STIC was part of the larger WTK Group, founded by the father of three brothers – the Appellant’s husband and the First and Second Respondents. The brothers each had a one-third beneficial interest in STIC, which held non-voting convertible preference shares (CPS) in WTK Realty. When the Appellant’s husband died, he and his son held 54 per cent of WTK Realty’s ordinary voting shares; his brothers held the remaining 46 per cent. Shortly thereafter, the First and Second Respondents caused STIC to convert the CPS into ordinary shares in WTK Realty, giving them voting control of WTK Realty.

The Appellant’s primary case was that STIC and the WTK Group was a family quasi-partnership, meaning the First and Second Respondents’ power as majority shareholders to approve the conversion under STIC’s constitution was subject to equitable constraints requiring unanimous shareholder support.

The Privy Council agreed that the management of STIC was conducted on an informal basis without written shareholder agreements or management contracts, and found that the group was regarded as a family business. This was not enough, however, to establish that they had a legitimate expectation to be equally involved in the management and to pass that involvement on to their heirs.

Also considered was whether irretrievable breakdown of the family relationship is sufficient to justify the grant of relief. The Appellant sought to rely on the Singapore Court of Appeal case, Chow Kwok Chuen v Chow Kwok Chi  [2008] SGCA 37. While it was agreed there was no quasi-partnership, the Court of Appeal found that the family companies before it shared certain characteristics with quasi-partnerships and the management deadlock between the three brothers was sufficient to order a winding up on the just and equitable ground. However, the Privy Council distinguished it on the basis that it was winding up application rather than a claim for unfair prejudice relief. It said it did not establish an equitable principle that a family company must be wound up when there is a break down in trust and confidence between the family members, when the company is able to continue to operate effectively on the basis of the agreement of the remaining majority family members.

The Appellant also claimed that the conversion was for the improper purpose of changing the balance of voting power in WTK Realty. The trial judge and Court of Appeal found that the conversion was required for financing purposes.

The Privy Council confirmed that the test when considering the core fiduciary duty of a director to act honestly and in good faith is largely a subjective one and the courts have adopted a non-interventionist attitude when reviewing business decisions. However, where there has been a failure by directors to consider the separate interests of their company, the test then becomes an objective one; but it does not automatically mean they had breached their fiduciary duty.

The Privy Council found objectively that if the First and Second Respondents had considered STIC’s interests, they would have concluded the conversion preserved the value of STIC’s shareholding in WTK Realty and would reasonably have decided to convert the CPS.

This decision provides helpful guidance on where equity will impose constraints on majority shareholders due to it being a family business, and the fiduciary duty of directors to act in the best interests of the company in the context of corporate groups.