Tong Keng Meng v Inno-Pacific Holdings Ltd and Another

• Jurisdiction: Singapore
• Judge: Woo Bih Li JC
• Judgment Date: 03 October 2001
• Neutral Citation: [2001] SGHC 294
• Docket Number: Originating Summons No 601135 of 2001
• Date: 03 October 2001
• Year: 2001
• Published date: 19 September 2003
• Plaintiff Counsel: Desmond Ong and Prakash Mulani (J Koh & Co)
• Citation: [2001] SGHC 294
• Defendant Counsel: Thio Ying Ying (Kelvin Chia Partnership),Chan Kok Chye (Infinitus Law Corp)
• Court: High Court (Singapore)
• Subject Matter: Whether proxy owes contractual obligation or fiduciary duty to member,Proxy casting votes on behalf of member contrary to member's directions,Whether proxy acting oppressively,Whether member can change instructions to proxy,s 216(1) Companies Act (Cap 50, 1994 Ed),Companies,Oppression,Proxy casting votes on behalf of member of company contrary to member's directions,Members,Conduct amounting to oppression,Member's recourse in such situation,Extraordinary general meeting,Member appointing proxy to vote on his behalf,Voting,Garnering support through proxy forms to advance one's intention,Whether member can change proxy,Proxy,Effect of such vote,Whether proxy exercising dominant power

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Background

The plaintiff Tong Keng Meng @ Melvin Tong is a shareholder of Inno-Pacific Holdings Ltd (`Inno-Pacific`), a company listed on the Singapore Stock Exchange. He holds 7,281,000 shares in Inno-Pacific. He was also a director and the chairman of Inno-Pacific.

At an extraordinary general meeting (`EOGM`) of Inno-Pacific held on 7 August 2001, he was purportedly removed as a director of Inno-Pacific. He did not attend the EOGM as he had other pressing matters to attend to.

Two other persons, Mr Phua Teck Chew and Mr Chew Kok Liang were also purportedly removed as directors at the EOGM. Mr Chew was also the Managing Director of Inno-Pacific.

Two others, namely, Mr Abdul Khader Mohamad Ismail and Mr Lee Lee King were elected as directors at the EOGM in place of Mr Tong and Mr Phua respectively. No one was elected as a director in place of Mr Chew.

I will refer to the five resolutions which removed the three persons as directors and elected the other two as directors as `the disputed resolutions`.

The EOGM was sought at the behest of the second defendant Ms Quah Su-Ling and like-minded supporters.

In para 3 of her first affidavit, Ms Quah alleged that some shareholders, including herself, wanted a turnaround of Inno-Pacific`s fortunes in view of its losses while Mr Tong was at the helm of Inno-Pacific. Mr Tong does not accept that Ms Quah`s motives were as simple as that. However, it is unnecessary for me to decide what Ms Quah`s motives were.

At the EOGM, a dispute arose because of a proxy given by a member Ms Teo Bee Lay to Ms Quah. Ms Teo holds 2,987,000 shares in Inno-Pacific.

Mr Tong alleged that in the proxy form Ms Teo had specified that Ms Quah was to vote against all the resolutions including the disputed resolutions.

However, contrary to such instructions, Ms Quah cast the votes from Ms Teo for the disputed resolutions.

for against not The permutations were:

(1) If the votes cast on behalf of Ms Teo were treated as spoilt votes, the disputed resolutions would have been carried anyway, although by a smaller majority.

(2) A fortiori, if the votes cast on behalf of Ms Teo were taken into account as being the disputed resolutions, then the disputed resolutions would have been carried.

(3) However, if the votes cast on behalf of Ms Teo were taken into account as being the disputed resolutions, then the disputed resolutions would have been carried.

At the EOGM, after arguments had been presented, the Chairman of the EOGM decided to take into account the votes cast for Ms Teo as being for the disputed resolutions, ie he took the position that it is the vote of the proxy holder at the meeting which counted even if a proxy holder voted against the wishes of the member as indicated on the proxy form.

Consequently, Mr Tong filed this action on 9 August 2001 to challenge the carrying of the disputed resolutions.

Although the action was based on s 216(1)(a) and (b) of the Companies Act (Cap 50, 1994 Ed), Mr Desmond Ong, one of the counsel for Mr Tong, submitted that there was only one issue before me, ie what effect should be given to the votes purportedly cast by Ms Quah on behalf of Ms Teo.

Mr Chan Kok Chye, counsel for Inno-Pacific, and Mrs Thio Ying Ying, counsel for Ms Quah, did not dispute that this was the only issue.

However, notwithstanding that that was supposed to be the only issue before me, Mr Mulani, who was also counsel for Mr Tong, made submissions on what constituted oppression or unfair discrimination under s 216(1)(a) and (b).

Section 216(1)(a) and (b) of the Companies Act

Section 216(1)(a) and (b) states:

(1) Any member or holder of a debenture of a company or, in the case of a declared company under Part IX, the Minister may apply to the Court for an order under this section on the ground -

(a) that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or holders of debentures including himself or in disregard of his or their interests as members, shareholders or holders of debentures of the company; or

(b) that some act of the company has been done or is threatened or that some resolution of the members, holders of debentures or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or holders of debentures (including himself). [Emphasis is added.]

Mr Mulani cited the following passages from Walter Woon on Company Law (2nd Ed) from p 160 onwards:

OPPRESSION, DISREGARD OF MEMBERS` INTEREST AND PREJUDICE

Section 216 may be invoked where there is `oppression` of a member or where a member`s interests are `disregarded`. It may also be invoked where there is a resolution or act that `unfairly discriminates` against or is `otherwise prejudicial` to a member.

The term `oppression` has been variously defined. In Scottish Co-operative Wholesale Society Ltd v Meyer, Viscount Simonds defined the term as `burdensome, harsh and wrongful`, taking the dictionary meaning of the word. Buckley LJ`s definition of oppression in Re Jermyn Street Turkish Baths Ltdis as follows:

`In our judgment, oppression occurs when shareholders, having a dominant power in a company, either (1) exercise that power to procure that something is done or not done in the conduct of the company`s affairs or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company`s affairs; and when such conduct is unfair ... to the other members of the company or some of them, and lacks that degree of probity which they are entitled to expect in the conduct of the company`s affairs.`

At the very least, there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every member is entitled to rely.

`Disregard` of a member`s interests `involves something more than a failure to take account of the minority`s interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure`: Re Kong Thai Sawmill (Miri) Sdn Bhd. The use of the word `disregard` in conjunction with `oppression` in s 216 suggests that they are not synonymous. There is a certain amount of overlap. However, it is clear that the test is wider than in those cases considering statutory provisions dealing solely with oppression. In Re Kong Thai Sawmill (Miri) Sdn Bhd, Lord Wilberforce explained the way s 216 operates:

`The mere fact that one or more of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the complainant does not agree, is not enough. 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; there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect before a case of oppression can be made ... their Lordships would place the emphasis on `visible` ... Neither `oppression` nor `disregard` need be shown by a use of the majority`s voting power to vote down the minority: either may be demonstrated by a course of conduct which in some identifiable respect, or at some identifiable point in time, can be held to have crossed the line.`

...

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

`(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.`

...

It will be noted that the trend seems to be to construe the provisions broadly and not quibble over particular words in the definition. This, it is suggested, is the correct way to apply the sections; look at the whole forest, not at the individual trees. Our s 216 is even wider than s 459 of the United Kingdom Companies Act 1985 and s 320 of the Australian Companies Act 1981. Parliament has recognized this by amending the marginal note. It is suggested that judges can take this cue to interpret s 216 more widely to give remedy to a shareholder who is treated unfairly.

Mr Mulani submitted that other members like Mr Tong were entitled to see that the wishes of the majority of the members were carried out. If Ms Quah did not cast the votes on behalf of Ms Teo in accordance with Ms Teo`s instructions, which would in turn affect the outcome of the disputed resolutions, then the wishes of the majority of the members were not being carried out. This would be unfair to them.

He submitted that Ms Quah was a key player. She had sought the disputed resolutions and had been soliciting votes.

He also submitted that Ms Quah had alleged in the EOGM that she had recollected that the proxy...