Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd

[2013] 7 MLJ (Hasnah Mohammed Hashim J) 831

A Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd

HIGH COURT (KUALA LUMPUR) — SUIT NO 24NCC-364–10 OF

2011
B
HASNAH MOHAMMED HASHIM J
24 JULY 2012

C Companies and Corporations — Derivative action — Suit against directors —

Minority shareholder sought leave to commence derivative action against current
and former directors of company — Company failed to take steps to recover huge
amount given to foreign asset managers for investment — Company’s response to
minority shareholder’s queries over incident evasive and unsatisfactory — Whether
D derivative action taken in good faith and in best interests of company

The plaintiff, a minority shareholder in the defendant company, had written

several letters to the defendant demanding to know what action it had taken to
recover the balance of a substantial sum of money it had handed to a foreign
E asset management company (‘Boston’) for investment purposes. The
defendant had given Boston RM112 but Boston had only returned RM4m of
that sum and had owed the balance for more than five years. Dissatisfied with
the defendant’s replies, and in one instance, the lack of reply, the plaintiff filed
a leave application to court to commence proceedings against Boston and
F through the exchange of affidavits discovered the defendant had filed two suits
against Boston at different times but both were struck out due to the
defendant’s failure to prosecute them with diligence. Boston was subsequently
wound up and despite the plaintiff ’s requests to do so, the defendant failed to
file any proof of its debt in the winding up. The plaintiff filed the instant
G application for leave pursuant to ss 181A, 181B and 181E of the Companies
Act 1965 (‘Act’) to commence a derivative action on the defendant’s behalf
against its former and current directors to account for the losses the defendant
had suffered in the investment exercise with Boston. The plaintiff said the
directors were duty-bound to explain their actions and that the plaintiff ’s
H action was made in good faith and in the best interests of the company.

Held, granting the application with costs:

(1) The plaintiff ’s complaints were not without basis or substance. As
I minority shareholders the plaintiff had the right to take a derivative
action to protect the interests of the company (see para 28).
(2) The plaintiff had complied with all procedural requirements under
ss 181A and 181B of the Act and it was a fit and proper case for the court
to grant the leave sought (see para 29).
832 Malayan Law Journal [2013] 7 MLJ

[Bahasa Malaysia summary A

Plaintif, pemegang saham minoriti dalam syarikat defendan, telah menulis
beberapa surat kepada defendan mendesak untuk mengetahui tindakan apa
yang diambil olehnya untuk mendapatkan kembali baki jumlah substansial
wang yang ia serahkan kepada syarikat pengurusan aset asing (‘Boston’) bagi
tujuan pelaburan. Defendan telah memberikan kepada Boston RM112 juta B
tetapi Boston hanya memulangkan RM4 juta daripada jumlah tersebut dan
berhutang untuk baki tersebut untuk lebih daripada lima tahun. Tidak
berpuashati dengan jawapan-jawapan defendan, dan pada satu masa, tidak
menjawab, plaintif memfailkan permohonan izin kepada mahkamah untuk
memulakan prosiding terhadap Boston dan melalui pertukaran C
afidavit-afidavit mendapati defendan telah memfailkan dua guaman terhadap
Boston pada masa berasingan tetapi kedua-dua dibatalkan akibat kegagalan
defendan untuk mendakwa mereka dengan teliti. Boston akhirnya digulung,
defendan gagal untuk memfailkan apa-apa bukti hutangnya di dalam
penggulungan tersebut walaupun permintaan plaintif untuk berbuat D
demikian. Plaintif memfailkan permohonan ini untuk izin berikutan ss 181A,
181B dan 181E Akta Syarikat 1965 untuk memulakan tindakan derivatif bagi
pihak defendan terhadap pengarah-pengarahnya yang dahulu dan sekarang
untuk bertanggungjawab ke atas kerugian yang dialami oleh defendan dalam
tindakan pelaburan dengan Boston. Plaintif menyatakan yang E
pengarah-pengarah adalah bertanggungjawab untuk menjelaskan tindakan
mereka dan bahawa tindakan plaintif dibuat dengan suci hati dan demi
kepentingan terbaik syarikat.

Diputuskan, membenarkan permohonan dengan kos: F

(1) Aduan-aduan plaintif bukan tidak berasas atau tanpa kebenaran. Sebagai
pemegang-pemegang saham minoriti, plaintif mempunyai hak untuk
mengambil tindakan derivatif untuk melindungi kepentingan syarikat
(lihat perenggan 28). G
(2) Plaintif telah memenuhi kesemua keperluan prosedur di bawah ss 181A
dan 181B Akta dan ia adalah kes yang layak untuk mahkamah
membenarkan izin yang dipohon (lihat perenggan 29).]

Notes H
For a case on suit against directors, see 3(1) Mallal’s Digest (4th Ed, 2011
Reissue) para 145.

Cases referred to
Celcom (M) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 363; [2010] 7 CLJ 808, I
CA (refd)
Discovery Enterprises Inc v Ebco Industries Ltd [1997] BCTC LEXIS 5338, CA
(refd)
Mohd Shuib Ishak v Celcom (Malaysia) Berhad [2008] 1 LNS 314, HC (refd)
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 833

A R v Secretary of State for the Home Department, ex p Rukshanda Begum [1990]

COD 107, CA (refd)
Tang Kwor Ham & Ors v Pengurusan Danaharta Nasional Bhd & Ors [2006] 5
MLJ 60; [2006] 1 CLJ 927, CA (refd)
Thien Kon Thai, Re [2008] 6 MLJ 278, CA (refd)
B Tuan Sarip Hamid & Anor v Patco (Malaysia) Berhad [1995] 2 MLJ 442;
[1995] 3 CLJ 627, SC (refd)
Legislation referred to
Companies Act 1965 ss 181A, 181B, 181B(2), (4), 181E
C
Yap Han (Loh Mei Ching with him) (Mah-Kamariyah & Philip Koh) for the
plaintiff/ respondent.
Rajan Navaratnam (Rajan Navaratnam) for the defendant/appellant.

D Hasnah Mohammed Hashim J:

INTRODUCTION

[1] Enclosure 1 is the plaintiff originating summons dated 24 October 2011

E bearing an application pursuant to ss 181A, 181B and 181E of the Companies
Act 1965 (‘CA’) for leave to bring an action on behalf of the defendant
company against the former and current directors of the defendant:
(1) Leave be granted to the plaintiff to commence and/or bring action
F against the former and current directors of the defendant namely:
(a) Y Bhg Dato’ Nik Ezar Bin Nek Bolia
(b) Ramakrishnan a/l S Navaratnam
(c) Dato’ Abdullah Bin Mohd Zain
G
(d) Dato’ Mohamed Kamal Bin Hussain
(e) Dato’ Sri Md Kamal Bin Bilal
(f ) Jamal Mohamed Bin Sma Mohamed Mydin
H (g) Dato’ Paduka Khairuddin Abu Hassan
(h) Fong Heng Leong
(i) Chan Kim Chee
I and/or such other parties liable to the defendant arising from the
defendant’s investment in the foreign asset management company as
disclosed in the defendant’s annual report, within 30 days from the
date of the order, in the name and benefit of the defendant;
(2) Leave be granted to the plaintiff to commence, bring and/or maintain
834 Malayan Law Journal [2013] 7 MLJ

action including any interlocutory applications against the aforesaid A

parties in the name and benefit of the defendant;
(3) Leave be granted to the plaintiff to oppose, in the name and for the
benefit of the defendant, any appeal and/or any interlocutory application
filed and/or made by the aforesaid parties; B
(4) Encik Zakaria bin Sharif or any other officer nominated by the Plaintiff
is hereby authorized to control the conduct of the above-mentioned
proceedings, including instructing solicitors;
(5) The defendant and/or its agent, solicitors, auditors, accountants, officer C
and/or employee shall provide all information and assistance including
affirming affidavits and/or statutory declarations and/or witness
statements as required for proper conduct of the above-mentioned
proceedings;
D
(6) The defendant and/or its agent, solicitors, auditors, accountants, officer
and/or employees shall disclose all documents including documents in
written, printed or electronic form for inspection of the Plaintiff or its
solicitors or authorized officer, as required for proper conduct of the
above-mentioned proceedings; E
(7) The plaintiff and/or its solicitors or authorized officer shall be entitled to
duplicate or make copy of the above mentioned document and use them
in the proceedings commenced and/or brought in the name of the
defendant; F
(8) The defendant shall forthwith indemnify the plaintiff in respect of all
costs, expenses, disbursement, tax and/or legal fees incurred for bringing,
commencing and/or maintaining the above-mentioned proceedings;
(9) Parties are at liberty to apply for further directors or orders; G
(10) Such other order, relief or direction as this honourable court may deem
fit; and
(11) The cost of and incidental to this application be paid by the Defendant to
the plaintiff. H

[2] The grounds for the application are as follows:

(a) the plaintiff is a minority shareholder in the defendant;
(b) in the defendants’ annual report it was stated that the defendant had I
placed investment exceeding RM100m in foreign asset management
company. Out of the total investment of RM112,000,000 the defendant
had only received RM4,000,000 (the investment sum). However the
sum of RM108,000,000 is still due and owing;
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 835

A (c) the company which owes the investment sum is a company known as
Boston Asset Management Pte Ltd;
(d) the defendant admitted that the sum is due and owing by Boston as
indicated in its report financial statement ended 30 November 2003;
B (e) no steps were taken by the defendant to recover the balance of the
investment sum;
(f ) the plaintiff vide its solicitors through a series of letters inquired into the
progress of the recovery of the investment sum. The defendant through
C its solicitors notified that a letter of demand had been issued and a writ of
summons may be filed against Boston;
(g) since there was no update as to the progress of the recovery action the
plaintiff then issued a letter pursuant to s 181B(2) of the CA indicating
its intention to commence a derivative action against the defendant; and
D
(h) on 3 June 2009 the plaintiff filed an OS for leave to commence action
against Boston. Through the affidavits it was discovered that:
(i) the defendant had commenced an action against Boston on 28
January 2010;
E
(ii) the said suit was struck out by the High Court as no action was taken
by the defendant after the filing of the writ. However the defendant
then proceeded to file another suit. The second suit also suffered
from the fate as the defendant did not take any further action to file
F an extension to serve the writ out jurisdiction; and
(iii) Boston was subsequently wound up on 3 December 2010 by the
High Court of the Republic of Singapore. The plaintiff then decided
to withdraw the second suit. The defendant however did not file any
proof of debt despite request from the plaintiff.
G

SALIENT BACKGROUND FACTS

H [3] The plaintiff is a registered member of the defendant and holds

6,000,000 units of shares in the defendant representing 10% of its issued and
paid up shares capital. The defendant had invested RM112,000,000m in a
foreign asset management company. Out of the total investment of
RM112,000,000 the defendant had only received RM4,000,000. An amount
I of RM108,000,000 was due and owing by the investment company. This is
reflected in the notes to the financial statement of the defendant dated 30 April
2001.

[4] Paragraph 18 reads:

836 Malayan Law Journal [2013] 7 MLJ

The IMA was opened with a foreign asset management company (‘FAMC’) with A
authorization for the FAMC to make discretionary investments in Malaysia. The
FAMC acquired 70% equity interest in a property based group (‘PBG’). The PBG
owns nineteen (19) parcels of development land valued on 28 September, 2001 by
a firm of professional valuers to be approximately RM400 million. The FAMC has
guaranteed, upon notice of withdrawal or termination, to repay the principal
amount placed together with the guaranteed return of 5% per annum either via the B
transfer of assets or the proceeds from disposal of the property based investment,
under the IMA.
Subsequent to the financial year end, the FAMC settled the interest accrued as at 30
April, 2003 amounting to RM4,450,000 including interest up to 31 August, 2003
and also partially repaid the placement amounting to RM4,000,000. The balance of
the placement amounting to RM108,000,000 with interest thereof will either be C
repaid to the Company on or before 30 November, 2003 or as requested by the
Company via the set off of the amounts payable amounting to RM79,000,000 for
the proposed acquisition of the remaining 48% equity interest in SASB. The balance
of the placement after the proposed set off amounting to RM29,000,000 with
interest thereof will be repaid to the Company on or before 30 November, 2003.
D

[5] The notes to the financial statements from 2002–2008 also had
explanations clarifications with regards to the said investment. The defendant
had demanded the refund of the capital sum together with interest since
December 2005. Until 2008 there is no mention of status of the recovery of the E
RM108,000,000. In the annual reports the defendant did not mention of any
litigation for the recovery of the said sum.

[6] The plaintiff then through its lawyers issued a letter inquiring from the
defendant whether legal action had been field to recover the debt from Boston.
The defendant informed the plaintiff that they were studying the matter and F
will revert after 21 days. The defendant’s solicitors subsequently informed the
plaintiff that the defendant had through another solicitors issued a letter of
demand against Boston and that there is an intention to file a writ and
statement of claim against Boston.
G
[7] By letters dated 24 June 2008 and 4 September 2008 the plaintiff ’s
solicitors wrote to the defendant’s solicitors to inquire and follow up on the
status of the recovery action. They were informed to write directly to the
defendant. Therefore by a letter dated 11 September 2008 the plaintiff through
its solicitors wrote to defendant to inquire the status of the recovery action. The H
defendant replied that the defendant’s board would reply to the plaintiff ’s
query. However, the defendant’s board failed to so and as a result this plaintiff
commenced this action under s 181A against the directors of the defendant.

THE LAW
I

[8] Section 181A of the CA provides:

(1) A Complainant may, with the leave of the Court, bring, intervene in or
defend an action on behalf of the company.
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 837

A (2) Proceedings brought under this section shall be brought in the company’s
name.
(3) The right of any person to bring, intervene in, defend or 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,
B
‘complainant’ means:
(a) a member of a company, or a person who is entitled to be registered
as a member of a company;
(b) a former member of a company if the application relates to
C circumstances in which the member ceased to be a member;
(c) any director of a company; or
(d) the Registrar, in case of a declared company under Part IX.

D [9] Section 181B provides:

(1) An application for leave of the Court under 181A shall be made by
originating summons and no appearance need to be entered.
(2) The complainant shall give thirty days notice in writing to the directors of
E his intention to apply for the leave of Court under.
(3) Where leave has been granted pursuant to an application under 181 A, the
complainant shall initiate proceedings in Court within thirty days from
the grant of leave.
(4) In deciding whether or not leave shall be granted the Court shall take into
F 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
the application for leave be granted.
G
[10] In deciding whether or not leave should be granted the plaintiff as the
complainant must show to the court that the requirements pursuant to s 181B
has been complied:
H (a) a thirty days notice in writing has been given to the directors of his
intention to apply for the leave of the court;
(b) the complainant is acting in good faith; and
(c) it appears prima facie to be in the interest of the company that the
I application for leave is granted.

[11] Abdull Hamid Embong JCA (as he then was) through his judgment in
Celcom (M) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 363; [2010] 7 CLJ 808
said explained that:
838 Malayan Law Journal [2013] 7 MLJ

The intention of ss 181A–E of the CA is to enable a member, present or past, to seek A

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 of
leave. Granting leave is therefore final in that sense and not interlocutory in B
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 of the RHC (application for judicial review) ie, to
determine if an application for judicial review is not frivolous or vexations by relying
on cases like Clear Water. The learned judge must as a matter of judicial prudence C
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 prime 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 compliance to those statutory requirements,
(see Chariton v Baber 21 ACIC 1671). D

[12] Gopal Sri Ram JCA (as he then was) in the case of Tang Kwor Ham &
Ors v Pengurusan Danaharta Nasional Bhd & Ors [2006] 5 MLJ 60; [2006] 1
CLJ 927 said that for leave application the High Court should not go into the E
merits of the case at the leave stage. Its role is only to see if the application for
leave is frivolous. All that is required for the applicant to show is that there is
some substance in the grounds supporting the application. In the Supreme
Court case of Tuan Sarip Hamid & Anor v Patco (Malaysia) Berhad [1995] 2
MLJ 442; [1995] 3 CLJ 627 the court referred to the case of R v Secretary of F
State for the Home Department, ex p Rukshanda Begum [1990] COD 107 where
the Court of Appeal in England laid down the guidelines to be followed by the
court when considering an application for leave, in the following terms:

(i) The judge should grant leave if it is clear that there is a point for further G
investigation on a full inter partes basis with all such evidence as is
necessary on the facts and all such argument as is necessary on the law.
(ii) If the judge is satisfied that there is no arguable case he should dismiss the
application for leave to move for judicial review.
H
(iii) If on considering the papers, the judge comes to the conclusion that he
really does not know whether there is or is not an arguable case, the right
course is for the judge to invite the putative respondent to attend and
make representations as to whether or not leave should be granted. That
inter partes leave hearing should not be anywhere near so extensive as a full
substantive judicial review hearing. The test to be applied by the judge at I
that inter partes leave hearing should be analogous to the approach
adopted in deciding whether to grant leave to appeal against an arbitrator’s
award, … namely: if, taking account of a brief argument on either side, the
judge is satisfied that there is a case fit for further.
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 839

A ACTING IN GOOD FAITH

[13] In an application for leave under pursuant to s 181A of the CA a

complainant must show that it is acting in good faith, and that it is prima facie
in the interests of the company that the action be brought. The complainant
B must demonstrate that there is a reasonable basis for the complaint and that the
proposed action is legitimate and arguable.

[14] The Court of Appeal in the Celcoms’ case said that:

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) of the CA). 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 a
D collateral purpose.

[15] In Mohd Shuib Ishak v Celcom (Malaysia) Berhad [2008] 1 LNS 314
Ramly Ali J (as he then was) adopted the following principle:
E
The test for good faith was dealt with by the Supreme Court of British Columbia in
Primex Investments Ltd v Northwest Sports Enterprise [1995] CanLII 717(BC SC),
where the court considered the requirement under s 225 of the BC Company Act in
an action where the petitioner applies for leave to bring a derivative action in the
name of Northwest Sports Enterprise Ltd against several of its current directors,
F together with companies in which some of them have an interest. Mr Justice Tysoe
in finding the applicant acted in good faith appears to tie the requirement of ‘good
faith’ to the test of the ‘interest of the company’. He stated that were 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. In that case,
G there was no evidence the applicant was using the prospect of a derivative action as
a threat in order to extract some advantage from the company. Tysoe J also indicates
that an applicant advancing self-interest is not necessarily acting in bad faith.

[16] Learned counsel for the defendant submitted that the plaintiff ’s
H application is not premised on acting in good faith. The reasons are as set out
below:
(a) there was no full and frank disclosure of the facts by the plaintiff. The
plaintiff ’s representative was a member of the defendant’s board of
I directors;
(b) the plaintiff had never raised any allegations that the directors of the
defendant had failed and/or neglected and/or refused to take any action
to recover the investment sums. The plaintiff is therefore estopped from
raising the objections (Re Thien Kon Thai [2008] 6 MLJ 278);
840 Malayan Law Journal [2013] 7 MLJ

(c) the plaintiff had not filed any complaints against the defendant’s directors A
to the Companies Commission of Malaysia or Securities Commission
alleging neglect, conspiracy or negligence;
(d) the investment agreement was entered into with the knowledge and
agreement of the board of directors. The plaintiff ’s representative was a B
member of the board. Therefore the plaintiff was aware of the said
investment as reflected in the defendant’s financial reports. Further the
plaintiff did not raised any objection neither did it take any steps nor
made any complaints despite knowing that the sums may not be fully
recovered; and C
(e) no steps were taken to remove the directors or to vote against the
reappointment of any of the directors.

[17] Learned counsel for the plaintiff argued that the plaintiff is not D
objecting to the investment made. The application is filed because of the
defendant’s the failure and/or refusal of the directors of the defendant to take
steps to recover the investment sum due and owing to the defendant by Boston.

[18] It was discovered through the affidavits filed by the defendant that there E
was a suit filed by the defendant in the Shah Alam High Court (22–537 of
2007). However no further action was taken and the suit was subsequently
struck out by the Shah Alam Court. Another suit was filed (22–157 of 2010)
on 4 February 2010. In this suit no action was taken to serve the writ out of
F
jurisdiction during the validity of the writ of summons.

[19] The plaintiff also filed an Originating Summons (D24–164 of 2009)

on 24 November 2011. In that suit the plaintiff had sought leave to bring an
action against Boston to recover the investment sum. However the plaintiff G
then withdrew the aforesaid suit as by that time Boston had been wound up on
3 December 2010 by the High Court of the Republic of Singapore.

[20] It is further submitted that the breach of the directors’ duties were made
evident when the directors of the defendant refused to file proof of debt H
(‘POD’) against Boston when it was wound up on 3 December 2010 by the
High Court of the Republic of Singapore. The refusal to file the POD was on
the basis there is no judgment. The plaintiff subsequently demanded further
clarification and/or explanation from the directors of the defendant concerning
the failure to pursue the debt. The defendant however did not respond to the I
plaintiff ’s request.

[21] It is the submission of learned counsel of the plaintiff that the case of Re
Thien Kon Thai referred to by the defendant is not applicable as it relates to a
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 841

A fraudulent act of the defendant who had transferred and registered the land in
the name of Madam Thien who was not a party to the suit.

[22] The main reason the plaintiff commenced this action is because the
defendant had not proceeded diligently to recover the investment sums nor
B given any reasonable explanation why it had not pursue the recovery of the
investment sum. The plaintiff had written to the defendant requesting for an
explanation for the failure to pursue the recovery of the investment but the
directors of the defendant have failed to respond or reply to that letter. No
explanation has been given by the defendant for the reluctance to file the proof
C of debt against Boston.

[23] The duties and obligations of the directors are:

(a) To exercise skill, care and diligence in performance and discharge of their
D duties;
(b) To act honestly and use reasonable diligence in performance and discharge
of their duties;
(c) To perform and discharge their duties in the best interest of the defendant;
E (d) To perform and discharge their duties for proper purpose;
(e) Fiduciary duties to the defendant.

[24] It is the plaintiff ’s submission that the directors:

F
(a) Failed and/or neglected and/or refused to recover the returns of 5% per
annum on the funds even though Boston has guaranteed the returns since
year 2001;
(b) Failed and/or neglected and/or refused to reasonably and diligently
G proceed with legal action against Boston;
(c) Failed and/or neglected and/or refused to take necessary actions in Shah
Alam High Court Suit No. 22-537-2007, resulting it being struck out by
the High Court;
H (d) Failed and/or neglected and/or refused to take any active steps to apply to
serve the Writ of Summons and Statement of Claim in Shah Alam High
Court Suit No. 22-157-2010 out of jurisdiction;
(e) Delay in taking recovery steps which deprive the defendant’s earliest
opportunity to recover the debt from Boston;
I
(f ) Failed and/or neglected and/or refused to take any action including filing
proof of debt with the liquidators of Boston to recover the debt;
(g) The circumstances of this case also provide strong inference that:
(i) The directors had acted to protect Boston instead of the defendant;
842 Malayan Law Journal [2013] 7 MLJ

(ii) The directors had conspired with Boston by delaying their recovery A
action until winding up to Boston;
(iii) The directors had delayed the recovery action with a view to defeat
the defendant’s recovery action.

B
[25] The directors of the defendant must exercise skill, care and diligence in
performance and discharge. As the custodian of the defendant the directors are
duty bound to explain their actions to the plaintiff. The plaintiff have shown
through its affidavits that it is acting in good faith and in the best interest of the
company in bringing this action against the defendant. There is no evidence
that this application is made in bad faith or for collateral purposes. C

INTEREST OF THE COMPANY

[26] Another point that the court must consider deciding whether to grant
D
leave into when is whether ‘if it appears prima facie to be in the best interest of
the company that the application for leave be granted’.

[27] The test of whether an action is prima facie in the interests of the
company can be found in the case of Discovery Enterprises Inc v Ebco Industries E
Ltd [1997] BCTC LEXIS 5338:
The real question here is whether in the circumstances of this case, ‘it is prima facie
in the interests of the company that the action be brought’ (s 222(3)(c)). It will be
noted that the legislature has said that it is sufficient to show that the action sought
is prima facie in the interest of the company and does not appear to require that the F
applicants prove a prima facie case. Presumably the authors of that legislation had in
mind that a minority shareholder being in a real sense on the outside is often not in
a position to obtain evidence such as that the Crown could be expected to put
forward to found a prima facie case in a criminal matter.
G
[28] In the present case, the complaints by the plaintiff as shown in all the
affidavits are not without basis or substance. Even as minority shareholder the
plaintiff has the right to take a derivative action to protect the interest of a
company.
H
DECISION OF THE COURT

[29] Upon reading the originating summons and the relevant affidavits and
upon a consideration of the written submissions by counsel for both parties, I
held that this was a fit and proper case for the court to grant leave to the plaintiff I
to commence a derivative action in the name of the defendant against the
directors of the defendant. The plaintiff has, at this stage, complied with all the
procedural requirements as required under ss 181A–181B of the CA to obtain
leave.
 Lembaga Tabung Angkatan Tentera v Prime Utilities Bhd
[2013] 7 MLJ (Hasnah Mohammed Hashim J) 843

A [30] Based on the above considerations the court grants leave in favour of the
plaintiff as in prayer (1) of the application with costs.

Application granted with costs.

B
Reported by Ashok Kumar