status quo to the detriment of the defendants. There was every indication that damages were an adequate remedy and that the defendant bank was in a position to pay them. On the contrary hypothesis there were very strong indications (which have since been proved by the failure of the plaintiffs to file any affidavit as to means) that the plaintiffs' undertaking as to damages was very nearly worthless. Regardless of the ultimate merits, ex parte injunctions can be set aside and any fresh injunction refused if there was, in the first instance, a culpable intent to mislead the court. From the facts of this case, the non-disclosures and misrepresentation were deliberate or reckless and such as to disentitle the plaintiffs to equitable relief; (2) if the ex parte injunction was improperly obtained, an inquiry as to damages could be immediately ordered without waiting for the trial . In the light of the material before the learned judge, he was satisfied that the undertaking as to damages given by the first plaintiff was a barren one because, although challenged, he had not responded with any evidence of means. It would have been an exercise in futility for the assistant registrar to embark upon an inquiry as to damages if the plaintiffs were in no position to satisfy them. A bare undertaking as to damages may be 'unusual' as to form, but useless as to the content unless the plaintiffs are worth powder and shot. The learned judge therefore holds it to be the right of the defendants to behold what the undertaking is worth in real terms; (3) this was never a case for an ex parte injunction since the plaintiffs were alleging an illegality which they had helped to create. Their hands were not 'clean'; (4) it is not enough in such a case for the issue of illegality to be merely arguable. The evidence of illegality must be clear enough for the court to be persuaded that it must intervene in order to prevent the law from being further violated. In other words, on the uncontested evidence before the court, there must be at the very least a high degree of probability that a permanent injunction will be made at the trial. Such considerations could outweigh the plaintiffs' participation in the illegality alleged or their inability to give security or the defendants' capacity to pay damages, however large. The learned judge is of the view that at best the plaintiffs had a serious question to argue at the trial; (5) in view of the grounds on which the ex parte injunction is set aside, the learned judge thinks that this is not a proper case to substitute it with an Erinford injunction (ie an injunction pending appeal). A stay of execution would have the same result.

Cheah Theam Swee & Anor v Overseas Union Bank Ltd & Ors [1989] 1 MLJ 426 High Court, Kuala Lumpur (Shankar J).

The first defendants took a loan of RM75,000 from the plaintiffs and executed a mortgage and general charge on 16 February 1962, and as security the defendants deposited with the plaintiffs the title deeds of land in Klang, EMR 4031 Lot 703, of which they were the registered proprietors. The charge was never registered in the Land Office although it was registered with the Registrar of Companies on 9 March 1962. The plaintiffs lodged a caveat in respect of the said land with the Collector of Land Revenue, Klang, and it was duly recorded in the Register of Document of Title on 23 April 1962. On 31 October 1963 the second defendant obtained judgment for RM20,514.87 against the first defendants in a suit and on 14 November 1963 he obtained a prohibitory order against the said land and presented the same to the collector for registration under the provision of the Land Code. The order provided that it was subject to caveats and prohibitory orders. By an order of court dated 6 February 1964 in the same suit the second defendant obtained an order for the sale of the said land by public auction at a reserve price of RM25,000. In April 1964 the plaintiffs commenced these proceedings. The first defendants had no other assets and they had not repaid the principal sum of RM75,000 nor any interest thereon to the plaintiffs despite a demand for payment made on 10 February 1964. The plaintiffs alleged that they gave notice to the second defendant of their prior lien on the said land but nevertheless the latter proceeded to by-pass their rights and interests in the matter. The plaintiffs sought for judgment in the sum of RM82,500 including interest against the first defendants, a declaration that the plaintiffs' lien on the land had priority of right, claim and interest over that of the second defendant's prohibitory order, or order of sale by public auction, alternatively the land be auctioned with a reserve price of RM90,000. The first defendants did not enter appearance and judgment by default was entered against them.

Held: (1) the charge executed by the first defendants on 16 February 1962 in a favour of the plaintiffs was void for non-registration under the Land Code with the consequence that the money secured thereby became immediately payable; (2) a floating charge is an equitable charge on the assets for the time being of a going concern. Such a charge remains dormant until the undertaking charged ceases to be a going concern or until the person in whose favour the charge is created intervenes. Until such intervention the company carries on as if the charge were non-existent; (3) in the present case the memorandum of charge gave the plaintiffs a floating charge over all the undertaking and goodwill of the first defendants and all its property, assets and rights both present and future (excluding the premises charged by legal mortgage or specifically charged or assigned); (4) this charge crystallized when the first defendant's business ceased. The plaintiffs were in the position of a receiver; (5) the receiver's dominant power is to take possession of the property and to collect the income deriving therefrom. A receiver must exercise the same care regarding the property as an ordinary prudent businessman would in regard to his own property. He is responsible for any loss caused by his negligence or wilful default. He is a trustee of any money due from himself as receiver.

Zeno Ltd v Prefabricated Construction Co (Malaya) Ltd & Anor [1967] 2 MLJ 104 High Court, Kuala Lumpur (Raja Azlan Shah J).

This was an appeal by the second defendant against the judgment of Raja Azlan Shah J reported in [1967] 2 MLJ 104. It was contended on appeal that: (a) as the charge was not enforceable as such, the lien was not enforceable either; and (b) the lien did not comply with the law because there was no intention to create a lien as required by s 134 of the Land Code (FMS Cap 138) and the caveat lodged did not state the nature of the interest in the land caveated as required by s 167 of the said code and the ground upon which the claim was founded.

Held, dismissing the appeal: (1) the Land Code (FMS Cap 138) makes it quite clear that a charge is quite distinct from a lien. A lien under the code is a statutory lien and it has an independent existence apart from a charge so that if a charge is avoided for non-compliance with the law, the lien is not avoided also provided of course it complies with the law; (2) cl 6 of the mortgage and general charge clearly showed an intention to create a lien. An examination of the caveat showed the nature of the interest in the land caveated and the ground upon which the claim was founded.

Paramoo v Zeno Ltd [1968] 2 MLJ 230 Federal Court, Kuala Lumpur (Barakbah LP, Suffian and MacIntyre FJJ).

P was a bank that had advanced money to D, the owners of the 'American Oklahoma' ('the ship'). D was registered in Singapore as a foreign company. D created a mortgage over the ship to secure the loans. At the time the mortgage was created the ship was in Korea. However, it subsequently did call at Singapore on several occasions. P moved for judgment in default of defence.The third interveners, who had supplied bunkers to a sister ship, opposed this motion. The main ground advanced by the third interveners was that the mortgage had not been registered as required by s 131(1) of the Companies Act.

Held, making an order in terms of the motion: s 141 of the Companies Act (Cap 50) extends the obligation to register charges to foreign companies, except for charges on property outside Singapore. On the facts before the court, the mortgage having been created at a time when the ship was in Korea, there was a charge on 'property outside Singapore' within the meaning of s 141. There was accordingly no duty at any time to register the mortgage under s 131 and the ship's subsequent presence in Singapore was irrelevant in this regard.

The 'American Oklahoma', Bank of America NT & SA v Owners of 'American Oklahoma' [1988] SLR 723 High Court, Singapore (Lai Kew Chai J).

Heap Huat Rubber Co Sdn Bhd v United Overseas Bank Ltd (1992) CSLR VI[11] High Court, Johore Bahru (LC Vohrah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 8.

On 30 May 1985, GS Corp (Singapore) Pte Ltd created a mortgage over its immovable property in favour of the defendants. The mortgage was registered at the Registry of Deeds on 3 March 1986. By virtue of s 131(1) of the Companies Act (Cap 50, 1985 Ed), the mortgage was liable to be lodged with the Registrar of Companies for registration within 30 days. The mortgage was, however, not registered within the time stipulated. After the expiry of the period, the defendants applied for an extension of time for a further period of 30 days (the first extension). On 13 October 1986, the extension was granted. Meanwhile, the plaintiffs obtained judgment against GS Corp for certain sums of money. On 4 November 1986, a charging order nisi against the property (which is the subject matter of the mortgage) was obtained. On 15 November 1986, the charging order was registered at the Registry of Deeds. Before the first extension ended, the defendants applied for a further extension of time of 30 days to register their mortgage. On 5 January 1987, the extension was granted (the second extension). The order was expressed to be made without prejudice to the rights acquired by United Overseas Bank Ltd or any person prior to the time of actual registration of the said mortgage. On the same day, the charging order nisi was made absolute. On 16 January 1987, the defendants registered their mortgage at the Registry of Companies. In the present case, the plaintiffs sought (a) a declaration that the mortgage was void against the plaintiff's charge by virtue of s 131(1) of the Companies Act; and (b) a declaration that the plaintiffs were entitled to the proceeds of the sale of the property, it having been sold by the defendants as mortgagees.

Held, dismissing the application: (1) the defendant's mortgage was registered under the Registration of Deeds Act (Cap 269, 1985 Ed) some eight months or more before the plaintiffs' charging order nisi was registered. The mortgage being a valid charge ab initio as a consequence to its registration under the Companies Act, the defendants' legal mortgage had priority over the plaintiffs' equitable charge which was postponed to the mortgage by virtue of s 15 of the Registration of Deeds Act; (2) the proviso to the order dated 5 January 1987 did nothing more than preserve the plaintiffs' right to assert, in the light of the defendants' subsequent lawful compliance with s 131(1) of the Companies Act, that the plaintiffs' security nevertheless ranked in law in priority to that of the defendants. The plaintiffs have exercised that right unsuccessfully.

United Overseas Bank Ltd v Forward Oversea Credit Ltd [1988] SLR 210 High Court, Singapore (Grimberg JC).

By this admiralty in rem writ, the plaintiffs claimed the sums of US$154,156,319 and US$16,474 being loans and advances made to or on account of the United States Lines Inc ('US Lines'), the owners of the 'American Oklahoma'. The loans were secured by a first preferred ship mortgage executed on 7 May 1985 and recorded in the Port of Registry of New York, USA. The vessel was not in Singapore at the time the mortgage was created although it did call at the port of Singapore in 1985 and 1986. US Lines was registered in Singapore as a foreign company. Fal Bunkering Co Ltd, the third interveners, claimed US$69,500 for bunkers supplied to a sister vessel of the 'American Oklahoma'. The 'American Oklahoma' was arrested and it was sold pendente lite in August 1987. The plaintiffs prayed for a declaration of the validity of the first preferred ship mortgage and the sums claimed in the statement of claim amounting to US$157,351,521. The third interveners opposed the motion. The third interveners contended that under s 131(1) of the Companies Act (Cap 50, 1985 Ed) upon the failure of the plaintiffs to register the mortgage as a charge 'the charge shall, so far as any security on (US Lines') property or undertaking (was) thereby conferred, be void against the liquidator and any creditor of (US Lines)'.

Held, making an order in terms of the motion: on the facts of the case, the first preferred ship mortgage having been created on 7 May 1985 at a time when the vessel was in the Republic of Korea, some two and a half months before it called at Singapore, there was a charge on 'property outside Singapore' within the meaning of s 141 of the Act and there was no duty at any time thereafter to register the mortgage under s 131 and the vessel's subsequent presence in Singapore was irrelevant in this regard.

The 'American Oklahoma'; Bank of America National Trust & Savings Association v 'American Oklahoma' (Owners of); United States Trust Company of New York & Ors (Interveners) [1988] SLR 723 High Court, Singapore (Lai Kew Chai J).

S executed a first debenture in 1977 in favour of the plaintiff bank as security for a loan given by the bank to S. In 1978, S created a second debenture in favour of the first defendant bank as a security for a loan granted by the first defendant to the company. Both the debentures were lodged with the Registrar of Companies for registration within the 30-day period, together with the particulars of those documents. However, the Registrar delayed the registration and issue of his certificate for the first debenture until after the issue of the certificate for the second debenture. The plaintiff bank sought a declaration by the court that its debenture ranked in priority over the first defendant's debenture.

Held, granting the declaration: (1) the debentures, having been registered within the time, were constituted valid charges ab initio, ie from the date of their execution; (2) in the present case, the company has done everything required of it. It was the Registrar who had delayed the issue of the first debenture's certificate; (3) since the first debenture was executed earlier than that of the second debenture, it has secured priority over the first defendant's debenture; (4) it would be unthinkable and quite shocking to allow the blunder of a public official in the issue of the certificates under s 111(2) of the Companies Act 1965 to affect the standing and rank of the charges which the debenture holders have obtained. The company has done everything required of it under s 108(1). Surely the negligence of a bungling official in the making of the entry in the register or in the issue of the certificate could not affect the priority status of the two debentures.

United Asian Bank Bhd v Kwong Yik Bank Bhd Suit No C98 of 1980 High Court, Malaysia (NH Chan J).

The period of 21 days allowed by s 93 of the Companies Enactment 1917, for sending a charge to the registrar begins to run from the date of execution of the charge and not from the date of its registration in the Land Office. But an extension of time may be granted by the court.

Selibin Tin Syndicate Ltd v Registrar of Companies [1921] 2 FMSLR 262 High Court, Federated Malay States (Watson JC).

In this case the only point at issue was the question of law as to when, for the purposes of s 80(1) of the Companies Ordinance 1940, a charge on land is created. The charge in this case, a charge on land in Johore, was executed on 15 August 1947 and was registered at Johore Bahru on 9 September 1947. On 9 September 1947 a copy of the charge was sent to the Registrar of Companies for registration under s 81 of the Companies Ordinance 1940. The Registrar of Companies refused to register the charge claiming that he was precluded from doing so by s 80(1) of the Companies Ordinance 1940, which requires, inter alia, that a charge should be submitted for registration within 21 days of its creation.

Held: by the law of the State of Johore which applied to the charge in this case, the charge was created on the day it was registered in the Registry at Johore Bahru, ie on 9 September 1947, and as a copy of the charge was addressed to the Registrar of Companies by post the same day and was received by him within the period of 21 days, the Registrar of Companies should register the charge, if it provided all the information required by the ordinance.

Johore Para Rubber Co Ltd v Registrar of Companies [1948] MLJ 135 High Court, Federation of Malaya (Pretheroe Ag CJ).

The applicant granted a loan to a company. By way of security for the loan the company executed inter alia a deed of assignment whereby it assigned absolutely to the applicant all its rights title and interest in and to the selling price of a number of apartment units comprising a defined housing project it had undertaken to build. The applicant's previous solicitors had the view that the deed was not registrable under s 108 of the Companies Act 1965. However, its present solicitors held a view to the contrary. It sought effectively an order pursuant to s 114 of the Act for extension of time in registering the deed. The issue that the court first dealt with was whether the deed constituted a charge falling within one or more of the categories of charges set out in s 108(3) of the Act and was therefore capable of being and requiring to be so registered.

Held, allowing the application: (1) a charge was created where the parties made it plain by the language they used that it was their intention to create a charge. The deed of assignment was an assignment by way of security (National Provincial & Union Bank of England v Charnley [1924] 1 KB 431, Hipparion (M) v Chung Khiaw Bank [1989] 2 MLJ 149 followed); (2) the deed of assignment was also an assignment by way of charge under s 4(3) of the Civil Law Act 1956; (3) for the purpose of this case and s 108, the word 'security' was synonymous with the word 'charge'. It would be horrendous if deeds of assignment albeit absolute, being by way of charge, were not registrable under s 108. It was in the public interest that absolute deeds of assignment by way of charge be registered for public notice; (4) the deed of assignment did constitute a charge as defined by s 108(3)(f). The security thereunder constituted a future book debt solvendum in futuro (Independent Automatic Sales v Knowles & Foster [1962] 3 All ER 27 referred). Hence the deed was registrable under s 108(1).

Citibank Bhd v Pendaftar Syarikat (1995) CSLR XVI[1335] High Court, Kuala Lumpur (Richard Talalla J).

The plaintiffs are bankers who had granted financial facilities to the first defendants, as a security for which the first defendants granted the plaintiffs a first and a second legal charge over its landed property and fixed and floating charges over its movable assets. The first defendants defaulted in its repayment of the facilities, and the plaintiffs sent a notice to the first defendants to crystallize the floating charges over the movable assets of the first defendants. On 5 March 1993, an agreement was entered into between the first and the second defendants for the sale by the first defendants of its movable and immovable assets, which were charged to the plaintiffs, to the second defendants. Based on this agreement, the plaintiffs applied to the court on 17 May 1993 for the sanction of the sale. In the meantime two petitions had been filed in the High Court to wind up the first defendants as a consequence of which the first defendants were wound up on 20 March 1993 and a liquidator was appointed. The liquidator objected to the plaintiffs' application on the grounds that the plaintiffs had no locus standi in the application and that the sale should be conducted by the liquidator. The liquidator also submitted that all moneys belonging to the first defendants should be handed over to him for distribution under the provisions of ss 291 and 292 of the Companies Act 1965 ('the Act'). The plaintiffs argued, inter alia, that (a) they were secured creditors of both the movable and immovable assets of the first defendants; and (b) as no liquidator had been appointed when the sale and purchase agreement between the first and the second defendants was executed, they were entitled to bring forth the agreement to be sanctioned by the court under s 223 of the Act. Due to the impending completion of the sale, the court made an interim order allowing the sale provided the proceeds of sale be kept with the solicitors of the plaintiffs.

Held, dismissing the application: (1) when properties are secured by charges, under normal circumstances when there are defaults in repayments by the borrower, the chargee would realize the borrowers' assets under the charge. In this case, the plaintiffs had not taken any steps to realize their securities. No receivers/ managers had been appointed nor had there been foreclosure proceedings with regards the landed properties. Instead the charged properties were allowed to remain with the first defendants as if no default or breach of the charges had taken place; (2) s 233 of the Act allows the liquidator of a company that has been wound up to take into custody and control all the properties and things in action to which the company is or appears to be entitled. In the present case, upon the liquidator's appointment on 20 March 1993, all the first defendant's properties should revert to his control. The plaintiffs not having realized their securities could not by-pass the right of the liquidator to determine what properties the first defendants appeared to be entitled to; (3) the plaintiffs might oppose the liquidator's decision if they felt they were entitled to the properties as well but until the liquidator has made his decision, the plaintiffs had no right to apply to the court to assist the first defendants to dispose of its properties; (4) as the sale had been sanctioned in the interim order, the proceeds thereform in the hands of the plaintiffs' solicitors should be forwarded to the liquidator under s 277(3) of the Act for distribution under ss 291 and 292 of the Act.

Interdagang Merchant Bankers (M) Bhd v Campall Industries Sdn Bhd & Anor (1994) CSLR XX[4] High Court, Johor Bahru (James Foong J).

The borrower company (`the appellant') was the registered proprietor of certain lands (`the lands'). The appellant executed two legal charges (`the charges') under the National Land Code 1965 (`the NLC') over the lands in favour of Bank Bumiputra (M) Bhd (`the first respondent') to secure banking facilities granted to the appellant. The charges were duly registered under s 108 of the Companies Act 1965 (`the Act'). Subsequently, the appellant executed a deed of debenture in favour of the first respondent to secure various banking facilities (`the debenture') whereby the appellant created both a fixed charge and a floating charge. The debenture was duly registered pursuant to s 108 of the Act. The debenture provided, inter alia, for the bank to appoint receivers and managers and for such receivers and managers to have certain powers. Subsequently, events occurred upon which the powers to appoint receivers and managers under the debenture became exercisable. On 13 August 1987, pursuant to such powers, the bank duly appointed the second, third and fourth respondents as receivers and managers of the appellant (`receivers and managers'). Since there was no express provision in the debenture appointing them attorneys of the appellant and being desirous of selling the lands without resorting to proceedings under the NLC to obtain a judicial sale, the receivers and managers applied to the High Court by way of originating summons for leave to sell the lands (`the application'). On 27 February 1989, the appellant went into liquidation and the application by the receivers and managers was opposed by the liquidator (`the liquidator'). In the court below (see [1993] 2 MLJ 126), the learned judge held that: (i) the receivers and managers were entitled to sell the lands which were subject to the charges, without taking proceedings under the NLC to obtain a judicial sale; and (ii) the fact that a company had been put into liquidation did not affect the securities held by the receivers and managers; at least not until the secured creditors had been fully paid off. The secured creditors could therefore dispose of the securities despite the liquidation. The trial judge further said that receivers and managers were entitled to what the debenture provided for. The liquidator, being dissatisfied with the judgment of the court below appealed. Counsel for the first respondent relied on s 206(3) of the NLC which provided that the provisions of the NLC requiring a dealing to be effected in the statutorily prescribed manner shall not affect the contractual operation of any transaction relating to alienated land or any interest therein. The question for determination was whether the learned judge was right in holding as he did.

Held, allowing the appeal: (1) under common law mortgage, the rights and powers of the mortgagee were those which were incidental to the legal or equitable estate vested in him in his role as mortgagee; whereas in the statutory charge under the NLC, the rights and powers of the chargee were not derived from such estate since none was vested in him and so his rights and powers had to flow from the relevant provisions of the NLC with the charge taking effect as a security only, enforceable by proceedings in court to obtain a judicial sale; (2) the relevant provisions of the NLC, to wit, ss 254-265 of the NLC conferring the rights upon chargors aforsesaid were designed for their protection. In the case of land held under Land Office title, the form of title corresponding to Land Office title or subsidiary title, the chargee made his application for order for sale to the Land Administrator, in accordance with the procedure laid down in s 260 et seq of the NLC and these were also designed for the protection of the chargor. However, in considering such an application, the powers of the Land Administrator were limited. Thus, any objection as to the validity of the charge had to be taken before the courts for it was no defence in the inquiry before the Land Administrator; (3) not every transaction in alienated land entered into by a person or bodies referred to in s 43 of the NLC conferred rights in rem but only such dealings which fell within the meaning and ambit of the definition of `dealing' in s 5 of the NLC. It followed therefore that s 108 of the Act was not an independent source for the creation of an interest in land. Sale by debenture of land charged under the NLC was nowhere provided for by statute. Section 108 of the Act appeared to have been enacted without regard to the differences between the English law of mortgages and the statutory charge under the NLC; (4) the provisions of the NLC as to the rights of chargors were designed for their protection and could not be waived nor could the chargor contract himself out of the NLC. It followed, therefore, that no power of sale could be conferred by a chargor under the NLC on a chargee himself by way of a debenture or power of attorney or otherwise, but proceedings had to be brought by the chargee to obtain a judicial sale in accordance with the procedure laid down in the NLC. In such circumstances, any power of sale which purported to be conferred on a chargee himself, omitting all mention of notice and periods of default, by a debenture or power of attorney and the necessity for obtaining a judicial sale, would be invalid and ineffective to entitle a purchaser to be regarded as owner; (5) s 206(3) of the NLC contained an express provision which stated that the provisions of the NLC requiring a dealing to be effected in the statutorily prescribed manner shall not ` affect the contractual operation of any transaction relating to alienated land or any interest therein'. This provided statutory authority for the liberal application of equity whenever there was a basis for that. It was, however, a condition precedent for the application of s 206(3) that there was in existence a transaction relating to alienated land or an interest therein which was valid and enforceable as a contract. When the relevant provisions of the debenture relied upon by the first respondent as conferring upon it a power to sell the lands were void, the condition precedent for the application of s 206(3) was absent; (6) the provisions of the NLC setting out the rights and remedies of parties under a statutory charge over land comprised in Pt XVI were exhaustive and exclusive and any attempt at contracting out of those rights - unless expressly provided for in the Code - would be void as being contrary to public policy. Therefore, the receivers and managers were not entitled to sell the charged lands by virtue of the powers conferred upon them by the debenture without taking proceedings under the NLC to obtain a judicial sale; (7) since a charge took effect as a security only, enforceable by proceedings in court to obtain a judicial sale, it followed that with the advent of liquidation, any sale by the receivers and managers of the lands pursuant to the debenture would be a purported sale of property which belonged to the borrower company and the appellant would require the approval of the court under s 223 of the Act; (8) because a receiver and manager of any part of the undertakings of the corporation appointed under a power contained in any instrument was an officer of the corporation - and all officers of a corporation, whether past or present, were obliged to deliver up to the liquidator appointed by the court or as he directs: (i) all moveable and immovable property of the corporation in his custody or under his control; or (ii) all books and papers in his custody or control belonging to the corporation, being by law required to deliver up the same - the clear implication was that liquidation did not merely terminate the agency of a receiver and manager but also his powers on winding up, since there was no estate for the receiver and manager to administer; (9) the only persons who may be made respondents in misfeasance proceedings under s 305 of the Act were promoters, liquidators and officers. `Officer' included `a receiver and manager of any part of the undertaking of the corporation appointed under a power contained in any instrument', ie to say a privately-appointed receiver and manager, but did not include, inter alia: (i) any receiver who was not also a manager; and (ii) any receiver and manager appointed by the court or creditors. Orders might thus be made under s 305 of the Act against a privately-appointed receiver and manager; (10) (obiter) the prayer in the application by the receivers and managers `for leave to sell the lands' was not appropriate since if they were correct in their contention that the debenture did confer authority on them to sell the charged lands and to give a valid and registrable title to a purchaser, no leave would have been required. If, on the other hand, the debenture did not confer upon them the requisite authority to sell the lands, no leave could be given. It was because the receivers and managers had entertained some doubt about their authority under the debenture to sell the lands that the appropriate prayer for them to have inserted would have been for a declaration as to entitlement to sell the lands without resorting to proceedings under the NLC to obtain a judicial sale, and to give valid and registrable title to the purchaser.

Kimlin Housing Development Sdn Bhd (Appointed receiver and manager) (In liquidation) v Bank Bumiputra (M) Bhd & Ors [1997] 2 MLJ 805 Supreme Court, Kuala Lumpur (Lamin J, Edgar Joseph Jr FCJ and NH Chan JCA).

See land law, para II [75].

Harta Empat Sdn Bhd v Koperasi Rakyat Bhd [1997] 1 MLJ 381 Court of Appeal, Kuala Lumpur (NH Chan, Abu Mansor and Mokhtar Sidin JJCA).

One Lim Kon Kwee ('the borrower') borrowed RM3m from the plaintiffs ('the chargees'), a body registered under the Cooperative Societies Act 1948, by charging to them land, the registered owners of which were the defendants ('the chargors'), a private limited company. The transaction was in contravention of s 133 of the Companies Act 1965 ('the Act'). When the chargees applied for orders for sale in relation to the land charged, the chargors sought a declaration that the charges were invalid and therefore unenforceable. The issue before the court was the effect of the contravention of s 133 on a charge registered under the National Land Code ('the Code').

Held, declaring the charges invalid and ordering the return of the document of title: (1) the Companies Act 1965 may not affect cooperative bodies, but this does not prevent s 133 of the Act from protecting private limited companies, which are clearly covered by it; (2) the legislative intention behind the drafting of s 133 was not only to protect a company's shareholders and its creditors, but also to protect a company from the wrongful dissipation of its assets; (3) when a statute prohibits a contract by making the act of entering into such a transaction an offence, the contract is void, unless there is clear intention to the contrary, and the court should generally not lend its hand to enforce such a contract; (4) contravention of s 133 rendered the charge transaction illegal, void ab initio and unenforceable; (5) the court was satisfied that there existed thereby a 'cause to the contrary' as envisioned under s 256(3) of the Code, and would not order the sale of the land to which the charges relate; (6) for the above reasons, the chargors were entitled to have their documents of title returned to them without any restrictions on their rights by virtue of the invalid charge documents; (7) nevertheless, the chargees still have a right against the borrower himself despite the contravention of s 133 of the Act by virtue of s 13 of the Companies (Amendment) Act (No 2) 1992.

Cooperative Central Bank Ltd lwn Feyen Development Sdn Bhd OS No 31-266-86 High Court, Seremban (Faiza Tamby Chik J).

Lai Ah Kau & Anor v Public Prosecutor [1988] SLR 735 High Court, Singapore (Chua J).

See COMPANIES AND CORPORATIONS, Vol 3, para 145.

This appeal concerns the construction of two deeds. On 29 July 1980 A granted in favour of a bank a debenture which contained a charge by way of mortgage and a floating charge over all the assets of the company as security. The sums secured were payable and the security enforceable upon the happening of certain specified events. The bank was entitled to appoint a receiver at any time after payment of the sums secured had been demanded. By January 1988, the bank became entitled to enforce the security. However, the bank forbore to exercise their powers under the debenture and instead entered into a tripartite deed of guarantee with the company and R1. The deed was expressed to be supplemental to the debenture and contained a condition to the effect that all the conditions, powers, rights and remedies contained in the debenture should be deemed to be incorporated in the deed. By a deed of assignment dated 5 December 1988, the bank assigned to R1 the whole debt due and owing to it upon the security of the debenture and deed of guarantee together with the full benefit of all covenants, conditions etc conferred upon the bank by the debenture and deed. On 7 December 1988, R1 demanded payment from the company and appointed R2 as receiver. An action was brought against R1 in which A sought, inter alia, a declaration that R1 was not entitled to appoint the receiver and that his purported appointment was null and void.

Held: (1) the deed of guarantee was expressed to be supplemental to the debenture; (2) it was perfectly clear that when the two deeds are read together, the effect is that the bank agreed to waive their right to call up the sums due by the company so long as the company and R1 performed their obligations under the deed of guarantee. As soon as there was a failure of performance in those obligations the bank was entitled to exercise their powers under the debenture; (3) it follows that the appointment of the receiver by R1 as assignee of the bank was valid and effective.

Ramharry Garibdas & Ors v Gobin Singh & Anor Privy Council Appeal No 47 of 1990 Privy Council Appeal from Trinidad and Tobago (Lord Bridge of Harwich, Lord Ackner, Lord Oliver of Aylmerton, Lord Jauncey of Tullichettle and Lord Lowry).

On various dates in 1983 and 1984, the respondent ('the leasing company') assigned the book debts under 21 leasing agreements to the appellant ('the finance company') in consideration of the financial assistance given to it. The 21 leasing agreements or the book debts therein were assigned in pursuance of the terms of a master agreement ('the master agreement'). In June 1985, the leasing company executed a debenture in favour of Perwira Habib Bank Malaysia ('the debenture holder') under which a floating charge was created over all the undertakings and assets of the leasing company as security for some loan facilities granted by the debenture holder. The leasing company later defaulted. In October 1986, the floating charge was cystallized, and the debenture holder appointed a receiver and manager for the leasing company. The finance company, as assignee, then applied for a declaration, inter alia, that the leasing company held the rights and property in respect of the lease agreements as trustees for the finance company pursuant to the master agreement. The debenture holder alleged that the leasing company was its debtor, and claimed as an intervener for all payments in respect of the 21 leasing agreement. Counsel for the debenture holder argued that the debenture holder took the 21 leasing agreements bona fide for value without notice of the right of the finance company, as the finance company had failed to register the master agreement with the Registrar of Companies under s 108 of the Companies Act 1965. The High Court allowed the the debenture holder's claim on the ground that there was no trust in favour of the the finance company as the debenture holder was entitled to priority. Hence, the appeal by the the finance company.

Held, allowing the appeal: (1) debts or book debts are choses in action which are categorized under personal property. Subject to statutory intervention, all kinds of personal property are subject to the nemo dat rule, from which flows the consequence that nobody can claim any personal property against the real owner of that personal property; (2) the true nature of an assignment of a debt or book debt is such that it can only be transferred by way of assignment; (3) no known statute has modified debts or book debts effectively to interfere with the application of the nemo dat rule to them. In other words, there is no known statute which protects a subsequent bona fide buyer of a book debt for value without notice. Thus, the the finance company's title in the debts could not be possibly affected by any 'bona fide buyer for value without notice'; (4) principles of equity as regards land cannot be applied to personal property at all, or without modifications because of the basic inherent difference between land and personal property; (5) when the debenture was executed by the leasing company in June 1985, the undisputed assignments of the 21 leasing agreements had already taken place on various dates in 1983 and 1984, so that applying the nemo dat rule, the floating charge created by the execution of the debenture could not cover the book debts in respect of the leasing agreements for there was nothing left to cover. The leasing company could not assign in equity to the debenture holder something which the leasing company did not already own or have, and the nemo dat rule applied; (6) the leasing company was not the debtor of the debts which was the subject matter of the assignment.The debtors in respect of the assignment of those 21 leasing agreements were the hirers and hire-purchasers who have never been parties to the proceedings. There was no evidence as to whether the the finance company or the debentur holder had given notice to such hirers and hire-purchasers. Thus, on the basis of notice of assignment to the debtors, the real competing claims of the debenture holder and the the finance company respectively for so-called priority had not even begun to arise in this particular appeal; (7) the trust in favour of the the finance company existed as there was: (i) certainty of words in the provisions of the master agreement in the face of the very words used such as 'on trust' and 'trustee'; (ii) certainty of the subject matter in the contract rights and property in the leasing agreements; and (iii) certainty of object in that the fact of the assignee being the recipient of the payments and the beneficial owner of the contract rights and the property in the goods in question has been clearly and expressly stated.

Public Finance Bhd v Scotch Leasing Sdn Bhd (in receivership) (Perwira Habib Bank Malaysia, Intervener) [1996] 2 MLJ 369; (1996) CSLR XVI[953] Federal Court, Kuala Lumpur (Lamin PCA, Peh Swee Chin and Wan Yahya FCJJ).

By a deed the Municipality of Kuala Lumpur created a debenture in favour of the Hongkong and Shanghai Banking Corp to secure a proposed overdraft. The deed contained two main clauses: the first set out the terms agreed upon with detailed provisions as to calculation of interest; the second, after referring to the statutory powers of the municipality to hold property and levy rates, 'charges with the payments mentioned in cl I all the real and personal property and the revenues of the municipality, present and future, by way of floating security'. This debenture was prepared by the solicitors for the bank but the costs were ultimately payable by the municipality. The bank's solicitors drew up their bill of costs as follows: 'To our professional charges attending conferring and advising as to a debenture for $2,000,000 to be executed in your favour by the Kuala Lumpur Municipality and taking instructions to prepare debenture. Drawing and preparing draft debenture attending you going into same and attendance on solicitors for the municipality and all other attendances, correspondence etc $4,827.40. Scale fee = $6,435.40, less 25% Ð $1,608.00 = $4,827.40.

Held: the debenture was not a conveyance and as Part I of Schedule III was confined to sales, purchases and charges, the bill of costs in relation to this debenture came under Schedule IV of the Advocates and Solicitors Ordinance 1947.

Municipality of Kuala Lumpur v Solicitors for Hongkong and Shanghai Banking Corp [1950] MLJ 184 Court of Appeal, Federation of Malaya (Willan CJ, Pretheroe and Taylor JJ).

A trust deed was expressed, according to the recitals contained in it, to secure certain debenture stock 'in perpetuity or in the alternative payable only on the winding up of the company' or on default of payment of interest by the company. The company went into voluntary liquidation and thereupon sought to redeem the charge created.

Held: on the construction of the deed, the company were entitled to redeem on winding up and whether the liquidation was voluntary or for the mere purpose of discharging the security or otherwise. The company could, under the terms of the deed, create a situation in which they could pay off the security.

Shanghai Klebang Rubber Estate Ltd v Banking and Trading Corp Nauden Ten, Gate and Adams [1917] 15 SSLR 10 Court of Appeal, Straits Settlements (Bucknill CJ, Woodward and Sproule JJ).

In 1982 P1 Sdn Bhd executed a debenture over its assets in favour of P2 as consideration for the granting of overdraft facilities by the latter to the former. The debenture provided, inter alia, that P1 Sdn Bhd irrevocably undertook to assign the benefit of future contracts to be executed by P1 Sdn Bhd in favour of P2. In 1984 P1 Sdn Bhd executed a second debenture in P2's favour. Both the debentures were registered under the Companies Act 1965. D2-D3 as main contractors for erecting a building, appointed P1 Sdn Bhd to supply and install glass materials for the building ('the sub-contract'). P1 Sdn Bhd in turn contracted with X for the supply of the glass materials. D1 financed X's purchase of the glass by firstly requiring X to issue trust receipts in D1's favour. As further security P1 Sdn Bhd executed an agreement whereby P1 Sdn Bhd purported to assign absolutely all benefits under 'the sub-contract' to D1 ('the assignment'). D2-D3 also undertook to pay the proceeds of 'the sub-contract' directly into P1 Sdn Bhd's account with D1. The glass materials were eventually purchased and installed. Subsequently P2 appointed receivers and managers for P1 Sdn Bhd pursuant to the debentures. P1-P2 applied to the High Court for, inter alia, a declaration that D1's interest in 'the assignment' was subject to P2's interest in the debentures.

Held, granting the declarations: (1) D1 had title to the glass by virtue of the trust receipts and X held them on trust for D1. Thereupon X assumed the role of D1's mercantile agent and in that capacity X completed the sale and delivery of the glass to P1 Sdn Bhd whereupon P1 Sdn Bhd obtained good title to the glass. Any proceeds of the sale of the glass receivable by X had to be held on trust for D1; (2) X, however, was never paid for the glass. Accordingly there was nothing in X's hands to hold on trust for D1; (3) D1's argument that it was entitled to invoke the doctrine of following trust money or that into which it had been converted, did not apply because firstly since no payment was received for X's sale, there was nothing held in trust and in any event the doctrine only applied where there was a fiduciary relationship between the parties. In this case, there was no such relationship between P1 Sdn Bhd and D1; (4) in the face of the debentures, P1 Sdn Bhd could not properly assign its interest in 'the sub-contract' without P2's written consent. Since the debentures were duly registered, D1 was deemed to have notice of them and of their terms and conditions. Accordingly D1 had to get behind P2 in the queue.

Aluminex (M) Sdn Bhd & Anor v United Malayan Banking Corp Bhd & Ors [1992] 1 MLJ 435 High Court, Kuala Lumpur (VC George J).

[Annotation: Reversed on appeal. See [1993] 3 MLJ 587.]

The first respondent, Aluminex (M) Sdn Bhd ('Aluminex'), had issued two debentures ('the debentures') in favour of the second respondent, United Asian Bank Bhd ('UAB'), in consideration of overdraft facilities granted to Aluminex by UAB. The debentures were lodged and registered at the Registry of Companies, and provided, inter alia, that Aluminex was not to be at liberty to create, save with the written consent of UAB, any other mortgage, debenture (whether fixed or floating), charge, pledge or lien ranking in priority to or pari passu with the debentures. Aluminex was later appointed the sub-contractor under a building contract ('the sub-contract') and was to design, supply and install a glass curtain walling and frameless glazed screen. Subsequently, Aluminex executed an assignment ('the assignment') in favour of United Malayan Banking Corporation Bhd ('UMBC'), to secure the payment of moneys advanced ('the advance') to Aluminex's supplier, Ming Sing Glass Sdn Bhd ('Ming Sing'), for the purchase of glass which was to be used by Aluminex in the sub-contract. The assignment provided, inter alia, that Aluminex absolutely assigned to UMBC the sub-contract and all moneys due and payable to Aluminex under the sub-contract and all benefits, rights and advantages contained therein. The assignment was registered as a charge by Aluminex at the Registry of Companies. In the events which transpired, the amounts owing by Aluminex to UAB caused UAB to appoint receivers and managers under the debentures, thereby causing them to crystallize. The attention of the receivers and managers was then drawn to the fact that, pursuant to the assignment, a sum of RM285,811.88 payable to Aluminex as progress payments under the sub-contract, had been paid to UMBC, who had paid the same into a special account. At this point, a dispute arose between UAB and UMBC relating to the respective priorities of the charges created by the debentures in favour of UAB and the charge created by the assignment in favour of UMBC. The judge, at first instance, determined the priority dispute in favour of UAB. [See [1992] 1 MLJ 435.] UMBC has appealed. The submissions of counsel for UMBC were twofold, that: (i) UMBC was entitled to priority since the glass was, at all material times, subject to an equitable charge in its favour; and (ii) alternatively, the assignment amounted to a subsequent fixed charge in respect of the book debts of Aluminex, which took priority over the debentures of UAB, since the debentures had not crystallized at the date of the assignment and UMBC did not have express notice of the restrictions in the debentures.

Held, allowing the appeal: (1) the advance made by UMBC to Ming Sing was used to acquire the glass from Korean suppliers and was also the means whereby Aluminex obtained delivery of the glass for purposes of fulfilling its obligations under the sub-contract and, without which, Aluminex could not have done so. Clearly, therefore, the advance by UMBC was a purchase money advance and the assignment had created a security for the purchase of the glass; (2) the determination of the priority issue, involving the prior chargee invoking an after-acquired property clause and the holder of the purchase money security interest, depended upon the sequence of the financing operations. Although UAB's debentures were prior in time and contained restrictions on Aluminex's power to create later prior-ranking charges, save with the written consent of UAB, that did not confer upon UAB and their receivers, a charge over anything more than Aluminex itself had over the additional asset, which was merely the right to acquire beneficial ownership to accompany the legal ownership of the glass, upon payment of the full purchase price therefor. One cannot pick out the benefit of an asset without also accepting the encumbrance on it; (3) although the legal title in the glass had passed to Aluminex on delivery, it was never for one moment the unencumbered property of Aluminex and was subject to the equitable charge in favour of UMBC. The debentures could only 'bite' if the glass had passed unencumbered to Aluminex, which it had not. In other words, the additional asset acquired by Aluminex, ie the glass, was subject ab initio to UMBC's security interest constituted by the assignment and the only interest Aluminex had acquired was the right to acquire beneficial ownership to accompany its legal ownership upon payment of the full purchase price to UMBC. The absence of a retention of title clause in the assignment was therefore irrelevant, especially since the assignment was a security for the advance for the purchase of the glass; (4) cl 14(s) of the debentures specifically permitted Aluminex to enter into any transaction in the ordinary course of business, on ordinary commercial terms, without having to obtain the consent of UAB. In issuing the assignment before the crystallization of the debentures without the consent of UAB, Aluminex was acting well within the license or power conferred upon it by the debentures; (5) although when UMBC took the assignment and registered it as a charge, it was aware of the existence of the prior registered debentures held by UAB, notice of a debenture creating a floating charge did not constitute notice of the terms thereof, including restrictive clauses forbidding the creation of later charges ranking in priority to or pari passu with the charge containing the clause; (6) whilst it was true that the legal title in the glass passed to Aluminex upon delivery pursuant to the contract of sale, Aluminex knew and consented to the glass being subject to the equitable charge in favour of UMBC. There was never any absolute sale of the glass to Aluminex, who took the glass subject to the rights of UMBC. All that Aluminex acquired was an interest in the equity of redemption. Therefore, the debenture holder, UAB, being in the position of an equitable assignee, could not be in a better position than the assignor, Aluminex; (7) if, contrary to the court's primary view, the assignment did not give rise to an equitable charge in the glass in favour of UMBC as unpaid seller, then, upon the evidence of this case, the assignment amounted to a subsequent fixed charge in respect of the book debts of Aluminex, which took priority over the debenture of UAB, since the debenture had not crystallized at the date of the assignment and UMBC did not have express notice of the restrictive clause priority over UAB and the sum of RM285,811.88 held with UMBC, together with all interest accrued, was to be paid out to UMBC forthwith, in repayment of the advance granted by UMBC to Ming Sing; (8) the balance sum of RM290,283.20 due under the sub-contract, together with all other sums due under the sub-contract (except the sum of RM285,811.88 and interest thereon), was to be paid by the main contractors (the second and the third defendants at first instance) to Aluminex. UMBC was allowed the costs of the proceedings, both of the appeal and in the court below and, the deposit for security for costs of the appeal was refunded to it; (9) (per curium) should the purchase money financier fail to take the precaution of obtaining a binding agreement for a mortgage before completion of the mortgage, there would be an instant of time (scintilla temporis) between the acquisition of the new asset by the debtor and the attachment of the subsequent purchase money security interest, so that the charge over after-acquired property clamps down at that instant, with the result that the purchase money financier takes subject to the interest of the holder of the charge over after-acquired property; (10) (per curium) the expression 'ordinary course of business' was not confined to what was, in fact, ordinarily done in the course of a particular business of the company, so that transactions would be within this principle even though, they be, in relation to the company, exceptional or unprecedented.

United Malayan Banking Corp Bhd v Aluminex (M) Sdn Bhd & Anor [1993] 3 MLJ 587 Supreme Court, Malaysia (Mohd Azmi, Peh Swee Chin and Edgar Joseph Jr SCJJ).

Emar Sdn Bhd (under receivership) v Aidigi Sdn Bhd and another appeal [1992] 2 MLJ 734 Supreme Court, Malaysia (Harun Hashim, Mohamed Azmi and Edgar Joseph Jr SCJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 367.

See companies and corporations, para VIII [43].

Kimlin Housing Development Sdn Bhd (Appointed receiver and manager) (In liquidation) v Bank Bumiputra (M) Bhd & Ors [1997] 2 MLJ 805 Supreme Court, Kuala Lumpur (Lamin J, Edgar Joseph Jr FCJ and NH Chan JCA).

Banque Bruxelles Lambert & Ors v Puvaria Packaging Industries (Pte) Ltd (in liquidation) [1994] 2 SLR 35; CSLR VI[23] Court of Appeal, Singapore (Yong Pung How CJ, Karthigesu and LP Thean JJA).

See COMPANIES AND CORPORATIONS, Vol 3, para 103.

3 [81] COMPANIES AND CORPORATIONS Derivative action – Application for preliminary issues to be tried – Whether exception to rule in Foss v Harbottle applicable – Whether company entitled to the reliefs sought – Objection to application – Proper time for determining issues

The first, second, third and fourth defendants took out a summons seeking an order for questions or issues to be tried and determined as preliminary questions or issues before the trial of the action. The plaintiffs were shareholders in the fifth defendant company. The application sought an order to determine: (a) whether the plaintiffs have established a prima facie case and are entitled to the reliefs claimed; (b) whether the plaintiffs are barred from bringing the action by the rule that the proper plaintiff in an action in respect of an alleged wrong done to the company is the company itself and not its shareholders; and (c) whether the plaintiffs fall within any exception to that rule on the basis of the matters disclosed in the amended statement of claim. The plaintiffs objected to the application and submitted that the facts and law were closely and inseparably intertwined, that complex issues were involved, and that considerable details of fact including a question of fraud needed to be gone into which could only be done in a full trial. Furthermore, they contended that there was no independent board in the fifth defendant company and that the company had not engaged any counsel nor taken any stand in the proceedings. Previous applications had also dealt with the two preliminary issues raised and therefore issue estoppel applied. The applicants, however, stated that the issues under the summons involved examination of the pleadings and that little evidence would be required.

Held, dismissing the plaintiffs' objections: (1) the basic rule of law is that the only proper plaintiff in proceedings to redress a wrong against a company or to enforce a right of a company is the company itself. However, difficulties and injustice arose where the majority of the directors or shareholders were the wrongdoers or benefitted by the wrong because they would not sanction the bringing of actions by the company. To overcome the problem, exceptions to the rule have developed where minorities can bring a derivative action against the wrongdoers, joining also the company as a defendant; (2) in a derivative action, before such an action is allowed to proceed, the defendants are entitled to ask for determination as a preliminary issue whether the plaintiffs have established a prima facie case (i) that the action falls within the proper boundaries of the exception to the rule in Foss v Harbottle, and (ii) that the company is entitled to the relief claimed; (3) what is required to be established is a prima facie case so as to avoid unjustifiably subjecting the company to a full trial in order to enable the court to determine whether the plaintiffs were entitled in law to make the company undergo the entire action. Trial of the preliminary issues is to this end; (4) leaving the preliminary issues to be dealt with at the commencement of the trial of the main action necessarily means that all are set for the trial including the subpoena and presence or attendances of witnesses of both sides. On the other hand, if the preliminary issues are disposed of in advance, preparatory works for the trial as aforesaid may or may not be necessary depending upon the result of the present application. An early disposal of the present application which would undoubtedly place parties in a clearer position as to whether anything needs to be done in the conduct of the case is to be preferred.

Huang Ee Hoe & Ors v Tiong Thai King & Ors [1991] 2 MLJ 51 High Court, Sibu (Chong Siew Fai J).

D2 was placed under judicial management in 1988. P was a minority shareholder in D2. He alleged that D1, the managing director, had committed breaches of duty towards the company by taking a tenancy that should have gone to the company. P brought an action against D1 and D2. By ex parte order D3, owners of the premises, were joined as defendants. D3 applied to set aside the order joining them as defendants.

Held, granting the application: (1) while a company is under judicial management, the power of management vests in the judicial managers. They were the proper persons to institute proceedings against D3; (2) accordingly, P had no locus standi to commence an action against D3 and therefore the order joining them as defendants was set aside.

Heng Mui Pheow v Tan Ting Koon & Ors [1989] SLR 651 High Court, Singapore (Chan Sek Keong J).

Paidiah Genganaidu v Lower Perak Syndicate Sdn Bhd & Ors [1974] 1 MLJ 220 Federal Court, Ipoh (Ali, Ong Hock Sim and Raja Azlan Shah FJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 282.

R & Co had been for many years managing agents and secretaries of MC Ltd and during that time had, with the knowledge and approval of the directors of MC Ltd, carried on their own business, which included dealing in options to purchase lands. In September 1920, on the instructions, and on behalf of MC Ltd, they negotiated for an option to purchase a certain coal-bearing property situated in Dutch Borneo. At the same time they negotiated for, and subsequently obtained, for themselves, an option to purchase another coal-bearing property, also situated in Dutch Borneo. This latter property they purported to sell to MC Ltd at a price payable partly in cash and partly in shares of MC Ltd. The profits which they took over the transaction amounted to 80,000 shares of MC Ltd, and involved an increase of the issued capital of MC Ltd from 230,000 to 310,000 shares. Both before and after the purported sale, R & Co and their managing partner, who was also chairman then of directors of MC Ltd, made representations to the shareholders implying that R & Co were acting in the matter as agents of MC Ltd. On 16 August 1922, after the plaintiff had applied to the court for an order permitting him to institute this suit, but before the order was made, an extraordinary general meeting of MC Ltd was held at the instance of the directors for the purpose of passing a resolution that certain charges preferred by the plaintiff against the first and second defendants in respect of their conduct in this matter should be referred to referees for enquiry and report. The resolution was carried by means of the votes owned or controlled by the first and second defendants. The plaintiff sought to propose a resolution authorizing the directors to cause the company to be joined as a plaintiff in the suit which he was about to institute. The resolution sought to be proposed was ruled out of order. If it had been put, it would, by means of the proxies held by the plaintiff, have been carried by a large majority, provided that the votes owned or controlled by the first and second defendants were not taken into account.

Held: (1) the option which R & Co purported to sell to MC Ltd was acquired by them as agents for MC Ltd and was held by them as trustees for MC Ltd; (2) R & Co were by their conduct precluded from denying that they acquired the option as agents for MC Ltd; (3) and that, therefore, the plaintiff was entitled to maintain the suit; (4) to permit R & Co to retain the profits which they had taken was not ultra vires MC Ltd, in the sense that the whole body of shareholders could not permit it, even though each individual shareholder might desire to permit it; but that it was beyond the powers of a majority of the shareholders to permit it, because, having regard to the magnitude of the transaction and its effect upon the shareholders' interests, to condone the act of R & Co would be not merely a matter of internal management, but an act of oppression upon the dissentient minority;the fact that at the meeting of (16 August 1922, there was, if the votes owned or controlled by the first and second defendants be left out of account, a majority who had given their proxies to the plaintiff, was sufficient to let the plaintiff in to sue.

Peck v Russell [1924] 4 FMSLR 194 High Court, Federated Malay States (Whitley J).

[Annotation: Related proceedings in (1923) 4 FMSLR 32.]

3 [85] COMPANIES AND CORPORATIONS Derivative action – Fraud on the minority – Exceptions to rule in Foss v Harbottle

When a shareholder alleges a fraudulent transaction on the part of a director and of the agents and secretaries of the company which has caused injury to the company as a body and to the shareholder as an individual, an action by the shareholder is not a dispute concerning the internal management of the company with which the court should decline to interfere at the instance of a minority although the transaction was ratified by a majority. Some fraudulent transactions may be condoned so as to prevent a minority from suing, but others may be within the power of the company to confirm, but not within the power of the majority to force upon the minority. A difficult point like this should not be decided on a preliminary objection to the plaint as not disclosing a cause of action. It should be decided after the facts have been investigated, when the court will be in a better position to judge whether the rule in Foss v Harbottle 67 ER 189 should be applied or whether the case is one of the exceptions. In most of the English cases the point was raised at the trial. A plaintiff should not be shut out from resort to the court except on the clearest grounds. It is better to run the risk of interfering with the internal management of a company than to run the risk of denying justice to a party by refusing to hear his case.

Peck v Russell [1923] 4 FMSLR 32 Court of Appeal, Federated Malay States (Woodward CJC, Watson and Reay JJC).

The seven plaintiffs were shareholders of the first defendant ('the defendant company'). The second defendant was the managing director and also a shareholder of the defendant company. The plaintiffs alleged that the second defendant had unlawfully and fraudulently sold the shares of one MGR Corporation Sdn Bhd ('MGR') which were owned by the defendant company to the third defendant. It was alleged that the second defendant had knowledge that MGR would be listed in the Bursa Saham Kuala Lumpur, but he did not impart that knowledge to the plaintiffs. It was further alleged that the second defendant then called for an EGM of the defendant company which then authorized the proposed sale of the MGR shares to the third defendant, who was related to the second defendant, at a low price. The plaintiffs also alleged that when MGR was subsequently listed in the Bursa Saham Kuala Lumpur, the value of its shares increased, and thus the third defendant had profited while they suffered pecuniary losses as shareholders of the defendant company. Therefore, the plaintiffs brought a civil suit against all the three defendants, and filed a summons-in-chambers praying for an injunction to restrain the defendant company and the second defendant and/or their agents from disposing of the MGR shares, and to restrain the registration of the executed memorandum of transfer in respect of the shares. The ex parte injunction prayed for by the plaintiffs was granted by the court. The defendants then applied to have the ex parte injunction against them set aside.

Held, allowing the defendants' application: (1) it is an elementary principle of the law relating to joint stock companies that the court will not interfere with the internal management of companies acting within their powers, and in fact has no jurisdiction to do so. Again, it is clear law that in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should prima facie be brought by the company itself. These cardinal principles were laid down in Foss v Harbottle 2 Hare 261 and Mozley v Alston 1 Ph 790; (2) however, an exception is made to the rule, where the persons against whom the relief is sought themselves hold and control the majority of the shares in the company, and will not permit an action to be brought in the name of the company. In that case the courts allow the (minority) shareholders complaining to bring an action in their own names; (3) however, in such an action the (minority) plaintiffs cannot have a larger right to relief than the company itself would have if it were the plaintiff, and cannot complain of acts which are valid if done with the approval of the majority of the shareholders, or are capable of being confirmed by the majority. The cases in which the minority can maintain such an action are, therefore, confined to those in which the acts complained of are of a fraudulent character or beyond the powers of the company, but, it should be added that no mere informality or irregularity which can be remedied by the majority will entitle the minority to sue, if the act when done regularly would be within the powers of the company and the intention of the majority of the shareholders is clear; (4) in the instant case, it was in dispute as to whether the plaintiffs were indeed the minority shareholders of the defendant company. The plaintiffs collectively owned 43.7% of the shares of the defendant company while the second defendant had 25.6%. Thus while the plaintiffs would hardly appear to be in the minority as compared to the second defendant, they could still be considered as the minority shareholders in that they control less than 50% of the shares of the defendant company on the whole; (5) however, even if the plaintiffs were actually the minority shareholders, there was no evidence to suggest that they had tried to resolve their grievances either in the boardroom of the company, or at the floor of its general meeting; (6) there was also no evidence that the second defendant and/or the other shareholders had refused to allow an action to be brought in the name of the defendant company; (7) furthermore, damages would appear to be an adequate remedy for the pecuniary losses allegedly suffered by the plaintiffs; (8) the balance of convenience was in the favour of the defendants. The sale of the MGR shares had been completed and the purchase price had been paid in full by the third defendant, while on the other hand, the plaintiffs were only claiming for financial losses for which they could be adequately compensated with damages; (9) (10) in the instant case, the plaintiffs only applied for the injunction to restrain the defendants six months after the AGM of the defendant company which authorized the sale of the MGR shares to the third defendant, and four months after the completion of the sale of the shares. Further, no explanation was advanced by the plaintiffs as to their delay in making the application. Such a delay was, therefore, unreasonable in the circumstances; (11) discretionary remedies are exceptional in their nature and will not be made available to those who sleep on their rights;the inevitable conclusion was that the plaintiffs were not the persons who should have instituted the instant proceedings against the defendants. At the very least, the action instituted by the plaintiffs wasly, the ex parte injunction that had been made against the defendants was set aside.

Alor Janggus Soon Seng Trading Sdn Bhd & Ors v Sey Hoe Sdn Bhd & Ors Civil Suit No 22-109-9 High Court, Pulau Pinang (Abdul Hamid J).

The plaintiff was a shareholder of the seventh defendant, Tunas Murni Sdn Bhd ('Tunas Murni'), who had allegedly been oppressed. He owned 46.7% of the shares of Tunas Murni. The other shareholders of Tunas Murni were the second defendant, Wong Akau ('Wong'), who owned 15% and one George Thomas who owned 38.3%. Tunas Murni purchased several pieces of land ('the land') at a purchase price of RM7.7m, which was allegedly paid for, inter alia, with RM3m that was borrowed by the plaintiff after charging his family home. Through an agreement dated 8 June 1993 ('the agreement'), Tunas Murni appointed the first defendant ('Krubong') to subdivide the land into industrial lots and to organize the development of a project on the lots. As consideration, Krubong was to settle all the loans obtained by Tunas Murni and the plaintiff. Besides that, Krubong also had to pay Tunas Murni RM5m according to the schedule to the agreement. The plaintiff alleged that to carry out the agreement, Tunas Murni and Krubong executed a limited power of attorney which was merely intended to facilitate Krubong's affairs in developing and selling the industrial lots concerned. Krubong failed to follow the terms of the agreement and failed to make any payment to Tunas Murni in accordance with the schedule to the agreement. Krubong, assisted by Wong and the third defendant, without the knowledge of Tunas Murni, illegally signed a Form 14A transferring the title of the lands to Krubong on 29 August 1994. The plaintiff alleged that Krubong had apparently succeeded in owning the land free of charge and proceeded to commence this derivative action praying for several declarations against the defendants as well as consequential orders. The plaintiff contended that a fraud had been committed by the majority shareholders which adversely affected the minority interests through the losses befalling Tunas Murni. The plaintiff contended that the land had been purchased by Tunas Murni, and Krubong was only given a limited right to carry out certain transactions. Krubong, however, alleged that the purchase of the land was between Krubong and the vendor and not between Tunas Murni and the vendor. Tunas Murni was merely used in the transaction and on mutual agreement, Tunas Murni would be paid RM5m. Krubong also said that it was entitled to transfer the title to the land to itself because the power of attorney allowed such an action. The key issue which arose in this case was whether there was fraud on the minority which entitled the plaintiff to bring this derivative action.

Held, dismissing the application: (1) a company is an entity separate from its shareholders and thus, any shareholder cannot bring a court action to enforce the rights of the company. The proper party to bring the court action for that purpose is the company itself except where there is an ultra vires act by the company or when fraud is committed on the minority shareholders by wrongdoers who control the company; (2) to prove the existence of fraud, the plaintiff must prove its case beyond the balance of probabilities. The allegation of fraud must be brought home to the party alleged to have committed the fraud. Further, the fraud must be actual fraud and not constructive fraud; (3) and (iii) the power of attorney that was signed by Tunas Murni and Krubong gave a rather wide ranging power to Krubong; (4) and (ii) there was no particularization of the fraud alleged by the plaintiff; (5) to prove fraud in the transfer of title to the land so that s 340(2)(a) of the National Land Code 1965 came into play, the plaintiff had to prove his case beyond a reasonable doubt. On the facts of the case, the plaintiff had failed to prove his case; (6) on the facts of the case, the allegation of the plaintiff that Tunas Murni was the party that actually purchased the land did not convince the court. Amongst others: (i) Krubong had written to the vendor allowing the land which had been purchased by Krubong to be registered in the name of Tunas Murni; (ii) the affidavit dated 14 February 1995 signed by the plaintiff confirmed that Tunas Murni had been used for the purpose of all the relevant transactions;the plaintiff had not succeeded in proving that fraud had been committed by the majority shareholders which adversely affected the minority interests. Amongst others: (i) the non-naming of George Thomas in the category of defendants to fulfil the condition of majority shareholders raised several questions;As the plaintiff had failed to prove fraud by the majority shareholders, he did not have the right to bring this derivative action.

Abdul Rahim bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd & Ors [1995] 2 MLJ 130 High Court, Malacca (Suriyadi Halim Omar JC).

[Annotation: The judgment was delivered in Bahasa Malaysia. Affirmed on appeal. See [1995] 3 MLJ 417.]

3 [88] COMPANIES AND CORPORATIONS Derivative action – Striking out of – Plaintiff purporting to act for majority of shareholders – Whether exception to rule in Foss v Harbottle applicable – Rules of the High Court 1980, O 6 r 3(1)(a) & O 18 r 19

The plaintiff and J (the second defendant) were both shareholders and directors of a company S Co (the first defendant). S Co entered into a contract with H (the third defendant) by which H agreed to pay to S Co a sum of money for work to be performed by S Co. S Co performed the work and H paid the money to J by way of payment to S Co. Allegedly J misappropriated the money and never deposited it into the bank account of S Co. The plaintiff brought an action on behalf of S Co purportedly as a derivative action for the benefits of S Co and all its shareholders other than J. There were four shareholders in S Co, and their respective shareholdings (shown in brackets) were: the plaintiff (99,999), J (99,999), I(1) and Y(1). The third defendant applied to strike out the plaintiff's action, one of the grounds being that the plaintiff's derivative action was defective for want of a statement of the capacity in which the plaintiff sued as required by O 6 r 3 (1)(a) of the Rules of the High Court 1980 (RHC) and for failure to establish that the action was not brought by the minority shareholders.

Held, allowing the third defendant's application: (1) O 6 r 3(1)(a) of the RHC applied to a derivative action; (2) on the given facts, it was clear that the plaintiff together with I and Y constituted the majority shareholders and therefore could not bring the derivative action on behalf of S and the other shareholders. The plaintiff did not come within any of the exceptions to the rule in Foss v Harbottle.

Chooi Chee Sum v Salehsan Ð Tech Thye Sdn Bhd & Ors (1995) CSLR X[141] High Court, Kuala Lumpur (Abu Samah JC).

Mooney & Ors v Peat, Marwick, Mitchell & Co & Anor [1967] 1 MLJ 87 High Court, Kuala Lumpur (Raja Azlan Shah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 39.

The petitioner sought relief under s 181 of the Companies Act 1965 (Act 125). The second respondent objected to the petitioner's application to amend the petition by the addition of an additional prayer which sought to make the second respondent personally liable to pay damages to the first respondent for alleged breaches of his fiduciary duties as a director of the first respondent. The second respondent contended that the petitioner, being only a minority shareholder of the first respondent, cannot question acts done by him as the director of the first respondent for the reason that if a majority of the shareholders of the first respondent is in favour of what he has done, the petitioner's right to question such action no longer exists. The second respondent submitted that the petitioner had to file another writ by way of a derivative action.

Held, dismissing the objections: since there is now statutory sanction (under s 181(1) and (2) of the Companies Act 1965) for a shareholder with a minority interest in a company to institute proceedings against directors conducting the affairs of the company in a manner prejudicial to the company, there is no longer any need for a derivative action to be filed by the petitioner as that would amount to a duplicity of actions relating to the same subject matter.

Automobiles Peugeot SA v Asia Automobile Industries Sdn Bhd & Ors [1988] 3 MLJ 209 High Court, Kuala Lumpur (Siti Norma Yaakob J).

P was a shareholder of D1 Sdn Bhd. D1 Sdn Bhd was given credit facilities by creditors including D2. D1 Sdn Bhd executed a debenture in favour of D2 as trustee for all of D1 Sdn Bhd's creditors. P guaranteed D1 Sdn Bhd's repayment of the credit facilities to D2. D2 subsequently appointed D3 as D1 Sdn Bhd's receiver and manager under the debenture. D3 then proceeded to sell D1 Sdn Bhd's assets to X. P applied to the High Court to, inter alia, restrain D1-D3 from selling the assets of D1 Sdn Bhd. P firstly claimed that the action was commenced in its dual capacity as a shareholder of D1 Sdn Bhd and as its guarantor. P also argued that D3 as receiver and manager owed a duty of care to P as the guarantor in disposing of D1 Sdn Bhd's assets.

Held, dismissing the application: (1) P as the shareholder and guarantor could not bring this derivative action because P was not the proper party to seek the relief sought for in this application; (2) before a mortgagee can be restrained from selling mortgaged property, he must be shown to have acted in bad faith or fraudulently. In this case, P had not pleaded that D3 had acted in bad faith or fraudulently. If bad faith or fraud had been pleaded, then the court could go into the merits of the application and determine whether there was a triable issue.

Malaysian Ropes Sdn Bhd v Malaysian Prestressed Concrete Strand Manufacturing Sdn Bhd & Ors (1992) CSLR X[133] High Court, Kuala Lumpur (Zakaria Yatim J).

B Sdn Bhd was the majority shareholder of company D9 which in turn was the majority shareholder of company D8. P1 was a shareholder and director of both B Sdn Bhd and D9. P2 was a shareholder of D8. D1-D2 were the directors of both D8 and D9. D3-D7 were the directors of D8 while D10-D11 were its joint secretaries. Notice of D8's extraordinary general meeting (EGM) was given to pass a resolution to increase D8's issued and paid-up capital by way of a rights issue. P1-P2 obtained an ex parte interlocutory injunction to restrain the holding of D8's EGM. P1-P2 alleged that the calling of the EGM by D1-D7 was not a proper and/or bona fide exercise of their powers as directors of D8 because the calling of the EGM was to effect a change in the control of D8 in favour of D1-D7. D applied to discharge the interlocutory injunction. D claimed that the purpose of increasing D8's capital was to finance the cost of developing D8's property and to reduce D8's bank borrowings. D argued that P1 had no locus standi to maintain the suit against D8 because P1 was not its shareholder. D further argued that P2 also had no locus standi because P2 had not shown any attempted fraud on himself. P1-P2 urged the court to lift the corporate veil of D8 and D9 because, inter alia, D1-D2 were in de jure control of D9 and were in de facto control of D8 and that they had placed themselves in a position of conflict of interest when they promoted their own personal interest. P2 argued that he had locus standi because since the injury alleged was personal to him as a member of D8, the rule in Foss v Harbottle did not apply. P2 also argued that even if the rule in Foss v Harbottle were applicable, he could invoke the fourth and fifth exceptions to such a rule.

Held, dismissing D's application: (1) the issue whether the calling of D8's EGM by D1-D7 was a proper or bona fide exercise of their powers as D8's directors, was neither just nor convenient to be decided without the process of a full trial; (2) the term 'locus standi' means entitlement to judicial relief apart from the questions of the substantive merits and the legal capacity of a plaintiff; (3) in deciding the question of locus standi, the court will proceed on the basis that allegations in the statement of claim and documents relied upon by the plaintiff are true. The jurisdiction to uphold a plea of no locus standi, should only be exercised very carefully in circumstances where there is no possibility of doubt; (4) the issue of locus standi should be disposed of as a preliminary point; (5) the traditional view of 'control' of a company is one of ownership but the new view considers who has de facto control of the company; (6) although each company within a group of companies is a distinct entity, in certain circumstances courts have treated a group of companies as a single corporate entity. In the circumstances of this case, a prima facie case for piercing the corporate veil had been established; (7) both P1 and P2 had established a prima facie case of locus standi to maintain this suit; (8) there are serious questions of fact and law to be tried in this case.

Tan Guan Eng & Anor v Ng Kweng Hee & Ors [1992] 1 MLJ 487 High Court, Penang (Edgar Joseph Jr J).

The plaintiff was one of the directors of the defendant company. He had made numerous requests to see the books and accounts of the company and wrote complaint letters to the general manager of the defendant company complaining that the company was withholding information and deliberately obstructing his attempts to perform his duties as a director of the company. When his requests were not acceded to, he applied to the court for an order that the accounting records and tax files of the defendant company be open for inspection by Y, an approved company auditor acting on behalf of the plaintiff.

Held, allowing the application: (1) the application is made under s 167(5) of the Companies Act 1965. This subsection is in aid of the right to inspection which is given to a director under s 167(3) of the Act; (2) under s 167(5), the court will make an order for inspection 'only upon an undertaking in writing given to the court that information acquired by the auditor during his inspection should not be disclosed by him except to that director'. In this application, there is no such letter of undertaking. In his affidavit in support of the application, the plaintiff said that Y was prepared to give the undertaking in writing to the court. The plaintiff's application is allowed provided that the letter of undertaking by the auditor is given to the court before the order of court is extracted.

Leong Sun Wing v Wah Hup Engineering Works Sdn Bhd (No 2) Originating Summons No C166 of 1984 High Court, Malaysia (Zakaria Yatim J).

This was an appeal against the decision of Choor Singh J reported at [1972] 2 MLJ 225. The question before the Court of Appeal was whether or not, where an order for inspection has been made by a court under s 167(5) of the Companies Act (Cap 185, 1970 Ed), the order continues in full force and effect after the director of a company ceases to be a director.

Held: (1) an ex-director's right ceases once he is no longer a director. It follows that in principle an agent's right to inspect which has been granted by an order of court made under s 167(5), a right which is dependent upon his principal's right under s 167(3), must also cease once his principal is no longer a director; (2) the order did not amount to a true injunction either interim or perpetual as it did not specify any time limit within which the accounts and other records of the company were to be open for inspection.

Haw Paw Bros (Pte) Ltd v Dato Aw Kow 1972 Court of Appeal, Singapore (Wee Chong Jin CJ, Chua and Kulasekaram JJ).

[Annotation: Decision of High Court in [1972-1974] SLR 391; [1972] 2 MLJ 225 reversed.]

Richard Charles Tarling v Public Prosecutor 1980 Court of Criminal Appeal, Singapore (Wee Chong Jin CJ, Sinnathuray and Chua JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 6.

Aik Ming (M) Sdn Bhd & Ors v Chang Ching Chuen & Ors and another appeal [1995] 2 MLJ 770; (1995) CSLR IX[759] Court of Appeal, Kuala Lumpur (Gopal Sri Ram, VC George and Abu Mansor JJCA).

See COMPANIES AND CORPORATIONS, Vol 3, para 256.

Three directors of the defendant company negotiated with the plaintiff for the loan of $5,000 which was required by the company to meet its post-dated cheques which had been issued to third persons. A receipt and two post-dated cheques of the company signed by the three directors were given to the plaintiff as security. The cheques were dishonoured when they were presented for payment. In an action for the recovery of the money, the defendant company denied liability on the ground that it had not authorized the loan.

Held: (1) the plaintiff was entitled to recover the money as the loan was made in compliance with the articles of association of the defendant company which empowered the directors to raise loans; (2) even if the loan was unauthorized, the plaintiff was entitled in equity to recover the money under the principle as stated in the case of Bannatyne v D & C MacIver [1906] 1 KB 103.

Sin Chai v Pahang Lin Siong Motor Co Ltd [1966] 4 MC 65 High Court, Raub (Raja Azlan Shah J).

Woodland Development Sdn Bhd v Chartered Bank; PJTV & Densun (M) Sdn Bhd (Third Party) [1986] 1 MLJ 84 High Court, Kuala Lumpur (Gunn Chit Tuan J).

See COMPANIES AND CORPORATIONS, Vol 3, para 13.

Dart Sum Timber (Pte) Ltd v The Bank of Canton Ltd 1982 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Chua JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 157.

Abdul Rashid bin Mohamed Salleh v Datin Hajjah Maimon bte Haji Haron [1980] 1 MLJ 128 High Court, Kuantan (Abdul Razak J).

See COMPANIES AND CORPORATIONS, Vol 3, para 17.

The respondent, a licensed finance company, sued the first appellant ('the company') as hirer under a hire-purchase agreement ('the agreement') purportedly signed by the second appellant and Kow Yeun Wah ('Kow') on 13 September 1986. Both the second appellant and Kow had also on the same date executed a letter of guarantee. When the company defaulted in the payment of the monthly instalments and failed and/or neglected to return the equipment to the company upon notices of termination of hire being served on the appellants, the respondent commenced action against them. The respondent admitted that when the company's loan was approved the directors of the company, identified as the second appellant and Kow, were called to sign the agreement as directors of the company. The respondent did not check the authenticity of any of the documents involved, among others, Form 49 of the company. From the evidence, it was adduced that in 1986, Kow was not a director of the company, having retired in 1982. The appeal was argued on the following grounds: (1) the learned judges of the courts below failed to consider that the company being a body corporate, could only act through authorized persons and that the agreement was executed by a person who had no authority to act and who was not a director of the company at the material time. Counsel pointed that the respondent relied on the 'older' Form 49 which was six years from the material date showing that Kow was a director of the company. Counsel submitted that the doctrine of constructive notice applied to Form 49 because it is a public document which is for public inspection by persons dealing with the company; (2) the learned judge fail to consider the 'concession' made by counsel for the respondent at the outset of the submissions of the counsel that there was insufficient evidence against the company, and ought to have dismissed the respondent's claim against the company at the conclusion of the trial.

Held, allowing the appeal: (1) the common law doctrine of constructive notice should apply to Form 49 which is a public document; (2) the respondent having been put upon inquiry of its contents, but failing to check, must be presumed to have known that at the material time, Kow was not a director of the company and was therefore not authorized to sign the agreement on the company's behalf.

KL Engineering Sdn Bhd & Anor v Arab Malaysian Finance Bhd 1994] 2 MLJ 201; CSLR VI[25] Supreme Court, Malaysia (Jemuri Serjan CJ (Borneo).

The plaintiff challenged the validity of the appointment of the second and third defendants as directors (the disputed directors) of the fourth defendant (the company) and the validity of the board decisions taken by the board which included the disputed directors. Previously the company had three directors who were the plaintiff, the first defendant and one Abas bin Adam (Abas). By a purported art 90 resolution signed by the first defendant and Abas (art 90 of the company's articles of association provided that a resolution in writing signed by a majority of the directors present in Malaysia entitled to receive a notice of the meeting of the directors shall be valid and effectual as if it had been resolved at a duly convened and held meeting of directors) the third defendant was purported to be appointed as a director of the company. Thereafter by another art 90 resolution on the same day signed by the first defendant, Abas and the third defendant, the second defendant was purported to be appointed as a director. A further art 90 resolution signed by these persons purported to transfer certain shares in the company to the second and third defendants. None of these art 90 resolutions were circulated or brought to the plaintiff's attention or knowledge. By a letter dated 2 July 1991 by the first, second and third defendants, the directors of the company were required to convene an extraordinary general meeting to adopt a resolution to remove the plaintiff as a director of the company. This was followed by yet another purported art 90 resolution signed by the three and Abas resolving that the said EGM called for be convened on 13 August 1991. This was circulated to all the directors including the plaintiff, who was requested to sign the document. He did not and it was resolved at the EGM that the plaintiff be removed from the board. The question for adjudication was whether the art 90 resolutions signed by the majority of the directors with knowledge that these resolutions were kept from the plaintiff were valid.

Held, allowing the application: (1) the directors were conferred with powers to manage the company. Prima facie the powers could only be exercised at a board meeting of which due notice had been given and a quorum was present. Although majority decision prevails, it was trite that a meeting of the majority without the know-ledge of the minority was ineffective. Article 90 had to be read in the context of the principle that the powers conferred upon directors were conferred upon them collectively as a board. It was inconceivable that notice of an intended resolution of the directors need not be given to every member of the board. If upon the majority signing such a resolution it was not necessary to pass it on to the others who were present in the country, there could be a situation of a company being managed not by the board, but by a clique consisting of the majority of the board using art 90-type resolutions and leaving the minority completely in the dark. It could not then be said that the business of the company was being managed by the directors as provided in art 73 of the company's articles of association. To make art 73 meaningful and to give effect to the collective responsibility of the board, although all that was required for an effective art 90 resolution was that it be signed by the majority, it must be taken as implied that every member of the board had to have the resolution circulated to him or her before it could be accepted as a directors' resolution. Each of the said resolutions, notice of which was not given to the plaintiff, was ineffective. Article 89 of the articles of association which reiterated s 127 of the Companies Act 1965 in providing for the validity of acts of directors notwithstanding that it was afterward discovered that there was some defect in the appointment of any such director had no relevance. This was not a case of defect in the appointment of the disputed directors but that there was no appointment ab initio. The appointment of the second and third defendants as directors was null and void.

Chan Choon Ming v Low Poh Choon & Ors (1994) CSLR VI[254] High Court, Kuala Lumpur (VC George J).

The applicants were directors of Yap Sing Hock Holdings Sdn Bhd ('Yap Sing Hock'). The first applicant was the beneficial owner of all the shares in Yap Sing Hock. The shareholders of Lien Hoe Sawmill Co Sdn Bhd ('Lien Hoe') decided to sell all their shares in Lien Hoe to Yap Sing Hock ('the sale'). The applicants were then appointed as directors of Lien Hoe by way of resolutions. The applicants however did not make any statutory declarations before their appointment as directors of Lien Hoe as required by s 123(4) of the Companies Act 1965. After the appointment of the applicants as directors of Lien Hoe, the appellants instructed Lien Hoe to lend RM12m to Yap Sing Hock. Out of the RM12m, the applicants as directors of Yap Sing Hock paid RM6m to the shareholders of Lien Hoe to settle the balance of the purchase price in respect of the sale. Lien Hoe thus became the wholly-owned subsidiary of Yap Sing Hock. The applicants also instructed Yap Sing Hock to issue a cheque for RM2,500,751 ('the cheque') for the purpose of buying shares in a public listed company called Muda Holdings Bhd ('Muda'). The cheque was signed by the applicants and was paid to the first applicant who acknowledged receipt. The payment voucher in respect of the cheque was approved by the second applicant. The applicants were convicted in the sessions court of three charges. The first charge was that the applicants as directors of Lien Hoe had committed criminal breach of trust in respect of the RM12m, an offence punishable under s 409 of the Penal Code (FMS Cap 45). The second charge was that the applicants as directors of Yap Sing Hock had committed criminal breach of trust in respect of the RM2,500,751. The applicants were lastly convicted on the charge that they, as directors of Lien Hoe, had given financial assistance to Yap Sing Hock to purchase shares in Lien Hoe and had therefore committed an offence punishable under s 67(3) of the 1965 Act. The applicants were sentenced by the sessions court to imprisonment for the first two charges and were each fined RM2,500 for the third charge. The applicants' appeal against their convictions and sentences to the High Court, was dismissed. In respect of the second charge, the sessions court and the High Court rejected the first applicant's claim that the RM2,500,751 was only a loan from Yap Sing Hock to him for the purpose of purchasing shares in Muda because it was held that the RM2,500,751 was wrongly gained by Yap Sing Hock out of the sum of RM12m borrowed from Lien Hoe. The applicants then referred the following four questions of law to the Supreme Court: (1) Whether under the definition of 'director' under s 4 of the Companies Act 1965, a person can be held or deemed to be a director of a private limited company; (2) Whether, in the non-compliance with s 123(1) and (4) of the Companies Act 1965, a person can be held or deemed to be a director of a private limited company; (3) If the answer to question (2) is in the negative, can a person who is being charged as an agent or as a director of a private limited company and in that capacity be held to act as an ad hoc agent by the said company? and (4) Whether a director or member of a private limited company can be said to have committed an offence under s 409 of the Penal Code by paying out moneys from the said company's funds to a third party when he is the sole contributor of the paid-up capital and ultimately the sole beneficial owner of all the issued shares of the said company? The prosecution argued in respect of the first charge that the applicants, by instructing Lien Hoe to lend the RM12m to Yap Sing Hock, had put on the mantle as directors of Lien Hoe and had come within the definition of 'director' under s 4(1) of the 1965 Act. The prosecution also submitted that on the evidence the appellants were agents of Lien Hoe in respect of the first charge.

Held, answering the first question in the negative and quashing the convictions and sentences of the applicants on the first two charges: (1) the definition of 'director' in s 4(1) of the 1965 Act has to be strictly construed in favour of liberty and cannot be applied to charges preferred under the Penal Code and any other law except under the 1965 Act itself. Since the first question was answered in the negative, the second and third questions would not arise; (2) considering the wording of the first charge, the applicants were charged as directors of Lien Hoe. This was the basis on which the case proceeded within the lower courts, to which the parties had directed their energies. No application for amendment of the first charge by deleting the words 'to wit directors', had been made at any time. The court generally has to hold the scales between the interests of the prosecution on the one hand and those of the accused on the other hand. Accordingly the court at this stage would not amend the first charge; (3) the court would not apply s 422 of the Criminal Procedure Code (FMS Cap 6) in respect of the first charge because the irregularity of the first charge involved the breach of a fundamental principle that the prosecution has to prove beyond a reasonable doubt every ingredient of the offence. Accordingly the applicants' convictions under the first charge could not stand; (4) the second charge concerned the property of Yap Sing Hock and not Lien Hoe. It was therefore not appropriate to rely on the allegedly illegal origin of the RM2,500,751 so as to stamp the money lent to the first applicant as not available legally for lending; (5) the loan of RM2,500,751 to the first applicant was not prohibited by the 1965 Act. There was therefore no evidence of unlawfulness about the loan which could render the applicants liable to prosecution. This was because the first applicant could not cause loss by unlawful means to Yap Sing Hock because he could be sued in court. The applicants' convictions under the second charge accordingly could not stand; (6) the principle that a corporation is a legal entity distinct from its members, applies inviolably in cases in which a company is a victim of fraud or in cases where there is wrongful deprivation of the company's assets and in offences against the company's property. The concept that a person is the company's directing mind, cannot apply when the company is a victim of offences against the company but such a concept applies when the company is prosecuted for an offence where the prosecution cannot rely on any statute or statutory vicarious criminal liability; (7) the fourth question could not however be answered with a simple negative or affirmative answer because its wording was wide and ambiguous. Such a question could only be answered with reference to the ingredients of an offence. Accordingly the court declined to answer the fourth question; (8) the third charge was under the 1965 Act which did not require strict proof of directorship. The applicants' convictions under the third charge should thus remain undisturbed; (9) had the applicants been rightly convicted on the first two charges, it was legitimate to accept by way of a plea in mitigation of sentence that the first applicant was the sole beneficial owner of all the shares in Yap Sing Hock and Lien Hoe and that no other shareholders could be wronged. In such circumstances, it would also be legitimate to accept a further plea for a non-custodial sentence and a fine could be favourably considered.

Yap Sing Hock & Anor v Public Prosecutor [1992] 2 MLJ 714 Supreme Court, Malaysia (Abdul Hamid Omar LP, Peh Swee Chin SCJ and Anuar J).

The petitioner and another person ('Gan') had purchased a company by the name of Telipok Lumber Industries Sdn Bhd ('Telipok') with 40% of the equity going to the petitioner and 60% to Gan. The petitioner and Gan became directors of Telipok, and later Gan transferred one share to her nominee, Lim, and Lim was then appointed a director of Telipok. Subsequently, another person, Chin, was appointed to replace Lim as a director of Telipok. Later, the petitioner objected to Chin continuing as a director of Telipok on the ground that Chin's tenure of office had ended and he was not 're-elected' as a director of Telipok, or, alternatively, that Chin's so called re-election was in contravention of s 149 of the Companies Act 1965 ('the Act') because Lim's proxy who had attended and voted in the relevant AGM of Telipok was not an approved company auditor or advocate or person approved by the Registrar of Companies. The petitioner also alleged that Antekad, a company owned largely by Gan, was milking Telipok to fatten Antekad. The petitioner alleged that Gan had caused a resolution to be passed in the relevant AGM authorizing the execution of a new tenancy agreement in respect of a piece of land, under which, Telipok as the lessee had to pay Antekad a monthly rental of RM28,000. Under the previous tenancy agreement (the validity of which was also disputed by the petitioner), the rental was only at RM4,000 per month. The petitioner also alleged that Telipok has a half undivided share in the abovesaid land by virtue of an oral agreement between the petitioner, Gan and Antekad that in consideration of Telipok expending moneys on the said land, Antekad shall hold a half undivided share in the said land on trust for Telipok. Thus the petitioner applied by summons-in-chambers for, inter alia, an injunction to restrain: (a) Chin from acting or holding himself out as a director of Telipok; (b) Telipok from effecting any payment in excess of RM4,000 per month by way of rentals to Antekad; (c) Antekad from dealing in any way with the title and interests pertaining to the said land.

Held, granting an injunction with respect to (a) and refusing an injunction with respect to (b) and (c): (1) the argument advanced by the petitioner that Chin was not re-elected as a director of Telipok because the resolution in the relevant AGM that was supposed to have re-elected Chin as a director, employed the use of the phrase 'to continue' instead of 're-elected', was dismissed by the court. Whatever the words used, it was clear that Chin was to continue as a director, and when the said resolution was made under the agenda relating to re-election of directors, it was also clear that Chin had been re-elected as a director of Telipok. The intention of the parties to re-elect Chin as a director of Telipok was clear enough; (2) however, Chin's re-election as a director of Telipok was essentially invalid because, the manner in which he was re-elected was in contravention of s 149 of the Act. Where a proxy, who does not qualify to be one under the law, votes in an AGM which results in the appointment of a person as a director, the appointment of such a person as a director is invalid because the appointment of the proxy itself is against the express prohibition contained in s 149 of the Act. Even a failure to comply with the articles of a company will render any meeting convened thereof void and of no effect. It would appear that in such circumstances, Chin could have prayed in aid of the court's powers of rectification and validation under s 355(3)(a) of the Act, but his counsel did not do so; (3) however unpalatable it is for the petitioner, nothing can be done as regards the increase in the rental of the said land payable by Telipok to Antekad because, there is a valid tenancy agreement between the petitioner and Antekad which provides for such an increment in the said rental, and which bears the petitioner's signature. That the terms of the said tenancy are unfavourable to Telipok does not necessarily mean that the tenancy can be questioned, as all parties to a valid contract are deemed to know their equilibrium. If the court grants an injunction to prevent Telipok from paying rentals in excess of RM4,000 per month to Antekad, it will essentially be re-writing the terms of the said tenancy agreement; (4) the said tenancy agreement between the petitioner and Antekad in respect of the abovesaid piece of land contains provisions that necessarily destroy any notion that Telipok is entitled, as a beneficial owner, to a half undivided share of the said land. The petitioner's bare assertion that Telipok was promised a half undivided share in the said land could not stand in the face of the said tenancy agreement which the court accepted as valid.

Tan Keh Ho v Telipok Lumber Industries Sdn Bhd & Ors Petition No K 26-01 of 1993 High Court, Kota Kinabalu (Ian Chin J).

Malayan Banking Ltd v Raffles Hotel Ltd 1965 Federal Court, Singapore (Tan Ah Tah Ag CJ, Chua and Ambrose JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 31.

3 [106] COMPANIES AND CORPORATIONS Directors – Appointment – Statutory documents relating to appointment not completed – Whether director in law – Companies Act 1965, ss 4 & 123 – Tan Ah Ting v PP [1974] 2 MLJ 38 (refd); Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch D 409 (refd); Kok Hoong v Leong Cheong Kweng Mines, Ltd [1964] 1 All ER 300 (refd); Shanti Prasad v Kalinga Tubes Ltd AIR 1962 Orissa 202 (refd); Dean v Hiessler [1942] 2 All ER 340 (distd); Ang Teck Hwa v PP [1988] 1 MLJ 279 (folld); Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552 (refd); Lindgren & Ors v L & P Estates Ltd [1968] Ch D 572 (refd); Lai Ah Kau & Anor v PP [1988] 3 MLJ 391 (refd); Chang Lee Swee v PP [1985] 1 MLJ 75 (refd); Rex v Lee Siong Kiat [1935] MLJ 53; Selangor United Rubber Estates Ltd v Cradock (a bankrupt) & Ors (No 3) [1968] 2 All ER 1073 (folld); Nga Te v King-Emperor [1904] 1 Cr LJ 730 (refd); King-Emperor v Fazlur Rahman [1929] 9 Pat 723 (refd); Harakrishna Mahatab v Emperor AIR 1930 Patna 209 (folld); Navaratnam v PP [1973] 1 MLJ 154 (refd); Wallersteiner v Moir [1974] 3 All ER 217 (refd); Mat v PP [1963] MLJ 263 (folld).

The first and second appellants were directors and shareholders of a company called Yap Sing Hock Holdings Sdn Bhd ('Holdings'). Holdings entered into an agreement to buy the shares in a company called Lien Hoe Sdn Bhd ('Lien Hoe'). After a number of postponements, the completion of the purchase was fixed for 30 April 1985 to be financed by a syndicated loan of RM37m provided by Perwira Habib Bank Bhd. On 30 April 1985, Holdings was short of RM6m to complete the purchase. The first and second appellants were appointed directors of Lien Hoe and the other directors of Lien Hoe then each signed a written notice of resignation from office. By another resolution, the first and second appellants were authorized to operate Lien Hoe's bank account and they also resolved that three fixed deposit receipts in the name of Lien Hoe be used as security for an overdraft facility to be applied for by the first and second appellants from a bank. The first and second appellants then applied to The Hongkong and Shanghai Banking Corp ('HSBC') for an overdraft facility using the fixed deposit receipts as security. HSBC's manager approved the overdraft after obtaining approval from the chief executive of HSBC. The first and second appellants, as directors of Holdings, opened an account in the name of Holdings at HSBC. They then signed a cheque by which the sum of RM12m was transferred from Lien Hoe's account to Holdings' account. With that money, they paid the sum of RM6m to meet the shortfall and to complete the purchase. In the sessions court, the first and second appellants were each convicted of the offence of crim-inal breach of trust by an agent, to wit, as a director of Lien Hoe, in respect of the sum of RM12m under s 409 of the Penal Code (FMS Cap 45). The first and second appellants as directors of Holdings had paid the sum of RM2,500,751 for and on behalf of the first appellants for shares in Muda Holdings Bhd acquired by the first appellant. For this, the first and second appellants were each convicted of the offence of criminal breach of trust by an agent, to wit, a director of Holdings. They were each also convicted of a third charge of, while being director of Lien Hoe, having given financial assistance to Holdings to purchase shares in Lien Hoe in contravention of s 67(3) of the Companies Act 1965. The appellants appealed.

Held, dismissing the appeals: (1) although technically the first and second appellants were not directors of Lien Hoe by virtue of their not having completed and lodged the documents required by s 123(1) and (4) of the Act, they were in law directors as defined in s 4 of the Act. The technicality was so trivial and could be easily regularized without much ado. The appellants were therefore agents of Lien Hoe. There was also an ad hoc agency at the time that the cheque for RM12m was signed; (2) on the facts, the appellants had dominion and did exercise dominion over the sum of RM12m; (3) for criminal breach of trust to be committed, it is important to find whether the accused was actuated by dishonest intention or not. The first and second appellants, in signing the cheque for RM12m, had employed unlawful means to cause wrongful loss to Lien Hoe and wrongful gain to Holdings. In doing so, they had contravened s 67 of the Act and several provisions of Lien Hoe's memorandum and articles of association. The first and second appellants had abdicated and breached their fiduciary duty as directors of Lien Hoe. The fact that the previous directors of Lien Hoe had connived with them was no defence. It was also no defence that matters could be regularized as the test was whether the act was legal or regular in the first place when it was committed; (4) in regard to the sum of RM2.5m, it was not a loan from Holdings to the first appellant as contended by the first and second appellants. For there to have been a loan, Holdings must have had money to give. Holdings had no such money. Holdings could not give what it did not have in the first place or had acquired by wrongful gain; (5) the trial judge had correctly applied the standard of proof in regard to the burden on the defence. The trial judge, after going through the defence evid-ence in respect of the charges, did not accept or did not believe the first and second appellants' story and had then asked correctly whether the appellants' story raised a reasonable doubt.

Yap Sing Hock & Anor v Public Prosecutor [1991] 2 MLJ 334 High Court, Johore Bahru (Abu Mansor J).

[Annotation: For subsequent proceedings, see [1992] 2 MLJ 714.]

The respondents were a non-exempt private company dealing in and manufacturing paper products. They were part of a group of companies which included two other companies, PT Putera Adil Utama ('PAU') and PT Kertas Berkasi Teguh ('KBT'). The first appellants had granted a US$1m credit facility to PAU. The latter defaulted in repayments after the drawdown had exceeded US$1m. At about this time, the respondents wished to obtain credit facilities from the first appellants to service the interest payments on facilities which had been granted to them by the Development Bank of Singapore Ltd ('DBS'). The first appellants agreed to furnish the respondents with US$2m credit, on the security of, inter alia, a second debenture and a second mortgage over the respondents' factory in Singapore and on the condition that US$1m would be used to discharge PAU's debt to the first appellants. This was to be done pursuant to an agreement between the respondents and KBT, by which the respondents were to purchase from KBT through PAU a certain quantity of paper. The respondents agreed with KBT to pay a deposit of 50% of the total price by paying on KBT's behalf or their 'assigned accounts' to the first appellants a sum to settle KBT's account or their assigned accounts with the first appellants. This 'assigned account' was to be that of PAU, whose debt would therefore be discharged. There also happened to be a debt already outstanding owed by KBT to PAU, thus KBT's supply of paper through PAU would help to offset this as well. The first appellants' letter of offer was accepted by the respondents on 1 April 1985. The letter of acceptance enclosed, inter alia, their directors' resolution to borrow, which was a circular resolution signed by the majority of the respondents' board of directors. Pursuant to the agreement, a second debenture creating fixed and floating charges over the assets of the respondents and a second mortgage over the respondents' factory were executed in favour of the first appellants. On 24 April 1985, the first appellants carried out the instructions of the respondents to debit the respondents' account with US$1m and to credit PAU's account with the same. At the same time, the respondents started to use their additional discounting facilities. However, KBT and the respon-dents did not perform their agreement for the supply of paper through PAU. On 31 October 1986, the second and third appellants were appointed receivers and managers by DBS over the property, assets and undertaking of the respondents charged to DBS. On 10 April 1987, the first appellants exercised their powers under the second debenture and appointed the second and third appellants as receivers and managers of the respondents. The second and third appellants forwarded to the first appellants a cheque for S$2,723,466.34 to settle the respondents' outstanding indebtedness. About two months later, the respondents went into liquidation and the liquidators brought an action for a declaration that the debenture was void. It was alleged that the directors had executed the debenture without authority and in breach of their fiduciary duty and that the first appellants had notice of that fact. They claimed that the payment made by the second and third appellants to, inter alia, the first appellants was wrongful. The High Court gave judgment for the respondents, holding that the taking of the credit facility from the first appellants was in excess of their directors' powers and that the first appellants had notice of such excess. Against that judgment, the appellants appealed.

Held, allowing the appeal: (1) he merely wished to pay off PAU's debt to obtain extra funds for the respondents from the first appellants and the repayment of PAU's debt was to be made without consideration. The transaction was one which the directors were not authorized to execute. It cannot be argued that as only half of the loan was used for the discharge of PAU's debt, the loan, considered as a whole, was proper. To allow this argument would be to allow directors to act to the detriment of the company whenever benefit could also be derived. This would constitute an inroad to their fiduciary duty to act in the best interests of the company at all times; (2) cl 12 of the Third Schedule of the Companies Act (Cap 50), which was specifically incorporated into the memorandum of association by cl 3(xlv) of the memorandum, gave the respondents power to undertake the repayment of loans of third parties. However, the question of corporate capacity or power must be distinguished from the question of directors' authority. Corporate capacity, as defined by the company's objects clause, is that which a company can do. The directors' authority on the other hand, does not of necessity equate to the company's. The articles of association can, and in the present case do, limit the directors' authority to a specific sphere, outside of which they cannot venture without the approval of shareholders; (3) the transaction which the respondents had entered into with the first appellants was not for the purpose of the respondents as required under arts 114 and 115 of their articles of association. The respondents' chairman and managing director admitted at trial that he had no intention at any time to perform the agreement between KBT and the respon-dents;the first appellants cannot be deemed to have notice of the breach of authority simply because they had constructive knowledge of the memorandum and articles of association. The transaction proposed by the first appellants resembled an ordinary business deal between related companies in the region dealing in the manner in which they usually deal. The evidence adduced at the trial on the issue of notice was far from satisfactory. The trial judge erred in her finding that the circumstances put the appellants on inquiry. The first appellants, not being privy to the lack of authority on the part of the directors, are not affected by it and the debenture is not void as against them. The second and third appellants were therefore correctly appointed as receivers and managers under the debenture and the money paid over by them under their appointment was accordingly proper.

Banque Bruxelles Lambert & Ors v Puvaria Packaging Industries (Pte) Ltd (in liquidation) [1994] 2 SLR 35; CSLR VI[23] Court of Appeal, Singapore (Yong Pung How CJ, Karthigesu and LP Thean JJA).

3 [108] COMPANIES AND CORPORATIONS Directors – Authority – Commencement of legal proceedings – Authority of joint-managing director to commence proceedings in name of company – Agent of necessity – Whether power to commence proceedings delegated – Airways Ltd v Bowen [1985] BCLC 355 (refd); Danish Mercantile Co Ltd v Beaumont [1951] 1 All ER 925 (folld); Syawal Enterprise Sdn Bhd & Anor v Dayadiri Sdn Bhd [1990] 2 CLJ 297 (folld); United Investment and Finance Ltd v Tee Chin Yong & Ors [1967] 1 MLJ 31 (folld); Burland v Earle [1902] AC 83 (refd); Re North Eastern Insurance Co Ltd [1919] 1 Ch 198 (folld); Avel Consultants Sdn Bhd v Mohd Zain Yusof & Ors [1984] 2 CLJ 169 (distd); Marshall's Valve Gear Co Ltd v Manning, Wardle & Co [1909] 1 Ch 267 (refd).

An action was commenced in the name of the plaintiff company challenging the decision of the first defendant acting on the direction of the second defendant to revoke a forest timber licence granted to the plaintiff company. The decision was taken following the reconstitution of the shareholding of the plaintiff company. The reconstitution was not accepted by the first and second defendants who said that this was undertaken without the approval of the licensing authority in contravention of s 2(2)(d) of the Forest Ordinance (Cap 126) of Sarawak. The shareholding was reconstituted following a joint venture agreement which resulted in additional parties taking up shares in the plaintiff company and additional directors being appointed to the board of directors of the plaintiff company. The defendants applied for, inter alia, an order, that the action be struck out or dismissed or stayed on the following grounds: (1) that no authority had been given by the board of directors of the plaintiff company and/or the majority of its shareholders for the action to be commenced in the name of the plaintiff company; (2) that the action was improperly instituted in the name of the plaintiff company; (3) that the solicitors who had commenced the action were never authorized to act for the plaintiff company; and (4) that it was improper to maintain the action in the name of the plaintiff company. It was contended for the plaintiff company that the solicitors had acted within their actual authority pursuant to a resolution passed at a certain meeting of the directors of the plaintiff company. The plaintiffs also argued that the directors who had been absent from the meeting had not intervened in the proceedings or tried to stop it, and it was not open to strangers, namely, the defendants, to take up the issue of an invalid meeting. It was also contended that the defendants were estopped from denying that the joint-managing director concerned had authority to act on behalf of the plaintiff company in the action in that the defendants had refused to accept the reconstitution of the shareholding and board of the plaintiff com-pany pursuant to which the 'A' directors were appointed.

Held, allowing the defendants' application: (1) in an action to redress a wrong done to a company or to recover money or damages alleged to be due to it, the proper plaintiff should be the company. However, in cases of urgency, the company's name may be used as the plaintiff, subject to the intending plaintiffs being able to show that they have the support of the majority; (2) the lack of authority of the solicitors to act can be challenged at any stage of the proceedings. Once the challenge has been made, the burden of proving that the suit had been instituted with proper authority rests on the plaintiff company; (3) clearly there was no quorum at the meeting and the resolution purportedly passed at that meeting was invalid. Neither was there evidence that the power to institute legal proceedings had been delegated; (4) if the court was satisfied that the plaintiff company had not acted within its powers, the court could and should exercise jurisdiction. In this case it was abundantly clear that there had been contravention of the articles of association of the plaintiff company; (5) whether the directors who had been absent from the meeting should or should not intervene in the proceedings to stay or to stop it was a matter for them to decide and was an irrelevant issue in the proceedings. It was open to the defendants under ord 12 r 17(1) of the Rules of the High Court 1980 to question the authority of the plaintiff company to institute the present proceedings even though the defendants may be described as strangers. The issue of whether the action will lie at all should, if possible, be decided as a preliminary issue, and not left for determination at the trial; (6) the absence of certain directors from the meeting did not mean that their absence gave the other directors the licence to proceed with the meeting and to pass the purported resolution to institute the proceedings in the plaintiff company's name as clearly, their presence was necessary to constitute a proper quorum for the meeting though perhaps if it was shown that they had interests in any contract or arrangement with the plaintiff company they shall not vote and if they did so their votes shall not be counted for any resolution regarding the same in the quorum present at the meeting; (7) the resolution, in any event, was invalid as there was no 'disinterested' quorum for the meeting; (8) even assuming that the joint-managing director who caused the action to be commenced could rely on implied authority, the doctrine of agent of necessity did not apply to him as he lacked the support of the majority shareholders; (9) the allegation of estoppel must be read in the context of the non-recognition by the defendants of the reconstituted shareholding of the plaintiff company. Until the agreement was declared by the court to be invalid, the additional shareholders had and continued to have rights and a say in the management of the plaintiff company, and the articles of association of the plaintiff company must be adhered to by the directors and shareholders of the plaintiff company for the proceedings to be in the plaintiff company's name.

Sarawak Building Supplies Sdn Bhd v Director of Forests & Ors [1991] 1 MLJ 211 High Court, Kuching (Haidar J).

Public Bank Bhd v Metro Construction Sdn Bhd [1991] 3 MLJ 56 High Court, Kuala Lumpur (Lim Beng Choon J).

See COMPANIES AND CORPORATIONS, Vol 3, para 611.

In December 1981, Madam Lim Geok Eng ('Madam Lim') had loaned S$200,000 to the defendants. As Madam Lim was not literate in English, she requested that the plaintiff sign the loan agreement on her behalf. The loan agreement was prepared by the defendants' solicitors and signed at their premises. The defendants' managing director, Tay Beng Hock ('Tay'), had requested for the loan and it was he who attended the negotiations and the execution of the agreement. No other director or employee of the defendants participated in the transaction. By the agreement the loan was to have been repaid by 31 August 1982. When no repayment was forthcoming the plaintiff took legal action, and a writ was issued on 18 Januray 1984. The defendants admitted that the loan agreement was signed by Tay but contended that Tay had no authority to borrow money on their behalf, and that no such power had been delegated to him. At the trial the defendants' auditor confirmed that for the period 1975 to date the defendants only raised funds from financial institutions by way of secured loans. It was also confirmed that no resolution had been passed in relation to the loan in question.

Held, entering judgment for the plaintiff: (1) Tay had undoubtedly deceived both parties; (2) it was not challenged that the defendants' solicitors had drafted the loan agreement; (3) Tay's act of borrowing the money was not ultra vires the defendants' objects since art 76 of their memorandum and articles of association empowered the directors to borrow money; (4) art 95 of the defendants' articles empowered the directors to confer upon the managing director any of the powers exercisable by them. Even if Tay did not have the actual authority to do so, he certainly had ostensible authority to borrow for the defendants; (5) given that the loan agreement was prepared by and in the office of the defendants' solicitors, the plaintiff was under no further obligation to ensure that there had been compliance by Tay with the company's internal regulations; (7) it would be a grave injustice to deny the plaintiff his relief on the ground that he ought to have known the 'indoor management' rules of the defendants; the law did not impute any such duty to him.

Koh Nai Chye v Tong Loong Pte Ltd (1992) CSLR VI[8] High Court, Singapore (Lai Siu Chiu JC).

The plaintiff in this case claimed for S$401,793.70 and interest under a written guarantee of 31 July 1974 by which the defendants guaranteed payment on demand of all moneys which were then or might thereafter be owing by Ta Leong Produce (Pte) Ltd on the general balance of its account with the plaintiffs. The claim was in respect of four advances made on letters of credit. The guarantee was executed by Wong Kee Loh and Ong Say Beng, both directors of the defendants and was in compliance with cl 97 of the article of association. The defendants contended that the guarantee was signed without their authority and that the advances were made in violation of s 133A added by the Companies (Amendment) Act 1974 which came into operation on 15 November 1974. The facts revealed that Wong owned 400,000 shares in Ta Leong and the official address of Ta Leong and the defendants was the same.

Held, allowed the claim: (1) the defendants were fully aware that Wong had executed the guarantee on their behalf and it was done with their consent and acquiescence; (2) s 133A added by the Companies (Amendment) Act, 1974 is irrelevant to the present case. The said amendment came into operation on 15 November 1974, affects all guarantee made on or after that date. There is no reason or justification for giving the section restrospective effect.

Bank of Canton Ltd v Dart Sum Timber (Pte) Ltd 1980 High Court, Singapore (D'Cotta J).

This was an action for damages for wrongful dismissal. Up to 5 May 1992, the plaintiff was chairman of the board of directors of the defendants (the company), and was also employed as their group managing director. He was removed as a director of the company by a resolution passed by the majority of shareholders attending an extraordinary general meeting of the company. At the time of his dismissal, the plaintiff was nearing the end of his first contract of employment with the company, which was renewable by agreement for subsequent terms of two years each thereafter. It was the plaintiff's stand that the contract was duly renewed for a second term of two years commencing from 2 June 1992 by a letter dated 30 January 1992 from the company to the plaintiff accepted and returned by the plaintiff the next day. The letter was signed by the chairman (Mr Pang) of the senior executive remuneration committee of the company (SERC), after the SERC recommendation on the renewal was heard and approved at a board meeting on 27 January. It was the plaintiff's case that Mr Pang, who was also a director, had at least the implied authority to approve the renewal letter. By cl 5 of the plaintiff's employment contract, either party thereto was entitled to terminate the plaintiff's employment by giving six months' notice in writing to the other. Clause 5 further stipulated that the party so terminating should pay to the other party by way of compensation for termination an amount equal to the total emoluments to which the plaintiff would have been entitled for the unexpired period of the contract, such amount being based on the plaintiff's monthly salary at the time of the service of the notice to terminate. The company's substantive defence at the end of submissions was, inter alia, that: (a) the contract had not been validly renewed by the letter of 30 January 1992 because (i) this letter had never been approved and/or ratified by the company's board of directors, (ii) Mr Pang had not been authorized by the board to do so on its behalf, and (iii) the letter was sent under circumstances which called its bona fides into question; (b) alternatively, it had been renewed by a mistake in that the plaintiff had deliberately concealed at the time of review that he was to be removed as a director of a company, AMS, when he knew the contract would not have been renewed if this fact had been disclosed; and/or; (c) the plaintiff was justly dismissed because the plaintiff had acted in breach of his fiduciary duties by procuring the issue of the renewal letter of 30 January 1992 to serve his own interests rather than those of the company and was thus in breach of his fiduciary duty to the company.

Held, dismissing the plaintiff's claims: (1) apparently wrongful dismissal of an employee could be justified if it was subsequently discovered that that employee had conducted himself in such a way as to make him liable to be dismissed even though the misconduct was not known at the time of the actual dismissal; (2) in January 1992, when the board met to consider the SERC's recommendation in respect of the extension of the plaintiff's contract, it was clearly the only executive organ of the company which had the power to decide (a) whether the recommendation of the SERC should be adopted, (b) what form any renewal contract should take, (c) who should sign the renewal contract on behalf of the company, and (d) when the renewal contract should be presented to the plaintiff for his consideration and acceptance. It was clear from a reading of the board's resolution at the material time that the board had accepted the SERC's recommendation that the plaintiff's contract be extended on the terms proposed. The acceptance of the recommendation did not, however, of itself constitute the new contract between the plaintiff and the defendants; (3) while it was true that all directors had the power to execute documents for the company in respect of acts already authorized, the renewal letter could not be considered an 'authorized transaction' as the discussion before the resolution was passed had been limited to a brief formal acceptance of the SERC's proposal and the renewal letter was, at least in one significant aspect, not in accordance with the SERC recommendation; (4) before authority could be inferred from something as nebulous as the expectations and understanding of the directors, the court would have to be convinced that the expectations and understanding relied on were the expectations and understanding of all of the board members. In this case, the court was not convinced that the board understood that Mr Pang had the authority to sign the renewal letter on behalf of the company or that it expected that he would be able to enter into a binding transaction with the plaintiff which the board would be unable to undo or modify. On the evidence, therefore, Mr Pang did not have the authority to bind the company to the new contract with the plaintiff. Accordingly, the renewal letter was not capable of constituting a binding contract until such time as it had been ratified by the board even though it had been signed by Mr Pang and accepted by the plaintiff; (5) the essential elements of ratification were adoption and knowledge. The way an earlier affidavit filed on behalf of the defendants was drafted clearly implied that the renewal letter was valid and could only be challenged by reference to various breaches of duty on the part of the plaintiff. That admission operated as a ratification of the renewal as there was evidence that the defendants had the requisite knowledge at the time of the drafting of the affidavit. Furthermore, it was only in October 1994, after the hearing commenced, that amendments were made to the defence whereby Mr Pang's authority to sign the letter was put in issue. The defendants having for two years acted as if the letter of authority had been validly issued despite the fact that prominent members of the board were aware of all the controversy that surrounded it (by virtue of their presence at the relevant meetings and their demands for sight of the renewal letter) could not now be heard to say that in fact it was unauthorized. The defendants' actions after the plaintiff's dismissal, therefore, had led to a ratification of the renewal letter from which they could not be allowed to resile; (6) the defence of mistake failed on a purely factual basis as the defendants failed to establish that if the other directors had known of his situation vis-ê-vis AMS, enough of them would have opposed the plaintiff's reappointment to prevent it from going through; (7) the plaintiff as a director of the defendants, however, did owe them fiduciary duties which were not watered down by the fact that he was, simultaneously, the defendants' employee. He had a duty to disclose to the board of directors all facts that might affect their deliberations when he knew that it was proceeding to consider the renewal of his contract. Since he knew that he owed his original position on the board to the support of AMS, he should have given the directors the opportunity of considering whether the loss of part of that support would make a material difference to his position such that even if he was reappointed he would be in danger of being removed by the shareholders. The directors, acting in the best interests of the company, would have had to consider the point before proceeding with the renewal of the plaintiff's contract. The plaintiff had deliberately failed to inform the board as a whole of this possibility even though such disclosure was necessary in the interests of the company because he did not want to risk an adverse outcome from such deliberation. The plaintiff was, therefore, in breach of his fiduciary duty to the defendants by reason of the non-disclosure; (8) this particular breach of duty, however, was never expressly pleaded. The allegation of a deliberate concealment of material information was in the defence from the very beginning. Yet at no time did the defendants expand that allegation to an assertion of breach of fiduciary duty. The defendants, having had and taken so many opportunities to change their stand, must be held strictly to their pleaded case and could not, therefore, now rely on this breach as a defence; (9) they were fully entitled to dismiss the plaintiff since both he and Mr Pang had been in breach of their duties to the company; (10) at the time of his dismissal, no justification had been put forward by the company or the shareholders who voted in favour of removing the plaintiff from his post. The plaintiff had clearly been dismissed because of corporate politics. This did not mean, however, that the company had no defence to his action;on the evidence, the plaintiff and Mr Pang had conspired to have the plaintiff's contract renewed quickly. The purpose of a director's action must be to benefit the company and not any particular individual. If the action did benefit both the company and an individual, the action would not be a breach of duty as long as the considerations which led to its enactment were chiefly considerations of the interests of the company. If, however, the main consideration was the benefit of an individual, then the action would have been taken for an improper purpose. There was nothing in the plaintiff's evidence to show that Mr Pang's main motivation was the interests of the company. Rather the evidence established, on the balance of probabilities, that Mr Pang acted as he did to aid and protect the plaintiff, his good friend. Thus, even if he did believe that it was in the defen-dants' interest that the plaintiff retained his position, he had acted in breach of fiduciary duty in procuring the renewal of the plaintiff's contract. The defendants had, therefore, made out their third defence;(obiter) (a) s 168 of the Companies Act (Cap 50, 1990 Ed) (the Act) was wider than equivalent provisions in English, Australian and New Zealand Acts. A payment to an executive director as compensation for the loss of his employment as such under the Act was compensation for loss of office as an officer of the company and would fall within s 168. Since cl 5 of the plaintiff's contract provided for the defen-dants to make a payment to the plaintiff as compensation for loss of office as an officer of the company, the language of s 168(1) covered situations such as that of the plaintiff clearly and unambiguously. Clause 5 was, therefore, unlawful and unenforceable against the company as it had never been approved by the shareholders of the company; (b) a termination clause must be precisely observed by the terminating party. The defendants, therefore, could not be allowed to rely on part of the clause to contend that even if the plaintiff was wrongfully dismissed, he could only claim damages for a period of six months and not for the entire life of the contract. Clause 5 made the option to give six months' notice subject to paying the stipulated compensation sum. If that sum was not paid, there would have been no valid termination under cl 5. In any event, since the defendants had pleaded that cl 5 was unlawful and unenforceable and had not sought to preserve any part of it as valid, it was too late for them to argue that the first sentence of cl 5 could be severed from the rest of the provision and remained alive; (c) since cl 5 was unenforceable, if the plaintiff had succeeded in his claim, the damages recoverable by the plaintiff would have to be assessed for the period 5 May 1992 to 1 June 1994, subject to mitigation. On the facts his attempts at finding an equivalent job had been reasonable, and had the court found in favour of the plaintiff, it would have assessed his damages for the whole period from his dismissal up to 1 June 1994; (d) if successful, the plaintiff would have been entitled to the following award of damages: (i) salary Ð S$17,000 per month + his contractual 13th month bonus for the financial years 1992 and 1993 and his employer's CPF contributions; (ii) running costs of a car Ð S$12,000. He could not have claimed for the capital value of a car as the car he was entitled to while in the defendants' employment would have remained the defendants' property); (iii) loss of amenity (use of chauffeur) Ð S$10,000. Since the plaintiff had not employed a driver of his own during the two-year period after his dismissal, he was not entitled to claim the salary of a hypothetical driver; (iv) value of annual check-ups Ð S$500, being the amount actually spent on such check-ups; (v) value of the use of a telephone at the plaintiff's residence Ð S$400; (vi) value of club memberships Ð S$6,125 for 25 months; (vii) value of life insurance Ð nil. Since the plaintiff had not kept up the insurance policy after his dismissal, he was not entitled to any premium as his loss could not be calculated in that manner. The plaintiff's loss would have been the increase (if any) in the surrender value of the policy over the two-year period. As no evidence was adduced on this value, the court could not make any award under this heading; (viii) value of personal accident insurance Ð nil. Since the plaintiff had not continued the policy after his dismissal, he could not claim the amount of the premium and, as an accident policy had no surrender value and the plaintiff had not sustained any accident during the period in question, he suffered no loss for which compensation could be given; (ix) salary in lieu of leave not taken Ð nil. The claim was misconceived as the plaintiff's employment contract did not entitle him to carry forward leave or to salary in lieu of unused leave and there was no general practice allowing accumulation of leave.

Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109; (1996) CSLR VI[28] High Court, Singapore (Judith Prakash J).

This was an application by the defendant appellants (the defendants) to strike out the plaintiff respondent's (the plaintiff's) claim. The issues before the court are: (1) whether Chen Wen-Lan (Chen), who was one of the directors of the plaintiff, had the authority to authorize Teh and Associates as solicitors to commence action in the name of the plaintiff in the absence of a resolution passed by the board of directors; (2) whether the present action should be struck out; and (3) whether there was subsequent ratification made by the plaintiff within a reasonable time.

Held, dismissing the defendants' application: (1) the plaintiff had only two directors at the material time, Chen and the first defendant. The first defendant was alleged to have fixed the plaintiff's machines onto the second defendant's premises and enabled the second defendant to make use of the plaintiff's machines without the plaintiff's permission and prevented the plaintiff from making use of its own machines. This resulted in the plaintiff sustaining losses. In such a situation, an agency of necessity arises. An agency of necessity arises wherever a duty is imposed on a person to act on behalf of another apart from contract and in circumstances of emergency to prevent irreparable damage. In this case, an agency of necessity would impose a duty on Chen to act on behalf of the company, and if necessary, even to commence legal proceedings in the name of the company to preserve the property of the company; (2) the appropriate agency to start an action on the company's behalf is the board of directors. However, it is well-established that where the directors cannot or will not start proceedings in the company's name, the power reverts to the general meeting. Hence, the practice has grown up of allowing anyone connected with the company to start proceedings in the company's name. However, should the majority of the shareholders not approve of the litigation, the person responsible for commencing the action would have to bear the consequences; (3) on the facts of the case, the court was of the opinion that the plaintiff had raised a reasonable cause of action. The action should therefore not be struck out. Even accepting the defendants' contention that Chen did not have the authority to commence litigation in the plaintiff's name, the court has the inherent jurisdiction to stay proceedings to enable the shareholders to decide in a general meeting whether it desires the action to be brought or not; (4) the present board of directors of the plaintiff passed a resolution authorizing Teh and Associates to commence the present action on 23 September 1994. The board of directors also resolved that the company adopt the present action and authorize the solicitors to continue to act in the proceedings. This was done three months after the defendants' application to strike out the action for want of authority. The court held that on the facts of the case, the resolution amounted to an act of ratification and was done within reasonable time.

Yugen (M) Sdn Bhd v Lin Kee Yi & Anor (1995) CSLR VI[29] High Court, Kuala Lumpur (Low Hop Bing J).

The writ of summons with the statement of claim in the above action was caused to be issued in the names of the plaintiff companies at the instance of one Johari bin Jaalam, the managing director of the second plaintiff and a director of the first plaintiff. Johari bin Jaalam, together with one Abdul Halim bin Mat, held majority shares in the companies. The writ was followed by an application in the names of the plaintiffs for certain interlocutory orders. The application was supported by an affidavit by Johari bin Jaalam. The first and second defendants entered conditional appearance. The third defendant entered an unconditional appearance and took out summons for the writ and statement of claim to be dismissed and/or struck out on the ground that the writ was caused to be issued without authority. All the defendants were directors of the second plaintiff, while the first and second defendants were directors of the 1st plaintiff as well.

Held, dismissing the application (1) the first plaintiff was in fact a subsidiary of the 2nd plaintiff; (2) the allegations levelled at the defendants were serious and the contentions in the writ and statement of claim were neither frivolous nor vexations. If the allegations were proved the consequences to the defendants could be very serious; (3) the managing director of a company has implied authority to commence legal proceedings in the name of the company. Johari bin Jaalam had authority to commence the legal proceedings; (4) the doctrine of agency of necessity in any case imposes a duty on such a person to act on behalf of the company and, if necessary, even to commence legal proceedings in the name of the company, to preserve the property of the company; (5) further, in the absence of contractual terms to the contrary, it is the majority vote of the company in general meeting that has the ultimate say in matters pertaining to the business of the company and those in command of the majority vote may function as agents of necessity to preserve the property of the company but at their peril and subject to their being able to show that they have the support of the majority.

Avel Consultants Sdn. Bhd. & Anor v. Mohd. Zain Yusof & Ors [1984] 2 CLJ 169 High Court, Kuala Lumpur (VC George J).

Chan Thiam Teng v Ban Swee Heng Sdn Bhd [1992] 2 MLJ 583 High Court, Johore Bahru (James Foong J).

See COMPANIES AND CORPORATIONS, Vol 3, para 429.

Guoh Sing Leong (administrator of the estate of Goh Koh Boey, deceased) v Hock Lee Amalgamated Bus Co (Pte) Ltd Suit No 1753 of 1990 High Court, Singapore (Lai Siu Chiu J).

See COMPANIES AND CORPORATIONS, Vol 3, para 146.

The appellants were former directors of Inno-Pacific Holdings Ltd (IPH). They were originally charged in the subordinate courts with having dishonestly misappropriated moneys from IPH. These charges were amended on the first day of trial, and later reamended on the 17th day of trial. The appellants were eventually convicted on the reamended charges of having conspired with each other to commit criminal breach of trust, contrary to s 409, read with s 109 of the Penal Code (Cap 224). They were found to have dishonestly used IPH's funds in violation of s 157(1) Companies Act (Cap 50, 1988 Ed) (CA), thus causing IPH to disburse S$8,453,629.20 to Aquiline Pacific Ltd (APL). Section 157(1) CA required them to act honestly and use reasonable diligence in the discharge of their duties as directors. The charges relied on the 'direction of law' limb in s 405 of the Penal Code, specifying the actus reus of the offence of criminal breach of trust as being the use of entrusted property 'in violation of any direction of law prescribing the mode in which such trust is to be discharged'. The district judge found that the appellants had conspired to use IPH's funds for the purchase of three blocks of shares in Lucky Man Properties Ltd (LMP), a Hong Kong listed company. The appellants had intended to acquire the LMP shares for themselves but did not have sufficient funds. They devised a scheme for IPH to finance the purchase of the LMP shares, with APL facilitating the purchase on IPH's behalf. After obtaining a mandate from IPH's directors for the purchase of the shares, the appellants proceeded to covertly purchase two blocks of LMP shares at HK$1.82 and HK$2.40 per share for each block respectively. They then arranged for two Malaysian private companies, Lambang Maju and Wartakaya, to purchase the shares from APL at a higher price. APL therefore made a profit from the sale. The district judge found that the appellants both had undisclosed beneficial interests in APL, and had knowingly placed themselves in a position of conflict of interests. She found that the appellants had failed to act in IPH's best interests, having taken dishonest risks with IPH's funds to make a wrongful gain for themselves in the form of APL's profit from the sale of LMP shares. She found support for this from, inter alia, the appellants' concerns with non-disclosure of the intended acquisition to the Stock Exchange of Singapore, and their failure to keep other officers of IPH informed of their activities. The district judge found that the appellants had used Lambang Maju and Wartakaya as their private vehicles to ensure secrecy and minimize disclosure. She found that the appellants had hoped to claim the LMP shares as their own should the opportunity present itself. She found the appellants' explanations for requiring secrecy and minimizing disclosure to be contradictory and not convincing. The appellants were convicted on the reamended charges and ordered to pay the prosecution's costs of S$200,000. On appeal, the appellants contended that the reamended charges were bad in law. The introduction of s 157(1) CA into a s 409 Penal Code charge resulted in a real danger of prejudice in that they were at risk of being convicted for criminal breach of trust on the basis of breach of directors' duties under s 157(1) CA. In addition, the appellants submitted that the principal findings of the district judge were against the weight of the evidence. The appellants argued that there was never any ulterior motive behind the LMP share acquisitions. There were genuine commercial reasons to attempt to minimize disclosure of the LMP acquisition. The respondent submitted that the district judge's findings were supported by the evidence. The respondent suggested that should the court find the charges to be improper, the charges could be amended to one under s 157 CA and a retrial could be ordered.

Held, allowing the appeals against conviction and sentence: (1) the word 'mode' in the 'direction of law' limb of s 405 of the Penal Code connoted that there must be a degree of specificity in the direction of law in question. It should not be construed so expansively as to extend to a general direction to 'act honestly'; (2) the re-amended charges amounted to an allegation that the appellants had dishonestly used property in violation of a direction to act honestly. In effect, the actus reus was 'using property dishonestly'. This blurred the distinction between the actus reus and mens rea to an unacceptable degree; (3) the re-amended charges were materially defective in that s 157(1) CA was welded to s 409 of the Penal Code. The general exhortation to 'act honestly' contained in s 157(1) CA could not constitute a 'direction of law' for the purpose of s 405 of the Penal Code, as s 157(1) CA did not prescribe any specific mode in which the trust was to be discharged. The appellants were seriously prejudiced in that they were at risk of being convicted, and were convicted, of criminal breach of trust under s 409 of the Penal Code on the basis of breach of fiduciary duty under s 157(1) CA. On this basis alone, the appeals would have been allowed; (4) leaving aside the difficulty with the charges, the pivotal consideration was whether the appellants had acted 'dishonestly'. This had to be considered with reference to s 24 of the Penal Code. It was not enough for the respondent to suggest that the appellants were dishonest in having taken risks with the entrusted funds, such risks not being in the best interests of IPH; (5) the commercial realities of the transaction had to be carefully considered. The evidence supported the appellants' contentions that while they were genuinely concerned about undue disclosure of their acquisition plans, there was a fair amount of transparency in the arrangements. It did not support the inference that the appellants' concerns for non-disclosure or secrecy must have served to conceal a guilty purpose; (6) there was no cogent evidence that the appellants had acted in the pursuit of a common object or design involving the commission of criminal breach of trust. There was also little support for the district judge's finding that the appellants had some undisclosed interests in APL, and that they had intended to use IPH's funds to gain profit in their capacity as APL's shareholders. There were no 'unlawful means' employed in the process of acquiring the LMP shares. The nature and degree of dishonesty required under s 405 of the Penal Code had not been proved beyond reasonable doubt; (7) the charges had already been amended twice before. The re-amended charges eventually emerged only after 17 days of trial. To amend the charges yet again at the appellate stage, after 43 days of trial in the district court, and remit the case for a retrial would be unfair and highly prejudicial to the appellants.

Cheam Tat Pang & Anor v Public Prosecutor [1996] 1 SLR 541; (1996) CSLR VI[1379] High Court, Singapore (Yong Pung How CJ).

Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109; (1996) CSLR VI[28] High Court, Singapore (Judith Prakash J).

See COMPANIES AND CORPORATIONS, Vol 3, para 108.

The appellant was persuaded to leave a competitor to join the respondents as their regional director. Part of the remuneration offered to him was that he was to continue to receive the remuneration set forth in the employment agreement for two years thereafter in the event that the agreement was terminated by the expiry of its term. This part of the remuneration was referred to as 'severance benefits'. The formal agreement was signed after the appellant left the competitor and was appointed director of the respondents. It was backdated to take effect from the appellant's date of appointment. The appellant completed his extended term of employment on 12 April 1993. The appellant commenced action against the respondents to recover, inter alia, the severance benefits due to him under the agreement. The respondents filed an application under O 14A of the Rules of the Supreme Court 1980 for the determination of the issue whether the 'severance benefits' were compensation for loss of office payable to a director and were in contravention of s 168(1) of the Companies Act (Cap 50, 1990 Ed). The senior assistant registrar held that she was bound by Britannia Brands (Singapore) Pte Ltd v Sushil Premchand[ei [1995] 1 SLR 128 and dismissed the appellant's claim. The appeal to a judge-in-chambers was dismissed. See [1995] 3 SLR 157. He appealed to the Court of Appeal.

Held, allowing the appeal: (1) the court must assume that Parliament was aware of the Victorian Supreme Court's decision in Lincoln Mills (Australia) Ltd v Gough [1964] VR 193 and clearly intended to give s 168 of the Act a wider scope than that given to s 129 of the Australian Companies Act by Lincoln Mills v Gough when Parliament changed the words, 'for loss of office as a director of that company' in s 129(1)(a) of the Australian Companies Act to read, 'for loss of office as an officer of the company' in s 168(1)(a) of the Act. This was a material change that was intentionally made; (2) in applying s 168 two considerations should be borne in mind. Firstly, not every person employed in an executive position by the company would be caught by the sanctions of s 168(1)(a) of the Act. He must be a director of the company as well as be employed by the company in an executive position, ie an officer of the company. Secondly, not every payment made to a director upon the cessation of his employment with the company would fall within s 168(1); (3) on the evidence, the 'severance benefits' here were a part and parcel of the remuneration package and were never intended to be paid with the object of compensating the appellant for loss of his office or in consideration for his retirement therefrom. They were payments which the respondents agreed to make and were liable to make to the appellant in the event that happened on the termination of his employment with the respondents. Such 'severance benefits' did not fall within s 168(1); (4) at any rate such 'severance benefits' should have been excluded from the ambit of s 168(1) by reason of s 168(5).

Grinsted v Britannia Brands (Holdings) Pte Ltd [1996] 2 SLR 97; (1996) CSLR VI[1879] Court of Appeal, Singapore (Yong Pung How CJ, Karthigesu and LP Thean JJA).

The defendant was at the material time a director and the managing director of the plaintiff. The terms of his employment as managing director were set out in a letter of appointment dated 1 January 1993. Among the benefits under his severance package as contained in his letter of appointment was an entitlement to purchase the company car already allotted to him at the deemed book value 24 months after the termination date. The defendant's service with the plaintiff was terminated on 5 August 1993, with immediate effect, for alleged misconduct. The notice demanded the return of, inter alia, the vehicle. The defendant refused to return the vehicle and he purportedly exercised the option to purchase it at its book value pursuant to the relevant clause in his letter of appointment. The plaintiff thus commenced proceedings for the delivery of the vehicle. The defendant contended that he was entitled to purchase the vehicle at the book value as at the expiration of 24 months after the termination, ie the book value as at 5 November 1995. The plaintiff, on the other hand, contended that the severance package had not been disclosed to the members and approved by the plaintiff in a general meeting and thus infringed s 168 of the Companies Act (Cap 50) ('the Act') and was, therefore, unenforceable. Counsel for the defendant, however, contended that s 168 of the Act only applied to a situation where compensation is to be made to a director for loss of office or consideration for retirement from the office of director.

Held, allowing the plaintiff's application: (1) s 168 of the Act refers to 'compensation for loss of office as an officer of the company' and is thus not limited to compensation for loss of office as a director. By s 4, 'officer' includes 'any director or secretary of the corporation or a person employed in an executive capacity by the corporation'; (2) the 'severance package' payable to the defendant, a director, in connection with his employment as managing director was compensation for loss of office as an officer of the plaintiff company and thus fell within s 168 of the Act.

Britannia Brands (Singapore) Pte Ltd (formerly known as Britannia Brands (S) Trading Pte Ltd) v Shushil Premchan [1995] 1 SLR 128; CSLR VI[1754] High Court, Singapore (Goh Joon Seng J).

The plaintiff had been employed by the defendant company as its regional director. Under the terms of employment, the plaintiff was to receive certain payments and benefits upon the termination of his employment. The terms of employment had not been approved by the company in general meeting. The plaintiff brought this action to claim the payments and benefits. The defendant company raised several defences and then applied under O 14A of the Rules of the Supreme Court for a determination whether the agreement to pay the payments and benefits was unlawful as being contrary to s 168 of the Companies Act (Cap 50, 1990 Ed). The application was allowed by the senior assistant registrar and the plaintiff appealed.

Held, dismissing the appeal: (1) the words of s 168 of the Companies Act were wide enough to cover compensation paid or to be paid not only for the loss of office of director but also for the cessation of employment in an executive position; (2) the section also covered compensation which had to be paid pursuant to a contract and was not restricted to uncovenanted payments; (3) (per curiam) s 168 did not require that the compensation had to be approved at the time of the decision to pay or agree to pay the compensation; a company could approve a payment or agreement retrospectively to satisfy the section.

Grinsted v Britannia Brands (Holdings) Pte Ltd [1995] 3 SLR 157; (1995) CSLR VI[1877] High Court, Singapore (Lai Siu Chiu J).

[Annotation: Reversed on appeal. See [1996] 2 SLR 97; (1996) CSLR VI[1879].]

A was the managing director and chairman of D, a company against which P had commenced an action. P obtained an injunction against D restraining them, inter alia, from producing, disposing or dealing with stamps bearing the name of Tuvalu. Despite this, it was found that D had printed a substantial number of Tuvalu stamps. P sought an order of committal against A, which was granted. A was sentenced to three months' imprisonment and find £3,000. He appealed.

Held, varying the sentence: (1) where a company is ordered not to do certain acts or gives an undertaking to like effect and a director of that company is aware of the order or undertaking, he is under a duty to take reasonable steps to ensure that the order or undertaking is obeyed. If he wilfully fails to take those steps and the order or undertaking is breached he can be punished for contempt. The word 'wilful' is used to distinguish the situation where the director can reasonably believe some other director or officer is taking those steps; (2) there must be some culpable conduct on the part of the director before he is subject to an order of committal. Mere inactivity is not sufficient. However, if there has been a failure to supervise or investigate or wilful blindness on the part of a director, his conduct can be regarded as being culpable; (3) in this case A had failed to take adequate and continuing steps to ensure that those to whom he delegated the handling of the matters which fell within the scope of the injunction had not forgotten or misunderstood or overlooked their obligations. Apart from initial instructions which he gave to the employees, A had left the matter entirely to them. The decision was affirmed but the sentence was varied by quashing the sentence of imprisonment.

A-G for Tuvalu & Anor v Philatelic Distribution Corp Ltd & Ors [1990] 2 All ER 216 Court of Appeal, England (Woolf, Bingham LJJ and Sir Roualeyn Cumming-Bruce).

[Annotation: Order 45 r 5 of the Rules of the Supreme Court 1965 [UK] is identical to O 45 r 5 of the Rules of the Supreme Court 1970 [Sing] and the Rules of the High Court 1980 [Mal].]

The plaintiff was the uncle of the second to fifth defendants. They ran the family-owned first defendant company. This company, the plaintiff, and the second defendant entered into a tripatitle agreement whereby the plaintiff was granted the licence to use three kilns which were situated on temporary occupation licence ('TOL') land. This was to come to an end if, inter alia, the TOL was withdrawn. When the second defendant became bankrupt, the plaintiff managed the company. Eventually, the second defendant banded together with the other defendants to remove the plaintiff as a director. The second defendant also breached the agreement by failing to apply for a certain permit. The plaintiff sought specific performance of the agreement and/or damages for breach of contract and damages for conspiracy on the part of the second to fifth defendants.

Held: (1) the contractual right to use the three kilns did not legally transfer or assign the TOL under s 68 of the National Land Code 1965 because the licence granted was for the kilns and not the land; (2) the contract was voidable at the option of the first defendant company because the plaintiff director had an interest in it; (3) s 131(1) and (5) of the Companies Act 1965 provides criminal sanctions for conflict of interest where the director has a statutory duty of disclosure, but the Act does not affect this situation because this was a civil suit. In any case, there was de facto declaration because, inter alia, it was a family business and it was irresistible that the company would have known about the plaintiff's interest; (4) the first defendant company was estopped from rescinding the voidable contract because it allowed the agreement to continue beyond five years, viz beyond a reasonable time, and also because the parties could no longer be put in status quo; (5) although evidence on the quantum of damages was not led, it could be inferred as those incurred in the ordinary course of business in this situation of a family takeover; (6) there had been tortious conspiracy by the second to fifth defendants; (7) an amendment to the Companies Act 1965, ie s 132C(1)(b), after the events in this case could not prejudice the plaintiff's position.

Tan Bok Seong v Sin Bee Seng & Co (Port Weld) Sdn Bhd & Ors (1995) CSLR VI[501] High Court, Kuala Kangsar (Abdul Malik Ishak J).

The appellant had been convicted on a charge of failing to declare his interest in a contract entered into by a company of which he was the managing director. The vital fact needed to be proved in this case to show the guilt of the accused was his knowledge of the contract. The evidence on this was purely circumstantial.

Held: the court was not satisfied that the appellant was aware of the interest. As the President of the sessions court had not directed her mind to consider the evidence from all angles, the conviction was quashed.

Lim Foo Yong v Public Prosecutor [1976] 2 MLJ 259 High Court, Kuala Lumpur (Chang Min Tat J).

The appellant in this case was charged and convicted by the President of the sessions court, for not disclosing his interest in the company's shares.

Held: the commercial morality expected of company directors is too well-known to be reiterated. Directors are expected to observe a high standard of conduct in connection with dealings with their own shares. They may buy or sell shares in the company in the ordinary course and the fact that they usually know more about their company than the other party to the transaction is no bar; but when they do buy or transfer shares, they have to notify the company in writing within seven days of the occurrence.

Raja Nong Chik v Public Prosecutor [1971] 1 MLJ 190 High Court, Kuala Lumpur (Raja Azlan Shah J).

The first defendants were a private limited company ('the company') and initially all the shareholders were family members. There was a coup in the family business and part of the family formed a new board of directors, ousting several members and recruiting new ones. After several board meetings, the first plaintiff, too, was dismissed as the managing director. The first plaintiff and his allies also held their own board meetings. The first plaintiff, using the relevant transfer forms and share certificates of his children, transferred these shares to himself. Further, these meetings, which included an EGM and an AGM, declared that virtually all the actions of the defendants at their purported board meetings, and otherwise relating to the shares of the company and the lands, to be null and void, ultra vires the articles of association of the company, and in contravention of the Companies Act 1965. On 6 September 1990 the first plaintiff placed caveats over his lands. In the meantime, the company (purportedly at that material time controlled by the defendants) entered into a sale and purchase agreement with the intervenors, whereby the lands were to be sold to the the latter free from all encumbrances. The cheque for the payment of the balance of the purchase price was sent to the defendants' solicitors on 29 December 1990 who returned the same saying that there was then a caveat on the lands. Despite this, further payment was made to the company. The receipt issued by the company stated that this sum was for the balance of the purchase price. Upon payment, the documents of title were handed over to the intervenors. But the intervenors' attempt to register the transfer of the lands into the intervenors' name was rejected by the authorities citing an interim injunction obtained by the plaintiffs in this case prohibiting the second, third, fourth, fifth and ninth defendants, their agents or servants from selling, disposing of, entering into any contract or executing legal documents or dealing in any way with the said lands. The interim injunction had been granted on 4 June 1991 by the court. The intervenors applied firstly, to intervene, and secondly, to set aside the interim injunction. The court had allowed the first application of the intervenors to intervene by consent of the plaintiffs. Upon notice for further argument, the second application was fixed in open court as by then the writ had been served on the defendants and they already knew about the interim injunction. The intervenors' contention was that they were bona fide purchasers of the property for valuable consideration, and that any internal dispute between the shareholders and directors of the company should not affect them; that their search at the company registry at that time of the purchase had revealed that the 'directors' with whom they dealt with were the directors of the company; and that the relevant resolutions to sell and transfer the said lands were passed and executed by the 'directors' and were duly presented to the intervenors. While the defendants asserted that they, too, acted properly, within their legal rights, they criticized the plaintiffs for delaying in seeking this injunction when they (the plaintiffs) had known earlier that the said lands would be sold, as far back as January 1991. They, too, applied to have the interim injunction set aside. Both the applications were heard together.

Held, dismissing both applications: (1) there is definitely a serious question to be tried between the plaintiffs and the defendants, and the claim by the plaintiffs is not frivolous or vexatious at this stage; (2) the rights and benefits of the intervenors are derived from certain defendants who acted as 'directors' at the material time. As the rights and powers of these defendants are being questioned, certainly the intervenors would be affected by the overall outcome of the defendants' fate in this matter; (3) the intervenors did not act in good faith in the transaction because no prudent businessman would have overlooked the suspicion raised in the affidavits accompanying the caveats by the first plaintiffs, and the speed, mode and manner of payment in bypassing the company's solicitors cast great doubts as to the good faith of the intervenors, when they easily parted with over RM4m; (4) being the only property owned by the company, selling or disposing of the said property would affect the financial position of the company. Failure by the defendants to comply with the requirements of s 132C of the Companies Act 1965 had rendered the defendants' resolutions invalid, especially when there is a vast difference in the price at which the intervenors purportedly bought the lands and the price suggested by the plaintiffs; (5) there is hardly any unreasonable delay on the part of the plaintiffs considering the facts and circumstances of this case; (6) as regards the balance of convenience, the interim injunction should remain since there is a doubt as to the adequacy of respective remedies in damages available to either party, and to preserve the status quo of the valuable property until the final disposal of the suit proper.

Chang Ching Chuen & Ors v Aik Ming (M) Sdn Bhd & Ors (Pekan Nenas Industries Sdn Bhd, Intervenors) Civil Suit No 22-120-1991 High Court, Johore Bahru (James Foong J).

Lim Teck Cheng ('the applicant') pleaded guilty to an offence under s 402(1)(a) of the Companies Act (Cap 50, 1990 Ed) ('the Act') and another similar offence arising from the same transaction, was taken into account. The applicant was fined S$10,000 and disqualified for five years from being a director of a company or being concerned in or involved in the management of a company with effect from 10 October 1993. The applicant applied unsuccessfully for the period of disqualification to be shortened six months after conviction. The applicant applied again about 19 months after conviction. The applicant was granted leave to be concerned with and to take part in the management of Hong Lam Marine Pte Ltd ('Hong Lam') but refused the applicant leave to be a director of Hong Lam. The Attorney General appealed against the former part of that decision.

Held, dismissing the appeal: (1) a disqualification under s 154 of the Act was not punitive but designed to give a certain measure of protection to the public by ensuring that the corporate structure was not misused to the detriment of investors, shareholders, creditors and those persons dealing with companies; (2) and (d) the interest of the general public, the shareholders, creditors and employees of these companies and the risks to the public and to those persons should the applicant be permitted to be a director or to take part in management; (3) the offence itself was very salient. In this case, it did involve dishonesty but not fraud. There were a number of compelling mitigating features in favour of the applicant Ð there were no losses, there were no innocent shareholders involved, there was no element or personal gain or receipt of moneys by the applicant himself. The applicant was very remorseful. It was not disputed that the applicant's general character was good. The applicant continued to be highly regarded by his bankers; (4) the applicant had a stable of companies. The applicant applied to be allowed to be a director of only Hong Lam. The applicant had been involved with Hong Lam all his working life and rose to become managing director after its incorporation in 1981. The Hong Lam Group ('the group') employed over 100 people and had a multi-million dollar turnover. The applicant had difficulty in overseeing expansion overseas, because of the disqualification; (5) in considering whether to grant leave or not, various factors had to be considered: (a) the nature of the offence of which the applicant had been convicted and the nature of the applicant's involvement; (b) the applicant's general character; (c) the structure and the nature of the business of each of the companies which the applicant sought the leave of the court to become a director of or to take part in its management;the applicant owned all the shares issued and paid in Hong Lam, other than one. There was no body of shareholders in Hong Lam who needed protection. Hong Lam was also a private company, not a publicly listed one. There was no adverse concern shown by creditors. The return of the applicant to Hong Lam in its management would be favoured by a large number of employees in the group as their jobs depended as the continued contributions of the applicant to Hong Lam.

Lim Teck Cheng v Attorney General [1995] 3 SLR 821; (1995) CSLR VI[627] High Court, Singapore (Amarjeet JC).

The respondents Derrick Chong Soon Choy ('Chong'), Gan Khai Choon ('Gan'), Huang Sheng Chang ('Huang'), and Quek Leng Chye ('Quek') were convicted of an offence punishable under s 39(4) read with s 43 of the Companies Act (Cap 185, 1970 Ed) in a district court (see [1983] 2 MLJ xcvi). The respondents (who were the applicants in the High Court) made separate applications to the High Court for orders pursuant to s 130 of the Companies Act that notwithstanding the conviction of each of them in the district court for an offence under s 39(4) read with s 43 of the Act, and, in the cases of Huang and Chong, of another offence under s 363(3) of the Act, each of them be at liberty to be a director of and/or be concerned in or take part in the management of the companies named in their respective applications. The learned Chief Justice refused the applications for directorships, but he granted the applicants leave to be concerned in and take part in the management of the companies concerned, except two companies, CCC (Holdings) Ltd and City Country Club Pte Ltd (see [1984] 1 MLJ 5), thereby giving rise to these two sets of appeals. In the first set, the Attorney-General appealed against the decisions granting leave to participate in the management of the companies. In the second set, Quek, Gan, Huang, and Chong, by way of cross-appeal, sought to vary the orders of the learned Chief Justice to allow them to be directors and to participate in the management of the companies. Chong, however, did not proceed with his cross-appeal at the hearing, but sought leave to be employed as a club manager only. Two grounds were raised by the Attorney General in his appeals: (1) the learned Chief Justice had erred in law in granting the applicants leave to participate in the management of their respective companies and failed to appreciate that the applicants had not discharged the onus that was on each of them to show why they should each be made an exception to the legislative policy; (2) having refused the applicants leave to be directors of companies, the learned Chief Justice had erred in law and in fact in failing to appreciate that by allowing the applicants to participate in the management of companies, he had allowed the applicants in effect to drive from the back seat. The submissions for Huang, Quek and Gan were that they were commercial men and not legally trained. They had to rely on professional advice and did not possess the technical knowledge of the requirements of the Companies Act as to the circumstances in which a prospectus might or might not be needed.

Held, allowing the appeals of the Attorney General and dismissing the cross-appeals: (1) in a s 130 application, the court is not bound by what took place in the criminal proceedings. Neither the applicants nor the Attorney General is confined to the circumstances of the offence or to the matters which were the substance of proceedings in the district court; (2) the correct approach to follow in s 130 applications is as stated by Legoe J in Re Marsden 5 ACLR 694: 'The court should consider the relevant facts disclosed by the conviction afresh and feel free to view it differently from the court which dealt with the criminal charge'; (3) the judge has discretion to grant or refuse leave in a s 130 application. Having found the applicants had intentionally and unlawfully avoided the issue of a prospectus for the sale of the shares of the company, the learned Chief Justice was therefore right in the exercise of his discretion to refuse the applicants leave to be directors of companies; (4) more and more in the management of companies, employees in managerial positions are exercising as much power in the management of companies as are exercised by directors of companies. They, as with directors, are placed in a position where they are not without opportunity to manipulate the corporate structure to their own interest. It is essential, therefore, that managers of companies, like directors, are persons of integrity. In the rapidly changing economic, financial and social circumstances in Singapore, directors of companies as well as managers have a particular social responsibility to act with the utmost candour in the management of companies. In allowing the applicants leave to manage companies, the learned Chief Justice had not given due or sufficient regard to this aspect of the matter; (5) the onus is on the applicants to show why notwithstanding their convictions they should be granted leave to participate in the management of companies. Far from discharging the onus that is upon them, the cumulative findings of the learned Chief Justice show that the applicants are not suitable persons to be involved in companies; (6) leave to be directly or indirectly concerned or take part in the management of companies should therefore be refused. However, leave would be granted to Chong, not to participate in the management of a club, but under the control of the management committee of any club to be an employee therein.

Attorney General v Derrick Chong Soon Choy & Ors; Quek Leng Chye & Ors v Attorney General 1984 Court of Appeal, Singapore (Kulasekaram, Sinnathuray and Rajah JJ).

[Annotation: Earlier proceedings reported as Huang Sheng Chang v Attorney General [1982-1983] SLR 468; [1984] 1 MLJ 5 (High Court) (order varied). The Court of Appeal's decision was affirmed on appeal to the Privy Council: Quek Leng Chye v Attorney General [1984-1985] SLR 72; [1985] 2 MLJ 270.]

This was an appeal from the decision of the Court of Appeal of Singapore ([1985] 1 MLJH 97; (1984) CSLR VI[626]). The appellants and two others were convicted of an offence punishable under s 39(4) read with s 43 of the Companies Act, the substance of the offence being the unlawful issue of letters of invitation to the public to subscribe for shares in a company. The appellants applied to the High Court for orders pursuant to s 130 of the Companies Act that notwithstanding the conviction of each of them, each of them be at liberty to act as directors and promoters or to be otherwise directly or indirectly concerned or to take part in the management of companies in Singapore. The learned Chief Justice who heard the applications refused the applications for directorships but he granted the applicants leave to be concerned in and take part in the management of all but two of the companies of which they had been directors before their conviction. The two excepted companies were those that had been directly concerned in the setting up of the proposed country club for which the letters of invitation had been issued. The appellants appealed to the Court of Appeal and the Attorney-General too appealed against the grant by the Chief Justice of leave to be concerned and take part in the management of the various companies. The Court of Appeal allowed the appeal of the Attorney-General and reversed that part of the Chief Justice's decision whereby despite his refusal to allow them to act as directors he granted leave to them to be concerned with and take part in the management of the various companies specified in his judgment. The appellants appealed.

Held, dismissing the appeal: (1) in view of the concurring findings of fact in the courts below, whose members were more familiar with business conditions, practices and attitudes in Singapore there were only two points which justify being described as arguable before the Privy Council; (2) the first was whether upon the material before it the Court of Appeal was entitled to interfere with the way in which the Chief Justice had exercised a discretion which by s 130 of the Companies Act was vested in the High Court or a Judge thereof. In this respect the reasoning of the Court of Appeal was convincing and provided sufficient justification for setting aside, to the extent which the Court of Appeal had done, the way in which the Chief Justice had exercised the discretion that initially was his; (3) the second argument was the submission that as the appellants had lodged their affidavit evidence to the effect that they had regarded the question of whether the letter of invitation required to be accompanied by a prospectus as a technical question which was one of the law alone and that they relied implicity on the advice of their solicitor, their application for relief ought not to have been dismissed without accepting the offer which was made on their behalf (though not until the case had reached the stage of appeal) to be cross-examined on those affidavits. The affidavits dealth only with the legal obligation to provide a prospectus but did not refer to the need for disclosure of the details of the scheme. In view of the concurrent views of the courts below, about the likely effect of such disclosures in business circles in Singapore it is not surprising that neither appellant as an experienced business man, was ready to pledge his oath to a statement that the discouraging effect of disclosures in the letter of invitation itself of the huge amount of the premium had never crossed his mind; (4) there was no reason to differ from the view as to the appellant's conduct that was taken in the courts below or from the view of the Court of Appeal as to the appropriate consequences of that conduct in an application by the appellants for relief under s 130 of the Companies Act.

Quek Leng Chye & Anor v Attorney-General [1984-1985] SLR 72; [1986] 2 MLJ 270; (1985) CSLR VI[628] Privy Council Appeal from Singapore (Lords Scarman, Diplock, Keith of Kinkel, Brightman and Sir Owen Woodhouse).

Re Lo-Line Electric Motors Ltd & Ors [1988] 3 WLR 26 High Court, England (Browne-Wilkinson VC).

See COMPANIES AND CORPORATIONS, Vol 3, para 198.

The plaintiffs were private companies incorporated in Malaysia. The first and second defendants were directors of the first plaintiff. The defendants were directors of the second plaintiff. On 13 September 1983, Fleet Group Sdn Bhd, which was later incorporated as Sistem Televisyen Malaysia Berhad (STMB), appointed the first plaintiff as its project manager and the second plaintiff as its consultant engineers. On 30 November 1983, the three defendants registered a partnership under the style of Perunding AJZ to carry on the same business as that of the plaintiffs. On 18 November 1983, STMB issued a letter to the first plaintiff terminating its services on the ground that certain personnel of the first plaintiff would be resigning. On 5 December 1983, the defendants' partnership, Perunding AJZ, was appointed as consultants of STMB in place of the first plaintiff. At that time, the defendants were still directors of the plaintiffs but the appointment was not disclosed to the plaintiffs. The plaintiffs found out on 27 January 1984 and filed an action against the defendants on 15 February 1984. The plaintiffs obtained summary judgment pursuant to O 14 of the Rules of the High Court 1980 against the defendants with damages to be assessed by the senior assistant registrar. The defendants appealed against the senior assistant registrar's assessment on the ground that they were entitled to deduct expenses incurred when accounting profits to the plaintiffs. The plaintiffs cross-appealed on the ground that assessment should be based on the total sum of RM5,654,699.24 which was received by the defendants from STMB for all phases of the project between 25 January 1984 and 5 June 1992.

Held, dismissing the appeals: (1) the accounting period for assessment was between 30 November 1983 and 1 March 1984. The only contract secured by the defendants during that period was the appointment by STMB on 5 December 1983, and the total fees received by the defendants from STMB in respect of phase 1 of the project was RM1,119,867.25. The contract was for the first phase only and the cross-appeal could not be allowed; (2) the directors were fiduciaries being either directors or employees of the plaintiffs. The work in respect of which the defendants were paid by STMB was done when the defendants were still directors or employees of the plaintiffs. They could not therefore claim deductions for personal professional fees of RM197,131 for work done for STMB by the plaintiff companies; (3) it was not clear whether the facilities including lay staff utilized in earning the amount paid by STMB were the plaintiffs' or defendants' and deductions would not be allowed; (4) and (c) expenses claimed were the entire operational expenses not limited to this project; (5) the expenses which the defendants said should be deducted were inherently unreliable because (a) expenses for the second phase of the project were to be much less than those of the first phase; (b) the accountant who prepared the account for this litigation was not called to support it;the defendants had to prove each and every item in the account was reasonably and properly incurred. They did no such thing and did not call the maker of the account to testify. The failure to lead evidence of the items was tantamount to the defendants throwing these items at the head of the court and expecting the court to make an award. To have required the plaintiffs to challenge mere items hurled at the court in this way was again tantamount to placing on the plaintiffs the onus of establishing the defendants' claim to deduction. That was something the defendants could not lawfully do.

Avel Consultants Sdn Bhd & Anor v Mohd Zain Yusof & Or [1995] 4 MLJ 146; (1995) CSLR VI[893] High Court, Kuala Lumpur (Richard Talalla J).

In this application made by the Official Receiver, the liquidator of Kie Hock Shipping (1971) Pte Ltd (the company), the issue was whether the second respondent, the executive director of the company, had been guilty of misfeasance or breach of duty under s 305 of the Companies Act (Cap 185). The first respondent, the managing director of the company, had earlier admitted liability and was ordered to pay the liquidator the sum of $11,551,000 being the total amount of unrecovered debts and interest thereon at 8% pa from 26 May 1978 until payment. The company was wound up on 26 May 1978. On 19 April 1979, the Finance Minister appointed two inspectors under ss 195 and 196 of the Companies Act to investigate into the affairs of the company and criminal proceedings were instituted against both the respondents. There were six charges against the second respondent. He pleaded guilty to five of them and consented to the sixth charge to be taken into consideration in assessing sentence. Only the first charge relating to breach of duty as a director under s 132(1) of the Act is relevant to the present application. Certain Panamanian companies were among the affiliated companies which had dealings with the company. As agents of the Panamanian companies, all disbursements and advances made by the company in respect of the Panamanian ships were debited from the accounts of the Panamanian companies kept by the company, and all freight earnings and other income of the ships were credited to the same accounts. By 1977 a number of large claims were made against the company and the debts of the Panamanian companies were by now about $11m. But both the respondents took no action to recover the debts owing to the company. The first respondent was actively disposing of the ships of the Panamanian companies. The second respondent was aware of this. No proceeds of the disposal were paid to the company or the Panamanian companies. The second respondent contended that his paternal uncle, the first respondent, had sole control in the management of the Kie Hock Group of companies. On the Panamanian companies owned by his uncle, the second respondent said that not being a director or shareholder, he had no control whatsoever of them. The crux of his case was that throughout his tenure as executive director of the company, he was totally powerless.

Held, allowing the application: (1) the second respondent could not be heard to say that he had no power to prevent the breaches of duties by the first respondent; (2) the second respondent as executive director was greatly negligent in the management of the affairs of the company. His failure to collect the Panamanian debts was the single most important factor that caused the company to be wound up. (3) in discharging his duties, a director had to act honestly and had to exercise such degree of skill and diligence as would amount to the reasonable care which an ordinary man might be expected to take, in the circumstances, on his own behalf. The position in Singapore was that what was required of directors by case law in England was provided by statute in s 132 of the Act; (4) in the context of this application, every director owed a duty to his company to use reasonable diligence in discharge of his duties. Failure by a director to do so would be a breach of duty of his office. That breach of duty would give rise to an action by the company against the director for damages suffered by the company. The commission of that breach of duty by the director would also be a criminal offence; (5) having regard to the conduct of the second respondent in the management of the affairs of the company which led to his conviction, the second respondent should be jointly and severally liable with the first respondent. As he had not acted honestly and reasonably in the discharge of his duties as director, he ought not to be excused under ss 354 of the Act.

Re Kie Hock Shipping (1971) Pte Ltd 1984 High Court, Singapore (TS Sinnathuray J).

[Annotation: Reversed on appeal. See [1987] SLR 50; [1987] 2 MLJ 419.]

3 [133] COMPANIES AND CORPORATIONS Directors – Duties – Joint venture company to exploit product – Misuse of trade secrets to produce rival product – Breach of duties --Member's right to restrain company – Companies Act (Cap 50, 1990 Ed), ss 157 & 409A – American Cyanamid Co v Ethicon [1975] AC 396 (folld); United Dominions Corp Pty v Brian Pty Ltd (1985) 59 ALJR 676 (folld); Torrington Manufacturing v Smith & Sons Ltd [1966] RPC 285 (refd); Terrapin Ltd v Builders Supply Co (Hayes) Ltd [1967] RPC 375 (refd); Lock v Lynam (1854) Ir Ch 188 (folld); Warnink v Townend & Sons [1979] AC 731 (folld); Reckitt & Colman Ltd v Borden Inc [1990] 1 WLR 491 (folld); Schweppes Ltd v Gibbens (1905) 22 RPC 601 (not folld); Payton & Co v Snelling, Lampard & Co (1899) 17 RPC 48 (folld); Schweppes Ltd v Gibbens (1905) 22 RPC 113 (folld); White Hudson v Asian Organization [1965] 1 MLJ 186 (folld); Fisons Ltd v EJ Godwin Peat Industries Ltd [1976] RPC 653 (distd); Re Coca-Cola Co [1986] 1 WLR 695 (refd); John Haig & Co v Forth Blending Co Ltd (1953) 70 RPC 259 (refd); Dent v Turpin (1861) 2 J&H 139; 70 ER 1003 (folld); Alfred Dunhill v Sunoptic [1979] FSR 337 (refd); Star Industrial Co Ltd v Yap Kwee Kor [1976] FSR 256 (distd); Metric Resources Corp v Leasemetrix [1979] FSR 571 (refd); Boots Co Ltd v Approved Prescription Services Ltd [1988] FSR 45 (distd)

In October 1971, a joint venture agreement ('JVA') was entered into between the first plaintiff, C, and the first defendant with a view to reorganizing and expanding the Tiger Balm trade marks business of the first plaintiff. Under this agreement, two companies were formed: HPEAT (in Singapore) and HPTBI (in Hong Kong) (together referred to as the 'joint companies'). The first plaintiff and Chia Holdings (HK) Ltd were equal shareholders in the joint companies. The first defendant was also appointed managing director and chief executive of the joint companies, and at the date of judgment still held that appointment. The first plaintiff later transferred its shares in the joint companies to the second plaintiff. C similarly transferred its shares in the joint companies to the second and third defendants. All the transferees agreed to be bound by the JVA as if they were the original parties thereto. The first defendant had a substantial shareholding in the second defendant. The third defendant is a subsidiary of the second defendant. Under the JVA, the first plaintiff agreed to grant licences to the joint companies to use the Tiger Balm brand trademarks and to manufacture, market and distribute the Tiger Balm products in the ASEAN countries, Hong Kong, Macau, Burma, Japan, Korea, the Pacific islands and in the Middle East. Pursuant to the JVA, certain companies controlled by the first defendant were also engaged to manufacture the Tiger Balm products of the joint companies. The JVA expired on 31 December 1991. In February 1990, the plaintiffs heard from market sources that the first defendant and the companies which he controlled would be launching a new balm product in Singapore and Malaysia. In early March 1990, the general manager of the joint companies informed the first and second plaintiffs that the first defendant and his companies would be launching a new balm product. On 19 June 1990, the plaintiffs issued the present writ against the defendants, claiming injunctions and damages. The plaintiffs alleged that the defendants had breached their fiduciary duties as regards certain confidential information, had breached their contractual obligations and had engaged in passing off. On 22 June 1990, on an ex parte application, the High Court granted interim injunctions against the defendants. These injunctions restrained the first defendant from 'doing or causing, procuring or permitting the second to sixth defendants' to do certain acts. These acts were dealing in any way with the Golden Lion Shield Balm products, passing off the Golden Lion Balm products as Tiger Balm products, acting in breach of fiduciary or contractual obligations under the JVA, and making unlawful use of confidential information relating to the business and production of Tiger Balm products acquired by the first defendant as managing director of the joint companies. The defendants then applied to vary or discharge the various injunctions.

Held, dismissing the defendants' application: (1) the first defendant as managing director of the joint companies had a duty under s 157(1) of the Companies Act to act honestly and use reasonable diligence in the discharge of the duties of his office. Further under s 157(2) of the same Act, the first defendant as an officer of the company was precluded from making improper use of any information acquired by virtue of this position; (2) the allegation that the first defendant had made use of confidential information furnished by the plaintiffs to the joint companies for the manufacture of the Tiger Balm products and in creating a similar balm with a similar get-up to the Tiger Balm products would be an allegation that the first defendant was neither acting in the interest of the joint companies nor acting honestly. He would also appear to contravene s 157(2); (3) under s 409A of the Companies Act, the plaintiffs as shareholders of the joint companies, who would be affected by the conduct of the first defendant, could apply for an injunction restraining the first defendant from engaging in conduct which constituted a contravention of the Act; (4) as to passing off, the court was satisfied that although there were differences of detail between the get-up of the plaintiffs' and the defendants' products, the similarities would have led to confusion and deception. There was a reasonably strong case that the hexagonal container used by the plaintiff had become associated exclusively with the plaintiffs' business; (5) on the facts of the case, it would be difficult to assess whether damages would be an adequate remedy for either party. The loss to the plaintiffs could not be easily quantified. In addition, there could be damage to their goodwill. The court therefore ordered the continuation of the injunction.

Haw Par Brothers International Ltd & Anor v Jack Chiarapurk & Ors [1991] SLR 626 High Court, Singapore (Chao Hick Tin J).

[Annotation: Reversed on appeal. See [1993] 3 SLR 285.]

Hytech Builders Pte Ltd v Tan Eng Leong & Anor [1995] 2 SLR 795; (1995) CSLR VI[891] High Court, Singapore (Warren LH Khoo J).

See COMPANIES AND CORPORATIONS, Vol 3, para 140.

The first defendant company was incorporated in November 1983 with its principal activity being pawn brokerage. In 1989 or 1990, the majority shareholder indicated to the plaintiff's father that he intended to dispose of his shares in the first defendant company. In the event, as the plaintiff's father was unable to proceed as the Registry of Pawnbrokers had rejected his application to be a shareholder and director of the first defendant company, the plaintiff and the second defendant each acquired a substantial block of shares in the first defendant company and joined the company's board of directors. The second defendant's cousin, Chin, also acquired shares, though not as substantial, and he too joined the board. The initial number of shares acquired over several months in 1991 by the plaintiff was 234,274 and by the second defendant, 234,276. In percentage terms, the plaintiff and the second defendant had each acquired approximately 31% of the first defendant company's paid-up capital. Neither the plaintiff nor the second defendant worked full-time in the company. Only Chin and one other shareholder, Lam, did. The board of directors consisted of the plaintiff, the second defendant, Chin and Lam. Lam was the company's book-keeper, the second defendant assumed the role of chairman and Chin became its managing director. In April 1992, the first defendant company increased its paid-up capital. By the acquisition of the first rights issue and the excess shares, the plaintiff increased his shareholding to 34.6%, the second defendant to 34.6% and Chin to 7.3%. On 4 August 1994, an extraordinary general meeting was held and its members duly authorized a second rights issue. Each shareholder was given two application forms, Form A and Form E. Form A was the acceptance form for the rights shares provisionally allotted and Form E was an application for excess shares. The forms had to be returned and payment made by 29 August 1994. The plaintiff accepted all his rights shares, returning Form A on 29 August 1994 but his payment was made in two instalments, the second on 9 September 1994. It was the second rights issue which gave rise to the dispute between the parties because this issue saw the second defendant increase his percentage shareholding to 41.6% and Chin's to 10.4% while the plaintiff's shareholding remained at 34.6%. The second defendant and Chin had acquired majority control of the first defendant company. They had done this by purportedly applying, paying for and being allotted excess shares in addition to the rights shares. The plaintiff contended that these excess shares were improperly issued and allotted, and disputed the validity of their allotment. The plaintiff sought and obtained the following reliefs by way of originating summons: (a) an order that all proceedings and minutes of the board of directors' meeting allegedly held on 10 September 1994 were null and void and of no effect; (b) an order that the allotment of shares allegedly decided at the board of directors' meeting on 10 September 1994 were null and void; and (c) the defendants be restrained from removing the plaintiff as a director until the shares have been reallotted to the members of the first defendant company in accordance with the terms of the memorandum and articles of association of the company. The second defendant appealed.

Held, dismissing the appeal: (1) and it remains the case that an exercise of such a power though formally valid, may be attacked on the ground that it was not exercised for the purpose for which it was granted' (Howard Smith v Ampol [1974] AC 821); (2) there were obvious differences between an act which is intra vires the directors, one which though intra vires, has been exercised in a manner which is an abuse of power and one which is not even exercised at all. '... [S]hares shall be under the control of the directors, who may allot or otherwise dispose of the same to such persons on such terms and conditions and either at a premium or otherwise and at such time as the directors may think fit. But intra vires though the issue may have been, the directors' power under this article is a fiduciary power;on the evidence, the court found that the second defendant and Chin did not submit their applications for the excess shares on 29 August 1994. The second defendant had agreed that the plaintiff could pay for the second rights shares in instalments. The company had always been run informally and there had been an agreement that the plaintiff need not submit his excess shares application Form E. No notice of the alleged meeting on 10 September 1994 had been given to the plaintiff. The alleged meeting was in fact never held. There had been an agreement between the second defendant and the plaintiff that they were each to have equal shares in the first defendant company and that they were with the plaintiff's father to have joint control over the first defendant company's affairs, and joint responsibility and participation in its administration and management. The plaintiff had not acted in such a manner as to prejudice the interests of the first defendant company.

Fun Ching Fwu v Yong Teck Pawnshop Pte Ltd & Anor (1996) CSLR VI[895] High Court, Singapore (Christopher Lau JC).

Ng Pak Cheong v Global Insurance Co Sdn Bhd [1995] 1 MLJ 64 High Court, Pulau Pinang (Mohamed Dzaiddin FCJ).

See CONTRACT, Vol 3, para 2962.

The defendant in this case was employed as the managing director of the plaintiffs who were commodity traders, principally dealing in rubber, coffee and cocoa. They were a wholly-owned Singapore incorporated subsidiary company of Centro International Handelsbank Aktiengeselschaft (Centrobank) a company incorporated and based in Vienna, Austria. Centrobank was run by an executive board comprising of Dr Vogt, Mr Plusa and Mr Sperk. The plaintiffs' directors were nominated and appointed by Centrobank and at all material times these directors were Dr Vogt, Mr Plusa, Mr Sperk, the defendant and Mr Beschizza. Only the defendant and Mr Beschizza were resident in Singapore, the other three being based in Vienna. Mr Beschizza was in charge of the plaintiffs' rubber business and the defendant was in charge of all the plaintiffs' other business as well as being overall in charge. The day to day operations of the plaintiffs were therefore run by the two of them. These operations were to be carried out in conformity with guidelines and limits set by Centrobank, so that Centrobank could have some control from Vienna. The two limits relevant to this case were the trading limit and the financial limit. Mr Beschizza and the defendant were given a blanket authority by Vienna to approve a trading limit of up to S$500,000 for any of the plaintiffs' customers. Anything in excess of that had to be approved by Vienna. No authority was given to the Singapore directors to approve any financial limits. Any credit to be given to a customer had to be approved by Vienna. The plaintiffs claimed that it was a term of the defendant's employment contract that he would work with complete loyalty solely for the plaintiffs and protect the interests of the plaintiffs to the best of his ability. The plaintiffs also claimed that, as a director, the defendant had a fiduciary duty in common law to act honestly, in good faith and in the best interests of the plaintiffs, to safeguard the plaintiffs' assets, to obey all lawful instructions given by the plaintiffs and to exercise adequate skill and care in the discharge of his duties as managing director. The plaintiffs further claimed that under the provisions of s 157(1) of the Companies Act (Cap 50) the defendant as a director also had a statutory duty to act honestly and use reasonable diligence in the discharge of his duties as a director. It was the plaintiffs' claim that the defendant had acted in breach of these duties by: (a) advancing to an Indonesian company called PT Oerip substantial sums of the plaintiffs' money (by way of direct advance and as a deposit with Bapindo as collateral for facilities extended by Bapindo to Oerip) which the defendant knew he had no authority to do and which the plaintiffs' board of directors would not agree to do; (b) advancing a sum of S$200,000 to a company in Singapore called Brilliance, again without any authority and without approval of the plaintiffs' board; and (c) causing the plaintiffs to pay for the cost of the maids who worked for the defendant during his employment with the plaintiffs when the plaintiffs had no obligation to do so. By reason of these breaches the plaintiffs claimed to have suffered loss and damages and terminated the defendant's employment with them. The defendant admitted advancing the money to Oerip but denied that he was thereby acting negligently or in breach of his duties and counterclaimed for damages and loss for wrongful termination of his employment. If, however, it was found that there was some negligence or breach of duty on his part, the defendant sought relief under s 391 of the Companies Act on the basis that he acted honestly and reasonably. The plaintiffs denied that the termination was wrongful and further denied that the defendant should be entitled to any s 391 relief.

Held, allowing the claim: (1) the defendant had not given any plausible explanation for his claim that the trading and financial limits which applied to commodity trading customers were not meant to apply to the plaintiffs' other customers. There was nothing in the memorandum setting the limits to suggest that these limits were intended to apply only to commodity trading customers nor was there any evidence that the defendant was given a carte blanche. It would have defeated the purpose of these limits, which was to give some measure of control to Centrobank in Vienna over its subsidiaries' business worldwide, if these limits were only meant to apply to some of the plaintiffs' customers and not to others; (2) there was no dispute between the parties that these amounts were in fact paid to and remain outstanding from Oerip. The plaintiffs said the defendant had no authority to make such payments, knew he had no such authority and concealed the fact of these payments from Vienna. The defendant said that these payments were all authorized and made with Vienna's full knowledge and consent. The documentary evidence all supported the plaintiffs' case. The moneys were expended without Vienna's knowledge or approval although the defendant knew that Vienna's prior approval should have been obtained before any such payments or advances or deposits were made. The defendant was thereby in breach of his contractual as well as his common law and statutory duties to the plaintiffs and was accordingly liable to them on the Oerip claims; (3) on the evidence, the defendant clearly had no authority to make such a loan to Brilliance on behalf of the plaintiffs. The defendant had clearly acted in breach of his authority and his duties to the plaintiffs in making this loan. The defendant must accordingly be responsible for whatever loss or damage the plaintiffs have suffered by reason thereof. As the principal sum had since been refunded to the plaintiffs but none of the interest due thereon was repaid, the plaintiffs were entitled to recover this amount from the defendant; (4) the plaintiffs had not sufficiently proved their case on the maids claim and therefore that claim was dismissed. Although there was no specific mention in the defendant's contract of employment with the plaintiffs that the cost of his maids would be paid by the plaintiffs, these costs were regularly paid for by the plaintiffs throughout his employment. In fact the maids were all employees of the plaintiffs and for whom the plaintiffs issued IR8A forms each year for the Inland Revenue. They were therefore not employees of the defendant for whose cost the defendant had somehow reimbursed himself from the plaintiffs' funds. The fact and nature of their employment must have been known to Vienna. There was no evidence of the defendant seeking in any way to conceal from Vienna the fact that the maids had been employed and paid by the plaintiffs for the purpose of working for him. By not objecting thereto and paying their salaries over the years, Vienna by its conduct, if nothing else, had accepted that the defendant was entitled to be provided with a maid; (5) secondly, he must be shown to have acted reasonably, and thirdly, it must be shown that, having regard to all the circumstances of the case, he ought fairly to be excused. The burden of proof lay on the defendant to satisfy the court that these three circumstances existed in relation to the Oerip and Brilliance claims. The defendant, however, failed to show that the second and third circumstances existed in this case. Therefore, the s 391 relief claimed by the defendant was not granted. There was no need for the court to find if the first circumstance existed; (6) in order for the court to grant relief under s 391 of the Companies Act the following three circumstances must be shown to exist: first, the position must be such that the person to be excused is shown to have acted honestly;the defendant's counterclaim for wrongful termination was dismissed.

Centrotrade Commodities Pte Ltd v Carsten Holdorff (1996) CSLR VI[894] High Court, Singapore (CR Rajah JC).

The plaintiff company entered into a contract in June 1972 to purchase a piece of land having an area of 186.7 acres (the land). The purchase of the land was only completed on 27 October 1972 but, prior to that, 5.8 acres of the land was compulsorily acquired. There were indications that the rest of the land would similarly be compulsorily acquired. The first defendant (Liu) was the managing director of the plaintiffs. The third defendant (Yip) was also a director. The second defendant (Tan) was the managing director of the fourth defendant, Lee Tat Development Pte Ltd (LTD). On 23 January 1973, the plaintiffs, after negotiations on their behalf by Liu with Tan, agreed to sell the land to Collin Investments Pte Ltd (CIP), another company of which Tan was a shareholder, for the sum of S$2.05m. A lawyer, Low Siew Joon, was instructed to act for the plaintiffs. At about the same time, four side agreements were entered into, of which the plaintiffs claimed not to be aware. Under the first agreement (the sub-sale agreement), CIP agreed to sell '±5 acres' of the land to Liu's wife (Lim), and Tan's daughter (Collin), for S$50,000. Under a second agreement, Lim and Collin agreed to sell to Collden Realty Pte Ltd (the Collden agreement), a company which had not yet been incorporated, the ±5 acres in consideration of 22,500 and 27,500 shares of S$1 each to be allotted to them respectively. In a third agreement, Collin and Lim agreed that, notwithstanding the fact that Collin would hold 55% of the shares in Collden to Lim's 45%, Collin would bear 80% of the development costs of the ±5 acres. It was also agreed that, in the event Lim failed to contribute her share of 20% of the development costs, Collin would advance the same for interest. A fourth agreement, between CIP and Lim and Collin, provided that if CIP failed to purchase the land from the plaintiffs, the sub-sale agreement would be null and void and the S$50,000 paid would be forfeited. All the above agreements were prepared by a lawyer other than Low Siew Joon. In all the agreements, Tan signed on behalf of Collin (who was not even aware of the transactions) while Liu signed on behalf of Lim. On 23 July 1976, all but 4.2 acres of the land, was compulsorily acquired. The result of this acquisition was that the previously landlocked 4.2 acres part of the ±5 acres now had access to the Pan Island Expressway and other public roads and had development potential. Subsequently, disputes arose out of the side agreements, and on 23 June 1984, Lim commenced an action against Tan, LTD and CIP (Suit No 4149 of 1984). As a result, the plaintiffs became aware of the side agreements and commenced the subject proceedings on 25 May 1 987 alleging conspiracy to defraud on the part of Liu, Tan and Yip through obtaining the sale of land to CIP at S$2.05m and the subsequent registration in the name of LTD. The plaintiffs alleged that Liu, Tan and Yip must have known that the sale price was inordinately low as they were equipped with the knowledge that the ±5 acres would not be compulsorily acquired. The plaintiffs also alleged that there was a breach of directors' fiduciary duty on the part of Liu and Yip in conspiracy with Tan, by Liu's and Yip's failure to give the plaintiffs the benefit of their knowledge that the government would not acquire the ±5 acres. Instead, the plaintiffs alleged, Liu, Yip and Tan conspired to have the ±5 acres set aside for development by Liu or his nominee. Liu, breached his fiduciary duty by failing to disclose to the plaintiffs that he had entered into the side agreements with Tan for his and/or his nominees' benefit. The defendants denied the conspiracy. Further and in the alternative, the defendants argued that the claim was time-barred as more than six years had elapsed from the last date on which LBS, a shareholder with effective control over the plaintiffs, had knowledge of the side agreements. They claimed that this knowledge was evidenced by a note on a possible settlement between Liu and Lok signed by one Lai Ying Hon who was then purportedly representing Lok. Lok denied receiving the said note. The court had, in a preliminary hearing on whether the price of the land at S$2.05m was inordinately low, determined that this was so if it were true that some of the directors had known that part of the land would not be acquired. The issues before the court were therefore whether Liu and/or Tan knew at the material time that the ±5 acres would not in due course be acquired, and if Yip was privy to this know-ledge; and whether the claim was time-barred.

Held, allowing the claim against all the defendants except the third: (1) on the evidence adduced, no inference could be drawn of conspiracy to defraud or breach of duty on the part of the third defendant; (2) as against the first and second defendants, if the four side agreements were as open as they were contended to be, there was no reason for these agreements to be in the names of their wife and daughter as their nominees respectively when the same were to be signed on their behalf by the first and second defendants, and, where the second defendant was concerned, his nominee had not even been aware of the transactions; (3) otherwise the exact area to be sold would have been demarcated and ascertained by a private survey followed by an application for subdivision; (4) further, the fall-back agreement provided that if CIP failed under any circumstances to purchase the three lots under the ma in agreement, the sub-sale agreement would determine and become null and void and the sum of S$50,000 paid by Lim and Collin would be forfeited. Although the event aborting the sub-sale would have been the failure on the part of CIP to purchase the three lots under the main agreement, instead of a refund, the S$50,000 was to be forfeited. This suggested that no payment of the purported consideration was intended; (5) on these facts, notwithstanding the high standard of proof required in claims of conspiracy to defraud, the inference was sufficiently compelling for the court to hold that the first defendant knew that the ±5 acres would not be acquired or could be left out of the acquisition of the surrounding land; (6) it was for this reason that the second defendant agreed to the first defendant's 45% share in the proposed development of the ±5 acres when his contribution was to be 20% only, plus financial assistance to pay for the 20% contribution; (7) a factor pointing to the first defendant's knowledge that the ±5 acres would not be acquired was that the subject matter of the sub-sale agreement described as 'approximate area of 5 acres' in the schedule and as '±5 acres' in the annexed plan had no legal access. In such case, it had no prospect of being a subdivided lot and therefore could not be conveyed. Nevertheless, the first defendant, although he was a purchaser under the sub-sale agreement, undertook to obtain subdivision, an obligation normally undertaken by the vendor. Instead of submitting any application for excision of the ±5 acres, he had merely waited until the surrounding land was compulsorily acquired, leaving it with an area of 4.2 acres, which was close enough to the description of ±5 acres. It seemed obvious that the area of the sub-sold land was not described more precisely because the exact area of that part of lot 21-26 to be acquired had not been known at the time. The impending acquisition, however, must have been known to the first defendant and, through him, to the second defendant, and did in fact factor in their minds;the second defendant was privy to this knowledge;the plaintiffs' claim was that of a beneficiary against the first defendant as trustee and for conspiracy to defraud. The claim was not based on the sub-sale of the ±5 acres of which the third defendant as the nominee of LBS was aware but on the knowledge on the part of the first defendant that the ±5 acres would not be acquired or could be left out of acquisition, and that the first defendant, as a director, and the second defendant, who was privy to such knowledge, should not profit thereby. This knowledge surfaced only in Suit No 4149 of 1984. Therefore, the claim was not statute barred, as s 22(1) of the Limitation Act (Cap 163) applied.

Peng Ann Realty Pte Ltd v Liu Cho Chit & Ors [1994] 3 SLR 576; CSLR VI[887] High Court, Singapore (Goh Joon Seng J).

The plaintiffs are a company under receivership. Box Pak (S) Pte Ltd ('Box Pak') were a subsidiary of City Carton Co Pte Ltd ('City Carton'). The second and third defendants were at all material times directors of the three companies. The fourth defendant was, at different times, the financial controller of the three companies. Sometime prior to 24 May 1984, City Carton and Box Pak owed the first defendants a total sum of S$2,545,897. The two companies were in a very bad financial state and there was only a very slim chance of unsecured creditors being paid. The first defendants held discussions with other creditors of City Carton to see how that company and its subsidiary, Box Pak, could be rescued. The plaintiffs, represented by the second and third defendants, became involved in the discussions. On 24 May 1984, the plaintiffs entered into an agreement with the first defendants to take an assignment of the debts owing by City Carton and Box Pak to the first defendants and in consideration thereof, the plaintiffs agreed to pay the first defendants the sum of S$2,371,079.62. It was a straightforward assignment with no other terms or conditions attached. At this time, the financial position of the plaintiffs was precarious. On 6 June 1984, a cheque for that sum was issued by the plaintiffs to the first defendants. At about that period of time, the first defendants began discussions with the plaintiffs with a view to becoming a shareholder in the plaintiffs. On 28 May 1984, a letter of confirmation of allocation of shares was issued by the plaintiffs to the first defendants. It was only on 11 June 1984 that the plaintiffs passed a resolution to allot the shares to the first defendants. As of 24 May 1984, the date of the assignment agreement, there was neither approval of the board nor of the executive committee of the first defendants taking the S$2m shares in the plaintiffs. As part of the agreement to subscribe for the S$2m shares in the plaintiffs, the first defendants also agreed to (and did) lend S$371,079.62 to the plaintiffs. On 24 January 1985, Arab Bank appointed three auditors as receivers and managers of the plaintiffs pursuant to a power under a debenture. The receivers on behalf of the plaintiffs sued the defendants for the return of S$2,371,079.62 paid to the first defendants on the grounds of constructive trust, conspiracy and resulting trust. A counterclaim was made by the first defendants for the said sum of S$371,079.62. The suit was entirely between the plaintiffs and the first defendants; the second to fourth defendants were not parties to the proceedings as they were not served with the papers.

Held, allowing the plaintiffs' claim and the first defendants' counterclaim: (1) for a constructive trust to arise, three things must be shown that (i) the payment of S$2,371,079.62 by the directors of the plaintiffs to the first defendants was in breach of trust, (ii) the first defendants did receive the sum, (iii) the first defendants received the sum with actual or constructive knowledge of the breach; (2) they knew the financial state of City Carton. The first defendants could be considered as having actual knowledge of the breach of fiduciary duties on the part of the directors of the plaintiffs, being aware of all the relevant facts. At the very least, there was constructive knowledge; (3) (5) where a plaintiff relies on the actions of other persons in seeking relief against the defendant, the fact that such persons were not parties to the proceedings did not affect the jurisdiction or power of the court to find that there had been a breach of duty on their part as the court would not be making a binding enforceable judgment against them by so finding. The court is not prevented, by the fact that the second and third defendants are not parties to the present proceedings, from finding that they were involved in the improper application of funds of the plaintiffs in breach of s 157(1) of the Act; (6) under s 157 of the Companies Act (Cap 50) ('the Act'), a director is required at all times to act honestly and use reasonable diligence in the discharge of his duties. The word 'honestly' does not mean that a director would only be in breach of duty if he had acted fraudulently. It means to act bona fide in the interests of the company. In exercising their discretion, the directors should only act to promote or advance the interest of the company. The directors of the plaintiffs had paid S$2,371,079.62 to the first defendants in return for worthless receivables. They had misapplied the assets of the company. By paying out the money to the first defendants, they had acted in breach of their fiduciary duties. The first defendants held the money as constructive trustee for they were fully aware of the circumstances surrounding the payment;there was a conspiracy to do an unlawful act which caused damage to the plaintiffs. The first defendants and the directors of the plaintiffs, namely, the second and third defendants, were working very closely to effect the assignment. The first defendants knew the full facts. Since the directors had acted in breach of their fiduciary duties when they agreed with the first defendants to take an assignment of the receivables, it follows that the first defendants and the directors had acted in concert to do an unlawful act: to cause a breach of s 157(1) of the Act, which is an offence under s 157(3). The fact that the first defendants might not have known that the plaintiffs' directors would be acting in breach of s 157(1) is beside the point so long as the first defendants were aware of all the relevant facts; (4) the plaintiffs' argument that the assignment agreement was actually executed only after the issue of the writ herein and that the sum of S$2,371,079.62 is repayable by the first defendants to the plaintiffs as there is a resulting trust on the ground that it is money lent by the plaintiffs to the first defendants or money held by the first defendants for failure of consideration must be rejected. It is clear that at the time the receivers were appointed, the debts by City Carton and Box Pak to the first defendants had already been assigned to the plaintiffs. On 4 February 1985, the receivers made demands on City Carton which included the debts assigned. The amount claimed was as at 31 December 1984. The assignment agreement was probably executed on or about 24 May 1984 and in any case, well before 31 December 1984. So long as the assignment was effected at any time before 31 December 1984, or indeed before the collapse of the plaintiffs, there is no basis to allege that there is a resulting trust on the ground that it was a loan or that there was a failure of consideration;the first defendants are entitled to their counterclaim for the sum of S$371,079.62, being the amount lent by them to the plaintiffs.

Multi-Pak Singapore Pte Ltd (in receivership) v Intraco Ltd & Ors [1994] 2 SLR 282; CSLR VI[886] High Court, Singapore (Chao Hick Tin J).

The defendants were incorporated in 1968 and wound up in 1986. The plaintiff was a minority shareholder and a director of the defendants till 1984. On 3 July 1984, the plaintiff who was to retire as a director indicated that she would be seeking re-election at the next AGM. The board agreed that the AGM was to be held on 21 July and notice was given on 4 July. On 5 July, the board of directors of the defendants approved the transfer of shares by another shareholder to Pan Electric Industries Ltd (Pan Electric). Pan Electric as new shareholders then indicated that they would be proposing their own director to replace the plaintiff at the next AGM. On 14 July, the chairman of the defendants resigned. The plaintiff and two other directors, who represented the interests of the minority shareholders, passed resolutions to remove the managing director of the defendants and to appoint the plaintiff in his place. They also postponed the AGM to November and appointed four new directors to the board. Together with the new directors, the plaintiff and the directors who represented the minority interests then caused the defendants to enter into a five-year service contract with the plaintiff on 19 July. The service contract contained, inter alia, a liquidated damages clause in the event of a premature termination of her five-year term as managing director. The majority shareholders then proposed an EGM, which was held on 6 August, and removed as director the plaintiff. On 16 August, the directors who represented the minority interests gave notice for a board meeting to be held on 20 August. The three directors who represented the majority interests were unable to attend the meeting. At the meeting, the directors present approved a claim of S$1,165,626. The plaintiff on 22 August signed two cheques drawn on the defendants' bank account paying out a sum of S$265,626 to herself. The plaintiff in the subject proceedings claimed from the defendants the balance S$900,000 allegedly owing to her under the service contract. The defence was that the service contract was entered into by the directors of the defendants in breach of their fiduciary duties and was unenforceable. They further counterclaimed for the return of the S$265,000 paid out to her as moneys had and received.

Held, dismissing the plaintiff's claim and allowing the defendants' counterclaim: (1) the plaintiff was in a position of conflict when she signed the resolution appointing herself as the managing director of the defendants. Further, she was in breach of art 83 of the defendants' articles of association which prohibited directors from voting on contracts or proposed contracts with the defendants; (2) the postponement of the AGM from July to November was for an improper purpose considering the manipulated events that happened in July and August and the indication by Pan Electric that the plaintiff was to be replaced at the AGM; (3) the appointment of the new directors was not in the best interests of the defendants but was for the sole purpose of ratifying the plaintiff's service contract with the defendants, as no credible explanation had been given as to why their services were required by the defendants at that particular point of time; (4) the contract of service was made by the plaintiff with the connivance of the other directors appointed by the minority shareholders in her self-interest. The plaintiff had put her desire to derive additional benefits before her duty to act in the best interests of the defendants. The directors were therefore in breach of their fiduciary duties when they caused the defendants to enter into the service contract with the plaintiff; (5) as the service contract was entered into by the directors in breach of their fiduciary duties, it was voidable at the instance of the defendants. The defendants in dismissing the plaintiff on 6 August had clearly avoided the contract. The contract was thus not binding on the defendants; (6) as the defendants had no legal obligation to pay the $265,000 to the plaintiff and further the cheques were signed by the plaintiff without any authority (pursuant to art 79, as she was no longer a director of the defendants at the material time), the defendants' counterclaim for the return of the S$265,000 was allowed.

Lim Koei Ing v Pan Asia Shipyard & Engineering Co Pte Ltd [1995] 1 SLR 499 High Court, Singapore (Sinnathuray J).

In this case, the first and second respondents were directors of the first appellant company while the third respondent was director of the second appellant company. The three respondents formed a firm with the object of carrying on business as consultant engineers, the same as that of the appellant companies. The firm canvassed for work and were appointed to carry on work in place of the appellants. The appellants sued the respondents for breach of fiduciary duties and after the defence was filed they took out a summons to enter judgment summarily.

Held: a director of a company is in a fiduciary position and as such is precluded from acting in a manner which will bring his personal interest into conflict with that of his company. The formation of a firm to compete with the company was a clear breach of the directors' fiduciary duties.

Avel Consultants Sdn Bhd & Anor v Mohamed Zain Yusof & Ors [1985] 2 MLJ 209 Supreme Court, Kuala Lumpur (Salleh Abas LP, Wan Suleiman and Syed Agil Barakbah SCJJ).

This was an application by the defendants to strike out the statement of claim under O 25 r 4 of the Rules of the Supreme Court 1957. The plaintiffs were an incorporated company carrying on the business of a restaurant and bar. The defendants, while being directors of the plaintiff company, promoted a rival company carrying on a similar business on the mezzanine floor immediately below the plaintiffs. The plaintiffs alleged breach of director's duty of disclosure of interests in the rival company. Paragraph 7 of the statement of claim alleged that the first defendant as managing director of the plaintiff company induced the staff of the plaintiffs to terminate their contracts of service with the plaintiffs and as a result about 25 employees of the plaintiffs resigned from their service. The articles of association of the plaintiff company did not prohibit its directors from becoming directors of a rival company but stipulated that a director must disclose the nature of any interest he may have in any contract or arrangement with any other company.

Held: in the absence of a prohibition appearing in the regulations of the company a director of the company may become a director of a rival company. Since the articles of association of the plaintiff company had not prohibited its directors from becoming directors of a rival company and as the defendants had not entered into a business contract or arrangement with the plaintiff company they had not committed a breach of directors' duty.

Shanghai Hall Ltd v Chong Mun Foo & Ors [1967] 1 MLJ 254 High Court, Kuala Lumpur (Raja Azlan Shah J).

Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman; Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors [1987] 2 MLJ 633 High Court, Kuala Lumpur (Zakaria Yatim J).

See CONFLICT OF LAWS, Vol 3, para 1090.

In this action, the plaintiff company claimed declarations that the defendants were trustees of profits made by the second defendants, a company substantially owned and controlled by the first defendant, from a construction contract known as 'Contract 220' and for an account of such profits. The first defendant was a director of the plaintiffs at all material times. Contract 220 was awarded by the Department of Rapid Systems in Taipei, Taiwan to Kung Sing, a Taiwanese company, and to the second defendant and HLS, another Singapore company. Kung Sing had originally approached the plaintiffs with a view to tendering for Contract 220 with it. The plaintiffs were not qualified to tender for Contract 220 but its board of directors had decided to use the name of a joint venture company, Sinbelco, in which the plaintiffs held 50% of the share capital as Sinbelco had the necessary qualification. Any profits from the contract was to be held beneficially for the plaintiffs. The plaintiffs' board of directors had appointed the first defendant to manage the tender project and any subsequent agreement, but the first defendant had tendered for the contract using the second defendants' name.

Held, allowing the claims: (1) on the evidence, the first defendant had been aware that Kung Sing had approached the plaintiffs to jointly tender for Contract 220 and knew of the decision to use the name of Sinbelco in the joint tender. As a director of the plaintiffs, the first defendant owed a fiduciary duty to them not to divert the business opportunity for his own profit. He had acted in breach of this duty when he procured the second defendants to tender for Contract 220; (2) the first defendant was in breach of his fiduciary duty to the plaintiffs even though the plaintiffs could not have, in their own name, successfully tendered for Contract 220 jointly with Kung Sing; (3) the provisions of s 391 of the Companies Act (Cap 50) applied in situations where a company had suffered a loss as a result of the director's breach of duty. It did not apply to a situation where the company was claiming a benefit which had wrongfully been given to the director; (4) even if s 391 did apply, a paramount consideration in determining whether the court should excuse the breach of duty was whether the person seeking the court's indulgence had acted honestly and in good faith. The evidence showed that the first defendant had not so acted; (5) the second defendant was liable as a constructive trustee as the first defendant's knowledge could be imputed to it as he had control of the second defendant.

Hytech Builders Pte Ltd v Tan Eng Leong & Anor [1995] 2 SLR 795; (1995) CSLR VI[891] High Court, Singapore (Warren LH Khoo J).

Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109; (1996) CSLR VI[28] High Court, Singapore (Judith Prakash J).

See COMPANIES AND CORPORATIONS, Vol 3, para 108.

City Carton was a major local paper carton manufacturer and Box-Pak was its wholly owned subsidiary. The respondents were a related company of City Carton. The appellants were creditors of City Carton and Box-Pak. Due to a slump in the paper carton industry, the latter companies was in dire financial straits by the end of 1982. In the middle of 1983, the respondents ceased to be a related company of City Carton but both companies were run by the same individuals who apparently had substantial interests, directly or indirectly, in both the companies. At a meeting on 15 December 1983, the creditors of City Carton and Box-Pak accepted a proposal which, in their opinion, afforded them their best chance to secure substantial repayment of the debts. This proposal envisaged a conversion of the debts owed by them into equity. This rescue plan began to be effected by the respondents. Subsequently, there was a change of plans. The respondents agreed to take over the entire amount of debts owed to the appellants and the appellants agreed to subscribe for 20,000 shares of $100 each at par in the capital of the respondents for cash and to advance to the respondents a loan of S$317,079.62. On 24 May 1984, the respondents entered into an agreement in writing with the appellants whereby the respondents took an assignment of all the debts owed by City Carton and Box-Pak to the appellants for the sum of S$2,371,079.62. On 28 May 1984, the respondents wrote a letter to the appellants confirming the 20,000 shares of S$100 each in the capital of the respondents had been 'allotted' to the appellants at par. On 6 June 1984, the respondents were informed that appellants' board of directors had approved the subscription of the shares in the respondents. On the same day, a cheque for the sum of S$2,371,079.62 was made to appellants by the respondents as payment for the assignment of the debts. This cheque together with two cheques from the appellants, one for S$2m for the shares and the other for S$371,079.62 for the loan, were deposited by the two to their respective accounts with the same bank at about the same time on 21 June 1984. Subsequently, the respondents went into liquidation. The receivers were of the view that the purchase of the debts owed by City Carton and Box-Pak were improper and accordingly instituted proceedings against the appellants. The trial judge found that the directors of the respondents were in breach of their statutory duty under s 157(1) of the Companies Act and that the appellants held the sum of money received as constructive trustees for the respondents. He also found the appellants guilty of the tort of conspiracy.

Held, allowing the appeal: (1) the purchase of the debts by the respondents from the appellants was linked to the subscription by the appellants of the 20,000 shares in the respondents and the loan of S$371,079.62 by the appellants to the respondents. It could not have been a mere coincidence that the cheques for the respective sums were deposited to the respective bank accounts of the parties on the same day, and that the total of the amount paid for the shares and the amount of loan equalled the purchase price for the debts. The inescapable conclusion is that the appellants subscribed for the shares in the respondents and advanced the loan to them in return for the respondents purchasing the debts from the appellants; (2) the transactions were not in breach of s 76 of the Companies Act. Looking at the transactions in their proper commercial context, the court did not think that they were entered into solely or mainly for the purpose of enabling the appellants to acquire the shares in the respondents at no costs to themselves. The transactions were entered into bona fide in the commercial interest of the respondents as well; (3) apart from s 76, the directors of the respon-dents did not breach their fiduciary duties to the respondents. The onus of proving this was on the party asserting it. The respondents, therefore, had to show that the directors acted in disregard of the interests of the respondents in entering into the transactions with the appellants. No such evidence had been adduced by the respondents; (4) the proper test to determine the interests of the directors in entering the transactions was whether an honest and intelligent man in the position of a director of the company concerned, could, in the whole of the existing circumstances, have reasonably believed that the transactions were for the benefit of the company. Applying this test, the court here held that an honest and intelligent man in the position of the directors, taking an objective view, could reasonably have concluded that the transactions were in the interest of the respondents. Charterbridge Corporation Ltd v Lloyds Bank Ltd & Anor [1970] Ch 62 followed.

Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] CSLR XX 889 Court of Appeal, Singapore (Karthigesu and LP Thean JJA , Goh Joon Seng J).

[Annotation: Reversed on appeal. See [1995] 1 SLR 313.]

Chua Boon Chin v JM McCormack & Ors 1978 High Court, Singapore (D'Cotta J).

See COMPANIES AND CORPORATIONS, Vol 3, para 762.

Poon Huat Seng & Anor v Goh Cheng Chua (1994) CSLR VI[885] High Court, Singapore (Lai Kew Chai J).

See CONTRACT, Vol 3, para 1880.

The appellants, who were directors and shareholders of certain companies, implemented a scheme to withdraw money from the companies for the purpose of an earlier withdrawal and distribution of their expected profits otherwise than in the proper way by declaring dividends. The scheme involved the use of fictitious contracts and vouchers by which moneys purportedly to pay a sub-contractor's bills were drawn out and paid eventually to the appellants. The magistrate who tried the case found that the exercise of withdrawing the funds from the companies was dishonest and also found that there was dishonesty on the part of the appellants in relation to the Revenue in that they evaded payment of income tax on the disguised payments. Both appellants were convicted of several charges of criminal breach of trust and abetment of criminal breach of trust in respect of transactions arising out of the scheme. On appeal, the issue was whether the appellants did misappropriate the property of the companies within the meaning of s 405 of the Penal Code (Cap 103, 1970 Ed). It was submitted that there was no misappropriation because: (a) there was no intention on the part of the appellants to cause wrongful loss to the companies as the appellants did not consider their companies to be 'other persons'; and (b) there was no intention on the part of the appellants to cause wrongful gain in relation to the companies as the money taken represented profits and as shareholders the appellants honestly believed that they were entitled to take the money as profits.

Held, dismissing the appeals: (1) the directors of a company are trustees as to the moneys of the company which come to their hands or under their control and can be proceeded against for misapplication of the funds of the company; (2) a person in total control of a limited liability company, by reason of his shareholding and directorship is or, two or more persons acting in concert, are capable in law of stealing the property of the company; (3) the defence that the sums taken out represent 'profits' was untenable. The act of appropriation was dishonest. The appellants had caused wrongful loss to the companies in that the companies had paid out various sums of money as contractual payments when there were no such contracts. If these sums were to be taken as profits, the proper procedures in the Companies Act (Cap 50, 1985 Ed) had to be followed. By secretly taking out these large sums of money for themselves, the appellants as agents of their companies had committed fraud on their own companies. In disguising these payments as payments to subcontractors, the appellants had not only caused wrongful loss to their respective companies but they had also caused wrongful gains to themselves. Had the accounts been properly audited and a profit and loss account put up, their entitlements would have been less than what they had arrogated to themselves.

Lai Ah Kau & Anor v Public Prosecutor [1988] SLR 735 High Court, Singapore (Chua J).

The plaintiff, as administrator of the estate of the deceased, sued the defendant company for dividends due on the shares held by the deceased in the defendant company. The deceased was a member, director and cashier of the company and was adjudged a bankrupt after his death in 1979. The defendant company alleged that the deceased had expended S$340,376 out of the company's funds and had not accounted for this sum to the company. It thus contended that the deceased was liable by virtue of a fraudulent breach of trust to the company for the sum of S$340,376 and that it was entitled to deduct this sum from the dividends due to the deceased under art 89 of the company's articles of association. Article 89 provided that 'the directors may deduct from any dividend payable to any member all such sums of money (if any) as may be due and payable by him to the company on any account'. The plaintiff argued that even if there was a right of set-off, the company's claim of S$340,376 was time-barred by the Limitation Act (Cap 163). He also contended that when the action was brought in 1990, the deceased's estate was already vested in the Official Assignee. The company was thus not entitled to exercise any remedy against the property of the deceased's estate when the liability was provable in bankruptcy.

Held, dismissing the plaintiff's claim: (1) when the deceased came into possession of the sum of S$340,376 in the course of his work as a cashier, he was more than a mere employee. He was impressed with a fiduciary character as he was also a director. The deceased was a trustee holding money belonging to the company when he was handed the cash collections of the company's revenue; (2) by using the money for some other unauthorized purposes, the deceased was acting in fraudulent breach of trust. Although there was no evidence to suggest that the deceased personally benefited from the misappropriation, that fact would not absolve him of the liability; (3) under art 89, there is a contractual right of set-off between the company and its members. The provision was binding and enforceable by the company against the deceased regardless of how the sum was due and owing to the company; (4) it bars the remedy rather than extinguishing the right itself. By O 18 r 8(1)(a) of the Rules of the Supreme Court, a party must plead any relevant statute of limitation which he alleges makes any offence of the opposite party not maintainable. Since the plaintiff did not plead the statute of limitation, no effect is to be given to it; (5) furthermore, s 22(1)(a) of the Limitation Act (Cap 163) provides that no period of limitation is applicable in an action by the beneficiary based on a fraudulent breach of trust; (6) a limitation period is not prescriptive;in 1992, the bankruptcy of the deceased was annulled. The effect of an annulment of bankruptcy does not bar a creditor who has merely abstained from proving the debt in bankruptcy from suing the debtor after the annulment as his right to sue is no longer suspended by the bankruptcy. As against the administrator, the company was entitled to rely on its contractual right.

Guoh Sing Leong (administrator of the estate of Goh Koh Boey, deceased) v Hock Lee Amalgamated Bus Co (Pte) Ltd Suit No 1753 of 1990 High Court, Singapore (Lai Siu Chiu J).

The first plaintiff was a bank incorporated in Malaysia. The second plaintiff (BMF) was a company incorporated in Hong Kong and was a wholly-owned subsidiary of the bank. BMF was resident outside Malaysia. The second defendant, Dato Mohd Hashim Shamsudin (Hashim), was at the material times a director of the bank and BMF. Hashim made an application to the court, which ordered the following preliminary issues be decided first: (a) whether the law applicable to the substantive matters in issue in the proceedings was the law of Hong Kong or the law of Malaysia or both; (b) whether, under the relevant law so found to be applicable, (i) Bank Bumiputra Malaysia Bhd, by virtue of its holding the majority of the shares in Bumiputra Malaysia Finance Ltd, a company incorporated in Hong Kong, could maintain an action for alleged wrong done or for alleged damage caused to the property of Bumiputra Malaysia Finance Ltd and (ii) whether the alleged breaches had been ratified by the plaintiffs.

Held: (1) the law applicable to the substantive matters in issue in these proceedings was the law of Malaysia; (2) the bank, by virtue of its holding the majority shares in BMF could not maintain an action against Hashim for alleged wrong done or for alleged damage caused to the property of BMF; (3) ratification must be evidenced by clear adoptive acts with full knowledge of the facts. This was not made out. The act relied on was not voluntary.

Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors [1987] 1 MLJ 502 High Court, Kuala Lumpur (Zakaria Yatim J).

P, an insurance company, entered into an agreement with K Sdn Bhd whereby K Sdn Bhd agreed, inter alia, to collect insurance premiums on behalf of P. D1-D3 were the directors of K Sdn Bhd. S Sdn Bhd paid a sum of premiums to K Sdn Bhd. P claimed that D1-D3 held that sum as constructive trustees for P. Accordingly P claimed for the refund of that sum from D1-D3. D1-D2 argued that the relationship between P and K Sdn Bhd was one of debtor and creditor. D1-D2 also alleged that K Sdn Bhd, being an independent legal entity, was accountable for its own liabilities and that D, being directors, were not liable for K Sdn Bhd's debts. D also asserted that they did not give any personal undertaking or indemnity to P to pay K Sdn Bhd's debts. D3 relied on s 354(1) of the Companies Act 1965 because he was away in Brunei at the material time.

Held, dismissing the claim: (1) directors are deemed to be constructive trustees only as far as their relationship to the company is concerned. Their trusteeship does not extend to third parties dealing with the company; (2) D were not parties to the agreement between P and K Sdn Bhd. K Sdn Bhd is a separate legal person from D. D had not given any personal undertaking to P. K Sdn Bhd's memorandum of association did not state that D's liability was unlimited. D therefore were not constructive trustees for P; (3) a director is not bound by law to give continuous attention to the affairs of the company. His duties are of an intermittent nature to be performed at periodic board meetings.

Straits & Island General Insurance Sdn Bhd v Lawrence Chung Hee Mann & Ors (1991) CSLR VI[884] High Court, Kota Kinabalu (Syed Ahmad Idid JC).

In this case, the respondent had obtained judgment against the first appellant but the judgment was unsatisfied. The first appellant had agreed to buy land in Petaling Jaya but did not complete the transaction for lack of funds. Subsequently the land was registered in the names of the second and third appellants, the directors of the first appellant. The respondent brought the action claiming a declaration that the land was the property of the first appellant against which the judgment might be executed. The defence of the first appellant was a denial of ownership and that the land was bought by the second and third appellants with their own money. The learned trial judge gave judgment for the respondent as he held in effect that the transfer was voluntary and in fraud of the judgment creditors. The appellants appealed.

Held: (1) the learned trial judge was correct in holding that the transfer of the land was voluntary and in fraud of the judgment creditors; (2) the transfer could be set aside despite its registration, as fraud had been brought home to the persons whose registered title was impeached; (3) the second and third appellants were directors and owed a fiduciary duty to the first appellant. They could not purchase the land for themselves. They held the said land in trust for the first appellant, whose property it was.

PJTV Denson (M) Sdn Bhd & Ors v Roxy (Malaysia) Sdn Bhd [1980] 2 MLJ 136 Federal Court, Kuala Lumpur (Raja Azlan Shah CJ (Malaya).

D2 was chairman and managing director of D1. He signed a guarantee of the company's debts in favour of P. This was a joint and several guarantee. On 7 July 1982 D2 resigned from the board of D1. This fact was communicated to P. At the time D1 had a credit balance. P sued D2 on the guarantee. The assistant registrar granted summary judgment on the claim. D2 appealed, inter alia on the grounds that (a) all the directors should have signed the guarantee but did not and (b) the guarantee should have lapsed when he resigned and notified P of the fact.

Held, dismissing the appeal: (1) this was a joint and several guarantee which by its wording could be executed by one person only; (2) there was no basis in law for the submission that the guarantee would lapse when D2 resigned from the board. It remained in effect until P released him, which did not occur. The appeal was dismissed with costs.

UCO Bank v Komal Traders Pte Ltd & Ors (1990) CSLR VI[15] High Court, Singapore (Yong Pung How CJ).

In this case, the respondent, a consultant engineer and employee of the company, was appointed a director of a subsidiary of the appellant company. As director he joined with the other directors to guarantee debts or other liabilities of the company and other connected companies by issuing letters of guarantee. In this case the guarantee was to the Malayan Banking Ltd for granting overdraft facilities to the company. The overdraft debt was not paid and the bank obtained judgment against the respondent and some of the other directors. The respondent relied on the oral assurance from a director of the appellant company and a board resolution and claimed to be indemnified against all claims.

Held: the board resolution passed by the appellant company was meant to give an indemnity to the respondent in respect of his liability as a director of the subsidiary company. The respondent was accordingly entitled to be indemnified.

Euco International Sdn Bhd v PF Chen [1984] 2 MLJ 61 Federal Court, Kuala Lumpur (Lee Hun Hoe CJ (Borneo).

This was an appeal against the decision of Judith Prakash JC in the third party proceedings in Suit Nos 6569 of 1985 and 6659 of 1989 in which she held that the appellants (who were the third party) were liable to indemnify the respondents (who were the defendants) against the claims brought against the latter by the plaintiffs, Hong Leong Finance Ltd ('Hong Leong'). The appellants were at all material times a public company with a group of associate and subsidiary companies both in Singapore and Malaysia. Its business was that of an investment holding company and its shares were quoted and listed on the Stock Exchange of Singapore Ltd. One, Ong Tiong Soon ('Ong') was the managing director and chief executive officer of the appellant company. The respondents were both executive directors of the appellants and they worked under Ong taking instructions from him from time to time. Ong was also a director of many of the associate and subsidiary companies of the appellants; so were the respondents. They were appointed to the boards of these companies to oversee their operations and to safeguard the appellants' interests in such companies. In December of 1982 they acquired through their wholly-owned subsidiary, SPP (M) Sdn Bhd, 45% interest in a timber company called Sejati Plywood Sdn Bhd ('Sejati'). Sejati carried on a plywood business in Malaysia and its sales in Singapore were handled through a company, Famco (S) Pte Ltd ('Famco'). In late March 1983, the appellants came up with the idea of acquiring Famco through Sejati and accordingly, in April 1983, Sejati acquired all the shares in Famco and acquisition was conpleted by late April or thereabout. At about that time the respondents and Ong were appointed to the board of Famco. Famco was used as a convenient vehicle to raise funds for the business of Sejati, as Famco had access to cheaper funds in the Singapore market. Sometime just before June 1983, the first respondent who had had previous dealings with Hong Leong, approached them to obtain hire-purchase financing for some machines in Johore. Hong Leong agreed to provide the financing, and as security required personal guarantees from all the directors of Famco including the respondents, in addition to ownership of the machines. Sometime in August 1984 or thereabout, differences arose between Ong and one TK Lim who was effectively the majority shareholder of the appellant company. On 14 November 1984, Ong and the respondents were dismissed by the appellants, and, in the same month, Famco defaulted in making payments under the three hire-purchase agreements. Hong Leong instituted three actions. In all the three suits, Famco and the respective guarantors, including the respondents, were joined as defendants. In respect of Suit Nos 6569 and 6659 of 1983, the respondents took out third party proceedings against the appellants, seeking in each case indemnity against the claim of Hong Leong. All the three actions were consolidated by an order of court made on 14 February 1989 and were tried together before Judith Prakash JC.

Held, dismissing the appeal: (1) Ong was the managing director and chief executive officer of the appellants. He was the one who ran the appellant company and their group of companies. There was rarely any board meeting and decisions were made informally at discussions. In the words of the judicial commissioner, he seemed to have run the appellant company very much as a 'one-man show'. The board was content to let him manage and run the appellant company in the way he did and acquiesced in what he did. In the circumstances, Ong had the authority to do what he did, and, in this case, to authorize the respondents to execute the guarantees; (2) there was no other reason for them to be on the boards of these companies; (3) Famco was a wholly-owned subsidiary of Sejati and the appellants owned 45% of the shares in Sejati Ð the latter became a subsidiary of the appellants on 20 April 1984. The appellants therefore had a substantial interest in Sejati and its subsidiary, and the respondents obviously were appointed to the boards of Famco and Sejati to safeguard the interests of the appellants;the hire-purchase transactions entered into by Famco for which the guarantees were given were entirely for the benefit of Sejati and its shareholders including, of course, the appellants. Famco had no use of the machines and was deliberately used as a convenient vehicle to raise funds for Sejati's business. The machines which were hired to Famco on hire purchase terms, in respect of which the guarantees were given, were either being used by Sejati or required by Sejati for the expansion of its business. But for the guarantees, Hong Leong would not have been prepared to provide finance to Famco without other security.

SPP Ltd v Chew Beng Gim & Anor [1993] 3 SLR 393; CSLR VI[22] Court of Appeal, Singapore (Yong Pung How CJ, LP Thean and Chao Hick Tin JJ).

Executive Aids Sdn Bhd v Kuala Lumpur Finance Bhd [1992] 1 MLJ 89 High Court, Kuala Lumpur (Lim Beng Choon J).

See COMPANIES AND CORPORATIONS, Vol 3, para 610.

Where an accused person is charged with committing criminal breach of trust in respect of the property of a limited company, he cannot exonerate himself by showing that one of several directors of the company had knowledge of the facts or had been a party to the fraud. The knowledge of a director is not the knowledge of the company, even in a case where the other directors had remained in ignorance through their own negligence.

R v Tay Thye Joo [1933] MLJ 35 High Court, Straits Settlements (Terrell J).

See land law, para II [75].

Harta Empat Sdn Bhd v Koperasi Rakyat Bhd [1997] 1 MLJ 381 Court of Appeal, Kuala Lumpur (NH Chan, Abu Mansor and Mokhtar Sidin JJCA).

The Co-operative Central Bank Ltd ('the chargee society'), a co-operative society registered under the Co-operative Societies Act 1948 ('the CSA'), had, according to the documents in the case, granted a loan of RM3m to one Lim Kon Kwee ('the borrower') who was a director of Feyen Development Sdn Bhd ('the chargor company'). The affidavit evidence, however, showed that the loan was ultimately received by the chargor company. As security for the loan, two charges were created ('the charges') over two pieces of land belonging to the chargor company ('the land') in favour of the chargee society. The chargor company later defaulted, and the chargee society commenced two charge actions in the High Court praying for, inter alia, orders of sale of the lands. On the other hand, the chargor company commenced separate proceedings, praying for declarations that the charges were illegal, void and unenforceable by reason of breach of s 133(1) of the Companies Act 1965 ('the Act') which prohibits a company, inter alia, from providing any guarantee or security for a loan given to its directors by a third party. The sole question for decision in the proceedings was whether a breach of s 133(1) of the Act had any civil consequences with regard to the validity of the charges, ie whether the charges given in breach of s 133(1) were valid and enforceable against the chargor company. The trial judge decided in favour of the chargor company, and accordingly ordered the cancellation of the registration of charges and the return of the documents of title to the chargor company. The chargee society appealed.

Held, allowing the appeal: (1) the general rule is that where a contract is prohibited by statute expressly or by implication, and the statute stipulates for penalties for those entering into it, the contract shall be void and unenforceable, unless saved by the statute itself or there are contrary intentions which can reasonably be read from the statute. However, the general rule is subject to exceptions, and it is a question of construction of the particular statute. There appears to be a trend for courts to be less ready to find a contract illegal or unenforceable simply by reason of a statutory provision; (2) s 133 of the Act does not state that a guarantee entered into or any security given in contravention thereof is to be void, although criminal liability would be imposed on the official of the company concerned, and on the company itself, by virtue of s 369(1)(a) and 369(2) of the Act; (3) however, s 133(5), which states that a company may recover the loan amount or any amount for which it becomes liable under any guarantee or security given contrary to the section, implies that notwithstanding that a guarantee or security may have contravened s 133(1), the company may incur civil liability under it and can have recourse against the director/borrower. In order for the company to be liable, the guarantee or security must be valid and enforceable; (4) s 133 was designed for the protection of the company, its shareholders and creditors from unlawful dissipation of its assets for the benefit of its directors and their associates. The court would not aid a company which sought to rely on its own breach to escape its obligations, unless that was what the clear language of the statute required; (5) in this case, it was clear that the loan had been received by the chargor company and that its assets were not being depleted through misuse. In reality, the chargor company was seeking to avoid repayment of the loan and to get back its land free of the charges. To admit the defence of illegality would provide a windfall gain to the chargor company and defeat the purposive interpretation of s 133; (6) although the charge transactions did breach s 133(1) of the Act, no civil consequences flowed therefrom, ie no voidness or unenforceability attached to the loan or the charges, having regard to the context and purpose of s 133(1), and especially the principle underlying s 133(5), which the trial judge failed to take into account or to give proper weight to; (7) (obiter) the effect of s 57 of the CSA, which states that the provisions relating to, inter alia, societies and companies, shall not apply to societies registered under the CSA, is merely to exempt a co-operative society registered under it from compliance with the requirements of the Act. It does not prevent a company from relying on s 133 of the Act by way of defence, to proceedings brought against it by a co-operative society to enforce a security given in a loan granted to a director of the company.

Co-operative Central Bank Ltd (in receivership) v Feyen Development Sdn Bhd [1995] 3 MLJ 313; (1995) CSLR VI[1128] Federal Court, Kuala Lumpur (Eusoff Chin CJ, Edgar Joseph Jr and Wan Yahya FCJJ).

3 [161] COMPANIES AND CORPORATIONS Directors – Loans to – Loan secured by charge on company's lands – Whether charge created in favour of defendant void and unenforceable – Companies Act 1965, s 133 – Wallersteiner v Moir [1974] 1 WLR 991 (apprvd); Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555, 1658 (cited); Heald v O'Connor [1971] 1 WLR 497 (apprvd); DJE Constructions v Maddock (1981-1982) 6 ACLR 171 (apprvd)

X, a member of D, took a loan of M$20m from D, a co-operative society. The loan was secured by a charge on P's lands in favour of D as chargee. X was a director of P. D was subsequently put under receivership. P applied for a declaration that the third party charge which was created by it in favour of D was void and unenforceable for contravening the prohibitions in s 122 of the Companies Act 1965.

Held, granting the application sought by P: (1) any agreement made in breach of any of the prohibitions in s 133 of the Act is illegal so as to expose the company's officers to penalties. Although s 133 does not expressly say that the prohibited transactions are void, this necesarily follows from the fact that the prohibited transactions are made illegal by the Act by subjecting the officers of the company to penalties; (2) in the circumstances, the court ruled that the third party charge in question was illegal and therefore void and unenforceable by D as it had contravened s 133 of the Act; (3) the general rule is that a party cannot recover what he has given to the other party under an illegal contract. This general rule does not apply in cases where the contract or transaction is made illegal and void for the protection of a particular class of the community of which the plaintiff is a member in which case the plaintiff will be permitted to recover; (4) in the opinion of the court, s 133 was passed to protect the company from having its assets depleted through misuse by its directors and not only to protect its creditors and shareholders. In the result, P was permitted to recover against D by having the charge on its land cancelled and of all documents of title returned.

Che Wan Development Sdn Bhd v Co-operative Central Bank Bhd [1990] 2 MLJ 365 High Court, Kuala Lumpur (NK Chan J).

The plaintiffs/respondents claimed for $401,793.70 and interest under a written guarantee of 31 July 1974 by which the defendants guaranteed payment on demand of all moneys which were then or might thereafter be owing by Ta Leong Produce (Pte) Ltd on the general balance of its account with the plaintiffs. The claim was in respect of four advances made on letters of credit. The defendants contended that the guarantee was signed by Wong Kee Loh without their authority and that the advances were made in violation of s 133A of the Companies Act which came into force on 15 November 1974. The facts revealed that Wong owned 400,000 shares in Ta Leong and the official address of Ta Leong and the defendants were the same. In the lower court, D'Cotta J held that the guarantee was executed by Wong Kee Loh and Ong Say Beng, both directors of the defendants and was in compliance with cl 97 of the articles of association (see [1981] 2 MLJ 58). The defendants appealed against the said judgment of the learned judge.

Held, allowing the appeal: (1) in arriving at his conclusion that Wong Kee Loh had the authority, express or implied, to execute the guarantee on behalf of the defendants, the learned judge founded it mainly on the erroneous basis that Wong Kee Loh was the managing director of the defendants; (2) no moneys were advanced by the plaintiffs to Ta Leong until October/November 1975 well after s 133A of the Companies Act had come into force; (3) the learned judge failed to appreciate that the defendants at no time had an account with the plaintiffs and that the letters of credit were opened on behalf of Ta Leong and not the defendants and that Wong Kee Loh was a main shareholder and managing director of Ta Leong, the principal debtor of the plaintiffs;the transactions were caught by the said s 133A and the effect of the section on the guarantee was to discharge it by frustration as the further performance of it had become illegal.

Dart Sum Timber (Pte) Ltd v The Bank of Canton Ltd 1982 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Chua JJ).

[Annotation: Decision of the High Court in [1980-1981] SLR 392; [1981] 2 MLJ 58 reversed. Section 133A is now s 163 of the Companies Act (Cap 50, 1985 Ed) and has been amended to effectively reverse this decision.]

The plaintiffs in this case claimed for S$401, 793.70 and interest under a written guarantee of 31 July 1974 by which the defendants guaranteed payment on demand of all moneys which were then or might thereafter be owing by Ta Leong Produce (Pte) Ltd on the general balance of its account with the plaintiffs. The claim was in respect of four advances made on letters of credit. The guarantee was executed by Wong Kee Loh and Ong Say Beng, both directors of the defendants and was in compliance wih cl 97 of the articles of association. The defendants contended that the guarantee was signed without their authority and that the advances were made in violation of s 133A added by the Companies (Amendment) Act 1974 which came into operation on 15 November 1974. The facts revealed that Wong owned 400,000 shares in Ta Leong and the official address of Ta Leong and the defendants was the same.

Held, allowing the claim: (1) the defendants were fully aware that Wong had executed the guarantee on their behalf and it was done with their consent and acquiescence; (2) s 133A added by the Companies (Amendment) Act 1974 is irrelevant to the present case. The said amendment came into operation on 15 November 1974, affects all guarantee made on or after that date. There is no reason or justification for giving the section retrospective effect.

Bank of Canton Ltd v Dart Sum Timber (Pte) Ltd 1980 High Court, Singapore (D'Cotta J).

[Annotation: Reversed on appeal. See [1982-1983] SLR 46; [1982] 2 MLJ 101.]

Tay Say Geok & Anor v Tay Ek Seng Co Sdn Bhd [1974] 2 MLJ 70 Federal Court, Johore Bahru (Suffian LP, Ali FJ and Mohamed Azmi J).

See COMPANIES AND CORPORATIONS, Vol 3, para 241.

Re LY Swee Co Sdn Bhd [1970] 2 MLJ 107 High Court, Kuala Lumpur (Abdul Hamid J).

See COMPANIES AND CORPORATIONS, Vol 3, para 255.

This was an appeal against part of a judgment of the High Court in Malaya ([1964] MLJ 232) made on the application of the liquidator of the Peace Insurance Co under s 267 of the Companies Ordinance 1940 for, inter alia, a declaration that the appellants had been guilty of misfeasance and breach of trust in relation to the company by procuring and permitting to be paid to themselves for the sale of the shares in the company the sum of $744,000 out of the funds belonging to the company. The declaration was granted by the High Court and on appeal it was contended that the learned judge was wrong in law in coming to the conclusion that a sum of $196,746.44 was part of the moneys of the company or moneys had and received for the use of the company. This sum had been received by one Foo Ah Soo, from prospective agents who had relied on his representation to them that he was about to acquire the entire shares of the company and on his promise that the company would enter into agency agreements to canvass insurance business with each of them. The sums collected from the agents was paid by Foo Ah Soo as purchase price of the shares in the company allotted to him. Subsequently Foo Ah Soo and two other directors bought up the entire share issue of the company for $744,000 in cash paid to the appellants. Of this sum $547,253.56 (including the $196,746.44) came out of the funds of the company.

Held: (1) to make a person liable under s 267(1) of the Companies Ordinance in respect of moneys received by him it must be shown that the company was entitled to recover the amount sought to be recovered from that person at the time he received it; (2) as the sum of $196,746.44 was never part of the money of the company nor moneys which the company could recover from the appellants as moneys had and received by the appellants to the use of the company, the appellants could not be held liable under s 267 of the Companies Ordinance in respect of such sum.

Re Peace Insurance Co Ltd [1965] 1 MLJ 208 Federal Court, Kuala Lumpur (Barakbah Ag LP, Wee Chong Jin CJ (Singapore).

[Annotation: Decision of High Court in [1964] MLJ 232 reversed.]

The plaintiffs had commenced an action against the defendants by way of originating summons under O 7 and O 88 r 2 of the Rules of the High Court 1980 and under s 304 of the Companies Act 1965. The defendants were appealing against the court's earlier decision granting the summons in favour of the plaintiffs. The defendants were directors of a company incorporated in Malaysia ('HLE'). The plaintiffs entered into two building contracts with HLE for construction works in a property to be known as Jade Tower ('the property'). The plaintiffs duly executed the works on the property, but HLE failed to pay the plaintiffs. An arbitration award was made in the plaintiffs' favour, and the said award was subsequently incorporated in a judgment dated 19 July 1988. The plaintiffs obtained an order for examination of the defendants as responsible officers of HLE in order to seek payment. The facts unearthed by the examination prompted the plaintiffs to bring the action commenced by the originating summons. The plaintiffs relied on various grounds to show that the defendants intended to defraud the plaintiffs as creditors: (i) an agreement dated 5 April 1984 showed that the first defendant attempted to pay the vendor for his share in HLE by disposing of HLE's assets; (ii) in a memorandum of charge in favour of Public Finance Bhd ('PFB'), HLE had charged the property to PFB in consideration of moneys loaned for the express purpose for payment of construction work on the property. The defendants admitted that the loan moneys had been used to apply for a timber concession through a bumiputra third party instead; (iii) the accounts for HLE showed that loans had been made by HLE to the directors, which loans had been subsequently merged into the sundry debtor's account. In addition, the moneys advanced to the bumiputra third party for the timber concession was not reflected in the accounts; (iv) the property (which was the main asset of HLE) was transferred to a company for M$3m five days after the arbitration award was made in favour of the plaintiffs at an undervalue.

Held, dismissing the defendants' appeal: (1) s 304(1) of the Companies Act 1965 would apply even prior to the winding up of a company. As HLE was not wound up yet, the action was correctly commenced by originating summons and not by writ under O 88 r 2; (2) (c) the speed of disposal and registration of the property and the direct payment to PFB in settlement of HLE's debt showed a scheme to defraud the plaintiffs; (3) the onus was on the plaintiffs to show that the defendants had been guilty of dishonest fraud. Based on grounds (ii) to (iv) above, the plaintiffs had succeeded in showing that the defendants had intended to defraud the plaintiffs: (a) the use of the loan moneys for a purpose other than what they were meant for constituted dishonest fraud; (b) the loans to the directors were in breach of s 133 of the Companies Act 1965, and the defendants had tried to pull wool over the eyes of the plaintiffs by that fact in the accounts;the agreement dated 5 April 1984 was not sufficient to constitute dishonest fraud even though it might have been a breach of s 67 of the Companies Act 1965 (relating to giving of financial assistance for the purchase of assets).

Tang Eng Iron Works Co Ltd v Ting Ling Kiew & Anor [1990] 2 MLJ 440 High Court, Kuching (Haidar J).

[Annotation: Reversed on appeal. See [1992] 2 MLJ 217.]

The plaintiff was a foreign-based company with expertise in pipeline corrosion detection systems. It appointed V, a company of which the defendant was its managing director, as its agent in Malaysia via an agency agreement. Through the efforts of V, the plaintiff was awarded a contract by Petronas Gas Sdn Bhd by way of a letter of award pending the execution of a formal agreement. The letter of award did not mention that V would be a party to the formal agreement. At all material times, the defendant was the party who personally negotiated the contract with Petronas and the payment terms of the contract was made very favourable to V in that by cl 18 thereof it was provided that 100% of the payment would be made solely to V even though the plaintiff was entitled to 80% of such payment. The plaintiff completed the works under the Petronas contract and various progressive payments were paid by Petronas to V without disclosure by the defendant to the plaintiff. The agreement between the plaintiff and V provided that V would retain 20% of the receipts which was its entitlement and remit the balance of 80% to the plaintiff. In breach of the agreement, V having received RM1,067,100 from Petronas, paid the plaintiff only a sum of RM423,000 and failed to pay the balance sums. The plaintiff instituted an action against the defendant under s 304(1) of the Companies Act 1965, alleging that the business of V had been carried on by the defendant as its managing director with intent to defraud its creditors.

Held, allowing the plaintiff's claim: (1) the defendant ought to have paid off to the plaintiff but instead proceeded and used the plaintiff's moneys to invest in the share market. Such investment totalling RM911,110 was reflected in the company's audited accounts as investments in 1991; (2) when the shares were bought or recorded in the accounts, the defendant very well knew that V was making losses over the past two to three years and was clearly insolvent; (3) the test of the facts before the court showed the conduct of the defendant as a managing director of the company deriving for himself an unfair advantage over that of a creditor to whom he was a bare trustee and owed himself the last preference in priority over the surplus of the company's funds. His conduct in preferring himself in payment over the priority of trade debts by signing a cheque to himself constituted an intention to defraud, or at least a fraudulent preference - morally not acceptable by the commercial world - as it was a dishonest conduct, an act of misfeasance for one's own purpose or benefit and the court would not lend its hand or support in the act of such honesty; (4) the defendant used the plaintiff's money in share investments in his personal name. He took a risk which was clearly an unauthorised transaction and a risk of this nature should be to his own account and to be made accountable to the company for losses caused to the company's and the creditors' money; (5) he had no right to risk the funds in speculation to the prejudice of the plaintiff's right.

H Rosen Engineering BV v Siow Yoon Keong Originating Summons No D2-24-432-95—High Court, Kuala Lumpur (KL Rekhraj JC).

Tay Beng Chuan v Official Receiver and Liquidator, Kie Hock Shipping (1971) Pte Ltd [1987] SLR 50 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Thean JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 783.

Raffles Hotel Ltd v L Rayner; Same v Malayan Banking Ltd [1965] 1 MLJ 60 High Court, Singapore (Winslow J).

See COMPANIES AND CORPORATIONS, Vol 3, para 30.

This was an originating summons taken out to determine, inter alia, certain questions relating to the payment of director's fees to Mr Phillips, a trustee of the will of the deceased, who was appointed a director of Raffles Hotel Ltd which company held a lease of premises forming part of the trust estate. Clause 14 of the lease gave the lessor power to appoint a director, not subject to retirement by rotation, to sit on the company's board of directors. By art 77 of articles of association of the company Mr Phillips was deemed to have been appointed pursuant to that power. Art 88 provided for the remuneration of the company's directors. The appointment of Mr Phillips as director was made by himself and his co-trustee. He carried out the duties of a director and received certain remuneration in the form of director's fees under art 81. The learned judge had earlier held, in an oral judgment, that Mr Phillips was not entitled to retain the director's fees paid to him. An alternative question was raised as to whether Mr Phillip should be paid additional remuneration for acting as a director of the company.

Held: (1) the present case did not justify a departure from the general principle that a trustee is not entitled to derive any profit from his trust or put himself in a position where his interest and duty conflict. Moreover, the testator's estate held no shares in the company and was not directly interested in the amount of profits made, the primary duty of the trustee's nominee on the board of directors being to see that the covenants in the lease were observed. From that point of view the appointment of Mr Phillips was not necessary and undesirable, although from the point of view of the company he might be a very suitable person to appoint as director. Mr Phillips should not, therefore, be paid any additional remuneration for acting as a director of the company; (2) the director's fees which were to be refunded by Mr Phillips must be treated as capital and not income.

Re Syed Ahmad Alsagoff, deceased [1960] MLJ 147 High Court, Singapore (Tan Ah Tah J).

The first appellant, Loh Shak Mow, met one Lee Kwong Fai of Broadview Finance Pte Ltd of Hong Kong (BVF). Lee Kwong Fai was the chairman of BVF. BVF was a registered member of the Hong Kong Commodities Exchange Ltd. In Hong Kong, both Lee and Loh discussed setting up a company in Singapore to trade in spot gold and gold futures. In April 1981, Loh and Lee incorporated a commodities firm in Singapore called Broadview Commodities Pte Ltd (BVC), in order to trade in spot gold, gold and gold futures and other commodities. The second appellant, Alan Wong Hoi Ping, was then practising as an advocate and solicitor in the firm of Lee & Lee. He was engaged in March 1981 to incorporate BVC. BVC was incorporated on 20 April 1981. Thereafter, the second appellant became the chairman and director of BVC. Two weeks after its operations had started, both Lee and Loh became aware that BVC was getting low profits. Therefore, sometime in June 1981, Loh and Lee decided to 'bucket' clients' orders, which meant that BVC was to retain the margin deposits paid by these clients without placing their orders on the market at the various international exchanges and was to meet the clients' orders itself. It kept the commissions paid to BVC on each lot of orders and also absorbed all its clients' losses in gold trading as its own profits. They succeeded in doing this without being discovered by their clients and brokers by adopting various measures. The secret profits derived from the bucketing operations of BVC were shared amongst the directors. To avoid detection of these drawings, documents were manufactured and accounting books adjusted to give the impression that the moneys were remitted to BVF in Hong Kong as payment of margin deposits or that they were returns of loans made by the directors of BVC. The first appellant was charged with and convicted on six charges of abetment of cheating under s 420 read with s 109 of the Penal Code, and 14 charges of criminal breach of trust as an agent under s 409 of the Penal Code. The second appellant was charged with and convicted on three charges of criminal breach of trust as an agent and one charge of dishonestly retaining stolen property. Both appellants appealed against their convictions and sentences.

Held: (1) having regard to the evidence, the trial judge was entitled to find that the first appellant and Lee Kwong Fai were in fact engaged in a conspiracy to cheat, and that subsequently they secreted the proceeds of the cheating by disguising them as margin payments to BVF and then obtaining the money unlawfully through all these means and putting them into their respective bank accounts, as evidenced by the bank documents; (2) on the evidence adduced, distinct offences of abetment of cheating and criminal breach of trust were committed by the first appellant. The acts alleged constituted offences falling within two separate definitions of law by which offences are defined or punished. The provisions of the Criminal Procedure Code (Cap 113, 1970 Ed) permit the first appellant to be charged and tried at one trial for each of those offences; (3) having regard to the first appellant, the sentences imposed were manifestly excessive in the circumstances. The sentences should be set aside and substituted with a sentence of two years' imprisonment on each charge, the sentences on the first two charges to run consecutively and the sentences on the other charges to run concurrently, making a total of four years' imprisonment.

Loh Shak Mow v Public Prosecutor; Wong Hoi Ping, Alan v Public Prosecutor [1986] SLR 358 High Court, Singapore (Chua J).

The accused had played a significant and central part in forward contracts and the financing thereof, which brought about the demise of the Pan-Electric Group. He had conspired with one Tan Kok Liang and had made use of the resources of the group. The accused had also engaged in price support schemes, so that forward contracts could be extended or rolled-over and could be financed by the banking system. In connection with one such support scheme, he conspired with Tan Kok Liang to dishonestly dispose the sum of S$144,852.68 of Pan-Electric Industries Ltd (Pan-El). As a result of the conspiracy, Tan Kok Liang violated s 157(1) of the Companies Act (Cap 185, 1970 Ed) and dishonestly paid out the money of the company to a firm of stock-brokers. The accused pleaded guilty to a charge of abetting Tan Kok Liang in committing a criminal breach of trust, which offence is punishable under s 109 read with s 406 of the Penal Code. Counsel for the accused urged the court not to impose a custodial sentence as he had made partial restitution and had suffered enough. The court was urged to order instead a fine 'of a very substantial amount consistent with the gravity of the offence'. The prosecution pointed out that having taken everything into account, the prosecution decided to proceed on the one charge to which the accused had pleaded guilty. To get the accused to make as much restitution as possible, the prosecution undertook not to press for a punitive sentence. However, the prosecution made it plain that the matter of sentence is and always has been left to the court and that in the administration of justice in Singapore, there is no room whatsoever for any plea bargaining on sentence.

Held: (1) the offence of abetment committed by the accused struck at the very heart of the integrity, reputation and confidence of Singapore as a commercial city and a financial centre. The aftermath of the collapse of the Pan-El group could not be ignored; (2) public interest plainly requires that the accused should receive a punishment which will not only fit his crime, but which will also act as a deterrent to other persons who may be similarly disposed. The Singapore commercial market place must be protected from and purged of the likes of the accused; (3) the appropriate sentence is imprisonment for a term of two years and a fine of $500,000 in default of which there will be imprisonment for a further term of six months.

Public Prosecutor v Tan Koon Swan [1986] SLR 401 High Court, Singapore (Lai Kew Chai J).

In this case the appellant appealed against his conviction and sentence on a charge under s 409 of the Penal Code (Cap 103, 1970 Ed). It was alleged that the appellant, being entrusted in his capacity as director of a company with 3,000 shares held by that company in another company, had dishonestly disposed of those shares. The appellant had sold the shares at par to Dr Goh Kim Hua, a nephew of the appellant, and Dr Goh's wife and mother.

Held: (1) in this case there was ample evidence to show that the appellant was entrusted with the shares in the way of his business as an agent. The appellant was at all material times a director and an agent of the company and he had received the shares and had arranged for their disposal in his capacity as agent; (2) on the evidence in this case the learned district judge was right in coming to the decision that the appellant had dishonestly disposed of the shares; (3) the sentence in this case was not manifestly excessive.

Tay Choo Wah v Public Prosecutor 1975 High Court, Singapore (Chua J).

The appellant was charged for the offence of criminal breach of trust by an agent under s 409 of the Penal Code. The prosecution alleged that the appellant being an agent, namely the Executive Director of Finance of Trengganu Development and Management Bhd (TDMB) and in such capacity entrusted with the funds of the said company, committed criminal breach of trust by transferring the funds amounting to RM390,000 to another company called Klang Jaya Baru Development Bhd (KJDB) without the approval of the board of directors. The appellant was convicted and sentenced to imprisonment for three years by the sessions court at Kuala Lumpur. The appellant appealed. It was contended that (a) the learned President erred in law and in fact in holding that the prosecution had at the close of the case for the prosecution, discharged the burden of proof upon it and that the learned President was wrong in holding that the appellant was entrusted with the funds of the TDMB; (b) the learned President erred in holding that the appellant had acted dishonestly in authorizing the four payments forming the subject matter of the charge; and (c) the learned President had failed to consider all the evidence that was before him and had also failed to consider fully the defence case.

Held: (1) if both the documentary and oral evidence in the case had been carefully considered, the learned President would have come to the conclusion that the appellant, even after he was appointed an executive director in charge of financial affairs, was not in a position to manage the funds of TDMB without the overall control of Tan Hooi Bing, who was the managing director of TDMB and the appellant was therefore in the circumstances of this case not entrusted with or had complete dominion over its funds; (2) in this case, a simple question should have been asked and that was whether one would have dishonest intention if the so-called withdrawals or transfers of funds were properly accounted for and recorded in the books of accounts of the companies concerned. If the learned President had asked the question and considered all the evidence adduced, both oral and documentary, in this case, she would have come to the conclusion that there was no dishonest intention on the part of the appellant to cause wrongful loss to TDMB or wrongful gain to KJDB and should not have called for the defence; (3) in this case, the appeal court was satisfied that not only was there no prima facie case proved against the appellant, but also that the evidence adduced by the defence had created a reasonable doubt, as to whether or not the appellant had committed the offence of criminal breach of trust by an agent as alleged by the prosecution; (4) the conviction should be set aside not only because it was against the weight of the evidence but also because the learned President had failed to consider all the evidence that was before her and in that sense, had failed to consider fully the defence evidence.

Chang Lee Swee v Public Prosecutor [1985] 1 MLJ 75 High Court, Kuala Lumpur (Gunn Chit Tuan J).

This was an appeal against the conviction of the appellant on a charge of criminal breach of trust of the sum of $200,000 belonging to a company, of which the appellant was the chairman and managing director. The cheque had been issued in payment of an alleged debt to a company in Taiwan, but it had been paid into the account of a company, of which the appellant and his wife were the only shareholders. This was an appeal against the conviction of the appellant on a charge of criminal breach of trust of the sum of $200,000 belonging to a company, of which the appellant was the Chairman and Managing Director. The cheque had been issued in payment of an alleged debt to a company in Taiwan but it had been paid into the account of a company, of which the appellant and his wife were the only shareholders.

Held, dismissing the appeal: the learned trial judge was justified on the evidence in calling upon the defence and in finding that the appellant had not cast any doubt upon the truth of the prosecution evidence.

Tan Sri Tan Hian Tsin v Public Prosecutor [1979] 1 MLJ 73 Federal Court, Kuala Lumpur (Suffian LP, Raja Azlan Shah Ag CJ (Malaya).

Swee Leong Cheng v Project Aqua Culture & Trading Co Pte Ltd [1988] SLR 557 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 185.

Lim Foo Yong v Public Prosecutor [1976] 2 MLJ 259 High Court, Kuala Lumpur (Chang Min Tat J).

See COMPANIES AND CORPORATIONS, Vol 3, para 120.

Raja Nong Chik v Public Prosecutor [1971] 1 MLJ 190 High Court, Kuala Lumpur (Raja Azlan Shah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 121.

The appellant was charged for having abetted an offence under s 406(a) of the Companies Act (Cap 50, 1985 Ed) by inducing a bank, through deceitful means, to give credit to his company. Three other similar charges of similarly inducing three other banks on three separate occasions to grant credit to his company were taken into consideration for the purpose of determining the sentence. The appellant pleaded guilty to the charge and was convicted and sentenced to a term of nine months' imprisonment. He appealed against the sentence. The appellant had an unblemished record before the commission of the present offences.

Held, allowing the appeal: (1) the circumstances in the present case were highly exceptional and there were very strong extenuating circumstances in the appellant's favour; (2) the charge preferred against the appellant is one of the lowest levels in terms of criminality under s 406(a) of the Companies Act (Cap 50, 1985 Ed); (3) however, the court cannot agree that a financial penalty was a sufficient punishment. A custodial sentence ought to be imposed; (4) in the circumstances of this case and in particular the background of the appellant's character and his contribution to society and the country, the 'clang of prison gates' principle should apply. The principle is that in the case of a man with an unblemished record, the fact that he has a criminal conviction and finds himself in prison is a very grave punishment and a short prison term should in certain circumstances suffice. This was a case par excellence where a short term of imprisonment was adequate punishment; (5) a term of imprisonment of three months would be adequate in all the circumstances. The sentence of nine months' imprisonment was set aside and a sentence of three months was substituted.

Siah Ooi Choe v Public Prosecutor [1988] SLR 402 High Court, Singapore (LP Thean J).

Richard Charles Tarling v Public Prosecutor 1980 Court of Criminal Appeal, Singapore (Wee Chong Jin CJ, Sinnathuray and Chua JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 6.

The first five defendants were all directors of CCC (Holdings) Ltd which was first incorporated in Singapore in August 1979 as the City Country Club (Pte) Ltd. They agreed to start a business venture a develop a piece of land at Stevens Road and carry on the business of a club. The sixth defendant, a senior partner of a firm of advocates and solicitors, was the company's solicitor. When the sixth defendant was first instructed by the first defendant, what was foremost in their minds was that the profits expected to be made from the formation of the club should be given the lowest exposure to tax. Opinions were therefore sought from John Oliver QC as to the means whereby this could be best achieved. The QC's advice envisaged a scheme whereby the promoters of the club were to form a holding company to buy and develop a piece of land as a club house. The land was then to be revalued after development. The holding company was to issue bonus shares from the surplus thrown up by the revaluation. A subsidiary company was then to be formed to obtain a lease of the land to run the club. The subsidiary would canvas for members, and those who wished to become members were required to purchase shares in the holding company from the promoters. The scheme, however, required the issuance of a prospectus in compliance with the Companies Act. The sixth defendant also consulted David Bennett, another Queen's Counsel from Australia, who was of the view that members of the private club would have to be regarded as 'a section of the public' within the meaning of the Australian equivalent of s 4(6) of the Companies Act which would have again made the issuance of a prospectus obligatory. The sixth defendant, however, did not disclose those opinions to the Assistant Registrar of Companies who subsequently agreed that a prospectus was not necessary. Upon receipt of the letter from the Assistant Registrar, the sixth defendants informed his clients that the scheme could proceed without the need for a prospectus to be issued under the Companies Act. In March 1982, the company converted itself into a public company and its subsidiary issued invitations to various individuals to join the City Country Club. The first five defendants were subsequently prosecuted for causing documents to be sent out offering for sale shares in CCC (Holdings) Ltd to the public, which documents, being deemed to be prospectuses issued by the company by virtue of s 43 of the Companies Act, did not comply with the requirements of the Act, an offence under s 39(4) of the Act, and for offering to members of the public shares in CCC (Holdings) in contravention of s 363(3) of the Act. The sixth defendant was charged with abetting the other defendants in the commission of the offences. All the defendants pleaded guilty.

Held: (1) in assessing sentence, the court was conscious that ss 39 and 363 of the Companies Act create strict liability offences as they seek to protect certain public rights; (2) there were significant mitigating factors in respect of the first five defendants which the court could not ignore, viz the accused were all first offenders, men of excellent repute and had readily pleaded guilty to the charges against them. The court accepted that these offences were committed without deliberation and without any element of dishonesty. More importantly, their infringement of the law did not result in any conceivable loss to the public; (3) in addition to the penalties imposed by the court, the first five accused had been punished by the anxiety and anguish that must have followed their arrest and prosecution. In addition, they were barred by s 130 of the Companies Act, without the leave of the High Court, from being a director, promoter or from taking part in the management of a company for five years, which would, by itself, caused some hardship and embarrassment to the accused who were all businessmen; (4) it is clear that the first five accused were led to the commission of these offences by their reliance on the legal expertise of the sixth defendant. The sixth accused must accept absolute responsibility for the present predicament that he and the other defendants find themselves in. The compelling conclusion from the evidence was that his conduct in this regard had been far from honourable; (5) the sentence of the court were as follows Ð first accused (fined $1,000 on each of the two charges), second accused (fined $500), third accused (fined $500), fourth accused (12 months conditional discharge), fifth accused (fined $500 on each of the two charges), sixth accused (fine $5,000, in default, 6 months' imprisonment).

Public Prosecutor v Huang Sheng Chang & Ors [1983] 2 MLJ xcvi District Court, Singapore (Chandra Mohan DJ).

See companies and corporations, para X [31].

Indrani a/p C Rajaratnam & Ors v Fairview Schools Bhd [1997] 5 MLJ 267 High Court, Kuala Lumpur (Kamalanathan Ratnam JC).

Chin Kok Kwong Construction Sdn Bhd v Sunrise Towers Sdn Bhd [1986] 2 MLJ 41 High Court, Penang (Edgar Joseph Jr J).

See COMPANIES AND CORPORATIONS, Vol 3, para 600.

The first and second appellants were the managing director and secretary of Har Lee Enterprise Sdn Bhd ('Har Lee'). In June 1984 the respondent entered into building contracts with Har Lee whereby the former was to erect a complex on the latter's land. Har Lee's land was charged to Public Finance Bhd ('Public Finance') in December 1984 as security for a loan. Part of the loan from Public Finance amounting to M$1.5m was used by Har Lee to pay one Garak Mud ('Garak') for the purpose of applying for a timber concession. In October 1987 Public Finance obtained an order to sell Har Lee's land by auction. There was however no bid at the date of the auction. A dispute arose between the respondent and Har Lee in respect of the construction work and the dispute was referred to arbitration. On 20 May 1988 an arbitral award totalling M$4,165,145.90 in the respondent's favour was given ('the award'). Har Lee's land was then sold to Tolaz Sdn Bhd ('Tolaz') on 25 May 1988. The respondent then obtained a court order on 19 July 1988 to enforce the award in the same manner as a judgment. Upon Har Lee's failure to comply with the award, the respondent took out an originating summons under O 88 r 2(1) of the Rules of the High Court 1980 whereby the respondent applied under s 304(1) of the Companies Act 1965 for, inter alia, a declaration that Har Lee's business had been carried on with intent to defraud its creditors and for an order that the appellants be personally liable to the respondent in respect of the award. The High Court allowed the respondent's application and the appellants appealed to the Supreme Court. The respondent firstly alleged that the haste with which Har Lee's land was disposed of, the questionability of the incorporation of Tolaz and the motive of the sale of the land to Tolaz, drew the adverse inference of fraudulent intent. The respondent further argued that it was illegal for Har Lee to apply for a timber concession through a bumiputra third party and accordingly the appellants had knowingly been parties to such fraudulent trading. The respondent also alleged that inference of fraudulent intent could be drawn from the appellants' act in submitting two different statements of accounts of Har Lee to the Registrar of Companies and to the High Court.

Held, allowing the appeal: (1) apart from the various inconsistencies in the affidavits of the appellants and the respondent, there were other matters which had not been satisfactorily explained in the affidavits and could only be resolved if the proceedings had been begun by writ; (2) the circumstances under which the land was sold to Tolaz were never disclosed before the court and the court was therefore in no position to determine the validity of the sale. This was good enough reason for the matter to go for trial; (3) assuming if Garak's application was successful, this would help to swell Har Lee's fund and it would be more consistent with innocent intent. No inference of dishonesty could therefore be drawn from the payment to Garak; (4) there was no evidence as to whether payment was made to Garak to secure a timber concession for Har Lee or for himself and if assuming that a timber concession was granted to Garak, whether Har Lee would be a contractor to extract the timber. Garak was also never given the opportunity to testify on this matter. This matter was accordingly dealt with in a very unsatisfactory and summary manner thereby causing a grave injustice to the appellants; (5) Har Lee's statements of accounts without further proof, could not establish intent to defraud on the appellants' part; (6) particulars of fraud must be specifically pleaded and such particulars were absent in the respondent's affidavit; (7) in this case it was most inappropriate to decide disputed facts summarily by relying simply on affidavit evidence. This was a proper case for the application of O 28 r 8(1) of the 1980 Rules whereby the proceedings would continue as if begun by writ and the parties were to deliver their pleadings in accordance with O 18 of the 1980 Rules.

Ting Ling Kiew & Anor v Tang Eng Iron Works Co Ltd [1992] 2 MLJ 217 Supreme Court, Malaysia (Abdul Hamid Omar LP, Jemuri Serjan CJ (Borneo).

Re SQ Wong Holdings (Pte) Ltd [1987] 2 MLJ 298 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 285.

See contract law, para VII [34].

Wan Othman bin Datuk Wan Yusof v Kewangan Utama (Malaysia) Bhd Originating Summons No KG 119 of 1992/(III)—High Court, Kuching (Ian HC Chin J).

The plaintiff as administratrix of her husband's estate claimed that it was a practice of the defendant company to allow the shareholders to work for the company as drivers at wages at the rate of $8 a day. If the shareholder was not a driver himself, he was allowed as a matter of right to engage another driver in his place and pay him at his own cost and keep the difference between the $8 per day paid by the company and the wages he paid to the driver engaged by him. There was some evidence of the existence of such a practice which was decided by the directors in the secretaries' office and was known to the shareholders. Article 108 of the memorandum and articles of association of the company provides only one method of distributing the net profits amongst the shareholders.

Held: (1) the decision of the directors was ultra vires in that it went beyond the terms of art 108; (2) accordingly the benefit did not accrue to the share and on the death of the shareholder could not accrue to his estate.

Niaz Bi Bi v Mogah Omnibus Co Ltd [1960] MLJ 22 High Court, Federation of Malaya (Good J).

[Annotation: The use of the term 'ultra vires' in this case is inaccurate, as the case did not involve the company's capacity; what was in issue was the scope of the directors' powers.]

Re Kong Thai Sawmill (Miri) Sdn Bhd; Ling Beng Sung v Kong Thai Sawmill (Miri) Sdn Bhd & Ors [1976] 1 MLJ 59 Federal Court, Kuching (Gill CJ (Malaya).

See COMPANIES AND CORPORATIONS, Vol 3, para 288.

Allied Properties Sdn Bhd v Semua Holdings Sdn Bhd & Ors [1988] 3 MLJ 185 High Court, Kuala Lumpur (Siti Norma Yaakob J).

See COMPANIES AND CORPORATIONS, Vol 3, para 578.

Kesar Singh v Sepang Omnibus Co Ltd [1964] MLJ 122 High Court, Seremban (Ismail Khan J).

See COMPANIES AND CORPORATIONS, Vol 3, para 577.

Lim Ow Goik & Anor v Sungei Merah Bus Co Ltd [1969] 2 MLJ 101 High Court, Sibu (BTH Lee J).

See COMPANIES AND CORPORATIONS, Vol 3, para 579.

The petitioner was a director of the respondent company which was incorporated on 7 September 1981 as a private exempt company. The petitioner, who had no knowledge or experience of business practices, became the sole remaining director as well as the managing director after other directors ('the retired directors') retired and sold their shares to him. The petitioner failed to make the requisite entries in the statutory books of the company to reflect these changes. As a result, on 8 January 1988, summonses were issued under ss 175 and 197(4) of the Companies Act (Cap 50, 1985 Ed) ('the Act') against each of the retired directors (and also the petitioner) for being a party to the default of the company in failing to hold its 1983 and 1984 annual general meetings and also in failing to lodge the annual returns for the same years. This led to the proceedings in Originating Summons No 87 of 1986 in which the retired directors obtained, inter alia, an order of court dated 25 July 1986 ('the said order') declaring that they had ceased to be directors since October 1981. In this petition, the petitioner applied for relief under s 391 of the Companies Act (Cap 50, 1985 Ed) from any liability for fines and penalties which he may have incurred. He also sought to be relieved from complying with the order to lodge the relevant return giving effect to the resignations of the retired directors and to effect the necessary alterations in the statutory books of the company.

Held, dismissing the petition: (1) The power to grant relief under s 391(1) of the Act may only be exercised by the court before which the proceedings are taken. On this ground alone, and without going into its merits, prayers (a), (b), (c) and (d) of the petition must be dismissed; (2) by reason of s 408(3), a director is only liable under ss 175 and 197 if he 'knowingly and wilfully ... authorizes or permits the commission of the offence'. The present petition was presented on the basis that the petitioner, as a director, was in default, ie he knowingly and wilfully authorized or permitted the company to commit the said offences. If such be the case, it could not be established to the satisfaction of the court that the petitioner had acted reasonably and honestly and ought to be relieved from liability. In other words, if the petitioner had a good defence to the offences for which he is being charged, then he does not require any relief from this court; (3) where an officer has a defence to a criminal charge, the High Court ought not to arrogate to itself a jurisdiction which properly belongs to the magistrates' court; (4) the court has no power under s 391 to relieve any person who is in default in complying with a court order from having to comply with it. It is tantamount to asking a court to abrogate or reverse its own order without an appeal and in the absence of the successful party. Therefore prayer (e) of the petition is entirely misconceived.

Swee Leong Cheng v Project Aqua Culture & Trading Co Pte Ltd [1988] SLR 557 High Court, Singapore (Chan Sek Keong JC).

The plaintiffs were a company incorporated in Malaysia and the defendant was a director of the company. It was alleged that the defendant, in breach of his duties as trustee, wrongfully and without lawful authority, misapplied a sum of M$3,233,485.97 of the plaintiffs' money which was deposited in a bank, by transferring the money to Hong Kong and placing it in his own personal name. The plaintiffs demanded the return of this money and the defendant refunded the total sum of M$3,022,739.47 leaving a balance of M$210,746.50. In his defence, the defendant denied that he had committed any breach of his duties as director or trustee of the plaintiffs and averred that he had acted throughout bona fide, honestly and reasonably. He submitted that if he had been guilty of any negligence, default, breach of duty or trust he ought to be relieved from his liability by the court under s 354 of the Companies Act 1965 (Act 125). An action was brought by the plaintiffs against the defendant and application was made for summary judgment under O 14 of the Rules of the High Court 1980. The learned judge granted the defendant unconditional leave to defend and also held that the defendant was not entitled to relief under s 354 of the Companies Act 1965. The plaintiffs appealed against the order granting to the defendant unconditional leave to defend and the defendant cross-appealed against the ruling in which the learned judge held the defendant was not entitled to relief under s 354 of the Companies Act 1965.

Held, allowing both the appeal and cross-appeal: (1) in this case, no resolution authorizing the diversion of the company's funds to Hong Kong had been passed by the board of directors nor was any minute recorded dealing with the matter. When the company demanded the return of the money, the defendant apparently did so without demur. There was considerable suspicion as to the bona fides of the defence and therefore leave to defend should be granted conditional upon paying into court the sum of M$210,746.50 claimed, within 30 days from the date of the order, failing which the company shall sign judgment for the amount; (2) there was no express or implied agreement as to the payment of interest and having regard to the provisions of s 11 of the Civil Law Act 1956 (Act 67), which forbids the giving of interest upon interest, the learned judge was right in giving the defendant (respondent) unconditional leave to defend in this particular claim; (3) the defendant (respondent) was entitled to plead s 354 of the Companies Act 1965 as part of his defence. The question under s 354 of the Companies Act 1965 should not be determined summarily as it is a question of fact as to what 'honestly and reasonably' means and therefore the cross-appeal of the defendant (respondent) should be allowed.

Yeng Hing Enterprise Sdn Bhd v Datuk Dr Ong Poh Kah [1988] 2 MLJ 60 Supreme Court, Kota Kinabalu (Lee Hun Hoe CJ (Borneo).

Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors [1987] 1 MLJ 502 High Court, Kuala Lumpur (Zakaria Yatim J).

See COMPANIES AND CORPORATIONS, Vol 3, para 147.

On 12 March 1993, Leong Hup Holdings Bhd ('Leong Hup') entered into an agreement ('the management agreement') with KFC Holdings (Malaysia) Bhd ('KFCM'). Leong Hup was represented by Kevin and Francis Lau, and KFCM, by the first respondent ('Ishak') and George Ting. Pursuant to the management agreement, Leong Hup was to manage KFCM's upstream operations, whilst Leong Hup appointed KFCM to assist it in the management of Leong Hup's Ayam Al retail outlets. The management agreement also provided that Leong Hup would take up a 20% stake in KFCM and Kevin and Francis Lau being appointed to the board of KFCM, with KFCM taking a corresponding stake in Leong Hup. Kevin and Francis Lau were appointed to the board of KFCM on 28 June 1993. By 1 Mac 1993, Leong Hup had acquired 20.29% of KFCM shares. Leong Hup ('the petitioner company'), had presented a petition to the High Court for relief under s 181 of the Companies Act 1965 ('the Act'). The petitioner company contended that it was entitled to representation on the board of directors of KFC Holdings (Malaysia) Bhd ('KFCM') and to a right to participate in the management of the affairs of KFCM. The petitioner company had also contended that, by virtue of certain representations made by the first three respondents to the petition and certain alleged agreements between it and KFCM; and between certain directors of the petitioner company and the first three respondents to the petition, the petitioner company had a legitimate expectation to continue to be represented on the board of KFCM without any interference from any of the respondents. The petitioner company contended that, contrary to the alleged agreements and representations, certain of the respondents to the petition, acting in 'cahoots' or collusion or by way of a conspiracy, had requisitioned an extraordinary general meeting of KFCM so as to remove the petitioner company's alleged representatives from the board of KFCM.The respondents to the petition applied to the High Court pursuant to O 18 r 19(1) of the Rules of the High Court 1980 for an order striking out the petition on the ground that it disclosed no reasonable cause of action. They contended that the alleged agreements and representations were irrelevant because a group of shareholders, whether acting for themselves or purportedly on behalf of the company, could not contract out of the provisions of s 128 of the Act which conferred a right on all its shareholders to remove directors of the company at a general meeting. They also contended that the facts pleaded could not provide the basis for any legitimate expectation as alleged or at all. The trial judge dismissed the application, making certain observations at the close of submissions and later giving a considered written judgment. At the close of submissions, the trial judge had taken the view that O 18 r 19(1)(a) of the Rules of the High Court 1980 was reserved for cases that were 'plainly and obviously hopeless'. The respondents to the petition appealed to the Court of Appeal.

Held, allowing the appeal: (1) the phrase comprises every fact which, if traversed, the plaintiff must prove in order to obtain judgment; (2) what may be 'plain and obvious' to a specialist in company law may not be so to another who does not have this specialised knowledge. The standard is an objective one and implies that the perception required is that of a person who has the required expertise. The court may strike out a claim, even though it required a long and elaborate hearing before the court was satisfied that there was no cause of action, because the plaintiff was entitled to be relieved of the objection to meet it; (3) the petitioner company had no legitimate expectation which was enforceable against the respondents to the petition; (4) there was no oppression of the petitioner company or disregard of its interests in connection with the affairs of KFCM or the powers of the directors of KFCM; (5) the power to vote in general meeting is not a fiduciary power, and a shareholder owes no duty to anybody as to how he exercises his vote; (6) by virtue of s 128(1) of the Act, a simple majority of the shareholders of a company may vote to remove a director and no agreement made by the directors or the company can fetter that right. The courts will not interfere with the statutory right of shareholders to remove directors; (7) s 128 (1) of the Act overrode the provisions of s 181 of the Act; (8) since there was nothing in the petition from which it could be safely inferred that there was any agreement binding the shareholders of KFCM from casting their votes as they thought fit, and there was nothing unlawful about voting directors off the board in a general meeting, the petitioner company's complaint about 'cahoots' or collusion or conspiracy also failed; (9) a 'cause of action' is the entire set of facts that gives rise to an enforceable claim;(per curiam) it was difficult to reconcile the trial judge's observation at the conclusion of submissions that a perusal of the petition disclosed a reasonable cause of action with his considered written judgment which followed where in effect he expressed doubt that the petition disclosed a reasonable cause of action.

Tuan Haji Ishak bin Ismail & Ors v Leong Hup Holdings Bhd and other appeals [1996] 1 MLJ 661; (1996) CSLR VI[1756] Court of Appeal, Kuala Lumpur (Mahadev Shankar, Siti Norma Yaakob JJCA and Abdul Malek J).

The plaintiff was a director of the third defendant company ('the company'). The first and second defendants were shareholders and directors of the company since its incorporation in 1982. On or about 26 October 1994, the plaintiff was served with a notice of extraordinary general meeting of the company to be held on 29 November 1994. It was issued pursuant to an order of the board of directors made at a board meeting on 24 October 1994 by a secretary of the company. The plaintiff, however, was not served or given notice of the purported board meeting deciding on the holding of the extraordinary general meeting. He argued that any resolutions, decisions or orders made at the board meeting were unlawful and therefore null and void. The plaintiff also challenged the validity of the appointment of the secretary. The plaintiff further contended that he was not given any notice of annual general meeting which was purportedly convened on 31 December 1993 and that he never retired as a director as alleged. The defendants applied to strike out the plaintiff's pleadings under O 18 r 19(1) of the Rules of the High Court 1980 ('RHC') and under the inherent jurisdiction of the court by virtue of O 92 r 4 of the RHC. The defendants further contended that as the plaintiff's action was in respect of a wrong done to the company, the proper plaintiff ought to have been the company and that the action ought to have been commenced by way of a petition instead of a writ of summons. It was therefore the contention of the defendants that the plaintiff commenced the action by a wrong procedure and that the plaintiff had no locus standi to institute the action against the defendants.

Held, dismissing the defendants' application: (1) the plaintiff's grievance as stated in his pleadings was that he never retired as a director of the third defendant as contained in Form 49 dated 7 January 1994 filed with the Registrar of Companies. If the plaintiff was right, it was not a wrong done to the company as contended by the defendants. It was a wrong done to him personally of having been thrown out of the directorship of the company without proper authority. In such circumstances, the plaintiff could sue alone in his personal capacity and might restrain the company and other directors from doing such act to him; (2) the plaintiff alleged that he was unaware of the board of directors' meeting held on 24 October 1994 authorising the extraordinary general meeting scheduled to be held on 29 November 1994. If the plaintiff was right in saying that he never ceased to be a director of the third defendant company at the material time, he ought to have been informed of the board of directors' meeting. The failure to do so was again an allegation of wrong done to him personally; (3) the plaintiff challenged the appointment of the secretary of the company as the appointment was based on the resolution of the directors at a board meeting which he was aware of. This issue, though in connection with a wrong done to the company, was related to his expulsion as a director of the company resulting in him not being notified of the board meeting which decided on the appointment of the secretary; (4) considering the pleadings as a whole, the court was satisfied that the plaintiff adopted a proper procedure in instituting the action by way of a writ of summons for declaration and injunction and that he was the proper plaintiff in the action; (5) in light of the defendants' contention and on the face of the plaintiff's statement of claim, the defendants failed to establish that the plaintiff's statement of claim disclosed no reasonable cause of action under O 18 r 19(1)(a) of the RHC; (6) on the grounds under O 18 r 19(1)(b) to (1)(d) and under the inherent jurisdiction of the court, evidence by affidavits was admissible to determine whether the pleadings ought to be struck out. Judging from the various affidavits filed, there appeared to be serious conflicts in the evidence both for and against the plaintiff. These conflicts could be resolved only at the full trial of the action by the oral evidence of all parties. In that sense, the plaintiff's claim could not be said to fall under any of the grounds under O 18 r 19 or under O 92 r 4 of the RHC which entitled the defendants to strike out the plaintiff's pleadings.

Hii Heng Tuong Alphonsus v Lok Min Wah & Ors [1995] 4 MLJ 259; (1995) CSLR VI[1755] High Court, Kuching (Abdul Kadir Sulaiman J).

In the first case, action was taken against the respondent for, inter alia, an order to restrain the respondent from acting as director of Tien Ik Enterprises Sdn Bhd ('TIE'), Tien Ik Credit Sdn Bhd ('TIC') and other companies ('the first action'). In respect of the first action, an application was made for an interim injunction to restrain the respondent from acting as director of, inter alia, TIE and TIC. In the second action, the respondent, together with Woodswille Sdn Bhd, applied for, inter alia, a declaration that certain meetings and resolutions of TIE and TIC were void ('the second action'). In respect of the second action, an application was made for an interim injunction to restrain, inter alia, TIE from acting on certain resolutions passed by its board of directors and shareholders at its general meeting. In the third case, the appellants claimed for, inter alia, a declaration that the respondent had vacated the office of director of TIE and TIC ('the third action'). In respect of the third action, the appellants applied for an interim injunction to restrain the respondent from acting as director of TIE and TIC and also from inter-meddling in the management of the affairs of TIE and TIC. At the High Court, the three applications in respect of the three actions were heard together. The judge dismissed the applications in respect of the first and third actions. The application in respect of the second action was allowed in part. The appellants appealed to the Supreme Court against the dismissal of the application in respect of the third action. Article 85(f) of the articles of association of TIE and TIC provided for a director to resign his office if there was a notice in writing signed by holders of not less than three-quarters in nominal value of the issued shares of the respective companies ('art 85(f)'). The appellants had sent a notice under art 85(f) to the respondent to vacate his office as director of TIE and TIC. The respondent, alleged, firstly, that there was mala fide in the sending of the notice under art 85(f). The respondent then contended that before he was obliged to vacate his office as director in TIE and TIC, he should be given special notice as required by s 128(2) of the Companies Act 1965.

Held, allowing the appeal: (1) the judge should not have dealt with the application in respect of the third action in such a manner so as to give the impression in his judgment that he had in fact disposed of the third action itself on its merits based on the parties' affidavits to the application; (2) in an application for an interim injunction, the court is not called upon to make any final decision on any question of fact. The court has to decide on the affidavits available that the claim in the action is not frivolous or vexatious, which means that there is a serious question to be tried. Having decided that there is a serious question to be tried, the court must go on to consider the question of balance of convenience; (3) to justify the appellate court's interference with the exercise of the judge's discretion in deciding an application for an interim injunction, the judge must have exercised his discretion upon a wrong principle of law, or the decision must be such that it would result in injustice, or the judge must have failed to give weight or sufficient weight to relevant considerations; (4) the grounds upon which the appellants applied for an interim injunction in respect of the third action were relevant matters which the judge ought to have taken into consideration. All other matters referred to in the affidavits of the parties which were not intended to be used in the application in respect of the third action should be disregarded; (5) in dealing with the application in respect of the third action, the judge had thus given weight to irrelevant considerations and had given no weight to relevant considerations. On these grounds alone, the Supreme Court was justified in interfering with the judge's exercise of his discretion; (6) the appellants had established that there were serious issues to be tried in the third action; (7) in considering the balance of convenience, the relevant question was whether injustice would be caused to the appellants if the interim injunction was refused or what good would be done to the appellants by the grant of the interim injunction; (8) on the facts, no injustice was done to the respondent by the grant of the interim injunction. If there was any inconvenience to the respondent and if that inconvenience could be recompensed in monetary terms, the appellants were in a financial position to do so. Accordingly, the balance of convenience was weighted in favour of the grant of the interim injunction; (9) the question of non-compliance of s 128(2) of the 1965 Act was never raised in the affidavits opposing the application in respect of the third action. Accordingly, such a matter should be ignored altogether as being an irrelevant consideration; (10) even if the allegation of mala fide of the notice under art 85(f) were proved, it did not affect the validity of that notice; (11) s 128(2) of the 1965 Act is drafted in clear and categorical language and is intended to apply to the removal of a director by a resolution at the meeting of the company. Section 128(2) of the 1965 Act does not therefore apply to the removal of a director by notice under art 85(f); (12) the argument concerning s 128(2) of the 1965 Act was only raised in the application in respect of the first action. On this ground also such an argument must fail.

Tien Ik Sdn Bhd & Ors v Peter Kuok Khoon Hwong [1992] 2 MLJ 689 Supreme Court, Malaysia (Harun Hashim, Ajaib Singh and Jemuri Serjan SCJJ).

The nine plaintiffs (appellants) and the first 13 defendants were shareholders of the Len Omnibus Co Ltd, a pre-war company registered under the Companies Enactment (FMS Cap 58). Defendants Nos 14 and 15 were secretaries of the company. (All the defendants were respondents.) A notice was sent out by the secretaries to convene an annual general meeting of the company to be held on Friday, 30 September 1966, at 8 pm. Among the business to be transacted at the meeting (according to the notice) were, inter alia, the election of directors in place of those retiring. The articles of association provided that one-third of the directors should retire, but the plaintiffs decided to remove all the existing directors and replace them by 13 others. So, on 26 September 1966, ie three clear days before the proposed annual general meeting, the first plaintiff sent a notice under art 49 (which required at least three clear days' notice) to the secretary of the company informing him that he proposed a resolution to remove all the present directors of the company and to elect new directors to fill in the vacancies thereby created. This notice was received by the secretary on the same day. On 30 September 1966, the annual general meeting was held, as scheduled. There were proposals and counter-proposals on the issue and the meeting dragged on. At about noon on 1 October the chairman left the chair. He had steadfastly refused to put the first plaintiff's resolution to the vote. The members who were still present elected one of the directors, Loh Chan, to act as chairman. The new chairman put the first plaintiff's resolution to the vote and eventually all the 13 directors were noted out and 13 new directors (the nine plaintiffs and defendants Nos 1, 6, 12 and Loh Chan) were voted in. After disposing of some further business, the meeting eventually ended at 12.30 pm that day. It had lasted sixteen and a half hours. The plaintiffs claiming to be lawful directors asked the defendants to hand over the management of the company to them. The defendants refused, the first 13 claiming that they were lawful directors. On 13 October 1966, Pillai (defendant No 15), acting as secretary of the board of directors, issued another notice calling an annual general meeting of the members to be held on 29 October 1966, in continuation of the meeting held on 30 September 1966. The plaintiffs protested, but nevertheless the defendants proceeded to hold this second meeting and to elect four persons, namely, defendants Nos 10 to 13 as directors in place of the directors who were alleged to have retired. The defendant No 15, acting as secretary, further issued a notice calling an extraordinary general meeting for 26 October 1966, to pass and adopt the report of the directors and accounts for the year ended 31 December 1965. The plaintiffs then brought this action. They claimed that they were the duly elected directors of the company because the annual general meeting which began on 30 September 1966, and the subsequent meeting held on 29 October 1966, were null and void. The defendants contended that the election of directors during the marathon meeting was void because, first, it was contrary to s 128 of the Companies Act 1965; and secondly, shareholders present at that meeting had been subject to duress and undue influence. The learned trial judge dismissed the plaintiffs' claim, holding that, first, on the law, s 128 of the 1965 Act applied, the necessary 28 days' notice had not been given and therefore the plaintiffs had not been properly elected directors and, second, there was duress and undue influence at the meeting to vitiate the result of the election. On appeal,

Held, dismissing the appeal: (1) 28 days' notice was not required to remove the directors, since the s 128 procedure is an alternative to removal under the articles; (2) however, insufficient notice under the articles had been given. The purported removal was therefore ineffective.

Solaiappan & Ors v Lim Yoke Fan & Ors [1968] 2 MLJ 21 Federal Court, Kuala Lumpur (Azmi CJ (Malaya).

[Annotation: Decision of High Court in [1967] 2 MLJ 7 affirmed.]

By a contract of employment, P, in SCCA No 02-141, was employed by D1 to serve as its exec-utive chairman and managing director for a period of three years from 1 January 1989 to 31 December 1991. Subsequently, at a meeting of the board of directors of D1, P was removed as chairman and P1 in SCCA No 02-131 was appointed in his place. At the same meeting, the board also suspended P of his executive powers and duties as managing director of D1. P sought and obtained certain ex parte reliefs from the High Court on 5 October 1989. After hearing inter partes, the High Court dissolved the ex parte injunction granted on 5 October 1989 in regard to P remaining in office as executive chairman and managing director of D1 and affirmed the ex parte injunction of the same date restraining P1 from acting as chairman. The learned judge found on his reading of the contract of employment in question that there was on the part of D1 an implied negative stipulation not to appoint someone else as chairman until the expiration of the period of the contract on 31 December 1991. Dissatisfied with the decision, P1 appealed and P cross-appealed to the Supreme Court.

Held, allowing P1's appeal: (1) it is a question of interpretation in each case whether a particular agreement can be said to have a negative covenant, express or implied. Section 55 of the Specific Relief Act 1950 does not say that every affirmative agreement includes by necessary implication a negative agreement to refrain from doing certain things; (2) in the instant case, an implied stipulation cannot properly be read into the agreement between D1 and P. In practice, it is difficult to find in a service contract an implied undertaking operating against an employer. It may also be noted that s 128 of the Companies Act 1965 provides for the removal of a director of a public company by ordinary resolution notwithstanding anything in the company's memorandum or in any agreement between the company and the director; (3) for the above reasons, P1's appeal was allowed. As P's cross-appeal was subsequently withdrawn, it was, accordingly, dismissed by the Supreme Court.

Dato HM Shah & Ors v Dato Abdullah bin Ahmad [1991] 1 MLJ 91 Supreme Court, Malaysia (Hashim Yeop A Sani CJ (Malaya).

Tuan Haji Ishak bin Ismail & Ors v Leong Hup Holdings Bhd and other appeals [1996] 1 MLJ 661; (1996) CSLR VI[1756] Court of Appeal, Kuala Lumpur (Mahadev Shankar, Siti Norma Yaakob JJCA and Abdul Malek J).

See COMPANIES AND CORPORATIONS, Vol 3, para 188.

A received a substantial sum from R, a company of which he was a director, in connection with the take-over of another company by R. The remuneration was approved by a committee of the board of directors but not by the board itself. The committee had been set up to implement the take-over offers on behalf of R. A received the remuneration in consideration for the provision of advice and services in the take-over. R's articles provided that the board could authorize payment to any director who provided special services to the company. R sued A to recover the amount paid to him. R obtained summary judgment on their claim. This decision was affirmed by the Court of Appeal. R appealed to the House of Lords.

Held, dismissing the appeal: (1) equity forbids a trustee to make a profit out of his trust. The articles of association of R relaxed the strict rule of equity to the extent of enabling a director to make a profit provided that the board of directors contracted on R's behalf for the payment of special remuneration. A did not obtain a contract or grant of remuneration from the board of directors. Equity has no power to relax its own strict rule further than and inconsistently with the express relaxation in the articles; (2) a director who does not read or misconstrues the articles is nevertheless bound by them; (3) directors are not entitled to remuneration for their services as directors except as provided by the articles of association. It would be inconsistent with this principle to award remuneration in such circumstances on the basis of a quantum meruit claim; (4) there was no contract with the company since the committee of the board had no authority to make such a contract. As a fiduciary, A had therefore to repay the money to the company.

Guinness plc v Saunders [1990] 1 All ER 652 House of Lords, England (Lords Keith, Brandon, Templeman, Griffiths and Goff).

[Annotation: Athough both Singapore and Malaysia have their own Companies Acts which differ significantly from the English Companies Act 1985, the point decided in this case is one of equity on which a decision of the House of Lords is persuasive.]

Jimat bin Awang & Ors v Lai Wee Ngen [1995] 3 SLR 293; (1995) CSLR VIII[126] High Court, Singapore (Lim Teong Qwee JC).

See companies and corporations, Vol 3, para xxx.

Automobiles Peugeot SA v Asia Automobile Industries Sdn Bhd & Ors [1988] 3 MLJ 209 High Court, Kuala Lumpur (Siti Norma Yaakob J).

See companies and corporations, Vol 3, para xxx.

Pang Ten Fatt & Anor v Tawau Transport Co Sdn Bhd & Ors [1986] 1 MLJ 179 High Court, Tawau (Wan Mohamed J).

See COMPANIES AND CORPORATIONS, Vol 3, para 27.

B was a director of three companies that had gone into insolvent liquidation. He also acted as director of a fourth insolvent liquidated company although not named as such. The official receiver alleged that B had misconducted himself by allowing the companies to trade when he knew that they were insolvent and using money that should have been paid over as Crown debts, carrying on the business of one company with no reasonable or probable expectation that the business would succeed and failing to ensure the filing of annual returns and accounts. A disqualification order was sought on the ground that B was unfit to be a director.

Held, disqualifying B for three years: (1) in deciding whether a director is unfit to be a director, it is only his conduct as a director that is relevant. The court cannot have regard to his conduct other than as director; (2) the primary purpose of the section is not to punish the individual but to protect the public against the future conduct of companies by persons whose past records as directors of insolvent companies have shown them to be a danger to creditors and others. The power to disqualify is not fundamentally penal; (3) ordinary commercial misjudgment is in itself not sufficient to justify disqualification. In the normal case, the conduct complained of must display a lack of commercial probity, although in an extreme case of negligence or total incompetence a disqualification might be appropriate; (4) since the making of a disqualification order involves penal consequences for a director, it is necessary that he should know the substance of the charges that he has to meet. It is both desirable and necessary that the allegations of misconduct on which the Official Receiver is to rely should be summarized in the affidavit in support. Natural justice requires that a director facing disqualification should know the charges he has to meet. A fundamental change of case, eg from one alleging commercial dishonesty to one alleging crass commercial misjudgment, requires prior notice to the director; (5) a de facto director, ie a person who acts as a director although not named as such, may be the subject of a disqualification order; (6) B was culpable in allowing a company to trade after he knew that it was insolvent. He was also culpable in using unpaid Crown debts to prop up the failing companies. His conduct as a director indicated that he could not be trusted to run a limited company in such a way as not to constitute a risk to his creditors. However, it was not suggested that he was consciously dishonest. Accordingly, it was felt that a three-year disqualification would be adequate.

Re Lo-Line Electric Motors Ltd & Ors [1988] 3 WLR 26 High Court, England (Browne-Wilkinson VC).

[Annotation: Section 300(1) of the Companies Act 1985 [UK] is similar to, though not identical with, s 149 of the Companies Act (Cap 50) [Sing]. There is no Malaysian equivalent in the Companies Act 1965 [Ma]] to the UK and Singapore provisions.]

Re SQ Wong Holdings (Pte) Ltd [1987] 2 MLJ 298 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 285.

A foreign corporation, having been constituted legal personal representative of a deceased person, sought to be registered as proprietor of the deceased's lands. Registration was refused on the ground that the company did not fulfil the conditions under the British and Foreign Companies Enactment or Part IX of the Companies Enactment.

Held: as there was nothing to prevent the company from being granted letters of administration, which had been done in this case, it was qualified to receive alienations of state land and also to receive transfers as representative where it would not be so qualified in its own right. Section 47 of the Land Code only refers to transactions inter vivos and not to transmissions mortis causa.

Estate and Trust Agencies (1927) Ltd v Collector of Land Revenue [1939] MLJ 315 High Court, Federated Malay States (Murray-Aynsley J).

3 [209] COMPANIES AND CORPORATIONS Foreign company – Appeal against registrar's decision – 'Person aggrieved', meaning of – Registration of name of foreign company – Name similar to that of locally-registered company – Whether local company is a 'person aggrieved' – Companies Act (Cap 50), s 12(6) – R v Registrar of Companies [1912] 3 KB 23 (cited); Re Sidebotham (1880) 14 Ch D 458 (not folld); A-G of the Gambia v N'jie [1961] AC 617 (folld); Salter v SCNC (1988) 13 ACLR 253 (cited); Turner v Corporate Affairs Commission (unreported) (cited); Re Gasbourne [1984] VR 618 (cited); Minister of Labour v General Iron & Steel Co (Wollescote) Ltd [1967] 3 All ER 278 (cited).

P were incorporated under the Companies Act (Cap 50) as Drilex Systems Pte Ltd. D2, a foreign company, were called Drilex Systems Inc, having changed their name in the place of their incorporation. They were formerly registered in Singapore as Grant Tool Oil Co. D2 registered the change of name with the Registry of Companies. P complained about this as they claimed that the use of the name 'Drilex' by D2 created confusion. P commenced an action claiming a declaration that the registration of the name 'Drilex' by D2 be set aside and an order restraining D2 from using the name 'Drilex'. D1 took a preliminary objection to the action on the ground that it was in substance an action to quash the decision of a public officer and as such should have been done by an order of certiorari. P's case was that they were an 'aggrieved person' within the meaning of s 12(6) of the Companies Act (Cap 50) and that the action was an appeal against the registrar's decision. D2 also raised the objection that they were not a proper party to the proceedings between P and D1.

Held, dismissing the preliminary objection: (1) the registrar's discretion in registering a name is not purely ministerial but quasi-judicial; (2) the phrase 'person aggrieved' covers more than just persons who are parties to a decision by the registrar; (3) P were 'persons aggrieved' in this case since by registering D2's change of name the registrar had deprived P of the benefit of having exclusive use of the name 'Drilex'; (4) although the papers in the instant case were filed more than 28 days after the date of the registrar's decision, this did not affect the appeal. The period of 28 days only ran from the date on which notice of the decision was given to P. As notice of the decision was never given to P, they were not out of time in filing the papers; (5) D2 were a necessary party to the appeal as O 55 r 3 provides that notice of the originating motion must be served on all parties to the decision appealed against. The preliminary objections were therefore dismissed.

Drilex Systems Pte Ltd v Registrar of Companies & Anor [1989] SLR 1051 High Court, Singapore (Chan Sek Keong J).

The 'American Oklahoma'; Bank of America National Trust & Savings Association v 'American Oklahoma' (Owners of); United States Trust Company of New York & Ors (Interveners) [1988] SLR 723 High Court, Singapore (Lai Kew Chai J).

See COMPANIES AND CORPORATIONS, Vol 3, para 61.

Drilex Systems Pte Ltd v Registrar of Companies & Anor [1990] SLR 1055 High Court, Singapore (Chan Sek Keong J).

See COMPANIES AND CORPORATIONS, Vol 3, para 345.

P had moved for summary judgment under ord 14 of the Rules of the High Court 1980 against D. D applied to the senior assistant registrar for security for the costs of the action brought by P. P, a limited liability company in liquidation, was resident outside the jurisdiction in Singapore. The senior assistant registrar ordered P to provide security for costs. P appealed against the decision of the senior assistant registrar to the High Court.

Held, allowing P's appeal: (1) the court has a discretion in every one of the situations dealt with by ord 23 of the Rules of the High Court 1980 and s 351 of the Companies Act 1965 whether or not to order security for costs; (2) generally, security for costs would not be ordered against a plaintiff company ordinarily resident in Singapore. However, where such a company resident in Singapore is one limited by liability and is in liquidation, the court should exercise its discretion in favour of the defendant applicant unless it is obvious that the defendant will fail in his defence. It would be a denial of justice to order a plaintiff to give security for the costs of the defendant who has no defence to the claim; (3) in the instant case, what the senior assistant registrar should have done was to have the application of D stood over until the disposal of the ord 14 application; (4) P's appeal was, accordingly, allowed by the learned judge.

Lin Securities (Pte) v Noone & Co Sdn Bhd; Klang Jaya Bharu Development Bhd (Third Party) Civil Suit No C23-1052-86 High Court, Kuala Lumpur (VC George J).

Goh Siew Wah v Columbia Films of Malaysia Ltd 1965 High Court, Singapore (Winslow J).

See COMPANIES AND CORPORATIONS, Vol 3, para 482.

The plaintiff a resident of Denmark filed a writ on 23 September 1993 and by his (amended) statement of claim he claimed against the defendants as drawer of five bankers' cheques for the total sum of US$1m (the sum) all dated 24 August 1993 and drawn upon Banque Nationale de Paris Singapore payable to one Aylen Salim and which had been endorsed to the plaintiff. The cheques were duly presented for payment on 1 September 1993 and were dishonoured; due notice of dishonour was given to the defendants by letter on 10 September 1993. The plaintiff claimed the sum with interest and special damages pertaining to travelling and hotel expenses incurred in Singapore. In the writ the defendants were described as a company incorporated in Indonesia and having its representative office in Singapore at 150 South Bridge Road #12-03 Fook Hai Building, Singapore 0105 (the representative office). On 1 October 1993 the plaintiff's solicitors made an ex parte application (the plaintiff's application) by summons in chambers no 5884 of 1993 for, inter alia, leave to effect personal service of the writ and amended statement of claim on Heng Kim Yong (Heng) the manager of the defendants' representative office. The solicitors were granted an order in terms of the plaintiff's application and on 2 October 1993 the writ, amended statement of claim and order of court were duly served on Heng and copies thereof forwarded to the defendants in Indonesia. On 22 October 1993 after filing a memorandum of appearance the defendants' solicitors applied to court by summons in chambers no 6385 of 1993 (the defendants' application) for, inter alia, the following orders: that the writ of summons issued in this action be set aside on the grounds of want of jurisdiction and for irregularity; that, if necessary, the plaintiffs' action herein be struck out and dismissed with costs to be taxed and paid by the plaintiff to the defendants forthwith in the event the writ is set aside; alternatively the order of court granted on 1 October 1993 to the plaintiff be set aside. At the hearing before the learned senior assistant registrar on 8 November 1993 the defendant's application was granted an order in terms of prayer 3 (supra) namely the order of court dated 1 October 1993 and all subsequent proceedings in this action were set aside, but no orders were made on the other prayers. The plaintiff appealed against the orders made by the court below.

Held, allowing the appeal: (1) a company established a place of business if it carried on part of its business activities within the jurisdiction and it was not necessary for those activities to be either a substantial part of or more than incidental to the main objects of the company; (2) it would be putting too onerous a burden on the plaintiff to have to prove that Heng besides being the manager, was actually the person in control of the representative office. It would also be straining the language of the rule (O 10 r 2 of the Rules of the Supreme Court) to say that the plaintiff must show that the representative office conducts 'banking business' for the defendants. The authorities do not support the contention of counsel for the defendants that the plaintiff must satisfy the two criteria before service on the representative office can be effected so as to be considered proper service on the defendants under the rule; (3) in this case there is no question that the representative office is that of the defendants; (4) there is nothing in O 10 r 2(b) that sti-pulates that the words 'such business or work' must refer to the 'main business' of the defendants. In any case by the defendants' own admission the representative office 'are the agents or managers having control or management of certain inter-related business or work of the defendants in Singapore namely liaison work between the defendants in Jakarta and their customers operating in Singapore.' Therefore the represen-tative office is carrying out liaison work which must relate to the defendants' banking business; (5) banking business means servicing customers over the counter in relation to cash, cheque, remittance and other transactions incidental to the ordinary business of a bank with a full banking licence; (6) it cannot be contended by the defendants that Heng/the representative office was under no obligation to inform the defendants' Indonesian office of the issuance and service of the plaintiff's writ. Indeed the entry of appearance by the defendants' solicitors is evidence that it was Heng's duty to do so and that it was done. Both the Asean directory and the representative office confirmed that Heng was the defendants' 'manager representative' and therefore he would fall under O 10 r 2(b) as having 'personally the control or management of such business or work for [the defendants] within Singapore; (7) in not having the 21 days' period for entry of ap-pearance endorsed on the plaintiffs' writ the omission was an irregularity that could be cured under O 2 r 1 of the Rules of the Supreme Court with leave of court.

Rosenberg v Bank Central Asia [1994] 1 SLR 798; CSLR II[2127] High Court, Singapore (Lai Siu Chiu JC).

The plaintiff is a company incorporated in Hong Kong. On 11 May 1982, the plaintiff entered into a contract ('the said contract') for the construction of a building in Penang. Subsequent to entering into the said contract, the plaintiff took possession of the building site on 1 October 1982. The plaintiff carried out certain works and was paid for the works carried out. Certain disputes then arose between the parties to the said contract. The dispute before the court now is whether the said contract is void because the plaintiff, being a foreign company, did not register itself in Malaysia as a foreign company pursuant to the provisions of the Companies Act 1965 (Act 125). With regard to the other disputes between the parties, the plaintiff wishes that these disputes be resolved by arbitration as stated in prayer 2 of their claim, if the court holds that the said contract is a valid contract. The question also arose as to whether the contract was void because it was against public policy.

Held: in order to render the said contract void under s 24(b) of the Contracts Act 1950 (Act 136), there must be a sufficient nexus between the provisions of the Companies Act and the said contract. In the present case, there is nothing in the Companies Act which prohibits the making of the said contract. The Act does not lay down any requirement which a foreign company must comply before entering into such contract. There is therefore no sufficient nexus between the Companies Act and the said contract. The contract in question is a valid contract under s 24(b) of the Contracts Act 1950.

Hopewell Construction Co Ltd v Eastern & Oriental Hotel (1951) Sdn Bhd [1988] 2 MLJ 621 High Court, Kuala Lumpur (Zakaria Yatim J).

A foreign company, which has not been registered at the date of the writ and has not filed the necessary documents according to s 290, Companies Ordinance, is not precluded from enforcing by action any rights required by it while not in default. Non-registration and non-compliance with s 290 would only render the defaulter liable to penalties prescribed in that Ordinance.

United Kingdom Tobacco (1929) Ltd v Malayan Tobacco Distributors Ltd [1933] MLJ 1 High Court, Straits Settlements (Terrell J).

[Annotation: See also the decision of the Court of Appeal in [1933] MLJ 6 and of the Privy Council reported sub nomine Malayan Tobacco Distributors Ltd v United Kingdom Tobacco Co Ltd [1937] MLJ 147; [1933] SSLR 296.]

Re China Underwriters Life and General Insurance Co Ltd; Official Receiver, Hong Kong v Kao Wei Tseng & Ors [1988] SLR 217 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 660.

This was a judgment creditor's petition in Singapore under s 295(2) of the Companies Ordinance for the winding up of a company incorporated in the Federation of Malaya. The debt alleged in the petition was said to be the balance due on a bill of costs taxed pursuant to a judgment obtained against the debtor company. On appeal,

Held: the absence of substantial assets in Singapore and consideration of the problems to which such an order might give rise in this case since the establishment of Malaysia, coupled with the complete absence of any suggestion that the appropriate proceedings cannot be taken under the Malayan enactment, are matters which justify the court in exercising its discretion against the making of a winding-up order in this case. Per curiam: Enough has been said to show that an order for winding up made under s 295 against the respondent company probably could not by its nature have full force and effect throughout Malaysia. Section 73(1) of the Malaysia Act (which was also the Act by which cl (3) of art 121 of the Constitution was enacted) provides that existing laws are to be construed as if the Malaysia Act had not been passed. An order for winding up under s 295 would, before Malaysia Day, have normally been confined in its effect to assets within the jurisdiction of the Supreme Court of Singapore and it seems the more reasonable view, therefore, to conclude that this is still the position.

Tong Aik (Far East) Ltd v Eastern Minerals & Trading (1959) Ltd [1965] 2 MLJ 149 Federal Court, Singapore (Barakbah CJ (Malaya).

[Annotation: Re Eastern Minerals & Trading (1959) Ltd [1964] MLJ 451 affirmed.]

A sum paid into court by an applicant for relief upon an interpleader summons represented the balance due upon a current account between the Lee Wah Bank Ltd at Singapore and the Saigon branch of the Chinese Merchants Bank. The Chinese Merchants Bank was incorporated under the laws of and had its head office at Hong Kong. It also had a branch at Saigon. The Chinese Merchants Bank having suspended payment, liquidators were appointed by the court at Hong Kong and Saigon each of whom claimed to be entitled to receive the money.

Held: either liquidator could give a discharge for the money; that the court had a discretion to direct payment to either and that in the absence of special circumstances the court should follow by analogy the rule laid down in Re English Scottish and Australian Chartered Bank [1893] 3 Ch 385 and direct payment to the liquidator appointed by the court of the company's domicile, namely, the court at Hong Kong.

Re Lee Wah Bank Ltd [1926] 2 MC 81 High Court, Straits Settlements (Murison CJ).

Official Receiver of Hong Kong v Kao Wei Tseng & Ors [1990] SLR 29 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Rajah JJ).

See COMPANIES AND CORPORATION, Vol 3, para 754.

Section 361 of the Companies Act 1965 (Act 125) makes it impossible for anyone to challenge the lawfulness and validity of the existence of the company, although it does not go so far as to say that the company's objects and powers contained in the memorandum are either lawful or lawfully exercisable. A certificate of incorporation prevents any doubt from being cast upon the legal existence and the persona of the company, but it does not validate its illegal objects. Once a company is registered the court has to accept and recognize its valid and lawful existence until it is wound up or until its registration is cancelled.

Tan Lai v Mohamed bin Mahmud & Ors [1982] 1 MLJ 338 High Court, Kuala Trengganu (Salleh Abas FJ).

The respondents, a company providing hire-purchase financing services, purchased two yachts and leased the same under two separate agreements to Container Manufacturing Consultant Services Pte Ltd ('CMCS'), a non-existent company. The lease agreements were signed by the second defendant for and on behalf of CMCS. The first (the appellant herein) and the second defendants also signed a guarantee as co-guarantors, whereby they guaranteed the due payment to the plaintiff of all sums under the second lease. On default of payments and the discovery by the plaintiffs of the non-existence of CMCS, they claimed against the defendants for: (a) damages for breach of warranty of authority, negligent misstatement or deceit; and (b) alternatively, the sums due under the guarantee executed by the defendants. The plaintiffs obtained default judgment against the second defendant and interlocutory judgment against the first defendant. The first defendant appealed.

Held, allowing the appeal: (1) it is clear from the language of s 41(1) and s 41(2) of the Companies Act (Cap 50) that where a contract is purportedly entered into by any person on behalf of a company prior to its formation, that person shall be personally bound by it prior to ratification and in the absence of ratification by the company. It is irrelevant whether the proposed company is eventually incorporated. To hold otherwise would mean that the provision in s 41(2) could be easily circumvented; (2) in the present case, the second defendant, purporting to act as agent for a non-existent principal, namely, CMCS, purported to enter into a binding agreement with the plaintiffs. In these circumstances, the plaintiffs having fully performed their obligations under the lease on the basis that there is in existence a binding agreement, there is an unrebutted presumption that the second defendant intended to bind himself personally; (3) for estoppel to operate in the present case, the parties must not only have assumed that the company existed, but the company should also have received the benefit of the lease agreement. This did not happen in the present case as there was no company in existence to receive the benefit. Alternatively, the plaintiffs must be able to show that the parties proceeded on the understanding that the lease agreement was between the plaintiffs and the defendant personally. There was no evidence of such an understanding.

Quah Poh Hoe Peter v Probo Pacific Leasing Pte Ltd [1993] 1 SLR 14 Court of Appeal, Singapore (Chao Hick Tin, FA Chua JJ and Goh Phai Cheng JC).

Probo Pacific Ltd v Quah Poh Hoe Peter Suit No 1300 of 1987 High Court, Singapore (Lai Siu Chiu JC).

See CONTRACT, Vol 3, para 2592.

The appellant company was originally incorporated in Perak in 1917 and had an extensive business in Malaya in the rubber, oil palm and coconut industries. Since 1959 the company's general manager had paid visits to North Borneo to inspect land and assess the opportunities for commencing business there. The respondent company was incorporated in North Borneo as a private company in November 1960 and it owns one rubber estate in North Borneo. The appellant company claimed an injunction to restrain the respondent company from carrying on business under the name of 'United Plantations Ltd' and the claim was dismissed.

Held: the appellant company had failed to establish that in North Borneo its name enjoyed any special reputation or that appellant had any proprietary right in its name in North Borneo.

United Plantations Ltd (Malaya) v United Plantation Ltd (North Borneo) 1960 Supreme Court, Sarawak, North Borneo and Brunei

On 4 October 1994, pursuant to an ex parte summons-in-chambers, the plaintiff was granted an order that the defendants or any persons appearing to be in charge of premises controlled by the defendants do permit the person who served the permit to enter the premises for the purpose of searching for, inspecting, copying, photographing and removing into custody or control of the plaintiff's solicitors any register book or document ('the documents') of the first defendant company which was required by the Companies Act 1965 ('the Act') to be available for inspection. The plaintiff was an ex-director and a shareholder of the first defendant. The plaintiff had been removed as a director at a purported general meeting of which she had no knowledge. Upon her removal as a director, the plaintiff was denied access to inspect the documents. At the inter partes hearing to determine the validity of the ex parte order, the defendants submitted that the plaintiff had failed to disclose a reasonable cause of action. It was contended that the plaintiff as a member of the first defendant had no express right which was enforceable on her own.

Held, allowing the plaintiff's application: (1) when the first defendant refused to allow inspection of or to supply copies of minutes, the plaintiff as a member might, on application, obtain an order to compel an immediate inspection of the register or the minute book pursuant to ss 157, 359 and 362 of the Act; (2) it was clear that the plaintiff was an aggrieved party. In addition, the plaintiff, who had been one of the two directors of the first defendant, was ousted as a director. The documents specified in the order were necessary to protect her interest in the company, which was in effect a partnership but incorporated under the Act; (3) the plaintiff had made numerous and repeated attempts to gain possession of the documents but the defendants had refused to allow the plaintiff to have sight and/or to have possession of the documents. There was a real possibility that the defendants might dispose of the documents, thereby depriving the plaintiff of the opportunity to have sight of the documents before any inter partes application could be made. There was also an undertaking as to damages given by the plaintiff.

Re Bioray Corp (M) Sdn Bhd; Loo Mee Di v Bioray Corp (M) Sdn Bhd & Ors [1995] 4 MLJ 818; (1995) CSLR IV[126] High Court, Kuala Lumpur (Low Hop Bing JC).

The accused were charged with offences under s 132A(8) of the Companies Act (Cap 185), relating to insider trading. The first accused was charged that he, being an agent of a stockbroking firm of H, made use to gain an advantage for himself of specific information regarding the possibility of a takeover offer being made by H for the shares of S, to purchase shares in S in the expectation that if the information became generally known, the price of the shares in S might be materially affected. The second accused was charged with abetting the first accused. The first accused contended that it was not him but his stockbroking firm who was the stockbroker of H and that even his firm did not by virtue of a single transaction come within the ambit of the provision as what was required was some degree of regularity or permanence.

Held, acquitting the accused: (1) in a stockbroker/client relationship, it would be the broker concerned and not the corporation who would receive instructions and through this, information. It was the first accused who acted for H in the previous transaction. He, and not the stockbroking firm, was the stockbroker in the transaction. Accordingly, the first accused was an agent of H at the relevant time; (2) even if it could be assumed that there was a close relationship between the first accused and the staff of H and because of this relationship, he obtained the information relating to the takeover, this will still not be enough to substantiate the charges; (3) for an offence punishable under s 132A(8) to be made out, the person making use of the information to deal in securities must have acquired the information by virtue of his office, ie it was because of his or her office that he or she was in a position to obtain the information. The section does not extend to one who trades on information 'leaked' to him by some one who was in the know; (4) in this case, the prosecution had to prove that it was because of the first accused's position as a stockbroker of the corporation that he had acquired the information; (5) there was no evidence whatsoever that the first accused had acquired specific confidential information regarding the possibility of a takeover by virtue of his position as an agent of H.

Public Prosecutor v Yong Teck Lian & Anor (unreported) (1979) District Court, Singapore (FG Remedios DJ).

A was a prominent businessman. He was approached by officers of SCMBA, a merchant bank, with a view to acquiring a stake in SLH, a public company whose shares were suspended from trading at the material time. A was informed by SCMBA that the suspension would be lifted soon. He purchased one million SLH shares from FL, a stockbroker. A was charged with insider trading as a tippee. Midway through the trial and after the prosecution had closed its case, A changed his plea to guilty.

Held, convicting A on his admission of guilt: (1) the senior district judge rejected the argument made by counsel for A that s 103(3) of the Securities Industry Act (Cap 289) applied only if there was an 'arrangement' between natural persons to communicate price-sensitive information with a view to dealing in securities. It was held that the section applied equally to corporations as to natural persons; (2) on the facts, there was an arrangement between the officers of SCMBA and A to communicate price-sensitive information to A for the purpose of dealing in securities. Such an arrangement need not amount to a conspiracy nor did it have to be for an improper purpose; (3) the information relating to the re-listing of the SLH shares was 'price-sensitive' in that it was likely to materially affect the price of the company's securities if generally known. The test is an objective one; (4) the fact that A had incurred considerable expense in defending himself and in paying prosecution costs of S$1.5 million was not a mitigating factor, as A had brought this upon himself in not pleading guilty from the outset. The only redeeming feature was that A had voluntarily agreed to pay S$50,000 into court as part of the profits that he would have received had the shares in question been realized; (5) A was sentenced to 12 months' imprisonment.

Public Prosecutor v Allan Ng Poh Meng [1990] 1 MLJ v District Court, Singapore (EC Foenander, Senior District Judge).

The International Tin Council was an international organization established by treaty (the Sixth International Tin Agreement) concluded in 1982 between a number of sovereign states including the United Kingdom. This agreement provided that the ITC 'shall have legal personality'. Each member of the ITC was to be represented by one delegate. The principal function of the ITC was to regulate the world supply and consumption of tin, and to smoothen out sharp fluctuations in the price of tin. The headquarters of the ITC was in London and by the International Tin Council (Immunities and Privileges) Order 1972, the ITC was recognized as an organization of which the United Kingdom and other sovereign nations were members. Article 5 of this order provided that the ITC was to have the 'legal capacities of a body corporate', and art 6 provided that the body was to have immunity from 'suit and legal process', subject to certain exceptions, one of which was arbitration proceedings. In 1985, due to a failure by member states to provide funds, the ITC was unable to meet its obligations under contracts for the purchase of tin by the ITC and under bank loans. The creditors of the ITC commenced a series of action seeking (1) to make the member states of the ITC responsible for its debts ('the direct action'), (2) to have the ITC wound up under the Companies Act 1985 ('the winding-up application'), (3) in the alternative, to have a receiver appointed over the ITC's assets ('the receivership application'), (4) an order that the ITC disclose the extent and whereabouts of its assets for the purpose of the enforcement of an unpaid judgment debt arising out of an unsatisfied arbitration award obtained by one creditor against the ITC ('the disclosure application'). The direct action was struck out as disclosing no reasonable cause of action as the ITC was immune from suit. The receivership and winding-up applications were struck out for similar reasons. The disclosure application was, however, granted against which the ITC appealed. The creditors appealed against the decisions regarding the direct action and the winding up.

Held, rejecting the direct action appeal: (1) the appeal against the striking out of the direct actions would be dismissed because the 1972 order, when interpreted in the light of the provisions of the Sixth International Tin Agreement, made it clear that the ITC was legal entity separate and distinct from its members; (2) accordingly, when the ITC entered into contracts, it did so in its own name and not on behalf of its members; (3) in addition, there was no ground for finding that the order imposed on the members of the ITC a secondary liability for its debts, since the ITC had contracted on its own behalf; (4) as a matter of international law, there was nothing in the Sixth International Tin Agreement which made members of the ITC liable for its debts and there was no basis for finding that there was any such liability imposed by the general principles of international law; (5) even if the court could refer to the agreement to determine whether the ITC had acted as agent for its members, there was no basis for finding that the ITC, when entering into contracts in its own name, was acting as agent for its members. Accordingly, there was no basis for finding that the members of the ITC were liable for its debts and the appeal was rejected. Held further, as regards the winding-up appeal (rejecting the appeal): (1) it was clear from the Sixth International Tin Agreement that Parliament could never have intended that the ITC should be treated as an association within s 665 of the Companies Act since that would have meant that Parliament would have subjected an international body to domestic law; (2) for the purposes of s 665, it was therefore clear that the word 'association' did not include any association which Parliament did not intend to subject to the court's winding-up process; (3) the appeal against the dismissal of the winding-up petition would thus be dismissed. Held further, as regards the receivership appeal (rejecting the appeal): (1) any receiver appointed would have the task of enforcing, in the name of the ITC, any rights it had against its members to compel them to contribute to the ITC; (2) the rights and liabilities of members inter se and towards the ITC were derived solely from the Sixth International Tin Agreement; (3) the receiver could only enforce the ITC's rights by relying on that agreement; (4) the agreement was, however, an unincorporated treaty (it had not been made part of the domestic law) and as such any rights and liabilities arising thereunder were strictly non-justiciable; (5) the court could therefore not appoint a receiver where the receiver was to enforce non-justiciable rights; (6) the appeal against the refusal to appoint the receiver was thus rejected. Held further, as regards the disclosure appeal: (1) the court could not, under O 48 of the Rules of the Supreme Court, order the officers of the ITC to disclose full particulars of the nature, value and location of its assets within and without the United Kingdom since the Order did not apply to unincorporated associations; (2) it could, however, under s 37 of the Supreme Court Act 1981 (which allowed the court to grant an injunction where it appears just and convenient to do so) grant a mandatory injunction ordering the ITC to disclose the nature, value and location of its assets within and without the United Kingdom; (3) the executive chairman of the ITC had been given immunity similar to that accorded diplomats, while the other staff of the ITC had no such immunity; (4) they had immunity from suit but the giving of evidence in court would in no way violate this immunity; (5) accordingly, the ITC would be ordered through its employees to disclose information regarding its assets.

Maclaine Watson & Co Ltd v Dept of Trade & Industry; Re International Tin Council; Maclaine Watson v International Tin Council; Maclaine Watson v International Tin Council (No 2) [1988] 3 All ER 257 Court of Appeal, England (Kerr, Nourse and Gibson LJJ).

[Annotation: (1) Nearly 250 cases were cited by the court in its judgment. Listing the cases cited would be of limited usefulness and would require a large amount of space. They are therefore omitted, and interested readers are advised to read the actual report; (2) the case of the ITC holds interest for this part of the world dealing as it does with tin, a commodity important in this region. In addition, the case has points of interest to practitioners concerned with company law and civil procedure.]

The plaintiff was a shareholder in the defendant company. On 28 October 1970, a notice calling the annual general meeting of the company was issued, stating that this meeting was to be held on 14 November 1970 at the company's registered office. No meeting took place on this date. Instead, it was held on 17 November 1970. The plaintiff was not notified of the change of date either orally or in writing. The managing director of the company had communicated the information to the members orally. Article 73 of the company's articles of association provides that if there was no quorum present at the meeting it 'shall stand adjourned to the same day in the next week, at the same time and place, or to such other day, time and place as the directors may by notice to the shareholders appoint'. The plaintiff sought a declaration that the meeting held on 17 November 1970, was null and void, and that the court should act under s 143(4)(b) of the Companies Act 1965 (Act 125) and order the annual general meeting to be called.

Held, dismissing the application: (1) once a meeting has been called, the directors have no power to postpone it, and if it has to be postponed, it can only be in accordance with the provisions of the articles of association of the company; (2) if all the members entitled to attend a meeting do so and vote unanimously in favour of a resolution or assent unanimously to the resolution without a meeting being held at all, they are taken to waive any irregularities attending the passing of the resolution, and it is as effective as if it had been properly passed at a duly convened meeting. A majority, however large, has no power to waive formalities except when the Companies Act so provides. In the present case, there was no assent by the plaintiff and consequently it was not all the members who had waived the irregularity in the holding of the meeting on 17 November 1970; (3) in the circumstances of this case, no practical good could come out of the court ordering a fresh meeting to be called. All except the plaintiff seemed satisfied with what had been done. Thus it was a matter which a majority of the members could, by an ordinary resolution, set right and adopt.

David Lau Tai Bek v Lau Ek Ching Sdn Bhd [1972] 1 MLJ 217 High Court, Ipoh (Sharma J).

[Annotation: See Sharma J's letter regarding this case: [1973] 2 MLJ xviii.]

The first defendant ('the company') was incorporated as a family company in 1962 with its registered office in Sibu, Sarawak. It has an authorized capital of RM2.5m with 25,000 shares of RM100 each and owns six pieces of land ('the land') in the mukim of Jeram Batu, district of Pontian. The first plaintiff and the second defendant were the initial subscribers of the company, they being husband and wife, respectively. The third, fourth, fifth, sixth, seventh and eighth defendants are the children of the first plaintiff and the second defendant. The ninth defendant is the wife of the fourth defendant. Rahimah bte Dollah ('the second plaintiff') is the second wife of the first plaintiff who married her according to Muslim rites on 26 May 1990. The third and fourth plaintiffs are the brother and sister of the first plaintiff, respectively. The lands originally belonged to the first plaintiff who in 1973 transferred them to the company. Disputes arose in early 1990 between the first plaintiff and the second to eighth defendants following the first plaintiff's involvement and subsequent marriage to the second plaintiff. At a board meeting held on 17 April 1990, the defendants passed a resolution declaring the share certificates belonging to the second plaintiff null and void and approved the transfer of shares to the ninth defendant. The board of directors also passed a resolution on 26 May 1990 authorizing the sale of the land. Subsequently, the land was sold for RM4.8m to Pekan Nenas Industries Sdn Bhd ('the intervener'). However, the transfer of the lands could not be effected as the first plaintiff successfully obtained an interim injunction against the transfer. The plaintiffs brought this suit seeking, inter alia, declarations that: (i) the board meeting on 17 April 1990 and resolutions passed were invalid; (ii) the status quo of the shareholders before 17 April 1990 be maintained; and (iii) the sale of the land to the intervener was null and void. The intervener resisted the plaintiffs' application in (iii) by relying on the doctrine that it was a bona fide purchaser for value and had no notice of the dispute between the shareholders of the company, and even if it had notice, it was not bound to inquire into the internal affairs of the company.

Held, allowing the plaintiffs' application: (1) the notice of the board meeting to be held on 17 April 1990 was not dated or signed as required under art 110 of the articles of the company. Further, the notice and the agenda were not received by the first three plaintiffs who were the directors at the material time. It follows that the meeting was ineffective and the resolutions passed were invalid; (2) however, power is given to the court to make a validating order in respect of such irregularities under s 355 of the Companies Act 1965, either on the application of the defendants or on its own motion. There had been no such application by the defendants and, in the absence of proper notice and the non-receipt of it by the three plaintiffs that resulted in the passing of resolutions to their prejudice, it was not proper for the court to make a validating order on its own motion. Therefore, the directors' meeting on 17 April 1990 and the resolutions passed were invalid; (3) the conduct of the chairman of the intervener before and after the execution of the sale and purchase agreement ('the SPA') in respect of the land clearly showed that the intervener was not a bona fide purchaser. It did not deal in good faith with the company as it had notice of the irregularities in the affairs of the company and accordingly, the SPA was null and void. It was open to the intervener to take action against the second to ninth defendants personally for recovery of the money paid; (4) all subsequent meetings of the directors and resolutions passed following from the directors' meeting on 17 April 1990 were invalid. The SPA and the memoranda of transfer in respect of the land were also invalid and of no effect on the company. The common seal, cash books, bank statements, vouchers, all cheque books and files relating the company and six original documents of titles to the land were to be returned to the plaintiffs; (5) the status quo of the shareholders before 17 April 1990 was maintained and the plaintiffs were at liberty to apply for rectification of the share register of the company with the Registrar of Companies.

Chang Ching Chuen & Ors v Aik Ming (M) Sdn Bhd & Ors (Pekan Nenas Industries Sdn Bhd, Intervener) [1995] 2 MLJ 43; (1994) CSLR IX[758] High Court, Johor Bahru (Haidar J).

[Annotation: Affirmed on appeal. See [1995] 2 MLJ 770.]

X, a director of D, applied for relief under ss 150 and 355(3) of the Companies Act 1965 and obtained an order of the court requiring D to convene an extraordinary general meeting for the purpose of considering and if deemed fit, to pass five resolutions in connection with the purchase of five properties transacted at a total price of M$14.75m. P and others, who were minority shareholders and who opposed the purchase, applied to set aside the said ex parte order on the ground that the subject matter of the application was not within the purview of s 355(3) of the Act. P's application was dismissed by the learned judge. Being dissatisfied with the decision, P appealed to the Supreme Court.

Held, allowing the appeal: (1) in the instant case, the reason for X applying for the court's assistance in calling for the general meeting is based, inter alia, on the ground that there are difficulties encountered in finalizing D's annual account arising from the uncertainty as to the manner in which the account should treat the purchase of the five properties by the company. This did not constitute an omission, defect, error or irregularity in the management or administration of D as required by s 355(3) which empowers the court to exercise its discretionary power of rectification or validation. In any event, no irregularity of any kind had been particularized to show that the purchase of the properties was void or ineffective; (2) there is admittedly nothing to stop D from calling the EGM without the assistance of the court to consider the resolutions. It is only after such a meeting is held that the validity of the meeting could if at all be remedied under s 355(3); (3) moreover, in view of the fact that there are contentious issues between the parties concerned relating to the purchase which have yet to be determined by the court, to allow rectification at this stage would certainly do injustice to P as well as to D; (4) as neither the assistance of s 150 or s 355(3) is necessary nor warranted on the facts of the case, the Supreme Court set aside the ex parte order granted to X and allowed the appeal by P.

Nyuk Fung & Ors v Panglobal Equities Bhd [1991] 1 MLJ 152 Supreme Court, Malaysia (Lee Hun Hoe CJ (Borneo).

First Nominee (Pte) Ltd v New Kok Ann Realty Sdn Bhd & Anor [1983] 2 MLJ 76 High Court, Singapore (Yusoff Mohamed J).

See COMPANIES AND CORPORATION, Vol 3, para 265.

The applicant was the Director of the Serious Fraud Office of the United Kingdom. He applied, inter alia, for orders that the judicial managers of Baring Futures (S'pore) Pte Ltd (BFS) be directed to give access to the applicant to inspect and take copies of documents belonging to BFS which were in the possession, custody or control of (i) the judicial managers; and (ii) the Commercial Affairs Department (CAD) of the Ministry of Finance and the Singapore International Monetary Exchange (SIMEX). The documents sought included cash and payment records and ledgers and accounts of BFS; payments and receipts between BFS and SIMEX and BFS and other Baring companies, including details of trades, margin calls and daily internal reconciliations; and correspondence passing between SIMEX and BFS. The applicant argued that access to the documents was necessary for the investigations of the Serious Fraud Office as to whether any offence had been committed and which could be prosecuted in the United Kingdom and that there was a public interest to allow a free flow of information between regulatory or investigative agencies of financial institutions which operate in two or more countries.

Held, dismissing the application: (1) the scope of matters which a court 'may by order sanction' under s 227G(3) of the Companies Act must be confined to any matter which would more likely further or advance the judicial management of the company. The applicant could not show in what way the disclosure of the documents could assist in the judicial management of BFS; (2) the decision whether to exchange any information or documents between regulatory or investigative agencies of financial institutions of friendly countries must rest with the regulators or investigative agency of Singapore. It must also rest with the regulators of the financial industry as they assist in formulating policies and implementing them. The resolution of any such problem has not been entrusted to the municipal courts.

Re Baring Futures (Singapore) Pte Ltd [1996] 2 SLR 89; (1995) CSLR XIX[251] High Court, Singapore (Lai Kew Chai J).

3 [234] COMPANIES AND CORPORATIONS Judicial management – Effects of judicial management order – Creditor's lien on bills of exchange – Whether as payee the bills of exchange were property of the creditor – Whether assertion by the lien holder of a right to retain constituted the taking of steps to enforce his security – Application of Bristol Airport v Powdrill – Companies Act (Cap 50, 1990 Ed), ss 227B(11), 227C(b), 227D(4)(d)

At all material times the respondents were one of the bankers of the appellants, and had granted to the appellants short term banking facilities and also a term loan. On 3 December 1990 the appellants applied to court by way of petition for an order that the appellants be placed under judicial management, and by an order of court made on the following day, the appellants were placed under interim judicial management. As at the date of the presentation of the petition, there were due and owing from the appellants to the respondents large sums of money, and the appellants on that date also had certain accounts with the respondents which had credit balances in favour of the appellants. On 4 December the respondents demanded from the appellants payment of all sums due and on 5 December 1990, the appellants through their judicial managers closed their account with the respondents. Prior to the presentation of the petition, the appellants, pursuant to the terms of the banking facilities, sent to the respondents several bills of exchange for collection ('the bills'). By their letter of 6 December 1990, the appellants through their judicial managers requested the respondents to forward all the proceeds of the bills. The respondents refused to accede to the demand claiming 'a lien on those bills and on the proceeds thereof'. On 26 February 1993, the appellants took out an originating summons, No 177 of 1993, seeking, among other things, two declarations to the effect that the respondents were not entitled to exercise any lien over the appellants' property held by them and/or exercise any right of set-off against any moneys belonging to the appellants, and that the respondents by exercising their lien over the appellants' property and the right of set-off in respect of the appellants' moneys since the date of presentation of the petition for a judicial management order have breached or acted contrary to Pt VIIIA of the Companies Act. The appellants also sought a consequential order that the respondents account to them all moneys properly belonging and owed to the appellants and for payment of such moneys. The originating summons was heard before Sinnathuray J, and he dismissed the application. Against his decision, this appeal has been brought.

Held, dismissing the appeal: (1) it is not in dispute that the respondents have a right of set-off. Apart from their right at common law, they have been conferred a right of set-off under the terms of the banking facilities and the term loan; (2) it is a right given by contract or by law to set one claim against the other and arrive at a balance. Accordingly, the respondents in exercising their right of set-off did not contravene the provisions of these two sections; (3) the contractual provisions conferring the right of set-off cannot in any sense be construed as creating a floating charge of the appellants' deposits with the respondents; (4) an exercise of a right of set-off is an extra-legal step and is not an initiation of 'proceedings' against the property of the appellants in contravention of ss 227C(c) and 227D(4)(c) of the Act. The word 'proceedings' connotes a process initiated whether in court or by way of arbitration or a step in such process. Exercising the right of set-off is a self-help remedy; (5) it is not in dispute that the respondents, at the material time, had a lien on all the bills in their possession, and this is clearly beyond any argument; (6) these bills originated from the appellants' trade with their customers and were drawn by their customers in favour of the respondents in payment to the appellants, and it was part of the arrangement between the appellants and the respondents that these bills were to be forwarded to the respondents for collection, and the proceeds when collected were to be applied in reduction or discharge of the appellants' liabilities or indebtedness to the respondents. As between the appellants and the respondents, the latter were not the owners of the bills. The bills were and remained the property of the appellants; (7) a lien at common law is a right in one man to retain that which is in his possession belonging to another till certain demands of him, the person in possession, are satisfied. A lien is essentially a passive right of retention, and does not bestow on the holder of the lien a power of sale, although there is authority for saying that a banker's lien carries with it the right of sale; (8) mere assertion of a lien over a property in the face of demand by the owner thereof is an act enforcing the lien. The respondents in refusing to hand over the bills to the appellants and asserting their lien thereon were in effect enforcing the security, and they could only do so with leave of the court. Even if these acts were not sufficient to constitute an enforcement of the security presenting the bills for payment and collecting the proceeds thereof by the respondents plainly amounted to enforcing the security the respondents had on the bills. The respondents had acted in breach of ss 227C(b) and 227D(4)(d) of the Act; (9) ss 227C and 227D are not intended to deprive a secured creditor of a company under judicial management of his security. It is true that ss 227C and 227D cast on the respondents the burden of making an application to court for leave to enforce their security. But that is not such an onerous burden. The assets were held as security for facilities which had been advanced to the appellants and there were then vast sums of money owed by the appellants. It cannot be right that the respondents should surrender all these valuables assets to the judicial managers without a substitution of equally valuable security; (10) the respondents are secured creditors and their rights as secured creditors were not destroyed by the operation of ss 227C(b) and 227D(4)(d). The statutory provisions are procedural in nature and impose only a moratorium on the enforcement of their rights as secured creditors; (11) a right of set-off is not a security within the meaning of s 227C(b) or s 227D(4)(d) of the Companies Act (Cap 50, 1990 Ed) ('the Act'). The term 'security' in the Act should bear the natural and ordinary meaning. A security over a property consists of some real or proprietary interest, legal or equitable, in the property as distinguished from a personal right or claim thereon. A right of set-off is a personal right;the respondents had acted in error; they insisted on asserting their lien without obtaining leave of the court. In the circumstances, the respondents should pay half the costs here and below.

Electro Magnetic (S) Ltd (under judicial management) v Development Bank of Singapore Ltd [1994] 1 SLR 734; CSLR XIX[1626] Court of Appeal, Singapore (LP Thean JA, Goh Joon Seng and Warren LH Khoo JJ).

Electro Magnetic (S) Ltd (under judicial management) v Development Bank of Singapore Ltd [1994] 1 SLR 734; CSLR XIX[1626] Court of Appeal, Singapore (LP Thean JA, Goh Joon Seng and Warren LH Khoo JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 226.

P, a company, petitioned that it be placed under judicial management. P was unable to pay its debts. Its main asset was a manufacturing plant which had been charged to R under a debenture secured by a fixed and floating charge. To alleviate its liabilities, P had entered into an agreement to sell its plant and machinery to D for a sum in excess of its indebtedness. This agreement was signed without the consent of R, which had stipulated as a condition for its consent that D pay a deposit. P's case was that unless it was allowed to carry out the agreement it would not be able to pay its debts. P therefore argued that making a judicial management order would ac-hieve the survival of the company as a going concern or alternatively a more advantageous realization of the company's assets than in a winding-up. In January 1989 R appointed receivers and managers of the undertaking of P, but they were unable to take office because of the pending petition. The petition was opposed by R and three other unsecured creditors.

Held, dismissing P's petition: (1) a petitioner for judicial management does not have to show that the making of the order is in the public interest under s 227B(10)(a) of the Companies Act if the court is satisfied of the grounds stipulated in s 227B(1). Section 227B(10)(a) has the effect of vesting in the court an overriding power to make a judicial management order if it considers the public interest so requires notwithstanding that it may not be satisfied that the making of the order would be likely to achieve one or more of the purposes set out in s 227B(1); (2) the petition was dismissed because it had not been shown that any of the purposes in s 227B(1) were likely to be achieved by the making of a judicial management order. The company could be saved if the agreement with D was performed. This agreement could equally well be performed by a receiver and manager. If the purposes sought to be achieved by a company through a judicial management could equally be achieved by the creditors without any detriment to the company or its shareholders, the company would not have made out a valid case for depriving a secured creditor of its contractual right to assume possession and control of its security.

Re Cosmotron Electronics (Singapore) Pte Ltd [1989] SLR 251 High Court, Singapore (Chan Sek Keong J).

This is an ex parte application by the judicial managers of EC (Pte) Ltd to extend the period of their office and the period for them to submit their statement of proposals under s 227(M)(1) of the Companies Act (Cap 50). The judicial managers were first appointed as interim judicial managers on 10 July 1991 pursuant to an ex parte application by the managing director of the company. None of the creditors present opposed the application.

Held, adjourning the application: (1) the Legislature has provided that the application for the appointment of judicial managers must be advertised and that parties may appear and oppose the application; (2) there is no reason for the applications to be made without notice to the parties which had attended the original application; (3) even if a party initially supports the appointment of the judicial managers, it may not agree to the extension of the period of judicial management or to the time for submission of the statement of proposals.

Re Engineering Construction (Pte) Ltd (1991) CSLR XIX[1] High Court, Singapore (Kan Ting Chiu JC).

Heng Mui Pheow v Tan Ting Koon & Ors [1989] SLR 651 High Court, Singapore (Chan Sek Keong J).

See COMPANIES AND CORPORATIONS, Vol 3, para 78.

Genesis (the company) had applied to be placed under judicial management. It was hopelessly insolvent. However, it claimed that there was a reasonable probability of it rehabilitating itself or preserving all or part of its business as a going concern if it was placed under judicial management. It claimed to be actively and aggressively seeking new business opportunities and it hoped it would be able to meet all its liabilities within three years. Two unsecured creditors objected to the petition. They claimed it was merely a ruse to buy time to enable the company to divest and sell off its assets to friendly forces.

Held, dismissing the petition: (1) the primary objective of judicial management is to give a company a new lease of life as a going concern. It is to prevent the company from being destroyed by its creditors when it can be rehabilitated for the benefit of the shareholders and unsecured creditors; (2) the court should be vigilant to ensure that judicial management is not used by directors or shareholders to the detriment of the creditors. The motive for an application for judicial management should be honourable; (3) a company whose debts far exceeds its asset in effect belongs to its creditors and the court must show great heed to their wishes; (4) the company failed to credibly demonstrate how it had got into its present difficulties and how the situation was to be improved. It also failed to make out the grounds on which the petition was founded.

Re Genesis Technologies International (S) Pte Ltd [1994] 3 SLR 390; CSLR XIX[877] High Court, Singapore (GP Selvam J).

The judicial managers of the company, Engineering Construction (Pte) Ltd, applied, inter alia, for orders confirming proposals involving (i) a compromise between the company and its creditors and (ii) capital reduction of the company. The statement of proposals was prepared by the judicial managers pursuant to s 227M of the Companies Act (Cap 50) ('the Act'). The judicial managers had complied with the provisions of s 227M.

Held, declining to make the orders sought: (1) there are specific provisions (inter alia, ss 73, 210 and 211) in the Act governing the reduction of share capital and compromise between the company and its creditors, and these provisions must be complied with. The proper procedure for obtaining the necessary orders is set out in 0 88 rr 5 and 7 of the Rules of the Supreme Court 1970; (2) there is nothing in Pt VIIIA of the Act, ie ss 227A - 227X thereof which empowers the court to dispense with compliance of such statutory requirements; (3) where the proposal made by a judicial manager under s 227M of the Act does not involve either a capital reduction, compromise or arrangement between the company and its creditors and has been approved under s 227N by the majority in number and value of the creditors present and voting, either in person or proxy, such proposal is not required to be submitted to court for approval.

Re Engineering Construction (Pte) Ltd (under judicial management) [1992] 2 SLR 1083 High Court, Singapore (LP Thean J).

This was an application by the Director (the Director) of the Serious Fraud Office of the United Kingdom to the High Court for an order that the judicial managers of Baring Futures (Singapore) Pte Ltd (BFS) be directed to give access to the Director, his servants or agents to inspect and/or take copies of certain documents which belonged to BFS, and which were in the possession, custody or control of (a) the judicial managers and (b) the Commercial Affairs Department (CAD) of the Ministry of Finance of Singapore and SIMEX. There was also before the court an application of the Board of Banking Supervision (the Board) as constituted under s 2 of the United Kingdom Banking Act 1987 for orders substantially similar to those sought by the Director. The judicial managers neither supported nor objected to the application.

Held, making no order on the application: (1) the court's discretion to make orders under s 227G(3) of the Companies Act (Cap 50, 1994 Ed) (the Act) was not unlimited and had to be exercised judicially; (2) in light of the text of s 227G(3) and the context of the provisions relating to judicial management of a company, the scope of the matters which a court could sanction was confined to any matter which was more likely to further or advance the judicial management of the company. In the case at hand, the applicants had not been able to demonstrate in what way the disclosure of the documents would assist in the judicial management of the company; (3) while the importance of giving access to documents to the regulators or investigative agencies of a friendly country was not to be gainsaid or diminished in any way, it was more important to ensure that the decision to allow any such exchange must rest with the regulators or investigative agency of Singapore and the regulators of the financial industry, and not with the court.

Re Baring Futures (Singapore) Pte Ltd; Director of the Serious Fraud Office v Judicial Managers of Baring Futures (Singapore) Pte Ltd [1996] 2 SLR 89 High Court, Singapore (Lai Kew Chai J).

An original contributor to an unregistered company is barred from the recovery of money he advanced.

Shim Fatt & Ors v Leila Road Bus Co [1957] SCR 3 Supreme Court, Sarawak, North Borneo and Brunei

An extraordinary general meeting of the company was scheduled to be held at a specific place which proved to be too small to accommodate all the members who were present. The chairman of the meeting, D, accordingly adjourned the meeting until the afternoon and changed the venue. This was opposed by some members on the ground that not everybody could attend in the afternoon. A resolution was passed at the adjourned meeting. P, a member, sought a declaration that the meeting had not been properly adjourned and asked that the proceedings be declared invalid. The High Court dismissed P's claim. P appealed.

Held, allowing P's appeal: (1) the chairman had a common law power to adjourn the meeting since the inadequacy of the space available rendered it impossible for all those entitled to attend to take part in the debate and to vote. The articles did not in this case affect this right; (2) the chairman's decision would not be declared invalid unless on the facts which he knew or ought to have known he failed to take into account all the relevant factors, took into account irrelevant factors or reached a conclusion which no reasonable chairman, properly directing himself as to his duties, could have reached; (3) in this case the chairman's decision was unreasonable since the effect was to deprive some members of their right to attend and vote. The meeting was therefore not validly adjourned and the re-convened proceedings were invalid.

Byng v London Life Association Ltd & Anor [1989] 1 All ER 560 Court of Appeal, England (Sir Nicolas Browne-Wilkinson VC, Mustill and Woolf LJJ).

D1-D9 applied to set aside an ex parte order granted at the instance of P and for an inquiry as to damages which D1-D9 might have sustained by reason of the ex parte order. D1-D9 also applied for an order that, inter alia, P1-P3 be restrained by an injunction from acting as or exercising any of the functions or performing any of the duties of directors or officers of D10 and from interfering with the management of the affairs and business of D10 by D1-D9. P1-P3 were removed as directors of D10 and D1-D5 appointed as its directors at an extraordinary general meeting after the meeting had been adjourned sine die by P3 as the chairman of the meeting. P, together with some shareholders, had left the meeting room after the adjournment but D and the other remaining shareholders had remained behind. Subsequently, D1-D5 convened a meeting of the board of directors and appointed D6-D8 as directors of D10. Counsel for P submitted that P3 was right in adjourning the extraordinary general meeting and in rejecting the proposal to elect the new directors because of three court orders served on D10 and in view of the provision of s 18A of the Insurance Act 1963. In the instant case, P1-P3 were also directors of PISB, a subsidiary of D10, which carried on the business of a licensed insurer. Counsel for D, on the other hand, submitted that the adjournment of the meeting by P3 on his own accord was wrong as the articles of association did not vest that power in him, and that accordingly everything that took place after the adjournment must be held to be valid.

Held, allowing D's application: (1) in the instant case, P3 had acted in contravention of art 69 of the articles of association of D10 when he adjourned the meeting sine die as there was no evidence that the meeting consented to the adjournment or him his adjourning the meeting sine die. Even at common law, the chairman had no power to stop or adjourn the meeting of the shareholders of a company at his own will and pleasure. In the instant case, the adjournment was therefore not a valid adjournment; (2) the court orders served on D10 did not restrain D10 from holding its extraordinary general meeting. P3 was therefore not justified in adjourning the meeting on his own accord; (3) there was also no merit in P's contention that the removal of P and the appointment of new directors at the meeting would contravene s 18A of the Insurance Act 1963. PISB was a separate entity altogether from D10 and D10, although it owned 99.9% of all the issued share capital in PISB, could not interfere with the powers of the directors to control the affairs of PISB. Similarly, D10 could not even impose its will upon the directors of PISB when the articles of association of PISB had confided to them the control of its affairs; (4) paragraph 4(i) of the affidavit of P3 that the view expressed by Bank Negara on the matter supported his contention was inadmissible as the paragraph did not comply with ord 41 r 5 of the Rules of the High Court 1980 in that it did not contain facts as P3 was able of his own knowledge to prove. Similarly the opinion expressed in the newspaper cutting exhibited together with the affidavit was inadmissible for the purpose of the present proceeding; (5) the meeting which took place after the adjournment was validly conducted. The removal of P and the appointment of D1-D5 as new directors of D10 were made by passing the resolutions that were before the meeting. The removal and appointments were accordingly valid; (6) as there was no serious question to be tried in the instant case, the court set aside the ex parte order granted to P and ordered an inquiry as to damages which D1-D9 had sustained by reason of the ex parte order. The court made no order on the application of D asking for an injunction against P as counsel for D had not argued on this point.

Dato Mak Kok & Ors v See Keng Leong & Ors (1989) CSLR IX[2] High Court, Kuala Lumpur (Zakaria Yatim J).

In this case, two groups of directors were on the board. Both had filed suits against each other. One group applied to the court for the following orders: (a) to appoint a receiver for the company; (b) an injunction to restrain the holding of annual general meeting; (c) to stay execution of the order of dissolution of injunction pending appeal to the higher court.

Held: (1) for appointment of receiver the plaintiff must present a prima facie case and show that the property of the company is in jeopardy. The plaintiff has failed to prove both; (2) an annual general meeting gives an opportunity to all members of the company to assemble and elect those directors whom they want. An injunction could not be granted in such a case; (3) unless special grounds are shown, stay of execution of the order of dissolution of injunction cannot be granted.

Matang Holdings Bhd & Ors v Dato Lee San Choon & Ors [1985] 2 High Court, Johore Bahru (Yusoff Mohamed J).

The respondent had obtained an order under s 143(4)(b) of the Companies Act 1965 (Act 125) directing the Chairman (second appellant) to call the 13th Annual General Meeting and the directors to call the 14th and 15th meetings within a prescribed period. When the respondents could not serve the order on the appellants they applied by motion for variation of the order to provide for the meetings to be called by the company. The learned judge allowed the application. The appellants appealed to the Federal Court.

Held, dismissing the appeal: in this case the order had not been substantially altered so as to make it an entirely new order. If it had not been varied the whole purpose of the order would have been defeated.

Tay Ek Seng Co Sdn Bhd & Ors v Tay Cho Koh & Ors [1975] 2 MLJ 167 Federal Court, Kuala Lumpur (Suffian LP, Lee Hun Hoe CJ (Borneo).

The applicant, a member of the respondent company, and other shareholders were dissatisfied with the administration of the company. They instituted a suit (reported in [1962] MLJ 371) praying for a declaration that a meeting held under s 115 of the Companies Ordinance and the resolution passed at the meeting were valid. While that suit was pending, the applicant in this matter applied to the court stating that since its formation there had only been one statutory meeting of the company that it was undesirable that the members of the company wait indefinitely until an annual general meeting be held and in view of the pending civil suit it would be impossible for the company to convene or conduct a meeting in the usual or proper manner and he therefore asked that the court should exercise its power under s 116(2) and order a meeting of the company to be called.

Held: (1) it was not enough that the applicant satisfy the court as to the impracticability of calling or conducting a meeting; (2) the impracticability must extend to calling a meeting in any manner in which meetings of that company may be called or to conduct the meeting of the company in the manner prescribed by the articles or the ordinance; (3) the suit having been determined on 20 August 1962, it was no longer impracticable to call a meeting.

Leong Ah Hong v Hup Seng Co Ltd [1963] MLJ 164 High Court, Federation of Malaya (Suffian J).

The applicant held a majority of 5,000 shares in the company. The respondent had 1,000 shares in the said company. As Managing Director of the company, the applicant sought to hold an extraordinary general meeting (EOGM) on 12 May 1980. The respondent refused to attend and by a letter dated 6 May 1980, the respondent informed the applicant not to commence the meeting as the respondent claimed that it was for the purpose of oppressing minority rights. On 12 May 1980 the EOGM could not be held as the respondent did not attend the meeting and also because there was no quorum. The applicant submitted, inter alia, that the respondent had unlawfully retained valuable documents including account books of the company. The applicant sought for the order to allow (a) an EOGM to be held a week from the date of the order, (b) one week's notice of such EOGM be given to the respondent or his solicitors, (c) a direction that if the respondent fails to attend the said meeting, the applicant by himself attending the meeting shall be deemed to constitute a meeting, and (d) costs.

Held, allowing the application: (1) if the respondent who held 10% of the shares in the company considered himself an oppressed minority, his remedy would lie in his petitioning for dissolution of the company as an oppressed minority and not stultifying the operation of the company and cause it irreparable damage; (2) no court of law or equity could condone such conduct let alone buttress it with the sanction of the court. Common sense would require that the company should be allowed to function and any aggrieved party should obtain redress through the remedies recognized by law and open to him.

Foo Tong Eng v Po Gun Suan [1982] 1 MLJ 337 High Court, Penang (Arulanandom J).

The point that arose in this appeal was whether s 150 of the Companies Act 1965 (Act 125), which gives the court power in certain circumstances to order a meeting to be called and conducted in such manner as the court thinks fit, is applicable to a meeting of the board of directors.

Held: s 150 of the Companies Act 1965 is concerned only with a meeting of the company and is not applicable to a meeting of the board of directors.

Tay Say Geok & Anor v Tay Ek Seng Co Sdn Bhd [1974] 2 MLJ 70 Federal Court, Johore Bahru (Suffian LP, Ali FJ and Mohamed Azmi J).

The plaintiff company (the applicant), who is under receivership, is the majority shareholder (80%) of the two registered shareholders of the defendant company (the respondent). The other shareholder (20%) is International Finance Corporation (IFC). Under art 46 of the articles of association of the defendant company, the quorum at any general meeting is two members or their proxies. Further, under art 67, the defendant company may from time to time by ordinary resolution passed at a general meeting increase or reduce the number of directors and the number of such directors shall be not less than two and not more than nine. On 12 May 1993, the receivers and managers of the plaintiff company were informed by the defendant's company secretary that at that date the board of directors comprised of 5 directors. With a view to getting their nominees on the board, the receivers and managers requisitioned the directors of the defendant company to hold a general meeting pursuant to s 144(1) of the Companies Act 1965 and pass a resolution that three named directors be appointed. On 8 June 1993, the receivers and managers were informed orally by the defendant's company secretary that two additional directors had been appointed and as such three more directors would run foul of art 67.The receivers and managers requisitioned for another meeting to remove the seven existing directors and to replace them with the plaintiff's three nominees.The defendant company refused to comply with the notice of requisition. IFC also indicated that they were not prepared to support the proposed resolutions. The plaintiff applied to court for an order to conduct an extraordinary general meeting (EGM), to which the defendant raised objections.

Held, allowing the application: (1) the omission to cite IFC as a party to the proceedings is not fatal to the plaintiff's case. By the very nature of the prayers sought, it is the defendant who must first agree to act on the plaintiff's requisition to hold the EGM. It is only after such agreement that IFC will be notified of the EGM; (2) s 144(3) concerns the procedure to be adopted in the event the board of directors refuse to act on a notice of requisition. The subsection speaks of more than one requisitionist which is not applicable to the facts of the present case where the requisition is signed by one of two members and where both members must be present at the general meeting to vote for or against the proposed resolutions; (3) the plaintiff had no other alternative than to requisition for an EGM. As a majority shareholder, the plaintiff is entitled to have its nominees on the board. Since art 46 prescribes that the quorum shall be made up of two members present through their proxies, the deadlock created by IFC's unreasonable behaviour coupled with the action taken by the board of directors of the defendant company increasing its number to prevent the plaintiff's first proposed resolution, all add up to conduct amounting to the impracticability of calling a meeting; (4) the court ordered that the EGM be held one month after the order is served on IFC, that the presence of one member of the defendant company should form a quorum and that the parties be at liberty to apply.