Tan Yook Sun v Tan Boon Huat (WA-22NCC-102-02/2024)

TAN YOOK SUN (No K/P: 581101-10-7172)

LOW CHEE MENG (No K/P: 491011-08-5791) …PLAINTIF-PLAINTIF

TAN BOON HUAT (No K/P: 500215-10-5469)

CHAU NGO MOY (No K/P: 470430-01-5218)

TAN YEAN SAN (No K/P: 801111-14-6345)

TAN MARY (No K/P: 780413-14-5786)

TAN YEAN PENG (No K/P.760524-14-5537)

TAN BEE JUN (No K/P: 830120-14-5806) S/N o5dcRvoPcEuuSzaykuzq6g

ALLIED FOAM INSULATION SDN BHD (No. Pendaftaran Syarikat:179969-X)

GOE HOLDINGS SDN BHD (No. Pendaftaran Syarikat: 203283-K)

CAPITAL ADVANTAGE SDN BHD (No. Pendaftaran Syarikat: 293989-D)

SDN BHD (No. Pendaftaran Syarikat: 406972-A)

BHD (No. Pendaftaran Syarikat: 40735-V)

BHD (No. Pendaftaran Syarikat: 407090-M) GRAND ORIENTAL PROPERTIES SDN BHD (No. Pendaftaran Syarikat: 1021540-M)

LEADER PARTS ENTERPRISE SDN BHD (No. Pendaftaran Syarikat: 1157755-K) …DEFENDAN-DEFENDAN

This action started as an Originating Summons filed on 24-3-2023 under section 346 of the Companies Act 2016 (“CA”). The 1st and 2nd Plaintiffs (“P1” and “P2” or collectively, “Plaintiffs”) are minority shareholders in the 7th to 14th Defendants (respectively, “D7 to D14”) in a family-controlled group of companies. The 1st and 2nd Defendants (respectively, “D1” and “D2”) are the majority shareholders. S/N o5dcRvoPcEuuSzaykuzq6g

The main protagonists are P1 and her elder brother, D1. P2 and D2 are their respective spouses. By Order of this Court dated 20- 9-2023, the claims against the 3rd to 6th Defendants, who are the children of D1 and D2, were struck out. On the application of the Plaintiffs, the Originating Summons and counterclaim were converted into a writ action on 8-11-2023. Background facts

D1 and his brothers started Lan Hoe Enterprise (1979) Sdn Bhd (“Lan Hoe”) in the 1970s. For lack of a better yardstick, P1 was 21 years old in 1979 and started employment in Lan Hoe as a Sales Assistant at some point. P2 had been working at a related company that manufactured refrigeration components since 1983. P1 and P2 later married.

D1’s entire interest in Lan Hoe was acquired by his brothers for RM500,000.00 in 1984, following which he left Lan Hoe to establish his own business. D1 invited P1 and P2 to join him, and Grand Oriental Enterprise (“GOE”) was set up as a partnership on 12-7- 1984, with P2 entering the partnership on 6-8-1984.

Lan Hoe was in wholesale distribution of heating, ventilation, air conditioning, refrigeration equipment, materials, parts and supplies. The business of GOE was in “trading & supply of hardware (sic) air-condition, refrigeration, electrical accessories and machinery parts, installation (sic) air condition & refrigeration.” S/N o5dcRvoPcEuuSzaykuzq6g

D7 to D14 were set up over the ensuing years. The shareholding of these companies changed as the issued and paid-up capital increased. Presently, P1 and P2 hold 12.5% each, for a total of 25% of the shares in D7 to D14, and, save for D7, they were also named directors at all material times since inception. D1 and D2 collectively hold 75% of the shareholding.

Based on the undisputed corporate records, the particulars of D7 to D14 were as follows as at 2022: Company Date of Incorp. First Subscribers Shareholders (Shareholding) Directors (Date of appointment) Allied Foam Insulation Sdn Bhd (D7) 20-3-1989 Tan Ah Booy Tan Yook Sun Chau Ngo Moy [Issued & Paid Up in Cash 1,520,430; Non-cash 479,570 @ 2-12-2022] Tan Boon Huat (1,300,000) Chau Ngo Moy (200,000) Low Chee Meng (250,000) Tan Yook Sun (250,000) [@ 2-12-2022] Tan Boon Huat (28-2-1990) Tan Yook Sun (20-3-1989) Low Chee Meng (1-7-1991) Chau Ngo Moy (15-2-1993) Mary Tan (30-11-2022) Tan Yean San (30-11-2022) GOE Holdings Sdn Bhd (D8) 25-8-1990 Tan Boon Huat Tan Yook Sun Low Chee Meng [Issued & Paid Up in Cash 100,000 @ 2-12-2022] Tan Boon Huat (75,000) Tan Yook Sun (12,500) Low Chee Meng (12,500) [@2-12-2022] Tan Boon Huat (25-8-1990) Tan Yook Sun (25-8-1990) Low Chee Meng (25-8- 1990) Chau Ngo Moy (16-7-2004) Mary Tan (30-11-2022) Tan Yean San (30-11-2022) Capital Advantage Sdn Bhd (D9) 6-4-1994 Koh Tuck Kean Ho Li Li [Issued & Paid Up in Cash 100,000 @ 2-12-2022] Tan Boon Huat (75,000) Tan Yook Sun (12,500) Low Chee Meng (12,500) [@2-12-2022] Tan Boon Huat (19-4-1994) Tan Yook Sun (19-4-1994) Low Chee Meng (19-4- 1994) Chau Ngo Moy (16-7-2004) Mary Tan (30-11-2022) S/N o5dcRvoPcEuuSzaykuzq6g Tan Yean San (30-11-2022) Grand Oriental Enterprise (Melaka) Sdn Bhd (D10) 21-10-1996 Tan Boon Huat Tan Yook Sun Low Chee Meng [Issued & Paid Up in Cash 200,000 @ 16-11-2022] Tan Boon Huat (144,000) Tan Yook Sun (25,000) Low Chee Meng (25,000) Chow Ngo Moy (6,000) [@ 16-11-2022] Tan Boon Huat (21-10- 1996) Tan Yook Sun (21-10-1996) Low Chee Meng(21-10- 1996) Chau Ngo Moy (15-7-2004) Mary Tan (28-10-2022) Tan Yean San (28-10-2022) Grand Central M&E Marketing Sdn Bhd (D11) 21-10-1996 Tan Boon Huat Tan Yook Sun Low Chee Meng [Issued & Paid Up in Cash 300,000 @ 19-11-2022] Tan Boon Huat (216,000) Tan Yook Sun (37,500) Low Chee Meng (37,500) Chow Ngo Moy (9,000) [@ 19-11-2022] Tan Boon Huat (21-10- 1996) Tan Yook Sun (21-10-1996) Low Chee Meng(21-10- 1996) Chau Ngo Moy (15-7-2004) Tan Yean Peng (28-10- 2022) Tan Bee Jun (28-10-2022) Grand Oriental M&E Enterprise Sdn Bhd (D12) 22-10-1996 Tan Boon Huat Tan Yook Sun Low Chee Meng [Issued & Paid Up in Cash 2,000,000 @ 16-11-2022] Tan Boon Huat (1,440,000) Tan Yook Sun (250,000) Low Chee Meng (250,000) Chow Ngo Moy (60,000) [@ 16-11-2022] Tan Boon Huat (22-10- 1996) Tan Yook Sun (22-10-1996) Low Chee Meng(22-10- 1996) Chau Ngo Moy (15-7-2004) Tan Yean Peng(28-10- 2022) Tan Bee Jun (28-10-2022) Grand Oriental Properties Sdn Bhd (D13) 18-10-2012 Tan Boon Huat Tan Yook Sun Low Chee Meng Chau Ngo Moy [Issued & Paid Up in Cash 200,000 @ 1-12-2022] Tan Boon Huat (130,000) Tan Yook Sun (25,000) Low Chee Meng (25,000) Chow Ngo Moy (20,000) [@ 1-12-2022] Tan Boon Huat (18-10- 1996) Tan Yook Sun (18-10-1996) Low Chee Meng (18-10- 1996) S/N o5dcRvoPcEuuSzaykuzq6g Chau Ngo Moy (18-7-2004) Leader Parts Enterprise Sdn Bhd (D14) 3-9-2015 Tan Boon Huat Tan Yook Sun Low Chee Meng Chau Ngo Moy [Issued & Paid Up in Cash 50,000 @ 2-12-2022] Tan Boon Huat (32,500) Tan Yook Sun (6,250) Low Chee Meng (6,250) Chow Ngo Moy (5,000) [@2-12-2022]

As noted, the relevant corporate records of D7 to D14 showed that during the period between 1989 and 2015, P1, D1 and their respective spouses were named as directors, and maintained a 25:75 shareholding structure early in the establishment of these companies. It was common ground that D2, D1’s wife (i.e. Chau Ngo Moy) had always been a sleeping member and director.

Broadly speaking, it was understood that D7 and D14 are part of the “Allied” group entities while GOE and the other companies are part of the “Grand” group entities. The “Grand” group entities are in the business of trading in air-conditioning and refrigeration hardware. Based on the corporate records, among the “Grand” group entities, D8, D9 and D13 are property holding companies.

The Plaintiffs also held 10% of the shares in 3 other Allied group companies not named in this action – Allied Foam Hardware Enterprise Sdn Bhd, Allied Foam Metal Industries Sdn Bhd and Lian Seng Metal Industries Sdn Bhd. In December 2022, the parties completed a buyout of these shares and the Plaintiffs exited the 3 companies for RM1,213,420.00. S/N o5dcRvoPcEuuSzaykuzq6g

Any consensus as to the genesis and development of the family businesses ended there, as beyond the undisputed facts set out above, the parties diverged fundamentally on their respective financial contributions and the management and operational roles that each claimed to have undertaken. Respective complaints

From the records, a board of directors’ meeting was convened on 1-10-2016, and a resolution was passed that all cash sales in D12 must be kept in the safe and deposited into the company’s bank account the next working day. According to D1, this was because P1 had been retaining cash sales revenues from D12 for personal use. She had allegedly continued to mishandle D12’s cash in this way (“Mishandling of cash”).

D1 also alleged that in view of the advancing ages of D1, D2, P1 and P2, it was proposed in or around 2018 that their children be admitted as directors, but denied any foundational understanding about this or any plans to change the shareholding (“Succession Plans”). According to D1, the Plaintiffs counter-proposed the setup of a new company with a 50-50 shareholding between their 2 families, which D1 was opposed to.

The relationship between P1, P2 and D1 further deteriorated after 2019 with the disagreements around the Succession Plans and other triggers, namely: S/N o5dcRvoPcEuuSzaykuzq6g a) P1 allegedly intimated that she would set up a similar business with her children if D1 did not agree to her counter-proposal, and according to D1, the Plaintiffs then became neglectful of their work in D12 since 2019 and would turn up as and when they wished (“Work Performance”); and b) In December 2022, the Plaintiffs’ son set up Mechwell M&E Supply Sdn Bhd while still employed in D12. D1 alleged that the Plaintiffs supported this venture financially in breach of their fiduciary duties to D12 as customers were solicited to do business with Mechwell instead (“Set up of Mechwell”).

Matters remained unresolved in respect of D7 to D14 and things came to a head when steps were taken by D1 to forcibly retire and remove the Plaintiffs as directors. It prompted the filing of this action with an interlocutory injunction to restrain their removal as directors of D7 to D14.

The Plaintiffs complained about various alleged acts of oppression by D1 that they say affect their rights as shareholders. These complaints have been broadly categorised by this Court according to their description as follows: Exclusion from management a) Succession planning D1 refused to agree to a succession plan involving the admission of the children of both P1 and D1 as directors, and admitted only D1’s children as directors in D7 to D14. S/N o5dcRvoPcEuuSzaykuzq6g b) Dilution of control In October/November 2022, D1 and D2 appointed their children as directors of D7 to D14 to solidify their control over the companies. Consequently, the Plaintiffs were no longer needed to approve payments and sign cheques. c) Access to company financial information D1 refused to give the Plaintiffs monthly financial reports and management accounts of D7 to D14 despite requests and a demand on 23-2-2023. d) Removal as directors The Plaintiffs were removed as directors of D7 to D14 in April and July 2024 on grounds of their undisclosed conflict of interest in relation to the Set Up of Mechwell by their children. Termination of employment e) Show cause notice P2 was issued with a show cause notice on 6-9-2021 for being absent from work after knee surgery while P2 was on medical leave and working from home during Covid-19. f) Changes in work structure In November 2022, D1 implemented a punch-card attendance system and new letters of appointment for directors, with a compulsory retirement age of 60 years. P1 was 65, P2 was 74, but D1 and D2 were 73 and 76, respectively. S/N o5dcRvoPcEuuSzaykuzq6g g) Termination of employment On 20-2-2023, the Plaintiffs were served with a letter dated 17-2-2023, informing them of their retirement with payment of 2 months’ salary ex gratia. They were allegedly locked out of their offices on 21-3-2023, and a notification was sent to the sales team via WhatsApp that the Plaintiffs were deemed retired. Non-payment of claims h) Claims reimbursement D1 initially refused to approve P2’s medical expenses claim of RM40,000.00 in 2019, and delayed payment of other claims totalling RM8,077.12. The sums have since been reimbursed. i) Remuneration as directors Non-payment of P2’s salary from D12 for the period Nov/Dec 2021 to Mar 2021, the Plaintiffs’ salaries from D12 from Feb 2023 onwards, the Plaintiffs’ directors’ fees from D10, the Plaintiffs’ bonuses from 2020 to 2021 for all group companies, the Plaintiffs’ declared bonus from D7, and P2’s annual director’s fees from D7 which had been reduced from RM12k to RM3k in 2021.

Based on the above complaints, the Plaintiffs sought a declaration that they were oppressed as minorities, orders for the payment of outstanding directors’ fees, salaries and bonuses, a buyout of their shares by D1 and/or D2 at fair current market value, damages to be assessed or in the alternative, that D7 to D14 be wound up. S/N o5dcRvoPcEuuSzaykuzq6g

There were also prayers for the delivery up of all company records of D7 to D14 by D1 to the Plaintiffs and/or their nominees, interim injunctions (which have been overtaken by events) and the appointment of an independent auditor to investigate the use and movement of D7 to D14’s funds over 5 years.

The Defendants counterclaimed for a declaration that the shares in D7 to D14 are held by the Plaintiffs on a constructive and/or resulting trust for D1 and damages for the tort of abuse of process. It was noted that the alleged Mishandling of Cash and Set-up of Mechwell were not pleaded as the subject of any cause of action for which remedies were sought in the counterclaim.

An ad interim injunction to restrain the Plaintiffs’ removal as directors was granted on 29-3-2023. However, the interlocutory injunction was refused by Justice Atan Mustaffa Yussof Ahmad after hearing full inter-partes arguments on 6-2-2024. The learned Judge found no serious issue to be tried, and no appeal was lodged.

Following this, fresh EGMs were held and the Plaintiffs were removed as directors of D10 to D12 (by EGM held on 15-4-2024), D8, D9, D13 and D14 (by EGM held on 17-4-2024) and D7 (by EGM held on 5-7-2024). Analysis and findings

The issues that required determination by this Court were as follows, in the order that this Court dealt with them: S/N o5dcRvoPcEuuSzaykuzq6g a) whether D1 proved the existence of a constructive and/or resulting trust over the shares held by the Plaintiffs in D7 to D14; b) whether D7 to D14 operated as quasi-partnerships and if so, what unwritten understanding was infringed by the majority; c) whether the alleged acts of oppression fall within the meaning of section 346 of the CA and if so, whether the Plaintiffs have proved them; and d) whether D1 proved the counterclaim for damages against the Plaintiffs for abuse of process. Trust over company shares

In this action, D1 regarded the shares held by the Plaintiffs as shares held on trust for his benefit. In submissions, counsel for the Defendants contended that the facts establish a resulting trust and/or constructive trust.

A constructive trust is imposed by law irrespective of the intention of the parties whenever the circumstances are such that it would be unconscionable for the owner of property to assert their own beneficial interest in the property and deny the beneficial interest of another. It arises in equity as a device or remedy to satisfy the demands of justice and good conscience, e.g. when there is dishonest, unconscionable or fraudulent conduct in the acquisition S/N o5dcRvoPcEuuSzaykuzq6g of property (Takako Sakao v. Ng Pek Yuen [2010] 1 CLJ 381 (“Takako Sakao”)).

In this case, this Court found that no facts were pleaded or proved to establish why a constructive trust should be imposed on the shares in D7 to D14 held by the Plaintiffs. There was no plea of any unperformed agreement to transfer those shares to D1 or any allegation of dishonesty, fraud or unconscionability when the Plaintiffs were allotted their shares in D7 to D14.

D1’s suggestion that a constructive trust should be imposed merely because of the Plaintiffs’ alleged lack of financial contribution and/or D1’s funding of the enterprise is incorrect. The perceived inequity of the situation was brought about by D1’s deliberate design and/or acquiescence and does not warrant the imposition of a constructive trust.

As noted, D1 also pleaded a resulting trust, i.e. that D1 made a voluntary payment for the shares in D7 to D14 that were vested in the Plaintiffs. No submissions were offered on this alternative basis for the alleged trust, but this Court similarly found no basis for it on the facts of the case.

The resulting trust is another device of equity, but this trust gives effect to the implied intention of parties in relation to the acquisition and disposal of the property. As cited in Takako Sakao, Lord Browne-Wilkinson said in Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] AC 669: S/N o5dcRvoPcEuuSzaykuzq6g “Under existing law a resulting trust arises in two sets of circumstances: (A) where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested either in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of a joint purchase by A and B in shares proportionate to their contributions. It is important to stress that this is only a presumption …” [Emphasis added]

This Court could find no evidence that D1 paid for the Plaintiffs’ shares in D7 to D14 because all evidence points to the use of profits from GOE, external financing and the reinvestment of business profits from the companies that were in operation. There was no objective evidence of any payments made personally by any of the shareholders for their shareholding, and certainly no evidence of payments made on behalf.

For completeness, this Court could also find no evidence of a resulting trust in the assets of the partnership, and no plea to that effect. D1 contended that he and he alone had put up his RM500,000.00 payout by Lan Hoe and RM300,000.00 in savings into GOE, but even if this were true, these are not the same funds that were later injected to subscribe to the shares in D7 to D14.

The assets of the partnership were acquired from at least 5 years of operations during which the Plaintiffs were partners before the first corporate entity was set up. They include assets originally S/N o5dcRvoPcEuuSzaykuzq6g brought into the partnership or acquired in the course of the partnership business. In the absence of any specific agreement to the contrary, partnership law accords the benefit of partnership assets to the partners equally. Section 26 of the Partnership Act 1961 makes this clear: “The interests of partners in the partnership property, and their rights and duties in relation to the partnership, shall be determined, subject to any agreement, express or implied, between the partners, by the following rules –

all the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm…”

Even if it were D1’s case that GOE assets were his alone, this Court noted with interest that the Plaintiffs’ personal income tax returns and tax calculations were adduced among the voluminous trial bundle, and although GOE’s business registration expired on 9-2-2007, three personal income tax computations for the Plaintiffs in 2018, 2020 and 2021 showed that they were still deriving partnership profits and loss from GOE.

In any case, the audited financial statements of the corporate entities showed that the shareholders were paid dividends, and there were no particulars of any complaint by the Plaintiffs of non-payment of dividends. Dividend payments were a clear acknowledgement by D1 of the Plaintiffs’ beneficial interest in the shares. S/N o5dcRvoPcEuuSzaykuzq6g

Further, D1 paid valuable consideration for P1 and P2’s shares in the 3 Allied companies set up under similar circumstances, in the share buy-out of those companies in 2022. This Court also sighted minutes of the EGM dated 28-10-2022, when the Plaintiffs proposed to sell their shares in the Defendant companies to D1. In response, D1 invited the Plaintiffs to propose a price, with no mention of any trust.

As the burden of proof was on D1 in his claim that the shares held by the Plaintiffs in D7 to D14 were held on trust for him, this Court found that the burden was not discharged. Quasi-partnership rights

In company law, even with the overlay of minority protection provisions like section 346 of the CA, a member will not usually be able to complain of unfairness unless there is a breach of the terms on which he agreed that the affairs of the company be conducted. In this regard, the governing terms are typically found in the M&A.

As explained by the Federal Court in Pan-Pacific Construction Holdings Sdn Bhd v Ngiu-Kee Corporation (M) Sdn Bhd & Anor [2010] 6 CLJ 721: “[30] The principles of law are therefore quite settled in a non-quasi-partnership company. However, where it is (in the nature of quasi-partnership) as in this case there is an added factor which members are obliged in law to observe, namely, to act in good faith to one another. … S/N o5dcRvoPcEuuSzaykuzq6g [32] And such special relationship between the petitioner and the 2nd respondent entails the application of equitable considerations or constraints as may be derived from the laws of partnership which make it unfair for the 2nd respondent when conducting the affairs of the company to rely on its strict legal powers. Unfairness in this context may be in the form of a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith as for instance, where ‘the exercise of the power in question would be contrary to what the parties, by words or conduct, have actually agreed’ or ‘exchanged’ (see: O’Neil v Philips (supra)) before or after they have entered into association. [33] Further, it is not ‘necessary that such promises should be independently enforceable as a matter of contract’. (see: O’Neil v Philips (supra)).” [Emphasis added]

The starting point for any consideration of quasi-partnerships is Ebrahimi v Westbourne Galleries Ltd & Ors [1973] AC 360 (“Ebrahimi”). The case concerned a petition to wind up a company on just and equitable grounds, and its principles are applicable in the present context based on Jet Tech Materials Sdn Bhd v Yushiro Chemical Industry Co Ltd & Ors & Another appeal [2013] 2 CLJ 277.

In Ebrahimi, Lord Wilberforce, at p. 379, pointed out that the words "just and equitable": S/N o5dcRvoPcEuuSzaykuzq6g ... are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act 1965 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The 'just and equitable' provision does not,... entitle one party to disregard to the obligation he assumes by entering a company, nor the Court to dispense him from it. It does, as equity always does, enable the Court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way.”

In other words, the Plaintiffs must prove that D7 to D14 operated as quasi-partnerships, that certain unwritten understanding or arrangement exists giving rise to a legitimate expectation that is enforceable in equity; and that there was a breach of that unwritten understanding or arrangement by the majority by the acts complained of in this action.

As explained by Ramly Ali J in Eng Man Hin & Anor v King’s Confectionary Sdn Bhd & Ors [2005] 8 CLJ 77 (“Eng Man Hin”): “An "Ebrahimi" type of company is a "quasi-partnership" company having the following three elements, namely: S/N o5dcRvoPcEuuSzaykuzq6g

an association formed or continued on the basis of a personal relationship involving mutual confidence;

(ii) an agreement or understanding that all or some of the shareholders shall participate in the conduct of the business; and

(iii) restriction upon transfer of the members’ interests so that if confidence is lost or one member is removed from management, he cannot take out his stake and go elsewhere. (see: The decision of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. [1973] AC 360 at 370). It is an established principle of law that the courts will subject the exercise of legal rights to equitable considerations in given circumstances. There is no universal formula to determine the circumstances under which the courts will do so. Lord Wilberforce in Ebrahimi's case, provided illustrations as to the circumstances whereby the courts will do so. The case for giving effect to equitable considerations must be made in each instance and it is not sufficient simply to assert that the company is small or private, for in many cases the basis of the relationship will be adequately and exhaustively laid down in the Articles of Association of the company. If it is so defined by the Articles of Association or supplemented by a shareholders' agreement, then there is little room for founding further legitimate expectation beyond those outlined in the documents, (see also: Company Law by Farrar, 3rd edn. 1991 at pp. 464-465).’ [Emphasis added] S/N o5dcRvoPcEuuSzaykuzq6g See also Tien Ik Enterprises Sdn Bhd & Ors v Woodsville Sdn Bhd [1995] 1 MLJ 769 which clarified that the elements of a quasi-partnership are not prescriptive.

In this case, the Plaintiffs did not explicitly plead that D7 to D14 are quasi-partnerships or that they had a legitimate expectation based on any unwritten understanding or arrangement between the shareholders as to rights attached to their shareholding beyond what is written in the constitution of these companies.

However, the Plaintiffs pleaded the following material facts: a) the Allied and Grand group of companies started with GOE as a partnership between D1, P1 and P2; b) as a family business, there was an understanding and mutual intention that the business would remain within the family and that their children would succeed them; and c) each had a role in the conduct of business i.e. for their part, the common understanding was for the Plaintiffs to provide expertise and to assist in product knowledge, counter sales and coordination, procurement of goods, business development for new products, sales and marketing. In that context, the Plaintiffs relied on the claimed partnership origins and duration of joint management to argue that D7 to D14 are quasi-partnerships in their complaint of oppression as minority shareholders. S/N o5dcRvoPcEuuSzaykuzq6g

This Court finds that the above pleas are sufficient to consider if the allegations of oppression ought to be evaluated in the context of D7 to D14 as quasi-partnerships and if so, what, if any, were the unwritten understandings and arrangements as to shareholder rights that the majority are said to have infringed. Restrictions on share transfer

D7 to D14 are separate corporate entities governed by the memorandum and articles of association (“M&A”). Except for D7 and D8, the Articles of Association of the companies adopted the Articles in Table A, Fourth Schedule of the Companies Act 1965.

The Plaintiffs did not argue the point, but this Court noted that the Articles of Association of D7 and D8 do contain restrictions on the transfer of shares and allotment of new shares issued to existing members in the form of pre-emption rights for existing members. However, the restriction is only procedural in that: a) the person proposing to transfer any share is required to give notice in writing to the company of such intention, specifying the sum he fixes as the fair value; and b) if the company cannot find a member willing to purchase the share within 14 days, the proposing transferor shall at any time within 2 months afterwards, be at liberty to sell and transfer the share to any person at any price. S/N o5dcRvoPcEuuSzaykuzq6g There were no other restrictions on the transfer of shares in D7 to D14 other than what appears in Table A on the usual discretion of directors to approve a transfer. Personal relationship involving mutual confidence

The evidence did suggest that D12 had a partnership origin from GOE, while D11 was incorporated from GOE’s branch in Alor Star, Grand Central Enterprise. However, D11 and D12 were incorporated in 1996, and GOE’s business registration only expired on 9-2-2007. As previously noted, the Plaintiffs appear to have continued deriving unexplained partnership profits and losses from GOE until 2021.

It was not evident that the partnership dynamics between the Plaintiffs and D1 in GOE, if any, carried forward and remained in practice in D11 and D12 or any of the other corporate entities that were set up. In a quasi-partnership, “mutual trust and confidence” is not abstract i.e. it must be inferred from concrete features of how the company is structured and actually run. It does not follow that all family businesses are quasi-partnerships.

Apart from D1’s relationship with P1 and P2 as siblings and in-laws, no evidence was adduced to prove that D7 to D14, or GOE for that matter, operated based on mutual trust and confidence as between P1, P2 and D1. In fact, as detailed in the next section, this Court could not find any element of shared risks, responsibilities or active joint management by these parties in D7 to D14. S/N o5dcRvoPcEuuSzaykuzq6g Shareholder management rights

As to the stated role in the companies that the Plaintiffs pleaded each had entrusted in the other to carry on in the “quasi-partnership,” this Court noted that D7 was the first company incorporated in 1989 and it was set up in the name of P1 and D2 together with one Tan Ah Booy (“PW7”). On this fact alone, D7 was not obviously formed or continued based on any personal relationship between PW7 and the other incorporators.

According to PW7, she was in charge of managing D7 for 3 years before D1 bought her shares, and she exited the company. During her time there, PW7 did not know what P1’s role in D7 was. Just as D2 was only a director in name, this Court accepted PW7’s testimony as a disinterested party and inferred that like D2, P1 was also a director in name only.

P2 also claimed to have been involved in incorporating D7, but this was also not borne out as he was not appointed a director of D7 until 1991. P2 did vaguely assert that he contributed strategic input on expansion and secured one product distributorship, but even if this is true, there was no evidence of consistent management or business input in D7 to D14, in the areas they claimed to be responsible for.

Such evidence, and more crucially, the contemporaneity of such evidence, is important because the law recognises that legitimate expectations (even if they once existed) can cease. Per Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd and Others (1998) S/N o5dcRvoPcEuuSzaykuzq6g 28 ACSR 688 per Young J (“Fexuto”), and affirmed on this point by Spigleman CJ for the Court of Appeal in (2001) 37 ACSR 672: “A legitimate expectation does not last forever. It will be lost if it is no longer practicable for the right to the expectation to continue.”

Fexuto was also cited with approval in Dato' Low Mong Hua V. Banting Hock Hin Estate Co Sdn Bhd & 8 Ors [2003] CLJU 387 (“Dato’ Low Mong Hua”) where the High Court rejected the argument that uninterrupted management control since 1957 gave rise to a binding legitimate expectation. The Court stressed that legitimate expectations must be grounded in evidence of agreement or understanding: “The Court is of the opinion that even if the Petitioner and his family had in the past held on to management control within the group, it cannot mean that such management control was entrenched, or as of right or could not be changed in any way whatsoever, or that the other members of the group had simply signed away their rights to management forever. The Petitioner's claim to an entrenched right to management control, either as a right inherited from his father, or on account of his alleged superlative management skill, is also without merit and cannot be accepted by the Court.”

The facts of this case fell far shorter than in Dato’ Low Mong Hua. The unchallenged evidence of D1 was that his 2 sons, Tan Yean Peng and Tan Yean San, had been managing D10 and D11 since the 1990s, and his daughter Mary Tan had been managing D7 since 2001 and D14 since its inception. Apart from D12, there was S/N o5dcRvoPcEuuSzaykuzq6g no evidence of any role played by the Plaintiffs in D7 to D14 at all, other than as named directors.

Consistent with the personal income tax returns of the Plaintiffs that were adduced, it was at least clear that the Plaintiffs were working directors and derived an employment income from D12 and directors’ fees from the other entities. By the same token, the evidence did not support the proposition that the Plaintiffs were also working directors in the other companies, apart from D12.

Based on the DCR dated 16-8-2022 for D7 that the Plaintiffs approved, it was accepted that only D1 received a directors’ remuneration from that entity. In these proceedings, the Plaintiffs also had not claimed for any outstanding directors’ salary other than from D12. The inference is that the Plaintiffs were not actively working in the other companies.

Even as it relates to D12, P1 and P2 did not assert or adduce evidence to demonstrate that they carried on their stated role in the conduct of its business. As far as this Court could discern, they attended to counter sales and co-signed cheques jointly with D1 as a required signatory. There was no evidence of a management role in D12 from either a supervisory or strategic standpoint.

From all accounts, there was no evidence of what one might expect in the joint management of a quasi-partnership (e.g. in terms of delegation of responsibilities among directors, participation in financial control, capital management and other major operational decisions). S/N o5dcRvoPcEuuSzaykuzq6g

In fact, from their own testimony, the Plaintiffs seemed to accept that they were not generally consulted and that D1 decided on matters relating to directors’ fees, salary and bonus. P2 agreed that D1 made all the major decisions in D7 to D14 and the Plaintiffs would abide.

The Plaintiffs also did not prove that they had ventured their own money as capital or assumed personal liabilities for the debts of the companies. Based on the evidence, the precise source of funds for the capitalization of D7 to D14 could not be ascertained. It was also not the Plaintiffs’ case that the shareholders only extracted profits from D7 to D14 via bonuses. As noted, there was evidence that the companies declared dividends for shareholders.

Thus, while the Plaintiffs claimed that they played a part in each company and shared responsibilities equally as “partners,” there was no clear evidence of this. Specifically, no evidence was led on either the financial risks undertaken nor of the day-to-day conduct of the companies' affairs to lay the foundation for the claim that D7 to D14 operated as quasi-partnerships with an unwritten understanding or arrangement that the Plaintiffs would always have shareholder management rights in D7 to D14. Acts of oppression

It is trite that the Court will not generally interfere in the internal management of companies. To invoke remedies under section 346 of the CA, that member must demonstrate the existence of one or both of 2 limbs of that provision: S/N o5dcRvoPcEuuSzaykuzq6g Limb (a) refers to the “conduct of the affairs of the company” or the exercise of the “powers of the directors” in a manner that is either oppressive “to one or more of the members” or in disregard of “his or their interests as members”. Limb (b) refers to “an act of the company” or a “resolution of the members” which either unfairly discriminates against or is otherwise prejudicial “to one or more of the members”.

The express words of section 346 of the CA make it clear that relief under this provision is only available: a) to a member to protect his interests in his capacity as a member, against conduct that is singularly prejudicial to that member. This is distinguished from wrongs suffered by a complainant in any other capacity (e.g. as a director or employee) and wrongs suffered by the company itself which affects all the shareholders equally (Low Cheng Teik & Ors v Low Ean Nee [2024] 9 CLJ 171); and b) in relation to conduct, whether by the directors in exercise of their powers or by the members in general meeting, it must be an act of the company or concerns the affairs of the company and not e.g. a private arrangement between the shareholders (Jet Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd & Ors & Anor appeal [2013] 2 CLJ 277). These are threshold requirements that must be satisfied before any consideration is given to proof of the conduct complained of. S/N o5dcRvoPcEuuSzaykuzq6g a) Succession planning

The Plaintiffs’ case is that it was understood that their children should succeed them as directors. By conduct, the parties are at least in agreement that discussions were had since 2018 that they should plan for succession, and an external consultant was appointed to assist.

The only documented record of this is a rudimentary chart setting out the existing directors of the “Allied” group entities and “Grand” group entities and the new incoming directors as the proposed Succession Plans. According to this chart, the Plaintiffs were to resign and be replaced by their 2 sons, but D1, D2 would remain as directors, with 4 of their children to be appointed as additional directors.

The company secretaries who were called to testify at the trial confirmed that they were instructed by D1 to prepare draft directors’ written resolutions to that effect, which the Plaintiffs claimed they never received. In any case, the draft resolutions contemplated the appointment of the children and the resignation of the Plaintiffs. Evidently, no one opposed the appointment of the Plaintiffs’ children to the board of directors to succeed them as such.

However, P1 and P2 did not agree to the Succession Plans as proposed. Specifically, this Court finds that it was the call for the Plaintiffs to resign that presented as an obstacle to the passage of S/N o5dcRvoPcEuuSzaykuzq6g the Succession Plans because the Plaintiffs were unwilling to resign if D1 and D2 did not also resign.

Quite apart from there being no unwritten understanding or arrangement that the Plaintiffs would have shareholder management rights in D7 to D14, the Plaintiffs also did not prove any foundational understanding that succession by their children in the way they envisaged was a condition of the incorporation of D7 to D14 or of their shareholding.

In any case, this issue had become moot because the Plaintiffs’ own children resigned from their positions at D12. Crucially, before this happened, D1’s children were in fact appointed as additional directors with the agreement of the Plaintiffs.

For these reasons, it cannot be said that the proposal of the Succession Plans by D1 was a deviation from any prior understanding or that the failure of the parties to reach a consensus on this matter constituted an oppression to P1 and P2 in their capacity as members. b) Dilution of control

On 28-10-2022 and 1-11-2022, Board of Directors meetings were convened to discuss several agenda items including the appointment of D1 and D2’s children as additional directors and the addition of D1 and D2’s children as cheque signatories who can sign cheques jointly with D1. S/N o5dcRvoPcEuuSzaykuzq6g

As noted, based on the minutes of the meeting adduced, it would appear that, save for resolution on the addition of cheque signatories, which was opposed by P1 and P2, and which passed by D1’s casting vote as chairman, the other items were resolved by consensus (“Minutes of Meeting”).

The Plaintiffs’ complaint is that they had objected to the inclusion of D1’s children as additional bank signatories. As there were no allegations of any abuse of this authority to the detriment of the Plaintiffs as shareholders, this Court failed to see how this can be regarded as oppressive to the Plaintiffs. c) Access to company financial information

The Plaintiffs complained that they were denied access to the monthly financial reports and management accounts of all the Companies to “ensure a healthy check and balance of the finances and to avoid any inconsistencies in the financial reporting.” P2 claimed that D1 refused to reply to a request on 24-2-2023 and instructed staff not to share any financial records with them.

D1’s evidence at trial was that the Plaintiffs had unrestricted access and were consistently signing cheques and audited financial statements for D11, D12 and D14 until FYE 2022. And that it was not the practice to prepare comprehensive monthly financial reports. D1’s daughter, employed at D12 since 2005 as an accountant, also testified that she would give the Plaintiffs access to information if they asked, but that the Plaintiffs had never asked. S/N o5dcRvoPcEuuSzaykuzq6g

As directors, the Plaintiffs were certainly entitled to have access to the financial information of the group companies. However, the only indication that the Plaintiffs might have been denied such access is an unanswered letter from the Plaintiffs requesting that they be emailed copies of the monthly management accounts of D7, D9, D12, D13 and D14 on 23-2-2023, a month before this action was initiated.

Evidence that the Plaintiffs were given all relevant accounting documents of D11, D12 and D14 in August 2023 to sign off the financial statements for FYE 2022 was not specifically challenged.

Further, this Court was more persuaded by the objective facts that the Plaintiffs always signed off the statutory financial statements without question, as admitted by P1, she had never requested for financial records, and there is no evidence of either Plaintiff having requested information prior to the request in early February 2023. These facts do not support the Plaintiffs’ contention that they were denied access. d) Removal as directors

It should be highlighted that Article 74 in the M&A of D7 did identify the first directors (who included P1) and provide that: “They, except for Chau Ngo Moy, shall be permanent directors of the company unless they cease to be directors under Article 79 hereof and they shall not be subject to S/N o5dcRvoPcEuuSzaykuzq6g retirement by rotation and shall not be taken into account on determining the rotation of retirement of directors.” [Emphasis added] Article 79 provided for the list of circumstances when the office of a Director shall be vacated. Notably, all the M&As, including that of D7, also expressly allowed the majority to remove a director by ordinary resolution.

Article 74 appeared to have been amended to remove the provision for permanent directors to facilitate the Plaintiffs’ removal as directors in 2024. However, it was not part of the Plaintiffs’ case that P1’s removal as a director of D7 was contrary to Article 74 of the M&A: a) This omission likely reflects an appreciation that reliance on Article 74 in D7’s M&A would undermine their complaint regarding their removal from the other companies, which did not contain a corresponding provision; and b) As confirmed by the company secretary in their unchallenged evidence, the Plaintiffs’ removal was in accordance with the M&A and company law.

The thrust of the Plaintiffs’ closing submissions is that from 2018, D1 had orchestrated the alleged acts summarised in paragraph 17 above as termination of employment and non-payment of claims S/N o5dcRvoPcEuuSzaykuzq6g as a series of actions to force them out of the management of the business, and that this culminated in their removal as directors.

If it were the Plaintiffs’ case that their ultimate removal as directors contravened their legitimate expectation of retaining a permanent seat on the Board because of their longstanding role as named directors in D7 to D14, the Plaintiffs would have had to plead and prove they were immune from removal as an incident of their status as shareholders.

This Court noted that the aforementioned legitimate expectation was not clearly articulated in the pleading, and the Plaintiffs did not attempt to prove the existence of any oral assurances, unwritten understanding or arrangement to that effect. A long run as a named director does not, on its own, give rise to a legitimate expectation that this will continue.

It must be recalled that this Court must find indications of an unwritten understanding and in so doing, the case precedents involving complaints of exclusion from management participation do not support the proposition that a long and uninterrupted run as a director suffices without more.

This Court has found that the Plaintiffs were directors in name only and their removal from directorship does not constitute oppression unless it also affects their rights as shareholders. To illustrate: a) In Tay Bok Choon v. Tahansan Sdn. Bhd [1987] CLJ Rep 24; [1987] 1 CLJ 441; [1987] 1 MLJ 433, the court relied on S/N o5dcRvoPcEuuSzaykuzq6g the petitioner's promised appointment as chairman, his and his son's directorship, his financial contributions including further capital and loans to other shareholders, his assumption of company liabilities, and the overall quasi-partnership nature of the company to conclude that he had a legitimate expectation of management rights; and c) In Wong Shee Cheong & Anor v. Lee Industries Sdn Bhd & Ors [2011] CLJU 666; [2011] 1 LNS 666, the court relied on the existence of oral agreements for joint management, the fact that the shares in the company were purchased with family funds and the 1st Petitioner and the 2nd Respondent did in fact serve as active directors and main decision-makers from 1989 until 2005, with their joint decisions consistently ratified by other investors.

In this case, other than their longstanding appointment as directors of D7 to D14 from inception until their eventual removal in 2024, there were no objective facts on which this Court can infer the existence of any unwritten arrangement or understanding to found their complaints of oppression as shareholders. Specifically, there are no facts to support the existence of any expectation that the Plaintiffs would be immune from being removed as directors just because they are shareholders.

As noted, a proposed EGM in March 2023 was stopped by the ad interim injunction granted by the Court but the order was not affirmed after full inter-partes hearing. The broad grounds of judgment of the Judge who evaluated the affidavit evidence in that S/N o5dcRvoPcEuuSzaykuzq6g instance, was not persuaded that there were any serious issues to be tried and there was no appeal.

Ultimately, the Plaintiffs’ removal as directors was on grounds of their undisclosed conflict of interest in relation to the Set Up of Mechwell. The Plaintiffs denied having any knowledge of the Set Up of Mechwell on 15-12-2022 until after this suit was filed. This Court found the position taken to be improbable on the facts i.e. a) Mechwell was set up by her son, Low Ching Wei, while he was still employed in D12 and a company brochure implicated the Plaintiffs as “founders”; b) The business of Mechwell was substantially like that of D12 as evidenced by the fact that there are recorded instances of D12’s customers moving to Mechwell; and c) The Plaintiffs provided the guarantees needed by the banks for a RM4 million charge that Mechwell created on 3-4-2023.

As discussed, this Court has found that the Plaintiffs did not prove the legitimate expectations that they rely on to found this complaint of oppression. Even if that were not the case and the Plaintiffs did have a legitimate expectation that they would be immune from removal as directors, the oppression remedy requires clean hands and this point is most clearly articulated by Lord Cross in Ebrahimi itself: S/N o5dcRvoPcEuuSzaykuzq6g “A petitioner who relies on the 'just and equitable' clause must come to court with clean hands, and if the breakdown in confidence between him and the other parties to the dispute appears to have been due to his misconduct he cannot insist on the company being wound up if they wish it to continue.”

On this point, see also Michael Yeang Tze Loong v FF Wire Sdn Bhd & Ors [2019] CLJU 207 and in the context of oppression, see Soh Jiun Jen v Advance Colour Laboratory Sdn Bhd & Ors [2010] 5 MLJ 342 where the Court of Appeal did not disturb the finding of fact by the High Court that the resolution to remove the petitioner as a director was neither oppressive nor unfairly prejudicial as the petitioner had failed to accord time and effort to the company, had been involved in a competing business, and had breached his fiduciary duties.

This Court did not need to make any specific findings on the Set Up of Mechwell, or on the Plaintiffs’ other complaints. Suffice to say that the records reveal compelling evidence relating to the Alleged Mishandling of Cash by P1 and long absences from work by P2. The evidence also showed that P1 and P2 were making substantial expense claims for roles that was unclear, all of which were, as noted, ultimately reimbursed.

Other complaints

It was tolerably clear to this Court that D1 considered P1 and P2 to be problematic, non-performing working directors and wanted them to resign or retire since 2021. This Court would consider that the S/N o5dcRvoPcEuuSzaykuzq6g Plaintiffs may have had an arguable case of wrongful termination as employees, but this was not the pleaded case and no more needs to be said about that.

Ultimately, the Plaintiffs’ complaints listed under termination of employment and non-payment of claims did not affect the Plaintiffs’ rights as shareholders. Counterclaim for abuse of process

According to D1, the Plaintiffs initiated this action for the collateral and/or ulterior purpose to compel him to purchase their shareholdings in D7 to D14 at an unreasonable price and to frustrate and/or destroy the substratum of the said companies. The counterclaim pleaded that a tort of abuse of process is thereby made out.

The burden of proof was on the Defendants in the main claim to establish the elements of the tort of abuse of process which are as follows:

The process complained of must have been initiated;

The purpose for initiating that process must be for some purpose other than to obtain genuine redress which the process offers. In other words, the dominant purpose for which the process was invoked must be collateral, that is to say, aimed at producing a result not intended by the invocation of the process; and S/N o5dcRvoPcEuuSzaykuzq6g

The Defendant must have suffered some damage or injury in consequence. (Conweld Engineering Sdn Bhd & Ors v. Goh Swee Boh @ Goh

The facts that D1 relied upon were (a) completion of the buyout of the 3 Allied group companies in a transaction that ran from 3-3- 2022 to December 2022, (b) the Plaintiffs’ statement of intent to sell their shares in the rest of the group companies at the EGM of 28-10-2022, and (c) D1’s disagreement with the price offered by the Plaintiffs. On these facts, D1 concluded that this action was commenced to force an inflated buyout.

This Court finds that there is a leap in the logic as the Defendants have completely overlooked the grievances that the Plaintiffs have advanced including, in particular, the efforts to push the Plaintiffs out of the company operations that culminated in their forced retirement and removal as directors. As this Court has found, it is tolerably clear that this was happening, though perhaps not entirely without cause.

This Court has ultimately determined that the Plaintiffs’ action failed because they failed to prove the existence of any legitimate expectations as shareholders that the Defendants had infringed by their actions, that could be enforced in equity using section 346 of the CA. This was in large part because of the restrictions in that statutory remedy. S/N o5dcRvoPcEuuSzaykuzq6g

There can only be an abuse of process if the case advanced is so unsustainable that it is liable to be struck out under Order 18 Rule 19(1) of the Rules of Court 2012 and at its inception, this was not obvious. In any case, the Defendants did not prove damages arising from the alleged collateral abuse of process, an essential element of the tort.

In conclusion, D7 to D14 did not operate as quasi-partnerships and no unwritten understandings or arrangements were established to prove entrenched shareholder management rights, or a permanent seat on the Board of Directors with succession rights on the Board of Directors for the Plaintiffs’ children as an incident of their shareholding. Therefore, the complaints of oppression were not conduct that affected the Plaintiffs’ rights as shareholders and do not fall within the meaning of section 346 of the CA.

The Plaintiffs are and remain minority shareholders with full beneficial rights and interests in their 25% stake in D4 to D14 as no trust over those shares were proven to exist for the benefit of D1. It cannot be said that the initiation of this action constitutes an abuse of process as it was not obviously unsustainable at its inception. It failed on evidentiary grounds because of restrictions in the statutory remedy. S/N o5dcRvoPcEuuSzaykuzq6g

Accordingly, the claim was dismissed with costs of RM100,000.00 and counterclaim was dismissed with costs of RM50,000.00. Bertarikh: 30 Mac 2026 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR Peguam Untuk Plaintif: Rajpal Singh a/l Wazir Singh (Jaseline Ong Li Foong bersamanya) Tetuan Amir & Rajpal Ghai Untuk Defendan: Ravinder Singh Sodhi a/l Manmohan Singh Sodhi (C Mugelendran a/l Chandran bersamanya) Tetuan Gurmit Sodhi Chambers S/N o5dcRvoPcEuuSzaykuzq6g