10 Things I Wish I’d Known as a Young Lawyer

I will be speaking at the University of Malaya Law Career Convention 2014 tomorrow from 12-1pm on a topic entitled “10 Things I Wish I’d Known as a Young Lawyer.” You can click over to my Prezi presentation (I can’t seem to embed it anymore to WordPress).

Also, I set out below a list of recommended reading which I will be referring to in my talk tomorrow.

List of Recommended Further Reading

Good English

Read Widely, Store Knowledge

  • Kehakiman website for the latest unreported Malaysian appellate authorities.
  • UK Supreme Court for recent Supreme Court decisions and the useful Press Summaries.
  • Lexis MLJ alerts and CLJLaw alerts.
  • LoyarBurok for legal-related posts and current affairs.
  • Modern Advocacy Perspectives from Singapore – each chapter is written by a Senior Counsel to shed their thoughts and tips on the litigation process.
  • Ladies and Gentlemen of the Jury: Greatest Closing Arguments in Modern Law – in particular, the closing arguments for the Nurenberg trial is awe-inspiring.

Embrace Technology

  • Inbox Zero.
  • Feedly for cloud RSS.
  • Storage of all information, contacts and calender on the cloud.
  • Desktop search engines.

Gaining Commercial Knowledge

Finding Your Passion

Significance of the Malaysian Bar

Other recommended reading

Corporate Rescue Talk at MIA

I was invited by the Malaysian Institute of Accountants to deliver a talk on 4 March 2014 focusing on the insolvency-related provisions of the Companies Bill. It was an interesting session, with a lot of questions and a lively discussion among the participants. The areas I touched on were the changes to the receivership, winding up and schemes of arrangement provisions, and the introduction of judicial management and the corporate voluntary arrangement.

rescue

A copy of my slides can be downloaded here.

The Opposed Ex Parte Hearing: Contradiction in Terms?

This will be the first in a series of articles I will touch on issues relating to general ex parte hearings, ad interim orders, inter partes hearings and the tactical considerations relating to these matters.

Introduction

The Latin term ex parte means “for one party” and in legal proceedings, an ex parte application is heard by the Judge only in the presence of one party. Due to the extraordinary situation of a Judge only hearing from one party, an ex parte application is normally only allowed in circumstances of urgency, and where if notice is given to the other side, it may alert that party to dissipate assets or to frustrate any possible injunctive relief that may be granted. So it is common to see ex parte applications for a Mareva or freezing injunction, or for other types of urgent injunctions.

To safeguard against any possible abuse of the ex parte process, both the common law and the procedural rules require a full and frank disclosure of material facts, as well as for the applicant to not only make submissions in support of the application but to also highlight potential arguments against the grant of the application.

The Pickwick opposed ex parte procedure

A modern practice that has evolved is for the applicant to file an ex parte application but to give notice to the other side prior to the ex parte hearing. The opposing respondent may then choose to appear at the ex parte hearing and where the hearing may then proceed on an opposed ex parte basis, in that the Court will hear submissions from both parties. This in itself may already sound like a contradiction in terms for both parties to be present at the ex parte hearing. Nonetheless, the utility of this has been highlighted in the leading English High Court case of Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd and another [1972]3 All ER 384.

Megarry J in that cases highlighted that the Court would be greatly assisted in deciding whether or not to grant the ex parte injunction by knowing what contentions may be advanced against the grant of the application. The Court would also be aware of the general line of evidence in opposition to the application when it moves into the formal inter partes stage. It makes it possible for the real points of contention to emerge more quickly and thus saves Court’s time. Megarry J points to one advantage to the applicant is that the Court, having heard what there is to be said in opposition to the grant of the injunction, may sometimes be encouraged to grant an injunction that otherwise would be refused. I am not entirely convinced as to how true this so-called advantage is. I would imagine that the Court may then get a fuller picture as to how weak the injunction application may be, having heard the submissions from the opposing party.

Megarry J also pointed to potential disadvantages to each side when parties engage in an opposed ex parte hearing. The opposing party may go to the trouble of preparing submissions at short notice in which a truly ex parte application would have failed in any event. For the applicant, this more modern Pickwick procedure carries the risk that if his application fails he may be ordered to pay the costs of the party who has successfully opposed the application. The Court has jurisdiction to make an order for costs against the applicant in such cases, whether in the cause or in any event. It was held that it cannot be right that the applicant should issue an express or tacit invitation to be present to the party whom he is seeking to enjoin, and then deny him any claim to the costs of what has proved to be a successful opposition.

In Malaysia

The opposed ex parte procedure has been referred to approvingly here in Malaysia. The Singapore High Court decision in Castle Fitness Consultancy Pte Ltd v Manz [1990] 1 MLJ 141 was one of the first cases referring to the Pickwick procedure approvingly and it was the Court’s view that such a procedure should be adopted. An example of an opposed ex parte hearing is also seen in the High Court case of Azman & Tay Associates Sdn Bhd v Sentul Raya Sdn Bhd [2002] 4 MLJ 390.

The one advantage in the Malaysian context of an applicant giving notice of the ex parte hearing and then anticipating the opposed ex parte hearing is in the situation where the applicant expects the Court, or a particular Judge, to be reluctant to proceed with the ex parte application without notice having been provided to the other side. An example of this is the strict approach taken by Mohd Hishamudin JCA in his dissenting judgment in the Court of Appeal case of Westform Far East Sdn Bhd v Connaught Heights Sdn Bhd and other appeals [2010] 3 MLJ 459. This appeal involved the grant of an ex parte injunction to prevent the presentation of a winding up Petition and there was no notice provided to the opposing party. His Lordship felt that there was no urgency justifying proceeding on an ex parte basis and that notice should have been given. His Lordship referred approvingly to his earlier High Court decision in University of Malaya Medical Centre v Choo Chee Kon & Anor [2008] 3 MLJ 278.

Coming Soon

This discussion on the opposed ex parte procedure is predicated on the applicant having the choice to proceed ex parte, or to give notice and then head to an opposed ex parte hearing or to file an inter partes application. In my next article,I will touch on two applications where the applicant must follow the procedural rules and must file the application on an ex parte basis. The Rules of Court 2012 provide that both the leave applications for judicial review and committal must be filed ex parte. So is there discretion on the Court to allow for the application to be heard inter partes or an opposed ex parte basis?

How to Unwind a Voluntary Winding Up

The Singapore High Court in Zi-Techasia [2014] SGHC 09 analysed the considerations to be applied in staying a voluntary winding up and the effect of such a stay. This case is interesting since as far as I am aware, Malaysia does not have a reported decision touching on these same issues.

Members Voluntary Winding Up

As a quick introduction, this case involved a members voluntary winding up. This process involves the members passing the necessary special resolution to resolve that the company be wound up and the members appoint the liquidator. Unwinding such a voluntary winding up cannot be done through the members subsequently passing a resolution to reverse this process.

Decision

As recognised by the Singapore High Court, the Court has the power under the Companies Act to grant an Order to stay a winding up. In Malaysia, that would be the equivalent power set out in section 243 of the Act. However, this power is only provided to the Court where it involves a Court-ordered winding up and therefore, this section 243 of the Act would have to be read together with section 274 of the Act. Section 274 allows the liquidator or any contributory or creditor to apply to the Court to exercise all or any of the powers which the Court might exercise if it were a Court-ordered winding up. The test to be applied therefore in staying a voluntary winding up would be the same principles for a stay of a winding up under section 243 of the Act (in Malaysia, the leading case on these principles are set out in the Federal Court decision of Vijayalakshmi). In essence, one would have to show that the creditors are not prejudiced.

The Singapore High Court expressed some doubts as to whether the Court could ever exercise its inherent jurisdiction to set aside or stay a winding up and made a passing reference to the Malaysian Court of Appeal decision of Megah Teknik (I have written about this decision previously).

In determining when such a stay should come into effect, the Singapore High Court held that the stay should only take effect from the date of the stay Order and is not backdated to the date of the winding up Order or date of the commencement of the voluntary winding up. The winding up is merely stayed moving forward, and not set aside or rescinded. Therefore, such a stay does not undo the actions of the liquidators but only halts the proceedings. The Court was guided by the Malaysian Court of Appeal decision in American International Assurance Bhd (another decision I had written on previously).

Postscript

By way of postscript, the Court also highlighted two interesting questions in the present stay regime that may require legislative intervention. The first is the proper procedure if the defendant company were to be wound up in future. It might be thought that as the winding up is only stayed, it would be open to any interested party to apply to court to have the stay order set aside or varied so that winding up could, in a sense, continue. However the present winding up proceedings were commenced on the footing of a members’ voluntary winding up and it is uncertain whether, in future, should the company become insolvent, a creditor could apply afresh for the company to be wound up by the court. In Re Intermain, Hoffmann J was of the opinion that an existing petition should be regarded as exhausted by a perfected winding up order which being stayed would make it necessary for a fresh winding up petition to be presented. But nothing was said whether this principle would apply also to cases of voluntary winding up.

The second issue is on the powers of directors. There is an issue that were the directors to quit office whether through the efflux of time or by the effect of provisions in the Articles of Association, there could be nobody to take up the reins of the company in the case that winding up was stayed altogether. This was the concern raised by Young J in Austral Brick. In such a case the court may need to make further orders to appoint new directors, but we currently have no statutory provisions dealing with that. By way of comparison, s 482(3) of the Australian Corporations Act 2001 states that where a court has made an order terminating a winding up, it may also give directions for the resumption of the management and control of the company by its officers, including directions for the convening of a general meeting of members of the company to elect directors of the company to take office upon the termination of the winding up. Also, I do not doubt that there may be other conceptual conundrums thrown up because a permanent stay of winding up is, in the words of Tipping J in Re Kim Maxwell Ltd [1992] 1 NZLR 69, a contradiction in terms. The insolvency regime may benefit from legislative clarity on the issue.

Malaysia’s Amendments to the Companies Act

Under the pending Companies Bill, we will be introducing a mechanism (as set out in Clause 477 of the present version of the Bill) to give the Court the power to also terminate a winding up. This is in addition to the present power to order a stay of winding up. In deciding on a termination of winding up, the Court may take into account the satisfaction of debts, agreement by parties or other facts that the Court considers appropriate. This would in future allow for an easier route to unwind a winding up. However, based on the present termination clause in the Bill, it would still not resolve the above two issues highlighted by the Singapore High Court. Further, the power to terminate a winding up would also appear to only take effect from the date of the Order. It does not appear to provide for the winding up to be rescinded or set aside and therefore have retrospective effect as if the winding up never was.

Contractual Clause that Damages are Not an Adequate Remedy

The Federal Court in the AV Asia v MEASAT decision (Grounds of Judgment dated 20 January 2014) dealt with the issue on the existence of a contractual clause providing that “monetary damages will not be sufficient … and that injunctive relief would be appropriate to prevent any actual or threatened use of disclosure of such Confidential Information …”

Would such a clause bind the Court in holding that damages are not an adequate remedy for the purpose of granting an injunction?

The Federal Court agreed with both the High Court and the Court of Appeal in finding that the Court would not be bound by this contractual term. The Federal Court referred to two Canadian and American authorities. Those authorities held that where a clause stipulates that damages may not be adequate and that injunctive relief may or shall be the appropriate remedy, that does not mean that such relief will be granted as of right. The party seeking to secure equitable relief must still satisfy the Court that the pre-requisites for granting injunctive relief are prevalent.

 

Some Section 181 Oppression Points

Just to post up an update on three points regarding the oppression remedy under section 181 of the Companies Act 1965.

(i) Damages is a remedy available in oppression, or is it?

I am guided by Weng’s post entitled ‘Damages for Oppression: an Illusory Remedy?‘ where he referred to the Federal Court decision in Koh Jui Hiong @ Koa Jui Heong & 8 Others v Ki Tak Sang (Rayuan Sivil No. 02-83-11/2012(M), 29 October 2013). This appeal originated from the High Court decision in Koh Jui Hiong @ Koa Jui Heong & Ors v Ki Tak Sang @ Kee Tak Sang & Ors [2009] 8 MLJ 818.

The question of law in the Federal Court decision was “whether an award of damages can be made in a petition under section 181(1) of the Companies Act 1965.” The section 181 action in this case had been filed by a director of the company (the 1st Petitioner) (I will elaborate more on this in the section below), some of the minority shareholders (the 2nd-8th Petitioners) as well as the company itself (the 9th Petitioner) in an action against the 74% majority shareholder (the Respondent). The Federal Court appeal only dealt with the issue of how the Court of Appeal had upheld the High Court decision to order the Respondent to pay damages to the company, the 9th Petitioner.

I would highly recommend reading Weng’s post above to see his analysis of the case law and his views on this topic. In summary, the Federal Court agreed that an award of damages can be made in a section 181 action. However, the Federal Court correctly pointed out the fact that the company should never have been a petitioner in the section 181 action. The only party who has the standing to bring such a section 181 action is generally a member of the company. A company can nonetheless be added in as a nominal respondent to such an action and this is often done in order to ensure any Orders or reliefs will bind the company. But in law, there is no such thing as a nominal petitioner. This section 181 action in this case was therefore essentially akin to a derivative action, where the minority shareholders had included the company as a form of plaintiff-claimant and the company was moved to sue for damages. So while the question of law was answered in the affirmative, the award for damages to the company was set aside.

I make some general points on this. I agree that the case law is in support of the position that damages can be a remedy granted under section 181, though it is rare remedy to be granted. For damages to be awarded to the petitioning shareholder, theoretically it appears to be possible but there are many hurdles barring such a relief (e.g. that any loss that a shareholder may have suffered due to the oppressive conduct is merely a reflective loss and the real loss is suffered by the company).

For damages to be awarded to the company on the other hand, I have successfully argued cases to allow for the company, which would be a nominal respondent in the section 181 action, to be compensated with damages. A common situation would be where the majority shareholders or directors had utilised company funds to defend the section 181 action, both in moving the company to resist the oppression action as well as to use company funds to mount their personal defences. Company funds should not be utilised in what is essentially a shareholder dispute and in allowing the section 181 action, the Court had ordered that these fees be repaid back into the company.

(ii) Who has standing to bring a section 181 action?

As touched on earlier, the case of Koh Jui Hiong involved the 1st Petitioner being merely a director of the company. In the High Court, the objection was taken that the 1st Petitioner had no standing or locus standi to bring the section 181 action. This objection was dismissed as it was held that the 1st Petitioner was the alter ego of the 2nd Petitioner (another corporate entity which was a shareholder of the company) and so the 1st Petitioner was in law the 2nd Petitioner’s directing mind. With respect, this finding appears to be wrong and where prima facie the only person who has standing to bring a section 181 action is a member of the company (or a holder of a debenture of a company, a circumstance which is not relevant in this case).

In interpreting the term “member”, the applicant in a section 181 action must demonstrate that his name appears on the register of members at the date of commencement of the action. Nonetheless there is an important exception that has been carved out of this general rule. The Federal Court in Owen Sim had ruled that the exception to this general rule would exist where the majority shareholders may be estopped from denying the status of the Petitioner as a member. The Petitioner in Owen Sim had a legal, beneficial and registered interest as a member of the company which the majority wrongfully forfeited and therefore removed his shareholding. The very oppressive act itself had denied the Petitioner in Owen Sim of his standing to bring the section 181 action.

The High Court in Julian Suresh Candiah v AXIS IP Sdn Bhd (Kuala Lumpur High Court Originating Summons No. 26NCC-27-03/2013) (the Grounds of Judgment were downloaded from the KL High Court website with that obstrusive watermark) dealt extensively in analysing the standing of a “member” to bring a section 181 action. The Plaintiff in this action had signed a draft shareholders agreement (which was marked ‘subject to contract’) and it appeared that representations had been made to the Plaintiff that he would obtain shares in the company, Axis IP Sdn Bhd. It was accepted that the Plaintiff did not fall in the general rule of being a member of the company and neither did the Plaintiff fall within the Owen Sim exception. Any estoppel was not sufficient to create legal rights or interests in this case. Even if it could be said that the Plaintiff had obtained some form of beneficial shareholding in this case, which the Court held that the Plaintiff had not, the Court doubted that this armed the Plaintiff with standing for section 181. If the Plaintiff were a beneficial shareholder, the Plaintiff would still have to seek rectification or file a civil suit for the appropriate declarations first.

Therefore, the High Court declined to expand the exception recognised in Owen Sim. It will be interesting to see if this case is appealed and to then read the Court of Appeal’s grounds of judgment.

(iii) Section 181 action only against a Malaysian company?

The case of Julian Suresh Candiah also touched on the point on whether a section 181 action could extend to a company which was not incorporated in Malaysia. One of the other Defendants in the section 181 action was AXIS Real Estate Advisory Pte Ltd, a company incorporated in Singapore. One of the Plaintiff’s contention was that he was also promised shares in the Singapore company and therefore was complaining of oppressive conduct as a ‘shareholder’ of the Singapore company.

The High Court held that section 181 did not extend to companies outside of Malaysia and therefore struck out this action against the Singapore company. I agree with this interpretation so far as where the oppressive conduct is launched based on the shareholding of that non-Malaysian company. But in the situation where a foreign company may be a party to the oppressive conduct, for instance, where the directors wrongly transfer company assets to a foreign company in which the directors have interests in, a section 181 should extend to allow the foreign company to be included as a Defendant to the action.

Talk on the Companies Bill 2013 to MIA

A colleague and I gave a talk today hosted by the Malaysian Institute of Accountants on the Companies Bill. The session was well attended with over 90 people present. It was an enlightening experience preparing the content for the talk and interesting to hear the questions from the floor. The questions are now making me go back and study the provisions in the Bill in more detail in the other areas.

IMG_6701

The slides are available for download here:

MIA Talk – The Companies Bill 2013

I will be giving a talk to the Malaysian Institute of Accountants on 17 December 2013 entitled ‘The Companies Bill – Revamping the Companies Act 1965.” The Companies Bill is a significant revamp of the Act and having spoken informally to some of the officers from the relevant authorities, it does appear that they are keen to push through this Bill as soon as possible and to have it tabled before Parliament some time next year hopefully. The version of the Bill I have included in this post is the draft which was released for public consultation. There will likely be a number of amendments (including typographical as well as certain gaps to be plugged) but I expect the main provisions to still remain the same.

MIA

The structure of the talk will cover these topics:

  1. History of the Companies Bill
  2. Incorporation Related Matters
  3. Changes to Filing Requirements
  4. Share Capital
  5. Company Secretaries
  6. Meetings and Written Resolutions
  7. Directors & Auditors
  8. Changes to Capital Reduction

In my slides, I have referenced some background reading material which will shed light on the rationale behind many of the provisions in the Bill. This makes for very useful reading when trying to interpret the Bill. The material are the Consultative Documents (CD) which were issued in 2007 explaining the recommendations for changes to the Act and seeking for feedback. With the responses, the Corporate Law Reform Committee issued its Final Report in 2008.

  1. CD1 General Framework
  2. CD2 Capital Maintenance
  3. CD3 Shareholders
  4. CD4 Liquidation
  5. CD5 Director Duties
  6. CD6 Minority remedies
  7. CD7 Regulatory for Businesses
  8. CD8 Capital Reduction Share Buyback
  9. CD9 Substantial Property Transactions
  10. CD10 Rehabilitation and Receivership
  11. CD11 Sanctions
  12. CD12 Auditors
  13. CLRC Final Report