CHAPTER 6 – RIGHTS &

PROTECTION OF
MINORITY
CORPORATE LAW – LAW 485

MINORITY PROTECTION/SS 1
THE RULE IN FOSS V HARBOTTLE

RULE IN FVH SS 2
 FOSS V HARBOTTLE
Shareholders sued Directors
3 1
Mismanaged
Misapplied its property
2
The company loss

Held : the action was dismissed on procedural ground and 2 propositions were laid down.
1. Proper plaintiff rule
2. Majority rule.

RULE IN FVH SALMIAH SALLEH 3

 PROPER PLAINTIFF RULE
To redress wrong done to a company or to recover money or damage alleged to be done to
the company, the action should prima facie be brought by the company itself (Burland v
Earle). The shareholder cannot take action for wrong done to the company as the company
and the shareholders are two separate body.

Someone
If a wrong has ben
(wrongdoer) committed against the
company, only the company
can take legal action
Did against the wrongdoer.
wrong The members cannot take
action on behalf of the
company.
The company

RULE IN FVH SALMIAH SALLEH 4

MAJORITY RULE
If the thing complained of is a thing which in substance the majority of the company are entitled to do
… there can be no use in having litigation about it, the ultimate end of which is only that a meeting has
to be called and then ultimately the majority get it wishes (McDaughall v gardiner). No member can take
any action for any wrong done to the company if the majority decide not to take any action. The minority
cannot interfere with the decision made by the majority.
Decision of majority will prevail.

RULE IN FVH SALMIAH SALLEH 5

 PAVLIDES V JENSEN
2 The co &
The minority sued
3 directors
1
Sold the co’s mine for 182.000
while its real value was about 10 millions.
The co suffered loss

Mr. X
Held : the action was not maintainable. The Judge observed:
“ It was open to the co, on the resolution of a majority of the shareholder to sell the mine at a
price decided by the co in that manner, and it was open to the co by a vote of majority to decide
that if the director by their negligence or error of judgment had sold the co’s mine at under
value, proceeding should not be taken against the directors”.

RULE IN FVH SALMIAH SALLEH 6

ADVANTAGES OF THE RULE
To prevent multiplicity of action over the same matter.
To prevents unnecessary litigation (legal action) by refusing to hear complaints about matters which are in
competence of the general meeting. The court will not waste time by giving orders if they could validly be reversed
shortly afterwards by the general meeting.

RULE IN FVH SALMIAH SALLEH 7

 DISADVANTAGE OF THE RULE
It may produce an unfair or unsatisfactory result. It can be abused to the
detriment of the company as a whole.
There is a possibility the company will not take action as no one to take action on
its behalf especially at the time when the wrongdoer are the one who control the
company. In this situation the controller(wrongdoer) will not take action on
company’s behalf against themselves.
The members particularly the minority are also at a disadvantage. The value of
their investment is affected.
Because of this unfair result, the law provides exceptions to the rule where the
shareholder may be allowed to take action against the wrongdoer for the wrong
done to the company.
There also statutory remedies conferred on members.

RULE IN FVH SALMIAH SALLEH 8

EXCEPTIONS TO THE RULE IN F V H – COMMON LAW
PROTECTION
Fraud on
minority

Infringement of
a member’s
Common law personal rights
exceptions
Acts requiring
special majority

When justice
required
RULE IN FVH SALMIAH SALLEH 9
1. FRAUD ON THE MINORITY
If the actions of the majority constitute a fraud on the
minority and the wrongdoers are in control of the
company, a minority member may bring an action to
enforce the company’s right. (derivative action).
It is a procedural device to enable justice to be done.
The court has discretionary power to disallow action if:
 The minority does not come with ‘clean hand’ or
 Where he has been guilty of an unreasonable delay in bringing
action (Nurcombe v Nurcombe [1985])

RULE IN FVH SALMIAH SALLEH 10

FRAUD?
an abuse of power whereby the majority secures
an unfair gain at the expense of the minority.
Gopal Sri Ram J in Abdul Rahim b Aki’s case:
“it is sufficient for a Plaintiff to show that those
wielding majority control abused the power vested
in them in the sense that they used their power for
a collateral purpose and not for the true purpose
for which such powers were granted”.
S 213- requires a director to exercise his powers for
a proper purpose and in good faith in the best
interest of the company.

RULE IN FVH SALMIAH SALLEH 11

3 THINGS MUST BE SHOWN TO MAINTAIN AN ACTION ON GROUND
OF FRAUD ON THE MINORITY

The majority The benefit was

obtained some obtained at the expense
sort of benefit. of the company or Wrongdoers are in control.
If the wrongdoer that some loss or The majority/wrongdoers
obtains no benefit detriment be caused used their controlling
for himself, to the company. power to prevent an
the minority member If the company action being brought
suffered no loss, against them
is not allowed to
the minority cannot sue. by the company.
maintain an action
on co’s behalf. Prudential Assurance
Regal
Pavlide v Jensen Cook v Deek
Daniel
RULE IN FVH SS 12
 DANIEL

Company Director

2nd Defendant
Sold the land at
below its market value

Minority sued the directors for causing loss to the company.

Held: Templeman J allowed the minority shareholder to maintain the action as the majority
acted in a manner which benefits themselves at the expenses of the company. There was a
fraud on the minority.

RULE IN FVH SALMIAH SALLEH 13

 PAVLIDES

Company 3rd party

Sold the asbestos mine at
Greatly under value
Director

The minority sued the director for negligence causing loss

to the company

Held: it was not open to a minority shareholder to bring an action against the directors
when all that was alleged was negligence. In this case the directors obtained no benefits
to themselves. So no fraud on the minority.

RULE IN FVH SALMIAH SALLEH 14

 COOK V DEEK

Minority Company Contract

Director Director took the contract for their own

benefit and to the exclusion of the
company

Held: a minority could maintain an action against the directors as there

was a fraud on the minority. The directors had benefited at the expense of
the company.

RULE IN FVH SALMIAH SALLEH 15

 REGAL (HASTING) LTD V GULLIVER

Regal Associated
company

Made profit on the sale of shares

Director
Regal itself could not have subscribed for the shares,
which is why the Directors took them up.

Held: no fraud on the minority in this case because the benefit obtained by
director was not at the expense of the company. The company could not have
made the profit itself.

RULE IN FVH SALMIAH SALLEH 16

PRUDENTIAL ASSURANCE CO LTD V NEWMAN INDUSTRIES LTD.

Held: a derivative action on ground of fraud on the minority is unlikely to be allowed unless the wrongdoers are in
actual control of the company and are using their controlling power to prevent the action from being brought by the
company.

RULE IN FVH SALMIAH SALLEH 17

ESMANCO V GREATER LONDON COUNCIL
owned

GLC Agreement between E & GLC:

flats GLC to dispose all the flats

Own all Then GLC decided not to sell

On lease
Voting shares breach of agreement

E vs GLC for specific performance.

Esmanco tenants

One non voting share each Then GLC passed a resolution to

discontinue the action.
Minority sued GLC

Held: the court allowed the action by the minority in the name of E on the ground that there
was fraud on the minority. I.e. the majority prevented the co’s action.

RULE IN FVH SALMIAH SALLEH 18

 2. INFRINGEMENT OF A MEMBER’S PERSONAL RIGHTS

Personal rights attached to shares given to each member by the CA 2016 or by the
company’s constitution, cannot generally be ousted by the rule in F v H.
E.g. S 71 of the CA 2016 gives members rights to attend, participate and speak at the
company’s general meeting.
E.g. S90(4) – rights attached to preference share are spelt out in the company’s
constitution.
If the rights are infringed – the member may take action to enforce his right personally
rather than on the company’s behalf to protect its constitution.

RULE IN FVH SALMIAH SALLEH 19

 PENDER V LUSHINGTON
AOA: members were entitled to vote.
Pender’s vote were disallowed.

Pender vs directors to overturn the disallowances of his vote.

Held upheld his right to bring action and decided that he

come within an exception to the rule of F v H because he
was enforcing a personal right conferred on all members to
have their vote counted.

RULE IN FVH SALMIAH SALLEH 20

 3. ACTS REQUIRING SPECIAL MAJORITY

If the transaction is outside the scope of the constitution(which can only be authorised by
a special resolution) or
if for any other reason it requires a special majority to sanction, non-compliance of this
requirement give a member a right to bring an action.
If the directors act without complying with the special majority requirement, individual
member can sue the directors.

RULE IN FVH SALMIAH SALLEH 21

 EDWARD V HALLIWEL
The constitution of the co : alteration of the contribution of
employed members could only be made by a ballot vote of
members and 2/3 majority obtained.
A delegate meeting passed a resolution increasing the
amount of the contribution without taking a ballot vote of
members and obtaining a 2/3 majority.
2 members sued for a declaration that the alteration by the
delegate meeting was invalid.
The action defended on the basis that the rule in F v H
debarred the members from taking action. This defense was
rejected.
Held: the resolution was invalid and that the right infringed
were individual membership right. Also 2/3 majority
requirement has not been complied with and for that reason,
the rule in F v H did not apply. The individual member can
sue.

RULE IN FVH SALMIAH SALLEH 22

QUINS & AXTENS LTD V SALMON

Constitution – certain contracts must be approved by Salmon and

Axtens. In one transaction, Salmon did not consent. Axtens called a
members’ meeting to pass a resolution to approve the transaction.
Upon application by Salmon, the court granted an injunction to
restrain the company from acting on the members’ resolution.

RULE IN FVH SALMIAH SALLEH 23

 4. WHEN JUSTICE REQUIRED

Court of Appeal in Prudential – doubted this as one of the exception to F v H rule.

Australia in Biala Pty Ltd v Mallina Holding Ltd was strongly in favour of such an exception.

Malaysia – court accepted it as an exception in Abdul Rahim b Aki v Krubong Industrial Park.

The court will allow a member to take action against the wrongdoer where the justice of the case is so requires.

RULE IN FVH SALMIAH SALLEH 24

PROCEDURE IN MINORITY ‘S ACTION UNDER COMMON LAW

It can be either:

Personal action Representative action Derivative action

-the minority seeks to enforce a personal rights

conferred on members individually. If the company
infringed the rights given to the minority in the
company’s constitution.
Pender v Lushington
Brown v British Abrasive Wheel Co
-Is an action brought by one or more persons as
representative of a larger group. All must have
the same interest. The judgment is binding on
all.
Is a civil action brought by a minority in their
own names seeking a remedy for the company
in respect of a wrong done to the company.
However by s 347(3) – derivative action on
behalf of the company has been abrogated.

RULE IN FVH SALMIAH SALLEH 25

SANTAPAN MINDA & ROHANI

MINORITY PROTECTION/SS 26
MINORITY PROTECTION UNDER THE
CA 2016
MINORITY PROTECTION/SS 27
STATUTORY PROTECTION OF A MINORITY – S346

S346(1) - Any member or holder of debenture…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 power of the directors are being
exercised in a manner oppressive to one or more of the members or debenture holder…or
in disregard of his or their interest as members, shareholders or debenture holder; or
b) That some act of the company has been done or is threatened or that some resolution of the
members or debenture holders or any class of them has been passed or is proposed which
unfairly discriminate against or prejudicial to one or more of the members or debenture
holders including himself.

MINORITY PROTECTION/SS 28
WHAT AMOUNT TO OPPRESSION,
DISREGARD, UNFAIRLY DISCRIMINATES OR
PREJUDICIAL?
ARE NOT DEFINED IN THE CA 2016.
REFER CASE LAW.

MINORITY PROTECTION/SS 29
NG CHEE KEONG V NG TEONG KIAT
HIGHLAND PLANTATION
The directors had neglected the tea plantation belonging to the company.
Because of failure to pay the quit rent, there was the danger of the land
being forfeited to the state.
Held: In view of the indifferent attitude of the BOD and the company in
allowing the tea plantation to deteriorate from a profitable concern to one
of near insolvency, together with their conduct in allowing the tea plantation
to be in arrears of quit rent to such an extent that the land has almost
forfeited to the state, it was clearly established that the affairs of the
company were being conducted in an oppressive manner.

MINORITY PROTECTION/SS 30
 SCOTTISH COOPERATION CO V MEYER
Cooperative
society

majority
The purpose is to allow the cooparative society to engage in rayon business.

Later, the majority deliberately run down the subs company as they did not
Subsidiary co need it anymore. The shares becomes useless

Minority/petitioners

Held: the petitioners’ case has been established and the society was ordered to buy out the 2 minority shareholders
shares at a fair value.
Viscount Simonds said –”oppression is established where the majority shareholder exercise his authority in a
burdensome, harsh and wrongful manner to the other members.

MINORITY PROTECTION/SS 31
 RE H. R. HARMER LTD

❑The father still control the running of the biz as if it was his own.
❑Disregard the wishes of the fellow s/holders.
❑Refused to comply with any resolution passed by the board.
❑Impossible for the company to be carried out successfully.
❑Held – oppression had been made out.

MINORITY PROTECTION/SS 32
RE BRIGHT PINE PTY. LTD.
Read…

MINORITY PROTECTION/SS 33
Disagreement about policy or management do no entitle a member to relief under s 181
(equivalent to s 346)- Re Kong Thai sawmills
Mismanagement does not necessarily constitute oppression or disregard of a member’s
interest – Re Five Minute Car Wash Service Ltd.
The act complained of must affect the member in his capacity as a member. –Re Chi Liung
& Son ltd & Re Dundie Bros ltd

MINORITY PROTECTION/SS 34
LORD WILBERFORCE IN RE KONG THAI:
‘Oppression’ – a visible departure from the standard of fair dealing and a violation of
the conditions of fair play.
‘disregard of interest’ – involve 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.

MINORITY PROTECTION/SS 35
OWEN SIM LIANG KHUI V PIASAU JAYA SDN BHD (1996)

 It is important that the act complained of must continue right up to the date of the commencement of
the action (for oppression). The act may be in form of action, omission, inaction; it may even be a single
act of omission.

MINORITY PROTECTION/SS 36
EXAMPLES OF OPPRESSIONS
Withdrawal of substantial funds from the company by the controllers
and deposit it in fixed deposit account in their individual or joint names
– Eric Lau Man Hin v Eramara Jaya Sdn Bhd & Re Kong Thai Sawmill.
Using company’s fund by the controllers to pay for their personal
interest – Low Peng Boon v Low Jenie
Diversion of the company’s business opportunities to related
companies – Kumagai Gumi

MINORITY PROTECTION/SS 37
WHAT IS UNFAIR PREJUDICIAL OR UNFAIR
DISCRIMINATORY?
Prof Gower – no necessity to show ‘actual illegality or invasion of the legal
rights as was postulated for the remedy for oppression.

MINORITY PROTECTION/SS 38
CIRCUMSTANCES OF UNFAIR PREJUDICIAL OR UNFAIR
DISCRIMINATORY.
➢The making of a discriminatory right issue and
taking of excessive management fees out of the
company : Re A Company No 002612.
➢The exclusion of a quasi-partner from the
management of the company: Re Bird Precision
Bellow ltd.
➢The improper allotment of share or the allotment
of shares in breach of pre-emption rights: Re DR
Chemicals Ltd
➢The creation and allotment of invalid share: Re
Nuneaton Borough AFC ltd

MINORITY PROTECTION/SS 39
CIRCUMSTANCES OF UNFAIR PREJUDICIAL OR UNFAIR
DISCRIMINATORY? (CONT)

➢The diverting of business and corporate opportunities away from the

company: Re London School of Electronic Ltd
➢The payment of inadequate dividends: Re Sam Weller & Sons Ltd
➢The alteration of the composition of the subsidiary’s board of directors while
the subsidiary was suing the parent company: Whyte, Petitioner.

MINORITY PROTECTION/SS 40
RE GEE HOE CHAN TRADING CO PTE LTD (1991)
The company made a profit. The directors paid themselves directors’ fees and
salaries and did not recommend appropriate dividend
Held: there was unfair conduct against the minority members.

S132(1) of the CA 2016 – the power to pay dividend is now vested in the directors.
If the directors fails to recommend dividend despite the company making profit; and
instead reward themselves with high director’s fees and salaries, the minority may
seek remedies under s 346.

MINORITY PROTECTION/SS 41
REMEDIES AVAILABLE TO MINORITY MEMBER – S346(2)
Direct or prohibit any act (the
wrongful act)

The court may, cancel or vary any transaction or

with the view resolution which are of oppressive or
to bring an end unfairly discriminatory or prejudicial
or remedy the
matter
Regulate the conduct of the affairs of
complained of, the company in future
make such
orders as the
court thinks fit Order other members or debenture
holders or the company itself to
of. The orders purchase the shares or debentures of
may include: the affected members

order the company to be wound up

MINORITY PROTECTION/SS 42
ADDITIONAL REMEDIES
May also order DAMAGES - The
that the company
cannot make any court may also
further alteration order damages
to the constitution to be paid to
which is the oppressed
inconsistent with member - Koh
the court order Jui Hiong v Ki
unless with prior Tak Sang &
approval of the Anor (2014)
court.

S346(4) – the court

may order alteration
to the company’s
constitution.

MINORITY PROTECTION/SS 43
PROCEEDINGS ON BEHALF OF A COMPANY – S 347
(DERIVATIVE ACTION) – WHO MAY TAKE ACTION?
❑ S 347 – A complainant may, with court leave, bring, intervene in or
defend an action on behalf of the co.
It must be brought in the company’s name.
Right to bring derivative action at common law is abrogated.
❑S 345 ‘Complainant’ means:
 Members of a company or person entitled to be registered as
members.
 Former member – relates to matters he ceased to be member
 Any director of a company; or
 Registrar – for declared company under section 590.
MINORITY PROTECTION/SS 44
‘LEAVE OF COURT’
s348 – an application for leave of the court under s 347 shall be made without the need for a
appearance to be entered.
Must give 30 days notice in writing to directors of intention to apply the leave
Must initiate proceeding in court within 30 days from the grant of the leave.
Matters considered by court before granting the leave for derivative action:
 The complainant acting in good faith; and
 Appears prima facie to be in the best interest of the company.
Any action brought cannot be discontinued , compromise, or settled except with thje leave of the
court. This is to ensure that the complainant is serious in filing and conduction the derivative
action.

MINORITY PROTECTION/SS 45
EFFECT OF RATIFICATION
S 349 – if members of the company, ratify or approve the conduct
of the subject matter of the action, such ratification does not
prevent any person from bringing, intervening in or defending
proceedings with the leave of court.

->Even though the members have approved the oppressive or

unfair discriminatory conduct, the member may still apply for the
leave of the court to take action on behalf of the company. The
ratification has no effect.
MINORITY PROTECTION/SS 46
POWER OF THE COURT
S 350 - When granting the leave for derivative action, the court may make the
following orders:
Authorising the complainant to control the conduct of the proceedings;
Giving directions for the conduct of the proceeding;
For any person to provide assistance and information to the complainant
Requiring the company to pay reasonable legal fees.

MINORITY PROTECTION/SS 47
REMEDIES FOR MEMBERS UNDER THE CA 2016 IN BRIEF

MINORITY PROTECTION/SS 48
SANTAPAN MINDA & ROHANI

MINORITY PROTECTION/SS 49