02(f)-7-03/2016 (W) v 02(f)-7-03/2016 (W) (02(f)-7-03/2016 (W) & 02(f)-8-03/2016 (W))

1 IN THE FEDERAL COURT OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO. 02(f)-7-03/2016 (W) BETWEEN TENGKU DATO’ IBRAHIM PETRA BIN TENGKU INDRA PETRA …APPELLANT AND PETRA PERDANA BERHAD (No. Syarikat: 372113-A) …RESPONDENT [In The Matter of Court of Appeal of Malaysia (Appellate Jurisdiction) Civil Appeal No. W-02(NCC)(W)-736-04/2014 Between Petra Perdana Berhad (No. Syarikat: 372113-A) …Appellant And

1. Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra

2. Wong Fook Heng

3. Tiong Young Kong

4. Lee Mee Jiong …Respondents] [In the Matter of High Court of Malaya at Kuala Lumpur (Commercial Division) Civil Suit No. D-22NCC-1057-2011 Between Petra Perdana Berhad (No. Syarikat: 372113-A) …Plaintiff And

1. Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra

2. Wong Fook Heng

3. Tiong Young Kong

4. Lee Mee Jiong

5. TA Securities Holdings Berhad (No. Syarikat: 14948-M)

6. Yap Hock Heng

7. TA First Credit Sdn Bhd (No. Syarikat: 29009-A) …Defendants] 2 Heard together IN THE FEDERAL COURT OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO. 02(f)-8-03/2016 (W) BETWEEN

1. WONG FOOK HENG

2. TIONG YOUNG KONG …APPELLANTS AND PETRA PERDANA BERHAD (No. Syarikat: 372113-A) …RESPONDENT [In The Matter of Court of Appeal of Malaysia (Appellate Jurisdiction) Civil Appeal No. W-02(NCC)(W)-736-04/2014 Between Petra Perdana Berhad …Appellant And

1. Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra

2. Wong Fook Heng

3. Tiong Young Kong

4. Lee Mee Jiong …Respondents] [In the Matter of High Court of Malaya at Kuala Lumpur (Commercial Division) Civil Suit No. D-22NCC-1057-2011 Between Petra Perdana Berhad …Plaintiff And

1. Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra

2. Wong Fook Heng

3. Tiong Young Kong

4. Lee Mee Jiong dan 3 Lagi …Defendants] 3 Coram: Raus Sharif, CJ Zulkefli Ahmad Makinudin, PCA Zainun Ali, FCJ Azahar Mohamed, FCJ Jeffrey Tan, FCJ JUDGMENT OF THE COURT Introduction [1] These two related appeals emanated from the same action in the High Court of Malaya at Kuala Lumpur (Commercial Division) under Civil Suit No: D-22NCC-1057-2011. These appeals raised important questions in company law on governance and management of a company as between directors, and shareholders in general meetings. Disagreements concerning management and direction of a company have given rise to frequent legal disputes in courts; the present appeals are cases in point. [2] The first appeal, which is Federal Court Civil Appeal No: 02(f)- 7-03/2016 (W) is by Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra (the first defendant in the High Court). The second appeal, which is Federal Court Civil Appeal No: 02(f)-8-03/2016 (W) is by Wong Fook Heng and Tiong Young Kong (the second and third defendants in the High Court). In both appeals, Petra Perdana Berhad (the plaintiff in the High Court), is the respondent. 4 [3] We shall refer to the parties in this judgment as they were cited in the High Court. [4] The subject matter of the dispute between the parties revolved around the issue of the directors’ duties to act in the best interest of the plaintiff in the divestments of the plaintiff’s shareholding in Petra Energy Berhad (“PEB”). [5] PEB was a wholly owned subsidiary of the plaintiff. To that extent, PEB comprised an asset of the plaintiff. PEB was important for the income base of the plaintiff. The Court of Appeal described PEB as the “jewel in the crown” of the plaintiff. [6] In a nutshell, these appeals vitally concern alleged breaches by the directors of the duty owed to the plaintiff in the divestments of the PEB shares. The dispute centred on the purpose for which the divestments in 2009 were actually effected. [7] As a consequence of these divestments, the plaintiff complained that it lost its controlling block of shares in PEB and that PEB ceased to be a subsidiary of the plaintiff. The plaintiff further complained that all the shares so divested eventually ended up in the hands of one Shorefield Resources Sdn Bhd (“Shorefield”), who became the single largest shareholder in PEB. 5 [8] The legal dispute arose when the plaintiff then took issue with these divestments by instituting the High Court action. After a lengthy trial stretching over 23 days, which involved 14 witnesses for both sides, the learned High Court judge dismissed the plaintiff’s claim with costs. Against that decision, the plaintiff proffered an appeal to the Court of Appeal. The Court of Appeal unanimously allowed the appeal and effectively reversed the decision of the High Court. [9] As a result of the Court of Appeal’s decision, the defendants applied for leave to appeal to this Court. This Court thereafter granted the defendants leave to appeal for the determination of several questions of law pertaining to the division of powers between shareholders and directors, the test for breach of director’s duty, and ‘best interest of the company’. [10] Hence, the present appeals before us, which in substance arose from the reversal by the Court of Appeal of the decision of the High Court that essentially concluded that there was no breach by the defendants of their directors’ duties in undertaking the divestments of the plaintiff’s shares in PEB shares. 6 The parties [11] At the material time, the plaintiff was a public listed company whose shares were traded on the Main Board of Bursa Malaysia. The plaintiff was principally an investment holding company. The plaintiff’s group of companies was predominantly an offshore marine services provider for the upstream oil and gas industry, both for the domestic and regional markets. [12] At that material time, PEB, an investment holding company, was also a public listed company whose shares were traded on the Main Board of Bursa Malaysia. PEB was in the business of providing integrated brown field services for the upstream oil and gas industry and specialist services for the petrochemical and general industries in the domestic, regional and international markets. [13] At all material times, the first to third defendants were directors of the plaintiff (unless addressed separately they will be referred to as “the defendants”). In addition to being a director, the first defendant was also the executive chairman of the plaintiff, and its chief executive officer. The first defendant was appointed as a director of the plaintiff in May 2000. The first and third defendants were also directors of PEB. The defendants were removed as directors by members of the plaintiff at an Extraordinary General 7 Meeting (“EGM”) on 4.2.2010. Subsequently, the first defendant’s employment as the chief executive officer of the plaintiff was terminated on 19.3.2010. [14] The second defendant was an independent non-executive director of the plaintiff who was appointed on 27.7.2001 and remained so until his removal on 4.2.2010. He was also the chairman/member of the audit committee until his removal. The third defendant was appointed as an independent non-executive director of the plaintiff on 3.12.2008 and remained so until his removal on 4.2.2010. The facts [15] The plaintiff was formed by the first defendant together with one Henry Kho and Francis Kho (“Kho Brothers”). At all material times, the Kho Brothers and the first defendant held shares in the plaintiff. The arrangements were such that the Kho Brothers did not have representation on the board of directors of the plaintiff but there was a mutual understanding between them that they remained in the day-to-day management of the plaintiff. [16] PEB was listed on Bursa Malaysia on 26.7.2007. Its issued and paid up capital was RM97,500,000.00 comprising 195,000,000 ordinary shares of par value RM0.50 each. The plaintiff owned 8 126,000,000 of the said ordinary shares. This represented approximately 64.62% of the issued and paid up capital of PEB. [17] Prior to that on about 26.2.2007, the board of directors of the plaintiff sought a general mandate from its shareholders for the divestment of up to 19,500,000 ordinary shares in PEB, representing 10% of PEB’s issued and paid up capital, after the PEB listing, for cash. [18] The rationale for seeking such a mandate was to enable the plaintiff to effect divestments of portions of its PEB shares at opportune times, in the event of improving market conditions. Such a mandate would eliminate the need to convene separate general meetings to seek shareholders’ consent, which would reduce expenses and resources. It would enable the plaintiff to raise and obtain monetary funding expeditiously, to repay borrowings of the plaintiff and to repay bonds that had been issued. [19] What happened next was that the shareholders of the plaintiff had at an EGM convened on 26.4.2007 passed an ordinary resolution that a general mandate be given to the plaintiff to amongst others divest up to 19.5 million shares in PEB after its listing on the Main Board of Bursa Malaysia (“the Shareholders’ Divestment Mandate”). 9 [20] The Shareholders’ Divestment Mandate provided, inter alia, that any divestment was to be for cash consideration; that any divestment was subject to the discretion of the board of directors provided that the price shall not be more than 10% discount of the 5-day weighted average market price of the ordinary shares of par value RM0.50 each in PEB preceding the relevant date of the divestment; and that the board of directors would endeavor to secure the best possible price for the PEB shares in the best interest of the plaintiff. [21] The Shareholders’ Divestment Mandate was subject to an announcement by the plaintiff to Bursa Malaysia. This Shareholders’ Divestment Mandate was also renewed on an annual basis by the shareholders of the plaintiff in general meetings and such renewals were also the subject matter of various announcements by the plaintiff to Bursa Malaysia. [22] On or about 10.12.2007, the plaintiff, pursuant to the Shareholders’ Divestment Mandate, divested to Lembaga Tabung Haji a total of 9 million of its ordinary shares held in PEB (“First Divestment”). The First Divestment represented approximately a 4.62% equity stake in PEB. As a result, the plaintiff’s holding in PEB was reduced to 60% from 64.62%. The First Divestment is not an issue in these appeals. 10 [23] Then problems started. A shipbuilder, Shin Yang Shipyard Sdn Bhd informed the board of directors of the plaintiff of its intention to institute legal action for the delayed payment for the vessel, Petra Galaxy. The board was also informed that the plaintiff had exhausted all its internal funds to pay for the deposit for two other vessels. PEB required the vessels to meet the Shell contract. The Shell contract with PEB was valued at RM1.1 billion. The board was concerned about the possible loss of the Shell contract if the vessels were not delivered on time. Evidently, there were insufficient internal funds in the plaintiff to meet such payments. [24] In the circumstances, the board of directors at their meeting on 26.8.2009 resolved to sell a total of 10.5 million (5.38%) PEB shares for cash to meet the cash requirements. The board authorized the first defendant to negotiate and finalise the price and sale of such shares (“August Board Mandate”). [25] It was pursuant to this August Board Mandate that the plaintiff divested 10.5 million ordinary shares in PEB to TA First Credit on 10.9.2009 (“Second Divestment”) thus reducing the plaintiff’s shareholding in PEB to 54.62%. The proceeds of sale, approximately RM16.065 million, were used to pare down bank borrowings. It is important to keep in mind that the Second Divestment was conducted pursuant to the August Board Mandate 11 and not through invocation of the Shareholders’ Divestment Mandate. [26] It is equally important to note that the disposal of the 10.5 million shares did not require shareholders’ approval, as the disposal was below the 25% threshold and did not constitute a disposal of a “substantial portion” of the plaintiff’s assets. This was due to the fact that the share prices had declined by more than 50% in 2009 as compared to the time when the PEB shares was listed in July 2007. Accordingly, no shareholders’ approval was required. [27] A few months later, when it became apparent that the plaintiff was facing financial difficulties and serious cash flow problems, at a board of directors’ meeting of the plaintiff convened on 18.11.2009, it was resolved that the plaintiff divest its remaining 54.62% shareholding in PEB to meet the plaintiff’s cash flow requirements (“November Board Mandate”). The board was informed that the plaintiff suffered a financial loss of RM8.9 million for the third quarter of 2009 for the first time in its corporate history. [28] The board at this meeting on 18.11.2009, collectively agreed that it needed to find ways and means for the plaintiff to stay afloat for the following 12 months pending improvements to market conditions. Various options to raise funds including selling old 12 vessels were considered. However, all the other methods would have taken too long to raise the funds. The sale of all the PEB shares held by the plaintiff at RM1.80 per share could raise a total of RM191 million which would enable the plaintiff to repay its outstanding loan of RM150 million and leave a surplus of RM41 million. Together with an expected sum of RM60 million expected from return of advances from PEB, this would enable the plaintiff to meet the projected shortfall of RM70 million for the period ending December 2010. The figures were based on projections given by one Shamsul bin Saad (“PW1”), one of the plaintiff’s director and Soon Fook Kian (“Soon”), the plaintiff’s finance manager. Accordingly, after long deliberations, it was agreed that selling the PEB shares appeared to be the best option. [29] The first defendant was then tasked by the board of directors of the plaintiff to carry out the disposal exercise. On or about 18.11.2009, the first defendant issued a letter on behalf of the plaintiff to TA Securities appointing TA Securities as an exclusive placement agent of the shares which the plaintiff held in PEB; and requesting that TA Securities carry out a valuation exercise to ascertain the “fair valuation of PEB shares” in question. [30] Pursuant to the “November Board Mandate”, on or about 11.12.2009, the plaintiff sold 48.8 million of its shares in PEB 13 (25.03%) to Shorefield (“Third Divestment”). Shorefield became the controlling shareholder. The Third Divestment did not require prior shareholders’ approval. The sale did not constitute a sale of a “substantial portion of the plaintiff’s property” i.e. more than 25% of the total net assets of the plaintiff. The proceeds of the disposal were utilized to pare down bank borrowings and the gearing ratio of the plaintiff’s group of companies. The disposal resulted in a gain of approximately RM13.7 million for the plaintiffs group of companies. [31] The remaining 29.59% shares in PEB to be divested pursuant to the board of directors’ resolution 18.11.2009 were then deliberated upon at the board of directors’ meeting of 22.12.2009 (“December Board Mandate”). [32] However, the Intended Fourth Divestment of the remaining 29.59% shares in PEB did not take place as PW1 obtained an injunction in Kuala Lumpur High Court Civil Suit No: D-22NCC-735- 2009 restraining such sale of the shares. [33] Meanwhile, from late 2008 to early 2009, the relationship between the Kho Brothers and the first defendant started to deteriorate. The Kho Brothers demanded representation on the plaintiff’s board of directors. As a result, PW1, a nominee of the Kho Brothers, was then appointed as a director of the plaintiff. 14 [34] A corporate power struggle followed between the Kho Brothers and the first defendant. It developed into a more serious dispute and soon led a breakdown in relationship between them. It culminated, as testified by PW1 in his evidence, in both the first defendant and his wife together with the second and third defendants being removed as directors of the plaintiff at an EGM of 4.2.2010. The claim in the High Court [35] The court action in the present case arose as soon as the Kho Brothers having gained control of the board of the plaintiff caused the plaintiff to institute this claim against the defendants and 4 others. The fourth defendant (“Lee Mee Jiong”) who was the executive director of PEB had resigned as a director of PEB sometime on or around 18.6.2010. The suit was settled against the fifth to seventh defendants (who were TA Securities Holdings, Yap Hock Seng and TA First Credit Sdn Bhd). [36] The plaintiff’s claim in the High Court against the defendants was essentially that in causing the plaintiff to undertake the Second Divestment and the Third Divestment, the defendants acted in breach of their statutory duties as set out in section 132(1) of the Companies Act 1965 (the Act); further and/or in the alternative, the second and third defendants dishonestly assisted the first defendant 15 in the various breaches of duty owed by the first defendant to the plaintiff, and were accessories thereto; further and/or in the alternative, the fourth defendant as director of PEB, dishonestly assisted the defendants in the various breaches of duty owed by the defendants to the plaintiff, and was accessory thereto; the defendants and the fourth defendant conspired, whether by lawful and/or unlawful means, to injure the plaintiff vide the Second Divestment and the Third Divestment; as a result of the aforesaid acts or omissions, the plaintiff suffered loss and damage in relation to both the Second Divestment and the Third Divestment; and that the defendants and the other directors in breach of their fiduciary, statutory or common law duties, failed to act in the best interest of the plaintiff and as a result thereof, the plaintiff suffered loss and damage. [37] It is significant to note that there was never any suggestion in the plaintiff’s case that the defendants personally benefitted from the impugned divestments. The defence [38] The defence of the defendants were that in authorizing and effecting the two impugned divestments of shares in PEB they acted at all material times pursuant to the mandates of the board of directors collectively arrived at in August and November 2009. 16 They maintained that they did, at all times act bona fide in the interests of the plaintiff when effecting such divestments, which were duly authorized by the board. In essence, they pointed to the fact that the dominant purpose of such divestments was to meet the urgent liquidity needs of the plaintiff and to alleviate its dire cash flow position for reason that the plaintiff was at the time in a tight liquidity position; there was threatened litigation by creditors, particularly one Shin Yang Shipyard; the plaintiff had, for the first time in its corporate history, made a loss of approximately RM8.9 million in the third quarter of 2009; and the plaintiff was unable to obtain funds expeditiously through other means. [39] The defendants maintained that they duly discharged their fiduciary and statutory duties as directors of the plaintiff with regard to the disputed divestments. They pointed to the fact that they relied on professional advisors in carrying out these transactions. [40] As for the plea of conspiracy, the defendants and the fourth defendant categorically denied the same, maintaining that there was never at any point of time any agreement arrived at between them and/or others to injure the plaintiff. They denied the existence of any scheme designed to injure the plaintiff by causing the divestments of the PEB shares. 17 Decision of the High Court [41] The learned High Court judge found in favour of the defendants; the plaintiff failed to prove its case and the learned High Court judge accordingly dismissed the claim against the defendants. In her 270-page judgment, the learned High Court judge made numerous findings and conclusions of primary facts, which were well summarized by learned counsel for the second and third defendants as follows:

(ii) The first to third defendants did not act on a frolic of their own as the full board had mandated the sale of the PEB shares which authorized the first defendant to carry out the sales;

(iii) The dominant purpose of the sale of the PEB shares was to meet urgent liquidity needs of the plaintiff;

(iv) The board of the plaintiff, including the first to third defendants, had at all material times relied on the senior management of the plaintiff and professional advisers in arriving at the decisions to sell the PEB shares; 18

(vi) There was no evidence that the first to third defendants had in any way or manner benefitted from the sale of the PEB shares;

(vii) The other members of the board of the plaintiff did not object to nor protest against the sale of the PEB shares at all material times. In fact, the proposed sale of the entire 55% shareholding of PEB shares held by the plaintiff was something that was already known to the substantial shareholders of the plaintiff;

(viii) The evidence of the contemporaneous minutes of the board meetings at the relevant and material times showed that there was in fact a dire cash-flow problem in the plaintiff and a need to raise funds on an urgent basis. The minutes of board meetings showed that the cash flow problems were not contrived as claimed by the plaintiff;

(ix) At the material time in 2009, the plaintiff and its subsidiaries were badly affected by the global economic 19 crisis and the plaintiff for the first time was facing financial losses;

(xi) The plaintiff’s claims that the sale of the PEB shares, in particular the Third Divestment, was a contrived sale was devoid of merit. Further, the plaintiff’s pleaded case and claims that the first to third defendants had “masterminded” the sale to Shorefield despite the objections and reluctance of PW1 was baseless. The decision to undertake the Third Divestment was a “considered and collective decision” and supported by Soon;

(xii) The Court, in concluding that the Second and Third Divestments were in fact effected or transacted for a proper purpose, i.e. bona fide in the best interests of the plaintiff in compliance with section 132(1) of the Act 1965, applied the tests laid down in Charterbridge 20 Corpn Ltd v Lloyds Bank Ltd [1970] Ch 2, Howard Smith Ltd v Ampol Petroleum Ltd and Others [1974] A.C. 821 and as set out in Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor and Other Appeals [2012] 3 MLJ 616;

(xiii) With regard to the Third Divestment, the mode of sale of the PEB shares under the Third Divestment was ratified by the board of directors on 22 December 2009 and the actual disposal price was in fact higher than the mandated selling price which resulted in a profit for the plaintiff from the Third Divestment;

(xiv) There was no personal gain to the defendants as a consequence of the Second Divestment and the Third Divestment; and

(xv) The plaintiff ought to have called Soon as a witness and its failure to do so attracted the invoking of section 114(g), Evidence Act 1950. [42] In respect of the Second Divestment, the learned High Court judge made specific findings as follows: “ The rationale for the Second Divestment, namely the need to meet the cash flow or liquidity problems of the Plaintiff, coupled with the demand from Shin Yang Shipyard for payment of the 21 balance purchase price due for the vessel known as Petra Galaxy due to be delivered urgently to Shell to fulfill a contract valued at RM1.1 billion were all genuine concerns and were not ‘contrived’ reasons as suggested by the Plaintiff. In other words these matters were not fabricated or put up by the impugned directors with a view to facilitating the sale of the PEB shares to Shorefield Resources Sdn Bhd. and causing injury to the Plaintiff.” [43] Crucially, with regards to the Third Divestment, the learned High Court judge found: “ With respect to the Third Divestment, it is the finding of this Court that none of the three impugned directors acted in breach of their duties. This is because they were advised by Soon Fook Kian and Shamsul Saad that the cash flow problem for the following twelve months, i.e. 2010 would deteriorate and that the Plaintiff would face serious liquidity problems; The Board of directors of the Plaintiff including the three impugned directors collectively considered all other options and dismissed them after deliberation, concluding that the sale of the entirety of the Plaintiff’s PEB shares was the only means of resolving the cash flow problem which was exacerbated by the fact that the Plaintiff had suffered its first loss in corporate history for that particular quarter.” 22 Decision of the Court of Appeal [44] The plaintiff appealed to the Court of Appeal. The Court of Appeal allowed the plaintiff’s appeal against the defendants and reversed the decision of the High Court. The appeal against the fourth defendant was, however, dismissed. The Court of Appeal found no evidence linking the fourth defendant to any alleged conspiracy, and held that the ingredients of conspiracy had not been made out against the fourth defendant. [45] In finding the defendants liable, the key findings of the Court of Appeal that are relevant to the present appeal were as follows. The Shareholders’ Divestment Mandate of the EGM provided a barometer as to what the shareholders gauged as being the best interests of the plaintiff, and was determinant in examining the defendants’ conduct to ascertain whether they breached section 132(1) of the Act. [46] The Court of Appeal relied on the Singapore High Court case of Credit Development Pte Ltd v IMO Pte Ltd [1993] 2 SLR 370 and held that a shareholders’ resolution carried at a general meeting of the company amounted to “regulations” pursuant to the articles of association of a company. In this regard, the Court of Appeal held that the defendants as directors were obligated to comply with the terms of the Shareholders’ Divestment Mandate as 23 if prescribed by the plaintiff’s articles of association. The Court of Appeal held that such regulations were made by way of extraordinary resolutions at the plaintiff’s EGM and were regulations under article 115 of the plaintiff’s articles of association. [47] The Court of Appeal further held that the purpose of the Second Divestment could not be said to improve the liquidity position of the plaintiff. [48] Further, it was held that the Third Divestment was not bona fide in the best interests of the plaintiff. In so doing, the Court of Appeal referred to the case of Paidiah Genganaidu v The Lower Perak Syndicate Sdn Bhd & Ors [1974] 1 MLJ 220 which decided that shareholders by a majority could decide what was in the best interests of a company. [49] It was also held by the Court of Appeal that contrary to the findings of the High Court that there was no conspiracy to injure the plaintiff, there is, inter alia, an elaborate scheme to ensure that Shorefield acquired a controlling interest of PEB. [50] To complete the facts, in allowing the plaintiff’s appeal the Court of Appeal made the following orders: 24

(ii) A declaration that the second defendant and/or third defendant, as the then directors of the plaintiff had breached the fiduciary duties and/or and statutory duties and/or duty of care and/or trust obligations to the plaintiff;

(iii) A declaration that the divestment of 10,500,000 ordinary shares of par value RM0.50 each in PEB by the plaintiff to the seventh defendant was not bona fide and/or in the interests of the plaintiff and/or is otherwise a sham;

(iv) A declaration that the divestment of 48,800,000 ordinary shares of par value RM0.50 each in PEB by the plaintiff as conducted by the fifth defendant and/or sixth defendant was not bona fide and/or in the interests of the plaintiff; and

1. Division of Powers Between General Meeting Of Shareholders and Directors

(ii) Whether the Court of Appeal has stated the law correctly as regards the division of powers between the general meeting and the board of directors when it declared that ‘the classical position … has been varied by legislation, for instance section 132(1) of the Act’; as regards the previous position that shareholders by 26 ordinary resolution in general meeting cannot impose their will upon the directors? (Question 2)

(iii) Whether the reading of the new section 132(1) of the Act by the Court of Appeal in the present case is correct in the light of the previous pronouncement by the Court of Appeal in Pioneer Haven Sdn. Bhd. v. Ho Hup Construction Co. Bhd. [2012] 3 MLJ 616 at 654 that ‘for all intents and purposes’ the scope of the directors’ duties under the old section 132(1) and the new section 132(1) ‘are the same’? (Question 3)

(iv) Whether the true position under the changes by Act A1299 amending the Act as regards powers of shareholders on the one hand and that of directors on the other, is as declared in new section 131B that the business of the company ‘must be managed by or under the directions of the board of directors’, and further by section 132(1B) that vests ‘business judgment’ with the directors? (Question 4)

(vi) Whether the Court of Appeal had acted correctly in law in holding that the words “regulations” in article 115 of the plaintiff’s articles of association (taken from article 73 of Table A) refer to “resolutions” passed at a general meeting, and reversing the High Court on that question? (Question 6)

(vii) Whether the board of directors of a company who has been duly authorized by a resolution passed in a general meeting that approved the sale of shares may thereafter act in its best judgment in the interests of the company in the implementation of the resolution? (Question 7)

2. The Test for Breach of Duty of a Director and Acting in the Best Interest of the Company

(viii) Whether the Court of Appeal is correct in law when it adverted to the proposition that ‘the “best interests of the company” is for the majority to decide’ in the light of the Charterbridge Principle (Charterbridge Corpn 28 Ltd v Lloyds Bank Ltd [1970] Ch 62, 74), adopted by the Court of Appeal in the Pioneer Haven Sdn. Bhd. v. Ho Hup Construction Co. Bhd (supra) that the test is what a reasonable board could consider to be within the interests of the company? (Question 8)

(ix) Is the statutory business judgment rule as provided under section 132(1B) of the Act that as stated in Howard Smith Ltd v Ampol Ltd [1974] AC 821? (Question 9)

(xi) Whether the principle adopted by the former Supreme Court in Paidiah Genganaidu v The Lower Perak Syndicate Sdn Bhd & Ors (supra) that ‘what is beneficial to the company as a whole is usually for the shareholders to decide’ is any longer applicable in deciding whether a director has acted ‘in the best interest of a company’ pursuant to the changes by the 29 new section 131B and section 132 of the Act? (Question 11)

(xii) Whether in determining if a director had acted ‘in the best interest of the company’ the director is bound to take into account and apply the majority view of the shareholders as displayed by the passing of an ordinary resolution in general meeting? (Question 12)

3. Conspiracy to Injure

(xiii) Whether in the context of corporations law, a finding of conspiracy to injure on the part of the board of directors of a company can be made in the absence of common intent or actual injury to the company? (Question 13)

(xiv) Whether the law of conspiracy could apply to a collective decision of the board of directors of a company making a commercial decision? (Question 14)

4. Section 354 of the Act

(xv) Whether the Court of Appeal erred in failing to consider the application of section 354 of the Act in the absence of any finding of a personal gain by the concerned directors of the matters complained of? (Question 15) 30 5. Distinction between Executive and Non-Executive Directors

(xvi) Whether a distinction should be drawn between executive and non-executive directors in circumstances where non-executive directors have limited management functions and played a limited role in executing the impugned decisions made collectively by the board of directors? (Question 16)

(xvii) In regard to alleged breaches of fiduciary duties and in cases of collective decision-making by the board, whether the same yardstick is applicable to executive directors in management and non-executive directors not in management? (Question 17)

(xviii) Whether a finding that the board of directors (“Board”) of a company had acted against the interest of a company can ipso facto lead to a finding of conspiracy by the board against the company? (Question 18) [52] It must be noted that this Court granted leave to appeal to the first, second and third defendants to appeal on the legal issues posed under Questions 1-15. Specifically for the second and third 31 defendants, this Court allowed the legal issues posed under Questions 16-18. The dominant purpose of selling the PEB shares [53] Before turning to the legal questions posed in the present appeals, it is very important that at the very outset we should deal with the pivotal issue that revolves around the following primary factual question: Why did the board of the plaintiff undertake the sale of the PEB shares in the Second Divestment and Third Divestment? This was one of the central issues in the proceedings in the Courts below. The answer to the pivotal question is crucial when we consider the approved leave questions. In the final analysis, the potential liability of the defendants, to a large extent, turns on the resolution of the pivotal question. [54] The defendants’ case in principle was that the divestments were undertaken pursuant to a genuine need to address urgent cash flow problems caused by a downturn in business of the plaintiff. On the other hand, the plaintiff took the position that the cash-flow problem was not genuine. It was a material part of the plaintiff’s case that the ulterior motive was not to resolve any cash-flow problem but to dispose off PEB to Shorefield under a conspiracy contrived by the defendants. 32 [55] Put simply, it was either a genuine cash-flow problem warranting the divestments to create liquidity or a conspiracy to divest the PEB shares to Shorefield. It was one or the other. The question is one of evidence. To a very large extent, the determination of this primary fact involved an assessment and evaluation of the credibility of the oral and documentary evidence presented by all parties at the trial. [56] As we have seen earlier, the Courts below came to different findings. [57] Principally, the learned High Court judge held that the plaintiff was faced with acute cash-flow problems and high-geared borrowings that justified the sale of the said shares to restore its liquidity condition and that the defendants acted in the best interest of the plaintiff. [58] The Court of Appeal, on the other hand, took a contrary view. In essence, it held that the defendants acted in bad faith and engaged in an elaborate scheme or conspiracy to pass the shares in PEB to Shorefield. [59] In the circumstances, one of the key questions for us to determine is which of the Courts below came to the right decision. 33 To answer this, we have to carefully scrutinize the evidence and the judgments of both Courts. [60] Before us, learned counsel for the plaintiff strongly contended that these two divestments were executed by the defendants based on contrived and false reasons that resulted in the plaintiff’s 64.62% stake in PEB being reduced to only 29.59% and in the plaintiff ceasing to be the controlling or even the largest shareholder in PEB. His contentions could be summarized as follows. The divestments were in favour of Shorefield, a company controlled by one Datuk Bustari, who was linked to the first defendant; Shorefield became the largest and controlling shareholder of PEB but had not to make a mandatory general offer as its shareholding did not breach the 33% trigger. The Second and Third Divestments were in breach of the terms of an express Shareholders’ Divestment Mandate of the plaintiff which was given at an EGM in conjunction with the approval for listing of PEB to sell only up to 10% of the plaintiff’s 64.62% stake (thereby leaving not less than 54.62%) as well as 2 subsequent AGMs (by way of renewal). The Third Divestment was also in breach of an express board mandate given at a board meeting on the 18.11.2009 as the remaining 54.62% of PEB shares should be sold en bloc. An en bloc sale would have required the purchaser to mount a mandatory general offer and for 34 the sale to be put to shareholders of the plaintiff for approval under section 132C of the Act. Both these requirements were evaded when the defendants sold in tranches to Shorefield. He went on to say that in causing the plaintiff to undertake the Second and Third Divestments, the defendants were not acting in the best interests of the plaintiff. The defendants acted in breach of their fiduciary, statutory and common law duties as directors of the plaintiff with the purpose of divesting a controlling block of PEB shares to Shorefield. In short, according to learned counsel, the sales were obviously “cooked-up” to justify the quick sale to Shorefield. [61] We find ourselves unpersuaded by learned counsel’s contentions. There are several reasons why we find these arguments unsustainable. In the first place, it is material to point out that in determining the dominant purpose of the Second and Third Divestments, the learned High Court judge placed reliance on the contemporaneous documents, including the board of directors’ minutes; the learned High Court judge did not rely solely on oral evidence on the pivotal question. [62] A scrutiny of the contemporaneous documents on record revealed that the decisions to sell the PEB shares were made, collectively and unanimously, at all material times by all members of the board of directors of the plaintiff present at the board meetings 35 concerned. The evidence was compelling. These documents also disclosed the board of the plaintiff, including the defendants, had at all material times relied on the advice of senior management of the plaintiff and professional advisers in arriving at the decisions to sell the PEB shares. These were important documents that the Court of Appeal failed to consider when deciding the key issue of the dominant purpose of the divestments of the PEB shares. In this regard, the learned High Court judge thus explained the importance of the contemporaneous board’s minutes: “This is necessary because, in order for the Court to assess and adjudicate upon the directors’ real purpose or rationale for deciding to sell the shares in PEB during the latter half of 2009, consideration will have to be given to the chronology of events and the state of affairs of the Plaintiff both prior to and during the period when these transactions were undertaken. In this context, the most useful available and objective evidence comprises the minutes of meetings of the board of directors during this period. The minutes of meetings relied upon are all confirmed as correct by the Chairman as well as the rest of the directors, and as such comprise evidence of the proceedings and resolutions arrived at those meetings, unless the contrary is proven.” [63] A point to note in this case is that substantial relevant evidence was reduced to writing. As observed by the learned High 36 Court judge, “the minutes form a valuable and objective study of the proceedings of the plaintiff at the material time. Matters as encompassed in the minutes of meeting, in conjunction with these other documented events, are therefore directly relevant and assist the Court to ascertain the rationale or purpose underlying the decision to sell the subject PEB shares vide the Second and Third Divestments”. One could see the force of the learned High Court judge’s reasoning. Given that this was a “document-heavy dispute”, the learned High Court judge was entitled to make her decision, among others, based on those contemporaneous documentary evidence produced at the trial (see Len Min Kong v United Malayan Banking Corp Bhd and another appeal [1998] 2 MLJ 478, Eastern & Oriental Hotel (1951) Sdn Bhd v Ellarious George Fernandez & Anor [1989] 1 MLJ 35 and Syarikat Kemajuan Timbermine Sdn Bhd v. Kerajaan Negeri Kelantan Darul Naim [2015] 2 CLJ 1037). In our judgment, the learned High Court judge was properly guided by these principles and we find no error in her reasoning. [64] It also bears noting that the learned High Court judge also heard a tape recording that was tendered by the plaintiff of a crucial board meeting on 18.11.2009 (pertaining to the Third Divestment). This was ever more important where the learned High Court judge 37 found that the recording did not at all match the plaintiff’s version of events as narrated by PW1 in his testimony. PW1 was the plaintiff’s principal witness to prove a conspiracy to sell PEB shares and to dispute the defendants’ case that the sale of the PEB shares was necessary to resolve the cash-flow problems. Instead the tape recording revealed that the decision to sell the remaining PEB shares held by the plaintiff was reached after careful consideration of various options to raise funds and long deliberations. PW1, who was one of the directors of the plaintiff at the material time, gave approval to the sale but later sought to deny it at trial. The Court of Appeal should have directed its mind to this tape recording evidence when testing the credibility of PW1. The Court of Appeal missed this important evidence and did not judicially appreciate that significant evidence on record. [65] On what constitutes judicial appreciation, we refer to the case of Lee Ing Chin @ Lee Teck Seng & Ors v Gan Yook Chin & Anor [2003] 2 MLJ 97, where the Court of Appeal said: “A judge who is required to adjudicate upon a dispute must arrive at his decision on an issue of fact by assessing, weighing and, for good reasons, either accepting or rejecting the whole or any part of the evidence placed before him. He must, when deciding whether to accept or to reject the evidence of a witness, test it 38 against relevant criteria. Thus, he must take into account the presence or absence of any motive that a witness may have in giving his evidence. If there are contemporary documents, then he must test the oral evidence of a witness against these. He must also test the evidence of a particular witness against the probabilities of the case. A trier of fact who makes findings based purely upon the demeanour of a witness without undertaking a critical analysis of that witness’ evidence runs the risk of having his findings corrected on appeal. It does not matter whether the issue for decision is one that arises in a civil or criminal case: the approach to judicial appreciation of evidence is the same.” [66] It is not without significance to bear in mind that PW1 himself took part in making the collective decisions complained of by the plaintiff. On this important issue, the High Court made the following important findings: “The audio recording of the meeting of 18 November 2009, which I heard in its entirety is otherwise than as represented by Shamsul. It is evident after hearing the audio recording which is consonant with the minutes of the meeting, that contrary to what Shamsul stated under oath in Court, he had in fact fully supported and agreed with the decision made by the Board collectively, that it had no option but to sell the entirety of the PEB shares to meet the Plaintiff’s austere cash flow problem. At no point in time during the meeting did Shamsul express reluctance, far less 39 object to the proposal. The audio recording which provides contemporaneous proof of what was said in the meeting and which was introduced into evidence by the Plaintiff, discloses that Shamsul was entirely in agreement with the views of the Board, after presentations had been made by both himself in relation to operations and Soon Fook Kian in relation to cash flow simulations. The matter of cash flow had to be dealt with urgently in view of the losses suffered by the Plaintiff for the first time in its corporate history.” [67] We entirely agree with all the reasons given by the learned High Court judge. Indeed, the learned High Court judge had in mind and was guided by the correct principles in testing the veracity of oral evidence by reference to the contemporary documentary evidence and the probabilities of the case. As explained by Chang Min Tat FJ in Tindok Besar Estate Sdn Bhd v. Tinjar Co [1979] 1 LNS 119; [1979] 2 MLJ 229, “For myself, I would with respect feel somewhat safer to refer to and rely on the acts and deeds of a witness which are contemporaneous with the event and to draw the reasonable inferences from them than to believe his subsequent recollection or version of it, particularly if he is a witness with a purpose of his own to serve and if it did not account for the statements in his documents and writings. Judicial reception of evidence requires that the oral evidence be critically tested against 40 the whole of the other evidence and the circumstances of the case. Plausibility should never be mistaken for veracity”. (See also Eastern & Oriental Hotel (1951) Sdn Bhd v Ellarious George Fernandez & Anor [1989] 1 MLJ 35 and Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 CLJ 453). [68] The learned High Court judge also highlighted numerous instances of inconsistencies and lack of probity in the evidence of PW1. The learned High Court judge also, upon evaluation of the evidence of PW1, found that PW1 was “less than candid”, was an “unreliable witness”, “misleading”, “deliberately unhelpful” and “evasive in the course of cross-examination”, among others. It was the conclusion of the High Court that PW1 was an untruthful and misleading witness. At another place of her judgment, the learned High Court judge observed: “When all of this evidence is considered it is clear that Shamsul’s evidence in Court on this issue, particularly examination in chief, was unreliable and misleading. In fact the brevity of his evidence on the discussion of matters on 18 November 2009 appears to amount to a deliberate attempt to conceal/suppress salient and significant matters. In this context I refer to the extensive discussion of the cash flow problem as evidenced by both the minutes of 18 November 2009 as well as the audio tape recording of 18 November 2009.” 41 [69] The learned High Court judge’s finding and conclusion was based on the veracity of PW1 who testified before her. In the assessment of witnesses for either side, the settled principle is that a trial court is entitled to evaluate the credibility of the witness and determine if one set of witnesses is to be believed in preference to the other; unless the trial court has misdirected itself on the evidence, the fact that the trial court has the advantage of seeing and observing the witnesses would be given great weight. [70] In cases such as the present, an appellate court has to take into account the advantages enjoyed by the trial court in hearing and seeing the witnesses. In Watt or Thomas v Thomas [1947] AC 484, Lord Thankerton said, “Where a question of fact has been tried by a judge without a jury, and there is no question of misdirection of himself by the judge, an appellate court which is disposed to come to a different conclusion on the printed evidence, should not do so unless it is satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge’s conclusion”. (See also Privy Council in Choo Ah Pat v Chow Yee Wah & Anor [1974] 1 MLJ 62, PC, Lee Soh Hua v Kow Lup Piow [1984] 2 MLJ 101 and also Ming Holdings (M) Sdn Bhd v Yusof Latif Holdings [2006] 4 MLJ 189). 42 [71] In the instant case, the learned High Court judge was perfectly entitled to weigh and evaluate the credibility of PW1 and to conclude that PW1 was an untruthful witness. As such, the integrity and veracity of PW1 was doubtful. A fundamental error by the Court of Appeal was to ignore the established principle. The Court of Appeal had not shown how and where the learned High Court judge erred in her findings of fact and applied wrong principles of law, if any. [72] The High Court also took into account the role played by the plaintiff’s senior management, in particular the person in charge of finances, Soon, who advised the board of directors that the plaintiff’s cash flow as ‘very tight' and that the plaintiff had no surplus cash to pay its financial obligations. It was the finding of the learned High Court judge that the operations and day-to-day running of the plaintiff required significant input from Soon, the then finance manager of the plaintiff. [73] In point of fact, as found by the High Court from the board minutes of 18.11.2009 and the audio-recording that the trial judge personally heard, Soon gave projected analysis of the plaintiff’s position on the sales of all the PEB shares. This was what the learned High Court judge concluded: 43 “117. Tengku Ibrahim then summarized the position by stating that it appeared that the sale of the PEB shares appeared to be the best option. All of the Board members, including Shamsul agreed in principle to the sale of the entirety of the PEB shares. It is significant and pertinent that Mr. Soon supported this proposed course of action by highlighting that the objective would be defeated if the Plaintiff only chose to sell 30% or 40% of the Plaintiff’s holdings in PEB shares.” [74] Despite Soon’s prominent role, still the plaintiff did not call him as a witness to support its case of the defendants’ conspiracy to dispose of the PEB shares as opposed to a sale to alleviate the plaintiff’s cash-flow problem. In the circumstances, the learned High Court judge found that if Soon had been called as a witness, his evidence would have been detrimental to the plaintiff’s case. The learned High Court judge concluded: “Given these circumstances, the failure to call such a material and key witness can only warrant the irresistible inference that Soon Fook Kian’s evidence, if he had been called, would have been detrimental to the Plaintiff’s case. As such, this Court takes the view that this is a fit and proper case to invoke section 114(g) of the Evidence Act 1950, and hereby does so. 44

249. It is for the Plaintiff and not the Defendants to call Soon Fook Kian because it is the Plaintiff who alleges, contrary to the documentary evidence available in the form of the objective minutes of meetings, that the cash flow problem was a sham or contrived. The onus of establishing that the cash flow problem was a sham or contrived therefore fell upon the Plaintiff, not the Defendants.” [75] Given the key role that Soon played in advising the board of its financial position and of the options available to resolve its cash-flow problems, we accept that the learned High Court judge had little choice but to draw an adverse inference against the plaintiff as the onus of establishing the plaintiff’s case on conspiracy and that the cash flow problem of the plaintiff was a sham, fell upon the plaintiff. [76] The statutory basis for the drawing of an adverse inference is section 114(g) of the Evidence Act 1950 which provides that the Court may presume that evidence which could be and is not produced would if produced be unfavourable to the person who withholds it. As such, the learned High Court judge was wholly justified to conclude that if Soon had been called as a witness, his evidence would have been detrimental to the plaintiff’s case. 45 [77] What is even more patent is that in her judgment, the learned High Court judge explicitly directed her mind to the plaintiff’s case that the sale of the PEB shares were undertaken for the purpose of injuring the plaintiff and benefitting Shorefield in which Datuk Bustari was the principal shareholder, pursuant to a conspiracy hatched by the defendants. The learned High Court judge’s finding in respect of the issue of conspiracy was critical to the plaintiff’s case. [78] It must be noted that the only witness called by the plaintiff to establish its case on conspiracy was PW1, whom, as we have discussed earlier, the learned High Court judge found unequivocally to be untruthful and evasive; thus his evidence could not be relied upon. The learned High Court judge specifically found that his evidence certainly could not be relied upon to warrant a conclusion or inference that the defendants were ‘scheming’ to sell the shares to the detriment of the plaintiff. For that reason, as we pointed out earlier, Soon’s absence as a witness was detrimental to the plaintiff’s case of a conspiracy to divert the PEB shares to Shorefield and Datuk Bustari. [79] The learned High Court judge made it clear that upon perusal of the entire voluminous documents that were tendered in the trial and evaluation of the evidence of all the witnesses, she held that there was insufficient evidence to show that the dominant reason for 46 the sales of the shares was to divert the shares to Shorefield. The High Court specifically rejected plaintiff’s case that the defendants acted in bad faith or engaged in a scheme or conspiracy to pass the shares in PEB to Shorefield. In the words of the learned High Court judge: “When however the evidence is considered in its totality it appears to this Court that the Plaintiff has sought to piece together these various isolated events and suggest that cumulatively they show a conspiracy on the part of these directors in relation to the sale of the PEB shares. The Plaintiff has failed however to produce any independent evidence of this fact by for example calling salient witnesses such as Soon Fook Kian, Henry Kho, Francis Kho and Datuk Bustari Yusof. Instead the Plaintiff has produced what in effect is only one witness of fact whose credibility is very much in issue as I have stated throughout this judgment. The Plaintiff has sought to establish its case through the cross-examination of the impugned directors together with a piecing together of various circumstantial evidence, which is both unsatisfactory and untenable.” [80] In our opinion, there was failure on the part of the Court of Appeal to appreciate that the plaintiff’s entire case of conspiracy rested on the premise that there was no real cash-flow problem and that the defendants created it. The High Court found as a fact on 47 an exhaustive analysis of the evidence both oral and documentary that in 2009 the company faced a genuine cash-flow problem with only RM2 million in cash available necessitating the divestments to create liquidity. In view of the High Court’s finding, the Court of Appeal should have concluded that the plaintiff’s case, that there was no real cash-flow problem and that the defendants created it, must fail. The failure to appreciate the High Court’s findings led the Court of Appeal into error. [81] Another matter that must be noted is that the Court of Appeal made reference to the fact that there was some personal relationship between the first defendant and Datuk Bustari. This would appear to have influenced the decision of the Court of Appeal in reversing the findings of facts by the High Court. In our opinion, the alleged family connection was too remote to be of any significance. As aptly described by learned counsel for the first defendant, such a relationship “is tenuous at best”. It was predicated on the marriage of an unidentified nephew of the first defendant to a family member of one Tan Sri Mohd Kamal. It happened that Tan Sri Mohd Kamal’s son was married to Datuk Bustari’s daughter. In this regard, it is also important to note that it was not shown that Tan Sri Mohd Kamal had any link or connection to the parties in dispute. None of these parties were called as 48 witnesses in the trial. In the absence of immediate family members of the first defendant, like his own children, and Datuk Bustari being related by marriage, this allegation, in our opinion, could only be considered as something trivial. [82] For that reason, it was wholly speculative of the Court of Appeal to conclude via a transaction of this nature involving legal and professional advisors that “Shorefield Resources was linked to the first defendant through Datuk Bustari”. [83] As to the point raised by learned counsel for the plaintiff that the Third Divestment was not disposed of en bloc as mandated by the directors’ resolution, the first defendant in his testimony explained, which was accepted by the learned High Court judge, that the disposal of the shares in two tranches was advised by Affin Investment Bank Berhad for commercial reasons to meet urgent liquidity needs and to obtain the minimum stated price. The PEB shares could not be sold en bloc due to poor market conditions at the material time. An en bloc sale of the plaintiff’s entire PEB shareholding would not have been commercially viable as the same would have also triggered a General Offer, and this could discourage potential buyers. An en bloc sale was also impractical, as PEB’s main customer, Petronas, required certain bumiputera quota to be met by PEB. Petronas was a major client of PEB and 49 had in place a policy that it would only engage with companies with a bumiputera majority shareholding. Moreover, an open tender sale could not have been done, as it would have been a tedious and costly process, hence defeating the purpose of raising cash on an urgent basis. For this reason, in our opinion, the point raised by learned counsel was not well founded. [84] The essential point is that the learned High Court judge found that the Third Divestment made a profit of RM13.7 million for the plaintiff. If the second tranche of shares had been sold, the plaintiff would have made a profit of RM103 million, which would have improved the cash flow position of the plaintiff until December 2010 as envisaged. The intended Fourth Divestment was scuttled by the ex-parte injunction obtained by PW1 on his own, and such that the mandate could not be fully carried out by the first defendant. As observed by the learned High Court judge, had the first defendant been able to carry out the mandate in its entirety, the plaintiff would have made a more significant profit. However, this was prevented by the injunction obtained by PW1. [85] It is significant that the decision to sell the PEB shares was independently made by the directors after making an independent assessment of the professional advice. Prior to the Third Divestment, the following steps had been taken. Legal advice was 50 sought from Messrs Chris Koh & Chew on 19.11.2009 pertaining to the mechanism to be undertaken for the entire disposal of the plaintiffs PEB shares and whether an immediate announcement was required; professional advice was sought from Affin Investment Bank on 20.11.2009 pertaining to methods to raise funds to alleviate the plaintiff’s financial difficulties. Affin Investment Bank then advised that the same could be achieved via a one-time disposal of the plaintiff’s entire shareholding in PEB or through a staggered disposal in two tranches; and professional advice was also received from TA Securities Holdings Bhd on 23.11.2009 who advised that the sale be conducted in two stages, i.e. first involving shares which did not require shareholders’ approval and secondly the remaining shares which would require such approval. There were also no evidence or even suggestion of collusion between the defendants and the professionals who advised them. In this connection, section 132(1C) of the Act provides that a director, in exercising his duties as a director may rely on information, professional or expert advice, opinions, reports or statements. [86] As to the findings of the Court of Appeal that PEB was the “jewel in the crown” of the plaintiff, based on the evidence on record, we agree with the submission of learned counsel for the second and third defendants that the term was an incorrect notion 51 as PEB’s 2009 and 2010 net profits had declined at an alarming rate since its listing in 2007. This could be seen from a perusal of PEB’s Annual Reports for the years 2007 to 2010 wherein the profits declined from RM50.918 million in 2007, to RM42.64 million in 2008, to RM14.49 million in 2009, and to RM2.68 million in 2010. PEB only contributed a dividend income of approximately RM2.34 million (in contrast to the total contribution of approximately RM101 million and RM34.6 million from the core business of marine vessels charter of the plaintiff group) to the plaintiff for the financial year ending 2008 and 2009. [87] We return to the pivotal question. How, then, did the Court of Appeal come to a different conclusion? The answer is that in reversing the findings of fact by the learned High Court judge, the Court of Appeal held that the High Court failed to examine 3 factors: the loss of PEB as a subsidiary and its implications; the cash flow problems and that only the bank got paid; and that Shorefield benefitted because of the alleged link to Datuk Bustari. The Court of Appeal justified appellate intervention in the following passages of its judgment: “In our present case, the learned judge should have examined the conduct of the board of directors to determine whether they had satisfied the duty imposed on them in law in terms of their conduct 52 that has been referred to in this case. We are of the view the board of the directors had failed to give consideration to the following facts: a) To consider and take into account that the Second and Third Divestment of shares in PEB led to the plaintiff ceasing to be the majority shareholder of PEB, which was a loss of substantial income for the plaintiff. b) To weigh the need to raise funds by sale of these PEB shares would not improve (at all) the liquidity position of the plaintiff. All it did was to settle the bond holders. On the other hand the plaintiff had lost a valuable investment in PEB as the plaintiff no longer controlled PEB. c) At the end of the day the beneficiary of the scheme referred to the aforesaid was Shorefield Resources which was linked to the 1st defendant through Dato’ Bustari. In our view these are the factors that should have been considered by the court before it could hold that all these were done in the best interest of the plaintiff. To our mind, failure to do so, constitutes a misdirection in law and fact on the part of the learned trial Judge which warrants appellate intervention.” [88] Was the Court of Appeal correct in reversing the High Court based on the 3 factors? Before us, in responding to the contentions of learned counsel for the plaintiff that the above findings by the Court of Appeal were clearly justified and correct, learned counsel for the first defendant carefully took us through the lengthy 53 judgment of the learned High Court judge. He brought to our attention the relevant parts of the judgment of the High Court to show that as a matter of fact the High Court had examined the 3 factors adverted to by the Court of Appeal. He then contended that the Court of Appeal misapprehended the terms of the judgment of the High Court in arriving at the above conclusion. [89] We accept the submission of learned counsel for the first defendant. We have read the judgment of the learned High Court judge, in respect of which the material parts we have highlighted and discussed earlier. The Court of Appeal’s findings to justify appellate intervention on the basis of the 3 factors were fundamentally incorrect. In our opinion, the Court of Appeal’s finding was a mistaken reading of the judgment of the High Court. The criticism made by the Court of Appeal of the High Court was therefore not sustainable. [90] Contrary to the findings of the Court of Appeal, the learned High Court judge in her comprehensive judgment had sufficiently analysed and dealt with utmost care the conduct of the defendants and also every point raised by the plaintiff in support of its case, including the 3 factors, and rejected them largely on evidential grounds that it failed to make out its case of a conspiratorial scheme to sell-off the PEB shares. 54 [91] That being the case, the underlying basis for the Court of Appeal to justify its appellate intervention was wholly misconceived and untenable. This was a further fundamental error made by the Court of Appeal leading to its flawed finding that there was misdirection in law and fact on the part of the learned High Court judge. It was this erroneous approach to the case that resulted in miscarriage of justice. [92] The learned High Court judge had performed her task commendably in undertaking an in-depth and careful analysis of all the issues leading to the divestments of PEB shares. The learned High Court judge had carefully and anxiously considered the entirety of the evidence on this issue. The judgment of the learned High Court judge revealed that after perusing with a fine toothcomb the voluminous documents tendered at the trial and evaluating the evidence of the witnesses, she concluded that there was no breach by the defendants of their directors’ duties of the sale. The learned High Court judge held that the main purpose of the sale of the PEB shares was to meet urgent liquidity needs of the plaintiff due to genuine cash flow problems that the plaintiff faced at the material time. 55 [93] On the facts of this case read as a whole, we could not agree more with the learned High Court judge’s conclusions on the above primary facts. We could not find any appealable error in her conclusions. In our judgment, the findings were clearly justified and correct based on the totality of the oral evidence read along with the contemporaneous documentary evidence led at trial before the High Court. We have, for that reason, reached the clear conclusion, first, that the Second and Third divestment of the PEB shares were undertaken to address genuine urgent cash flow problems caused by a downturn in business of the plaintiff, and secondly that there was no conspiracy contrived by the defendants to injure the plaintiff by the sale of the PEB shares. [94] The law is clear and well settled in that the principle on which an appellate court could interfere with findings of fact by the trial court is “the plainly wrong test” principle; see the Federal Court in Gan Yook Chin (P) & Anor v. Lee Ing Chin @ Lee Teck Seng & Ors [2005] 2 MLJ 1, UEM Group Bhd v. Genisys Integrated Engineers Pte Ltd & Anor [2010] 9 CLJ 785, In re B (A Child) (Care Proceedings: Threshold Criteria) [2013] 1WLR 1911; and Dream Property Sdn Bhd v Atlas Housing Sdn Bhd [2015] 2 CLJ 453). This Court has said this before, and we adhere to it now. 56 Having regard to the above principle, we find that in the present case the Court of Appeal made no findings that the High Court had gone plainly wrong, let alone that on a reconsideration of the whole evidence the opposite conclusion should be reached. [95] In McGraddie v McGraddie and another [2013] 1 WLR 2477, the United Kingdom Supreme Court held that an appellate court should not interfere with the trial court’s conclusions on primary facts unless it was satisfied that the court was plainly wrong; that the reasons justifying that approach were not limited to the fact that the trial judge was in a privileged position to assess the credibility of witnesses’ evidence, but also included the fact that trial judges possessed expertise in determining issues of fact, that duplication of the trial judge’s efforts on appeal was undesirable. [96] In McGraddie, the Supreme Court referred to the judgment of the majority of the Canadian Supreme Court in Housen v Nikolaisen [2002] 2 SCR 235, which explained why appellate courts are not in a favourable position to assess and determine factual matters: “appeals are telescopic in nature, focusing narrowly on particular issues as opposed to viewing the case as a whole.” [97] Recently in Henderson v Foxworth Investments Ltd and another [2014] 1 WLR 2600, the United Kingdom Supreme Court 57 held that in the absence of some other identifiable error, such as a material error of law or the making of a critical factual finding which had no basis in the evidence, an appellate court should not interfere with the factual findings of a trial judge unless it was satisfied that the decision of the trial judge was ‘plainly wrong’ in the sense that it could not reasonably be explained or justified and so was one which no reasonable judge could have reached; and that if the appellate court was not satisfied that the decision came within that category it was irrelevant that, with whatever degree of certainty, it considered that it would have reached a different conclusion from the trial judge. [98] Coming back to the present case, the Court of Appeal did not undertake the appropriate review exercise and further, did not make the appropriate determination that the High Court had gone plainly wrong in its decision, in the sense that it could not reasonably be explained or justified and so was one which no reasonable judge could have reached. [99] The Court of Appeal had reversed the overall conclusions on primary facts of the learned High Court judge without impeaching findings of fact by the High Court on the existence of a cash-flow problem in the plaintiff. The Court of Appeal did not impeach the learned High Court judge’s analysis of the evidence on the pivotal 58 issue of “dominant purpose” and “conspiracy” and other critical matters in the dispute between the parties. [100] The Court of Appeal failed to appreciate that as an appellate court it should not interfere with the learned High Court judge’s conclusions on primary facts unless it was satisfied that the learned High Court judge was plainly wrong. The Court of Appeal erred in arriving at its conclusion without itself identifying why the High Court’s findings were “plainly wrong” on the key issues of the genuineness of a cash-flow problem, of bona fides, or of a dominant purpose or an improper objective on the part of the defendants. [101] In our opinion, a grave fundamental error made by the Court of Appeal was its failure to apply correctly the principles governing the review of findings of fact by appellate courts. This is in itself sufficient to warrant appellate interference on our part on this point. [102] It is against this backdrop, that we now move on to deal with the questions posed in respect of which this Court had granted leave earlier on. We will first deal with the legal issues arising from Questions 1 to 7 together. To a great degree, these questions raised the issue of the true nature of the relationship between the shareholders in general meeting and the board of directors. 59 Division of powers between general meeting and directors [103] A company is an artificial person and has no physical existence. Its legal existence is recognized only by reason of the Act. A company, not being a natural person, cannot act on its own; it can act only through the agency of natural persons. As stated by Cairns L.J in Ferguson v Wilson [1866] L.R. 2 Ch. at p. 89 “the company itself cannot act in its own person, for it has no person”. It is obviously fundamental therefore that somebody must manage it. Basically, the two organs of management of a company are the board of directors and the shareholders in general meeting. It would be theoretically and legally possible for the shareholders of a company in general meeting to exercise all the management powers of the company. General meetings are intended to be the means whereby the shareholders exercise control over the management. Collective decision making by the shareholders is voiced by and large through the exercise of their voting rights in general meeting of the company. [104] Clearly in the modern corporate environment it would not be practicable for day-to-day management to be undertaken by the shareholders in general meeting. A company is a business enterprise. For all intents and purposes, a company is principally a vehicle for doing business with the aim to make profits. The 60 commercial reality is that it would be excessively burdensome for the corporate decision-making process of a company to be made by resolutions of the shareholders in a general meeting. In practice, the board’s primary function is to manage or oversee the conduct and direction of the company’s undertaking and business. But as a company grows in size, the board will unavoidably have to delegate some of its management functions to others, such as professional employees. [105] The Act provides that every registered company must have at least two directors. It also provides what powers are to be performed by the directors. The role and functions of directors have always been difficult to define. Generally, a director performs many roles to manage and direct the business of the company, including the role of an agent in the execution of transactions of sale of the company’s assets. But as stated by Ford’s Principles of Corporations Law (10th Edition at page 211), “Directors are accountable to members, in the sense that they are required to report to members and the members in general meeting have the power to remove them from office”. It is to be noted that particular powers are vested in the general meeting under the Act. For examples: alteration of articles (section 31), reduction of share capital (section 64), and removal of directors of a public company 61 (section 128). In addition, there are specific powers vested in general meeting under schedule 4 Table of the Act which a company may adopt; for instance: election of directors in place of those retiring (art 66), and removal of directors, subject to section 128 of the Act (art 69). [106] At first, as stated in Foss v Harbottle [1843] 67 ER 189, shareholders as contributors of capital were referred to as ‘proprietors assembled in general meetings’; shareholders were treated as the owners of the company. It was at that time arguable that shareholders had the ultimate control over all company matters and the director was then treated merely an agent of the company subject to the control of shareholders (see The Principles of Modern Company Law by LCB Gower, Third Edition at page 136). [107] Hence, in Isle of Wight Railway Company v Tahourdin [1883] 25 Ch.D. 320 C.A, the English Court of Appeal refused an application by the directors of a statutory company for an injunction to restrain the holding of a general meeting, one purpose of which was to appoint a committee to reorganize the management of the company. Cotton L.J. said: 62 “It is a very strong thing indeed to prevent shareholders from holding a meeting of the company, when such a meeting is the only way in which they can interfere, if the majority of them think that the course taken by the directors, in a matter which is intra vires of the directors, is not for the benefit of the company.” [108] But things have changed since the landmark decision of Salomon v A Salomon & Co Ltd [1897] AC 22, where the House of Lords held that once legally incorporated, the company was an independent and separate person with its own rights and liabilities; shareholders are not the owner of the company but they own shares in the legal entity. Participation in the capital did not of itself confer any right to interfere in the management of the company. [109] This new corporate model did not sit well with the notion of the ‘proprietors assembled in general meetings’. Eventually, this led to the gradual erosion of the superior position of the ‘proprietors’ (see Pearlie MC Koh on Company Law, LexisNexis 2009 at page 72). This was shown in a number of cases, which were cited by both learned counsel for the defendants. [110] The starting point is the important 1906 case of Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame [1906] 2 Ch. 34, C.A, where the English Court of Appeal made the statement of principle that made it clear that the division of powers between the 63 board of directors and the company in general meeting depended in the case of registered companies entirely on the construction of the articles of association and that, where powers had been vested in the board, the general meeting could not interfere with their exercise. The directors ceased to be mere agents of the company. In that case, directors of a company refused to carry out a sale agreement to sell the assets of the company resolved upon by the company in general meeting because in their opinion it was not in the best interests of the company. The directors relied for support of their decision on the articles of association, which delegated to them all powers of management. The members argued that the articles were subject to the general rule that agents must obey the directions of their principals. [111] The English Court of Appeal held that the resolution of the general meeting was a nullity and could be ignored; the articles constituted a contract between all the shareholders by which it was agreed that the directors alone should manage. It was further held that the shareholders could not compel the directors to sell the assets according to their wish: “The effect of this resolution, if acted upon, would be to compel the directors to sell the whole of the assets of the company, not on such terms and conditions as they think fit, but upon such 64 terms and conditions as a simple majority of the shareholders think fit. … It seems to me that if a majority of the shareholders can, on a matter which is vested in the directors, overrule the discretion of the directors, there might just as well be no provision at all in the articles as to the removal of the directors by special resolution. Moreover, pressed to its logical conclusion, the result would be that when a majority of the shareholders disagree with the policy of the directors, though they cannot remove the directors except by special resolution, they might carry on the whole of the business of the company as they pleased, and thus, though not be able to remove the directors, overrule every act which the board might otherwise do. It seems to me on the true construction of these articles that the management of the business and the control of the company are vested in the directors, and consequently that the control of the company as to any particular matter, or the management of any particular transaction or any particular part of the business of the company, can only be removed from the board by an alteration of the articles, such alteration of course, requiring a special resolution.” [112] That case was applied by the English Court of Appeal in The Gramophone and Typewriter, Ltd. v Stanley [1908] 2 KB 89 where it examined the statement of principle made in Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame (supra). In this case, G.T., Ltd was an English company, which held all the shares in a German company. For the purposes of income tax 65 liability it became necessary to determine whether the English company’s powers of voting in the directors of the German company gave the English company such control as would make the business of the German company that of the English company for the purposes of taxation. [113] The English Court of Appeal held that the two businesses were in law distinct. On the contention that the English company, as owning all the shares, can control the German company in the sense that the German company must do all that the English company directed, Buckley L.J explained: “…. this again is a misapprehension. This court decided not long since, in Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame, that even a resolution of a numerical majority at a general meeting of the company cannot impose its will upon the directors when the articles have confided to them the control of the company’s affairs. The directors are not servants to obey directions given by the shareholders as individuals; they are not agents appointed by and bound to serve the shareholders as their principals. They are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles. Directors are not, I think, bound to comply with the directions even of all the corporators 66 acting as individuals. Of course the corporators have it in their power by proper resolutions, which would generally be special resolutions, to remove directors who do not act as they desire, but this in no way answers the question here to be considered, which is whether the corporators are engaged in carrying on the business of the corporation. In my opinion they are not. To say that they are involves a complete confusion of ideas.” [114] The same issue arose in Quin & Axtens, Limited v. Salmon [1909] 1 Ch 311, where it was accepted that where the relevant articles were in the normal form exemplified by successive Tables A, the general meeting could not interfere with a decision of the directors unless they were acting contrary to the provisions of the Companies Act 1862 or the articles. In this case, the memorandum of the company included among its objects the purchasing of personal property. By the articles the business was to be managed by the directors, but no resolution of the board to purchase or lease any premises of the company was to be valid unless two conditions were satisfied, namely, notice in writing must be given to each of the two managing directors named in the articles, and neither of them must have dissented there from in writing before or at the meeting at which the resolution was to be passed. In August 1908, the board passed resolutions for the purchase of certain premises by the company, and for the lease of 67 part of the company’s property. The plaintiff, who was one of the managing directors, dissented, but at an extraordinary general meeting of the company held in November 1908, resolutions similar to those passed by the board were passed by an ordinary resolution of the members. The plaintiff brought this action for an injunction to stop the company from acting on the resolutions, as they were inconsistent with the articles. It was held that an injunction would be granted. [115] The case of John Shaw & Sons (Salford) Limited v. Peter Shaw and John Shaw [1935] 2 K.B 113, C.A is equally important. In this case a resolution of the general meeting disapproving the commencement of an action by the directors was held to be a nullity, Greer L.J. expressed the new doctrine as follows: “I think the judge was also right in refusing to give effect to the resolution of the meeting of the shareholders requiring the chairman to instruct the company’s solicitors not to proceed further with the action. A company is an entity distinct alike from its shareholders and its directors. Some of its power may, according to its articles, be exercised by directors, certain other powers may be reserved for the shareholders in general meeting. If powers of management are vested in the directors, they and they alone can exercise these powers. The only way in which the general body of the shareholders can control the exercise of the 68 powers vested by the articles in the directors is by altering their articles, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the articles are vested in the directors any more than the directors can usurp the powers vested by the articles in the general body of shareholders.” [116] Finally, in Scott v. Scott [1943] 1 All E R 582 it was held on the same grounds, that resolutions of a general meeting, which might be interpreted either as directions to pay an interim dividend or as instructions to make loans, were nullities. In either event the relative powers had been delegated to the directors, and until those powers were taken away by an amendment of the articles the members in general meeting could not interfere with their exercise. It was held that resolution in general meeting could not be used to control the directors in the management of the business of the company. As Lord Clauson said, “the professional view as to the control of the company in general meeting over the actions of directors has, over a period of years, undoubtedly varied”. [117] For the sake of completeness, we would also add that at common law there is a residual power on the part of the shareholders in general meetings to act when the board is unable or 69 unwilling to do so itself (see: Corporate Law by Hans Tjio, Pearlie Koh and Lee Pey Woan, (2015) at pages 286 to 289, Company Directors: Duties, Liabilities, and Remedies, Mortimore QC 2nd Edition at paras 4.17 to 4.27 and Farrar’s Company Law 4th Edition at page 365). [118] To sum up, the modern view of the relationship between shareholders in the general meeting and the board of directors on matters pertaining to management powers of the company has been well summarized by Stephen Bottomley’s The Constitutional Corporation at page 82 as follows: ‘Since the 1906 case of Automatic Self-Cleansing Filter Syndicate Co Ltd v Cunninghame, courts in the United Kingdom and Australia have accepted that where the board of directors is given exclusive powers to manage the corporation then neither individual members nor the general meeting may intervene in or dictate the exercise of that power. It follows from this that the board of directors is not simply the servant or agent of the general meeting. The board exercises an original grant of power. This point was made clear in the 1935 case of John Shaw & Sons (Salford) Ltd v Shaw. In a blunt summation of the legal position, Greer LJ stated that: “If powers of management are vested in the directors, they and they alone can exercise those powers. The only way in 70 which the general body of shareholders can control the exercise of the powers vested … in the directors is by altering their [constitution], or … by refusing to re-elect the directors of whose actions they disapprove. They cannot themselves usurp the powers which by the [corporation’ constitution is] vested in the directors any more than the directors can usurp the powers vested… in the general body of shareholders.” ’ [119] Earlier, at page 21, in discussing the grant of managerial power of the directors, the learned author said: ‘Corporate law restricts the capacity of members to intervene in the directors’ exercise of managerial powers. When a corporation confers general powers of management exclusively on its directors then the members have no power to intervene in the day-to-day exercise of that power or to dictate the manner of its exercise.” In the High Court of Australia, Barwick CJ [Ashburton Oil NL v Alpha Minerals NL (1971) 123 CLR 614,620] described the legal position this way: Directors who are minded to do something which in their honest view is for the benefit of the company are not to be restrained because a majority shareholder or shareholders holding a majority of shares in the company do not want the directors so to act. 71 In other words, according to the legal model the board of directors is a decision-making organ that has relative autonomy from the general meeting of members.’ [120] It is seen from the foregoing discussion that courts in other jurisdictions have consistently taken the view that shareholders in general meetings may not control the powers of management conferred by the articles of associations on a board of directors; they can only do so by altering the articles to take away the powers of the board of directors, or, if opportunity arises under the articles, by refusing to re-elect the directors of whose actions they disapprove. Today this principle cannot be disputed. We respectfully agree and we would gratefully adopt this view. [121] The present issue arose because the Court of Appeal did not conform to the above view. Further and in addition, as we shall see later, the new section 131B that was inserted into the Act in 2007 provided a statutory clarification as to the management powers of the board as the primary organ of a company, [122] Now, the Court of Appeal, whilst acknowledging the case of The Gramophone and Typewriter, Ltd. v Stanley (supra) and established authorities that we have earlier discussed, still held that legislation had varied the ‘classical position’ as explained by Buckley L.J. In the words of the Court of Appeal: 72 “However the ‘classical position’ as set out above has been varied by legislation, for instance section 132(1) of the CA; and it is our view that under certain given circumstances the shareholders would be empowered to seek that decision of the board be made justiciable when it was just to do so. In this case it is not the resolution of the board or the members in the EGM which is being challenged per se but the conduct of the directors in acting the way that they did in flagrant breach of the members’ resolution and whether this constituted a breach under section 132(1) of the CA.” [123] Leaving the new section 131B on one side for the moment, the above position taken by the Court of Appeal was a departure, which was inconsistent with the prevailing authorities that we have discussed earlier. [124] In our judgment the position taken by the Court of Appeal in the present case was erroneous in law in several respects. This approach eroded the clear division of powers between the management of a company by its directors and the wishes of its shareholders. We agree with the submission of learned counsel for the first defendant that it dispossessed directors of their management control and functions under the articles of association and the Act and effectively re-distributed such control to shareholders. This incorrect approach was deployed to examine 73 whether there was a breach of section 132(1) of the Act on the part of the directors. In the event that the decision of the board of directors was inconsistent with the wishes of shareholders, it was mistakenly considered as a breach by the directors under section 132(1). [125] At a later stage of this judgment, we will further discuss section 132(1) of the Act when we deal with the test for breach of duty as director and “best interest” of the company. [126] At this juncture, it is appropriate we now refer to section 131B that reads as follows: “(1) The business and affairs of a company must be managed by, or under the direction of, the board of directors.

(2) The board of directors has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company subject to any modification, exception or limitation contained in this Act or in the memorandum or articles of association of the company.” [127] Section 131B which was inserted into the Act in August 2007, created a new provision that has a significant and wide ranging consequence, primarily on directors. The new provision expressly declared that the board of directors must manage the business and affairs of a company. It is necessary to look at the 74 operative word of the provision. The legislature advisedly used the word “must”, which highlighted legislative recognition that the board of directors is the principal management organ of a company. It is interesting to note that section 157A of Singapore Companies Act, which is equivalent to our section 131B, provides that the business of a company shall be managed by or under the direction of the directors. In consequence, the statutory position in Malaysia is even stronger by section 131B using the words the business and affairs of a company “must be managed” by the board of directors. As the authors of Woon & Hicks, “The Companies Act of Malaysia: An Annotation” (LexisNexis, 2012) at page 210 observed, section 131B “makes it mandatory for the business and affairs of a company to be managed by or under the directions of the directors”. The word comes along with phrase ‘the board of directors has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company’ in sub-section 2 of section 131B. The provision was drafted in the widest possible terms; it encapsulated the fundamental principle of our company law that a company’s power of management is reserved to its directors, collectively called the board of directors and not its shareholders. It has to be noted that section 211 of our new Companies Act 2016 provides that a 75 board ‘shall’ manage the business and affairs of the company. We shall say no more about the new provision as the appeals before us deal with section 131B. [128] In the appeals at hand, quite apart from section 131B, the power of management of the defendants as directors, including the power of sale or disposal of the plaintiff’s assets, were also expressed in article 115(1), as derived from article 73, schedule 4 Table A of the Act and article 115(2) of the plaintiff’s articles of association as follows: “115 (1) The business of the Company shall be managed by the directors who may exercise all such powers of the Company, and do on behalf of the Company all such acts as are within the scope of the Memorandum and Articles of Association of the Company and as are not, by the Act or by these regulations, required to be exercised the Company in general meeting, subject, nevertheless, to any of these regulations, to the provisions of the Act and to such regulations, being not inconsistent with the aforesaid regulations or provisions as may be prescribed by the Company in general meeting; but no regulation made by the Company in general meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made. 76 115 (2) Any sale or disposal by the directors of a substantial portion of the Company’s main undertaking or property shall be subject to ratification by shareholders in general meeting.” [129] This article of association of the plaintiff, which served as its rule of internal management, sets out the precise powers and duties of its directors, subject to the overriding provisions of the law. It provided that the general power to manage the plaintiff vests in the board of directors. Significantly, it recognized that the board of directors is the primary organ of the plaintiff; directors are not mere agents of the company. The powers of management, including the disposal of the plaintiff’s assets are vested within the board of directors with the following exceptions:

12. These questions primarily relate to the position in law in relation to the duties of directors with reference to the specific legal issues that arose in instant appeals. The test for breach of duty of a director and the best interest of the company [152] As seen earlier, the defendants as directors of the plaintiff had wide powers of management. The powers came with serious duties and responsibilities. They were conferred upon the directors collectively as a board of directors. The extensive powers placed directors in a privileged position, which carried with it corresponding obligations and statutory duties that arose by reason of the attributes of the office imposed by the Act and under the common law and equitable rules. [153] This is due to the need to protect shareholders and those who deal with the company from the negligence and misfeasance of errant directors as well as to protect investors from management excess. According to Ford’s Principles of Corporation Law 90 (supra) at page 303, “Directors’ duties must achieve a balance between keeping directors accountable to the interests of the company while allowing them discretion to make decisions which inevitably involve a degree of risk”. [154] Two provisions of the Act are relevant, and they provide a good starting point in addressing the legal issues posed under Questions 8-12. [155] The first is section 132(1), which sets out the statutory duties owed by a director to a company as follows: “A director of a company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company.”; The second provision is section 132(1A) that reads: “A director of a company shall exercise reasonable care, skill and diligence with-

(1) There is the judicial concern that persons of reason, intellect and integrity will not serve as Directors if the law expects from them a degree of prescience not possessed by people of ordinary knowledge. Even without pressing liability, qualified persons will not serve if their decisions can be second guessed at every turn.

(2) To encourage the type of informed risk-taking with which corporate enterprise is undertaken especially in an increasingly global economy.

(3) On a more mundane level, courts are ill equipped to exhume and examine business decisions. Corporate Officers and Directors make many decisions on the basis of incomplete information, intangibles such as experience or intuition and wide ranging general considerations such as consumer preferences, local and regional economic trends and competitive outlook. Even if courts were able to 116 assemble before them sufficient data on these topics, most courts would feel ill at ease in re-evaluating that data.

(4) The rule represents a well established judicial policy of leaving management to managers and a reluctance to undertake or second guess business decisions.

(5) The rule is a means whereby courts are aided in the management and allocation of their own resources. The Business Judgment Rule is a device courts use to cut off unmeritorious but complex cases at the motion or other pretrial stage. The Business Judgment Rule is thus a standard of judicial review consciously or unconsciously used as a tool for achieving judicial economy. The Business Judgment Rule in US operates as a rule of judicial economy, as a safe harbor rule or strong presumption of no liability if certain basic conditions are fulfilled. The conditions are the absence of self interest, being reasonably informed and making a rational business judgment.” [190] This then brings us back to the present case. In our opinion, the decision to undertake the Second and third Divestments was a business judgment made by the defendants for a proper purpose, and in good faith in the best interest of the plaintiff. [191] Applying Howard Smith Ltd v Ampol Ltd (supra), there was no basis for the Court, with the advantage of hindsight, to 117 substitute its own decision with that of the plaintiff’s directors. There were valid grounds upon which a reasonable board of directors would have come to the decision. [192] However, in other cases where fraud, breach of fiduciary duty and conspiracy are established, it is the duty of court to review the decisions of the directors involved. Answers to leave questions [193] In consequence and in view of all the above, our answers to the legal issues posed under Questions 1-11 are as follows: Question 1: The powers of management conferred on directors by the Act and the articles of association of a company governed by Table A of the Act could not be overridden by an ordinary resolution passed by a simple majority of shareholders at a general meeting. Question 2: The Court of Appeal erred when it held that “the classical position (as explained in the case of Gramaphone and Typewriter, Limited v Stanley) has been varied by legislation, for instance section 132(1) of the Act”. Shareholders in general meetings may not control the powers of management conferred by the articles of associations on directors; if powers are vested in the directors, they and they alone can exercise those powers. 118 Question 3: We agree with the Court of Appeal in Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd (supra) that “for all intents and purposes” the scope of the directors’ duties to act honestly under the old section 132(1) and the new section 132(1) are the same. Question 4: The true position as regards powers of shareholders on the one hand and that of directors on the other is as declared in section 131B of the Act that the business and affairs of a company “must be managed by, or under the direction of the board of directors”, and further by section 132(1B) that vests “business judgment” with the directors. In this regard, we note that section 211 of our new Companies Act 2016 now provides that the business and affairs of a company “shall” be managed by the board. Question 5: The ratio in the Credit Development Pte Ltd v IMO Pte Ltd (supra) adopted by the Court of Appeal is incorrect in the light of our statutory provisions and case law. Question 6: The limiting words “subject to regulations…..as may be prescribed by the company in general meeting” in article 115(1) of the plaintiff’s articles of association do not confer upon the plaintiff’s shareholders in general meeting a general supervisory 119 power over the directors whether in respect of their specific or general powers or both. The word “regulations” has the same meaning as the word “articles” such that if shareholders want to interfere whether in respect of specific or general powers, they can only do so by altering the articles to take away the powers of the plaintiff’s board of directors and this can only be done by a special resolution. We agree with the High Court that the ordinary resolution (the Shareholders Divestment Mandate) was not a “regulation” within the meaning of article 115(1) of the plaintiff’s article of association. Question 7: The board of directors of a company who have been duly authorized by a resolution passed in a general meeting that approved the sale of shares may thereafter act in its best judgment in the interests of the company in the implementation of the resolution. Question 8: The test to determine whether there is any breach of director duties combines both subjective and objective tests. The test is subjective in the sense that the breach of the duty is determined on an assessment of the state of mind of the director. The classic formulation of the subjective element in the test is found in Re Smith & Fawcett Ltd (supra). The test is objective in the sense that the director‘s assessment of the company’s best interest 120 is subject to an objective review or examination by the Courts. This is the test set out in Chaterbridge Corporation Ltd v Lloyds Bank Ltd adopted by our Court of Appeal in Pioneer Haven Sdn Bhd v Ho Hup Construction (supra). The Court of Appeal erred when it adverted to the proposition that “the best interest of the company” is a matter for the majority of the shareholders to decide. Question 9: The statutory business judgment rule as provided under section 132(1B) of the Act is as stated in Howard Smith Ltd v Ampol Ltd (supra): the Courts do not undertake the exercise of assessing the merits of a commercial or business judgment made by directors. Courts will not interfere with business decisions as long as the directors acted bona fide. Question 10: Shareholders cannot determine or dictate what is in “the best interest of the company” by passing an ordinary resolution by a simple majority in general meeting in the context of determining the conduct of a director, pursuant to section 132 of the Act. Question 11: The case of Paidiah Genganaidu v The Lower Perak Syndicate Sdn Bhd & Ors (supra) is distinguishable on its facts. Hence, it is unnecessary for us to answer this question. 121 Conclusion [194] On the view that we have taken and in the light of the answers to leave Questions 1-11, it is unnecessary for us to answer Questions 12-18. We would prefer to leave the resolutions of Questions 12-18 to a case where the questions must necessarily be determined. [195] In all the above circumstances, we allow the appeal by the defendants with costs. In the result, the orders of the Court of Appeal are set aside and we hereby reinstate the order of the learned High Court judge. Dated this day, 14 December 2017. (AZAHAR BIN MOHAMED) Federal Court Judge 122 For the First Appellant: Cyrus Das and James Khong Messrs. James Khong For the Second and Third Appellants: Alex de Silva and Gajendran Balachandran Messrs. Bodipalar Ponnudurai De Silva For the Respondent: Lim Kian Leong, Tan Wei Wei, Chris Lim Su Heng, Nur Khidmah binti Huzaisham and Colin Liew Messrs. Chris Lim Su Heng