Sundaresh Menon SC, Tammy Low and Paul Tan from the Appeals & Issues Practice of Rajah & Tann LLP successfully represented the Appellants in Over & Over Ltd v Bonvests Holdings Ltd  SGCA 7.
When minority oppression is alleged, there is usually more than one instance of impugned conduct. The Singapore Court of Appeal in this case highlighted that in reaching a decision, all the circumstances and the cumulative effect of the impugned conduct must be taken into consideration.
The Court also confirmed that the test for minority oppression is the same whether the unfairly prejudicial conduct alleged is a single act or a series of continuing conduct – there must be “a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect”.
Richvein Pte Ltd (“Richvein”) was a company set up as a joint venture between two families, with the Lauw family’s Over & Over Ltd (“O & O”) as the minority shareholder holding 30% of its shares, and the Sianandar family’s Unicurrent Finance Limited (“Unicurrent”) initially holding the remaining shares.
While operations were initially smooth, the Sianandars began making more decisions without deference to the Lauws.
- In 1991, Henry Ngo of the Sianandar family concluded three contracts between Richvein and companies in which Ngo had interests. O&O was not consulted beforehand.
- In 2002, Ngo had his public-listed company, Bonvests Holdings Ltd (“Bonvests”), acquire Unicurrent’s 70% shareholding in Richvein. He obtained O&O’s reluctant consent by threatening to simply employ a backdoor approach ofbuying over all of Unicurrent’s shares if O&O refused.
- Matters came to a head in 2006 when Ngo decided on a rights issue to refinance an outstanding loan one year ahead of it being due for repayment. Despite O&O’s objections and repeated requests to determine whether a rights issue could be properly justified, the rights issue was hastily completed.
O&O alleged that these acts constituted minority oppression under section 216 of the Companies Act.
Holding on Appeal
The Court of Appeal accepted O&O’s argument that it had been oppressed under the provisions of section 216 of the Companies Act. The Court established the following propositions of law:
- The common thread running through section 216 was unfairness. Oppression occurs when majority shareholders either exercise their dominant power to procure that something is done or not done in the conduct of the company’s affairs or procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company’s affairs; and when such conduct is unfair to the other members of the company or some of them, and lacks that degree of probity which they are entitled to expect in the conduct o the company’s affairs.
- Although proof of prejudice is a factor in the overall assessment, it is not an essential requirement.
- Either a course of conduct or even a single act could theoretically amount to oppression. For example, a singular dilution of the minority’s shares by the majority contrary to an informal understanding may suffice as oppressive conduct. It may not suffice where the majority acts in good faith because a shareholder ordinarily participates in a company without the expectation that the shareholding among shareholders would remain static and unchangeable.
- Equally, a past oppressive act which has been remedied may belie a risk of future oppressive acts and may have continuing oppressive effects.
- Where a case involves a quasi-partnership, courts will take into account both the legal rights and the legitimate expectations of the members in deciding whether to grant relief under section 216 of the Companies Act. Thus, a majority shareholder may be within his strict legal rights but the manner in which he exploits his legal rights may call for the court’s intervention. It is trite law that conduct can be unfair without being unlawful.
- Merely because a shareholder does not immediately initiate legal proceedings complaining about unfair treatment does not always preclude him from doing so subsequently.
Having regard to all the circumstances and taking into consideration the cumulative effect of the impugned conduct, the Court found that there was a deliberate course of oppressive conduct. It noted that the transformation of Richvein as a private joint venture company to a semi-public one in which Bonvests would hold Unicurrent’s shares in Richvein constituted a radically different entity and legal proposition, which amounted to a loss of substratum.
The rights issue and the share transfer, viewed in conjunction with the overarching background of the related party transactions, comprised clear evidence of unfairness that amounted to oppressive conduct.
The Court also determined that the rights issue, which was done in the absence of commercial justification, was in and of itself an abuse of rights. It was a barely-concealed attempt to dilute O&O’s shareholding in Richvein. This alone would have been sufficient grounds to find oppression.