Can a 3rd party intervene and set aside the court order after the order has been perfected? In George Pathmanathan A/L Michael Gandhi Nathan v Portcullis International LTD & Ors, the High Court granted leave to a 3rd party to intervene and set aside the orders that were bad in law and made in breach of statute.
The 3rd party intervener company (“the Intervener”) is a wholly owned subsidiary of 3rd Respondent (“R3”). The Petitioner in 2006 brought an action against the 1st, 2 nd and 3rd Respondents for oppression under section 181 of the Companies Act 1965 seeking amongst others an order that the 1st Respondent (“R1”) sells all of its shares in R3 to the Petitioner at the net book value or a sum determined by the Court (“Oppression Suit”). The Oppression Suit was allowed by the High Court in 2011.
In 2015, the Court of Appeal ordered that dividend from the profits of R3 from 29-7-2011 to the date of transfer of R1’s shares (75%) be paid to the shareholder(s) of R3 (“CA Order dated 27-1-2015”).
R1 and the 2nd Respondent (“R2”) filed an application in the High Court for ancillary orders and directions to give effect to the CA Order dated 27-1-2015. The Petitioner and the Respondents entered into a consent order in September 2015 (“Consent Order”) in respect of the payment of dividend and the sum of USD$817,250.54 was placed in a time deposit account.
Pursuant to the applications made by R1 and R2 (“Encl. 198 and Encl. 228”), the High Court on 23-5-2018 ordered that 75% of the total retained profits certified by an auditor for the Intervener for the period from 29-7-2011 to 30-1-2015 in the sum of USD$656,282.25 (i.e. 75% of the total certified sum of USD$875,043.00) be uplifted from the time deposit and be paid together with the accumulated interest to R1 and/or R2 (“the Orders”).
In April 2022, the Intervener filed an application in the High Court seeking amongst others leave to intervene and set aside the Orders as they were null and void on the grounds of illegality (made in breach of the Labuan Companies Act 1990) and/or lack of jurisdiction.
Whether the 3rd party is entitled to intervene?
The High Court held the 3rd party had discharged the legal onus and demonstrated that it has a prima facie case for intervention; satisfying the Court to exercise its discretion to allow the 3rd party to intervene in the action.
In exercising its discretion, the High Court was persuaded on the facts and the law that the Orders directing the 3rd party to pay dividend from its profits to non-shareholders i.e., R1 and/or R2 and the 3rd party by making the payment as ordered would be in breach of section 140 of the Labuan Companies Act 1990 (“LCA 1990”) read together with sections 2 and 142 of LCA 1990. The legal interest as well as the pecuniary interest of the 3rd party would be affected as it is being compelled by the Orders to declare and pay dividend to non- shareholders. Any declaration of dividend by the 3 rd party company can only be made to its sole shareholder i.e., R3 and only shareholders are entitled to participate in the profits of a company, through distribution of dividends declared and approved at a general meeting of the company.
The High Court found that the intervention application was not made too late in the day as the courts have been generous in allowing an applicant who has direct interest in the subject matter the right to intervene even after final judgment has been entered.
Whether the Court has the power to set aside the Orders?
In opposing the setting aside of the Orders, R1 and R2 amongst others argued that the Court was functus officio.
To this, the High Court held that it was not functus officio as the court has an inherent power to set aside its orders that are in breach of statute. The Court has the inherent power to set aside an earlier order of another court of concurrent jurisdiction ex debito justitiae, without a need to appeal or file a fresh suit and this can be done in the same proceedings where the order contravenes a substantive statutory prohibition rendering it defective on grounds of illegality or lack of jurisdiction.
Res judicata/issue estoppel is a non-starter.
The High Court found that the Orders were made in breach of section 140 of LCA 1990 and held that res judicata does not apply when the orders were made in breach of written law. Further, issue estoppel cannot be applied to the present facts as the issues raised herein were neither raised nor ventilated in the proceedings in respect of Encl. 198 and Encl. 228 as well as all the other proceedings between the Petitioner, R1 and R2.
The Consent Order does not bind a non-party.
In disagreeing with R1 and R2’s contention that the Consent Order is binding on the Intervener, the High Court held that the court has no jurisdiction over any person other than those brought before it and no order can be made for or against or bind a non-party. Even if the Intervener had knowledge of the Consent Order that is not to be equated with it being a 3 party and the Consent Order is not binding and enforceable against the Intervener who is not a party to it.
The Orders are inconsistent with the CA Order dated 27-1-2015 and Consent Order.
The High Court held that the Orders are erroneous as they are inconsistent with both the CA Order dated 27-1-2015 and the Consent Order. The CA Order dated 27-1-2015 and the Consent Order do not provide for dividend from the profits of the Intervener to be paid to R1 and/or R2. Thus, the Orders are bad in law, nullities and ought to be set aside at limine.
The High Court’s decision upheld the principle that the right to intervene would be allowed by the Court if the Court is satisfied that the legal as well as pecuniary interest of the proposed intervener would be directly affected by its order and/or judgment even after final judgment/order has been made. The Court has the inherent jurisdiction to set aside an order ex debito justitiae if made in breach of written law.