Citation(1992) 4 SAcLJ 123
Date01 December 1992
Published date01 December 1992

It is one of the ironies of law that despite the fact that a company is a democratic organisation par excellence, tyranny in companies is so common. The problem that the law faces is trying to strike an acceptable balance between the right of the majority to have their way and the rights of a dissentient minority.

In a totally laisser faire system, the minority would just have to grin and bear it. This is the golden rule in action — he who has the gold makes the rules. Until 1948, the only “remedy” — if one could call it that — which a minority shareholder had in the case of major disagreement with the majority was to have the company wound up. In many cases, the cure was worse than the disease, involving as it did the termination of the business. In practice, a winding up might not be feasible where the directors (including the minority shareholder) had given personal guarantees for the company’s debts.

The UK Companies Act 1948 introduced the “alternative remedy” in section 2101. This gave the court the power to grant relief other than winding up in a case where a winding up was justified under the “just and equitable” rule. The utility of this section was such that it was gradually widened, so that the current UK sections2 no longer require the behaviour of the majority to be “oppressive” but only “unfairly prejudicial”. The link with winding up has also been severed in that it is not necessary to show that it would be just and equitable to have the company wound up. A similar liberalisation can be seen in the equivalent Australian provisions3.

Singapore’s section 216 traces its history back to 1967, when the present Companies Act came into force4. There is no requirement in section 216 that it be just and equitable for the company to be wound up before relief

can be given. Instead of the formula “oppressive” used in the contemporary UK legislation, section 216 uses four different tests: “oppression”, “disregard of interests”, “unfair discrimination” and “prejudice”. When the section was amended in 1984, it was originally proposed to replace “oppression” with the English “unfairly prejudicial” formula. This proposal was however dropped. The 1984 amendment5 did introduce what is now section 216(2)(c), which actually deals with a totally different problem, ie, derivative actions.

Given the difference in wording between the UK, Australian and Singapore provisions it is wise to keep in mind Lord Wilberforce’s admonition in Re Kong Thai Sawmills (Miri) Sdn Bhd6 that the section should be construed according to its own terms. Australian, English and other Commonwealth cases may be useful as analogies, keeping in mind the sometimes more restrictive wording of the sections considered.

The difficulty with a section like this is to formulate some coherent approach to its application7. One possibility is to analyse the section into “limbs” and try to fit each case within a particular limb. It is suggested that a more useful approach would be to look at the big picture and interpret the section purposively in the light of the mischief that it is designed to cure.

The mischief

The problem with companies, as with other corporate organisations, is that the members do not always see eye to eye. In the normal case, the will of the majority prevails. A person who takes a minority stake in a company does so on the understanding that he may be outvoted when disagreements arise. It is for this reason that a minority stake in a company is often valued at a discount. However, there is a thin but substantial line that the majority cannot cross. Majority rule is one thing; oppression of the minority is quite another. As Lord Wilberforce said in Re Kong Thai Sawmills (Miri) Sdn Bhd8:

“The mere fact that one or more of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy decisions, with which the complainant does not agree, is not

enough. Those who take interests in companies limited by shares have to accept majority rule. It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked.”

Thus, section 216 is designed to allow the court to strike a fair balance between majority rule and minority rights.

Comparative approaches

The term “oppression”, although a convenient label, is not completely accurate. The term has over the years acquired a rather restrictive meaning through judicial interpretation. Section 216 covers not only “oppression”, but also “disregard of members’ interests”, “unfair discrimination” against members and “prejudice” to members. This was legislatively recognised when the marginal note was amended in 1987 (at this author’s suggestion) to indicate the broader nature of the remedy. The marginal note was amended from “Remedy in cases of oppression” to “Remedy in cases of oppression and injustice”. This was a recognition that the section covered more than just oppression9. An examination of the UK and Australian judicial approaches is useful in formulating our own approach to the application of section 216.

The approach of the English courts to their section 459 has been set out by Peter Gibson J in Re A Company (No 005134 of 1986), ex p Harris10:

“(1) The test of unfair prejudice is objective. (2) It is not necessary for the petitioner to show bad faith. (3) It is not necessary for the petitioner to show a conscious intention to prejudice the petitioner. (4) The test is one of unfairness, not unlawfulness. Counsel for the respondents, however, has submitted that because the test is objective it was irrelevant that the respondent may have acted for an improper purpose or with an improper motive. I do not doubt that if the objective bystander observes unfairly prejudicial conduct by a respondent the fact that the respondent had a proper purpose and a proper motive will not prevent that conduct from falling within the section. But if the objective bystander observes that the conduct of the respondent was for an improper purpose or with an improper motive, that may well be a relevant consideration in determining whether the conduct is unfairly prejudicial.”

The same judge also expounded the principles on which section 459 would be applied in Re Ringtower Holdings plc11:

“Under section 459(1) the condition that must be satisfied if the court is to give relief under section 461 is that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members, including the petitioners, or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. Four points on the wording of the section are to be noted:

  1. (1) the relevant conduct (of commission or...

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