Gopal Sri Ram JCA:

FACTS AND BACKGROUND

This case is about a joint venture gone wrong. There is now litigation about it. It has now come to us in the form of an appeal directed against orders made by the Kuala Lumpur High Court on two petitions. For ease of reference I will refer to them as the UEM petition and the GIE petition. I will explain later in this judgment what each is about. But first the facts.

On 2 November 1993 United Engineers (M) Bhd (‘UEM’) and Genisys Integrated Engineers Pte Ltd (GIE) entered into an agreement. It is titled ‘shareholders agreement’. But in essence it is an agreement for both these companies to jointly venture into and exploit the mechanical and electrical engineering market in Malaysia. In short, it is a joint adventure. A private limited company called United Genisys Sdn Bhd (‘UEG’) was incorporated as the vehicle to carry out this joint adventure. Pursuant to the terms of the shareholders agreement UEM held 51 % of UEG’s shares and GIE held the remaining 49%. UEG was not to venture into those areas in which either party was already involved in. The shareholders agreement refers to this as ‘exempted business’. Clause 6 of the agreement describes the respective roles of UEM and GIE in the joint venture as follows:

6.1UEM shall provide its knowledge and expertise in advising and assisting the Company on local practice and usages, strategy and prospective business.

6.5GIE shall provide and assist the Company with its management and procurement systems and provide technical expertise in Mechanical and Electrical Engineering and training of staff on application of procedures. GIE shall furnish to the Company within one (1) month of its incorporation, the detail schedule of staff training on application procedures.

Under the terms of the agreement, although the management and control of UEG was vested in its board of directors, the day to day management of its business and affairs were delegated to Seow Boon Cheng (Seow), GIE’s nominee on UEG’s board. In fact Seow always represented GIE on the board of UEG. But that was not the case with the UEM nominated directors: they kept changing from time to time.

UEG began well. It obtained mechanical and engineering contracts for several projects worth many millions of ringgit both in Malaysia and abroad. For some five years or so the relationship between the UEM nominated directors and Seow was excellent. There was little or no formality in their dealings so far as the business and affairs of UEG were concerned. There were no complaints made either by UEM or its nominated directors on UEG’s board about the way in which Seow managed UEG’s business. In fact, an audit of UEG carried out in March 1998 gave Seow the credit for UEG’s success in the following terms:

… UEM Audit would like to commend the CEO for his invaluable contributions to the success of UEG.

Despite this glowing tribute, the relationship soured in about mid-1998. According to GIE it all started with UEM’s decision to dispose of its shares in UEG to a third party called Nova Nusantara Sdn Bhd. Why did UEM decide to rid itself of UEG? The answer is provided by Sulaihah Maimunni who was UEM’s nominee on UEG’s board at the time when the problems in the relationship began. She is the fourth respondent in the GIE petition. She gave evidence before the High Court. She said that the global financial crisis of 1997 had affected UEM. The board of UEM decided to dispose of all what it considered as its non-core businesses. UEG was considered to be a non-core business because of the financial crisis of 1997. A buyer was therefore identified to whom UEM would dispose of its shares in UEG.

It is beyond dispute that UEM’s decision to sell off its UEG shares to Nova Nusantara was in breach of the shareholders agreement. This is because that agreement contains a pre-emption clause. It is cl 12.3. It sets out the elaborate procedure which must be strictly followed when either UEM or GIE wish to sell their stake in UEG