Answers
Fundamentals Level – Skills Module, Paper F4 (SGP)
Corporate and Business Law (Singapore)
1
2
June 2009 Answers
In interpreting a statute, the objective of the court is to ascertain the intention of Parliament as expressed in the words used in the
statute.
(a)
According to the literal rule, the literal meaning of words in a statute are to be given effect to. In this regard, the words should
be given their literal meaning in the context of the provision and the statute as a whole. The ejusdem generis rule applies so
that general words following specific words should be read as being in the same group as the specific words.
(b)
The golden rule of statutory interpretation is that a provision in a statute must be construed in accordance with the plain
meaning of the words unless it gives rise to an absurd result. So the golden rule qualifies the literal approach in the sense
that the literal rule is not to be applied where doing so will lead to absurdity or injustice.
(c)
Finally, the mischief rule is applied in situations where there is an ambiguity in the meaning of the words in a statute. When
using the mischief rule, the court interprets the statute by considering the common law position prior to the statute, the
mischief or defect for which the common law did not provide and the remedy the Parliament had resolved and appointed to
cure the defect.
The party in breach of contract is not liable for losses that are too remote (or far removed). The rule for remoteness of damage is
found in the decision of Hadley v Baxendale (1854).
According to the rule, where two parties have made a contract which one of them has broken, the damages which the other party
may claim in respect of such breach of contract fall into two categories. The first is damage which may fairly and reasonably be
considered as arising naturally, that is, according to the usual course of things, from such breach of contract itself. For example, if
a wholesaler fails to deliver goods to a retailer, the losses which the retailer would suffer would be the normal loss of profits from
the sale that he would otherwise have made on those goods.
The second is damage as may reasonably be supposed to have been in the contemplation of both parties, at the time they made
the contract, as a probable result of the breach. This would include situations of special losses. In our example above, if the retailer
had earlier contracted to sell the goods at exceptional profits, then in order to claim from the wholesaler the loss of exceptional
profits (rather than normal profits), the wholesaler must have known, at the time of contract, of this special circumstance.
3
To establish the existence of a duty of care for negligent misstatements, the current approach is to consider whether there is
foreseeability of damage to the recipient of the statement, whether there is sufficient proximity between the maker and the recipient,
and whether (as a matter of policy) it is fair, just and reasonable to impose liability on the maker.
As regards proximity, the House of Lords in Hedley Byrne v Heller (1964) held that a duty of care arises if a ‘special relationship’
can be shown, namely that:
–
–
–
–
the maker possesses special skill or information
the maker knows or ought to have known that the recipient would rely on the advice
it is reasonable for the recipient to rely on the advice
(and there is no disclaimer).
These requirements were refined by the House of Lords in Caparo v Dickman (1990), in that there must be a known recipient and
a known specific purpose.
If there is a disclaimer, the disclaimer must now satisfy the reasonableness test under the Unfair Contract Terms Act (Cap 396)
(see e.g. Smith v Bush [1990]).
4
The Partnership Act (Cap 391) makes provision for the authority of partners to enter into contracts that bind the partnership.
Section 5 provides that every partner is an agent of the firm and other partners for the purpose of partnership business and the
act of every partner in the usual course of business binds the firm, unless the partner had no authority and the third party knows
he has no authority or does not know that he is a partner.
Hence if a partner’s act is part of the usual way in which the business of such a firm is carried on, all partners will be liable. The
rationale is that partnership business is run on behalf of all partners so every partner is an agent of other partners in partnership
business. An exception exists where the partner had no authority or exceeded his authority and the third party knew of this (this
is reinforced in s.8). Alternatively, if the third party did not know or believe the person to be a partner, the other partners are not
liable.
5
(a)
An exempt private company is a private company with not more than 20 shareholders and none of the shareholders is a
company: s.4(1) Companies Act (Cap 50). Also, a company owned wholly by the Singapore government can be an exempt
private company if the minister, in the national interest, declares it to be an exempt private company.
7
An exempt private company does not need to file its annual accounts with the Registrar of Companies and Businesses and
is not subject to the prohibitions on loans to, or securities for the benefit of, directors and director-related companies.
(b)
6
A public listed company is a public company whose shares are listed on a stock exchange. As a public company, members
of the public can buy and sell shares of the company. Listing on a stock exchange facilitates easy transfer of the shares,
making it more attractive to investors. However, a listed company has to comply not only with company law but also the
requirements and regulations of the stock exchange.
According to the ultra vires doctrine any act which fell outside the specified objects in the objects clause of a company’s
memorandum of association was beyond the company’s capacity i.e.: ultra vires. Under common law, ultra vires transactions are
nullities and have no legal effect.
The law relating to ultra vires has been radically changed by the Companies Act (Cap 50) in two ways.
Firstly, it has removed the requirement of stating a company’s objects in its memorandum of association. The effect is that
companies can be without specified objects. Secondly, it introduced a new s.23(1) in place of the old one which now provides
that (subject to the Act and the memorandum and articles) a company has full capacity to carry on any business or activity and
do any act or enter into any transaction. This provides a company with the same legal capacity as individuals. However, ss.23(1A)
and (1B) provide that a company may have objects included in its memorandum and that the memorandum and articles may
contain a provision restricting its capacity and powers. The new regime allows a company to opt out of stating its objects in its
memorandum of association, in which case there will be no question of any contract or transaction being ultra vires.
However, if a company chooses to have objects or to restrict its powers, issues of ultra vires may still be raised in proceedings
under s.25. Where a party dealing with a company is concerned, the sting of the doctrine of ultra vires has been effectively removed
as the transaction can no longer, by that reason only, be void. Having said that, the doctrine is not quite dead and buried, for
s.25(2) preserves the right of a member to apply to court for an order to restrain the ultra vires act.
7
This question raises issues relating to the important topic of corporate governance. It requires a consideration of the role of directors
together with an explanation of the distinction between executive or non-executive directors.
Section 741 of the Companies Act (Cap 50) defines the term ‘director’ as including any person occupying the position of director,
by whatever name that person is called. The point of this definition is that it emphasises the fact that it is the function that the
person performs, rather than the title given to them, that determines whether he is a director.
The position of directors may be described in a number of ways.
(i)
(ii)
they are officers of the company (s.744);
the board of directors is the agent of the company and, under Art 84 of Table A, the board may appoint one or more managing
directors. They are, therefore, able to bind the company;
(iii) directors are in a fiduciary relationship with their company. This means that they are in a similar position to trustees. The
importance of this lies in the nature of the duties that it imposes on directors (see below);
(iv) directors are required to carry out their responsibilities with care, skill and diligence;
(v) directors are not employees of their companies per se. They may, however, be employed by the company, in which case they
will usually have a distinct service contract detailing their duties and remuneration. Apart from service contracts, the articles
usually provide for the remuneration of directors in the exercise of their general duties.
As their relationship with their company is a fiduciary one, directors owe the following duties (amongst others) to their company:
(i) to act bona fide in the interests of the company;
(ii) not to act for a collateral purpose; and
(iii) not to permit a conflict of interest to arise.
8
This question deals with the issues of when acceptance and revocation of offer are effective. For acceptance, the general rule is
that an acceptance is effective when received. However, where the postal acceptance rule applies, acceptance is effective when
posted. As for revocation, it is only effective when received; there is no postal revocation rule.
The brochure, which Shoes Galore received, was an invitation to treat rather than an offer. Shoes Galore’s e-mail response on
1 January amounted to an offer. This offer was not accepted by Rubbersoles’ e-mail of 2 June as the latter introduced new terms
concerning cash on delivery terms rather than a 30-day credit period. In law, this was a counter-offer, which had the effect of
terminating the earlier offer.
Whether there is a binding contract between the parties depends on whether the postal rule applied to Shoes Galore’s posted
acceptance. If the postal rule applies, then the contract is concluded on 3 June when the letter was posted. If the general (receipt)
rule applies, then the acceptance comes after the revocation, and is therefore not effective.
In order for the postal rule to apply, acceptance by post must either have been prescribed by the offeror or been contemplated by
the parties as a mode of acceptance. Here, given that the parties had used e-mail for their initial dealings, it would have been
more reasonable to use a similar mode (faster than post). If so, Rubbersoles’ acceptance only took effect on 5 June, which was
too late as the offer was revoked on 4 June. There would then be no contract.
8
9
(a)
The funds available for distribution include:
–
–
(b)
Assets owned by the company at the commencement of winding up except for the charged assets (the land that has
been mortgaged to the bank), and
Assets that come into the company’s ownership after the commencement of winding up. This includes funds received
from owners of partly paid shares, such as Beng, after the liquidator has made a call on them.
The order of priority for distribution of assets in a company’s liquidation will be as follows:
Secured creditors
–
This refers to $1 million owing to a bank supported by a mortgage over the land on which the Singapore factory was
built. The mortgagee has priority over all unsecured creditors in the sense that the charged asset is not available for
distribution. Such a charge is required to be registered under s.131 of the Companies Act (Cap 50).
Statutorily preferred debts
–
Section 328(1) sets out the ranking of statutorily preferred debts which are to be paid in priority to other unsecured
debts. This includes the $130,000 unpaid wages up to a prescribed limit of up to five months’ salary or $7,500,
whichever is the lesser. If the amount is insufficient to pay all the employees, they will be paid proportionately.
Unsecured creditors
–
This refers to $200,000 in respect of goods supplied to trade customers. If there are sufficient funds to pay all unsecured
debts, then they will be paid in full. However, if there are insufficient funds to pay them in full, they will be paid
proportionately (s.300).
10 Andy and Bob have breached their duties as directors and have also treated Charlie unfairly. In such a situation, Charlie has rights
of redress as a minority shareholder.
As directors, Andy and Bob owe fiduciary duties to the company. Section 157 of the Companies Act (Cap 50) (as well as the
common law) requires directors to act honestly and in the interests of the company. In particular, they should not misappropriate
corporate assets for personal gain. Here, in letting their families use the corporate cars, the directors are in breach of their duty and
face civil sanctions and criminal sanctions under s.157(3). With respect to civil liability, they may have to compensate the company
for the expenses incurred by the company in respect of the families’ usage of the cars.
According to the rule in Foss v Harbottle (1843), when a wrong is done to the company, the company is the proper plaintiff or the
right party to commence legal action. It therefore requires either the board of directors or the company in a general meeting to
decide to sue. Since Andy and Bob together make up the majority at board and shareholder levels, Charlie would not be able to
obtain a resolution to sue them.
However, Charlie can rely on ss.216A and 216B, to apply to the court for permission to commence legal proceedings on behalf
of the company. To succeed in bringing a derivative action against Andy and Bob, Charlie has to show that:
(i) he has given the directors 14 days’ notice of his intention to make the application if they did not take action;
(ii) he is acting in good faith; and
(iii) it is in the interest of the company that the action be brought.
9
Fundamentals Level – Skills Module, Paper F4 (SGP)
Corporate and Business Law (Singapore)
1
2
3
4
5
6–10
A thorough answer that explains clearly the three rules of statutory interpretation.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer that explains the two limbs of the rule in Hadley v Baxendale.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer that explains the three requirements for a duty of care for statements made.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer which explains the provisions in the Partnership Act for authority of partners to enter into binding
contracts on behalf of the partnership.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
(a)
(b)
6
7
8
9
June 2009 Marking Scheme
4–5
A thorough answer that explains the features of a private exempt company and the public listed company.
0–3
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
4–5
A thorough answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
0–3
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer that explains whether the doctrine of ultra vires has been abolished.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer that explains the roles and duties of directors.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
6–10
A thorough answer that explains the rules relating to offer, acceptance of offer and revocation of offer.
0–5
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
(a)
0–3
A thorough answer that explains the funds available for distribution
(b)
5–7
A thorough answer that explains order of priority for distribution.
0–5
A less complete answer, lacking in detail in that it does not deal with some aspects of the question.
10 6–10
0–5
A thorough answer that discusses the rights of redress of the minority shareholder.
A less complete answer, lacking in detail or unbalanced in that it does not deal with some aspects of the question.
11