Akmyr Ahmad Azwan

The issue is whether an agreement between _____ and _____ constitute a valid partnership
agreement pursuant to Section 3(1) of Partnership Act 1961.

According to Section 3(1) of Partnership Act 1961 (PA), there are 5 elements to have a valid a
partnership.

Firstly, a relation. According to Wong Peng Yuen v Senanayake, a partnership can be expressed
in the agreement or also implied from conducts of parties and circumstances surrounding the
relationship. In Gulazam v Noorzaman & Sabath, the court held that an agreement between
parties to purchase, keep and sell cattle & divided the profits equally constitute a partnership.

Secondly, persons, which implies an agreement of more than one member. According to Section
14(3)(b) of CA 1965 and Section 47(2) of PA 1961, maximum number of partnership shall not
be more than 20 persons. In Tan Teck Hee v Cheng Tian Peng, the court held that a firm with
25 persons could not take a legal action in court as it was not recognized as a valid partnership.
Similarly, in Tan Ching Cheang v Estate & Trust Agency, the court refuses to recognize action
taken by a ‘group’ having membership more than 20 persons although that number was trimmed
down right before the action was taken.

Thirdly, business, which according to Section 2 of PA, includes trade, occupation or profession.
According to Smith v Anderson, ‘carrying on a business’ means to do an act repeatedly. In
Custom & Excise v Lord Fisher, the court held that the act of one landlord inviting several friends
to a pheasant shoot for a small fee was not considered a ‘business’ because the fees were merely
intended to facilitate the event.

Fourthly, in common. To illustrate, in Chooi Siew Cheong v Lucky Heights Development, the
court affirmed that joint venture agreement between landowner and a developer was not a
partnership as both parties intended a wholly separated business. Similarly, in Ratna Ammal v
Tan Chow Soo, the court ruled that a ‘syndicate’ to sell condensed milk was a partnership as the
business was carried out in common.

Fifthly, with a view of profit. In Re Spanish Prospecting Co Ltd, the court clarified that there
must be an intention to make profit commonly agreed by several persons. To illustrate, in Soh
Hood Beng v Khoo Chye Neo, a loan society lending money for its members was held not to be
a ‘business’ as no interest was charged to gain profit.
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The issue is whether ___ may challenge the validity of the partnership agreement on ground that
it was not registered under the Registration of Business Act 1956.

Practically, registration under the Registration of Business Act 1956 is required right after a firm
is established. However, failure to register will not affects the validity of the partnership but only
resulted in their business to operate illegally.

To illustrate, in Sivagami Achi v PRM Ramanathan Chettiar, the court affirmed that the
registration of a person’s name as partner might be used as an evidence that he is a partner. This,
however, does not prevent the other parties from proving he is not, based on the circumstances of
the case. Similarly, in Gulazam v Noorzaman & Sabath, the court held that failure to register a
business which was supposed to be a partnership will not affects the right of a partner to take legal
action against the other partner.
 Akmyr Ahmad Azwan

The issue is whether there is a valid partnership which entitles ______ to claim ______ as against
______ pursuant to Section 3(1) of Partnership Act 1961 (PA).

According to Section 3(1) of PA, partnership is a relation which subsists between persons carrying
on a business in common with a view of profit. According to Aw Yong Wai Choo v Arief
Trading, the court clarified that the essential determination of a partnership shall be identified by
looking at the circumstances surrounding the relationship and the real intention of the parties.

However, Section 4(a) of PA clearly states that joint tenancy, tenancy in common, joint property
or part ownership will not of itself create a partnership agreement. To illustrate, in Davis v Davis,
the court ruled that two brothers who held 3 houses as tenant in common were not partners although
they rented out the 3rd house and divided the proceeds equally. Similarly, in Coope v Eyre, the
court held that a ‘joint ownership’ of an oil is prima facie not a partnership.

However, Section 4(b) of PA clearly states that merely sharing of gross returns will not make a
person a partner and create a valid partnership. For instance, in Cox v Coulson, the court held that
defendant shall not be liable for an injury caused by a person claiming to be the defendant’s partner
because the nature of their relationship was merely to share gross return (profits) for a theatrical
group performance, which was not a partnership agreement.

However, Section 4(c)(i) of PA clearly states that a person receiving share of profits is not a partner
if he merely lends the money to a partnership and agreed that the debt is to be paid by installment
out of the profit. To illustrate, in Badeley v Consolidated Bank, the court held that the plaintiff’s
act of advancing money to a borrower and, inter alia, agreed to share the net profit of the
partnership did not entitle him to be one of the partner. Similarly, in Re Megevand, the court held
that an agreement for the lender to be paid from share of profit of the business constitute a
partnership because it was proven that he had rights to control the property, dissolved the
partnership, and inspect accounts of the partnership.

However, Section 4(c)(ii) of PA clearly states that a person receiving share of profits is not a
partner if it involved a contract for remuneration as a servant engaged in business of the
partnership. To illustrate, in Walker v Hirsch, the court held that the former clerk (plaintiff) was
not a partners of the firm simply by advancing £1,500 to the firm and agreed that the load will be
repaid by payment of £180 salary and 1/8 of the profit. Similarly, in Abdul Gaffor v Mohamad
 Akmyr Ahmad Azwan

Kassim, the court held that signing an agreement which allocate shares in the business to the
servant plaintiff did not legally entitle him to be a partner as the nature of their relationship were
only merely an employer-employee basis.

However, Section 4(c)(iii) clearly states that a person receiving shares of profits annually is not a
partner if it involved a person being a widow or child of a deceased partner. To exemplify, in
Commissioner of Inland Revenue v Lebus’ Trustee, the court held that the widow of a partner
who inherit ¼ of the profit shares was not a partner to the business and hence, none of the
partnership assets belonged to her.

However, Section 4(c)(iv) clearly states that a person receiving shares of profits is not a partner if
he merely advanced money as a loan and agreed that he will receive a rate of interest or share from
the firm’s profit. To illustrate, in Re young, Ex Parte Jones, the court held that an agreement
which requires Jones to lend £500 in consideration for him receiving £3 per week (interest) out of
the firm’s profit did not entitle Jones to be a partner of that firm.

However, Section 4(c)(v) clearly states that a person receiving shares of profits is not a partner if
he merely receive a portion of the profit annually in consideration of the his sale of goodwill. For
example, in Pratt v Strick, the court held that an agreement for a doctor to sell his practice with
conditions that he will be equally entitled for all incomes received and expenses incurred within 3
months will not make him a partner to the business.
 Akmyr Ahmad Azwan

The issue is whether _____ can be made liable for the _____ done by his partner pursuant to
Section 7 of Partnership Act 1961 (PA).

According to Section 7 of PA, every partner is an agent of the firm and his other partners, and
hence, 3rd party may make the firm/other partner liable if 4 elements are fulfilled.

Firstly, the act done must be of type of business that is carried out by the firm. To illustrate,
in Mercantile Credit Co Ltd v Garrot, the court held that although the act of selling a customer’s
car was expressly prohibited, the defendant was still liable for his partner’s act as it was done
within the type of activity normally related to a ‘garage business’.

Secondly, the act must be carried out in usual manner. If it is unreasonable, then the 3rd party
shall have a duty to inquiry as to the authority/validity of the partner. In Chan King Yue v Lee &
Wong, the court held that the firm shall be liable to repay RM 35,000 debts borrowed by one
partner for a purpose of settling the firm’s debt which was necessary for the continuance of the
business. Hence, such act was regarded to be done in usual & ordinary manner.

Thirdly, the 3rd party must know or believe that the person he enters into transaction with is
a partner. For example, in Sithambaram Chetty v Hong Hing, the court held both partners liable
for their failure to clarify true status of the manager to those dealing with the firm which led others
into thinking that the manager was actually a real partner.

Fourthly, the 3rd party must not know that the person he enters into transaction with has no
authority to act on behalf of the firm. ‘Authority’ can be an actual authority or apparent authority
as affirmed in Section 8. To illustrate, in William Jack & Co (Malaya) Ltd v Chang & Yong
Trading, the court held that the firm was liable for an act of its infant partner signing on behalf of
the firm although he had no authority to do so, because the 3rd party has no prior knowledge of that
legal position. Similarly, in Re Briggs & Co, the court held that the assignment of book debts to
a credit was binding upon the firm as the documents were executed by an authorized partners (son
& father), without having knowledge that the father’s signature was actually forged.
 Akmyr Ahmad Azwan

The issue is whether ____ can be held jointly liable for ____ done by his/her partner in accordance
with Section 12 of Partnership Act 1961 (PA).

By virtue of Section 12 of PA, the firm/partners can be made liable for any wrongful act of a
partner which caused injury to another or any penalty incurred by him. Moreover, Section 14 also
states that every partner shall be jointly liable for anything in Section 12 & 13 while he is a partner.

Since this is a criminal liability, relying on maxim of actus non facit reum nisi mens sit rea, case
of Haughton v Smith affirmed that in order to criminally convict a person liable, both elements
of prohibited act and blameworthy state of mind shall exist.

Similarly, in Garret v Hooper, the court held that a principal cannot be made liable for an offence
that requires mens rea simply because his servant/agent has the necessary mens rea.

To illustrate, in Chun Shin Kian v DPP, the court held that the accused shall not be liable for
applying a false trade description to the jeans and jackets because he was not present at the time
the premise was raided.
 Akmyr Ahmad Azwan

The issue is whether _____ can still be held liable for debts incurred by the partnership even after
he had passed away, pursuant to Section 11 of Partnership Act 1961 (PA).

According to Section 11 of PA, every partner is liable jointly for all debts and obligations of the
firm incurred while he is a partner. However, after his death, his estate will still be severally liable
so far as the debts remain unsettled. To illustrate, in Bagel v Miller, the court affirmed that the
defendant was liable for the unpaid amount in respect of goods delivered before his death only, as
the obligation of other future goods delivered arose when the deceased was no longer a partner.

Moreover, it should be noted that liability in contract is limited to one action only. If he chooses
to sue 1 specific partner, he loses his right against those names he did not mention. For instance,
in Kendal v Hamilton, the court held the second proceeding initiated by plaintiff as against newly
known partner for the unsettled debts after the first failed attempt to claim shall not be valid,
although the debt was still due.
 Akmyr Ahmad Azwan

The issue is whether ____ can be held jointly liable for ____ done by his/her other partner in
accordance with Section 12 of Partnership Act 1961 (PA).

According to Section 12 of PA, a firm can be made liable for any losses or injury caused to a 3rd
party by any wrongful act of the partner. Liability in torts can be seen two instances.

Firstly, liability incurred if the result of a wrongful act is done in the ordinary course of the
firm’s business. To illustrate, in Hamlyn v Houston & Co, the court held that the defendant shall
be liable for the partner’s wrongful act of bribing a clerk in a rival firm to get some information
about their trade rival.

Secondly, liability incurred if the act or omission is done with consent/authority of the other
partners. For example, in Mara v Browne, the court affirmed that if the tort is committed without
the actual authority of the partners and outside the scope of its usual authority, then the firm and
the other partners would not be liable.
 Akmyr Ahmad Azwan

The issue is whether the firm can be held liable for the misapplication of ________ done by _____
as against ______ pursuant to Section 13 of Partnership Act 1961 (PA).

According to Section 13, the firm shall be liable for misapplication of money/property to a 3rd
party if, (a) the money/property is received & misapplied by partner who acts within the scope of
his apparent authority, or (b) the money/property is received by the firm in the course of its
business & misapplied by the partner while in the firm’s custody.

In light of Section 13(a), there are 2 elements that need to be fulfilled.

Firstly, it must be proven that the act done comes within the ordinary course of the partner’s
business. In Blair v Bromley, the court held the firm liable for misapplication by one solicitor
partner because during that time (1847), receiving money for investing in specific securities come
within the ordinary course of a solicitor’s business. To distinguish, in Harman v Johnson, the
court held the firm not liable because the money received was for purpose of investment ‘as soon
as he could find a good securities’, which was too broad to come within scope of solicitor’s
apparent business.

Secondly, the 3rd party must show that he dealt with the partner as a partner and not in his
individual capacity. To illustrate, in British Homes Assurance Corp v Patterson, the court held
the defendant not liable for the misappropriated cheque because the 3 rd party dealt with the
dishonest partner in his personal capacity ‘before’ the formation of the partnership.

In light of Section 13(b), there are 2 elements that need to be fulfilled.

Firstly, it must be proven that the money/property is received in the ordinary course of the
firm’s business. In Rhodes v Moules, the court held that the firm shall be liable for the
misappropriation of warrant shares because receiving warrant in a mortgage transaction was an
ordinary course of solicitor firm’s business.

Secondly, the misapplication must be made while the money/property is in the firm’s custody.
In Tenderina Hundred Waterworks Co v Jones, the court held that defendant was not liable for
misappropriation because the property was instructed to be conveyed to the fraudulent partner
which allows him to receive the property as a legal owner, and not as a partner.
 Akmyr Ahmad Azwan

The issue is whether ______ can be held liable for the improper employment of trust property by
_____ pursuant to Section 15 of Partnership Act 1961 (PA).

According to Section 15, an innocent partner shall not be liable for any improper use of trust
property by another partner unless he knew of such breach. Moreover, in Jacobs v Morris, the
court affirmed that ‘knowledge’ can be actual or implied.

To illustrate, in Ex Parte Heaton, the court held that the improperly used trust money cannot be
paid out of the insolvent partnership firm’s property as the other partner was ignorant and no
knowledge of such breach. Similarly, in Re Bell’s Indenture, the court held the deceased partner
not liable for the misapplication of trust property because he had taken no part in and was ignorant
of the fraudulent transaction plan.
 Akmyr Ahmad Azwan

The issue is whether _______ can be held liable for ______ when he represented himself as a
partner to ______ pursuant to Section 16 of Partnership Act 1961 (PA).

According to Section 16, a person who represented himself to a 3rd party that he is a partner shall
be liable as if he is the actual partner of that firm. In Fox v Clinton, the court defined ‘holding
out’ as an act of a person voluntarily hold himself out to the public or lending his name to the
partnership.

There are 3 elements that need to be fulfilled.

Firstly, there must be representation. In Lynch v Stiff, the court held the appellant solicitor shall
be liable when he allowed his name to be used in the letterhead of the firm.

Secondly, there must be reliance by a 3rd party. For example, in UCB Home Loans Corporation
Ltd v Soni, the court held that the firm shall not be liable for amount of £2.5 million borrowed
because there was no clear representation for the claimant to relied upon.

Thirdly, as a consequence, the credit is given to the firm and 3rd party suffers loss. In D & H
Bunny Ltd v Atkins, the court held that defendant shall be liable when he represented to plaintiff’s
agent that he was a partner to the firm in which the agent relied and subsequently supplied goods
to him.

However, it should be noted that, according to Tower Cabinet Co Ltd v Ingram, negligence per
se is not adequate to make a person liable for holding out.
 Akmyr Ahmad Azwan

The issue is whether _____ can be held liable for the debt owed by the firm to _____ before he
entered into the partnership pursuant to Section 19(1) of the Partnership Act 1962 (PA).

According to Section 19(1), no partner shall be liable for any liability incurred before his
appointment as a partner, except if he apply the “principle of novation” pursuant to Section 19(3)
whereby the new partner agrees to take over the liabilities of the firm incurred even before his
appointment.

The issue is whether _____ can still be held liable for the debt owed by the firm to _____ even
after he had retired, pursuant to Section 19(2) of Partnership Act 1961 (PA).

According to Section 19(2), a retired partner will still be liable for the partnership debts incurred
before his retirement, unless, in light of Section 19(3), he apply the “principle of novation”.

To illustrate, in Court v Berlin, the court held that the partners who had resigned while pending
proceeding against the firm shall be liable for the entire cost incurred while he was still in office.
Similarly, in MBB v Lim Chee Leng, the court held that since the respondents incurred debts on
the trust receipt before their resignation, they shall be fully liable for the amount payable.

However, according to Section 38 the partners may only escape liability as against persons dealing
with the firm after a change in its constitution if the person has given an express notice of his
retirement by way of an advertisement in Gazette.

The effectiveness of advertisement as notice will depends on whom it is meant for.

As for those who have been dealing with the firm before the change, they should be given a
more specific notice. In Tan Sin Moh v Lebel Ltd, the court affirmed that a person who habitually
deals with the partnership shall be personally & specifically notified with the resignation. To
illustrate, in Re Siew Inn Steamship Co, the court held that the retired partner was still liable as
against the firm’s old customer although he had gave retirement notice by advertising it in 3
Chinese newspaper.

As for those who will involve in future dealings, an advertisement in gazettes or papers in general
is sufficient. In Tower Cabinet v Ingram, the court held that Ingram shall not be liable because
other than the letter head, appellant has no knowledge of his connection to the partner, Merry.
 Akmyr Ahmad Azwan

The issue is whether _____ had breached his fiduciary duty of good faith – duty of disclosure
pursuant to Section 30 of Partnership Act 1961 (PA) when he _______.

According to Section 30, all partners have a duty of utmost good faith to make honest disclosure
of information relevant to the partnership dealings. To illustrate, in Law v Law, the court held that
there has been a breach of this duty when the buying partner remained silent as to the fact that
buying of partnership shares will also entitle him to the partnership assets such as mortgages and
other securities. Moreover, it should be noted that this duty is also imposed to those intending to
enter into partnership (future partner). In Fawcett v Whitehouse, the court held that a future
partner who has been paid a commission while negotiating to buy a property for the firm shall
surrender all commissions obtained once the firm was established.

The issue is whether ____ had breached his fiduciary duty of good faith not to make secret profit
pursuant to Section 31 of Partnership Act 1961 (PA) when he ________.

According to Section 31, a partner must not, without the consent of other partners, make any profit
for himself by making use of his position or information that he obtained in the partnership
business. To illustrate, in RW Pathirana v Ariya Pathirana, the court held that the plaintiff was
entitled for the profits of the defendant’s business when the defendant obtained renewal of petrol
supply agreement before their partnership ended without knowledge and consent from the plaintiff.
Similarly, in Bentley v Craven, the court held that the defendant was liable to return the profits to
the firm when he bought sugars for himself instead of the firm, without the knowledge of other
partners.

The issue is whether ____ had breached his fiduciary duty of good faith to avoid any conflict of
interest pursuant to Section 32 of Partnership Act 1961 (PA) when he _______.

According to Section 32, a partner shall account all profits obtained in any business conducted by
him if the business is of the same nature and competing with the firm, without consent of other
partners. There are 2 elements that need to be fulfilled, namely, the business must be of the same
nature and the business must be “competing”.

To illustrate, in Aas v Benham, the court held that the act of defendant to form a new ship-owning
business was not in conflict with the partnership business because it was beyond the scope of &
not in competing with the existing partnership business. Similarly, in Trimble v Goldberg, the
 Akmyr Ahmad Azwan

court held that buying of a land from Sigma Syndicate was not in conflict with the existing business
of “buying & selling properties belonging to Hollard” because it concerns with a different place
and nature.

Rights and Duties of Partners

The issue is whether ____ is entitled for the capital and profits of the partnership pursuant to
Section 26(a) of Partnership Act 1961 (PA).

According to Section 26(a), all partners are entitled to an equal shares of capital and profits of the
business, and also equally responsible for the losses of the firm. In Re Albion Life Assurance
Society, the court held that since there is a share of profits in certain amounts, it could be fairly
concluded that the losses will also be divided in the same proportion.

The issue is whether ____ is entitled to be indemnified for _______ pursuant to Section 26(b) of
Partnership Act 1961 (PA).

According to Section 26(b), it states that the firm must indemnify every partner for any payment
made and personal liabilities incurred by him in ordinary and proper conduct of the business. In
Kok Hong Leong Kongsi v Seow Kah Cheng, the court held that the firm shall be liable to pay
for expenses incurred by the respondent in defending a suit brought by one Tan Kup as against the
firm.

The issue is whether ____ is entitled to an interest rate of 8% per annum for his act of _______
pursuant to Section 26(c) of Partnership Act 1961 (PA).

According to Section 26(c), a partner who makes any special payment of advance beyond the
amount of capital agreed, shall be entitled to an interest rate of 8% per annum form the date of the
payment. The advance made by a partner above and beyond the amount agreed is considered as a
loan and not as an increase of his contribution to the capital.

The issue is whether ____ is entitled to an interest on capital for _______ pursuant to Section
26(d) of Partnership Act 1961 (PA).

According to Section 26(d), a partner is not entitled to an interest on the capital subscribed by him
before the ascertainment of profits. Practically, to be fair to those who have provided capital,
 Akmyr Ahmad Azwan

partnership deed would be drawn up to provide for each partner interest at a specified rate per
annum on the amount of capital standing to the credit.

The issue is whether ____ being the _____ shall has right to manage the partnership business
pursuant to Section 26(e) of Partnership Act 1961 (PA).

According to Section 26(e), every partner may take part in the management of the partnership
business, unless there is an express agreement stating otherwise. In Kelly v Tucker, the court held
that all partners need not actively engage in carrying on the business and subsequently recognized
practice whereby the defendant provides the financial capital whereas the plaintiff manage the
business.

The issue is whether ____ is entitled to a remuneration amounting to _______ as against the
partnership pursuant to Section 26(f) of Partnership Act 1961 (PA).

According to Section 26(f), a partner shall not be entitled for any remuneration acting in the
partnership business. However, agreement may be drawn up to provide otherwise. In Chew Kong
Chin v Estate & Trust Agencies, the court upheld the agreement between parties and held that
the partner was entitled for remuneration in form of bonus shares. Moreover, the court also
affirmed that in cases where the administrator of deceased partner elected to retain his shares, then
the surviving partners are allowed to charge for their services in earning profits for the shares.

The issue is whether ____ may introduce ____ as a new partner to the firm without the consent of
_______ pursuant to Section 26(g) of Partnership Act 1961 (PA).

According to Section 26(g), a new partner can only be admitted with the consent of all existing
partners. If even one partner refuse his consent, then, that new person cannot be considered as
such. The only exception is, if the partnership deeds itself authorizes any specific partner to have
exclusive power/option to introduce a new partner. To illustrate, in Byrne v Reid, the court held
that the defendant was liable for his refusal on the admission of plaintiff which was which was
validly authorized by the partnership agreement.

The issue is whether _________ as the majority of the partners is entitled to decide on _______
which is considered as ordinary matters of the partnership pursuant to Section 26(h) of
Partnership Act 1961 (PA).
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According to Section 26(h), the majority of partners may decide on differences over daily
administration matters of the partnership. However, on matters affecting a change in nature of the
partnership business, all partners have to agree. To illustrate, in Highley v Walker, the court held
that the decision to admit an apprentice for training in firm business was an ordinary matters that
could be decided merely by majority of the partners. Hence, one of the partner’s son was admitted.

The issue is whether ____ is entitled to have an access to the partnership book pursuant to Section
26(c) of Partnership Act 1961 (PA).

According to Section 26(i), the partnership books are to be kept at the place of business and all
partners are allowed to exercise their right to inspect the books. “Partnership books” are all records,
kept by the partnership such as accounting, records, minutes of their meeting and etc. in Theivanai
Achi v Kathirasan Chettiar, the court affirmed that the right o inspect and to demand accounts
are an inherent rights of a partner and is not limited to cases where a dissolution is sought.
Moreover, in Gan Kuan v Tan Jin Luan, this right is also applicable to an agent so long as other
partners does not object to it, but is not applicable to the assignees of partnership shares as held in
Ong Kian Loo v Hock Wah Trading.

The issue is whether _____ may expel his partner _______ for _______ pursuant to Section 27 of
PA 1961.

According to Section 27, no majority of partners can expel any partner unless such power has been
conferred by an express agreement between parties.

There are 3 other extra requirements, namely, (1) the expulsion must come within the expulsion
clause, (2) the rules of natural justice must be observed, and (3) the expulsion is done in good faith
in accordance with his fiduciary duties.

However, if the partner has obviously breached the partnership deed, a notice of expulsion can be
served without having to tell him about his misdeed. To illustrate, in Green v Howell, the court
held that the notice of expulsion that was served without giving plaintiff opportunities to explain
was valid because there have been a clear breach of the partnership agreement.
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The issue is whether ______ shall be entitled to become a partner to the partnership and enforce
its right pursuant to Section 33 of PA 1961.

According to Section 33, there is no doubt that an assignee shall has rights to the shares of profit
& interest, but, that will not entitle him to be considered as the partner. To illustrate, in Re
Garwood’s Trust, the court held that assignee must not interfere in the management and
administration of the partnership because he merely is entitle to the partner’s share of profits, but
nothing more.

However, it should be noted that, according to Section 33(2), the assignee’s rights to the
partnership shares will not be affected by a dissolution of that firm. In Watts v Driscoll, the court
affirmed that the right of assignee will not be affected by the act of a partner to sell his shares (that
is subjected to a security) to another partner.

The issue is whether _____ may claim for the _______ as being a partnership properties pursuant
to Section 22 of PA 1961.

According to Mat Shah v Foo Say Meng, there are 3 reasons determining partnership property is
important, namely, (1) because of its value, (2) determining the creditor’s rights, and (3)
determining the partners heirs’ entitlement.

In Section 22, partnership properties can be identified in 3 ways.

Firstly, if the property is brought in originally as a partnership stock. However, case of Gian
Singh v D. Nahar states that what constitute partnership property is a question of facts. To
illustrate, in Miles v Clark, the court held that since there was no express agreement of the
partnership, the lease of business premise, photographing equipment and the firm’s goodwill were
not considered as partnership properties because all these were originally held in one name only.

Secondly, if the property is acquired through purchase or other means. To illustrate, in Ex

Parte Hinds, the court held that the shares in a railway company that was bought using the firm’s
money without other partners consent shall be considered as a partnership property. To distinguish,
in Ponnukon v Jebaratnam, the court held that the land was not a partnership property because
it was paid using funds raised by defendant in his own separate act independently from other
partners or even the partnership.
 Akmyr Ahmad Azwan

Thirdly, if the property is acquired through any lawful means for purpose of partnership
business. For example, in N.B. Menon v Abdullah Kutty, the court held that tenancy of a shop
in Kelantan was not a partnership property because although the respondent lived in Johore, he
never surrendered the tenancy to the partnership. Similarly, in Ratna Ammal v Tan Chow Soo,
the court held trademark to sell condensed milk used for purpose of partnership business was not
a partnership property because the written agreement clearly states that the trademark was a
personal property of respondent.
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The issue is whether _____ may dissolve the partnership agreement between ____ by way
of _______.

In Millennium Medicare Services v Nagadevan, dissolution of partnership means the

end of the partnership. There are specifically 3 ways of dissolving a partnership.

The first method of dissolving the partnership is by automatic dissolution, which can
either be (1) by expiration of time or event, (2) by death, bankruptcy or change on partner’s share
or (3) by supervening illegality.

Referring to the facts given, the most relevant ground is dissolution by expiration of time
or event. According to section 34(1)(a) and (b), it states that if a partnership is entered into for a
fixed term, it can be dissolved by the expiration of that term, whereas, if the partnership is entered
into for a single adventure, it will be dissolved upon termination of that adventure. To illustrate, in
Sukhinderjit Singh Muker v Arumugam Deva Rajah, the court affirmed that section 34 will
only be applied in absence of any contrary agreement between the partners. However, it should be
noted that in reference to case of Arcus v Richardson, the partnership may still continue even
after the expiration of the agreed period whereby this partnership will automatically regarded as
‘partnership at will’.

Referring to the facts given, the most relevant ground is dissolution by death, bankruptcy
or change on partner’s share. By virtue of section 35(1), it states that every partnership is dissolved
by the death or bankruptcy of any partner. On the other hand, section 35(2) states that the partners
may have a choice whether to continue with the partnership or not when the other partner charges
his shares as security for his own personal debts. To illustrate, in Lee Choo Yam Holdings v
Khoo Yoke Wah, the court held that the partnership between both parties were dissolved when
one of the partner died without any agreement intending otherwise with regard to the partnership.
Moreover, in Arcus v Richardson, the court affirmed that the partnership may continue if all
surviving partners together with the representative of the deceased partner consented to such
continuance.

Referring to the facts given, the most relevant ground is dissolution by supervening
illegality. According to section 36, it states that a partnership will be dissolved if any event which
makes it unlawful for the business to be carried out happens, such as war. For instance, in R v
 Akmyr Ahmad Azwan

Knupfer, the court held that the partnership was dissolved as soon as the war involving both
partners’ countries was declared in 1914. Similarly, in Hudgell Yeates & Co v Watson, the court
held that the partnership was dissolved automatically from the date of the expiration of practicing
certificate as to avoid the partnership to operate illegally.

The second method of dissolving the partnership is by notice. By virtue of section 34(1)(c),
it states that if the partnership is entered into for an undefined time, it can be dissolved merely by
any partner giving notice to others of his intention to do so. This practice is further supported by
section 28(1) whereby it states that if no duration of partnership is agreed upon, then, any partner
may determine it at any time by giving notice. Moreover, it should be noted that the notice need
not be in writing. In Sukhinderjit Singh Muker v Arumugam Deva Rajah, the court affirmed
that the ‘notice’ can be inferred from the conduct of the partner and will be effective only against
the other partners of that firm, but not against the 3rd party dealing with the partnership. To
exemplify, in Tham Kok Cheong v Low Pui Heng, the court held that although no actual notice
was ever issued, the conduct of the other partners selling the firm to another company showed their
concrete intention to dissolve the partnership. However, relying on the case of Subramaniam
Chettiar v Kadir Mastan, the court held that the notice of an intention to resign must be
communicated or made known to the other partners. Simply leaving the firm or being inactive
cannot be considered as ‘notice of intention’ to resign. Moreover, in JMM Lewis v WE
Balasingam, the court clarified that there shall be no dissolution by notice if there was an express
provision specifically stating other methods of dissolution.

The third method of dissolving the partnership is by the court order, but only applicable
for a fixed term partnership. By virtue of section 37, the court shall have power to dissolve
partnerships on 6 grounds.

Referring to the facts given, the most relevant ground is dissolution due to mental disorder
pursuant to section 37(a). Upon application, if the court is satisfied that the partner is indeed
suffered from mental problems as defined under section 19 of Mental Health Act 1952, it may
decree dissolution of the partnership. In Jones v Noy, the court clarified that insanity will not
automatically dissolve a partnership. The lunacy needs to be confirmed and satisfy the court before
an order for dissolution can be granted.
 Akmyr Ahmad Azwan

Referring to the facts given, the most relevant ground is dissolution due to permanent
incapacity. In light of section 37(b), the court may allow a partnership to be dissolved when a
partner becomes permanently incapable of performing his partnership obligation. To illustrate, in
Whitwell v Arthur, the court held that although the partner suffered a stroke which resulted him
to be paralyzed, dissolution of the partnership was refused because evidence shown that the sick
partner’s condition was improving.

Referring to the facts given, the most relevant ground is dissolution by conduct prejudicial
to the partnership business as stated in section 37(c). The rule is that the act must be prejudicial
and not merely a bad behavior. In Snow v Milford, the court held that an adulterous affairs of a
partner in banking business was not considered as prejudicial conduct and hence, no dissolution
was granted. To distinguish, in Essel v Hayward, the court held that the solicitor partner’s act
using the client money for his personal needs was indeed a prejudicial conduct to the partnership
as it affects the credibility of the firm. Moreover, in Carmichael v Evans, the court affirmed that
dishonest can also be a valid prejudicial conduct, and held that the partnership shall be dissolved
when the partner was convicted of dishonestly travelling on a train without a valid ticket.

Referring to the facts given, the most relevant ground is dissolution for persistent breaches
done by the partner as provided under section 37(d). In considering dissolution under this ground,
the court needs to satisfy that the breaches are such that it destroys the mutual confidence between
the partners. To illustrate, in Cheeseman v Price, the court ordered the partnership to be dissolved
when a partner persistently made mistakes in book keeping and did not keep a regular record of
the money received from their customers. A mere disagreement between partners cannot be
considered as a sufficient ground. To distinguish, in JMM Lewis v WE Balasingam, the court
held that the act of defendant being consistently absent from its legal firm was not excessive to
allow dissolution as affirmed under Advocate & Solicitors Ordinance 1947.

Referring to the facts given, the most relevant ground is dissolution due to the fact that the
business is carrying at a loss as highlighted in section 37(e). In Jennings v Baddeley, the court
affirmed that the wording of this section mean that there must be “practicable impossibility of
making a profit”. To illustrate, in Handyside v Campbell, the court held the partnership not to be
dissolved on basis that although it suffered loss, such loss was due to poor management and
 Akmyr Ahmad Azwan

absence of plaintiff. The court opined that if proper attention was given, it would be possible for
the business to recover.

Referring to the facts given, the most relevant ground is that the dissolution should be
granted as it is just and equitable to do so as laid under section 37(f). This section gives non-
exhaustive power to the court to determine. For example, in Re Yanidje Tobacco Co Ltd,
although the business was thriving, the court ordered the partnership to be dissolved as the
relationship between the partners had come to a standstill whereby they only communicated
through their secretary. Similarly, in Knight v Bell, the court held that it was just and equitable
for the dissolution as there was ill-feeling between partners leading to the destruction of mutual
trust and confidence. To differentiate, in Ting Tieng Kwang v Kong Sung Seng, the court
affirmed that it will not dissolve a partnership merely because some of the partners were unhappy
with the business’s decision or unsatisfied with the manager of the firm.
 Akmyr Ahmad Azwan

According to Section 14(2) of Companies Act 1965 (CA), there are 4 types of companies.

Firstly, a company limited by shares, whereby Section 4 defined it as a company formed on

principle of having the liability of its members limited by the memorandum to the amount unpaid
on the shares respectively held by them. According to Ooregum Gold Mining Co India v Roper,
if a person holds fully paid shares, he has no further liability to the company. Practically, this type
of company is considered the most common form of company. A limited liability company is
required to have the word ‘Berhad’ as part of its name, as affirmed in Section 22(3).

Secondly, a company limited by guarantee, whereby Section 4 defined it as a company formed

on principle of having the liability of its members limited by the memorandum to such amount as
the members may respectively undertake to contribute to the assets of the company if the company
went bankrupt. This type of company does not have a share capital and does not require the
members to contribute to the company. The liability of members is specified in the Memorandum
of Association of that company. An example of a company limited by guarantee is Hospital Mata
Tun Hussien Onn and also The Education Malaysia Global Services (EMGS) which was
established in 2012 to serve as a one stop centre to market Malaysia’s education sector.

Thirdly, an unlimited company, whereby Section 4 defined it as a company formed on principle

of having no limit placed on the liability of its members. In other words, in the event of a winding-
up of an unlimited company, its members may be made liable for its debts without limit on their
liability. This type of company enjoys advantage of separate legal entity with 2 features, (1) they
are free to return their capital to their members, and (2) they have their own Article of Association.
The name of unlimited company should always end with “Sendirian” or “Sdn”, as required under
Section 22(4).
 Akmyr Ahmad Azwan

As for private company, the term "private company" is defined in Section 4 of CA to include;
(1) any private company under the repealed written laws before commencement of this Act, (2)
any company incorporated as a private company pursuant to Section 15, and (3) any company
converted into a private company pursuant to Section 26(1). Moreover, Section 15(1) states that
a company is classified as a private company if its memorandum/article; (1) restrict the rights to
transfer shares, (2) limit the number of members not exceeding 50 person, (3) prohibits any offer
to public to subscribe for its shares, and (4) prohibits any invitation to public to deposit money to
the company. It uses the word “Sendirian” or “Sdn” as required under Section 22(4). Moreover,
private company also enjoys certain privileges that are not give not the public companies, such as,
it can start the business immediately without having to wait for Register of Business.

As for public company, Section 4 defines a "public company" as "a company other than a private
company." Thus, companies which do not fall under the definition of a private company under
Section 15(1) are public companies. It is subjected to more regulatory controls than a private
company as it raises fund from the people. For example, this type of company is required to
disclose all corporate financial information to the public as required by the law. Moreover, public
company may be listed (in Bursa Malaysia) or unlisted. Since it is publicly owned, public company
tend to be run by a board of directors who are specialized in increasing the shareholder values.
 Akmyr Ahmad Azwan

According to Section 5(1)(a), subsidiary company exist if it can be proven that the other company
controls its composition of the BOD, controls more than half of its voting power, or holds more
than half of its issued shares capital. Alternatively, according to Section 5(1)(b), subsidiary
company can also exist if it is a subsidiary of any corporation which is other corporation’s
subsidiary. As for the holding company, according to Section 5(4), its definition and
characteristics can be made reference to the ‘other company’ mentioned in Section 5(1)(a) and
Section 5(1)(b). Hence, it can be summarized that a holding company is an entity formed to buy
and hold the majority of stock of other companies, whereas a subsidiary company is a business
whose majority of stock is owned by a holding company.

In terms of ownership, a holding company buys, absorbs or obtains a majority (50% and more)
percentage of stock in another company, which becomes known as its subsidiary. The holding
company has all rights and responsibilities of ownership for its subsidiaries. To illustrate, in Smith,
Stone & Knight Ltd v Birmingham Corp, the court held that the plaintiff shall be entitled for a
compensation when local authority compulsorily acquire land occupied by its subsidiary. On the
other hand, the subsidiaries, while not independently owned, often continue to operate as
individual entities, though major corporate decisions are made by the holding company.

In terms of management, a holding company directs the management and operations of the
subsidiaries it owns. Moreover, it also maintains the authority to add or remove board members,
directors and other key management and personnel pursuant to Section 5(2).

In terms of financial control, a subsidiary has little to no financial control over its operations. Even
independently acting subsidiaries are ultimately financially controlled by their holding company.
This includes financial activities such as investment decisions, sales projections and budgeting.
 Akmyr Ahmad Azwan

Effect of incorporation

Discuss the concept of separate legal entities with reference to section 16(5)

According to Section 16(5) of CA, once a company has been validly registered, there shall be an
existence of body corporate having a separate legal entity. In Tan Lai v Mohamed Mahmud, the
court defined ‘body corporate’ as an artificial legal person created & given recognition by the law,
having power & liability like an individual.

To illustrate, in landmark case of Salomon v A. Salomon Co Ltd, Salomon runs a business of

boots and shoes maker as a sole traders. To expand his business, he converted his business to a
company where his family members are the shareholders and subsequently sold his existing
business to the company for 39,000 (10,000 debentures conferring a charge over the company’s
assets, 20,000 in fully paid shares and the balance in cash). Being a debenture holder, Salomon
became a secured creditor of the company. Subsequently, the company became insolvent and the
remaining assets were not even enough to pay off debentures held by Salomon. Other creditors
tried to claim that Salomon had no rights to the remaining assets because both company and
Salomon were in fact one and the same. The court, however, held that upon incorporation, the
company and Salomon were two separate legal entities. Though the business was similar, managed
by Salomon, and he even own all issued shares of the company, that does not make him as one
entity. Hence, Salomon could be a secured creditor with an enforceable rights as against the
company.

Similarly, in Lee v Lee’s Air Farming, the court held that although the deceased was the
company’s sole director, owned 99% shares of the company, and also employed as the company’s
pilot, both were two separate entities. Hence, the deceased’s wife shall be entitle to claim for the
worker’s compensation when her husband died while flying for the company.

Moreover, in Abdul Aziz Atan v Ladang Rengo Malay Estate, the court affirmed that an
incorporated company is a legal person distinct from its shareholders and will not change its
personality even though the entire holdings of company changed hands.
 Akmyr Ahmad Azwan

The issue is whether _____ is entitled for the ________ as against its own company pursuant to
Section 16(5) of Companies Act 1965 (CA).

According to Section 16(5) of CA, once a company has been validly registered, there shall be an
existence of body corporate having a separate legal entity. In Tan Lai v Mohamed Mahmud, the
court defined ‘body corporate’ as an artificial legal person created & given recognition by the law,
having power & liability like an individual.

To illustrate, in Salomon v A. Salomon Co Ltd, the court held that although the company was
managed by the appellant himself, he could still be a secured creditor with enforceable rights as
against the company because one the company has been incorporated, it shall be regarded as a
separate legal entity.

Similarly, in Lee v Lee’s Air Farming, the court held that although the deceased was the
company’s sole director, owned 99% shares of the company, and also employed as the company’s
pilot, both were two separate entities. Hence, the deceased’s wife shall be entitle to claim for the
worker’s compensation when her husband died while flying for the company.

Moreover, in Abdul Aziz Atan v Ladang Rengo Malay Estate, the court affirmed that an
incorporated company is a legal person distinct from its shareholders and will not change its
personality even though the entire holdings of company changed hands.
 Akmyr Ahmad Azwan

According to Section 16(5) of CA, there are 6 effects of incorporation.

Firstly, existence of body corporate having a separate legal entity. For instance, in Salomon v
A. Salomon Co Ltd, the court held that although the company was managed by the appellant
himself, he could still be a secured creditor with enforceable rights as against the company because
one the company has been incorporated, it shall be regarded as a separate legal entity.

Secondly, the company may sue and be sued. The company has its own locus standi, so the
members cannot take an action on its behalf. This is known as “Proper Plaintiff Rule”. To illustrate,
in Foss v Harbottle, the court dismissed an action brought by 2 shareholders of a company as
against its director for improper use of the company’s properties, because the injury was done to
the company. Hence, only the company has the right to sue.

Thirdly, the company will have a perpetual succession until, according to Tan Lai v Mohamed
Mahmud, it is dissolved according to the law or it is struck off from the register. In Re Noel
Tedman Holdings, the court ordered for an appointment of a new director so that a proper transfer
of share can be made to the surviving child, because although the only shareholders & directors of
the company had died in an accident, the company remain in existence.

Fourthly, the company will have a power to own properties. This is evident in Macaura v
Northern Assurance Co whereby the court held that the plaintiff has no right to claim insurance
for the destroyed timber in fire because when he sold the timber, he had lost the insurable interest
of the goods and it automatically became the property of the company. Similarly, in Tai Choi Yu
v Syarikat Tingan Lumber, the court affirmed that shareholders of a company has no interest,
legal or equitable, in the property of the company.

Fifthly, establishment of a company will also limits the liability of the members. To illustrate, in
Re Ye Yut Ee, the court held that Yee as the secretary & director of a company that had retrenched
their staffs, shall not be liable for the company’s debt.

Lastly, the company will also has its own seal similar to that of RoC.
 Akmyr Ahmad Azwan

Lifting the Corporate Veil

The issue is whether _____ can make ____ personally liable for ______ pursuant to _________.

Generally, according to Section 16(5) and case of Salomon v A.Salomon Co Ltd, the company
shall have a separate legal entity and shall be personally liable for its conduct. However, there are
instances whereby the court will ‘lift the veil of the company’, either based on statutory provisions
or judicial decisions.

Statutory Lifting of Corporate Veil

According to Section 140 of Income Tax Act, it states that DG of Inland Revenue may ignore
transaction of a company intended to avoid payment of tax.

According to Section 5 of CA, although subsidiary company is a legal entity of its own rights, this
section enables link between a subsidiary and its holding company by showing control that holding
company has over the subsidiary.

According to Section 36 of CA, if the membership of a company falls below 2 persons for more
than 6 months, then the person will be personally liable for all debts incurred after that prescribed
time.

According to Section 121(2)(c) of CA, if the name of the company does not properly appeared on
certain company’s documents, then the person who signs or authorizes the signing shall be liable.

According to Section 199A of CA, an inspector shall be allowed to look into affairs of another
company related to the company that is being investigated to make a complete investigation.

According to Section 303(3) of CA, an officer of a company shall be personally liable for a
company’s debt if he enters into contract, knowingly that there is no probable expectation of the
debts being paid.

According to Section 304(2) of CA, the court may declare a person carrying company’s business
with intention to defraud creditors be personally liable upon winding up of a company.

According to Section 365(2)(b) of CA, the director or manager can be made personally liable to
creditors of company if they paid dividends to the shareholders when there are no profit available.
 Akmyr Ahmad Azwan

Judicial Circumstances to Lift the Corporate Veil

Referring to the facts, the most relevant ground is judicial decision of fraud, whereby a company
is used as a vehicle to commit fraud. In Gilford Motors Co v Horne, the court granted injunction
as against the defendant because his act of forming a new company was maliciously intended to
take away the plaintiff’s customer in contrary to their existing agreement. Similarly, in Jones v
Lipman, the court held the defendant liable for fraudulently transferring a house which he
supposed to sell based on their contract, to a company formed for that purpose alone, which he
alone owned and controlled.

Referring to the facts, the most relevant ground is to attribute mental state or physical character
to company. To illustrate, in Tesco Supermarket Ltd v Nattrass, the court affirmed that to
determine whether a company is guilty, they shall consider whether the person who was the
‘directing mind’ of the company had the intention to commit the offence.

Referring to the facts, the most relevant ground is to determine physical character or identity
of a company. It should be noted that the nationality of a company depends on the nationality of
the controllers. For example, in Daimler Co v Continental Tyre and Rubber Co, the court held
that the English company was considered as an enemy alien when the court lifted the veil and
looked at the shareholders who were majority German nationals.

Referring to the facts, the most relevant ground is when the company is used as an agent or alter
ego of its controller. For instance, in Smith, Stone & Knight Ltd v Birmingham Corp, the court
held that the plaintiff shall be entitled for a compensation when local authority compulsorily
acquire land occupied by its subsidiary on basis that the subsidiary was an agent of the parent
company (plaintiff). Similarly, in Aspatra Sdn Bhd v BBMB, the court restrained the transfer of
assets belonging to the defaulting BBMB director which includes his personal company (Aspatra)
as it was proven that the defaulting director was the alter ego of the company.

Referring to the facts, the most relevant ground is when the company is used as a front to hide
the true facts. In Re Bugle Press Ltd, the court disallowed an act of 2 shareholders who
maliciously create a new company in which they sold all their shares and invoke provision that
allow 90% of majority shareholders to compel another 10% shareholders to sell his shares. The
 Akmyr Ahmad Azwan

court clarified that although the laws has been complied with, it was obvious that the company
was formed to hide true intention of the malicious members.

Referring to the facts, the most relevant ground is in cases involving companies associated as a
group. According to Sunrise v First Profile, the court are keen to treat group companies as one
legal entity.

In Hotel Jaya Puri v National Union of Hotel, Bar & Restaurant, the court ruled that there are
2 essential elements for it to lift the corporate veil under this ground, namely, (1) there must be a
unity of ownership, and (2) there must be a unity of control. In this case, it was held that the
employees were entitled for compensation as against the hotel when its subsidiary (restaurant) was
closed down.

To illustrate unity of ownership, in DHN Food Distributor Ltd v Tower Hamlets London BC,
the court held that the plaintiff may claim compensation for disruption of business as against 3
companies because although one company owned the freehold premise, another one ran the
business on that premise and the other owed the vehicles for transportation, they were in fact one
entity under a single ownership.

To illustrate unity of control, in Smith, Stone & Knight Ltd v Birmingham Corp, the court held
that the plaintiff shall be entitled for a compensation when local authority compulsorily acquire
land occupied by its subsidiary on basis that the subsidiary was an agent of the parent company
(plaintiff) in which the plaintiff has control over.
 Akmyr Ahmad Azwan

Explain the importance of prospectus in relation to the public company

According to Section 4 of CA and Section 226 of CMSA, prospectus is defined as a written notice,
circular or other instrument inviting offer from public to subscribe/purchase any
shares/debentures/securities of the company.

The first importance of prospectus can be seen in Peek v Gurney, whereby the court affirmed that
prospectus acts as a corporate disclosure to aid public investors in making judgment prior to
an investment. This is because, according to Section 39(1) of CA, the prospectus shall consist of,
inter alia, (1) the details of properties acquired or to be acquired by the company, (2) dividends &
voting rights of each classes of shares, and (3) company’s financial standing in the past. Similar
requirement exist in Section 235 of CMSA whereby it states that the prospectus must include,
inter alia, (1) information about the company, (2) risk factors relating to the investment, and (3)
financial information for both past and future of the company. Therefore, all these information will
undeniably assist public investors in deciding on which company should they invest.

Secondly, it also gives protection to the public investors. This is because, Section 37(1) of CA
and Section 38(1) of CA require prospectus to be registered in order for the company to invite
public to lend money or to issue application forms & debenture. To ensure its genuineness, Section
46(1) of CA states that the directors, promoters and etc shall be liable to pay compensation to any
person suffering loss due to the untrue statement in prospectus or for willful non-disclosure therein.
Similarly, under Section 232 of CMSA, a person who wanted to issue, offer, or make an invitation
to subscribe/purchase, or in case of an initial listing of securities, when a person wanted to make
an application for the quotation of the securities on a stock market of a stock exchange, must ensure
that the prospectus is validly signed by Commission pursuant to Section 233 CMSA. To ensure
the effectiveness of the abovementioned requirements, Section 249 of CMSA provides that a
person cannot act in manner to deceive or mislead in connection to the prospectus. Or else, that
person shall be liable for damages and compensation to the amount loss. As for the investors,
Section 248 of CMSA also states that any person who suffer losses as result of misleading or false
statement, may recover the amount of the loss/damage suffered. Hence, the investors are free to
rely on the prospectus and such reliance will be backed by further protection by the law.
 Akmyr Ahmad Azwan

Prospectus under CMSA

Under Capital Markets and Services Act 2007, Section 226 defined prospectus as any notice,
circular, advertisement, etc inviting offer to subscribe/purchase any securities of the company.

Prospectus is essentially required when, according to Section 232, a person who wanted to issue,
offer, or make an invitation to subscribe/purchase, or in case of an initial listing of securities, when
a person wanted to make an application for the quotation of the securities on a stock market of a
stock exchange, must ensure that the prospectus is validly signed by Commission pursuant to
Section 233.

There are also other types of disclosure based documents.

Firstly, abridged prospectus. According to Section 237, abridged prospectus is registered when
there is an issue, offer or an invitation to subscribe/purchase securities by means of a right issue
which is renounceable in favor of persons other than existing member of that company.

Secondly, supplementary or replacement prospectus. This prospectus is an additional

information or amendment information to the original prospectus. It shall be regarded as a part of
the prospectus and registration of prospectus shall applies to it. However, according to Section
238, if there is a substantial change, the replacement prospectus shall be issued and regarded to
replace the existing prospectus under Section 233. Once supplementary prospectus has been
registered by the Commission, every original prospectus must be accompanied by a copy of the
supplementary prospectus.
 Akmyr Ahmad Azwan

Briefly explain the duties of a promoter in relation to a company

According to Twycross v Grant, promoter is a person who undertakes to form a company with
reference to a given project and to set it going and who takes the necessary steps to accomplish the
purpose.

As for the duties of promoter, it is a settled law that a promoter stand in fiduciary position whereby
he has 3 duties to act in good faith.

The first duty that a promoter has is to disclose his interest in all transactions relating to his
position to; (1) independent boards of directors, and (2) to the existing & future shareholders. To
illustrate, in Erlanger v New Sombrero Phosphate Co, the court held that although the promoter
has disclosed the facts regarding lease of mining phosphates to the BOD, but since the BOD was
nominated by the promoter himself, then the contract to purchase the lease can be rescinded
because the BOD is not ‘independent’.

The second duty is that the promoter must avoid or cannot have any conflict of interest with
the company he is promoting.

Thirdly, a promoter cannot make a secret profit out of his position. In Fairview Schools v
Indrani Rajaratnam, the court affirmed that promoters have a legal duty not to make a secret
profit without the company’s consent, and also to disclose to the company any interests the
promoters have in any transaction proposed to be entered into by the company.

However, it should be noted that the disclosure must be a full disclosure. For instance, in
Gluckstein v Barnes, the court held that the profits earned by the promoters in selling Olympia
Exhibition Hall is recoverable by liquidator as they failed to disclose of another balance of £20,000
from the debentures discount.

There are 3 remedies in situations where the promoters breached his fiduciary duties.

Firstly, remedy of rescission. To illustrate, in Habib Abdul Rahman v Abdu Cader, the court
allow rescission of contract to purchase land by a company in which the defendant has interest in,
due to failure of defendant to disclose such facts to the company. However, there are 3
circumstances whereby the contract will not be rescinded, namely, (1) the company affirms the
contract after knowing its full facts, (2) the parties cannot be restored to their original position
 Akmyr Ahmad Azwan

(Lagunas Nitrate Co v Lagunas Syndicate), and (3) where the 3rd party acquired rights that
cannot be defeated, such as in case of Re Leeds & Hanley, a bona fide purchaser.

Secondly, remedy to recover the secret profit. In Gluckstein v Barnes, the court affirmed that
in order to recover the secret profit, the company must prove that there is (1) failure to disclose,
and (2) profit arose from such transaction within the promotion period. To illustrate, in Whaley
Bridge Calico Printing v Green & Smith, the court held that failure of a promoter to disclose the
promise of commission payment makes him liable for the money had it been paid over to him.

Thirdly, remedy of damages, which usually in form of monetary compensation. However, it is

essential for the company to prove loss.
 Akmyr Ahmad Azwan

Memorandum of Association

According to Section 33(1) of CA 1965, once registered, memorandum of associations shall

constitute a contract that is binding upon the company and its members.

In Ashburn v Watson, the court clarified that in case of inconsistency between memorandum of
association and article of association, the memorandum shall prevail.

A company’s legal capacity depends on the provisions of its memorandum of association which
depending on its object clause. Hence, what is specified in the objects clause tells us the extent of
the power and legal capacity of a company.

To prevent abuse by allowing multiple objectives, the courts have classified that the object clause
would normally have, (1) Main/Independent Object Clause - concerns with the activities that a
company so authorized to act or engaged in, (2) Incidental/Dependent Object Clause – concerns
with unspecified additional activities that company is authorized to engage in association with one
of its main clause, and (3) Power – consequential to the stated objects.

To illustrate, in Bell House Ltd v City Wall Properties Ltd, the court held that the act of a
company to enter into a mortgage-banking transaction though the main object is property
developing, was justified because such object was dependent form the main object of the company.
Similarly, in AG v Great Eastern Railway Co, the court affirmed that although the company’s
object is to sell the railways, it still have an implied powers to do anything which is incidental to
the object of the company, which includes to engage in construction of railway.

Moreover, it should be clearly understood that ‘objects’ provide purposes for a company to exist,
whereas ‘powers’ are means by which these purposes are to be achieved. It is only when the act is
outside the company’s objects that the act is considered as ultra vires. For example, in Rolled Steel
Products v British Steel Corp, the court held that although the act of shareholders giving
guarantee is an abuse of power, but since the MOA had authorizes the company to give guarantee,
that particular transaction was considered not to be ultra vires to the object of company.
 Akmyr Ahmad Azwan

The issue is whether the act of _____ to _____ is ultra vires or in breach of the company’s
memorandum of association pursuant to Section 20 of Companies Act 1961 (CA).

Under Common Law, it is only when the act is outside the company’s objects that the act is
considered as ultra vires. To illustrate, in Ashburg Railway Carriage & Iron Co v Riche, the
court held that the act of a company to enter into contract for purchase of concession to construct
railways which was not an object of the company was void for ultra vires, and hence, no action
can be taken as against the company for breach of contract. Similarly, in Re Jon Beauforte Ltd,
the court held the contract entered into by a tailoring business company to buy coke using the
company’s letterhead for purpose of manufacturing veneered panels shall not be valid as the act
done was ultra vires to the object of the company. Moreover, in Re Introduction, the court held
that although the tourist services company has power to borrow money, but the purpose of such
borrowing (to provide for pig’s breeding) is ultra vires to the object of the company.

However, in Malaysia, Section 20(1) of CA affirmed that the contracts that are ultra vires are valid
as long as it fulfills all the conditions of a valid contract, even though there is a lack of capacity.
Hence, this provision gives protection to an innocent 3rd party as against company that intends to
run away from its obligations. To illustrate, in Garrard v Jomes, the court allow the innocent 3rd
party to sue on a guarantee although the transaction was ultra vires to the company’s object clause.

Regardless, according to Section 20(2) of CA, there are instances whereby a company may invoke
the doctrine of ultra vires and further take legal action as against the defaulting parties.

According to Section 20(2)(a), it states that a member or debenture holder may sue the company
to restrain it from carrying out the ultra vires contract before it is fully performed. To illustrate, in
Hawkesbury Development Co Ltd v Landmark Finance Ltd, the court allow the applicant to
seek relief as against the company & declared that the mortgage debenture granted by the
defendant was ultra vires as it was yet to be executed.

Moreover, by virtue of Section 20(2)(b), the company or any member of the company may also
personally sue any present or former officers of the company for having entered the company into
an ultra vires transaction. As past & present officers are to be made liable, this would cover ultra
vires acts that have been or are entered into by the company.
 Akmyr Ahmad Azwan

However, according to Section 20(3), the court may set aside or restrain the contract according to
Section 20(2) only if it is just and equitable to do so. Moreover, if there be any loss or damage as
a result of the contract being restrained, the court may allow compensation to any aggrieved party
to the contract.

Alteration of Memorandum of Association

According to Section 33(1) of CA 1965, once registered, memorandum of associations shall

constitute a contract that is binding upon the company and its members. However, Section 21(1)
indeed allows alteration to be made to the memorandum of associations according to procedures
laid down in Section 28, unless, the memorandum itself prohibits the alteration of that provision
as affirmed in Section 21(1A).

As for the process/procedures of alteration, Section 28(1) states that the company may alter the
Object Clause by a special resolution with respect of the object clause by ¾ majority. Moreover,
according to Section 28(2), the company is required to give written notice to specify the intention
to propose such resolution within 21 days to all members, trustees for debenture holders, and also
the debenture holders themselves pursuant to Section 28(3).

Furthermore, in light of Section 28(5), an application made to the court for cancellation of
alteration will have no effect to the alteration except if it has been confirmed by the court.
According to Section 28(5) and Section 28(6), any objection to the alteration must be made within
21 days after the resolution of alteration is passed, and such objection must be made by those
holding not less than 10% of the company’s share capital or value of debentures.

Upon application, the court will consider the rights and interests of the members and the creditors
of the company pursuant to Section 28(7)(a). The court would take into account whether the
alteration would be for the benefit of the company as a whole or not in reference to Section
28(7)(b) and Section 28(7)(c). Then, according to Section 28(7)(d), it may then order to cancel
the alteration or to confirm the alteration wholly or party.

Once passed, Section 28(8) & Section 28(9) states that the resolution altering the object clause
must be lodge with the Registrar of Companies within 14 days, after expiration of 21 days whether
the court confirms or not. After all required procedures are complied with, the alteration shall take
effect as affirmed under Section 28(10).
 Akmyr Ahmad Azwan

The issue is whether the proposed resolution to ________ as required by _______’s Article of
Association could be passed as validly binding upon the company and the directors including ____.

According to Section 33(1) of Companies Act 1965, once registered, the Articles of Association
shall constitute a valid and enforceable contract that is binding on the company and its members.
In Wood v Odessa Waterworks Co, the court affirmed that the effect of Section 33 contract can
be seen on three sets of relationship; (1) among the members inter se, and (2) between the company
and its members. It totally excludes the relationship between the company and 3rd parties.

Referring to the facts, the most relevant discussion shall be on contractual effect among the
members inter se. Articles of Association shall constitute a contract between all members in the
company. A member may personally enforce his rights to have the provision of the Articles
observed by an injunction.

In Rayfield v Hands, the court held that the directors are obliged to purchase the plaintiff’s shares
in accordance with Article 11 of the company’s Article of Association that clearly states that ‘every
member who intends to transfer shares shall inform the directors who will then take the said shares
equally between them at a fair value’.

Similarly, in Wong Kim Fatt v Leong & Co, the court ordered the plaintiff to sell his shares as
requested by one majority shareholder who held 250,000 out of total 300,000 shares as allowed by
the company’s article which empowers the holder of 7/10 of issued capital to request transfer of
any particular shares held by others.

Moreover, in Raffles Hotel Ltd v MBB, the court held that although it was provided in the
company’s Article that the lessor (defendant) has a right to appoint a new director of the company,
the act of defendant to appoint itself was invalid because the defendant was not a ‘member’ to the
company.

Referring to the facts, the most relevant discussion shall be on contractual effect between the
company and outsiders. The rule is that an outsider (non-members) shall not get any rights in the
Articles of Association.

To illustrate, in Raffles Hotel Ltd v MBB, the court held that although it was provided in the
company’s Article that the lessor (defendant) has a right to appoint a new director of the company,
 Akmyr Ahmad Azwan

the act of defendant to appoint itself was invalid because the defendant was not a ‘member’ to the
company.

Similarly, in Eley v Positive Government Security Life Assurance Co, the court dismissed the
plaintiff’s application for breach of contract when the company refuses to use his solicitor service
as required by the Articles, because the plaintiff brought the suit in capacity as a solicitor and not
as a members of the company.

Moreover, in Southern Foundries v Shirlaw, the court held that the act of the new company (3rd
party to the old Article) to amend the existing Articles as to enable them to remove the respondent
who should be the Managing Director for 10 years, shall not be valid.

Referring to the facts, the most relevant discussion shall be on contractual effect between the
company and its members. The rule is that each member is bound to observe the provisions of
the Articles, or else, the company or its member may take an action by relying on the Article of
Association.

To illustrate, in Salmon v Quin & Axtens Ltd, the court held that since the resolution to purchase
and let some properties was passed by an extraordinary general meeting in breach of Article 80 of
the company’s article which requires both consent of Axtens (chairman) and Salmon (managing
director), an order for an injunction shall be granted.

Similarly, in Hickman v Kent or Romney Marsh Sheep-breeders’ Association, the court

affirmed that the Articles which provided that any dispute between the company and its members
shall be referred to arbitration, was considered as a contract binding upon both parties. Therefore,
the plaintiff was prevented from bringing his case to the court.

Moreover, in Pender v Lushington, the court held that the members shall have a right to enforce
the Articles which entitled them to have their votes counted at a general meeting.
 Akmyr Ahmad Azwan

The issue is whether _____ may alter the Articles of Association by way of special
resolution under Section 31(1) of Companies Act 1965, by claiming that such alteration satisfied
the requirement of bona fide for the benefit of the company as a whole.

According to Section 31(1) and Section 31(2) of Companies Act 1965, it states that a
company may, by special resolution, alter or add to its Articles and such alteration will be valid as
if originally contained in the Articles of Association, provided, the resolution obtained three-
fourths (75%) of the majority vote as required under Section 152 of Companies Act 1965.

However, this right is subjected to 3 limitations, namely, limitation by Companies Act

1965, limitation provided in the Memorandum of Association and limitation by Common Law
principle to be determined by the courts.

As for limitation under the Common Law, the case of Allen v Gold Reefs of West
Africa Ltd affirmed that the right to alter the Articles must be exercised not only in the manner
required by law, but also bona fide for the benefit of the company as a whole.

Hence, there are two essential determinations for this test, namely, (1) the alteration must
be bona fide and (2) the alteration must be for the benefit of the company.

As for ‘bona fide’, in Greenhalgh v Arderne Cinemas Ltd, the court confirmed that the test of
good faith did not require proof of actual benefit, but a mere honest belief on reasonable grounds
that benefit would follow from the alteration is sufficient. To illustrate, in Dafen Tinplate Co Ltd
v Llanelly Steel Co, the court held that alteration which empowered the company to compel any
member to transfers his shares even when he had done nothing against the company shall not be
valid, as this power was too wide to be considered as ‘bona fide’.

As for ‘benefit for the company’, reference can be made to the case of Allen v Gold Reefs of
West Africa Ltd, whereby the court held that the alteration made as to give the company a lien
over the deceased’s fully paid share to settle his accumulated arrears of partly paid shares was
valid because it for the benefit of the company as a whole (it enabled the company to recover
money owed to it). Similarly, in Shuttleworth v Cox Bros & Co (Maidenhead) Ltd, the court
recognized an alteration giving power to the company to remove a director who repeatedly failed
to account for the money in his hands, because such alteration was for the benefit of the company’s
business. To distinguish, in Brown v British Abrasive Wheel Co, the court held the act of 98%
 Akmyr Ahmad Azwan

of the shareholders who altered the Articles to allow majority to get rid of the small minority, so
that they could subscribe for more capital was invalid, as it was considered as a bare power of
expropriation of shares that had no benefit to the company.

As for limitation by Companies Act 1965, the first limitation is provided under Section 65
whereby if the company has issued various classes of shares, the Act does not allow the majority
shareholders to alter the Articles on right of the holders of that class unless they have agreed to it.
Moreover, Section 64 also states that a person cannot alter the Articles so as to authorize
declaration of dividends out of the capital which will affect reduction of issued capital, unless the
confirmation from the court is obtained. Furthermore, according to Section 15, a member cannot
alter the Articles to remove restrictions, prohibitions or limitations stated under Section 15(2)
pertaining to private company because by virtue of Section 15(3), the statutory restriction shall
prevail.

As for limitation provided in the Memorandum of Association, in Ashbury Railway Carriage

& Iron Co v Riche, the court held that it is a settled law that Article cannot be inconsistent to the
Memorandum and if so, that Article shall entirely be nugatory to the extent of inconsistency.
Similarly, in Ashburn v Watson, the court clarified that in case of inconsistency between
memorandum of association and article of association, the memorandum shall prevail.