Lee Shih and Joyce Lim discuss a Singapore case on shareholder oppression.
In the recent case of Ho Yew Kong v Sakae Holdings Ltd
 SGCA 33 (“Sakae Holdings
”), the Singapore Court of Appeal had the opportunity to clarify the distinction between personal wrongs committed against shareholders of a company and corporate wrongs against the company. This distinction directly relates to the question of whether the appropriate relief in each respective scenario would be by way of an oppression action or a statutory derivative action.
The Singapore Court of Appeal set out a framework to determine whether an aggrieved shareholder could maintain an oppression action or ought to have pursued a statutory derivative action instead.
A FINE LINE BETWEEN THE TWO WRONGS
Under section 216 of the Singapore Companies Act (“Section 216”), aggrieved shareholders can initiate an oppression action in their own names to protect themselves from being unfairly prejudiced by majority shareholders. A successful oppression action would most often result in personal remedies for the aggrieved shareholder. Section 216 is very similar to Malaysia’s oppression remedy under section 346 of the Companies Act 2016 (“CA 2016”).
On the other hand, the statutory derivative action under section 216A of the Singapore Companies Act (“Section 216A”) enables an aggrieved shareholder to bring an action in the company’s name. The derivative action is to right the wrongs done to the company, where those in control of the company had caused harm or breached their duties to the company. The derivative action would only ultimately result in remedies to benefit the company. Section 216A is very similar to Malaysia’s statutory derivative action provisions found in sections 345, and 347 to 350 of CA 2016.
In simple terms, it could be said that claims for reliefs which are solely for personal wrongs committed against shareholders should be brought by way of an oppression action, whereas corporate wrongs committed against the company should be remedied by way of a statutory derivative action.
This distinction may be challenging to apply in practice. This is because it is common for acts which are alleged to be oppressive to an individual minority shareholder, to concurrently also constitute a wrong to the company. The difficulty in making this distinction was at the heart of the appeal before the Singapore Court of Appeal.
In Sakae Holdings
, the plaintiff, Sakae Holdings Ltd (“Sakae”), was a 24.69% shareholder in Griffin Real Estate Investments Holdings Pte Ltd (“Company”). The remaining 75.31% shares in the Company were held by Gryphon Real Estate Investment Corporation Pte Ltd (“GREIC”), an investment holding company whose shareholders included one Andy Ong and his two associates.
Under a joint venture agreement (“JVA”) between the Company, Sakae and GREIC, the Company was intended to be the joint venture vehicle through which both Sakae and GREIC would invest in units at Bugis Cube, a shopping mall in Singapore. Sakae left the management of the Company to Andy Ong.
In 2013, Sakae filed an oppression action under Section 216 against Andy Ong, his associates, and various companies owned and controlled by him (“ERC Group”) (“Defendants”). The action was filed on the basis that the Defendants had engaged in acts that were oppressive to Sakae as a minority shareholder of the Company.
The alleged oppressive conducts consisted of seven transactions entered into by the Company with the ERC Group, including, among others, loan, lease, consultancy and project management arrangements (“Impugned Transactions”). Sakae contended that the Impugned Transactions diverted the Company’s assets to the ERC Group without its knowledge.
DECISION OF THE HIGH COURT
The Defendants’ main defence was that Sakae’s claims were essentially claims in respect of corporate wrongs. As such, they could not, as a matter of law, be brought against the Defendants in an oppression action. The Defendants argued that the proper plaintiff in this case was the Company, and any loss asserted by Sakae was merely reflective of the loss sustained by the Company.
The High Court found in favour of Sakae and held that Sakae’s oppression action was properly constituted under Section 216. The unlawfulness of an errant director’s conduct could be evidence in support of the claim that he had conducted the company’s affairs in disregard of the plaintiff’s interests as a minority shareholder.
The High Court granted Sakae’s primary relief of winding up. In addition, the High Court granted orders against the errant directors to repay company monies that they had taken from or caused to be paid out by the company in breach of their fiduciary duties. However, the High Court held that it could not make payment orders against third parties who might have received monies from the company pursuant to the directors’ breaches.
DECISION OF THE COURT OF APPEAL
The Court of Appeal upheld the High Court’s decision that Sakae’s claims pertain to personal wrongs committed against it and hence the oppression action was properly constituted. However, the Court of Appeal cautioned against too readily granting a corporate relief in an oppression action. It held that an oppression action under Section 216 should generally not be permitted where the essential or sole remedy sought is a remedy for the company.
The Court of Appeal acknowledged that the distinction between a personal wrong and a corporate wrong would not always be clear.
The Court of Appeal emphasised the need to identify the essential remedy sought by a plaintiff. The Court of Appeal went on to hold that a plaintiff who sought an essential remedy directed at bringing an end to an oppressive conduct would likely be permitted to pursue its claim by way of an oppression action, even if, as part of that essential remedy, it also sought remedies in favour of the company.
Further, a court would also have to examine if the essential remedy sought is in fact directed to the real injury which the plaintiff suffers as a shareholder, and whether the real injury suffered by the plaintiff as a shareholder is distinct from, and not merely incidental to, the injury suffered by the company.
Insofar as an oppression action under Section 216 could give rise to a risk of double recovery or prejudice to the creditors or shareholders of the company concerned, the Court of Appeal held that these concerns could be dealt with by the suitable crafting of court orders. The Court of Appeal laid out an analytical framework to distinguish between an oppression action for personal wrongs and a derivative action which was more appropriate for corporate wrongs.
THE COURT OF APPEAL’S ANALYTICAL FRAMEWORK
The Court of Appeal considered jurisprudence from the UK, Hong Kong, Australia and Canada and set out an analytical framework to guide the courts in making this distinction. This framework consists of two limbs, i.e. injury and remedy:
(a) What is the real injury that the plaintiff seeks to vindicate?
(b) Is the injury distinct from the injury to the company and does it amount to commercial unfairness against the plaintiff?
(a) What is the essential remedy that is being sought and is it a remedy that meaningfully vindicates the real injury that the plaintiff has suffered?
(b) Is it a remedy that can only be obtained under Section 216?
1st limb of framework: Injury
The Court of Appeal held that the real injury which Sakae sought to vindicate were (i) the injury to its investment in the Company; and (ii) the breach of its legitimate expectations as to the Company’s affairs and how its financial investment in the Company would be managed.
In doing so, the Court of Appeal took cognizance of the fact that the High Court judge considered each of the Impugned Transactions to assess how Sakae was personally affected by them.
While the Defendants’ conduct also constituted a wrong against the Company, it separately amounted to a distinct personal wrong against Sakae as a minority shareholder. The Court of Appeal also held that the Impugned Transactions occasioned serious commercial unfairness to Sakae.
2nd limb of framework: Remedy
Sakae prayed for either a winding up of the Company or a buyout of its shares in the Company. In essence, the essential remedy sought by Sakae was to exit the joint venture with as little loss as possible and thereby meaningfully remedy the real injury that it had suffered. Further, both remedies were available only in an action under Section 216. Any benefit that accrues to the Company would be purely incidental to the essential remedy which Sakae seeks.
Although Sakae prayed for restitutionary orders, the Court of Appeal held that these orders did not constitute the essential remedy sought. Rather, the orders were necessary to ensure a fair value exit for Sakae.
Given the above, the Court of Appeal found that Sakae’s oppression claims were properly pursued by way of an oppression action as opposed to a statutory derivative action. It was not an abuse of process.
EFFECT OF ALTERNATIVE REMEDIES
Finally, the Court of Appeal also dismissed the Defendants’ alternative defences. Firstly, one argument raised was that the JVA already provided a share buy-out mechanism if one of the shareholders committed a material breach. The Court of Appeal held that in law, an alternative remedy may preclude recourse to an oppression claim if that remedy was both adequate and appropriate to bring to an end the matters complained of. Here, it was unrealistic and lacking in commercial sense to expect the aggrieved shareholder to expend money to purchase shares in the company in which it had been oppressed.
Secondly, the Court of Appeal also rejected the argument that Sakae should be confined to the arbitration mechanism under the JVA. The parties to the JVA were Sakae, GREIC and the Company. The oppression action was based on the pattern of oppressive conduct orchestrated primarily by Andy Ong and one of the other Defendants. Both these individuals were not parties to the JVA and Sakae’s dispute would fall outside the ambit of the arbitration clause. The nature of the acts that Sakae complained of were held to be oppressive to Sakae even without regard to the JVA.
The provisions in Malaysia and Singapore on oppression actions and statutory derivative actions are very similar. The decision in Sakae Holdings
will undoubtedly be of use to Malaysian courts and legal practitioners alike. The analytical framework will assist in providing a checklist for determining the mode in which a complaint relating to the conduct of the controllers of a company ought to be pursued, that is, whether by way of a statutory derivative action or an oppression action.
Malaysia has considered this distinction between an oppression action and a derivative action. In the case of Koh Jui Hiong @ Koa Jui Heong & Ors v Ki Tak Sang @ Kee Tak Sang and another appeal
 3 MLJ 10, the Federal Court warned of the limits of an oppression action. The reliefs sought in the oppression action must be with a view to remedying the matters complained of. The derivative action elements should be an incident of the matters complained of. Hence, it would be an abuse of the oppression action where the nature of the complaint was misconduct rather than mismanagement.
More recently, the Federal Court in Rinota Construction Sdn Bhd v Mascon Rinota Sdn Bhd & Ors
 1 MLJ 141 held that the oppression action was correctly initiated. It was not necessary for the shareholder to bring a derivative action. The Federal Court highlighted that the case bore all the hallmarks of an oppression action and none of the hallmarks of a derivative action. This included the fact that in a derivative action, the relief is sought on behalf of a company for the benefit of that company e.g. to return to the company funds misappropriated from it. In that case, the shareholder was seeking remedies for assets misappropriated by the majority shareholders. Hence, initiating the oppression action was appropriate.
Finally, it is interesting that the Singapore Court of Appeal departed from the Federal Court decision of Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd & Ors and another appeal
 2 MLJ 297. The Federal Court held that breaches of a shareholders’ agreement could not be a basis for an oppression action as they did not relate to the affairs of the company. The Singapore Court of Appeal disagreed. There are many situations where a shareholders’ agreement would in fact specifically concern the affairs of the company. In this case, the JVA did spell out the business of the Company and the proceedings of the directors’ meetings. Further, the Singapore Court of Appeal reiterated that when determining commercial unfairness for oppression, it is to be assessed against the understanding between the shareholders. This understanding would include both informal understandings as well as formal agreements. A shareholders’ agreement is a clear example of the understanding on which commercial unfairness is to be assessed.