Can An Individual Raise The Concept Of Equity In Oppression Suit?

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Can An Individual Raise The Concept Of Equity In Oppression Suit?

February 20, 2021 Corporate & Commercial Disputes 0

Can equity comes into play in an oppression suit? In this article, we will briefly discuss this issue.

The law in relation to this topic

First thing’s first, what is “Oppression”?

Under section 346 of the Companies Act, oppression happens when the actions of the company (in regards to the treatment of the shareholders of the company) departs from the standard of fair dealing and violates the conditions of fair play which a shareholder of the company is entitled to expect from the company. 

In Re Tong Eng Sdn Bhd (Loh Loon Keng, Petitioner), the court noted that:

“Mismanagement of the company does not necessarily constitute oppression or disregard of a member’s interests. Nor, indeed, does the fact that a member is consistently outvoted mean that he is oppressed or that his interests are being disregarded. It should be remembered that the majority also has rights. Section 216 (the Singapore counterpart of section 346 of our Companies Act) does not give jurisdiction to the court to interfere with the internal management of companies which are being managed honestly and in accordance with the law.”

Simply put, the courts will not intervene with how the company is being run until and unless there is evidence to say that the company shareholders are being oppressed by the company.

Secondly, what is equity?

The dictionary define equity as:

  1. The English translation for the Latin word “Aequus”, which means fair/ just/ impartial; and
  2. A system of doctrines and procedures in the legal field which developed side by side with the common law and statute law, having originated in the doctrines and procedures evolved by the court of chancery in its attempts to remedy some of the defects of the common law. 

in legal terms, equity is the doctrine of fair/ just/ impartiality that is developed side by side with the common law and statute law to remedy the defects in the laws.

That being said, in order to raise the doctrine of equity in court, the person who wishes to raise it must come with “clean hands” i.e. the person must ensure that his conduct (in regards to the claim) is proper/ is not intended to circumvent the law/ is not illegal. However, his conduct is confined to the circumstances of the case, meaning that the “cleanliness” required to be judged must be in relation to the claim in hand and nothing else.

So, can equity comes into play? 

Generally, no. in Re Kong Thai Sawmill (Miri) Sdn Bhd, the court noted that:

“…a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted…”

Why? as mentioned above, the courts will not generally intervene just because the minorities are being out-voted by the majorities. As long as the company is being managed in a proper manner, even if it means that the majority constantly has the upper hand when it comes to decision making, the court will have no jurisdiction over the complaints. 

It is a different story in a quasi-partnership company (i.e. a company that possesses all of the characteristics of a partnership, including a relationship of mutual trust and confidence between the participants). In such a scenario, the court held that members are obliged in law to observe, namely to act in good faith, to one another. This applies to a family-run/ oriented company as well, which also possesses to a certain extent, the characteristics of a partnership mentioned above. However (and as mentioned above), the party who claims equity in relation to an oppression suit must come to the courts with clean hands.

We will share more on a quasi-partnership company in the future, so stay tuned for more.

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