604 Malayan Law Journal [2015] 11 MLJ

Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor A

HIGH COURT (JOHOR BAHRU) — ORIGINATING SUMMONS NO

24NCVC-45–01 OF 2015
MOHD NAZLAN JC B
25 JUNE 2015

Companies and Corporations — Derivative action — Complainant

— Whether an equal shareholder fell within concept of ‘complainant’ — Whether C
plaintiff must be a minority shareholder in order to institute derivative action
— Companies Act 1965 s 181A(4)(c)

Companies and Corporations — Derivative action — Petition under s 181 of the D

Companies Act 1965 — Whether an equal shareholder can be a ‘complainant’
under s 181A(4)(c) of the Companies Act 1965 — Test to establish good faith
— Whether good faith established — Whether presence of private interest negates
good faith — Conduct of co-director inconsistent with his fiduciary duties
— Credible allegations of misconduct or conflict situations — Whether derivative E
action having reasonable prospect of success — Whether derivative action was
prima facie in the best interest of the company — Whether derivative action can
only be commenced if insider benefits from wrong done to the company — Whether
derivative action may be instituted against third party wrongdoer — Companies
F
Act 1965 ss 181A & 181B

Companies and Corporations — Indoor management rule — Rule in Turquand’s

case — Whether applicable to person who is aware of non-compliance with
internal procedures G

The plaintiff and the second defendant were directors and equal shareholders
in the first defendant company. Tan Wei Rong, the son of the second defendant
owned a piece of land (‘TWR land’) located adjacent to a piece of land owned
by the first defendant (‘first defendant’s land’). Tan Wei Rong (‘Tan’) had been H
negotiating with China State Construction Engineering (M) Sdn Bhd (‘CSC’)
to rent out the TWR Land. Given that access to TWR Land was through the
first defendant’s land, and since CSC required larger space, Tan suggested that
the first defendant’s land be rented to CSC as well. The plaintiff and the second
defendant agreed with the suggestion provided the interest of the first I
defendant be safeguarded in any such transaction. The solicitors were
instructed to prepare a draft tenancy agreement. On 17 September 2014, Tan
entered into a tenancy agreement with CSC in respect of both TWR Land and
the first defendant’s land, the latter by way of a subtenancy in Tan’s capacity as
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 605

A its purported tenant, notwithstanding the absence of a written tenancy

agreement between the first defendant and Tan. CSC was then given access to
the first defendant’s land. The plaintiff thus commenced this application for
leave under s 181A of the Companies Act 1965 (‘the Act’) to bring a statutory
derivative action on behalf of the first defendant company, against CSC and
B Tan. The plaintiff claimed that CSC and Tan had trespassed into the first
defendant’s land, causing losses to the first defendant. The second defendant
had refused to cooperate with and assist the plaintiff to protect the first
defendant and prevent the first defendant from incurring losses as a
consequence of the actions and conduct of CSC and Tan. The plaintiff claimed
C
that the second defendant had failed in his duty as a director of the first
defendant by putting personal interest before the interest of the first defendant.
No income or profits had thus far accrued to the first defendant from the
exploitation and unlawful occupation of the first defendant’s land by CSC and
D Tan. The plaintiff claimed that he had been prevented from initiating legal
proceedings in the name of the first defendant.

Held, allowing the application with costs of RM1,000:

(1) The first question to be determined was whether the plaintiff fell within
E the concept of a ‘complainant’ who sought leave to bring an action on
behalf of and in the name of the company, as described under s 181A(4)
of the Act. The plaintiff as a director of the first defendant company
fulfilled the requirement of s 181A(4)(c) which refers to any director of a
company (see para 32).
F
(2) The plaintiff had on balance of probabilities established good faith in
accordance with s 181B(4)(a). The plaintiff honestly believed that a good
cause of action existed and had a reasonable prospect of success. There
was no evidence that the intended suit was instituted for a collateral
G purpose (see para 50).
(3) The presence of a private interest cannot necessarily negate good faith if
the same coincides with that of the company, especially given the
shareholding structure of the company, and equally importantly, whether
H an analysis of the entire circumstances of the case establishes other
evidence to suggest otherwise (see para 51).
(4) Tan could not rely on the Turquand Rule on indoor management and
assumed the first defendant had validly authorised him to enter into the
tenancy with CSC since he would have been aware from his own active
I
involvement in the discussion, as well as through his father, being the
second defendant, that the only other director and 50% shareholder of
the first defendant (namely, the plaintiff ) had not given his consent (see
para 56).
606 Malayan Law Journal [2015] 11 MLJ

(5) The second defendant did not appear to demonstrate a conduct A

consistent with that expected of a responsible director and fiduciary of a
company when facing the situation, choosing instead for a deadlock and
worse still favouring a position that could expose himself to an allegation
of breach of duty for conflict of interest (see para).
B
(6) Given the absence of a valid tenancy agreement between the first
defendant and Tan for the first defendant’s land, the latter’s entry into the
tenancy agreement with CSC on that very same property, coupled with at
the very least, an acquiescing role played by the second defendant,
represented to the plaintiff a reasonable prospect of the plaintiff ’s claim C
on behalf of the first defendant being successful. Principally, the cause of
action would likely be one on the tort of trespass to land (see para 59).
(7) The usual disinclination of the courts to interfere in the exercise of a
company’s commercial discretion and business judgment would become D
secondary when there are credible allegations of misconduct or conflict
situations. Nor did the second defendant suggest the presence of any basis
which could militate against the first defendant pursuing the action such
that it would not be in the best interest of the first defendant to do so,
other than the contention about the loss of rental from CSC. The E
plaintiff had shown that instituting the derivative action was prima facie
in the best interest of the first defendant (see para 65).
(8) Ultimately, the question to be asked is whether, based on the facts of each
particular case, the complainant, being a shareholder (with either a
minority or a majority ownership) is able to get the company to take F
action to seek redress for the wrong done to the company, as perpetuated
or facilitated by an insider in a position of influence or control. Therefore,
it is strictly not necessary for a plaintiff to be a minority shareholder in
order to institute s 181A of the Act. It is also not necessarily the case that
an action under s 181A can only be taken if the insider benefits from the G
wrong done to the company (see paras 71–72).
(9) It is not a legal requirement under s 181A derivative action that the
insider in default must be a party to be sued by the plaintiff on behalf of
the company (see para 74). H
(10)A derivative action under s 181A may be instituted even against a third
party wrongdoer if the wrong arises from the default of an insider. The
trespass by Tan and CSC was made possible by the breach of fiduciary
duty (or at least of a duty of care) on the part of the second defendant, a
director of the company. As such, in addition to the fulfillment of the I
requirements for leave under ss 181A and 181B, the derivative action by
the plaintiff, on behalf of the first defendant company, may be
commenced against Tan and CSC, both being third parties who allegedly
committed trespass against the first defendant company given the
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 607

A offending role of the insider second defendant who had preferred taking
an acquiescing stance in the face of the trespass but who was himself not
being sued (see paras 80–81).

[Bahasa Malaysia summary

B Plaintif dan defendan kedua adalah pengarah dan pemegang saham sama rata
dalam syarikat defendan pertama. Tan Wei Rong, anak lelaki defendan kedua
memiliki sebidang tanah (‘tanah TWR’) yang terletak bersebelahan dengan
sebidang tanah yang dimiliki oleh defendan pertama (‘tanah defendan
pertama’). Tan Wei Rong (‘Tan’) telah berunding dengan China State
C
Construction Engineering (M) Sdn Bhd (‘CSC’) untuk menyewakan tanah
tanah TWR. Memandangkan akses kepada tanah TWR adalah melalui tanah
defendan pertama, dan kerana CSC memerlukan ruang yang lebih besar, Tan
mencadangkan agar tanah defendan pertama turut disewakan kepada CSC.
D Plaintif dan defendan kedua bersetuju dengan cadangan yang diberikan
dengan syarat kepentingan defendan pertama terpelihara dalam apa-apa
transaksi berkaitan. Peguam-peguam cara diarahkan untuk menyediakan draf
perjanjian penyewaan. Pada 17 September 2014, Tan memasuki satu
perjanjian penyewaan dengan CSC bagi kedua-dua TWR Land dan tanah
E defendan pertama, iaitu tanah defendan pertama melalui subtenancy dalam
kapasiti Tan sebagai penyewa, tanpa mengambil kira perjanjian penyewaan
bertulis antara defendan pertama dan Tan. CSC diberikan akses kepada tanah
defendan pertama. Dengan itu, plaintif memulakan permohonan ini untuk
mendapatkan kebenaran di bawah s 181A Akta Syarikat 1965 (‘Akta’) untuk
F membawa tindakan terbitan berkanun bagi pihak syarikat defendan pertama,
terhadap CSC dan Tan. Plaintif mendakwa CSC dan Tan telah menceroboh
masuk tanah defendan pertama dan menyebabkan kerugian kepada defendan
pertama. Defendan kedua enggan memberikan kerjasama dan membantu
plaintif untuk melindungi defendan pertama dan menghalang defendan
G pertama daripada menanggung kerugian akibat tindakan CSC dan Tan.
Plaintif mendakwa bahawa defendan kedua gagal dalam tugasnya sebagai
pengarah defendan pertama dengan mengutamakan kepentingan peribadinya
sendiri berbanding kepentingan defendan pertama. Tiada pendapatan atau
keuntungan yang terakru setakat ini terhadap defendan pertama berdasarkan
H eksploitasi dan penghunian haram tanah defendan pertama oleh CSC dan Tan.
Plaintif mendakwa bahawa dia dihalang daripada memulakan prosiding
undang-undang atas nama defendan pertama.

Diputuskan, membenarkan permohonan dengan kos sebanyak RM1,000:

I (1) Soalan pertama yang perlu diputuskan ialah sama ada plaintif terjumlah
di bawah konsep ‘pengadu’ yang memohon kebenaran untuk membawa
tindakan bagi pihak dan atas nama syarikat, seperti yang dinyatakan di
bawah s 181A (4) Akta. Plaintif, sebagai pengarah syarikat defendan
pertama, memenuhi keperluan s 181A(4)(c) yang merujuk kepada
608 Malayan Law Journal [2015] 11 MLJ

mana-mana pengarah syarikat (lihat perenggan 32). A

(2) Plaintif telah, atas imbangan kebarangkalian, membuktikan niat baik di
bawah s 181B(4)(a). Plaintif secara jujurnya percaya bahawa terdapat
satu kausa tindakan dan mempunyai prospek yang munasabah untuk
berjaya. Tidak ada bukti bahawa guaman yang dicadangkan telah B
dimulakan bagi tujuan cagaran (lihat perenggan 50).
(3) Kewujudan kepentingan peribadi tidak semestinya menafikan niat yang
baik jika ia bertepatan dengan syarikat tersebut, terutamanya sekiranya
struktur pegangan saham syarikat tersebut, dan sama penting, sama ada
analisis keseluruhan hal keadaan kes itu membuktikan keterangan lain C
untuk mencadangkan sebaliknya (lihat perenggan 51).
(4) Tan tidak boleh bergantung kepada Peraturan Turquand mengenai
pengurusan dalaman dan mengandaikan defendan pertama telah
memberikannya kuasa yang sah untuk memasuki penyewaan dengan D
CSC kerana dia pasti sedar bahawa penglibatan aktifnya dalam
perbincangan, serta melalui bapanya, iaitu defendan kedua, bahawa
satu-satunya pengarah dan pemegang saham 50% defendan pertama
(iaitu, plaintif ) tidak memberikan persetujuannya (lihat perenggan 56).
(5) Kelihatan bahawa defendan kedua tidak menunjukkan tindakan yang E
konsisten yang diharapkan daripada seorang pengarah yang
bertanggungjawab dan fidusiari syarikat apabila menghadapi keadaan
sebegini, malah sebaliknya memilih jalan buntu dan lebih teruk lagi,
memihak kedudukan yang boleh mendedahkan dirinya kepada dakwaan
pelanggaran kewajipan bagi konflik kepentingan (lihat perenggan 58). F
(6) Melihatkan pada ketiadaan perjanjian penyewaan yang sah antara
defendan pertama dan Tan bagi tanah defendan pertama, penyertaan Tan
dalam perjanjian penyewaan dengan CSC ke atas harta tersebut,
ditambah dengan, paling kurang, peranan akuiesens yang dimainkan G
oleh defendan kedua, memberikan representasi kepada plaintif akan
prospek munasabah bahawa tuntutan plaintif bagi pihak defendan
pertama akan berjaya. Secara prinsipnya, kausa tindakan yang mungkin
adalah tort pencerobohan terhadap tanah (lihat perenggan 59).
(7) Keberatan mahkamah untuk campur tangan dalam menjalankan kuasa H
budi bicara penghakimannya terhadap perdagangan dan perniagaan
komersil syarikat menjadi sekunder apabila terdapat dakwaan salah laku
atau konflik situasi yang boleh dipercayai. Defendan kedua juga tidak
mencadangkan kewujudan apa-apa alasan yang boleh dimitigasikan
terhadap defendan pertama yang bahawa pemulaan tindakan itu I
bukanlah sesuatu yang terbaik buat kepentingan defendan pertama,
selain daripada hujahan tentang kerugian sewa daripada CSC. Plaintif
telah menunjukkan bahawa mengambil tindakan terbitan adalah prima
facie demi kepentingan defendan pertama (lihat perenggan 65).
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 609

A (8) Secara asasnya, persoalan yang timbul adalah sama ada, berdasarkan fakta
setiap kes tertentu, pengadu, sebagai pemegang saham (sama ada
minoriti atau majoriti) mampu memastikan syarikat mengambil
tindakan untuk membetulkan kesalahan yang dilakukan terhadap
syarikat, seperti yang dilakukan atau dibantu oleh orang dalam yang
B mempunyai kedudukan berpengaruh atau boleh mengawal. Oleh itu,
tiada keperluan langsung untuk plaintif menjadi pemegang saham
minoriti untuk memulakan s 181A Akta. Tidak semestinya tindakan di
bawah s 181A hanya boleh diambil jika orang dalam memanfaatkan
daripada kesalahan yang dilakukan terhadap syarikat itu (lihat perenggan
C
71–72).
(9) Bukanlah satu keperluan undang-undang di bawah tindakan derivatif
s 181A bahawa orang dalam yang ingkar perlu menjadi pihak yang
disaman oleh plaintif bagi pihak syarikat (lihat perenggan 74).
D
(10)Suatu tindakan terbitan di bawah s 181A boleh dimulakan walaupun
terhadap seorang pesalah pihak ketiga jika kesalahan tersebut timbul
daripada keingkaran orang dalam. Pencerobohan oleh Tan dan CSC
berlaku akibat pelanggaran kewajipan fidusiari (atau
E sekurang-kurangnya tugas berhati-hati) di pihak defendan kedua,
seorang pengarah syarikat. Oleh itu, di samping memenuhi keperluan
untuk mendapatkan kebenaran di bawah ss 181A dan 181B, tindakan
terbitan oleh plaintif, bagi pihak syarikat defendan pertama, boleh
dimulakan terhadap Tan dan CSC, kedua-dua pihak ketiga yang
F didakwa melakukan pencerobohan terhadap syarikat defendan pertama
melihatkan pada peranan bersalah orang dalam defendan kedua yang
memilih untuk akur dalam menangani pencerobohan, tetapi dirinya
sendiri tidak disaman (lihat perenggan 80–81).]]]]]

G Notes
For cases on derivative action in general, see 3(1) Mallal’s Digest (5th Ed, 2015)
paras 156–177.
For cases on indoor management rule in general, see 3(1) Mallal’s Digest (5th
Ed, 2015) paras 479–487.
H
Cases referred to
Abdul Rahim bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd & Ors [1995]
3 MLJ 417; [1995] 4 CLJ 551, CA (refd)
Ang Thiam Swee v Low Hian Chor [2013] 2 SLR 340, CA (refd)
I Celcom (M) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 636; [2010] 7 CLJ 808,
CA (refd)
Dato Suhaimi Ibrahim & Ors v Hi Summit Construction Sdn Bhd &
Anor [2013] 1 LNS 203, HC (refd)
Foss v Harbottle (1843) 67 ER 189 (refd)
610 Malayan Law Journal [2015] 11 MLJ

Hengwell Development Pte Ltd v Thing Chiang Chin & Ors [2002] 4 SLR 902, A
HC (refd)
Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd [2013] 7 MLJ
831; [2012] 2 AMR 521, HC (refd)
Ontario Ltd v Bernstein [2000] OTC Lexis 3480 (folld)
Pang Yong Hock and another v PKS Contracts Services Pte Ltd [2004] SGCA 18, B
CA (refd)
Pavlides v Jensen [1956] Ch 565, Ch D (refd)
Primex Investments Ltd v Northwest Sports Enterprise Ltd [1995] Can LII 717,
SC (refd)
C
S Vigneswaran M Sanasee v Maju Institute of Educational Development (MIED)
(No 2) [2011] 2 CLJ 678, HC (refd)
Swansson v RA Pratt Properties Pty Ltd & Anor [2002] NSWSC 583, SC (refd)
Teh Swee Lip v Jademall Holdings Sdn Bhd [2013] 6 MLJ 32; [2014] 8 CLJ 451,
CA (refd)
D
United Copper Securities et al v Amalgamated Copper Co et al 244 US 261
(1917), SC (folld)
Wong Kai Wah v Wong Kai Yuan & Anor [2014] SGHC 147, HC (refd)
Iesini & Others v Westrip Holdings Ltd and others [2009] EWHC 2526, Ch D
(refd)
E
Legislation referred to
Companies Act 1965 ss 128, 131B(1), 181A, 181A(1), (4), (4)(a), (4)(c),
181B, 181B(4), (4)(a), 181C, 181D, 181E
Companies Act [SG] ss 216A , (3)(b), (3)(c)
F
Companies Act 2006 [UK] s 261(3), Part 17
Contracts Act 1950 s 2
Canada Business Corporations Act [CAN] s 239
Corporations Act 2001 [AU] ss 236, 237, Part 2F.1A
Malaysian Code on Take-Overs & Mergers s 20(1)
G
Sofian Shamsudin (NG Vinod and Rifhan Ili bt Roslan with him) (Tam Cheng
Yau & Co) for the plaintiff.
LM Looi (Wee Lee and Izatty Maria with him) (Dennis Nik & Wong) for the
second defendant.
H
Mohd Nazlan JC:

INTRODUCTION

[1] This case concerns an application by the plaintiff by way of an I

originating summons dated 21 January 2015, for leave under s 181A of the
Companies Act 1965, to bring a statutory derivative action on behalf of
Fortune Frontier (M) Sdn Bhd, being the first defendant company, against
China State Construction Engineering (M) Sdn Bhd (‘China State
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 611

A Construction’) and one Tan Wei Rong.

[2] I heard the application on 28 May 2015 and gave my decision to grant
leave on 25 June 2015. This is my judgment, setting out the full reasons for my
decision on the application which involves a number of important points on
B the scope of ss 181A and 181B of the Companies Act 1965.

SALIENT BACKGROUND FACTS

[3] The plaintiff and the second defendant equally own the locally
C
incorporated first defendant company, by virtue of the single share held by
each, both of whom are also the only directors on the board of the first
defendant company, with a paid up capital of RM2.

D [4] Tan Wei Rong, the son of Tan Boon Leong, the second defendant, is the
owner of a landed property under Geran Mukim 967, Lot 1737 Mukim Pulai,
District of Johor Bahru (‘TWR land’), which location is adjacent to a landed
property owned by the first defendant, held under HSM 181, Lot 1363,
Mukim Pulai, District of Johor Bahru (‘first defendant’s land’).
E
[5] Tan Wei Rong had been negotiating with China State Construction to
rent out TWR land. Given that access to TWR land is through the first
defendant’s land, and since China State Construction required larger space to
house their workers, set up operations site office and store machineries, Tan
F Wei Rong suggested that the first defendant’s land be rented to China State
Construction as well.

[6] The plaintiff and the second defendant, being directors of the first
G defendant, agreed with the suggestion, provided the interest of the first
defendant be safeguarded in any such transaction. The directors then agreed
that Tan Wei Rong instruct Messrs Dennis Nik & Wong to draft a tenancy
agreement for the purpose.

H [7] Dissatisfied with the draft by Messrs Dennis Nik & Wong, the plaintiff
instructed Messrs Woon Wee Yuen & Partners to prepare a new draft tenancy
agreement.

[8] On 17 September 2014, Tan Wei Rong entered into a tenancy

I agreement with China State Construction in respect of both TWR land and
the first defendant’s land, the latter by way of a sub-tenancy in Tan Wei Rong’s
capacity as its purported tenant, notwithstanding the absence of a written
tenancy agreement between the first defendant and Tan Wei Rong.
612 Malayan Law Journal [2015] 11 MLJ

GROUNDS FOR LEAVE APPLICATION A

[9] The grounds for the application are stated to be as follows:

(a) China State Construction and Tan Wei Rong had trespassed into the
first defendant’s land, causing losses to the first defendant. It is of B
relevance to mention that Tan Wei Rong is not a present or past member
of the board of the first defendant;
(b) the second defendant, despite being a director and 50% shareholder of
the first defendant, had refused to cooperate with and assist the plaintiff
C
to protect the first defendant and prevent the first defendant from
incurring losses as a consequence of the actions and conduct of China
State Construction and Tan Wei Rong;
(c) the second defendant had failed in his duty as a director of the first
defendant by putting personal interest before the interest of the first D
defendant, by way of in effect, preventing the first defendant from
pursuing legal action against China State Construction and Tan Wei
Rong, who is the second defendant’s own son;
(d) no income or profits had thus far accrued to the first defendant from the E
exploitation and unlawful occupation of the first defendant’s land by
China State Construction and Tan Wei Rong;
(e) there was no resolution of the board of directors of the first defendant
authorising the first defendant or any other representative to deal with F
China State Construction and Tan Wei Rong in respect of the first
defendant’s land on behalf of the first defendant; and
(f) plaintiff has therefore been prevented from initiating legal proceedings
in the name of the first defendant.
G
[10] The second defendant counterclaimed against the plaintiff, mainly in
seeking a declaration that there is a valid tenancy agreement between the first
defendant and Tan Wei Rong in respect of the first defendant’s land.

THE PLAINTIFF’S CONTENTIONS H

[11] The plaintiff contended that the terms contained in the draft tenancy
agreement prepared by the law firm appointed by the plaintiff, Messrs Woon
Wee Yuen were not agreed to by the second defendant and Tan Wei Rong, and I
whilst negotiations on the terms of the intended tencancy between the first
defendant and Tan Wei Rong in respect of the first defendant’s land were in
progress, and despite the plaintiff not having given his agreement on the same,
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 613

A Tan Wei Rong had executed the tenancy agreement with China State
Construction on 17 September 2014, giving access of the first defendant’s land
to the latter.

[12] The plaintiff argued that the second defendant and his son, Tan Wei
B Rong had colluded to benefit themselves at the expense of the interest of the
first defendant, whereby the first defendant’s land had been agreed by Tan Wei
Rong to be rented at a lower rate than in respect of TWR land to the same
tenant. Further, it was alleged that China State Construction is presently
paying rental to Tan Wei Rong, whilst the first defendant has not been receiving
C
any rental payments.

[13] The plaintiff contended that given the inaction of the second
defendant, he had instructed the company secretary of the first defendant to
D convene a Board of Directors’ meeting of the first defendant. There was no
response from the company secretary. Neither was there any reply when the
plaintiff ’s solicitors, Messrs Tam Cheng Yau & Co wrote in their letter of
11 November 2014 to the company secretary to issue notice for an
extraordinary general meeting of the first defendant be convened to discuss the
E alleged trespass and unlawful occupation by China State Construction on the
first defendant’s land.

[14] The plaintiff ’s solicitors’ letter to China State Construction dated

10 November 2014 on the alleged trespass by the latter on the first defendant’s
F land also went unanswered.

[15] The plaintiff did receive a letter dated 15 November 2014 from Messrs
Dennis Nik & Wong, solicitors for the second defendant (in reply to the
G plaintiff ’s letter of 10 November 2014) alleging that the plaintiff had agreed to
the renting of the first defendant’s land and that the transaction had been
pursued with the agreement of the plaintiff. The plaintiff, through his lawyers
responded in their letter of 18 November 2014, denying the allegations by the
second defendant, refusing to retract his earlier letter of 10 November 2014
H and giving notice that leave application under s 181A of the Companies Act
1965 would be filed.

[16] The plaintiff accordingly sought leave be granted by this court to enable
the first defendant initiate proceedings against parties he deemed responsible
I for the trespass and the unlawful occupation and use of the first defendant’s
land, namely Tan Wei Rong and China State Construction, following the
refusal of the second defendant, being the only other director of the first
defendant to cooperate, thus at the same time allegedly participated in the
wrong perpetuated against the first defendant.
614 Malayan Law Journal [2015] 11 MLJ

THE SECOND DEFENDANT’S CONTENTIONS A

[17] The second defendant contended that the first defendant had, since the
purchase of the first defendant’s land on 10 January 1995 been trying without
success to rent out the first defendant’s land, even at low monthly rentals of
between RM2,000 and RM5,000. A subsequent rental to a fish pond business B
also proved unsuccessful.

[18] That on 7 May 2014, two business middlemen approached the second
defendant, proposing that the first defendant rent the first defendant’s land to
China State Construction at RM26,000 monthly on condition that C
RM12,000 out of the monthly rental be paid to the middlemen as
commissions.

[19] The proposal was informed to the plaintiff and to facilitate D

negotiations, the plaintiff agreed with the suggestion to consider renting the
first defendant’s land to Tan Wei Rong and thus allegedly authorised Tan Wei
Rong to negotiate with China State Construction because Tan Wei Rong was
then already seeking to let his own TWR land, being adjacent to the first
defendant’s land, to China State Construction. E

[20] The second defendant further contended that during the months of
July and August 2014, discussions on the draft tenancy agreement took place
involving the plaintiff, and even though Messrs Dennis Nik & Wong prepared
the first draft, the second defendant agreed with the plaintif ’s request for F
Messrs Woon Wee Yuen & Partners to act for the first defendant and prepare a
new draft tenancy agreement instead.

[21] The parties then agreed that the tenancy agreement between the first
defendant and Tan Wei Rong for the first defendant’s land would be finalised G
by Messrs Woon Wee Yuen. In October 2014, Messrs Woon Wee Yuen
enclosed a draft containing the agreed principal terms, and Tan Wei Rong
suggested a number of comments which were not objected to by the second
defendant.
H
[22] The second defendant thus contended that the plaintiff, having been
involved in the negotiations, had knowledge of the same and had orally agreed
with the material terms of the tenancy agreement prepared by the plaintiff ’s
own solicitors, in respect of the first defendant’s land and that execution of the
same would therefore be a mere formality. I
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 615

A [23] That the crux of the plaintiff ’s dissatisfaction is the rental amount of
payment from China State Construction, specifically on the distribution of the
same as between the first defendant and Tan Wei Rong in respect of their
respective lands. The plaintiff contended the rental for the first defendant’s land
was inequitable and in any event lower than that agreed with China State
B Construction for TWR land. The second defendant refuted this, claiming that
the rental for the first defendant land was higher than for the TWR land and
that in fact the former was even higher than what it ought to have been if the
total per square feet of the respective lands was taken into account.
C
[24] The tenancy agreement dated 17 September 2014 between Tan Wei
Rong and China State Construction had been made aware to the plaintiff. Yet
the plaintiff issued a trespass notice to China State Construction on
10 November 2014 even though the principal terms between the first
D defendant and Tan Wei Rong had been finalised.

[25] The second defendant contended that the plaintiff ’s initial denial of
knowing one of the middlemen (subsequently, effectively retracted and
clarified after the filing of a statutory declaration by one of the said middlemen)
E as well as the plaintiff ’s subsequent stance, after the issuance of the trespass
notice to China State Construction, that the plaintiff would only be agreeable
to rent the first defendant’s land for a much higher rental as stated in a
handwritten note furnished by the plaintiff ’s son, showed that the plaintiff was
not acting in good faith, especially when the draft tenancy agreement had been
F drafted on plaintiff ’s own instructions.

[26] The negotiations involving the plaintiff even agreed with the plaintiff ’s
decision to not proceed with the earlier suggestion for the first defendant to
grant a power of attorney to China State Construction.
G
THE LAW ON DERIVATIVE ACTION

[27] The well established common law ‘proper plaintiff ’ rule in the case of
Foss v Harbottle (1843) 67 ER 189 (‘Foss Harbottle’) provides that the courts
H will not interfere in matters concerning the internal management of a company
and it is for the majority members to decide on the conduct of the affairs of the
company. Thus, if a company suffers a wrong, prima facie it is the company
itself that should institute an action to remedy the wrong done to it, and not
any of its shareholders, as the company is a separate legal entity from its
I members. In the Malaysian case of Abdul Rahim bin Aki v Krubong Industrial
Park (Melaka) Sdn Bhd & Ors [1995] 3 MLJ 417; [1995] 4 CLJ 551, the Court
of Appeal clarifies further the application of the rule in Foss v Harbottle and the
limited common law exceptions to the same developed over the years, allowing
minority shareholders to institute proceedings, such as in respect of ultra vires
616 Malayan Law Journal [2015] 11 MLJ

act which cannot in any event be confirmed by the majority and where there is A
fraud on the minority by the wrongdoer in control. These two and other
exceptions are forms of derivative actions. A derivative action is thus one
instituted by a member of a company premised on a cause of action belonging
to the company instead of that of the member.
B
[28] The provisions on statutory derivative action embodied in
ss 181A–181E of the Companies Act 1965, having come into force on
15 August 2007, are designed to make it possible for a shareholder to overcome
the limitations of the common law derivative actions. Section 181A however
expressly provides that the right to bring a common law derivative action is not C
abrogated.

[29] Given their importance to this application for leave by the plaintiff, the
entirety of ss 181A and 181B are set out hereunder:
D
Section 181A Proceedings on behalf of a company
(1) A complainant may, with the leave of the Court, bring, intervene in or
defend an action on behalf ot the company.
(2) Proceedings brought under this section shall be brought in the company’s
name. E

(3) The right of any person to bring, intervene in, defend of discontinue any
proceedings on behalf of a company at common law is not abrogated.
(4) For the purposes of this section and sections 181B and 181E,
‘complainant’ means:- F
(a) A member of a company, or a person who is entitled to be registered
as member of a company;
(b) A former member of a company if the application relates to
circumstances in which the member ceased to be a member; G
(c) Any director of a company; or
(d) The Registrar, in case of a declared company Under Part IX.
Section 181B Leave of Court
(1) An application for leave of the Court under section 181A shall be made by H
originating summons and no appearance need to be entered.
(2) The complainant shall give thirty days notice in writing to the directors of
his intention to apply for the leave of Court under section 181A.
(3) Where leave has been granted pursuant to an application under section I
181A, the complainant shall initiate proceedings in Court within thirty
days from the grant of leave.
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 617

A (4) In deciding whether or not leave shall be granted the Court shall take into
account whether:-
(a) The complainant is acting in good faith; and
(b) It appears prima facie to be in the best interest of the company that
B the application for leave be granted.

[30] The leading case in Malaysia on the interpretation and application of

ss 181A and 181B is the decision of the Court of Appeal in Celcom (M) Bhd
v Mohd Shuaib Ishak [2011] 3 MLJ 636; ; [2010] 7 CLJ 808 (‘Celcom’). In
C overturning the decision of the High Court which had granted leave to the
complainant, the judgment of the Court of Appeal set a higher threshold for
the statutory derivative action in this country. Abdull Hamid Embong JCA (as
His Lordship then was) in his judgment for the Court of Appeal explained as
follows:
D The intention of ss 181A to E of the CA is to enable a member, present or past, to
seek leave to bring an action in the name of the company to recover losses sustained
by that company. As such, leave to bring a derivative action must not be given lightly
(see Swansson v RA Pratt Properties Pty Ltd & Anor [2002] NSWSC 583). Thus,
once leave is granted the defendants in this case cannot revisit the issue on the grant
E of leave. Granting leave is therefore final in that sense and not interlocutory in
character. In this respect, the learned judge was wrong in stating cursorily that the
matter before him was ‘only an application for leave’ and relying on the low
threshold used under O 53 RHC (application for judicial review) ie to determine if
an application for judicial review is not frivolous or vexatious by relying on cases like
Clear Water Sanctuary Golf Management Bhd v Ketua Pengarah Perhubungan
F Perusahaan & Anor [2007] 6 MLJ 446. The learned judge must as a matter of
judicial prudence exercise a greater caution in satisfying himself that the
requirements under s 181A of the CA are met. A low threshold of merely
determining if there existed a prima facie case is therefore a wrong basis for granting
the leave. There needs to be a strict interpretation of s 181A of the CA, and
G compliance to those statutory requirements (see Charlton v Baber 21 ACIC 1671).

[31] I shall now examine the provisions of ss 181A and 181B and determine
whether the case for leave has been properly established.
H ANALYSIS OF FACTS AND APPLICATION OF THE LAW

Question 1: Is the plaintiff a ‘complainant’ under s 181A?

[32] The first question to be determined is whether the plaintiff falls within
I the concept of a ‘complainant’ who seeks leave to bring an action on behalf of
and in the name of the company, as described under s 181A(4) of the Act. The
plaintiff submitted that as a director of the first defendant company, he fulfils
the requirement of s 181A(4)(c) which refers to ‘any director of a company’. I
find this acceptable but consider it even more compelling if the plaintiff had
618 Malayan Law Journal [2015] 11 MLJ

also contended that he also meets the criterion under s 181A(4)(a) which refers A
to ‘a member of a company’ since the plaintiff is a 50% registered shareholder
of the first defendant, and taking into account the whole raison d’etre of
statutory derivative action which is the empowerment of shareholding-related
interest, permitting a minority shareholder to institute action on behalf of the
company. B

Question 2: Is the plaintiff acting in good faith under section 181B(4)(a)?

[33] The essence of the concept of good faith has been explained in Celcom.
The relevant passage reads as follow: C
The second crucial requirement for the determination of the court in granting leave
is the need for the respondent to show that he was acting in good faith in making
this application (s 181B(4)(a)). The onus of proof here is on the respondent on a
balance of probabilities. The test of good faith is two-fold. One is an honest belief
on the part of the respondent, and two, that this application is not brought up for D
a collateral purpose.

[34] In stating the above test, the Court of Appeal followed the formulation
expressed by the Australian case of Swansson v RA Pratt Properties Pty Ltd &
E
Anor [2002] NSWSC 583. Abdull Hamid Embong JCA (as His Lordship then
was) further stated as follows:
This second requirement will depend on the factual circumstances which comes
before the court. This was stated by Palmer J in Swansson, with these words:
Nevertheless, in my opinion, there are at least two interrelated factors to which F
the courts will always have regard in determining whether the good faith
requirement of s 237(2)(b) is satisfied. The first is whether the applicant honestly
believes that a good cause of action exists and has a reasonable prospect of
success. Clearly, whether the applicant honestly holds this belief would not
simply be a matter of bald assertion: the applicant may be disbelieved if no G
reasonable person in the circumstances could hold that belief. The second factor
is whether the applicant is seeking to bring the derivative suit for such a collateral
purpose as would amount to an abuse of process.

[35] It is therefore clear that to establish good faith, the questions to be asked H
in the instant case are the following:
(a) whether the plaintiff honestly believes that a good cause of action exists
and that it has a reasonable prospect of success; and
(b) whether the plaintiff is seeking to bring the derivative suit for such a I
collateral purpose as would amount to an abuse of process.
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 619

A I should also add an observation, since this is not mentioned in Celcom, that the
Court of Appeal’s reliance on Australian precedents is by reason of the
similarities in the legislative provisions on derivative actions found in ss 236
and 237 of the Corporations Act to the Malaysian provisions in ss 181A and
181B. The relevant provisions are as follows:
B
Australian Corporations Act
Section 237(2) The Court must grant the application if it is satisfied that:
(a) It is probable that the company will not itself bring the proceedings, or
properly take responsibility for them, or for the steps in them;
C
(b) The applicant is acting in good faith;
(c) It is in the best interests of the company that the applicant be granted
leave;
(d) If the applicant is applying for leave to bring proceedings – there is a
D serious question to be tried; and
(e) Either:
(i) At least 14 days before making the application, the applicant gave
written notice to the company of the intention to apply for leave
E and of the reasons for applying; or
(ii) It is appropriate to grant leave though subparagraph (i) is not
satisfied.

F [36] In Celcom, the plaintiff, as a former member of Celcom applied for leave
to sue the directors of Celcom, the ultimate holding company of Celcom,
namely Telekom Malaysia Bhd (‘TM’), Telekom Enterprise Sdn Bhd (‘TESB’),
as well as the directors of both TM and TESB. The plaintiff sought to recover
the alleged loss and damages for the breach of an agreement between Celcom
G and De Te Asia GmbH purportedly caused by the directors of Celcom by
Celcom entering into an agreement with TM, resulting in the issuance of new
Celcom shares, all without the approval of De Te Asia GmbH.

[37] The Court of Appeal found that the decision of a committee of

H independent directors of Celcom formed to decide on the transaction with TM
had been an exercise of a prudent business judgment and a commercial
decision of the directors, and that the plaintiff did not allege that the
independent directors had conspired with TM. The Court of Appeal thus held
that the proposed action by the plaintiff did not have any reasonable prospect
I of success.
620 Malayan Law Journal [2015] 11 MLJ

[38] In addition, in Celcom, the plaintiff had commenced a personal action A

which was virtually identical to the derivative action and with exactly the same
reliefs being sought. The Court of Appeal found that there was an
inconsistency in the conduct of the plaintiff since in the personal action the
plaintiff was pursuing against Celcom for damages whilst at the same time in
the derivative proceedings, the plaintiff was attempting to recover on behalf of B
Celcom. The Court of Appeal was of the view that the plaintiff ’s action was
suspect and that he was merely advancing his own interest. It was thus held that
the plaintiff was not acting in good faith and leave ought not to have been
granted.
C
[39] The intended action by the plaintiff in Celcom was based on allegations
of breach of duty by the board of directors. The Court of Appeal also arrived at
their finding that there was no reasonable prospect of success in the proposed
action since the claim by the plaintiff that he ought to have been able to benefit D
from a higher mandatory take over offer price of RM7 per Celcom share was
found to be fallacious. This is in view of the fact that a mandatory take over
offer price must be based on the highest price paid by the offeror during the
preceding six-month period (s 20(1) of the Malaysian Code on Take-Overs &
Mergers). The allegation of fraud and conspiracy on the part of the proposed E
defendants was therefore baseless and lacking in evidence, as the same was
based on the incorrect premise that the offer price should have been RM7 per
Celcom share.

[40] Applying the good faith test approved in Celcom, the High Court in F
Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd [2013] 7 MLJ
831; [2012] 2 AMCR 521 (‘LTAT’) granted leave to the complainant, LTAT, a
minority shareholder in Prime Utilities Bhd as there was evidence that the
directors of the latter had failed to diligently pursue the recovery of the monies
the company invested in an asset management company, including by not G
having filed its proof of debt to the winding up of the said asset management
company.

[41] Leave under ss 181A and 181B was also granted by the High Court in
S Vigneswaran M Sanasee v Maju Institute of Educational Development (MIED) H
(No 2) [2011] 2 CLJ 678 (‘MIED’) but the High Court did not have the
benefit of the judgment of the Court of Appeal in Celcom. It is nevertheless
instructive to note that the High Court emphasised that good faith should be
decided according to the facts of each case.
I
[42] In my view as the High Court in MIED followed the lower threshold
test of the High Court in Celcom, the analysis on proof of good faith ought to
be read in light of the Court of Appeal’s judgment in Celcom. In any event, the
test of good faith as developed in the jurisprudence of the Malaysian statutory
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 621

A derivative action is in part influenced by similarities found in ss 216A and 216B

of the Companies Act (Chapter 50) (Act 42 of 1967) (Singapore), enacted in
1993, which in turn are modeled upon Canadian legislation. Part 17 of the UK
Companies Act 2006 and Part 2F.1A of the Corporations Act 2001 (Cth) of
Australia as mentioned above, also embody provisions on statutory derivative
B actions which are especially insightful although not in pari materia with ss
181A and 181B .

[43] The pertinent provisions of s 239 of the Canada Business Corporations

Act (RSC 1985 C-44) and s 216A of the Singapore Companies Act are set out
C hereunder:
Canada Business Corporation Act
239 (1) Subject to subsection (2), a complainant may apply to a court for leave to
bring an action in the name and on behalf of a corporation or any of its subsidiaries,
D or intervene in an action to which any such body corporate is a party, for the
purpose of prosecuting, defending or discontinuing the action on behalf of the body
corporate.
(2) No action may be brought and no intervention in an action may be made under
subsection (1) unless the court is satisfied that:
E
(a) The complainant has given notice to the directors of the corporation or its
subsidiary of the complainant’s intention to apply to the court under
subsection (1) not less than fourteen days before bringing the application,
or as otherwise ordered by the court, if the directors of the corporation or
its subsidiary do not bring, diligently prosecute or defend or discontinue
F the action;
(b) the complainant is acting in good faith; and
(c) it appears to be in the interests of the corporation or its subsidiary that the
action be brought, prosecuted, defended or discontinued.
G Singapore Companies Act
216A (1) In this Section and Sections 216B–
‘company’ means a company other than a company that is listed on the securities
exchange in Singapore;
H ‘complainant’ means:
(a) any member of a company;
(b) the Minister, in the case of a declared company under Part IX; or

I
622 Malayan Law Journal [2015] 11 MLJ

(c) any other person, who in the discretion of the Court, is a proper person to A
make an application under the section;
(2) Subject to subsection (3), a complainant may apply to the Court for leave to
bring an action in the name and on behalf of the company or intervene in an action
to which the company is a party for the purpose of prosecuting, defending or
discontinuing the action on behalf of the company. B

(3) No action may be brought and no intervention in an action may be made under
subsection (2) unless the Court is satisfied that:
(a) the complainant has given 14 days’ notice to the directors of the company
of his intention to apply to the Court under subsection (2) if the directors C
of the company do not bring, diligently prosecute or defend or
discontinue the action;
(b) the complainant is acting in good faith; and
(c) it appears to be prima facie in the interests of the company that the action D
be brought, prosecuted, defended or discontinued.

[44] A recent decision of the Court of Appeal in Singapore in Ang Thiam

Swee v Low Hian Chor [2013] 2 SLR 340 (‘Ang Thiam Swee’) has further
elaborated the analysis on the concept of good faith in the context of the E
statutory derivative action.

[45] In Ang Thiam Swee the appellant and the respondent each held 10% of
the company’s shares and another member held the rest of the shares. The
shares held by the latter were subsequently transferred to the official assignee as F
the member was declared a bankrupt for misappropriating the company’s
funds. The respondent applied for leave to commence an action under s 216A
in the name of the company against the appellant for an alleged breach of
director’s duties on the part of the latter since investigative reports revealed that
the appellant, as a co-signatory of the company’s accounts, had also similarly G
misappropriated the company’s funds. The issues before the court was whether
the requirements in sub-ss (b) and (c) of s 216A (3) were fulfilled to justify the
granting of leave to the respondent to institute the statutory derivative action.

[46] The court ruled that the onus was on the applicant to establish good H
faith on his part and the court must assess the motivations of an applicant in
order to determine whether he is acting in good faith. Good faith was stated to
be less dependent on the motives which trigger the application, but more on
the purpose of the proposed derivative action, which must have a clear nexus
with the company’s benefits or interests. The motivations of the applicant I
would only amount to a lack of good faith if they revealed that the applicant’s
judgment was influenced by purely personal considerations. The applicant
must demonstrate that he is genuinely aggrieved and that his collateral purpose
is sufficiently consistent with the objective of doing justice to the company.
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 623

A [47] The Court of Appeal took into account the approaches of the courts in
Canada and Australia and observed that first, the Canadian courts generally
consider the applicant’s honest belief in the merits of the proposed statutory
derivative action as a strong indicator of good faith, and secondly, the
Australian courts refer to two interrelated factors, specifically whether the
B applicant honestly believes that a good cause of action exists and has a
reasonable prospect of success, and whether the applicant is seeking to institute
the derivative suit for such a collateral purpose as would amount to an abuse of
process.
C
[48] The Court of Appeal in Ang Thiam Swee held that essentially, the
primary consideration in determining an applicant’s good faith is whether the
applicant honestly believes that a good cause of action exists. An applicant thus
lacks good faith if his motives for commencing the statutory derivative action
D tantamount to a collateral purpose unrelated to doing justice to the company.
The court appears to prefer the test on the existence of collateral purpose
developed by Australian courts, as adopted earlier by the Court of Appeal in
Celcom as well.

E [49] Applying the above to the facts, the Court of Appeal in Ang Thiam Swee
found that the respondent had failed to discharge his burden of establishing
that he was acting in good faith in making the application. Instead, the
respondent had been actuated by a number of private motives which amounted
to a collateral personal purpose of seeking, inter alia, to secure sole control of
F the company such that the court was not convinced that the respondent had an
honest belief in the merits of the application. The court observed that there was
a significant amount of ill will between the two attributed to disputes over a
number of several financial related issues. Additionally, the respondent was
unhappy at discovering that some of the dividends due to him had not been
G paid out and that the appellant had on the other hand, received a higher
amount as directors’ fees. Instead of establishing good faith, the court noted
that the respondent appeared to be motivated as much by spite as by the
prospect of personal gain, and that in the absence of any clear coincidence
between the company’s interests and his apparent collateral personal purpose of
H securing sole control of the company, it would be a patent abuse of process to
allow the respondent to use the company as a vehicle for his private objectives.

[50] Having considered the test of good faith applied in the various case law
authorities mentioned above, I am of the view that based on affidavit evidence
I available before the court, the plaintiff has on balance of probabilities
established good faith in accordance with s 181B(4)(a). I find that the plaintiff
honestly believes that a good cause of action exists and has a reasonable
prospect of success. I do not find sufficient evidence that the intended suit is
instituted for a collateral purpose.
624 Malayan Law Journal [2015] 11 MLJ

[51] In arriving at this finding, I have found, among others, that whilst the A
primary private motivation of the plaintiff is to seek a higher rental for the land
belonging to the first defendant, that in itself is neither surprising nor improper
given his status as a 50% shareholder of the first defendant. The plaintiff has
been consistent in insisting on high rentals. He did agree with the proposal to
rent out the first defendant’s land. But he was unrelenting in wanting to ensure B
the first defendant secure the right price. His conduct or inaction concerning
the discussion on the draft tenancy agreement intended to be entered into
between the first defendant and Tan Wei Rong, his discomfort with the
involvement of the middlemen who would get paid higher than the monthly
C
rental, his handwritten note as to what he considered to be the rental acceptable
to him, all go towards evidencing his motives which I do not consider to
constitute a collateral purpose as would amount to an abuse of process. Further,
the High Court in MIED referred to an observation by Justice Tysoe of the
Supreme Court of British Columbia in Primex Investments Ltd v Northwest D
Sports Enterprise Ltd [1995] Can LII 717 (BCSC) as follows:
where there is an arguable case, the applicant cannot be said to be acting in bad faith
because he wants the company to pursue what he genuinely considers to be a valid
claim … an applicant advancing self interest is not necessarily acting in bad faith.
E
The presence of a private interest in my view cannot necessarily negate good
faith if the same coincides with that of the company, especially given the
shareholding structure of the company, and equally importantly, whether an
analysis of the entire circumstances of the case established other evidence to F
suggest otherwise. In my evaluation, the answer is in the negative.

[52] On the other hand, the evidence demonstrates that the plaintiff sought
to get the first defendant to enforce its rights as the owner of the first
defendant’s land. He attempted to get the first defendant to have the correct G
forum properly deliberate on the disagreement concerning the sublease via his
request to the company secretary to convene a board of directors meeting as
well as an EGM, both of which went unheeded, despite the plaintiff having the
statutory right to requisition on EGM under the Companies Act 1965 and I
presume, to call for board meetings under the articles of association of the first H
defendant. This practically resulted in a deadlock situation in the company.

[53] I am not convinced that a valid agreement on the tenancy exists between
the first defendant and Tan Wei Rong. The various drafts of tenancy agreement
I
do not evidence any indication of endorsement by the plaintiff. If anything, the
affidavit evidence show that the plaintiff had always had issues with the drafts
which in my view is a strong reason in itself that should have rightfully led the
other intending contracting party, namely Tan Wei Rong to secure a properly
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 625

A executed agreement with the first defendant before entering into the tenancy
with China State Construction with the purported right as the tenant of the
first defendant’s land.

[54] Further, the letter from Messrs Dennis Nik & Wong, solicitors for Tan
B Wei Rong to Messrs Woon Wee Yuen & Partners, solicitors for the first
defendant exhibited in TBL6 said to be the one confirming the final agreed
terms was dated 3 December 2014, which is quite some time after the
execution of the tenancy agreement between Tan Wei Rong and China State
Construction on 17 September 2014. The said letter also mentioned that the
C
last action on the draft was on 23 October 2014 when it was returned to the
first defendant’s solicitors, with comments. This is a clear evidence that on a
date (23 October 2014) subsequent to the execution of the tenancy agreement
(12 September 2014), the draft agreement between the first defendant and Tan
D Wei Rong had not yet been finalised, let alone agreed. Yet, Tan Wei Rong had
in the month prior, already executed the tenancy with China State
Construction, which included the subletting of the first defendant’s land,
which he could lawfully only have done after the execution of a tenancy
between the first defendant and Tan Wei Rong to confer on the latter the right
E of the tenancy that he could subsequently sublet. The execution of that
enabling tenancy agreement never took place.

[55] There is no certainty of terms under s 2 of the Contracts Act 1950

either. Under contract law, the situation in the instant case would fall within
F the third category of classes referred to in the Court of Appeal decision in Teh
Swee Lip v Jademall Holdings Sdn Bhd [2013] 6 MLJ 32; [2014] 8 CLJ 451
namely that the intention of the parties is not to make a concluded bargain at
all, unless and until they execute a formal contract. This is because in the
instant case, it is difficult to accept that despite the parties having engaged their
G own lawyers to help draft the tenancy and subsequently have the drafts
reviewed and commented on a number of times, the draft for no good reason
then got abandoned and conveniently instead an oral agreement is claimed to
have been reached. At the same time, the counterclaim by the second defendant
for a declaration on the validity of the tenancy agreement between the first
H defendant and Tan Wei Rong cannot be sustained, and must therefore be
dismissed.

[56] Although the issue is not raised, nor could Tan Wei Rong rely on the
Turquand Rule on indoor management and assumed the first defendant had
I validly authorised him to enter into the tenancy with China State Construction
since he would have been aware from his own active involvement in the
discussion, as well as through his father, being the second defendant, that the
only other director and 50% shareholder of the first defendant (namely, the
plaintiff ) had not given his consent.
626 Malayan Law Journal [2015] 11 MLJ

[57] Even though effectively like a quasi partnership, the first defendant is a A
company incorporated under the Companies Act 1965 and subject to its
provisions. I further consider it an exempt private company given its
shareholding structure. But the provisions on directors duties apply with equal
force to the first defendant company as they do to public listed companies. The
second defendant’s action and conduct in being supportive of Tan Wei Rong B
per se, being his son are not by themselves necessarily improper but would be
considered to constitute a dereliction in his fiduciary duty for the reasons that
first, this tenancy directly involves the interest of the first defendant a company
that the second defendant serves as a director. Secondly, Tan Wei Rong is
himself conflicted to start with, given his own interest in getting the first C
defendant’s land also rented out to China State Construction, the motivation
being that it is adjacent to and provide better access to Tan Wei Rong’s own
land (the TWR land) which was also rented to China State Construction.

[58] Thirdly, the second defendant had also not cooperated with the plaintiff D
to have a formal board of directors’ meeting or an EGM convened as requested
by the plaintiff. Having a formal board meeting or an EGM would have at least
restored some semblance of adherence to proper corporate governance on the
part at the first defendant company. The second defendant thus did not appear
to demonstrate a conduct consistent with that expected of a responsible E
director and fiduciary of a company when facing the situation, choosing
instead for a deadlock and worse still favouring a position that could expose
himself to an allegation of breach of duty for conflict of interest.

[59] Therefore, given the absence of a valid tenancy agreement between the F
first defendant and Tan Wei Rong on the property of the first defendant’s land,
the latter’s entry into the tenancy agreement with China State Construction on
that very same property, coupled with at the very least, an acquiesing role
played by the second defendant, would in my view represent to the plaintiff a
reasonable prospect of the plaintiff ’s claim on behalf of the first defendant G
being successful. As stated by the plaintiff, principally, the cause of action
would likely be one on the tort of trespass to land. The Oxford Dictionary of
Law (new edition) describes trespass to land as follows:
Trespass to land usually takes the form of entering it without permission. It is no H
defence to show that the trespass was innocent (eg that the trespasser honestly
believed that the land belonged to him). Trespass to land or goods is a wrong to
possession rather than to ownership. Thus a tenant of rented property, for example,
has the right to sue for trespass to that property. Trespass to land is a tort but not
normally a crime.
I
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 627

A [60] Another clear definition is to be found in Halsbury’s Laws of England

(4th Ed) Vol 45 at p 6312 which states:
Every unlawful entry by one person on land in the possession of another is a trespass
for which an action lies, although no actual damage is done. A person trespasses
upon land if he wrongfully sets foot on, or rides or drives over it, or takes possession
B
of it, or expels the person in possession, or pulls down or destroys anything
permanently fixed to it, or wrongfully takes minerals from it, or places or fixes
anything on it or, it seems, if he erects or suffers to continue on his own land
anything which invades the airspace of another, or if he discharges water from
another’s land, or sends filth or any injurious substance which has been collected by
C him on his own land on to another’s land.

[61] Accordingly, on the facts and evidence as I have stated, the plaintiff can
be said to honestly believe that a good cause of action exists with a reasonable
D prospect of success and that his pursuit of the matter is not driven by any
collateral purpose as would amount to an abuse of process. Hence, good faith
under s 181B(4)(a) is established.

Question 3: Is it prima facie in the best interest of the company as per s 181B(4)(B)
E for leave be granted?

[62] Even though the plaintiff may have established good faith, and that a
good cause of action with reasonable prospect of success exists, it does not
automatically follow that the pursuit of such an action by the first defendant
F company is necessarily in the best interest of the company. Whilst the
Singapore Court of Appeal in Ang Thiam Swee preferred to assess the legal
merits or the strength and prospects of the proposed cause of action when
considering the question of whether the action is ‘in the interest of the
company’ instead of when evaluating whether the complainant is ‘acting in
G good faith’, the Court of Appeal in Celcom followed the test stated in the earlier
Singapore case of Pang Yong Hock and another v PKS Contracts Services Pte
Ltd [2004] SGCA 18 which held that a company may have genuine
commercial considerations for not pursuing certain claims, even if those claims
may be meritorious.
H
[63] The second defendant had stated that it had taken the first defendant a
very long time to have been able now to finally rent out its land despite having
acquired the same way back in 1995. Nor did the plaintiff show that the rental
agreed with China State Construction is below market or even state what the
I market rental for the first defendant’s land should be. Whilst this may be true,
the plaintiff was also questioning why the monthly payment to the middlemen
is higher than the rental for the first defendant’s land.

[64] In my view, the passage from the Canadian case of Ontario Ltd v
628 Malayan Law Journal [2015] 11 MLJ

Bernstein [2000] OTC Lexis 3480, attributed to United Copper Securities et al A

v Amalgamated Copper Co et al 244 US 261 (1917) cited by the Court of
Appeal in Celcom would apply to the instant case:
Whether or not a corporation shall seek to enforce in the courts a course of action
for damages is, like other business questions, ordinarily a matter of internal B
management and is left to the discretion of the directors, in the absence of
instruction by vote of the stockholders. Courts interfere seldom to control such
discretion intra vires the corporation, except where the directors are quilty of
misconduct equivalent to a breach of trust, or where they stand in a dual relation
which prevents an unprejudiced exercise of judgment. (Emphasis added.)
C

[65] Thus in the instant case, the usual disinclination of the courts to
interfere in the exercise of a company’s commercial discretion and business
judgment (as in Celcom) would in my view become secondary when there are
credible allegations of misconduct or conflict situations. Nor did the second D
defendant suggest the presence of any basis which could militate against the
first defendant pursuing the action such that it would not be in the best interest
of the first defendant to do so, other than the contention about the loss of rental
from China State Construction. Again, whilst this may be commercially valid
an argument, it cannot override the need for the first company to address the E
wrong perpetuated on the company. Taking into account the position of the
second defendant in this case, it can certainly be said that as a director he stands
in ‘a dual relation which prevents unprejudiced exercise of judgment’. I
therefore hold that the plaintiff has also shown that instituting the derivative
action is prima facie in the best interest of the first defendant. F

[66] It is also worthy of mention that the legislation of the different countries
as I set out earlier actually contain differences in their wordings in the statutory
formulation on the provisions referable to the ‘interest of the company’, as
G
follows:
(a) Malaysia – ‘appears prima facie to be in the best interest’;
(b) Singapore – ‘appears to be prima facie in the interest’;
(c) Australia – ‘it is in the best interest’; and H

(d) Canada – ‘appears to be in the interest’.

Whilst these non-identical formulations were not discussed in Celcom, the

most stringent seems to be the Australian provision, given the definitive ‘it is’ I
instead of ‘appears’ and ‘prima facie’, as well as use of ‘best’ interest instead of
merely ‘interest’. The Court of Appeal’s reference to the Canadian and
Singapore’s precedents in its evaluation of whether the statutory derivative
action was in the interest of the company is in my view therefore an accurate
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 629

A representation of the legal position on the point, for being well in accord with
the governing Malaysian provision.

OTHER KEY RELATED ASPECTS IN THE SCOPE OF THE

STATUTORY DERIVATIVE ACTION
B
[67] In evaluating the test of good faith and on whether the action would
prima facie be in the best interest of the company based either on the Celcom or
Ang Thiam Swee approach, both of which in my view would produce
substantically the same results, I have considered four other points of law
C relevant to statutory derivative actions, none of which was however raised by
the parties in this application. As these aspects are integral to the true scope of
the law on statutory derivative action in this country, I am of the view that it is
imperative that I should attempt to provide a clear statement of law on the
D
matter.

Must a plaintiff be a minority shareholder in a s 181A action?

[68] The first aspect concerns the status of the plaintiff or person for whom
E relief under s 181A is sought. Although common law derivative actions are
generally understood to be utilised by minority shareholders, this is not
necessarily a prerequisite to the commencement of derivative actions under
s 181A. In the case of Dato Suhaimi Ibrahim & Ors v Hi Summit Construction
Sdn Bhd & Anor [2013] 1 LNS 203, the High Court refused leave under
F s 181A(1) on account of the plaintiff ’s controlling the board of directors and
thus they were not considered as ‘genuinely aggrieved minority’, given that the
statutory derivative action is to protect the interest of the minority against the
wrongdoers who are in control of the board. Although this may be correct, it
should be noted that s 181A does not provide any such criterion as the test to
G be applied. The Singapore case of Hengwell Development Pte Ltd v Thing Chiang
Chin & Ors [2002] 4 SLR 902 is authority for the proposition that it can be
utilised even by majority shareholders.

[69] There are occasions where majority shareholding may not necessarily be
H accompanied by the entitlement to the exercise of control. First, the issue of
control may be relevant at board level or the general meeting level. It is well
entrenched under the Companies Act 1965 that the board is responsible for the
management of the business of affairs of the company under s 131B(1), except
where actions by the shareholders in a general meeting are required under the
I Act. Therefore, if the matter complained of is within the authority of the
directors to decide on, which commonly is the case, given that most are
management-related decisions such as on the institution and defence of legal
suits, a majority shareholder who somehow does not have control at board level
(potentially at board of listed entities where the number of independent
630 Malayan Law Journal [2015] 11 MLJ

directors is sizeable or where regulations prohibit the shareholder-appointed A

directors from voting on account of being ‘interested’) may also be considered
as being aggrieved. Even though the power to remove directors in public
company is itself vested in the shareholders at a general meeting under s 128,
the corresponding right to appoint new directors may be affected by
regulations in certain industry sectors which could prevent the shareholder B
from having majority control on the board as well.

[70] Secondly, court processes such as injunctions could also thwart an

effective exercise of the shareholding rights of the complainant in general
C
meetings despite having majority ownership. In the instant case, despite the
plaintiff ’s 50% shareholding, the shareholding structure and composition of
the board of the first defendant is such that the other shareholder-director
could easily by pure inaction, engineer a deadlock as it had effectively happened
in this case to paralyse the decision making process of the company at both D
levels of the board and the general meeting. A Singapore case law authority
where leave under s 216A was granted to address a ‘deadlock’ situation is Wong
Kai Wah v Wong Kai Yuan & Anor [2014] SGHC 147 where the defendant,
being the only other director (like in the instant case) other than the plaintiff
refused to sign the audited accounts of the company. E

[71] Accordingly, in my view, ultimately, the question to be asked is whether,

based on the facts of each particular case, the complainant, being a shareholder
(with either a minority or a majority ownership) is able to get the company to
take action to seek redress for the wrong done to the company, as perpetuated F
or facilitated by an insider in a position of influence or control. Therefore, it is
strictly not necessary for a plaintiff to be a minority shareholder in order to
institute s 181A of the Companies Act 1965.

Must the insider wrongdoer benefit from the default in a s 181A action? G

[72] The second aspect concerns the defendants in an intended derivative

action. Derivative actions traditionally and commonly involve suits against the
wrongdoers in control such as the miscreant directors who benefited from the
wrongdoings. In the English case of Pavlides v Jensen [1956] Ch 565, the H
shareholder was not successful in his application to commence action on behalf
of the company as it was found that the wrongdoing involved a breach of duty
of care without the director in default benefitting from the same. Section 181A
is silent whether the statutory derivative action can now be expanded to include
suits against directors who are only alleged to have been negligent in the I
discharge of their duties, but do not actually benefit from the breach, a clear
departure from ‘fraud on the minority’ situation. By not specifically addressing
this point, the Court of Appeal in Celcom therefore seems to suggest that this is
now the position in Malaysia since no allegation of directors having benefitted
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 631

A from the alleged breach was made, although leave was refused for different
reasons. There was no allegation of directors benefitting from their alleged
wrongdoing in LTAT either. Therefore it should be a correct statement of law
that even without the allegation of the defaulting director benefitting from the
breach, a mere breach of duty of care by the director that causes loss to the
B company is also similarly and sufficiently actionable under s 181A. This is
certainly correct both in principle and policy as well, since it further develops
the law on derivative action and promotes empowerment of minority rights by
indirectly compelling stricter observance by directors of the duties imposed on
them, by not confining the type of failures that could justify the granting of
C
leave to commence action. It is therefore not necessarily the case that an action
under s 181A can only be taken if the insider benefits from the wrong done to
the company.

D
Must the insider wrongdoer be sued in a s 181A action?

[73] The third aspect is this. In the instant case, the plaintiff is not seeking to
sue the second defendant in the intended derivative action. The plaintiff
proposed for the first defendant company to take action against Tan Wei Rong
E and China State Construction. In the usual case, it would however be expected
that action would be against a breach or wrongdoing by a director, such as the
second defendant for having allowed the trespass to the first defendant’s land
and thereby causing loss to the company as a result, and could even be argued
to have possibly benefitted given the involvement of his son. However ss 181A
F and 181B do not stipulate the parties against whom the derivative action may
be instituted.

[74] The crux of a derivative action is to allow a complainant to seek leave for
the company to institute a suit for a cause of action which has a reasonable
G prospect of success which otherwise cannot be pursued due to the involvement
of a wrongdoer insider having the ability to prevent the filing of the suit by the
company. In my judgment there is no legal necessity for the wrongdoer
controller himself to be named as a defendant in a derivative action before leave
under s 181A may be granted, for as long as the suit seeks to enforce the rights
H of the company which have been violated, against those identified (in addition
to the miscreant controller or director) as also being responsible for the
wrongdoing. This proposition in my view is not only sensible for being
practical but also well in accord with the mischief against which the derivative
mechanism seeks to address, which is to overcome the impediment against
I proceedings being instituted by the company to enforce its rights against those
who have inflicted wrong on the company. The neutralisation of the obstacle
by virtue of s 181A derivative action does not necessarily mean that the insider
wrongdoer must be sued as it is for the company to decide on its best litigation
strategy, for as long as action is against parties whose role or involvement in the
632 Malayan Law Journal [2015] 11 MLJ

wrong perpetrated against it is anything but exculpatory. The overriding focus A

of s 181A should be on pursuing a derivative action against those who have
wronged the company, who often are also but not necessarily the insiders who
are preventing action from being taken in the first plase. But instances where
third parties may be involved and participated in the wrongdoing in collusion
with insiders cannot be discounted. Whilst it is a prerequisite for s 181A B
derivative action that the insider or controlling element prevents the company
from enforcing its rights (for otherwise action may be brought by the company
itself ), once the prevention is overcome, it is not the focus of the derivative
action to sue those who placed the obstacle, but more to act against the parties
C
who commit the wrong against the company which results in the loss. Whilst
the two situations may involve the same parties, they need not necessarily be so
in all cases. As such, in my view it is not a legal requirement under s 181A
derivative action that the insider in default must be a party to be sued by the
plaintiff on behalf of the company. D
Can s 181A action be against third-party wrongdoer?

[75] This leads to the final novel aspect (and related to the immediately
preceding point) concerning s 181A relevant to this judgment – which is E
whether s 181A, given its history in common law derivative action, can be
invoked to permit a plaintiff, on behalf of the company in a derivative action,
to commence action against a third party against whom the company may have
a cause of action related to the alleged wrongdoing.
F
[76] It is noteworthy as it is elementary that the common law derivative
action is one that is often associated with the need to address a wrong done to
the company by a controlling element. Thus, if the company is not prevented
from suing a wrongdoer, any cause of action that a company may have against
a third party is neither appropriate nor suited to be pursued by way of a G
derivative action. Although the statute itself is silent on this point,
interpretation on its applicability and scope should be formulated towards
achieving the objectives of the legislative change. It is clear, from the Report on
Corporate Governance by the Finance Committee on Corporate Governance
(February 1999) which proposals, coupled with that of the Corporate Law H
Reform Committee’s Consultative Paper on Members Rights and Remedies
(2007) triggered the amendments to the Companies Act 1965 (by way of the
Companies (Amendment) Act 2007), including the introduction of ss
181A–181E , that the overriding objective has always been to further improve
the standard of corporate governance in Malaysia. As the earlier part of this I
judgment has shown, as a relatively recent legislative invention, the scheme of
statutory derivative action embodied in ss 181A –181E surely can and should
at least in legal theory free shareholders seeking redress from the shackles of
common law limitations, and that properly reasoned development of new
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 633

A principles of law should be encouraged as it further promotes enrichment of

the corpus juris of the nation.

[77] In any event, based on my research, such action against third parties can
be legally justified in principle if the cause of action against the third party arises
B from a breach by an insider or controlling element. There is English case law
authority which establishes the principle that although the UK legislative
provision on derivative action is not expressly limited to proceedings against
wrongdoers who are insiders such as directors, leave can only be granted to
commence action on behalf of the company against third party wrongdoer if
C
the cause of action against the third party arises from the relevant breach by the
directors. Section 261(3) of the UK Companies Act 2006 states the following:
A derivative claim under this Chapter may be brought only in respect of a cause of
action arising from an actual or proposed act or omission involving negligence,
D default, breach of duty or breach of trust by a director of the company. The cause of
action may be against the director or another person (or both).

[78] In Iesini & Others v Westrip Holdings Ltd and others [2009] EWHC
2526 (Ch D) Lewison J, in making a noteworthy statement that the new
E statutory provision has replaced the common law derivative action also made
the following observation, which full import in my view is of considerable
relevance to our ss 181A and 181B:
A derivative claim, as defined by Section 260 (3) is not, however, confined to a claim
against the insiders. As the concluding part of that sub-section says, the cause of
F action may be against the director or another person (or both). Nevertheless the
cause of action must arise from an actual or proposed act or omission involving
negligence, default, breach of duty or breach of trust by a director of the company.
A derivative claim may ‘only’ be brought under Part 11 Chapter 1 in respect of a
cause of action having this characteristic (although this restriction does not appear
G to apply to a derivative claim brought in pursuance of an order made under Section
994). Thus the section contemplates that a cause of action may arise from, say, the
default of a director, but nevertheless is a cause of action against a third party. A
claim against a person who had dishonestly assisted in a breach of fiduciary duty or
who had knowingly received trust property would be paradigm examples. It is also
to be noted that it is not a requirement that the delinquent director should have
H
profited or benefited from his misconduct. He may be guilty of no more than
negligence in managing the company’s affairs. However, since the cause of action
must arise from his default (etc.) a derivative claim brought under Part 11 Chapter
1 will not allow a shareholder to pursue the company’s claim against a third party
where that claim depends on a cause of action that has arisen independently from
I the director’s default (etc.). This view would be consistent with what the Law
Commission said in their report Shareholders’ Remedies which paved the way for
this part of the Companies Act 2006. They said–
6.31 So far as the second situation is concerned, one respondent
gave the following example. A profitable company is a victim
634 Malayan Law Journal [2015] 11 MLJ

of a tort by a third party and the board, although otherwise A

committed to the well-being of the company, have ulterior
motives of their own for not wishing to enforce the remedy for
the tort. Although the board would in those circumstances be
in breach of duty, their breach would not have given rise to the
claim. B
6.32 We accept that in this type of situation an individual
shareholder would have no right to bring a derivative action
against the third party tort feasor under our proposals. (There
would of course be potential claim for damages against the
directors themselves, although this may give rise to difficulties C
on causation or quantification, and it is possible that the
directors may not have sufficient funds to meet the claim).
However, we do not consider that this is an issue which needs
to be addressed for two main reasons.
6.33 First, we are not aware of any cases under the current law D
where a derivative action has been successfully brought in
circumstances such as those described in paragraph 6.31.
6.34 Secondly, (and more importantly) it is consistent with the
proper plaintiff principle which we endorsed in the
consultation paper and which received virtually unanimous E
support on consultation. The decision on whether to sue a
third party (ie someone who is not a director and where the
claim is not closely connected with a breach of duty by a
director) is clearly one for the board. If the directors breach
their duty in deciding not to pursue the claim then (subject to
F
the leave of the court) a derivative claim can be brought
against them. To allow shareholders to have involvement in
whether claims should be brought against third parties in our
view goes too far in encouraging excessive shareholder
interference with management decisions. This is particularly
important as we are proposing that derivative actions are to be G
available in respect of breaches of directors’s duties of skill and
care. A line has to be drawn somewhere and we consider that
this is both a logical and clearly identifiable place in which to
draw the line.
H
[79] Although, unlike the relevant UK provisions, the Malaysian statutory
requirements in s 181A are silent on the grounds for which and against whom,
derivative actions can be authorised, I am of the view that the English position,
to the extent of the principle that the derivative suit can be pursued against a
third party if the claim depends on a cause of action which arises from the I
director’s default, should represent the jurisprudence on statutory derivative
action in this country. Iesini also makes it clear that action may be brought
against a director or another person or both, supporting the third proposition as
referred to above that it is not a necessity that an insider must be sued as a
 Ong Keng Huat v Fortune Frontier (M) Sdn Bhd & Anor
[2015] 11 MLJ (Mohd Nazlan JC) 635

A defendant in an s 181A suit.

[80] The underlying philosophy should thus be that since derivative actions
are for situations where the controller wrongdoer prevents actions from being
taken, derivative actions would not be appropriate where first, there are no such
B constraints, and secondly where the company decides not to pursue against a
third party wrongdoer if such decision is not in any way influenced by the third
party. In other words, there ought to be some form of collusion or acting in
concert between the insider wrongdoer and the said third party to invoke a
s 181A action against the latter. Accordingly, in my view, a derivative action
C
under s 181A may be instituted even against a third party wrongdoer if the
wrong arises from the default of an insider.

[81] In the instant case, the trespass by Tan Wei Rong and China State
D Construction could be said to have been made possible by the breach of
fiduciary duty (or at least of a duty of care) on the part of the second defendant,
a director of the company. As such, in addition to the fulfillment of the
requirements for leave under ss 181A and 181B, considering the four
propositions of law as I have described above, I held that the derivative action
E by the plaintiff (who is technically not a minority shareholder), on behalf of the
first defendant company, may be commenced against Tan Wei Rong and China
State Construction, both being third parties who allegedly committed trespass
against the first defendant company given the offending role of the insider
second defendant who had preferred taking an acquiescing stance in the face of
F the trespass but who is himself not being sued.

CONCLUSION

[82] Accordingly, in conclusion, based on the foregoing reasons, I held that

G
the plaintiff be granted leave under s 181A as he has on a balance of
probabilities satisfied the requirements of s 181B(4) to justify the same, to
commence an action on behalf of the first defendant company against Tan Wei
Rong and China State Construction.
H
[83] The second defendant’s counterclaim for a declaration that there is a
valid tenancy agreement between the first defendant and Tan Wei Rong in
respect of the first defendant’s land, and the consequential orders to the execute
of the same, is dismissed. Costs of RM1,000 was also awarded to the plaintiff.
I
636 Malayan Law Journal [2015] 11 MLJ

Application allowed with costs of RM1,000. A

Reported by Kanesh Sundrum