What Does S.85 CA 2016 Actually Protect?

S.85(1) CA 2016 provides that:

“Subject to the constitution, where a company issues shares which rank equally to existing shares as to voting or distribution rights, those shares shall first be offered to the holders of existing shares in a manner which would, if the offer were accepted, maintain the relative voting and distribution rights of those shareholders.” (emphasis added)

At first glance, the provision appears straightforward: where a company issues qualifying new shares, the existing shareholders should first be given the opportunity to subscribe to preserve their relative voting and distribution rights in the company.

However, there is an important qualification in the opening words of S.85 – “subject to the constitution”. Ex facie, this suggests that the shareholders may, through the company’s constitution, determine the extent to which their pre-emptive rights apply.

This was recognised by the Federal Court (“FC”) in Dato’ Azizan bin Abd Rahman & Ors v Concrete Parade Sdn Bhd & Ors and other appeals[1] (“Dato’ Azizan”), where the FC held that the pre-emptive rights afforded by S.85(1) are:-

“dependent on how the shareholders, as investors, have contracted in their AA (or constitution), firstly with the company and secondly with other shareholders or members inter se”.[2]

Accordingly, where a company has a constitution, the constitution should be the starting point in determining whether and to what extent pre-emptive rights apply. The constitution may fortify such rights, modify their operation, or provide for their disapplication[3]. Where there is no constitution, S.85 provides the statutory framework governing those rights.

How Are Pre-Emptive Rights Displaced or Waived?

At its core, a pre-emptive right is a right of priority or first preference. It does not confer an interest in the shares themselves; rather, it gives shareholders a right of first choice. Such a right may be waived even if it arises from statute[4].

The more difficult question is: what is sufficient to establish a valid disapplication or waiver of pre-emptive rights?

Interaction Between S.75 and S.85 CA 2016

Briefly, S.75 CA 2016 requires shareholders’ approval before directors may exercise certain powers to allot shares. S.75(2) provides the exceptions to this general rule.

In Pan Choon Weng, the defendants argued that S.75 and S.85 should be construed such that, where an allotment falls within an exception under S.75(2), the shares need not first be offered to existing shareholders under S.85[14].

The High Court ultimately dismissed the plaintiff’s claim. In this regard, the High Court held that the two provisions should be construed so as to “complement” each other and applied according to the circumstances of each case; otherwise, the statutory exception under S.75(2)(c) would be deprived of its efficacy[15].

However, this position must be considered alongside the subsequent FC decision of Dato’ Azizan. While the FC also emphasised that S.75 and S.85 should be read harmoniously, it expressly observed that S.85(1) is “not subject to s.75”[16].

The extent to which an exception under S.75(2) affects the operation of S.85 therefore warrants careful consideration.

What Happens When Pre-Emptive Rights Are Breached?

When a company proceeds with issuance of shares without complying with applicable pre-emptive rights, the affected shareholder may have various remedies depending on the circumstances, including declaratory relief[17], rectification of the register of members[18], oppression relief[19] or other appropriate orders.

However, a breach of pre-emptive rights does not necessarily mean that the resulting allotment is incapable of being cured. The Court may, in appropriate cases where it is just and equitable to do so and where no substantial injustice would result, exercise its statutory powers to validate or regularise any issuance or allotment of shares that would otherwise be irregular[20].

[1] [2024] 3 MLJ 223.

[2] ibid, para 136-138 & 15

[3] ibid, para 122 & 158.

[4] LGB Engineering Sdn Bhd & Ors v Rayston Resources Sdn Bhd [2022] MLRAU 196, para 82-83.

[5] Dato’ Azizan (n 1), para 174-176.

[6] ibid, para 171-187.

[7] [2026] MLRHU 2410.

[8] ibid, para 80-87.

[9] [2023] 10 MLJ 544.

[10] ibid, para 83 & 90-91.

[11] ibid, para 85-89.

[12] [2019] CLJU 2392, para 133-135.

[13] [2003] 1 MLRA 264, pg 267.

[14] Pan Choon Weng (n 9), para 49.

[15] ibid, para 80-81.

[16] Dato’ Azizan (n 1), para 128 & 134.

[17] TAS Capital (n 7), where the Plaintiff successfully sought inter alia a declaration that the issuance of shares was void and illegal.

[18] Pioneer Motor (n 13), where the Respondent sought inter alia rectification of the register of members under S.162 of the Companies Act 1965 to remove a third-party company as the holder of shares.

[19] Chiptar Holdings Sdn Bhd v THC Rice (K.L.) Sdn Bhd & Ors [2023] 1 LNS 585, where the Plaintiff successfully established a case of oppressive conduct under S.346 of the CA 2016.

[20] CA 2016, S.108. See also Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr. Yeoh Kim Leng & Ors [1991] 1 CLJ (Rep) 194 at pg 204, where the Supreme Court drew a distinction between an act which does not bind the company and an act that is capable of regularisation or validation.

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Background

• KL Petrogas encountered financial difficulties following enforcement action by SA Puncak under financing facilities exceeding RM22 million. SA Puncak subsequently terminated the financing facilities and appointed Receivers and Managers over KL Petrogas pursuant to the debenture.[7]
• In separate proceedings (Suit 787), the High Court held that certain agreements relating to the pre-factoring facility were unenforceable and that the debenture was void to the extent it secured that facility. Accordingly, SA Puncak was treated as an unsecured creditor for KL Petrogas’s proposed restructuring. The decision remains subject to appeal.[8]
• Against this backdrop, KL Petrogas sought an order from the HC to convene meetings of its creditors for the purposes of considering and approving a scheme of arrangement.
• Under the initial proposed scheme (“Scheme 1”), all unsecured creditors were placed in a single class and would be repaid on a pari passu basis.
  • However, SA Puncak, holding approximately 29% of the unsecured debt, made clear that it intended to vote against Scheme 1.[9]
• To overcome this, KL Petrogas proposed a revised scheme (“Scheme 2”) by invoking the cross-class cram down regime under S.368D CA 2016, as illustrated below.
  • The strategy for Scheme 2 was straightforward: if Class A achieved the requisite 75% statutory majority, KL Petrogas could seek to invoke the cram down mechanism under S.368D CA 2016 to bind Class B notwithstanding SA Puncak’s dissent. The HC described this as an “audacious move”[10].

• The question before the HC was whether the proposed cross-class structure presented an obvious “roadblock” or abuse of process such that the HC should refuse to convene the creditor meetings.

HC Decision & Key Findings

The HC granted the convening order after considering comparative jurisprudence from the UK, US and Singapore. Central to the HC’s reasoning was the legislative purpose underlying S.368D CA 2016.[11] As the HC observed:

“…the very objective and purpose of the cram down legislation, to prevent a recalcitrant creditor from vetoing a beneficial scheme that is wanted by the other creditors”[12].

The HC’s reasoning can broadly be distilled as follows: –

(1) The 75% Statutory Threshold [13]

(2) The Applicable ‘Fairness’ Test

• Under a conventional scheme of arrangement[15], the Court generally applies the “limited rationality” test, i.e., whether an intelligent and honest creditor, acting in their own interest, could reasonably approve the scheme.
• However, the HC held that this test is not appropriate in the context of cross-class schemes[16]. Unlike a conventional scheme, a cross-class cram down necessarily involves a creditor class that has not approved the proposed scheme by the requisite statutory majority. As such, fairness cannot simply be assumed from creditor approval.
  • The HC further observed that the “limited rationality” test merely serves as a “cross-check” to an affirmative vote of the creditor class and therefore has no application where the Dissenting Class has not approved the scheme.
  • Instead, the HC held that the appropriate inquiry is whether the restructuring achieves a fair distribution of the benefits it generates among the affected creditor classes[17].
• Accordingly, the Court must consider (1) whether the restructuring benefits are fairly distributed among creditor classes and (2) whether the dissenting class is treated fairly and equitably.
• On the facts, the HC found no unfairness at the convening stage. Scheme 2 afforded identical treatment to both classes of unsecured creditors, with all creditors entitled to full repayment on a pari passu [18]

(3) Deliberate Class Composition is not, at the Convening Stage, an Automatic Abuse of Process (S.368 CA 2016)[19]

• SA Puncak argued that placing it into a separate class solely to facilitate a cram down amounted to a “capricious use” of S.368D CA 2016 and an abuse of process. The question before the HC was whether the proposed class composition constituted a “roadblock” or whether Scheme 2 was proposed in bad faith or otherwise amounted to an abuse of process such that the convening order should be refused.
• While recognising that such an argument may be correct under the conventional scheme framework, the HC held that the legal landscape had changed with S.368D CA 2016. At the convening stage, the HC observed that the purpose of the regime is to prevent, in appropriate cases, a dissenting creditor from exercising an unjustified veto over an otherwise beneficial restructuring.
  • In this regard, the HC held that it could “see no reason why a company may not take advantage of the cram down provisions to cram down a hostile creditor with a veto right in the appropriate case.”
• Nevertheless, the HC emphasised that this did not amount to a final determination that the proposed class composition was permissible. Whether the proposed class composition was ultimately bona fide and whether Scheme 2 satisfied the statutory safeguards under S.368D CA 2016 remained fact-sensitive questions to be determined at the sanction stage[20].

Key Takeaways

Conclusion

The decision provides early judicial guidance on Malaysia’s cross-class cram down regime, clarifying that the conventional “limited rationality” test does not apply in the S.368D context and that deliberate creditor class composition is not, by itself, impermissible at the convening stage. However, whether such restructuring is bona fide and whether the statutory safeguards are ultimately satisfied remain matters for determination at the sanction stage.

More broadly, the decision highlights the significance of S.368D in addressing the limitations of conventional schemes, where a single dissenting creditor holding a blocking position could prevent an otherwise viable restructuring from proceeding. By limiting such blocking power while preserving judicial oversight, the regime enables distressed companies to pursue genuine restructuring efforts consistent with the legislative objective of promoting corporate rescue.

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice. Please refer to the Grounds of Judgment in the Federal Court Civil Appeal No. 02(f)-9-03/2025(W).

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The Statutory Right of Members to Requisition a Meeting

S.311(1) and (3) CA 2016 confer upon members who satisfy the prescribed statutory threshold the right to require the directors to convene a meeting of members.

The requisite threshold is: –

• at least 10% of the issued share capital carrying voting rights; or
• where the company has no share capital, at least 5% of the total voting rights of all members.

At first glance, the use of the plural word “members” in S.311 may suggest that a requisition must be made by more than one member.

However, it has been held that S.311 is equally capable of applying to a single member[2], provided that the requisite statutory threshold is satisfied.

In addition, S.311(2) CA 2016 prescribes several formal requirements for a valid requisition. The requisition must: –

• be in hard copy or electronic form;
• state the general nature of the business to be transacted;
• where appropriate, include the text of the proposed resolution; and
• be signed or otherwise authenticated by the requisitioning member(s).

Statutory Timeframe to Call the Meeting

Upon receipt of a requisition, the statutory timeframe is clear. The directors shall: –

• call the meeting within 14 days of receiving the requisition; and
• ensure that the meeting is held within 28 days after the notice convening the meeting is issued.

Where the directors fail or refuse to do so, S.313 CA 2016 entitles the requisitioning members to convene the meeting themselves, subject to compliance with the remaining statutory requirements.

Significantly, any reasonable expenses incurred by the requisitioning members are reimbursable by the company, which is in turn entitled to retain the corresponding amount from any fees or other remuneration payable to the defaulting director(s)[3].

Do the Directors Have No Discretion?

The statutory framework naturally raises an important question.

Does it mean that directors are obliged to convene every requisitioned meeting?

This is not merely a theoretical question. It was, in fact, the central issue in a shareholder dispute in which we previously acted successfully for the directors of a company. In that matter, the directors were required to determine whether they were legally obliged to convene a members’ meeting pursuant to requisitions which, amongst others, contained proposed resolutions that were prima facie unlawful.

Taken to its logical conclusion, an interpretation that the directors have no discretion whatsoever would effectively require the directors to convene meetings even where the proposed business or resolution is plainly unlawful, contrary to the company’s constitution, or incapable of being validly implemented.

Such a result would be difficult to reconcile with the directors’ broader duties to act in the best interest of the company and in accordance with its constitution.

This issue must also be considered in light of S.311(5) CA 2016, a provision introduced under the CA 2016, which provides that: –

(5) A resolution may properly be moved at a meeting unless the resolution: –

(a) if passed, would be ineffective whether by reason of inconsistency with any written law or the constitution;

(b) is defamatory of any person;

(c) is frivolous or vexatious; or

(d) if passed, would not be in the best interest of the company.

Presently, to the best of our knowledge, there appears to be no reported Malaysian decision directly considering the scope or application of S.311(5) in the context of directors refusing to convene a meeting pursuant to a members’ requisition.

Guidance from Other Commonwealth Jurisdictions

In the absence of direct Malaysian authority, guidance may be drawn from other Commonwealth jurisdictions.

A. Position in the United Kingdom

In this regard, S.303(5) of the UK Companies Act 2006 is substantially similar to S.311(5) of our CA 2016.

S.303(5) of the UK Companies Act 2006 provides that:-

(5) A resolution may properly be moved at a meeting unless:-

(a) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the company’s constitution or otherwise);

(b) it is defamatory of any person; or

(c) it is frivolous or vexatious.

In Kaye v Oxford House [2019] EWHC 2181 (Ch), the English High Court considered the purpose and operation of S.303(5) of the UK Companies Act 2006 and observed, amongst others, that:-

• upon receiving a members’ requisition, the directors are entitled to consider the proposed business and the text of the proposed resolutions (if applicable) during the statutory period prescribed for convening the meeting;
• the purpose of that statutory period is to enable the directors to determine whether the proposed resolutions may properly be moved at the meeting;
• where a proposed resolution falls within one of the statutory exceptions in S.303(5), the directors are not required to convene the meeting;
• S.303(5) serves as a safeguard against abuse of the requisition process by the “lunatic fringe” (i.e. “those individuals whether alone or in concert with others, who wish to abuse the requisition process as a means of causing trouble, or making themselves a nuisance or trying to obtain the oxygen of publicity for causes that are only indirectly associated with the business and affairs of the company”);
• where the requisitioning member disputes the directors’ decision, the issue ultimately falls to be determined by the Court.

In fact, this was not a new principle. Even prior to S.303(5) of the UK Companies Act 2006, the English Courts had recognised that directors need not convene meetings solely for the purpose of considering resolutions that were incapable of producing any legal effect[4].

B. Other Commonwealth Jurisdictions

Similarly, the underlying principle stated above has also been recognised in other Commonwealth jurisdictions.

C. Position in Malaysia Prior to S.311(5) CA 2016 

Back in Malaysia, even prior to the enactment of S.311(5) CA 2016, the learned authors of Halsbury’s Laws of Malaysia observed that: –

“If the object of the meeting is to do that which cannot legally be carried into effect or to pass a resolution which is ultra vires the meeting, then the directors ought not to be required to convene the meeting. If such a meeting is in fact held and a resolution is passed, the directors are not bound to comply with it. The resolution is void and of no effect. There is nothing in the Companies Act 1965 to suggest that the directors must act on requisition for a meeting having as an object that which is not within the powers of the meeting. The directors are well entitled, on such a requisition, to decline to call a meeting…”

Viewed in this context, S.311(5) of the CA 2016 appears to reflect a principle long recognised across Commonwealth jurisdictions, namely that the statutory right to requisition a meeting does not ordinarily require directors to convene meetings for the purpose of considering resolutions which are unlawful, beyond the powers of the general meeting, or otherwise incapable of being validly implemented.

It is also noteworthy that, unlike S.303(5) of the UK Companies Act 2006, our S.311(5) CA 2016 contains an additional limb [i.e. limb (d) – a resolution, if passed, would not be in the best interest of the company].

The additional limb suggests a wider basis upon which directors may determine whether a proposed resolution may properly be moved. However, in the absence of judicial consideration of S.311(5)(d) CA 2016 by the Malaysian Courts, the precise scope and operation of this provision remain open to discussion.

[1] Golden Plus Holdings Bhd v Teo Kim Hui [2021] 7 MLJ 852. para [28]

[2] EKA Noodle Bhd v Norhayati bt Tukiman [2021] MLJU 1586, para [28] – [31]

[3] S.313(6) & (7) CA 2016

[4] Rose v McGivern and others [1998] 2 BCLC 593, p.604 – 605

[5] Credit Development Pte Ltd v IMO Pte Ltd [1993] 1 SLR (R) 68. para [14] – [19]

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

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Brief Background Facts

• The Parties:
  • TSH and LPK are the founders and directors of Kalysta Sdn Bhd (“Appellants”), an online weight-loss supplement marketing company in Malaysia. NZX (“Respondent”) served as a high-ranking General Agent of Kalysta Sdn Bhd, managing a subgroup of over 400 sales representatives.
• The Dispute:
  • Following internal company investigations into the Respondent’s alleged involvement with a separate commercial entity and an unauthorised marketing incident, the Appellants terminated the Respondent’s agency relationship on 26.6.2021. The Appellants also pursued a counterclaim for the return of performance bonuses and account access.
• The Impugned Publications:
  • Over a compressed period of eight days between 16.7.2021 and 24.7.2021, the Appellants published a series of seven statements (“Impugned Statements”). These publications were disseminated within closed online networks, such as WeChat and Instagram group chats, where the Respondent was described in terms including “compulsive liar” and “manipulative leader”.[4]

High Court (“HC”) Decision

• The HC found that each of the Impugned Statements bore defamatory meanings and adopted a segmented approach in assessing damages, treating each Impugned Statement as giving rise to separate liability by reference to their respective publications made on different occasions[5].
  • The HC awarded separate blocks of general and aggravated damages against each Appellant for the respective Impugned Statements, culminating in a cumulative liability of RM600,000.00.
• Pertinently, having found the Impugned Statements to be defamatory, the HC further ordered the Appellants to tender an apology to the Respondent based on the language and contents proposed by her.[6]
• Dissatisfied, the Appellants appealed against the HC’s decision to the CA.

Decisions & Key Findings

The CA affirmed the HC’s decision that the Impugned Statements were defamatory of the Respondent and rejected the pleaded defences. However, the CA set aside the HC’s order for an apology to be issued[7] and reduced the quantum of damages awarded.

(1) Court’s Jurisdiction to Compel an Apology as a Remedy

• The Main Judgment essentially held that the Court has no jurisdiction to order the publication of an apology under the law.

• On the other hand, the Supporting Judgment, while concurring that no apology should be ordered on the facts, contemplated the possibility that the Court may, in appropriate cases, exercises its inherent jurisdiction to order corrective non-monetary remedies[13].

(2) Assessment of Damages: Cases of Successive Publications

Separately, the CA also reduced the quantum of damages, adopting a global assessment and holding that the Impugned Statements formed part of a continuous course of conduct and should not be assessed in a fragmented or duplicative manner.

• Continuous Course of Defamation[19]: Although each defamatory publication constitutes a separate cause of action, the CA held that the seven Impugned Statements should not be treated in a fragmented manner. Published within a compressed timeframe and arising from the same underlying allegations, they formed part of a coherent narrative. A global assessment of damages, therefore, better reflected the cumulative nature of the reputational harm and avoided artificial fragmentation, duplicative compensation and mechanical multiplication of awards.

• Absence of Proven Substantial Harm[20]: While defamation is actionable per se, the CA found no clear evidence of financial loss or significant reputational impact. Having regard to comparable authorities, the CA accordingly considered a global award of RM 100,000.00 to be fair, reasonable and proportionate in the circumstances.

Key Takeaways

Conclusion

The decision is significant for clarifying the limits of remedial relief in Malaysian defamation law.

The Main Judgment reaffirmed that a compelled apology is not a permissible post-trial remedy and that the Court’s jurisdiction must be grounded in recognised heads of relief.

The Supporting Judgment, meanwhile, highlights the possibility that corrective non-monetary remedies may be available in appropriate cases, particularly where reputational harm arises within closed online networks.

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice. Please refer to the Grounds of Judgment in the Federal Court Civil Appeal No. 02(f)-9-03/2025(W).

If you found this article useful, please feel free to download the PDF document in the link here.

Background

The dispute arose out of a joint venture (“JV”) for an integrated commercial development in Kuala Lumpur known as the “Imbi Project”.

• The Appellant, ISM Sendirian Berhad (“ISM”), owned by Dato’ Ray Cheah (“Dato Ray”) and his wife, held a 30% minority equity stake in five JV companies incorporated to acquire 11 parcels of land for the project.[2]The remaining 70% majority stake was held by the 6^th Respondent, MPHB Capital Berhad (“MPHB”).
• The five JV companies (1^st – 5^th Respondents) were structured as single-purpose vehicles, intended solely for land acquisition for the project rather than ongoing commercial operations[3].
• Although a draft shareholders’ agreement was prepared, it was never executed. The parties proceeded on the mutual understanding that they were bound by an oral agreement.[4]

The dispute concerned funding obligations[5]:

• ISM contended that the funding was split into cash and loan components, limiting its obligation to 30% of the cash portion (approximately 9% of the total acquisition costs).
• MPHB countered that funding obligations must strictly follow a 30:70 equity-based contribution across the board.

Following this disagreement, ISM commenced proceedings under s.181 of the CA 1965[6] alleging, amongst others, minority oppression, including funding demands, dilution via rights issues, and the imposition of interest on shareholder advances.

MPHB counterclaimed, amongst others, seeking a judicial declaration that the JV arrangement had been lawfully terminated by reason of ISM’s alleged breach of funding obligations, alongside claims for interest and opportunity costs[7].

High Court (“HC”) & Court of Appeal (“CA”) Decision

The HC found in ISM’s favour on three out of the five grounds. The remaining two grounds were dismissed, and no appeal was pursued against those findings. [8]

The CA reversed this decision, holding that the core dispute concerned the oral shareholders’ agreement between ISM and MPHB. As it did not relate to the “affairs of the company”, it was a private matter falling outside the statutory scope of s.181 of the CA 1965. [9]

Leave Questions at FC

The FC essentially granted leave on two questions [10]: –

Decisions & Key Findings

The FC dismissed both of the Appellant’s appeals and found no appealable error warranting appellate intervention.

(1) The Scope of Jet-Tech & “Affairs of the Company”

The FC undertook a close examination of Jet-Tech, in particular, on paragraph 37.

• The FC reaffirmed that a claim under s.181 of the CA 1965 requires that the conduct complained of must relate to the “affairs of the company”. In doing so, it clarified that Jet-Tech does not establish a blanket prohibition against oppression claims founded on breaches of shareholders’ agreements, and that paragraph 37 must be read in its factual context.

“[70] … there is no express pronouncement or indication in paragraph 37 or any part of the grounds of judgment that any breach of the shareholders’ agreement is not actionable under section 181 of the CA 1965”.

• The critical inquiry is whether the conduct complained of, in substance, relates to the affairs of the company.
• The phrase “affairs of the company” is broad and encompasses, amongst others, capital structure, dividend policy, voting rights, and generally “all matters which may come before the board for consideration”.[11] However, this broad formulation does not extend to purely inter se disputes between shareholders.
• The FC drew a clear distinction: “the company’s affairs cannot be equated with those of its shareholders”. Private arrangements remain a matter for private law remedies, if any[12].
• Applying these principles, the FC held that the principle of law in paragraph 37 of Jet-Tech is correct and its application is inherently fact-sensitive. Accordingly, Question 2 was answered in the affirmative. [13]
• On the facts, the five JV companies were passive special purpose vehicles with limited operational activity, incorporated solely for land acquisition, with no substantive business operations. The FC agreed with the CA that, in light of the nature of the JV companies as passive holding vehicles, the dispute did not concern the “affairs of the company”.[14]
• In these circumstances, the FC held that the requirement of conduct relating to the “affairs of the company” was not satisfied and the oppression claim under section 181 could not be sustained.[15]

(2) Establishing a Quasi-Partnership

The FC rejected the Appellant’s alternative argument that the JV amounted to a “quasi-partnership” capable of invoking equitable standards of fairness.

• A quasi-partnership requires a foundation of personal relationship, mutual trust, and confidence, typically arising from prior or long-standing dealings.[16]

• On the facts, ISM and MPHB had no prior dealings or business transactions, and their dealings in relation to the JV were limited and commercial in nature[17].

• The JV was negotiated and structured as an arm’s length transaction between business entities, where MPHB treated it purely as a standard commercial investment proposal.

• Accordingly, the factual threshold for a quasi-partnership was not met, and equitable considerations were not engaged.[18]

Key Takeaways

Conclusion

The FC’s decision confirms that paragraph 37 in Jet-Tech should not be read as establishing a categorical exclusion of minority oppression claims simply because the dispute concerns a shareholders’ agreement.

The critical inquiry remains whether, in substance, the impugned conduct relates to the “affairs of the company” under s.181 of the CA 1965, in which case shareholders’ agreement matters could still be the subject matter of a claim under s.181.

Ultimately, the ruling turns on characterisation: whether the alleged wrong implicates the “affairs of the company” or remains a private dispute between shareholders.

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice. Please refer to the Grounds of Judgment in the Federal Court Civil Appeal No. 02(f)-9-03/2025(W).

If you found this article useful, please feel free to download the PDF document in the link here.

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this post is intended for general informational purposes only and does not constitute formal legal advice.

Background

• The Appellants (“Plaintiffs”) entered into a Sale and Purchase Agreement (“SPA”) in June 2015 with DA Land Sdn Bhd (“DA Land”) for the purchase of four parcels of land (“Rawang 4”) for RM23 million.
• The Plaintiffs later assigned all rights under the SPA to the Respondent (“Defendant”) under an Assignment Agreement and a Supplemental Assignment, for RM25.5 million (“Assignment Arrangements”), structured as:
  • RM20 million: Set-off against a debt owed by the 1^st Plaintiff to the Defendant;
  • RM3 million: Paid directly to the Plaintiffs; and
  • 5 million: Treated as the Plaintiff’s investment in Rawang 4 (i.e., 4.5% of the land value)
• Unbeknownst to the Plaintiffs, the Defendant then entered into a separate back-dated SPA with DA Land for three lots (“Rawang 3”). In related proceedings, the Defendant was declared an unlicensed moneylender, and the related agreements were held void for illegality. DA Land was entitled to forfeit the deposit of RM23 million.
• The dispute arose when the Plaintiffs claimed the outstanding RM2.5 million on the basis of breach of the Assignment Arrangements.
• The Defendant counterclaimed for restitution of RM23 million, contending that the Plaintiffs’ SPA with DA Land was tainted by illegal moneylending transactions and that the Assignment Arrangements were similarly illegal and void.

High Court (“HC”) & Court of Appeal (“CA”) Decision

The HC dismissed both the claim and the counterclaim, finding, amongst others, that there was no evidence to support the Defendant’s allegation that the Assignment Arrangements were tainted by illegal moneylending transactions, and that it was unreasonable for the Plaintiffs to pursue their claim given that the Defendant was no longer able to acquire the entirety of Rawang 4[3].

The CA partially overturned the HC’s decision, allowing the Defendant’s appeal. Relying on Berjaya and Damansara Realty Bhd v Bungsar Hill Holdings Sdn Bhd & Anor [2011] 6 MLJ 464, the CA held, amongst others, that:

• there had been a TFC, as the Plaintiffs were not in a position to absolutely assign any rights or interests in Rawang 4, as one of the lands was subject to a caveat; and
• the Defendant was entitled to restitution of the RM23 million, as no relevant benefit had been conferred.[4]

Read together, both decisions referred to the TFC[5]  framework articulated in Berjaya and Damansara Realty, prompting the FC to revisit both the proper scope of the doctrine and the correct test for its application.

The central issues on appeal were whether TFC could be invoked to recover RM23 million in circumstances involving, amongst others, alleged illegality, claimant-caused loss and part performance; whether the proper test for TFC lay in Berjaya or Stocznia Gdanska, and whether the doctrine had been wrongly conflated with the principles of rescission, termination and restitution.

Decision & Key Findings

The FC allowed the Plaintiffs’ appeal, holding that Berjaya is no longer good law. In doing so, FC restored a clear doctrinal boundary between the contractual remedies and restitutionary claims.

(1) Overruling of Berjaya Times Square

• The FC rejected the test for TFC as formulated in Berjaya, namely, “whether the party in default has failed to perform his promise in its entirety”[6].
• The FC expressly held that this approach wrongly conflated the right to terminate a contract for breach with the right to claim restitution, erroneously recasting both under the common law right to rescind, thereby importing the doctrine of TFC into the termination analysis[7].
• This gave rise to doctrinal confusion, particularly in the interpretation of ss. 40, 65, and 66 of the Contracts Act 1950 (“CA 1950”), by conflating principles of repudiatory termination with the separate restitutionary doctrine of TFC.
• Reaffirming Stocznia Gdanska, the FC held that the correct inquiry was not “whether the party in default has failed to perform his promise in its entirety”, but whether the promisor had performed any part of the contractual duties in respect of which payment is due:

“[76] … the true test is instead …: “The test is not whether the promisee has received a specific benefit, but rather whether the promisor has performed any part of the contractual duties in respect of which the payment is due.”

• The consequence is significant: any part-performance of the contractual duties (and corresponding benefit received) negates a claim in restitution for TFC. In such circumstances, the appropriate remedy lies in damages, not restitution.

(2) Clarifying Recission, Termination and Restitution 

• The FC clarified these principles as follows:

• Applying these principles, the FC found that the Plaintiffs had, at the very least, part-performed their obligations under the Assignment Arrangements – resulting in benefit to the Defendant. Accordingly, there was no TFC [11].

(3) Equitable Bar & The “Architect of Loss”

• The FC further reaffirmed that restitution is an equitable remedy and may be denied for unconscionable conduct.

“[129] … Unconscionable conduct on the part of a claimant would defeat a claim for restitution.”

• Given the Defendant’s involvement in illegal moneylending and his status as an unlicensed moneylender, the Court held that he was the “architect of his own loss”[12], and therefore disentitled from invoking TFC to obtain restitution.

(4) Prospective Effect

• To preserve commercial certainty and avoid reopening cases decided on the earlier Berjaya position, the FC held that the clarified test would apply prospectively only[13].

Key Takeaways

More than overruling the Berjaya test, Lim Swee Choo recalibrates the boundary between contractual remedies and restitution, and restores doctrinal clarity to Malaysian law.

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Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice. Please refer to the reported decision in Lim Swee Choo & Anor v Ong Koh Hou @ Won Kok Fong [2025] 6 MLJ 327 for the complete decision and reasoning.

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