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MALAYSIA

IN THE HIGH COURT IN SABAH AND SARAWAK ATSANDAKAN

SUIT NO.: S22-04-2002

5BETWEEN

1. LEE NYUK HENG

2. LEE NYET VUI PLAINTIFFS

10

AND

1. PEMBANGUNAN LADANG HASSAN SDN BHD

2. SYARIKAT SALIHA SDN BHD

3. SYARIKAT WARGA JAYA SDN BHD15

4. BUGAYA FORESTS SDN BHD

5. LEE AH SOO @ FRANCIS LEE NYET KHIONG

6. LEE NYUK KHENG DEFENDANTS

20

BEFORE THE HONOURABLE

MR. JUSTICE LINTON ALBERT IN OPEN COURT

J U D G M E N T

25

This case involves four companies (1st to 4th Defendants). Their

combined worth exceeds RM100 million. The four Lee brothers arevariously directors and shareholders in these companies. The 5

th

Defendant, Lee Ah Soo @ Francis Lee Nyet Khiong (Francis), the eldest

of the Lee brothers together with the youngest, Lee Nyuk Kheng30

(Raymond), the 6th Defendant passed resolutions and effected

appointments which gave them respective control of the four companies.

The other two brothers, Lee Nyuk Heng (Charles) the 1st

Plaintiff and Lee

Nyet Vui (Richard) the 2nd

Plaintiff felt they were being ousted


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considering the fact they were, in the decade or so, prior to this, both

running the four companies, because Francis was merely an itinerant

director and shareholder concentrating on his interests overseas and

Raymond because of his relatively young age was innocently content to

leave the running of the companies to Richard and Charles. Three of the5

companies were founded by their late father whose bequest in 1979

ensured that the four brothers inherited the shares equally, none more

equal than the others. The shareholding in the 1st Defendant,

Pembangunan Ladang Hassan Sdn Bhd (Ladang Hassan) was co-owned

by the 2nd Defendant Syarikat Saliha Sdn Bhd (Saliha) and the 3rd10

Defendant Syarikat Warga Jaya Sdn Bhd (Warga Jaya). The

shareholding in both Saliha and Warga Jaya are in turn owned by the four

brothers equally, with 25% shareholding in each of the two companies.

The 4th

Defendant, Bugaya Forests Sdn Bhd (Bugaya Forests) is an

offshoot of the other three companies, also jointly run and managed by15

Charles and Richard as were the other companies, with Richard as themanaging director of each company, although Charles and Francis were

its only shareholders with Francis owning almost all its shares. That was

the position until the end of 2001 when Francis, actuated by perceived

mismanagement in and mysterious dissipation of huge cash reserves from20

the four companies, contrived to wrest control from Richard and Charles

and succeeded in so doing, with the unqualified obeisance of Raymond.This was brought about by resolutions passed and appointments made

relating to the four companies by Francis and Raymond in various

composite capacities as director, shareholder, proxy and corporate25

representative of these companies. Charles and Richard obviously felt

marginalised and justifiably incensed by their sudden relegation to

inconsequential roles on the periphery of these companies. The Plaintiffs,

Richard and Charles now seek declaratory reliefs impugning the validity


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of various resolutions of the 4 companies and consequential orders to

invalidate actions resulting from those resolutions to restore the status

quo ante.

On 23.11.2001, there was a board of directors meeting of Bugaya

Forests which was engaged almost entirely with business associated with5

timber, having been awarded a licence over a huge area under a Forest

Management Unit (FMU) in Tawau to operate its timber operations but

this had since been withdrawn before the commencement of this Suit and

is the subject of a pending multimillion ringgit claim by Ladang Hassanin respect of the withdrawal of the FMU Licence. The board of directors10

meeting of Bugaya Forests on 23.11.2001 was attended by Francis and

Raymond while the other two directors, Charles and Richard were

conspicuously absent. At that board of directors meeting the transfer of 1

share from Francis to Raymond in Bugaya Forests was approved.

Subsequently, on 30.11.2001 the Annual General Meeting (AGM) of15

Bugaya Forests was convened with Francis and Raymond as the only

members in attendance and Charles the only other member a notable

absentee. Charles and Richard were removed as directors by a resolution

not to re-elect them as directors of Bugaya Forests. Norbert Yapp,

learned counsel for the Plaintiffs, Charles and Richard contends that the20

transfer of one share in Bugaya Forests by Francis to Raymond at the

impugned board of directors meeting on 23.11.2001 was an invalid and

ineffectual transfer because in the first place, the board of directors

meeting was convened without any notice issued to the other directors

Charles and Richard rendering the entire proceedings at the board of25

directors meeting a nullity. Secondly, the transfer was in any event

transacted in a way contrary to the provisions of the relevant articles of

association of Bugaya Forest and therefore invalid. Learned counsel


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further argues that that being the case, the subsequent AGM lacked the

quorum to pass the resolution not to re-elect Charles and Richard because

in effect only one member, in the person of Francis attended the AGM.

In essence, the response of Lim Hock Leng of counsel for Francis Lee, is

premised on a tapestry of events showing Francis desperately trying to5

save these companies from ruin and faced with resistance desperate

measures were taken, hence contending that Francis who held 49,999

shares as against Charles single share was empowered to dictate the

affairs of Bugaya Forests and confronted with the allegedly purposeful

action of both Charles and Richard to undermine the exercise of that10

power, he was entitled to transfer a single share to Raymond at the board

of directors meeting on 23.11.2001 to achieve the desired quorum at the

AGM on 30.11.2001 so as to carry out his intention of re-electing himself

and the compliant Raymond as the only two directors and passing a

resolution to that effect and get rid of Richard and Charles as directors by15

passing a contrariwise resolution not to re-elect them as directors thusobtaining the control of Bugaya Forests he so desired to the exclusion of

Richard and Charles. Thus counsel submits that section 355 (1) and (2)

of the Companies Act 1965 can be relied on to cure the alleged defects in

the single share transfer from Francis to Raymond and the AGM of20

Bugaya Forests. Section 355 (1) and (2) provides:

355. (1) No proceeding under this Act shall be invalidated by

any defect irregularity or deficiency of notice or time unless the

Court is of opinion that substantial injustice has been or may be

caused thereby which cannot be remedied by any order of the25

Court.

Section 355 further provides:

(2) The Court may if it thinks fit make an order declaring

that the proceeding is valid notwithstanding any such defectirregularity or deficiency.30


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(3) Without affecting the generality of subsection (1) and

subsection (2) or of any other provision of this Act, where any

omission defect error or irregularity (including the absence of a

quorum at any meeting of the company or of the directors) has

occurred , or whereby there has been default in the5

observance of the memorandum or articles of the company orwhereby any proceedings at or in connection with any meeting

of the company or of the directors thereof or any assemblage

purporting to be such a meeting have been rendered ineffective

the Court 10

(a) may, either of its own motion or on the application of

any interested person, make such order as it thinks fit to

rectify or cause to be rectified or to negative or modify

or cause to be modified the consequences in law of any

such omission defect error or irregularity, or to validate15

any act matter or thing rendered or alleged to have been

rendered invalid by or as a result of any such omission

defect error or irregularity.

Relying on these relevant provisions of the Companies Act 1965,

learned counsel for Francis argues that the Plaintiffs Charles and Richard20

are not entitled to the reliefs sought concerning Bugaya Forests because

no substantial injustice resulted from the single share transfer to

Raymond and the subsequent impugned AGM, Francis being its majority

shareholder in the face of concerted efforts by Charles and Richard to

undermine the exercise of his powers as the majority shareholder.25

Another complaint relates to the appointment of Raymond as the

proxy of the 3rd

Defendant, Warga Jaya and the resolutions passed at the

subsequent AGM of the 1st Defendant Ladang Hassan whose members

were the 2nd

Defendant Saliha with 80% shareholding and the 3rd

Defendant, Warga Jaya with 20% shareholding. The corporate30

representative of Saliha to a general meeting of Ladang Hassan was

Francis whereas the corporate representative of Warga Jaya for the

purpose was Richard. On 27.11.2001 Francis, with the scheduled AGM

of Ladang Hassan on 30.11.2001 a nagging concern, and convinced that


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Richard as the corporate representative for Warga Jaya would scuttle the

AGM by simply refusing to attend the AGM, appointed Raymond as the

corporate representative of Warga Jaya to the AGM thus pre-empting the

prospect of having to abort the AGM due to lack of quorum. It was

important for Francis that the scheduled AGM went ahead because as5

corporate representative of Saliha with the majority shareholding he

could call all the shots at the AGM. With Raymond in place the AGM on

30.11.2001 resolved that Richard be not re-elected a director of Ladang

Hassan and by 6.12.2001 the whole exercise to wrest control of Ladang

Hassan was completed with Charles unceremoniously removed as its10

managing director and not surprisingly replaced by Raymond, at a board

of directors meeting held on that day. Thenceforth, the composition of

the board of directors of Ladang Hassan was hastily transformed from all

the four brothers being directors with Charles as the managing director to

a board comprised of three directors with Richard having been removed15

and Raymond replacing Charles as the managing director thus puttingFrancis firmly on the drivers seat in the management and control of

Ladang Hassan. The argument put forth on behalf of the Plaintiffs

Charles and Richard is that the usurpation of Richard as the duly

constituted corporate representative of Warga Jaya by Raymond in the20

manner described rendered the attendance of Raymond at the AGM

incompetent to constitute the requisite quorum to pass the resolutionspaving the way for Francis to consolidate his power and effectively take

over the control and management of Ladang Hassan, a company with

huge assets having extensive interests in plantation and property.25

Learned counsel for Francis sought justification for all the matters

complained of in relation to Ladang Hassan under section 355 of the

Companies Act 1965.


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The other asset-laden company which Francis succeeded in taking

control out of the hands of the Plaintiffs Charles and Richard its erstwhile

managers was the 2nd Defendant Saliha and likewise section 355 of the

Companies Act 1965 is relied on to validate the infirmities complained of

by the Plaintiffs in the methods used by Francis in ousting them from the5

management of Saliha and installing himself firmly in their stead. At the

board of directors meeting of Saliha on 30.11.2001, Francis was

appointed Chairman of the board which entitled him under the articles of

association of Saliha to a casting vote in the event of a tie, a situation

which was clearly anticipated because all the brothers were directors of10

Saliha and equally split two against two at the time, and true enough, the

casting vote was used at the board of directors meeting on 6.12.2001 to

remove Charles as the managing director. The Plaintiffs Charles and

Richard contend that the appointment of Francis as the Chairman of the

board of directors meeting was a nullity which in turn invalidated the15

removal of Charles, the 1st

Plaintiff as the managing director of Saliha atthe subsequent board of directors meeting on 6.12.2001 because it was

brought about by the casting vote Francis had acquired as Chairman of

the board of directors.

Before embarking on a judicial scrutiny of the various complaints20

upon which the reliefs are sought it is perhaps useful to note that much

water has flowed under the bridge since the suit was commenced. The 6th

Defendant Raymond has since switched allegiance and no longer seeks to

defend the actions perpetrated by the 5th Defendant, upon which the

reliefs sought are grounded. The Plaintiffs have since successfully25

obtained and maintained injunctive reliefs against Francis and Raymond

from acting on the various appointments and resolutions complained of

and thus restoring the management of the companies which are the


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subject matter of this suit to the position before Francis mounted the blitz

on their management from October to early December 2001. Francis has

also filed a petition under section 181 of the Companies Act 1965 for

reliefs grounded on acts of oppression. Much evidence was adduced at

the trial of this action with charges and counter-charges in great5

abundance each side extolling its virtues and demonising its antagonists

with both counsel devoting a fair segment of their written submission

meticulously analysing the maze of evidence at the joint trial of this

action with the Originating Petition commenced by Francis, with

admirable ability. Although I do not propose to undertake a forensic10

evaluation of the conflicting evidence adduced in order to determine their

respective culpability it is noteworthy that learned counsel for Francis has

undertaken an exhaustive examination to establish the purity of the

intentions of Francis in mounting the blitz on the companies in the face

of recalcitrance on the part of Charles and Richard who were hell bent on15

subverting the meetings of these companies considered necessary toimplement measures to put an end to the perceived mismanagement in

and the dissipation and disposal of assets of these companies, hence to

erase any notion of substantial injustice so as to validate the

appointments made in and resolutions passed at meetings of these20

companies occasioned by the exigencies that existed then, under the

provisions of section 355 of the Companies Act 1965.

Be that as it may, it is unnecessary to postulate on the conflicting

expositions advanced by the respective counsel based on the voluminous

evidence adduced because the critical factor is to separate the essential25

from the peripheral and apply the law to the vital aspects of the opposing

views in order to determine whether the reliefs sought ought to be

granted.


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As to Bugaya Forests the issue rests on the validity of the single

share transfer by Francis to Raymond without which there would not

have been a quorum at the AGM to pass the impugned resolutions. The

transfer of the single share effected at the board of directors meeting was

irregular in several material aspects, most notable of which was the5

uncontroverted fact that no notice was issued to the Plaintiffs who were

both directors for the board of directors meeting to approve the single

share transfer. The relevant articles of association of Bugaya Forests

relating to the transfer of shares is as follows:

36A Subject to these Articles, any member may transfer all or any10

of his shares, but every transfer must be in writing, and in the

usual common form or in such other form as the Directors may

approve, and must be left at the office accompanied by the

certificate of the shares to be transferred, and such other

evidence (if any) as the Directors may require to prove the title15

of the intending transferor.

(a)

(b) Save as herein otherwise provided, no share shall be

transferred to any person who is not a member of the

company so long as any member or any person selected20

by the Directors as one whom it is desirable in the

interests of the company to admit to membership is

willing to purchase the same as the fair value, which

shall be determined as hereinafter provided.

(c) In order to ascertain whether any member or person25

selected as aforesaid, is willing to purchase a share atthe fair value, the person, whether a member of the

company or not, proposing to transfer the same

(hereinafter called the retiring member) shall give a

notice in writing (hereinafter described as a sale30

notice) to the company that he desires to sell the same.

Every sale notice shall specify the denoting numbers of

the shares which the retiring member desires to sell, and

shall constitute the company the agent of the retiring

member for the sale of such shares to any member of35

the company at the fair value. No sale notice shall be

withdrawn except with the sanction of the Directors.


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In RE FRASER & NEAVE LTD TAN KENG SIONG v TAN

HOCK SIANG & ORS[1967], where the transfer of shares in a company

not in accordance with its articles of association, it was held that the

company was entitled to refuse to register the transfer. Tan Ah Tan FJ

said at p 283:5

It is settled law that a shareholder who desires to transfer his shares

must conform with the provisions relating to transfer in the articles of

association. If he fails to do so, the company is entitled to refuse to

register the transfer, and in such a case the court will decline to

interfere.10

There was therefore no quorum for the AGM because Raymond, as

the holder of an invalid single share could not constitute a member of

Bugaya Forests thus rendering the resolution passed not to re-elect

Richard and Charles as director a nullity. Likewise the impugned AGM

of Ladang Hassan lacked the requisite quorum of two members present in15

person pursuant to Article 57 of its articles of association because the

appointment of Raymond by Francis as the corporate representative of

Warga Jaya to the AGM was not a valid appointment replacing Richard

the duly appointed corporate representative of Warga Jaya. Francis did

not have the authority to appoint Raymond as the corporate20

representative of Warga Jaya. Hence the resolution passed at the AGM

of Ladang Hassan not re-electing Richard as a director and the

resolutions passed at the subsequent board of directors are all ineffectual

and invalid. In reality the AGMs of Bugaya Forests and Ladang Hassan

were single shareholder meetings which did not constitute meetings (see25

RE LONDON FLATS, LTD [1969] 2 ALL ER 744). The complaint

relating to Saliha relates to the board of directors meeting on 30.11.2001

appointing Francis the Chairman of the board of directors which then

entitled Francis to a casting vote at board meetings. With that casting


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vote Charles was removed as the managing director at the subsequent

board of directors meeting on 6.12.2001. The notice issued in respect of

the board of directors meeting on 30.11.2001 did not disclose the nature

of the business to be transacted which was to appoint Francis as the

Chairman of the board; the only item on the agenda disclosed in the5

notice was to fix the date for the 2001 AGM. In RE HOMER

DISTRICT CONSOLIDATED GOLD MINES EX PARTE SMITH

[1888] CH D 546 the notice did not disclose what was to be done at the

directors meeting which was attended by two out of five directors. It

was held that the shares allotted at that meeting was void against the10

allottees. North J said at p 550:

The notice was sent out in a most irregular way. What is more, it was

expressed in such a way (I cannot help thinking intentionally so

expressed) as not to give Witt and Simpson notice of what was to be

done. I15

come to the conclusion that what was done on that occasion was not

the act of the board of directors, and did not bind the company, and

had not the effect of getting rid of the resolutions previously passed bythe board.

In SOLAIAPPAN & ORS v LIM YOKE FAN & ORS [1968] 220

MLJ 21 the notice to remove directors at the annual general meeting of a

company did not comply with the prescribed articles. Suffian FJ said at p

25:

In my judgment, the purported dismissal of the old directors and their

replacement by the plaintiffs was null and void. Therefore this appeal25

is dismissed with costs.

In the circumstances, the inevitable conclusion is that the

appointment of Francis as the Chairman of the board giving him the

casting votes is null and void and so is the resolution to remove Charles

as the managing director at the subsequent board of directors meeting30


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because it was passed by virtue of the casting vote which was null and

void.

The starting point in considering whether section 355 of the

Companies Act 1965 applies so as to cure the defects in the proceedings

of the companies, is not, as contended by counsel for Francis, the5

determination of his genuine concerns on the alleged mismanagement of

these companies in the various aspects sought to be established or

whether they are real or imagined and nor is the obstinate refusal of the

Plaintiffs to attend or accede to the relevant meetings proposed byFrancis a determining factor in its applicability, not even the right to10

impose his will by virtue of the overwhelming majority of shares held in

Bugaya Forests and as the corporate representative in Ladang Hassan

because the end cannot justify the means. The principles to be applied in

the exercise of the discretion under section 355 of the Companies Act are

set out in FIRST NOMINEE (PTE) LTD v NEW KOK ANN REALTY15

SDN BHD & ANOR [1983] MLJ 76 where Yusoff Mohamed J said at p

77:

There is no precedent on the application of section 355 of the

Companies Act but on similar legislation in Australian Companies

Act, 1961, the relevant section 366 is in pari materia with our section20

355. The court there strictly construed the provision particularly

where the irregularity involves a derogation from the rights of a person

before allowing the section to operate, in order to validate thedefective proceedings of the company. The criteria in exercising

discretion is for the court to satisfy itself that any such order would not25

do injustice to the company or to any member or creditor thereof

section 355 (3) (b).

In Holms v Life Funds of Australia LtdStreet J. in evaluating

the procedural justice or injustice in sub-section (3) (b) of the section

held that when determining the procedural justice or injustice30

attending the exercise of the courts discretion under section 366

(Australian), regard is to be had to the likelihood of prejudice to anyindividual member by reason of the defect or omission which took


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place. Where a companys general meeting and election of directors

was invalid for want of proper notice, the court ruled that section 366

was not apt to cure the defect Mansfield v N.S.W. Leagues Club

Bowling Club Ltd.

In evaluating the applicability of this section, the court is5entitled to admit into evidence any facts which are relevant to the

exercise of its discretion, - Re Australian Continental Resources Ltd.

..

In Re Australian Continental Resources Ltd., it has been said

that the exercise of discretion provided in section 366 (3) (Australian),10

implies a consideration of the relative gains or losses of the parties

involved. Prejudice is not the criterion, justice is, and that justice may

require that the prejudice to one party if the order were made be

balanced against the respective prejudice to other parties if the orderwere not made.15

Undoubtedly the removal of the Plaintiffs Charles and Richard

variously as managing director, director or corporate representative in the

companies has prejudiced their respective positions in those capacities

and this has caused injustice to them. On the balance of the respective

prejudice, in particular the fact that it has not been shown that prior to the20

blitz mounted against the management of the companies by Francis, the

Plaintiffs Charles and Richard had in any way whatsoever diminished his

various positions as corporate representative director and member of

those companies, it is patently clear that the discretion under section 355

of the Companies Act should not be exercised in favour of making the25

validation orders sought by the 5th

Defendant Francis and I accordingly

give judgment for the Plaintiffs in terms as prayed for in the amended

statement of claim in terms as prayed for except prayer (10) with costs to

be paid by the 5th Defendant to be taxed unless agreed. Order

accordingly.30

LINTON ALBERT, J.


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Date: 11th

November, 2008

For the Plaintiffs: Norbert Yapp with Celestina Stuel Galid5

Messrs Jayasuriya Kah & Co. Advocates

Kota Kinabalu

For the Defendants: Lim Hock Leng with Marina Tiu10

Messrs Lim Guan Sing & Co. Advocates

Kota Kinabalu

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