No Oppression Claim Over Private Arrangements

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The Court of Appeal’s ruling in Queensway Nominees (Asing) Sdn Bhd & Ors v ISM Sdn Bhd [2024] MLJU 2985 provides guidance for minority shareholders who seek remedies for oppression by the majority shareholders.

This alert discusses how a minority shareholder may successfully prove the existence of a “quasi-partnership” in a company.

Salient Facts

The Plaintiff, ISM Sdn Bhd (ISM) was a company owned by Dato’ Ray Cheah and his wife, Datin Teoh. They were also the directors of ISM. Dato’ Ray Cheah was an experienced property investor, consultant and registered property valuer.

In June 2006, he was approached to assist in the revival of an abandoned development project located at the junction of Jalan Imbi and Jalan Sultan Ismail. The site comprised two parcels of land – Lots 1282 and 1283 (collectively referred to as the CN Land). The registered proprietor of the CN Land had obtained financing from a wholly owned subsidiary of MPHB Capital Bhd (MPHB).

Given that the CN Land alone were too small to be developed into a commercially viable mixed-use project, Dato’ Ray Cheah devised a plan to acquire the adjoining plots of land and develop the entire area as an integrated commercial development (named as the Imbi Project).

He approached MPHB with a proposal to implement the Imbi Project, following which MPHB agreed to participate in the proposed development.

There were five different companies which were used for the purpose of acquiring land for the Imbi Project (JV Companies). The JV Companies were used so that the land could be purchased in a discreet manner.

Both ISM and MPHB orally agreed that ISM would hold 30% of the shares in the JV Companies while MPHB would hold the remaining 70% (Oral Agreement).

Between 2006 and 2012, 11 separate plots of land were acquired including Lot 646 and Lot 1216 (known as the De Vegas Land). The De Vegas Land were held by entities outside the joint venture. Somewhere in 2009, the parties had explored plans for the development of the Imbi Project by using Caribbean Gateway Sdn Bhd (Caribbean) as the entity to hold all the land held by the JV Companies and to obtain external financing to finance the acquisition of the land for the Imbi Project.

On 24.7.2009, a draft shareholder agreement was circulated by MPHB to ISM. However, the agreement was never executed between the parties. Instead, both ISM and MPHB continued to be bound by the terms of the Oral Agreement.

Test For Minority Oppression

The Court of Appeal addressed the threshold question of whether ISM could maintain an action for minority oppression under Section 181 of the Companies Act 1965 (CA 1965). The court held that what was actionable under Section 181 were matters relating to the “affairs of the company” and not the “affairs of the shareholders”. Accordingly, for ISM to succeed in its claim, ISM must establish the following:

(a)        the affairs of the JV Companies had been conducted in a manner which was oppressive to ISM; and

(b)        the powers of the directors of the JV Companies had been exercised in a manner which was oppressive to ISM.

In cases of minority oppression involving companies that operate as quasi-partnerships and not in any other context, the principles of equity – particularly the "just and equitable" considerations – may be invoked. The Court of Appeal relied on the Federal Court’s decision in Jet-Tech Materials Sdn Bhd v Yushiro Chemical Industry Co Ltd [2013] 1 CLJ 277, which affirmed that any complaint brought under Section 181 must pertain strictly to matters concerning the affairs of the company in question. A private arrangement, including an agreement between shareholders of a company, does not fall within the scope of “affairs of the company” within the meaning of Section 181 if such an agreement is private in nature and does not concern the company’s affairs.

Where a party seeks to rely on a shareholders’ agreement rather than the company’s Memorandum and Articles of Association to support a claim of unjust or inequitable conduct, such reliance is only permissible in the context of a quasi-partnership. This principle stems from Ebrahimi v Westbourne Galleries Ltd [1972] 2 All ER 492, which emphasised that the “just and equitable” rule does not entitle a party to disregard the party’s obligations owed to the company when the party becomes a shareholder of the company. However, equity allows the court to impose equitable obligations upon parties with regard to a company where there exists a quasi-partnership.

ISM Did Not Satisfy The Test

The facts of this case demonstrated that the JV Companies were merely vehicles used to discreetly acquire the lands in question with the intention that the lands would ultimately be transferred to Caribbean. Certain parcels of land, held solely by MPHB, were integral to the overall venture and can only be incorporated into the project once all land within the Imbi Project were amalgamated under Caribbean. Furthermore, all development plans, expert engagements and related discussions concerning the Imbi Project were undertaken through Caribbean. Even the “working capital” loans obtained from Maybank to finance the venture’s development plans were secured through Caribbean.

As Caribbean (not the JV Companies) was the beneficial owner of the lands in the Imbi Project, there were no “affairs” or business with regard to the JV Companies. The unincorporated joint venture did not confer any legal personality on the JV Companies.

Since there were no “affairs” regarding the JV Companies, the Court of Appeal found that the High Court’s findings on oppression within the meaning of Section 181 was wrong in law and fact. Accordingly, the Court of Appeal held that ISM’s claim, if any, was for a purported breach of a term of the Oral Agreement concerning an unincorporated joint venture.

Whether There Was A Quasi-Partnership Between ISM And MPHB

The court also found that a quasi-partnership could not be established between ISM and MPHB given the lack of any pre-existing relationship. Dato’ Ray Cheah of ISM and the personnel of MPHB were complete strangers. The court found it implausible that any mutual trust and confidence could have been built within a mere two-month period. Prior to 2015, Dato’ Ray Cheah held no directorship or shareholding in any one of the JV Companies.

The court held that Dato’ Ray Cheah was completely unknown to MPHB and had merely presented a business proposal, which MPHB evaluated as it would any other proposal, on a purely commercial basis. There was no element of mutual trust and confidence between Dato’ Ray Cheah on the one part and MPHB on the other part.

Commentary

The Court of Appeal’s decision provides a significant clarification on the scope of shareholder’s oppression under the law, particularly in the context of joint ventures and alleged quasi-partnerships. The court drew a clear distinction between the “affairs of a company” and private arrangements between shareholders, holding that only the former were actionable.

This ruling underscores that a breach of a shareholders’ agreement – especially one that is oral – may not, in itself, give rise to a claim for a shareholder’s oppression suit unless it pertains directly to the conduct of the company’s affairs. Further, where parties are engaged in a joint venture structured through corporate entities, in the absence of a relationship of mutual trust and confidence, mere commercial cooperation does not prove the existence of a quasi-partnership.

Parties seeking to protect their interests in joint ventures should therefore ensure that agreements are properly documented and that their rights are embedded within the constitutional documents of the relevant companies. This case is a reminder of the importance of clear documentation in corporate arrangements so as to avoid any future dispute.

21 May 2025