The Private Higher Educational Institution Act 1996 (Act 555) (the Act) has been in force for more than 25 years, but confusion continues over the relationship between the higher educational institution (the PHEI) and the company that established it. Are they two separate entities or is the PHEI only an extension of the company? Even the courts have faltered on this question.

This article examines the nature of the confusion and its causes and proposes a simple amendment to the Act that would remove the confusion.

The source of the confusion

The confusion stems from the way PHEIs are established. The Act requires a registered company to establish a PHEI.[1] The underlying scheme of the Act is for PHEIs to operate through the agency of the company that establishes it. This is a speedy and efficient alternative way to incorporate PHEIS.

However, once established, the PHEI, often with a name different from that of the company, is the entity that is visible to the world. It is the name of the PHEI that appears on the premises that house the educational activities, not the name of the company. Advertisements on billboards and newspapers display only the name of the institution and are not required to display the name of the company.[2] Documents emanating from the PHEI tend to bear the name of the PHEI and not the company. It is not surprising then that those dealing with the PHEI, whether as students or staff, or even ordinary contractors, think that the PHEI is a legal entity with the capacity to act.

The reality is that the PHEI is not a legal entity. It does not have the legal capacity to contract. Hence it cannot enter any transactions such as employing staff, recruiting students, or purchasing materials or services. It can neither sue nor be sued. All these actions must be carried out through the agency of the company that establishes the PHEI. [3] Any legal action arising from the operations of the institution, such as an action for wrongful dismissal by an employee, must be brought against that company.

Attempt to remedy the flaw

Despite the intended scheme, the Act fails to make explicit the relationship between the company and the institution leading to a general confusion about the status of the PHEI. Different committees appointed over the years to review the Act have recommended a correction of the anomaly, but no action was taken on the matter until the amendments introduced by the Private Higher Educational Institutions (Amendment) Act 2017.

The Amendment Act introduced a new section that attempts in a general way to shift the obligations imposed on the PHEI by the Act to the company establishing the PHEI. The new section 75A reads as follows.

75A. Where the Act requires a private higher educational institution to do or prohibits it from doing something, the obligation to comply is imposed on the company to which approval has been given to establish the private higher educational institution.

With respect, the new section falls short of what is needed to avoid the confusion. It only shifts the burden of statutory obligations from the PHEI to the company. What is needed is a clearer statutory stipulation that the company and the institution it establishes are one.

Court of Appeal’s decision on the point

The practical difficulties that arise from the ambivalence in the provisions of the Act manifested in a line of cases starting with Tai Chooi Yu v Curtin University of Technology Sarawak Campus, Malaysia & Anor.[4]

The company-PHEI relationship was examined more recently by the Court of Appeal in Eagle One Investment Ltd & Others. v. Asia Pacific Higher Learning Sdn. Bhd.[5] This was an action for defamation brought by Asia Pacific Higher Learning Sdn. Bhd. (the company that established Lincoln University College (LUC)) for defamatory statements made against the university college by the appellant in an article that it published. The company was not named in the defamatory statements, hence, one of the issues that the court had to consider was whether the company could sue for defamatory statements made against the PHEI that it established.

The Court of Appeal, after examining the statutory provisions relating to the establishment of Lincoln University College held that the plaintiff company was the registered owner and licence holder of LUC as required under the Act. Hence, any monetary damage suffered by LUC due to the injury to its trade reputation was wholly suffered by the plaintiff.

“Having regard to the peculiar relationship between LUC vis-a-vis the plaintiff, it is our considered view that the (defamatory) article would reasonably lead those acquainted with the plaintiff, such as those in the same business or industry as the plaintiff, LUC's students, would-be students, and other stakeholders would invariably conclude that the impugned article indeed referred to the plaintiff. Likewise, the article would lead to the tendency that people who were acquainted with the plaintiff would come to the conclusion that the article verily referred to the plaintiff.”

The Court of Appeal’s decision in Eagle One Investment Ltd. goes some way in removing the confusion over the company-institution relationship. It decides, for instance, that the company’s relationship with the PHEI is that of a registered owner and licence holder of the PHEI, but it leaves the important question about the status of the PHEI unresolved. The judgment talks about the monetary damage suffered by the PHEI, which cannot be the case because PHEI is not a legal entity. The monetary damage caused to the PHEI can only be suffered by the company.

The Court of Appeal’s decision in Eagle One Investment Ltd. appears not to have been cited in Nalliah David Pragasam v. AIMST Sdn. Bhd.,^[6] where the Industrial Court held that the company and the institution are separate legal entities. In that case, the applicant’s action was for wrongful dismissal from his position as Assistant Bursar at the Asian Institute of Medicine, Science & Technology (AIMST University).

The facts of the case pertinent to this note are that the claimant filed his action against Aimst Sdn Bhd (the Company) which established AIMST University, (the PHEI). The Company contended that the claimant was never its employee, but the employee of AIMST University which it claimed is a separate legal entity from AIMST Sdn Bhd. In support of its contention, it said that the claimant's Letter of Appointment was issued by the university and not the Company. It further contended that each entity was registered under separate Acts - the Company, under the Companies Act 1965, and AIMST University under the Private Higher Educational Institutions Act 1996. The Company, it claimed, is run by a Board of Directors, whereas AIMST University is run by a Board of Governors.

Accepting the company’s arguments, the court held that the Company and AIMST University where the Claimant was employed are two separate entities. The claimant was employed by the university and not the company. The court said the claimant had confused the University with the Company and brought the action against the wrong entity. The court did not consider the question of whether the PHEI had the legal capacity to enter into a contract with the applicant.

The Proposed Amendment

The present confusion will continue unless the Act is amended to make explicit that the company and the PHEI are one. This is already implied in many of the provisions of the Act. For instance, under the establishment provisions in Part III of the Act, the Minister in granting approval to establish a PHEI must be satisfied with the company’s capability of providing educational facilities, setting up a system of governance and maintaining standards of education in the PHEI that it proposes to establish.

Other conditions are imposed on the applicant company once approval is granted by the Minister.^[7] These relate to the paid-up capital of the company, equity participation, and the composition of the board of directors of the company. The company may only alter these matters with the approval of the Registrar General of Private Higher Educational Institutions.

The statutory provisions on the closing down of PHEIs under Part XI of the Act reinforce the position that the company and the PHEI are not separate entities. Under these provisions, a PHEI is required to cease its operations if, among other matters, the board of the company decides to cease its educational operations or if the company is wound up.

Despite poor drafting of the statutory provisions quoted above in terms of the language used, these sections clearly show that the PHEI is not a separate entity distinct from the company establishing it but is part of the company. Section 19 of the Act emphasizes this by restricting the company from entering into any arrangement or agreement to sell, dispose of, reconstruct, or take any action which will affect in any material way ‘its business relating to education’ (emphasis added).

As noted earlier, under Act 555, a PHEI can only be established by a registered company. Act 555 does not incorporate the PHEI as is the case with universities established under the Universities and University Colleges Act 1971 and other legislation establishing institutions of higher education. Instead, the legislative design of Act 555 is to make the PHEI part of the company that establishes it. The company animates the PHEI. There can be no PHEI without the company as the closing down provisions clearly show. The company and the PHEI are one. An analogy can be drawn with banks established under the Banking and Financial Institutions Act 1989 where the term bank is defined as a company carrying on the business of banking. Similarly, the PHEI is a company carrying on the business of higher education as regulated by the Act.

Despite the primary scheme, the Act in many of its sections attempts to regulate the PHEI separately from the company that established it. This is futile because the PHEI does not have the legal status to be regulated except through the company.

The confusion on the status of PHEIS can be corrected by a simple amendment to the current statutory definition of a private higher educational institution in the following terms.

“private higher educational institution” means a company that has established and maintains by whatever name a higher educational institution approved and registered under this Act.

The proposed definition integrates the company and the PHEI and synchronises with the definition of “company” in the Act, which reads as ‘a company incorporated under the Companies Act 1965 establishing a private higher educational institution under this Act.’ The definition will overcome the present confusion that the PHEI is a separate entity from the company establishing it.

A Remaining Issue

This article has only looked at the confusion over the status of the PHEI. There remains another issue, which is the division of powers between the company and the PHEI. This is an issue that has troubled those appointed as Chief Executives to manage PHEIs. Here again, the problem arises from provisions of the Act that are ambivalent as to where power lies with respect to the management of the educational enterprise of the company. This issue will be covered in another article to be published soon.