Abd Aziz bin Atan & Ors v Ladang Rengo Malay Estate Sdn Erlanger v New Sombrero Phosphate

Phosphate Co (1878)
Bhd Fact: Erlanger was a French banker who bought the lease
Fact: All the shareholders of the company sold and for the Anguilian island of “Sombrero”, phosphate mining
transferred their entire shareholdings to a certain buyer. for £55,000. Erlanger then established New Erlanger
Therefore, the court had to determine whether a change of Phosphate Co (Phosphate), before selling Sombrero’s lease
employer took place. to Phosphate for £110,000 through a nominee. One of
Judgement: An incorporated company is a legal person Phosphate’s directors was the Lord Mayor of London, who
separate and distinct from its shareholders. The company, was independent of Erlanger’s initial group of
from the date of incorporation, has perpetual succession founders. Two other directors were abroad, and the other
and did not change its identity or personality even though directors were puppet directors of Erlanger. Due Erlanger’s
the entire shareholding of the company changed hands. strong control over Phosphate, the company was
Aspatra Sdn Bhd v Bank Bumiputra Malaysia Bhd essentially an extension of Erlanger. Phosphate ratified the
Fact: By a writ filed on 10 January 1985 (BBMB) and its sale of the lease. Many people invested in Phosphate due
subsidiary in Hong Kong, (BMF), sued Lorrain Esme Osman to Erlanger’s skills at promotion. Eventually, the investors
for a sum of RM27, 625,853.06 claimed to be secret profits realised that Erlanger had sold the lease to Phosphate for
made by Lorrain (the director of BBMB and chairman of BMF double the price he had bought it for, and Phosphate sued
of the time) through various unauthorized loans and banking Erlanger for recession due to non-disclosure and an
facilities of more than HK$3.2b to the Carrian group in Hong account of profits.
Kong.•BBMB and BMF also made an application for a Judgement: Erlanger was a promoter for Phosphate. The
Mareva injunction to freeze and to disclose all Lorrain’s House of Lords unanimously held that the relationship
assets. Zakaria Yatim J granted the orders on the same day between a promoter and a newly formed company attracts
and extended them to Lorrain’s assets in 32 other banks, and a fiduciary relationship. The majority (Lord Cairns LC
shares held in 104 other companies on 15 January. On the dissenting) also held that the contract can be rescinded. A
same date, the court granted and varied on 17 January an promoter owes duties of good faith and honesty to the
Anton Piller order against Aspatra Sdn Bhd and other company. Erlanger should have declared any conflicting
companies. Lorrain was arrested in London and extradited interests to the company promoted and cannot make any
to Hong Kong before the appeal was heard.32 “secret profits”. A promoter who breaches any duty to the
Judgement: Malaysian Supreme Court by company by failing to disclose to the company conflicting
a majority decided that it is proper to lift the corporate veil interests would be liable. The company is able to seek
as the majority shareholder held almost all shares in several remedies such as rescission of contract and recovery of
companies and was regarded to be the alter ego of the profits. A constructive trust can also be formed for the
companies. The court had considered the interests of the profits gained by the promoter in breach of his or her duties.
creditors, in this case the banks, in ordering that the veil of Fairview Schools Bhd v Indrani a/p Rajaratnam
incorporation be lifted. This was necessary to achieve justice. Fact: the company was incorporated tomanage a private
Daimler v Continental Tyre Rubber school. The promoter applied for and was issued with a
Fact: All except one of Continental Tyre and Rubber Co permit to operatethe school. The court found that the
Ltd’s shares were held by German residents and all promoter held the permit in trust for the company.
directors were German residents. The secretary was Judgement: Promoters have a legal duty not to make any
English. Continental Tyre and Rubber Co Ltd supplied tyres secret profit out of the promotion of thecompany without
to Daimler, but Daimler was concerned that making
the company's consent and also to disclose to the company
payment might contravene a common law offence of
trading with the enemy as well as a proclamation issued any interest the promoters have in any transaction
under s 3 (1) Trading with the Enemy Act 1914. Daimler proposed to be entered into by the company.
brought the action to determine if payment could be Foss v Harbottle (1842)
made, given that it was the First World War. Facts: Two shareholders commenced legal action against the
Judgement: The House of Lords held that thought the promoters and directors of the company alleging that they
Continental Tyre Company was incorporated in England, had misapplied the company assets and had improperly
its effective control was in hands of Germans and, mortgaged the company property.
therefore, the company had acquired the enemy Judgement: The Court rejected the two shareholders' claim
character. and held that a breach of duty by the directors of the
Eley v the Positive Government Security Life Assurance Co
company was a wrong done to the company for which it
Ltd (1876)
alone could sue. In other words, the proper plaintiff in that
Facts: The A/A provided that the plaintiff shall be the
case was the company and not the two individual
solicitor of the company and he can only be removed for
shareholders.
misconduct. Subsequently, the company removed him even
Gilford Motor Co Ltd v Horne [1933]
though there was no misconduct. The plaintiff sued the
Fact: Mr Horne was a former managing director of Gilford
company for breach of contract. He relied on the A/A and
Motor Home Co Ltd (Gilford). His employment contract
claimed that the company could not remove him since there
prevented him from attempting to solicit Gilford’s
was no misconduct.
customers in the event that Horne left Gilford’s employ.
Judgement: Eley could not claim for breach of contract. He
Horne was fired and he subsequently set up a competing
was not suing in the capacity of a member although he was
company which undercut Gilford’s prices. Gilford did not
a member of the company. The case was not concerning his
have any legal restraints upon Horne’s company, only
membership rights but concerned his employment rights.
Horne himself. Gilford commenced proceedings against
The A/A is a constitution that protects a member’s rights.
Horne individually, claiming that Horne’s company was an Jones v Lipman [1962]
attempt to evade legal obligation (not soliciting customers). Fact: Mr Lipman contracted to sell a house with freehold
Judgement: The English Court of Appeal held that the title to Jones for £5,250.00. Pending completion, Lipman
company was set up to evade Horne’s contractual changed his mind and instead sold and transferred the land
obligations. The Court “pierced the corporate veil” and to a company, which he and a law clerk were the sole
ordered an injunction against Horne. Courts can “pierce the directors and shareholders of, for £3,000.00. The company
corporate veil” if a company is simply a mere device to had been set up for the sole purpose of receiving this land.
evade legal obligations, though this is only in limited and $1,554.00 of the £3,000.00 was borrowed by the company
discrete circumstances. from a bank and the rest remaining owing to Lipman.
Gluckstein v Barnes Judgement: The English High Court held that the company
Fact: Promoters of a company had acquired a property was a sham or facade which Lipman intended to use to
intending its resale through the sale of shares in the evade a pre-existing obligation.
company. In doing so the original directors made a Kelner v Baxter (1866)
substantial profit which they did not disclose (though it was Fact: A group of promoters for a new hotel company, the
discoverable). The company became insolvent and investors “Gravesend Royal Alexandra Hotel Company” (Gravesend)
sought repayment of the hidden profit. entered into a contract for wine. This contract was
Judgement: The action succeeded. As promoters they were purportedly on behalf of Gravesend, but Gravesend had
under a duty to make explicit declarations of the profits not at that point been registered. It was a “pre-
already made. incorporation contract”. Gravesend was eventually
Gramophone and Typewriter Co v Stanley [1908] registered, but by that stage the wine had been consumed
Fact: All shares in a German company were held by the before the money had been paid. Gravesend soon went
appellant company, which was resident for tax purposes in into liquidation. The promoters, as Gravesend’s agents,
England. The appellant was assessed for income tax not were sued. The promoters argued that, as Gravesend had
only upon the profits of the German company actually been incorporated, the contract had subsequently been
remitted to it in England, but also on a sum of £15,000 ratified and the liability had passed to the company.
retained by the German company and transferred by it to a Judgement: The Court of Common Pleas held that because
depreciation fund. The unremitted profits were taxable in the company did not exist at the time of the signing of the
England only if they were the profit of gains of a business agreement it would be wholly inoperative unless it was
‘carried on’ by the English Company binding on the promoters. A stranger cannot, by
Judgement: the corporate veil will not be pierced even the subsequent ratification, relieve the promoters from that
parent company owns all shares in the subsidiary if the responsibility of liability. A promoter can avoid liability if a
directors are empowered by the articles of association to substitute agreement novice the original pre-incorporation
control the business. contract.
Hickman v Kent Sheepbreeders’ Association Lee v Lee’s Air Farming Ltd
Fact: Article 49 said disputes between the association and a Fact: Lee formed the company, Lee’s Air Farming Ltd. He
member should go to arbitration, before court. Mr Hickman owned all the shares except one. He was the company’s
complained about refusal to register his sheep in the sole governing director. He was also employed by the
published flock book and was under threat of being expelled. company as its chief and only pilot.
He started proceedings in the High Court and the association Lee was killed while flying for the company.
sought an injunction. His wife made a claim for workmen’s compensation under
Judgement: Astbury J held that the articles prevented Mr
the New Zealand workmen’s compensation legislation. Her
Hickman: there was a contract. He was bound. The
entitlement to such compensation depended on whether
predecessor to the Companies Act 2006 section 33 creates a
contract, which affects members in their capacity as members, or not Lee was a worker ie. a person who has entered into
though not in a special or personal capacity (e.g. as director). a contract of service with an employer. The New Zealand
As a member, Mr Hickman was bound to comply with the Court of Appeal refused to hold that Lee was a worker,
company procedure for arbitrating disputes and could not holding that a man could not in effect, employ himself.
resort to court. However, the Privy Council allowed Mrs Lee’s claim. Lee
Hotel Jaya Puri Bhd v National Union of Hotel, Bar & may have been the controller of the company in fact but in
Restaurant Workers law, they were distinct persons. He could therefore enter
Fact: The plaintiff in this case was the holding company and a into a contract with the company and could be considered
restaurant within its premises was a subsidiary company. The to be an employee. The widow was therefore entitled to an
workers in the restaurant were retrenched and the issue award in respect of workmen’s compensation.
before the court was whether the holding company was liable
Judgement: A company can own property in its own name.
to pay.
Section 16(5) only mentions land but there is no doubt that
Judgement: The court held that the holding company had to
a company may own any other sort of property.
pay the compensation. This was because the hotel and the
The property of a company belongs to it and not to its
restaurant were inter-dependent – there was functional
members. Even if a person owns all the shares in a
integrity and unity of establishment between the hotel and
company (through nominee shareholdings), he does not
the restaurant; and a number of senior officers were
own the company’s property, nor does he have any legal or
common to both the hotel and the restaurant. Therefore,
equitable interest there. He does not even have an interest
the hotel is the employer of the employees.
in the company’s property that can be insured.
Macaura v Northern Assurance transfer of their shares. Since there were no directors, the
Fact: The owner of a timber estate sold all the timber to a court decided to appoint new directors. However, members
company which was owned almost solely by him. He was were required to vote for their appointment and the company
the company’s largest creditor. He insured the timber had no members. The court then decided to allow personal
against fire, but in his own name. After the timber was representatives of the deceased to appoint new directors that
destroyed by fire the insurance company refused the claim. could assent on the transfer of the shares.
Judgement: This case clarifies that even in case of death of all
Judgement: The House of Lords held that in order to have
the members of the company, the company will still exist. The
an insurable interest in property a person must have a legal
perpetual existence of the company contributes to the
or equitable interest in that property. The claim failed as company’s stability as well as long life.
“the corporator even if he holds all the shares is not the Salomon v Salomon & Co
corporation… neither he nor any creditor of the company Facts: Mr Salomon was a shoemaker in England. His sons
has any property legal or equitable in the assets of the wanted to become his business partners, so he converted
corporation.” his business into a limited company (A Salomon & Co Ltd).
Newborne v Sensolid A Salomon & Co Ltd purchased Mr Salomon’s business for
Fact: A written contract purported to sell goods by a above market value. His wife and his five children became
company described as Leopold Newborne (London) Ltd. subscribers. The two eldest sons became directors of the
The document was subscribed by the name of the company company. Mr Salomon was allocated 20,001 of the
with Mr Leopold Newborne’s signature under it. At that company’s 20,007 shares. The company gave Mr Salomon
time, it had not yet been incorporated. Mr Newborne £10,000 in debentures and received an advance of £5,000
attempted to enforce the contract as one to which he was from Edmund Broderip, on security of the debentures.
party. Salomon’s business eventually failed, and it defaulted on its
Judgement: This was inconsistent with the description of interest payments on the debentures (half held by
the party in the contract. Lord Goddard CJ: ‘In my opinion, Broderip). Broderip sued to enforce his security. The
unfortunate though it may be, as the company was not in company went into liquidation. Broderip was repaid his
existence when the contract was signed there never was a £5,000. This left £1,055 company assets
contract, and Mr Newborne cannot come forward and say: remaining. Salomon claimed this amount under his
‘Well, it was my contract.’ The fact is, he made a contract retained debentures. This would leave nothing for
for a company which did not exist.’ The contract purported unsecured creditors. The company’s liquidator argued that
to be a contract with the company, and it was not relevant Salomon should be responsible for the company’s debts.
that, as was the case, it was a matter of indifference to the Salomon sued for the £1,055.
purchasers whether they contracted with the company, or Judgement: After several sets of proceedings in lower
with Mr Newborne personally courts, the appeal landed in the House of Lords.
Rayfield v hands (1960) The Companies Act 1862 (UK) did not require shareholders
Fact: Mr Rayfield sued the directors of Field Davis Ltd to buy to be independent of the majority shareholder. A Salomon
his shares. Article 11 of the company’s constitution said, ‘Every & Co Ltd was legally constituted and it was not the role of
member who intends to transfer shares shall inform the judges to read limitations into the statute in a manner that
directors who will take the said shares equally between them they considered preferable.
at a fair value.’ The directors were refusing to follow this rule, Smith, Kline & Knight Ltd v Birmingham Corporation
and Mr Rayfield sought an injunction. Fact: An application was made to set aside a preliminary
Judgement: Although the defendant is a director of the determination by an arbitrator. The parties disputed the
company, he is bound by the provisions of the A/A in the compensation payable by the respondent for the
capacity of a member. Therefore, the defendant must take up acquisition of land owned by Smith Stone and held by
the shares. Birmingham Waste as its tenant on a yearly tenancy.
Re Leeds & Hanley Theater Birmingham Waste was a wholly owned subsidiary of Smith
Fact: F Co contracted to purchase two music halls Stone and was said in the Smith Stone claim to carry on
for £24,000 and had the property conveyed to a nominee, R, business as a separate department and agent for Smith
intending to sell it to the Leeds and Hanley when the company Stone. As a yearly tenant, Birmingham Waste, however,
was formed. F Co then promoted the formation of Leeds and had no status to claim compensation. The question was
Hanley and agreed to sell it the music halls for £75,000. whether, as a matter of law, the parent company could
Judgement: The board of directors of Leeds and Hanley was claim compensation for disturbance to the business carried
not an independent board. A prospectus for issuing shares to on at the acquired premises. The arbitrator’s award
the public gave R as the seller of the property and did not answered this in the negative. Smith Stone applied to set
disclose the interest of F Co or the profit it was making. For the award aside on the ground of technical misconduct.
breach of fiduciary duty to those invited to take shares the Judgement: The parent company was entitled to
promoters were liable in damages to the company; the compensation in respect of a business carried on by a
measure of damages being the promoters' profit subsidiary on the basis that the subsidiary was in reality
Re Noel Tedman Holdings Pty Ltd carrying it on on behalf of the parent company.
Fact: In this case, a husband and wife were the only Twycross v Grant (1877) refers to “one who undertakes to
shareholders and directors of the company. Both of them died form a company with reference to a given project and to
in an accident and were survived by their infant child. In spite set it going, and who takes the necessary steps to
of their death, the company was still in existence as per the accomplish that purpose”. However, the term promoter
law. According to the Articles, the directors had to approve the does not include those who act merely in professional
capacity acting on the instructions of a promoter for
example a solicitor or an accountant. In this case, it is
obvious that Candy and Caramel are promoters by setting
up the business and entering into pre-incorporation
contract.
Wong Kim Fatt v Leong & Co Sdn Bhd & Anor (1976)
Facts: Holders of 7/10 of the issued share capital of the
company may require the company to transfer the shares of
the holders of 3/10. The issued share capital of the company
was 300,00 ordinary shares. The second defendant held
250,000 ordinary shares and the plaintiff held 50,000 ordinary
shares. The second defendant wanted the 50,000 shares to be
transferred to him. The plaintiff claimed that the clause was
unfair.
Judgement: The clause is not in conflict with CA 1965 and
therefore it is binding on the plaintiff.