/akn/my/judgment/court-of-appeal/2017/b972cba7-6272-4dbb-8c5a-7f482c21828d
Court of Appeal of Malaysia15 Sept 2017W-01(A)-362-09/2016
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“In the matter of the consent given by the Minister of Domestic Trade, Cooperation and Consumerism Malaysia to Dong Jiao Zong Higher Learning Centre Bhd on 11th November 2015 pursuant to Section 24(4) Companies Act 1965; And In the matter of an application for an order of Certiorari, Mandamus and Declaration; And In the”
“jurisprudence will amount to an entrenched minority right to founder members which can result in a winding up of a company under the well-established principles of Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. I am not saying here that Ebrahimi’s principle applies but I am just mentioning the seriousness of the am”
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1 THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO. W-01(A)-362-09/2016 BETWEEN
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1. TEMENGGONG DATO’ LAU LEE MENG, THE CHAIRMAN OF UNITED CHINESE SCHOOL COMMITTEE’S ASSOCIATION OF MALAYSIA [Suing on behalf of himself and all other Members Of United Chinese School Committee’s Association of Malaysia except for members supporting the amendments to the Articles of Association of Dong Jiao Zong Higher Learning Centre Bhd which were made on 10.19.2015] ... APPELLANTS
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2. ONG KOW EE @ ONG CHIOW CHUEN, CHAIRMAN OF GABUNGAN PERSATUAN GURU-GURU SEKOLAH CINA MALAYSIA [Suing on behalf of himself and all other members of Gabungan Persatuan Guru-Guru Sekolah Cina Malaysia]
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3. MERDEKA UNIVERSITY BHD [Collectively suing on behalf of the represented association and the company itself and all other members or Dong Jiao Zong Higher Learning Centre Bhd except for the members supporting the amendments to the Articles of Association made on 10.10.2015] AND
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1. MENTERI PERDAGANGAN DALAM NEGERI, KOPERASI DAN KEPENGGUNAAN MALAYSIA … RESPONDENTS
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2. DONG JIAO ZONG HIGHER LEARNING CENTRE BHD [COMPANY NO.: 292570-A] 2 In the High Court of Malaya at Kuala Lumpur Application for Judicial Review No. Wa-25-28-02/2016] In the matter of the consent given by the Minister of Domestic Trade, Cooperation and Consumerism Malaysia to Dong Jiao Zong Higher Learning Centre Bhd on 11th November 2015 pursuant to Section 24(4) Companies Act 1965; And In the matter of an application for an order of Certiorari, Mandamus and Declaration; And In the matter of Order 53 Rules of Court 2012 BETWEEN
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(a) TEMENGGONG DATO’ LAU LEE MENG, THE CHAIRMAN OF UNITED CHINESE SCHOOL COMMITTEE’S ASSOCIATION OF MALAYSIA [Suing on behalf of himself and all other Members Of United Chinese School Committee’s Association of Malaysia except for members supporting the amendments to the Articles of Association of Dong Jiao Zong Higher Learning Centre Bhd which were made on 10.19.2015] ... APPLICANTS
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(b) ONG KOW EE @ ONG CHIOW CHUEN, CHAIRMAN OF GABUNGAN PERSATUAN GURU-GURU SEKOLAH CINA MALAYSIA [Suing on behalf of himself and all other members of Gabungan Persatuan Guru-Guru Sekolah Cina Malaysia]
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(c) MERDEKA UNIVERSITY BHD [Collectively suing on behalf of the represented association and the company itself and all other members or Dong Jiao Zong Higher Learning 3 Centre Bhd except for the members supporting the amendments to the Articles of Association made on 10.10.2015] AND
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1. MENTERI PERDAGANGAN DALAM NEGERI, KOPERASI DAN KEPENGGUNAAN MALAYSIA … RESPONDENTS
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2. DONG JIAO ZONG HIGHER LEARNING CENTRE BHD [COMPANY NO.: 292570-A] Coram: David Wong Dak Wah, JCA Hamid Sultan bin Abu Backer, JCA Umi Kalthum binti Abdul Majid, JCA Hamid Sultan Bin Abu Backer, JCA (Delivering Dissenting Judgment of The Court) GROUNDS OF JUDGMENT [1] The appellant’s appeal is against the decision of the learned High Court judge who refused to quash the decision of the 1st respondent who purportedly had acted mechanically and without taking into consideration relevant matters when allowing an amendment to the Articles of Association of the 2nd respondent. [2] It is important to note that the amendment is about one group taking control of the 2nd respondent to the detriment of the appellants who are also the founder members of the 2nd respondent. Further, when the amendment was sought for, there was a requirement for the 2nd 4 respondent to give particulars to the Companies Commission of Malaysia
subparagraph
(CCM). The important information which must be supplied to CCM and will form part of the decision making process of the 1st respondent is (a) the rationale of the amendment(s); (b) the justification of the amendments; (c) the impact prior and after the amendment(s); and (d) whether the proposed amendment(s) is and/or are contrary to any provisions of the Companies Act 1965. [3] It must also be noted that the amendments were not procedural in nature but substantive in nature, affecting a group or community or community interest which on the part of the 2nd respondent requires full disclosure to the relevant authority to subscribe to the concepts of accountability, transparency and good governance for the relevant authority to take into consideration of the true impact of the amendment before deciding whether the amendment should or should not be allowed. The failure of the 2nd respondent in not disclosing the crucial information to the authorities taints the whole process requiring the decision of the 1st respondent to be quashed. It must not be missed that even though the appellants as well as the 2nd respondent are veiled in the banner of private institutions, but their role is inextricably entwined with the aspiration of Chinese community in the country in the field of education. In consequence, accountability, transparency and good governance cannot be compromised. And the Minister has been designated to a role akin to a referee to ensure harmonious relationship is maintained without any violation to the purpose and intent of the 2nd respondent. 5 Brief Facts [4] The brief facts have been well articulated by the learned trial judge. I do not wish to repeat, save to say that this judgment must be read together with the High Court judgment, to appreciate the grounds of my judgment in the proper perspective. [See Temenggong Lau Lee Meng, Pengerusi United Chinese School Committee’s Association of Malaysia & Ors v Menteri Perdagangan Dalam Negeri, Koperasi dan Kepenggunaan Malaysia & Anor [2016] 1 LNS 1304]. I will summarise the facts of the case in my own words as follows:
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(a) The 1st appellant was formed by the Associations of the Chinese Board of Governors of each state in the country. Its objective inter alia is to safeguard, promote and develop the Chinese education in Malaysia and commonly referred to as Dong Zong.
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(b) The 2nd appellant is formed by the Chinese school teachers in various parts of the country inter alia to promote Chinese education and cultural activities and commonly referred to as “Jiao Zong”.
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(c) The 3rd appellant was formed by the 1st and 2nd respondent in the effort of ensuring the continued existence and development of Chinese education in Malaysia.
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(d) The appellants jointly established the 2nd respondent, a non-profit limited company and in accordance with section 24 of the Companies Act 1965 (CA 1965). It is provided under 6 clause 5 of the Memorandum of the 2nd respondent as follows: “No addition, alteration or amendment shall be made to or in the provisions contained in the Memorandum or Articles of Association of the Company for the time being in force, unless the same shall have been previously submitted to and approved in writing by the Minister vested with such authority in Malaysia.”
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(e) Section 24(4) of CA 1965 states: “Where the memorandum or articles of a company include as a result of a direction of the Minister given pursuant to subsection (3) or pursuant to any corresponding previous written law a provision that the memorandum or articles shall not be altered except with the consent of the Minister the company may with the consent of the Minister by special resolution alter any provision of the memorandum or articles.”
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(f) Clause 14(b)(i) of the Articles of Association provides that each of the appellants shall have five directors as their nominees, in the Board of Directors of the 2nd respondent constituting majority of the Board of Directors. The composition as per the appellants chart read as follows: No. Classes of members which form the Board of Directors of the Company Number of Nominees and/or Members
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1. Registered Organisations
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(a) Dong Zong
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(b) Jiao Zong
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(c) Merdeka University Bhd 5 5 5 2. Individual Members 10 3. Member Appointed by the Board 6 7 TOTAL 31 [Note: I observed that it is not clear from the wording of section 24(4) of CA 1965 whether consent must first be obtained from the Minister before the special resolution can be placed before the members. As this issue was not raised, I will not deliberate on it].
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(g) There had been internal squabbling between the members of the Board of various groups that per se is not a relevant factor for purpose of this judgment even though the 2nd respondent’s group has secured necessary approvals from the EGM but it has been hotly contested.
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(h) The effect of the amendment will reduce the appellants representative from 5 nominees each to only 2 and the number of directors to be elected will be increased from 10 to
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25. The appellants chart on this reads as follows: No. Classes of members which form the Board of Directors of the Company Number of Nominees and/or Members
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1. Registered Organisations
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(a) Dong Zong
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(b) Jiao Zong
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(c) Merdeka University Bhd 2 2 2 2. Individual Members 25 3. Member Appointed by the Board 4 TOTAL 35
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(i) The amendments were sent for approval of the 1st respondent on 15-10-2015. The appellants on 2-11-2015 has brought to 8 the attention of the 1st respondent that there is a dispute over the amendments. The objection was also informed to CCM.
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(j) Despite of the objection, CCM wrote to the 1st respondent recommending the amendment. Within the next 6 days, the 1st respondent gave the consent to the amendments.
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(k) From the official website of CCM, there are about 4 columns which are to be filled by the 2nd respondent when making its application for the approving of the 1st respondent to amend its Articles of Association under section 24(4) of the Companies Act 1965. The said column reads as follows: No. Fasal / Artikel Semasa Cadangan Pindaan Ulasan 1. Setiap pindaan perlu diulas dengan mengambil kira perkara-perkara berikut:
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(i) Tujuan/Sebab;
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(ii) Justifikasi;
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(iii) Impak sebelum dan selepas pindaan; dan
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(iv) Percanggahan dengan Akta Syarikat 1965.
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(l) The reasons given by the 2nd respondent in Annexure A which falls short of what is required to be stated as per the appellants chart read as follows: 9 No. Reasons Amendments for Article 14(b) Amendments for Article 18 1. Rationale Increase number of Board from 31 members to 35 members. The existing Art. 18 (vii) be deleted in its entirety.
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2. Justification Due to expansion of businesses and upgrading of New Era College to University College statues, the Board requires more members to assist in process, manage, handle and deal with their business affairs. To remove vague and unnecessary condition for disqualification of Directors that will cause any conflict 3. Impact:
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(1) Before
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(2) After Restriction to the number of the Board without amending the M&A. To increase the number of Board from 31 members to 25 members. To avoid unnecessary disputes create to the Directors without amending the M&A. The existing Article 18(ix) to the renumbered to read as Article 18(vii).
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4. Whether contrary to Companies Act 1965 The 2nd respondent is of the view that the proposed amendments are not contrary to Companies Act 1965. The 2nd respondent is of the view that the proposed amendments is not contrary to Companies Act 1965. [5] In my view, the reasons stated by the 2nd respondent prima facie does not address the information which is required to be stated to the CCM for the information of the Minister. Failing to furnish the required information to the relevant authorities that too by the 2nd respondent on a matter related to community and/or community interest does not reflect bona fide in obtaining the authorities consent. That per se will lead to authorities making decision without being duly informed. Such 10 conduct will undermine the integrity of the executive decision making process warranting the decision to be quashed. [6] In ordinary circumstances related to company matters, the consent of the Minister is not a sine qua non to amend the Articles of Association. In the instant case, the Minister’s consent is necessary. That is to say, the Minister stands as a stakeholder in relation to the relevant Articles of Association. The amendment attempted by the 2nd respondent in corporate jurisprudence will amount to an entrenched minority right to founder members which can result in a winding up of a company under the well-established principles of Ebrahimi v Westbourne Galleries Ltd [1973] AC 360. I am not saying here that Ebrahimi’s principle applies but I am just mentioning the seriousness of the amendment which attempts to take control of the strength of the appellants in decision making process of the 2nd respondent. On such a serious implication on the proposed amendment, if proper information is not supplied to the relevant authorities it is unlikely for the Minister to make a decision on informed basis. If the relevant information has been supplied to the Minister and the Minister makes a decision then the court will not ordinarily intervene in the decision of the Minister unless the Rule of Law has been compromised. [See National Union of Bank Employees v Director General of Trade Unions & Anor [2015] 1 MLJ 881]. [7] Support for the proposition that the applicant has a duty to act bona fide and supply the relevant information has been captured in a number of cases though these cases are not related to administrative law. To name a few are as follows: 11
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(a) In Allen v Gold Reefs of West Africa, Ltd [1900] 1 Ch 656 at page 671 to page 672 it was stated: “The power thus conferred on companies to alter the regulations contained in their articles is limited only by the provisions contained in the statute and the conditions contained in the company's memorandum of association. Wide, however, as the language of s. 50 is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied, and are seldom, if ever, expressed. But if they are complied with I can discover no ground for judicially putting any other restrictions on the power conferred by the section than those contained in it.”
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(b) What is beneficial to the company as a whole was set out in the case of Greenhaigh v Arderne Cinemas Ltd and Others [1950] 2 ALL ER 1120 and adopted by the Federal Court in Paidiah Genganaidu v The Lower Perak Syndicate Sdn Bhd & Ors [1974] 1 MLJ 220 and it reads as follows: “Certain things, I think, can be safely stated as emerging from those authorities. In the first place, it is now plain that "bona fide for the benefit of the company as a whole" means not two things but one thing. It means that the shareholder must proceed on what, in his honest opinion, is for the benefit of the company as a whole. Secondly, the phrase, "the company as a whole," does not (at any rate in such a case as the present) mean the company as a commercial entity as distinct from the corporators. It means the corporators as a general body. That is to say, you may take the case of an individual 'hypothetical member and ask whether what is proposed is, in the honest opinion of those who voted in its favour, for that person's benefit. I 12 think the thing can, in practice, be more accurately and precisely stated by looking at the converse and by saying that a special resolution of this kind would be liable to be impeached if the effect of it were to discriminate between the majority shareholders and the minority shareholders so as to give to the former an advantage of which the latter were deprived. When the cases are examined where the resolution has been successfully attacked, it is on that ground that it has fallen down. It is, therefore, not necessary to require that persons voting for a special resolution should, so to speak, dissociate themselves altogether from the prospect of personal benefit and consider whether the proposal is for the benefit of the company as a going concern. If, as commonly happens, an outside person makes an offer to buy all the shares, prima facie, if the corporators think it is a fair offer and vote in favour of the resolution, it is no ground for impeaching the resolution because they are considering the position of themselves as individual persons.” [Emphasis ours] [8] I have read the appeal record and the able submissions of the learned counsel. After much consideration to the learned counsel of the 2nd respondent and of the 1st respondent, I take the view that the appeal must be allowed and the decision of the Minister must be quashed. [9] In the instant case, the 2nd respondent has not furnished the required information to CCM for the Minister’s consideration. On this issue, the 1st and 2nd respondents submission were not adequate to enable me to decide on the bona fide issue. [10] The conduct of the 2nd respondent has led to an unreasonable decision in the Wednesbury’s sense to have been made by the Minister. Lord Greene MR in the often cited case of Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1947] 2 ALL ER 680 had this to say: 13 “For instance, a person entrusted with a discretion must direct himself properly in law. He must call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to the matter that he has to consider. If he does not obey those rules, he may truly be said, and often is said, to be acting "unreasonably".” [11] The law on judicial review has advanced from the subjective to that of the objective test. [See Titular Roman Catholic Archbishop of Kuala Lumpur v Menteri Dalam Negeri & Ors [2014] 6 CLJ 541]. Any reasonable tribunal properly appraised of the facts and law would not succumb to the 2nd respondent attempt to amend the Memorandum of Articles. In the landmark case of Merdeka University Berhad v Government of Malaysia [1982] 2 MLJ 243 (FC), Suffian LP had this to say: “It will be noted that section 6 used the formula "If the Yang di-Pertuan Agong is satisfied etc." In the past such a subjective formula would have barred the courts from going behind His Majesty's reasons for his decision to reject the plaintiff's application; but, as stated by the learned Judge, administrative law has since so far advanced such that today such a subjective formula no longer excludes judicial review if objective facts have to be ascertained before arriving at such satisfaction and the test of unreasonableness is not whether a particular person considers a particular course unreasonable, but whether it could be said that no reasonable person could consider that course reasonable.” [12] For reasons stated above the appeal is allowed. The 1st respondent’s decision is quashed with a note that the majority have dismissed the appeal. The 2nd respondent to pay the costs to the 1st appellant. 14 I hereby order so. Dated: 15 September 2017 sgd (DATUK DR. HAJI HAMID SULTAN BIN ABU BACKER) Judge Court of Appeal Malaysia. Note: Grounds of judgment subject to correction of error and editorial adjustment etc. Counsel for Appellant: Mr. Gan Khong Aik [with Ms Kang Mei Yee] Messrs. Gan Partnership Advocates & Solicitors Unit A-35-3A, Menara UOA Bangsar No. 5, Jalan Bangsar Utama 1 59000 Kuala Lumpur. [Ref: GKA/323937/16] Counsel for 1st Respondent : Tuan Mohamad Rizal bin Fadzil Peguam Kanan Persekutuan Jabatan Peguam Negara Putrajaya. 15 Counsel for 2nd Respondent : Mr. Wong Rhen Yen [with Mr. S. Raven, Mr. Ahmad Ezmeel & Ms Siti Nur Amirah Aqilah binti Adzman] Messrs S. Ravenesan Advocates & Solicitors No. 54-2, Jalan Telawi Bangsar Baru 59100 Kuala Lumpur. [ref: SR005A(16)(DJZ)(Judicial Review)-GL(RV-ADZ)]
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