IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION)
PETITION NO. D1-26-31-1998
K-ZAQ (M) SDN BHD
(1) JOHNSON MATTHEY PUBLIC LIMITED COMPANY
(2) CAPITAL SCORE SDN BHD
(3) RELIABLE GATEWAY SDN BHD
(4) JOHNSON MATTHEY SDN BHD
GROUNDS OF JUDGMENT
The petitioner commenced this petition (filed in August 1998) pursuant to section 181 of the Companies Act 1965. This section provides –
181. Remedy in cases of an oppression.
(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 a 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).
(2) If on such application the Court is of the opinion that either of those grounds is established the Court may, with the view to bringing to an end or remedying the matters complained of, make such order as it thinks fit and without prejudice to the generality of the foregoing the order may –
(a) direct or prohibit any act or cancel or vary any transaction or resolution;
(b) regulate the conduct of the affairs of the company in future;
(c) provide for the purchase of the shares or debentures of the company by other members or holders of debentures of the company or by the company itself;
(d) in the case of a purchase of shares by the company provide for a reduction accordingly of the company’s capital; or
(e) provide that the company be wound up.
The petitioner is a private limited company incorporated in Malaysia having its registered office in Petaling Jaya.
The 1st respondent is a public limited company incorporated in England having its registered address in London.
The 2nd respondent is a private limited company incorporated in Malaysia and having its registered office in Kuala Lumpur. The 2nd respondent is now known as Johnson Matthey Holdings (Malaysia) Sdn Bhd, and is in the process of liquidation.
The 3rd respondent is a private limited company incorporated in Malaysia and having its registered office in Kuala Lumpur. The 3rd respondent is now known as Johnson Matthey Management (Malaysia) Sdn Bhd.
The 4th respondent is a private limited company incorporated in Malaysia with its registered address in Nilai, Negeri Sembilan.
The principal business activities of the 1st respondent are in advanced materials technology involving precious metals and other specialized materials in the manufacture of catalysts and pollution control system.
Sometime in 1993, the 1st respondent was desirous of setting up manufacturing facilities for the production and sale of motor vehicle catalysts in Malaysia as well as in other South East Asian countries. To this end, the 1st respondent considered setting up a manufacturing plant in Malaysia to form the base for its South East Asian operations.
At that time, manufacturing licenses issued by the Ministry of Trade and Industry required foreign parties to have a Malaysian partner in its business ventures. The 1st respondent identified a Malaysia
company, namely, HICOM Berhad, as a suitable Malaysian partner for its operations in Malaysia as the latter was a key player in the automobile industry through its interests in the manufacture of Proton vehicles.
During the negotiations between the 1st respondent and HICOM Berhad to form the joint venture, HICOM Berhad informed the 1st respondent that it wanted to have a company associated with a person named Lee Jee Ba (which company, subsequently, turned out to be the petitioner) included as a joint venture partner. The 1st respondent did not see the need to have any other entity other than HICOM Berhad to be its joint venture partner. However, since HICOM Berhad insisted to have a company associated with the said Lee Jee Ba as a business partner in the joint venture, the 1st respondent agreed to the petitioner (the entity suggested by the Lee Jee Ba) being added as a partner in the joint venture.
Accordingly, on 17 June 1994 the 1st respondent, the petitioner and HICOM Berhad entered into a joint venture agreement (‘the JVA’). The JVA established the 4th respondent for the South East Asian operations.
Subsequently, on 18 August1995, HICOM Berhad transferred its shares in the 4th respondent to HICOM Holdings Bhd (HICOM).
The 4th respondent had at all material times an authorized capital of RM30 million. After incorporation on 19 August 1994, the 4th
respondent had an issued and paid up capital of RM100.00 held as follows under clause 3.2 of the JVA:
No. of shares %
The 1st respondent 50 50
HICOM Berhad: 30 30
The petitioner 20 20
Clause 3.6 of the JVA provides that the issued and paid up share capital of the 4th respondent was to be RM20 million.
At the second board of directors meeting of the 4th respondent on 9 November1994, it was resolved that the issued and paid up capital of the 4th respondent be increased to RM8 million with the following new allotments of shares of RM1.00 each (the said shares were duly allotted and issued):
30 November 1994
The 1st respondent HICOM Berhad: The petitioner Total
No. of shares 1,199,950 1,199,970 799,980 3,999,900
30 January 1995
At the fourth board of directors meeting of the 4th respondent on 10 Aprill 995, it was resolved that the issued and paid up capital of the 4th respondent be increased to RM12 million with the following issuance and allotment of 4,000,000 ordinary shares of RM1.00 each
No. of shares
The 1st respondent 2,000,000
HICOM Berhad: 1,200,000
(the said shares were duly allotted and issued):
No. of shares
The 1st respondent 2,000,000
HICOM Berhad: 1,200,000
The shareholding structure of the 4th respondent at the time of the filing of this petition was as follows:
No. of shares %
The 1st respondent 17,250,000 57.50
The 2nd respondent 5,175,000 17.25
The 3rd respondent 5,175,000 17.25
The petitioner 2,400,000 8.00
The present shareholding structure of the 4th respondent is as
follows: No. of shares %
The 1st respondent 27,600,000 92.00
The petitioner 2,400,000 8.00
According to the JVA, the management of the 4th respondent was to be in accordance with the JVA and the Articles of Association of the 4th respondent.
THE PETITIONER’S COMPLAINTS
The petitioner’s complaints in the petition are numerous. However, I do not propose to deal with all of them. I shall only deal with the following:
(a) That the transfer of shares from HICOM to the 2nd and 3rd respondents was in breach of the JVA and the Articles of Association of the 4th respondent (“Articles”).
(b) That the motions passed at the EGM of 16 April 1998 for the increase in capital and the amendments of the Articles were in breach of the JVA and the Articles; for, by reason of Article 58, without the presence of the petitioner at the EGM, there was no quorum.
(c) That the motions passed at the EGM of 16 April 1998 and at the ninth Board Meeting (held immediately after the EGM) for the increase in capital and the amendment of the Articles breached Article 74 of the Articles.
(d) That the increase in capital was not favourable to the petitioner.
(e) That the petitioner’s shareholding in the 4th respondent has been diluted from 20% to 8%.
(f) That the non appointment of the petitioner’s representatives to the board of the 4th respondent at the AGM on 10 July 1998 breached the JVA and the original Articles.
I shall in due course examine each of the complaints in turn.
THE RELIEFS THE PETITIONER SEEKS
The petitioner, in its petition, seeks inter alia the following:
(1) A declaration that the resolutions purportedly passed at the extraordinary general meeting of the 4th respondent
held on the 16th day of April 1998, and all actions taken in consequence thereof, are null and void.
(2) A declaration that the resolutions purportedly passed at the 9th board of directors meeting of the 4th respondent held on the 16th day of April 1998, and all actions taken in consequence thereof, including the purported registration of shares in the name of the 2nd and 3rd respondents, are null and void and invalid.
(3) An order that all shares issued pursuant to the resolutions purportedly passed at the extraordinary general meeting of the members of the 4th respondent held on the 16th day of April 1998 and the meeting of the board of directors of the 4th respondent held on the 16th day of April 1998 be cancelled and that the register of members of the 4th respondent be rectified to reflect the cancellation of the said shares.
(4) An order that the current Articles of Association of the 4th respondent be replaced with the Articles of Association of the 4th respondent that was in place prior to the 16th day of April 1998.
(5) An order that the JV Agreement and the Articles of Association of the 1st respondent that was in place prior to the 16th day of April 1998 be modified only in so far as is
necessary to reflect the fact that HICOM Berhad is no longer a party to the JV Agreement or a shareholder of the 4th respondent.
(6) An order that the shares owned by the petitioner in the 4th respondent be purchased by the 1st respondent for a sum of GBP1,000,000 together with interest thereon at the rate of 20% per annum from the 1st day of January 1998 until the date of full payment.
(7) That the 4th respondent be wound up and that the Official Receiver be appointed as the Provisional Liquidator of the 4th Respondent.
In the present case, by reason of the provision of section 181, in order to succeed, the petitioner essentially has to prove –
(a) that the affairs of the 4th respondent (Johnson Matthey Sdn Bhd) or the powers of the directors are being exercised –
(i) in a manner oppressive to the petitioner as a member; or
(ii) in disregard of the interests of the petitioner as a member.
(b) that some act of the 4th respondent has been done or resolution passed which –
(i) unfairly discriminates against the petitioner as a member; or
(ii) is otherwise prejudicial to the petitioner as a member.
I have dismissed this petition with costs and I shall now give my grounds.
I find that there is no merit any of the complaints of the petitioner.
THE BASIC PRINCIPLES
The general principles governing the interpretation of section 181 are well established by case law authorities. In the Privy Council case of Re Kong Thai Sawmill (Miri) Sdn Bhd (1978) 2 MLJ 226 229, Lord Wilberforce said (at p. 229):
As was said in decision upon the United Kingdom section 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 (Elder v. Elder & Watson Ltd.  S. C. 49): their Lordships would place the emphasis on “visible”. And similarly “disregard” 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 …
In Re H. R. Harmer Ltd (1958) 3 All ER 689 Jenkins L. J. said (at p. 706):
It is true the mere use of voting power at board meetings or at a general meeting to secure the passing of resolutions, which the other members of the board or shareholders oppose, would not in general constitute oppression for the purpose of the section or for any other purpose. For a petition to succeed it must be shown that there has been oppression in a real sense of members qua shareholders and not merely a subordination of their wishes to the power of a voting majority. As to this, however, I accept the submission of counsel for the petitioners that shareholders are entitled to have the affairs of a company conducted in the way laid down by the company’s constitution.
EVALUATION OF EVIDENCE
The Petitioner filed 9 affidavits. The petitioner’s deponents are its directors, namely, –
(1) Che Ujang bin Che Daud; and
(2) Dato’ Seri Sulaiman bin Mohd Amin.
The respondents’ filed 7 affidavits, the deponent being one Robert Lynn Frost, the Chairman and a director of Johnson Matthey Holdings Ltd (Australia) and all other Australasian entities (including the 2nd, 3rd and 4th respondents) that are related to and controlled by the 1st respondent.
In the course of the proceedings, all three deponents were cross-examined by the respective opposing counsel.
The probative value of the affidavits of both sides must be assessed in the light of the evidence of deponent Dato’ Sulaiman Amin who conceded to respondents’ counsel in cross-examination –
Q: Contrary to what you have stated in your affidavit at encl. 47, the affidavits filed by the respondents do not contain lies, half truths or spurious allegations?
A: I agree.
THE MERITS OF THE COMPLAINTS
Complaint (a) – Transfer of shares from HICOM to the 2nd and 3rd respondents allegedly in breach of the JVA and Articles
This complaint is without any merit.
Article 32(b) of the Articles permits HICOM to transfer its shareholding to any party it wishes to. This Article reads –
32. The restrictions in Article 31 shall not apply in any of the following circumstances:-
(b) To a transfer by HICOM of all or any of its shares to any party or government institutions in accordance with any order or directive issued by the relevant government authorities;
It will be observed that Article 32(b) refers to Article 31. This latter Article imposes restrictions on the parties to the JVA with regard to the disposal of their shares in the 4th respondent.
Clause 14.2(b) of the JVA also permits the transfer. This Clause provides –
14.2 The restrictions contained in sub-clause 14.1 shall not apply in any of the following circumstances:-
(b) To a transfer by HICOM to any party or any government institutions, or to a transfer in accordance with any directive from any of the relevant Governmental authorities;
Clause 14.1 of the JVA, just like Article 31 of the Articles, imposes similar restrictions on the parties to the JVA with regard to the disposal of shares in the 4t5h respondent.
At the seventh board meeting of the 4th respondent held on 28 October 1996 and chaired by the HICOM’s representative, with the presence of the petitioner’s representatives, namely, Ng Hian Tion and Lim Kam, the board resolved that HICOM’s shares in the 4th respondent be approved for transfer to the 1st respondent (Johnson Matthey Public Limited Company) or its nominees. The two deponents to the petitioner’s affidavits, namely, Che Ujang bin Che Daud and Dato’ Seri Sulaiman bin Mohd Amin were not present at this meeting. Che Ujang was not even director of the 4th respondent then (he became a director only in 1997). And Dato’ Seri Sulaiman Amin was never at all a director of the 4th respondent.
The minutes of the seventh board meeting were confirmed at the eighth board meeting on 22 August 1997 by all the directors attending
including the petitioner’s representatives (Mr. Ng Hian Tion and Mr. Lim Kam).
Immediately after the seventh board meeting, an extra-ordinary general meeting (EGM) of the 4th respondent was held. Here, again the petitioner approved the transfer of HICOM’s shares to the 1st respondent or its nominees. The petitioner’s representative (Mr. Lim Kam) was present at this EGM.
The 2nd and 3rd respondents were the nominees of the 1st respondent at the material times relating to the transfer of HICOM’s shareholding in the 4th respondent to them.
The HICOM’s shares were duly transferred; and the 2nd and 3rd respondents were registered as shareholders of the 4th respondent on 22 January 1998. It follows that on the same day (22 January 1998), HICOM ceased to be a registered shareholder of the 4th respondent.
Complaint (b) – Resolutions passed at the 16 April 1998 EGM alleged to be in breach of Article 58
Article 58 says:
58. Three (3) members present in person or by proxy shall form a quorum for a general meeting and no business shall be transacted
at any general meeting unless there is a quorum present at all times.
There is no provision whatsoever that the petitioner has to form part of the quorum of a general meeting. The petitioner’s counsel, Dato’ Cecil Abraham, has conceded in his opening speech that there was quorum within the meaning of Article 58 at the EGM of 16 April.
Therefore there is no merit in the contention that there had been a breach of the Article 58.
Complaint (c) – Resolutions passed at the 16 April 1998 EGM and at the 9th board meeting alleged to be in breach of Article 74
In my judgment, Article 74 of the Articles that was in force before the 16 April 1998 EGM requires at least an 85% vote at general meetings of the members for matters listed thereunder only ‘so long as JM, HICOM and K-Zaq or their respective subsidiary companies continue to be members’. This Article stipulates –
74. Notwithstanding anything contained in these Articles or the Act, so long as JM, HICOM and K-ZAQ or their respective subsidiary companies continue to be members, no resolution either at Board meetings or at the general meetings shall be passed with regard to any of the following matters relating to the Company without
either (i) it having received the affirmative vote of at least three (3) Directors appointed as to each by each of the members or (ii) by members holding in aggregate at least eighty five per cent (85%) of the shares in the Company then carrying voting rights:-
As at 16 April 1998 (the date of the EGM) HICOM was no longer a shareholder of the 4th respondent (having ceased to be a shareholder on 22 January 1998), Article 74 is inapplicable and there was no need to have an 85% vote to increase the capital or alter the Articles.
Article 74 is the embodiment in the Articles of clause 12.1 of the JVA which provides:
As between the shareholders, it is understood and agreed that none of the shareholders will cause or permit the company during the continuance of this agreement to do any of the matters referred to in sub clause 12.2, either at the board or at the general meeting of the company for so long respectively as JM, HICOM and K-ZAQ or their respective subsidiary companies continue to be the registered holders of any shares, without either (i) it having received the affirmative votes of at least (3) Directors appointed as to one each of the Shareholders or (ii) an affirmative resolution passed by the shareholders holding in aggregate at least eighty
five percent (85%) of the shares in the company then carrying the voting rights. [Emphasis added]
In its reference to Article 74 in paragraphs 55, 63 and 64 of the petitioner’s counsel’s written submission, the petitioner’s counsel has not alluded to the crucial words which are a precondition to the applicability of Article 74, namely, that the provision applies only ‘so long as JM, HICOM and K-Zaq or their respective subsidiary companies continue to be members …’.
In any case, section 31 of the Companies Act confers on a company a statutory right to alter its Articles of Association by means of a special resolution. Section 152(1) of the Companies Act defines ‘special resolution’ to mean ‘a majority of not less than three-fourths’ of members entitled to vote in person or proxy. As the 1st, 2nd and 3rd respondents held 80% of the voting rights (i. e. in excess of the required 75% under section 152), the resolution to amend the Articles of the 4th respondent complied with the Companies Act. In law, the statutory power of a company to alter its articles cannot be taken away or fettered by any provision in the articles or by agreement of the company. Hence, any article (such as Art. 74) or agreement purporting to deprive the company of its power of alteration is contrary to statute and would be struck down. In Allen v. Gold Reefs of West Africa, Limited  1 Ch D 656 Lord Lindley held (at p. 671):
The articles of a company prescribe the regulations binding on its members: Companies Act, 1862, s. 14. They have the effect of a contract (see s. 16): but the exact nature of this contract is even now very difficult to define. Be its nature what it may, the company is empowered by the statute to alter the regulations contained in its articles from time to time by special resolutions (ss. 50 and 51): and any regulation and article purporting to deprive the company of this power is invalid on the ground that it is contrary to the statute: Walker v. London Tramways Co.
Hence, there is no substance in the complaint.
Complaint (d) – Increase in capital alleged to be not favourable to the petitioner
In late 1997, during the time of the Asian financial crisis, the 4th respondent was in dire need of additional capital funds in order to carry on with its business. The capital of the 4th respondent at that time was almost extinguished. The 4th respondent had only RM433,000.00 left in net equity as at 31 March 1998 with further substantial losses forecast. It was very clear then that an equity injection of funds into the 4th respondent was a necessity in order to have working capital and to ensure the company’s future solvency.
It is not disputed that the 4th respondent was in financial difficulty and required funds for it to continue with its business. From the respondent’s standpoint, which I think is reasonable, the only way to overcome this financial difficulty was to increase the capital of the
company, which in any event was not at the level prescribed for in the JVA for the company’s establishment (see clause 16.1 of the JVA).
As the requirement for funding was urgent, the 2nd and 3rd respondents requisitioned the EGM of 16 April 1998 to increase the share capital of the 4th respondent by RM20,000,000.00.
With the increase in capital by way of a significant injection of cash by the 1st, 2nd and 3rd respondents, and the continued support of the Johnson Matthey International Group, the 4th respondent became profitable as shown by its accounts for the years 1998 to 2005.
If the 1st, 2nd and 3rd respondents had not injected the sum of RM20,000,000.00, the 4th respondent would have become insolvent. The petitioner did not adduce any evidence to contradict this. On the contrary, the petitioner has admitted through the evidence of Che Ujang Che Daud that if the capital injection under the increase in capital had not been made, the shareholders funds would have been negative for 1999.
The petitioner’s position, on the other hand, was that the 4th respondent’s financial position was bad and forecasted to be bleak and unprofitable in the future. The petitioner did not agree to the increase in capital as ‘a prudent businessman would not be inclined to invest further money’ into the 4th respondent.
It hardly needs saying that if the petitioner had invested further money into the 4th respondent, it would have remained a 20% shareholder. The petitioner cannot expect to hold 20% in the company if it did not pay for that 20%. The petitioner’s deponent, Che Ujang bin Che Daud, admitted in cross-examination:
(i) that because the petitioner did not accept the offer made to it under the increase in capital exercise, the 1st, 2nd and 3rd respondents took up the offer and they therefore ended up holding 92% of the shareholding in the 4th respondent; and
(ii) that a natural consequence of the petitioner’s decision not to subscribe for its share of the increase in capital would be that it would end up with a decrease in shareholding in the company.
I accept the submission of the respondents that on this issue the petitioner’s position is not even clear. This is shown by the evidence of Che Ujang (a deponent of the petitioner). Che Ujang said that the petitioner was willing to invest in the 4th respondent if the JVA was properly followed. However, when one examines the allegations as to what in the JVA was said to have been not properly followed, one would see that it is the alleged non-compliance with Articles 58 and 74 in relation to the 16 April EGM. But this EGM took place long after the financial problems of the company had arisen in 1996 when the
need for an injection of capital arose. Hence, the petitioner’s evidence does not make sense.
In conclusion, this complaint is also baseless.
Complaint (e) – Petitioner’s shareholding in the 4th respondent has been “diluted” from 20% to 8%
There is no substance in this complaint.
Immediately after the ninth board meeting, the letter of offer to the shareholders of the 4th respondent, including the petitioner, was sent out in accordance with the resolutions passed. It is not disputed that the petitioner did not take up the offer.
If only the petitioner had taken up the offer, it would have kept its equity in the 4th respondent at 20%; but as it did not take up the offer, the offer was taken up by the other shareholders (namely, the 1st, 2nd and 3rd respondents) and the petitioner naturally ended up with an 8% shareholding. Che Ujang, in his evidence, admitted that the petitioner was offered the same opportunity as the 1st, 2nd and 3rd respondents to participate in the increase in capital, and if the petitioner had accepted the offer, it would have owned 20% of the shareholding in the 4th respondent.
With respect, it is difficult to understand the submission that the petitioner should remain a 20% shareholder without investing the further required funds to maintain that level of equity.
The reason why the petitioner does not hold a 20% equity in the 4th respondent is simply because it did not put in the money to get those additional shares.
The 1st, 2nd and 3rd respondents ended up holding 92% because they invested the money needed to subscribe for those additional shares in the increase in capital exercise.
Complaint (f) – The ‘removal’ of the petitioner’s representatives from the board at the AGM of 10 July 1998 was allegedly unlawful.
At the annual general meeting of the 4th respondent on 10 July 1998, the petitioner’s representatives, namely, Lee Jee Ba and Che Ujang, were not re-elected. The majority shareholders voted against their appointments.
It is the submission of the petitioner that the non-election of Lee Jee Ba and Che Ujang to the board of the 4th respondent was a breach of the JVA and the original Articles. The petitioner contends under the
JVA and the original Articles the petitioner is entitled to a minimum of 2 seats on the board of directors of the 4th respondent.
To my mind, there is nothing wrong with the 1st respondent voting against the petitioner’s representatives’ re-election. The 1st respondent was merely exercising its lawful right to vote as provided for by the Articles.
I wish to reiterate here that Article 74 of the original Articles states clearly that the provisions therein apply only ‘so long as JM, HICOM and K-Zaq or their respective subsidiary companies’ are members.
As to the JVA, in my view, with the exit of HICOM, the JVA ceased to have any effect.
In conclusion, it is my finding that, based on the totality of the evidence, facts and the law, I fail to appreciate how it could be contended that there has been a visible departure from the standard of fair dealing or fair play in so far as the respondents’ conduct is concerned; or that the affairs of the 4th respondent (Johnson Matthey Sdn Bhd) are being conducted in a manner oppressive to the petitioner, or in disregard of the interests of the petitioner.
In my judgment, all that the 1st, 2nd and 3rd respondents did was to exercise their rights under the Articles and under the Companies Act and to act in the best interest of the 4th respondent.
I accept the respondents’ submission that the dispute between the petitioner and the respondents was a result of the JVA not working out as expected by the parties. It is, as rightly pointed out by the learned counsel for the respondents, an ordinary case of a breakdown in relations and has nothing to do with oppression.
[Petition dismissed with costs]
(Dato’ Mohd Hishamudin bin Mohd Yunus) Judge, High Court Commercial Division Kuala Lumpur
Date of decision: 21 July 2009
Date of written grounds of judgment: 31 December 2009
Dato’ Cecil Abraham and Encik Rishwant Singh (Messrs Zul Rafique & Partners) for the petitioner
Cik Ira Biswas and Cik Janet Chai (Messrs Chooi & Co.) for the 1st, 2nd and 3rd respondents
Dato’ Loh Siew Cheang, Encik David Hoh and Encik Brian Foong (Messrs Lim & Hoh) for the 4th respondent