Duty of Care Owed By a Company Secretary

The duty of company secretaries in Malaysia are, to a large extent, governed by the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA), and the Company Secretary's Code of Ethics developed by the Companies Commission of Malaysia (CCM). This was acknowledged by the High Court in Lai Ban Guan v Chan Phaik Boi & Ors [2012] 4 CLJ 255.

It is also well established by the Courts in Malaysia that the relationship between a company secretary and the company is primarily founded on a contractual basis. The consequence of this as held by the High Court in Goh Kim Ewe & Anor v Cheng Ah Ching & Ors [2016] MLJU 940 is that company secretaries do not owe fiduciary duties to a company or its individual directors. This has since been reaffirmed by the High Court in Tan Ban Uu & Anor v Ong Ghin Leong [2017] MLJU 244 which also found that a company secretary only owed a duty of care to the board of directors and not individual directors and shareholders

The New Test

The recent case of Yee Teck Fah & Anor v Wong Ngiap Lim & Anor [2020] MLJU 2088 saw the application of a more stringent test in that it imposed an additional duty of care on company secretaries; one that is owed to the beneficial owners of shares in a company.

The High Court, in making the above finding, applied the three-fold test that originated from the case of Caparo Industries plc v Dickman and others [1990] 1 All ER 568 and that was set out by the Federal Court in Pushpaleela a/p R Selvarajah & Anor v. Rajamani d/o Meyappa [2019] 2 MLJ 553. The test essentially centered on the following:

i. Whether the acts or omissions of the company secretary would result in foreseeable damage to the party?

ii. Whether the relationship between the company secretary and the party is sufficiently proximate?

iii. Whether there are no policy considerations that would militate against the imposition of a duty of care on the company secretary?

Should the above be conjunctively answered in the affirmative, a duty of care would be imposed on the company secretary.

Decision in Yee Teck Fah

In Yee Teck Fah, the action was brought by the intended transferees of shares against the company secretary and the company itself. The intended transferees were beneficial shareholders in the company. Whilst the registered shareholder had instructed the company secretary to adjudicate and execute the transfer of shares to the beneficial shareholders, contrasting instructions were given mid-way to put a stop to the same. In deciding whether the company secretary had acted negligently in his duties towards the beneficial shareholders, the High Court first had to determine if the company secretary owed a duty of care to these beneficial shareholders.

In finding the existence of a duty of care, the High Court held that it would be reasonably foreseeable that the company secretary’s act or omission in carrying out instructions to transfer and register the shares might cause the beneficial shareholders to be deprived of their interests in the shares. This resulted in there being a finding of sufficient legal proximity for a duty of care to be imposed on the company secretary towards these beneficial shareholders. The High Court further found that there were no policy considerations that militated against the imposition of a duty of care on company secretaries towards beneficial shareholders.

The Standard of Care

It is a trite principle of law that having established a duty of care owed by one, a breach of the same must be proven in order to make out a claim for negligence. Therefore, albeit that the High Court in Yee Teck Fah imposed a duty of care on the company secretary, the claims against the company secretary were ultimately dismissed as the Court found that there was no breach of the said duty of care. The issue then turns on what the standard of care is when determining if a breach of the same has occurred?

It is suggested that this standard of care will be determined with reference to the several guidelines set out by the MAICSA as well as the CCM. Section 241 of the Companies Act 2016 sets out that any person who wishes to act as a company secretary would need to register as one with the Registrar. In fulfilling such registration, the CCM published a guideline entitled “Guidelines Relating to Practising Certificate for Secretaries Under Section 241 of the Companies Act 2016”. Paragraph 28 of these guidelines set out that a company secretary must at all times act honestly and use reasonable diligence in the discharge of his duties. In other words, a company secretary should ensure that such duties are carried out with the knowledge and skill that would be reasonably be expected of someone without the same experience and qualifications as him.

In Yee Teck Fah, the claims against the company secretary were dismissed as the High Court opined that the company secretary had complied with the skill and care reasonably expected of him.

There is nothing to suggest that WNL had not exercised the skill and care expected of him in the adjudication of the Shares, the stamping thereof and the registration of the same.

The Consequence of Yee Teck Fah

At this juncture, a distinction ought to be drawn between the approach of the High Courts in Tan Ban Uu and Yee Teck Fah. Whilst the latter, applied the test in Pushpaleela which was decided in 2019, the former was decided prior. Therefore, the original Caparo test was applied in Tan Ban Uu which set out the “just and equitable” ground, instead of the “policy considerations” ground.

Having met the requirements of foreseeability and proximity, it was on the “just and equitable” ground that the High Court in Tan Ban Uu decided against imposing a duty of care on company secretaries towards individual directors and shareholders.

Presently, in light of Pushpaleela and Yee Teck Fah, there exists a possibility that Courts may arrive at a decision different to that of Tan Ban Uu; one that does impose a duty of care on company secretaries towards individual directors and shareholders, in the absence of policy considerations militating against the same.