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Something for Nothing Getting Out of the Get Out Clause

18341941_s - asian businessman“If enemy offers you two options,

surprise him with your third one,

end the feud with the fourth one.”

― Toba Beta, Betelgeuse Incident: Insiden Bait Al-Jauza

When my New Zealander partner (“NZ”) wanted to sell their shares by invoking the “get out clause”  in our joint venture company (“JV Company”)  we explored many options with respect to that request.

One day without any warnings they filed an action against me.   To me it was wrong as we have yet to complete the explorations of the various options to resolve our issues.

Our side submitted that the sale was  prohibited by s 223 of the Companies Act 1965 and leave (permission) from the Companies Winding Up Court was needed…

NZ did not agree and felt that they were able to proceed.

HIGH COURT

In the High Court, a very lengthy argument ensued and the last argument we advanced was that of whether the word ‘and’ in s 223 of the Companies Act 1965 was to be read conjunctively or disjunctively.

Section 223 Avoidance of dispositions of property, etc.

Any disposition of the property of the company including things in action and any transfer of  shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall unless the Court otherwise orders be void….

At the High Court stage, 4 High Court decisions  were with NZ, one Court of Appeal decision, one High Court decision and one English High Court decision were on our side on this point.

The learned High Court Judge said this in her Grounds of Judgment at
[79] “…the court do  not intend to  determine…  which one  of two antagonist was at fault… but concluded that irreconcilable difference took place…”

But Her Ladyship went on to say that she could not make an order for me to buy the shares of  NZ as the JV Company was wound up…  and it was therefore prohibited by s 223 of the Companies Act 1965…

The word ‘and’ should   be read disjunctively and NOT conjunctively.

Then Her Ladyship further  said since NZ did not pray (ask for) damages to be assessed in their pleadings (statement of claim),  the High Court could not grant any damages in favour of NZ.

NZ appealed to the Court of Appeal.

 

COURT OF APPEAL

It was a long two hours argument at the Court of Appeal.

The learned judges referred to Mr Alex Chang’s Companies Winding Up Handbook on section 223  at para [18] of the Grounds.  The Grounds of Judgment was also reported in the Current Law Journal: [2016] 9 CLJ 474.

At the Court of Appeal the learned Judges agreed with the High Court and held that
1.    Leave pursuant to s 223 should be applied from the Companies Winding Up Court;
2.    The word ‘and’ should   be read disjunctively and NOT conjunctively;
3.    Section 18 of the Specific Relief Act 1950 requires NZ to pray for damages without which the court could not grant damages; and
4.    The omnibus clause “…such other reliefs as the court thinks fit…” may not be invoked to  order damages which were not prayed for.

 

THE FEDERAL COURT

Dissatisfied with the decision of the Court of Appeal, NZ applied for leave to appeal to the Federal Court.   8 grounds were put forward which their appeal is novel (new points not decided previously by the Federal Court) and that a decision of the Federal Court will be of public interest.

Mr Chang succeed to challenge 7 out of 8 and the Federal Court allowed one Question to be posed.

“Whether by virtue of   Section 18(2), (3) and (5) of the Specific Relief Act 1950 the High Court has the inherent power to grant  an  order  for assessment of   damages in an action   for  specific performance involving transfer of shares between the shareholders of  a  company which went into liquidation   after  the commencement of the action?” “Whether by virtue of   Section 18(2), (3) and (5) of the Specific Relief Act 1950 the High Court has the inherent power to grant  an  order  for assessment of   damages in an action   for  specific performance involving transfer of shares between the shareholders of  a  company which went into liquidation   after  the commencement of the action?”

Mr Chang and his team embarked on a three-month research on case law from the 1800s, from India,  House of Lords (Privy Council) of England, Singapore and of course Malaysia…  to prepare themselves for the 15-minute argument.

When the Chairman of the Federal Court 5-member panel posed the Question:
“…tell us why did your client not pay for the shares as per the get out clause?”

“…what is the position in India with respect to Section 18 of the Specific Relief Act 1950…”

 

THE SOMETHING FOR NOTHING ARGUMENT IN THE FEDERAL COURT

Mr Chang calmly  told them as follows:
1.    That the High Court did not find me committing any breaches of the agreement;
2.    That it was decided by the Privy Council in 1923 upon hearing an appeal from India that first the court must find NZ entitling to specific performance then only, if they have also asked for damages, the court could consider granting damages.
3.    Since in this case NZ was not able to sell their shares to me, without a court order from the companies winding up court, it is not legally right for a court to order me to pay something for nothing…

The Federal Court promptly dismissed the appeal which ended my saga in court…

A great sense of relief overcome me that I have been vindicated and justice is finally served.

I sincerely thank Mr Chang and his team for this fantastic job well done, I admire them for their dedication in their work, the foresight they possess for consistently securing judgment in my favour from High Court to the Court of Appeal and finally at the Federal Court.

Thank you again.

Loh Yok Liang

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