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to look at the directors‟ purpose in using the power and not on the effect of
exercising such power. 52 Nevertheless, it is still important that directors exercise
their powers for the benefit of the company. 53 The courts, for instance, have imposed
liability on directors for issuing shares with the aim of enhancing their control over
the company. 54 However, if the directors were to issue more shares for legitimate
commercial purposes, the court would not interfere with the decision. 55
The courts reluctance to interfere in management‟s decisions unless there are
legitimate commercial reasons illustrates the traditional view that it is not the role of
the courts to decide on how the company should be managed. 56 Professor Farrar
cautioned that the concept of non-interference by the courts should be contrasted
with the business judgment rule; while the former relates to the business judgment
doctrine, the latter refers to the presumption that directors will have no liability
provided certain conditions are fulfilled. 57
52 Austin and Ramsay above n26 at [8.200].
53 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, the Privy Council decided that directors
were free to act without consent of the majority but most not do so for the purpose of diluting
majority or creating new majority. In Hogg v Cramphorn Ltd [1967] Ch 254, the court held that if
the issuance of shares is for an improper motive, it would be set aside regardless of whether it was
made with the bona fide belief that it was for the benefit of the company. See also Harlowe’s
Nomines Pty Ltd v Woodside (Lake Entrance))Oil Co No Liability (1968) 121 CLR 483; Dr
Mahesan & Ors v Punnusamay & Ors [1994] 3 MLJ 312; Soo Boon Siong @Saw Boon Siong v
Saw Fatt Seong and Soo Hock Seang *as estate representative Soo Boon Kooi @ Saw Boon Kooy
(deceased) & Ors [2008] 1 MLJ 27.
54 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; Soo Boon Siong @Saw Boon Siong v
Saw Fatt Seong and Soo Hock Seang *as estate representative Soo Boon Kooi @ Saw Boon Kooy
(deceased) & Ors [2008] 1 MLJ 27.
55 Punt v Symons & Co Ltd [1903] 2 Ch 506.
56 See generally and the cases discussed Austin and Ramsay above n26 at [8.060].
57 Farrar above n35 at 149.
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