A 3 Min Read of Malayan Banking Ltd v Raffles Hotel Ltd

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A 3 Min Read of Malayan Banking Ltd v Raffles Hotel Ltd

July 30, 2022 Corporate & Commercial Disputes 0

In this article, will briefly look at the case of Malayan Banking Ltd v Raffles Hotel Ltd and tackle this issue: whether a person who is not a member of a company or party to the articles of association can acquire rights under the articles of association/ company’s constitution?

TLDR, no. The long answer can be gleaned briefly below.

The brief facts of the case

The benefit of the lease of a land, including the building on it known as Raffles Hotel was assigned to Raffles Hotel for the remainder of the unexpired term of 70 years in 1933 subject to all the covenants and conditions contained in the original lease. 

Malayan Banking subsequently acquired the leasehold reversion of the said land (in 1963). Upon the acquisition, Malayan Banking became the lessor and the Raffles Hotel became the lessee to the land.

At this juncture, certain events occurred that eventually led to the dispute between the parties, namely:

  1. Malayan Banking appointed one of its members as a director to Raffles Hotel. This was done in pursuance of article 77 of the articles of association of Raffles Hotel.
  2. The said article states that the lessor, Malayan Banking, may appoint itself to be a director of the company.
  3. Raffles Hotel disagreed, stating that i) Malayan Banking is merely a lessor and not a member of the company and ii) Article 77 must be read in conjunction with clause 14 of the lease, which states that:

“…(a) if the assignee or sub-lessee be a limited company no consent shall be given unless the articles contain a provision that from time to time during the continuance of this demise the lessors shall have the power to appoint a director not subject to retirement by rotation,…”

Furthermore, Raffles Hotel went on to say that while it seems that clause 14 of the lease gives credence to article 77, neither the clause nor the article confers any contractual rights to an outsider who is not privy to the articles of association to enforce any rights that the articles of association purported to confer to them. 

Essentially, what Raffles Hotel is trying to say is that Malayan Banking, as noted earlier, is an outsider and cannot enforce any rights at all, even if the articles of association say otherwise.

Hence the dispute.

The court’s decision

The court sided with Raffles Hotel. 

The court’s rationale

In coming to its decision, the court noted that:

  1. Outsiders who are not privy to the constitution/ articles of association cannot enforce any rights that the constitution purported confers to them:

“An outsider to whom rights purport to be given by the articles in his capacity as such outsider, whether he is or subsequently becomes a member, cannot sue on those articles treating them as contracts between himself and the company to enforce those rights. Those rights are not part of the general regulations of the company applicable to all shareholders and can only exist by virtue of some contract between such person and the company, and the subsequent allotment of shares to an outsider in whose favor such an article is inserted does not enable him to sue the company on such an article to enforce rights which are res inter alios acta and not part of the general rights of the corporators…”

  1. The constitution/ articles of association is not a contract between a company and an outsider. This was in line with (then) section 14 of the Companies Act, which states the constitution/ articles of association only bind the members of the company- it did not mention anyone who is not a member of the company i.e. an outsider.
  2. Malayan Banking is merely a landlord i.e. a lessor. This relationship does not mean that they are a member of the company.  Malayan Banking, therefore, does not have the right to appoint a director for Raffles Hotel. 

The court has no choice but to side with Raffles Hotel in this matter.

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