Personal Wrong Against Company vs Corporate Wrong Against Company

Where a minority shareholder is aggrieved by a majority shareholder’s actions, the filing of an oppression action may seem like the immediate and natural port of call. This may be for a few reasons, where the minority shareholder would primarily seek a personal remedy. In contrast, a derivative action would result in remedies accruing to the company, which would also indirectly benefit the majority shareholder’s wrongdoing. This may seem capricious to the minority shareholder. Besides, unlike a derivative action, the commencement of an oppression action does not require the leave of court.

Recently, the High Court in the case of Dato’ Shabaruddin Bin Ibrahim v Dato’ Ruslan Bin Ali Omar & Ors [2020] MLJU 1744 (Shabaruddin) dealt with the distinction between a personal wrong committed against shareholders of a company and a corporate wrong committed against the company.

Brief Facts

The Plaintiff in this case (Dato’ Shabaruddin) was the minority shareholder in Pesaka Consolidated Sdn Bhd (Pesaka). The Plaintiff filed an oppression action pursuant to section 346 of the Companies Act 2016 (CA 2016) against, among others, the majority shareholder of Pesaka being Dato’ Ruslan bin Ali Omar (Dato’ Ruslan).

Decision

The oppression action was dismissed primarily by Ong Chee Kwan JC. This is because the oppressive conduct complained of constituted a corporate wrong committed against Pesaka and not a personal wrong against Dato’ Shabaruddin. Dato’ Shabaruddin had failed to establish that he had suffered loss that was distinct from that of the loss suffered by Pesaka. The proper remedy was for a derivative action. A derivative action is an action which is to be brought in the name of and on behalf of a company. It is the company that then sues alleged wrongdoers.

Significance

So, the question now is why is this decision important to us? The case of Shabaruddin explains the principles applicable in distinguishing a personal wrong from a corporate wrong. This has implications on whether an aggrieved shareholder should bring an oppression action or a derivative action for purposes of seeking relief from the Court. The loss suffered by the minority shareholder is merely reflective of the company’s loss. The general rule is that the reflective loss is not recoverable by the minority. The company is the proper plaintiff to bring an action against wrongdoing controllers.

Previously, the Singapore Court of Appeal in Ho Yew Kong v Sakae Holdings Ltd [2018] SGCA 33 (“Sakae Holdings”) also sets out a useful analytical framework for distinguishing between a personal wrong and a corporate wrong. Shabaruddin (which cited Sakae Holdings with approval) serves as additional guidance on this distinction.

Therefore, it is evident that Shabaruddin shows the distinction between a corporate wrong and a personal wrong is fundamental in minority protection actions. Adopting the wrong action may have adverse time and costs consequences for a minority shareholder. Hence, aggrieved minority shareholders should consider the distinction carefully before deciding whether an oppression action or a derivative action ought to be pursued.