Playing by the Rules

Are the listing rules for the SGX-ST legally enforceable or does the SGX-ST have a discretion in their interpretation and administration?

An investment in the shares of a listed company or ‘Listco’ is always a calculated risk. In weighing the odds, an investor would likely assume that a Listco on the bourse of the Singapore Exchange Securities Trading Limited (‘SGX-ST’) would abide by the rules set out in the Listing Manual issued by the SGX-ST, the 13 chapters of which cover both the process leading to a listing on the SGX-ST and the continuing obligations of a Listco thereafter.

Henry Winkler called assumptions the termites of relationships. Shareholders should not be lulled into a false sense of security by assuming that proper conduct is assured just because a company is listed on the bourse. Recent corporate collapses all around the globe bear witness to how corporate cover ups may hide the gutted insides of a company, leaving only a shell before the treachery is unleashed upon shareholders. From Citiraya to Informatics, Singapore has been no exception.

The disclosure based regime in place in Singapore relies in part on shareholders keeping a check on Listcos. So what steps can a shareholder take to compel an errant Listo to comply with the 
Listing Manual?

For the average minority shareholder to take on a Listco would be to bite off more than he can chew. Still the role that can be played by the small man in the corporate governance of Listcos should not be underestimated. For example, in the case of Re Spargos Mining NL (1990) 2 ACSR 1, an individual minority shareholder achieved no less than a total replacement of the whole Board of Directors of listed company Spargos Mining NL.

The remedy of choice for most Listco shareholders who are troubled by a breach of the Listing Manual by the Listco would be to sell their shares and cut their losses, if any.

But where by choice or compulsion such an exit is not an option, the natural avenue of seeking redress would be to bring the matter to the attention of the stock exchange. Under Rule 1305 of the Listing Manual, the SGX-ST may reprimand, suspend or de-list a company as a result of any infringements. There is some authority to support the view that a decision by the Exchange to suspend the listing of a Listco may not even be subject to review by the court.¹ With such potent powers, the SGX-ST could quite surely procure compliance with the Listing Manual should it be so minded.

But what happens if there is a divergence between the interpretation of the shareholder and SGX-ST as to the applicability of the relevant rule? Or what if SGX-ST agrees that the rule is applicable, but decides that it is an appropriate case to waive compliance?

If the shareholder is unable to procure compliance with the Listing Manual by an appeal to the SGX-ST by reason of a disagreement on the interpretation of the rule in issue, then the avenue is open for an application to court under s 25 of the Securities and Futures Act (‘SFA’).

The relevant text of s 25² reads:

Power of court to order observance or enforcement of business rules or listing rules

25. —(1) Where any person who is under an obligation to comply with, observe, enforce or give effect to the business rules or listing rules of an approved exchange fails to do so, the High Court may, on the application of the Authority, an approved exchange or a person aggrieved by the failure, and after giving the first-mentioned person an opportunity to be heard, make an order directing the first-mentioned person to comply with, observe, enforce or give effect to those business rules or listing rules.

It should be noted that the wording of this provision was modified in the extensive 2005 amendments to the SFA – in particular, by the addition of the words ‘first-mentioned’ as underlined. Another noteworthy amendment is the one made to s 25(2), which now provides that the persons against whom the High Court may make an order includes the Exchange.

Some guidance on the interpretation of the provision may be obtained from the discussion at chapter five of Principles and Practice of Securities Regulation in Singapore by Hans Tjio (LexisNexis, 2004).³ Australian cases on the similar provision found in s 793C of the Australian Corporations Act 2001 (and its predecessors) also serve as a useful guide and form the bulk of the relevant case authority on this provision.

To start with, it should be noted that a request to the SGX-ST to consider the matter may be a necessary preliminary step before an action can be properly commenced under s 25. If this is not done, then the court may not have jurisdiction to hear the matter.

Another point to note in relation to actions under s 25 is that it is likely that the SGX-ST would have to be made a party thereto. On this issue, the observations of Malcolm CJ in Quancorp Pty Ltd and Anor v MacDonald and Ors (1999) 32 ACSR 50 are pertinent:

The primary relief which [the appellants] seek is a declaration that the actions of the directors and Cudgen were void as contravening the listing rules of the ASX and/or as contravening the directors’ duties owed both to Cudgen and the appellants. I am quite unable to perceive any basis upon which such a declaration could be made in proceedings to which the ASX was not a party.

The persons who may make an application under s 25 are the Authority (ie the Monetary Authority of Singapore), the SGX-ST or a ‘person aggrieved by the failure’.

In Australia, pursuant to legislative amendments made in 1994, ‘a person aggrieved will apply to a person who holds securities of [the relevant body corporate] …’. Since no such legislative amendment was made in Singapore,⁴ the earlier authorities such as Robox Nominees Pty Ltd v Bell Resources Ltd (1986) 4 ACLC 164 would appear to be still applicable – although being a shareholder may be necessary, it is not in itself enough to qualify as a ‘person aggrieved’. Some element of prejudice is required to give the shareholder standing.

However, it is likely that a shareholder will not have much difficulty in establishing locus standi, particularly considering the view that has been expressed in cases such as Quancorp; that a listed company is ‘under a contractual obligation to [its shareholders] to comply with the ASX Listing Rules quite independently of these statutory provisions’.

On the issue of interpretation of the Listing Manual, Rule 105 of the Manual provides that ‘The Exchange’s listing rules are interpreted, administered and enforced by the Exchange. The decisions of the Exchange are conclusive and binding on an issuer.’ Although it could be argued that this excludes the jurisdiction of the court to review the SGX-ST’s interpretation of the Listing Manual rules, the courts have held otherwise – see Zephyr Holdings v Jack Chia (Australia) Ltd & Ors (1988) 14 ACLR 30 for example.

Having said that, even if the court opines that a rule is applicable, given that s 25 says that the High Court ‘may … make an order’, it remains in the discretion of the court to grant a remedy or to decline to do so. Whether the court will exercise this discretion is likely to depend on the importance of the particular rule in issue and whether the applicant has suffered any prejudice by virtue of the breach.

In the simplest scenario, the shareholder making an application under s 25 of the SFA would pray that the Listco be ordered to comply with the rule in issue. If the court is so minded it may make an order to give effect to the rule in issue.

But can the court make an order which affects third parties? In short, no. Whereas prior to the 2005 SFA amendments, s 18 left some room for doubt in providing that the court could make an order against ‘that person’, after the 2005 amendments, s 25 is now more explicit in providing that the court may make an order against ‘the first-mentioned person’. The powers of the court under s 25 are therefore limited to making orders affecting the Listco itself. This settles the score against the wider approach adopted by the Court of Appeal in FAI Insurance v Pioneer Concrete (1986) 10 ACLR 801.

It should be noted, however, that before s 25 may be invoked, there has to have been a failure to observe, enforce or give effect to a listing rule. Hence, s 25 may not be invoked in anticipation of non-compliance. However, a way around this limitation is apparent from the decision in Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 14 ACSR 524, where after holding that the listed company was under a contractual obligation to its shareholder to comply with the listing rules ‘quite independently of s 42’, Malcolm CJ went on to hold that ‘an injunction may be granted in the exercise of the ordinary equitable jurisdiction to restrain a threatened breach of contract’.

A difficult question that may arise is whether the courts have the jurisdiction to review a decision made by the SGX-ST to waive compliance with the 
Listing Manual.

Rule 107 of the Listing Manual provides that ‘The Exchange may waive or modify compliance with a listing rule (or part of a rule) either generally or to suit the circumstances of a particular case, unless the listing rule specifies that the Exchange will not waive it.’

In addressing this issue, the first question to ask is whether there has in fact been a waiver by the Exchange. In a number of cases, the distinction has been drawn between a finding by the Exchange that a particular rule is not applicable in the circumstances (which does not amount to a waiver) and a finding that the rule does apply but compliance should be waived. Hence, it was said by Brooking J in Zephyr that:

To form, and to express to interested persons, the opinion that a Listing Rule on its proper construction has, or does not have, a certain operation is a different thing from making a discretionary determination that a Listing Rule, which is understood to have on its proper construction a certain operation, shall be waived in the sense that a dispensation is to be granted. The intention to waive in the sense of ousting or modifying the operation of a Rule in a given case is not present where the state of mind of the Exchange is simply that the Rule will, on its proper construction, have a given operation in given circumstances. Moreover, the case is not one in which the Exchange not only formed a view on the question of the effect of the Listing Rule but went on to determine that, if the Rule on its proper construction did not have this effect, then its operation should, in the given case, be excluded or modified as a matter of discretion.

Presumably, a decision to waive compliance based on a wrong interpretation would similarly not be considered by the court to amount to a legitimate waiver by the Exchange.

Interestingly, it appears that the Exchange may even waive compliance after the court rules that a particular rule is applicable in the circumstances. Hence in Zephyr Brooking J stated: ‘It is true that the Stock Exchange has power, in its absolute discretion, to waive compliance with the Rule, and if I thought it likely that the Exchange would, once the Rule has been construed by me, proceed to waive it … then I might well in the exercise of my own discretion decline to make 
any order …’.

If the decision by SGX-ST to waive compliance with a rule is made after adopting the correct interpretation of a rule, then it may well be that the court will have no jurisdiction in the matter. In the case of Kwikasair Industries v Sydney Stock Exchange (1968) ASLR 30, 701, it was stated that:

The stock exchange is not only entitled but is bound to be vitally concerned with the maintaining of a fair market for the buying and selling of securities … the members of its committee should be left free to exercise honestly their powers of entry on or removal from the official list unencumbered by any prospect of their having to face a litigious investigation of the correctness of their decision. The powers of the committee in this regard are arbitrary; they are intended to be exercised summarily and fearlessly in protecting the public interest.

If any of the above requirements prove to be a stumbling block to an action under s 25 of the SFA, a minority shareholder may, in appropriate circumstances, have recourse to an action under s 216 of the Companies Act for minority oppression. There is case authority from various commonwealth jurisdictions including England and Australia to state that public companies are subject to s 216. Tong Kong Meng v Inno-Pacific Holdings Ltd [2001] 4 SLR 485 is the only reported Singapore case involving such an application against a Listco, although the court there found that the real issue was the effect of certain proxy votes and that it was unnecessary for the plaintiff to pitch the case based on oppression or unfair discrimination.

However, in commencing a s 216 action based on breaches of the Listing Manual, it should be borne in mind that it was stated by the court in Re Astec (BSR) plc [1998] 2 BCLC 556 that a breach of the Listing Manual was not in itself adequate to make out an action for minority oppression action. In order to be successful, the applicant would have to establish the familiar elements of a minority oppression action and breaches of the Listing Manual would be one element that could go towards painting the picture.

Conclusion

In the final analysis, it would appear that a general proposition that the rules of the Listing Manual are legally enforceable would be too broad a statement. Like many things, each case would have to be considered on its own merits. However, the authorities show that in the right case, even against the might of a public listed company, a minority shareholder may be able to take a stand to protect his rights.

Thomas Koshy

Yeo-Leong & Peh LLC

E-mail: thomaskoshy@ylp.co.sg

Notes:

1    See New Zealand Stock Exchange v Listed Companies [1984] 1 NZLR 699 and Chapmans Ltd v Australian Stock Exchange Ltd (1994) 14 ASCR 726.

2    Pursuant to the 2005 SFA amendments, this provision was renumbered from s 18 to s 25.

3    Since this text pre-dates the 2005 SFA amendments, it deals with s 18 rather than s 25.

4    Hans Tjio has noted at p 175 of his book stated that the omission of such an amendment in the SFA ‘probably reflects the MAS’s discomfort in giving greater statutory effect to an exchange’s business and listing rules’. This is even more likely in the light of the fact that s 325 of the SFA was not amended to bring it in line with the Australian provisions which now provide locus standi to aggrieved persons.