FHH & Ors v Menteri Besar Selangor (Pemerbadanan) [2021] 4 MLRA 29

FHH & Ors v Menteri Besar Selangor (Pemerbadanan) [2021] 4 MLRA 29

Federal Court (Putrajaya) 

Unfettered Executive Discretion in a Corporation Sole 

1. The Respondent is Menteri Besar Selangor (Pemerbadanan), commonly referred to as MBI, is a body incorporated under the Menteri Besar Selangor (Incorporation) Enactment 1994 (“MBI Enactment”). The Appellants were former employees of the Respondent, including the Chief Executive Officer (1st Appellant), the Chief Operating Officer (2nd Appellant) and six other officers.
2. Shortly before his resignation on 23 September 2014, the then Menteri Besar of Selangor, TSKI, in his capacity as the corporation sole of MBI, approved payments totaling RM2,713,590.00 to the Appellants under a Voluntary Separation Scheme (“VSS”). TSKI did not seek approval from MBI’s Board of Directors (“BOD”) before authorizing these payments.
3. The Respondent subsequently initiated a lawsuit in the High Court to recover the VSS payments, alleging they were unlawful because they lacked BOD approval. The Respondent further alleged that the 1st and 2nd Appellants had conspired to injure the Respondent and breached their fiduciary duties. 
4. The High Court dismissed the claim, but the Court of Appeal reversed this decision, ruling that the payments were unlawful due to a lack of BOD approval based on principles of “good governance” and “accountability”. The matter was then appealed to the Federal Court.

1. Whether MBI legally classified as a corporation sole or a corporate aggregate.
2. Whether a corporation’s sole structure empowers the Menteri Besar to independently execute contracts for MBI.
3. Whether an unestablished MBI’s BOD under the MBI Enactment, could fetter the powers of the Menteri Besar.
4. Whether the MBI employees be held liable for fiduciary breaches to the BOD when following the Menteri Besar’s directives.

(1) Whether MBI legally classified as a corporation sole or a corporate aggregate.

(a) The Federal Court held that MBI (Pemerbadanan) is in law a corporation sole, not a corporate aggregate.

(b) A corporation sole is a body politic constituted in a single person who, by right of office, has the capacity to hold property and act with perpetual succession. In contrast, a corporate aggregate is a collection of individuals united into one body (such as a registered company).

(c) The Federal Court relied on section 3 of the MBI Enactment, which explicitly incorporates “the person holding the office or performing the functions of Menteri Besar” as a body corporate.

(d) The Federal Court referred to the case of Badan Peguam Malaysia v LEVB [2005] 2 MLRA 127 in which used as a point of contrast where the Malaysian Bar was held to be a corporate aggregate because it is a collective body of members.

(e) The Federal Court also referred to Crouch v Commissioner for Railways (Qld) [1985] 62 ALR 1 whereby this case affirmed that a corporation sole possesses two capacities, that of the natural person and that of the corporation. In addition, S Govinda Menon v The Union of India & Anor LNIND [1967] SC 33 distinguished the juristic nature of a corporation sole from a corporation aggregate.

(f) The case Honan Plantations Sdn Bhd v Kerajaan Negeri Johor [1996] 2 MLRH 919 was distinguished by this Federal Court as irrelevant because it involved the State Executive Council’s powers under the State Constitution, which is distinct from a corporation sole established by specific enactment.

(2) Whether a corporation’s sole structure empowers the Menteri Besar to independently execute contracts for MBI.

(a) The Federal Court held that the Menteri Besar is legally empowered to enter into contracts and approve payments (such as VSS) at his sole discretion without needing approval from the BOD.

(b) In a corporation sole, the officeholder and the corporation are “one and the same”. Therefore, the powers conferred upon the corporation are effectively the powers of the individual holding that office.

(c) Section 4 of the MBI Enactment grants the corporation broad powers to “enter into contracts” and “convey, assign, surrender and yield up, charge, mortgage, demise, reassign, transfer or otherwise dispose of, or deal with, any movable or immovable property vested in the Corporation upon such terms as the Corporation seems fit”.

(d) The Federal Court referred to S Govinda Menon v The Union of India & Anor LNIND [1967] SC 33 in which this case supported the proposition that a corporation sole and the individual officeholder are inextricably linked in their legal functions.

(3) Whether an unestablished MBI’s BOD under the MBI Enactment, could fetter the powers of the Menteri Besar.

(a) The Federal Court ruled that MBI’s BOD cannot fetter the powers of the Menteri Besar because the board has no statutory basis under the MBI Enactment.

(b) It is a trite principle of law that a Court cannot read “visibly missing provisions” into legislation. If the legislature did not provide for a BOD in the statute, the Court cannot treat an administratively created body as having legal power to override the officeholder.

(c) The Federal Court noted that while a BOD existed in practice, it was merely an informal advisory body without statutory power. Failing to follow an “organisational practice” (consulting the BOD) does not render an act “unlawful” unless a written law or statute is breached.

(d) The Federal Court referred to Kuala Lumpur Klang & Port Swettenham Omnibus Co Bhd v Transport Workers’ Union [1970] 1 MLRA 207 in which established that the powers and duties of a statutory body are strictly contained within its founding statute.

(e) The Federal Court also referred to Putrajaya Holdings Sdn Bhd v Digital Green Sdn Bhd [2008] 1 MLRH 248,  whereby emphasized that Courts must give effect to the clear intent and object of the legislature.

(4) Whether the MBI employees be held liable for fiduciary breaches to the BOD when following the Menteri Besar’s directives.

(a) The Federal Court held that employees cannot be held liable for breach of trust or fiduciary duty to the BOD when acting under the lawful instructions of the Menteri Besar.

(b) Since the BOD lacks legal authority to fetter the MB, there is no fiduciary duty owed by employees to that board. The employees’ duty is to the corporation, which, in a corporation sole, is directed by the officeholder.

(c) The Federal Court found “not a scintilla of evidence” to suggest that the employees had orchestrated the payments or conspired to injure the MBI (Incorporation). Writing memos to the authorized officeholder (TSKI) to propose options does not constitute a conspiracy.

(d) The Federal Court observed that receiving VSS payments upon termination is a common practice in employment law and contains no inherently “sinister aspersions”.

1. The Federal Court unanimously allowed the appeal with costs on the grounds of 

(a) MBI is a corporation sole;

(b) the Menteri Besar was empowered to enter into contracts at his sole discretion;

(c) the BOD cannot fetter the powers of the Menteri Besar under the MBI Enactment and;

(d) the employees cannot be held liable for acting under the MB’s instructions in these circumstances.

2. The Federal Court set aside the Court of Appeal’s order and reinstated the order of the High Court, effectively dismissing MBI’s claim to recover the payments.

1. The powers and duties of a body created by statute are confined strictly to those found within the statute itself. Courts cannot impose additional layers of governance (like a BOD) if the legislature did not see fit to include them.
2. This case clarifies the legal distinction in Malaysia between a corporation sole (a single officeholder) and a corporate aggregate (a group). A corporation sole possesses unique autonomy that is not subject to the same collective accountability structures as a company or corporation aggregate.
3. While accountability and good governance are profound principles, they cannot be used by a Court to override clear statutory language or render an otherwise legal act “unlawful”.
4. Employees acting under the direction of the authorized head of a corporation sole are generally protected from claims of breach of fiduciary duty to non-statutory advisory bodies.