Dato' Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn. Bhd. (WA-24NCC-677-12/2023)

This Originating Summons was filed on 5-12-2023 by the Plaintiff for leave to commence a derivative action on behalf of the Defendant pursuant to sections 347 and 348 of the Companies Act 2016 (“CA”). It is a straightforward matter, but the hearing was delayed by numerous procedural disruptions. This Court allowed the application in part on 29-5-2026. Background facts

The Defendant is a joint venture between Nautical Supreme Sdn. Bhd. (“NSSB”) and Azimuth Marine Sdn Bhd (“AMSB”) pursuant to a Shareholders Agreement dated 15-3-2013 (“Shareholders Agreement”). It was incorporated for the sole purpose of carrying on the business of a harbour tugboat operator for Vale Malaysia Minerals Sdn Bhd (“Vale”) and has, to this end, entered into a Harbour Tug Services Agreement dated 11-4-2013 (“HTSA”).

According to the Shareholders' Agreement, the shareholding ratio in the Defendant is 80:20 in favour of AMSB as the majority. The Board of Directors has the same control structure, in that AMSB and NSSB may respectively nominate 4 and 2 directors for up to a maximum of 6 directors. The contemplated derivative action is directed against:

Dato’ Sri Suresh Emmanuel Abishegam (“Suresh”), Jaya Sudhir A/L Jayaram, Mak Lin Kum, Ahmad Lutfi Bin Abd Latiff and Dato’ Sri Abd Rahim Bin Jaafar, who collectively, are the majority directors aligned to AMSB at the material time (“Majority Directors”); and

Azimuth Ship Management Sdn Bhd (“ASM”), which is the Defendant’s ship manager tasked with managing and operating the tugboats under the HTSA.

The Defendant has 7 tugboats chartered by Vale. Each of the tugboats is operated and managed by a crew of 7 members employed by ASM. It is not in dispute that since 4-12-2015, Vale had invoked its rights under the HTSA to lay-up 2 of the Defendant’s 7 tugboats, and one of these tugboats later sank on 19-9-2016 in an unrelated incident.

The disputes between the parties in this action are centred around the Defendant’s ship management agreement with ASM dated 12- 4-2013, which is based on the standard BIMCO ship management contract (“BIMCO Agreement”). Under the BIMCO Agreement, the Defendant is to pay ASM its operating expenses (“OPEX”) based on an initial budget of USD640,000.00 per annum per tugboat as ship management costs. This was charged to the Defendant for the first year of operations in 2016. Both the HTSA and BIMCO Agreement are 15-year contracts.

The factual premise for the intended derivative action lies in the annual increases in OPEX beyond the initially budgeted amount that the Majority Directors have caused the Defendant to pay ASM over the years without substantiation. The Plaintiff contends that ASM is in breach of contract or is liable to give restitution for unjust enrichment and that the Majority Directors are in breach of their fiduciary duties to the Defendant over these payments. The contention of the putative defendants is that the BIMCO Agreement allows for an automatic yearly increase of 3.5%. Analysis and findings

The law on statutory derivative actions at the leave stage is settled, most recently restated by the Federal Court in an appeal involving other disputes between the same parties. That appeal concerned 2 leave applications involving the sinking of the tugboat (leave was disallowed) and the accounting for shareholder advances (leave was allowed). See the Federal Court judgment in Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd and anor appeal [2024] CLJ 499 (“Shareholder Advance Case”).

To recap, the following requirements must be fulfilled for leave to be granted to the Plaintiff to commence derivative proceedings on behalf of the Defendant: a) the Plaintiff has locus standi per section 345 of the CA; b) a 30-day statutory notice in writing has been given to the directors of the Defendant of the Plaintiff’s intention to apply for leave per section 348(2) of the CA; c) the Plaintiff is acting in good faith per section 348(4)(a) of the CA, such good faith requiring the Plaintiff to establish the following i.e. (i) honest belief that there exists a good cause of action with a reasonable prospect of success; and (ii) absence of any collateral purpose; and d) it appears prima facie to be in the best interests of the Defendant that leave is granted to commence derivative proceedings.

In opposing leave, the Defendant raised challenges on all of the elements to be proven. Locus standi

On 25-11-2025, the Defendant had raised a locus standi objection through an application to strike out this Originating Summons. The basis for the striking out application arose after the commencement of this action, namely that the Plaintiff had ceased to be a director of the Defendant. This Court dismissed the striking out application (see Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd [2026] MLJU 1005).

In opposing Enclosure 1, the Defendant raised a different basis for objection on the Plaintiff’s locus standi. It relied on remarks from Hunter v Senate Support Services Ltd and others [2005] 2 BCLC 175 (“Hunter”), a case cited by the Court of Appeal in Celcom (M) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 636 (“Celcom”), to argue that as a director, the Plaintiff is not a genuinely aggrieved party because his personal interests are unaffected.

There is no authority that supports the Defendant’s proposition that an applicant for leave must also demonstrate a personal grievance and Celcom and Hunter did not assist the Defendant: a) The respondent’s locus standi in Celcom was a central issue of the case. However, the Court of Appeal had scrutinised whether the respondent, who was a former shareholder of Celcom, qualified as a “complainant” under section 181A(4)(b) of the Companies Act 1965 and the respondent failed to establish the nexus between his complaint and circumstances in which he ceased to be a member. b) Hunter is a UK court decision that did not concern a derivative action nor was it framed as one. In Hunter, the claimant challenged the forfeiture of his minority shareholdings and the issue was whether estoppel by representation or convention prevented the companies from denying that the claimant’s shares were fully paid. The observations on locus standi were therefore cited in an unrelated context.

This Court therefore finds the Defendant’s argument to be misconceived. The current statutory derivative action regime in Malaysia identifies the parties vested with the requisite locus standi in section 345 of the CA. That provision remains unchanged from the superseded section 181A(4) and reads as follows: “For the purposes of this Division, “complainant” means -

a member of a company, or a person who is entitled to be registered as a member of a company;

a former member of a company if the application relates to the circumstances in which the member ceased to be a member;

any director of a company; or

the Registrar, in the case of a company declared under section 590.”

In this case, the Plaintiff is a director and nominee of the minority shareholder. He clearly qualifies to seek leave to start a statutory derivative action against the Majority Directors in control of the Defendant and ASM. There is no need for him to prove a personal grievance as contended by the Defendant. The intended derivative action is, by definition, for the vindication of the company’s rights as the party aggrieved. Good faith

As the Federal Court affirmed in the Shareholder Advance Case, the inquiry into good faith involves two distinct considerations: first, whether the applicant honestly believes that a viable cause of action exists with a reasonable prospect of success; and second, whether the application is free from any collateral or ulterior purpose.

Honest belief in good cause of action

In assessing “honest belief”, the inquiry comprises both subjective and objective components, namely (1) whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success (subjective component), and (2) the applicant may be disbelieved if no reasonable person in the circumstances could hold such belief (objective component).

As it relates to the subject matter of this action, the underlying substantive issue in disputes between the Plaintiff and the Majority Directors/ASM is whether the BIMCO Agreement provides for OPEX payable on an automatic escalation at the rate of 3.5% per year and/or whether ASM is required to substantiate any increase in OPEX claimed.

The legal question whether OPEX increases are contractually mandated or conditional upon substantiation by ASM is central to determining whether the Plaintiff or any reasonable person or director could have entertained an honest belief that there is a good cause of action with reasonable prospects of success against ASM and the Majority Directors.

It is therefore instructive to first consider the legal merits of the contractual interpretation issue before evaluating whether there is subjective honest belief in the contemplated cause of action by the Plaintiff against ASM and whether, in those circumstances, the Majority Directors acted reasonably or in breach of their fiduciary duties. Breach of contract/Unjust enrichment

The relevant provisions of the BIMCO Agreement are as follows: “13. Budgets and Management of Funds

The Managers’ budget is set out in Annex “C” hereto. Subsequent budgets shall be on an escalation of 3.5% per annum and shall be for twelve-month periods and valid for the calendar year.

The Managers shall prepare and present to the Owners their estimate of the working capital requirement for the Vessel and shall each month request the Owners in writing to pay the funds required to run the Vessel for the ensuing month, including the payment of any occasional or extraordinary item of expenditure, such as emergency repair costs, additional insurance premiums, bunkers or provisions. Such funds shall be received by the Managers within ten running days after the receipt by the Owners of the Managers’ written request and shall be held to the credit of the Owners in a separate bank account.

The Managers shall at all times maintain and keep true and correct accounts in respect of the Management Services in accordance with the relevant International Financial Reporting Standards or such other standard as the parties may agree, including records of all costs and expenditure incurred, and produce a comparison between budgeted and actual income and expenditure of the Vessel in such form and at such intervals as shall be mutually agreed. The Managers shall make such accounts available for inspection and auditing by the Owners and/or their representatives in the Managers’ offices or by electronic means, provided reasonable notice is given by the Owners.

Notwithstanding anything contained herein, the Managers shall in no circumstances be required to use or commit their own funds to finance the provision of the Management Services.”

The Defendant argued that since clause 13 of the BIMCO Agreement had been amended by deleting clause 13(b) that would otherwise require the Defendant’s agreement to a proposed annual budget to be presented by ASM before the end of each calendar year, this must mean that clause 13(a) of the BIMCO Agreement has fixed ASM’s remuneration and annual escalation for the duration of the contract.

This Court is unpersuaded that the Defendant’s interpretation is obviously right. The Plaintiff’s alternative interpretation of clause 13(a) of the BIMCO Agreement accords with a legitimate and arguable construction of the term “budget” for the year, when it is considered in the context of the rest of clause 13. Objectively, those express contractual obligations for ASM to: a) present a monthly “estimate of working capital requirements” when requesting payment for the ensuing month; b) maintain such funds when paid in a separate bank account to the Defendant’s credit; c) maintain true and correct accounts, including records of all costs and expenditure incurred; d) produce a comparison between the budgeted and actual expenditure of the Vessel; and e) make such accounts available for inspection and auditing by the Defendant suggest that “budget” was intended to convey the ordinary meaning of a financial plan or estimate of anticipated expenditure. Typically, a budget identifies projected spending and allows for the allocation of resources for planning purposes; it does not, without more, establish an automatic entitlement to incur expenditure or receive payment in the budgeted amount.

Thus, while ASM may increase its budget by 3.5% annually, such a provision does not confer an unrestricted entitlement to request payment and receive payment according to this increased budget without proper justification. The deleted clause 13(b) of the BIMCO Agreement also removed the ability for either party to terminate the contract based on budget disagreements and this may have been the primary intent, not to fix ASM’s remuneration.

In light of the foregoing, the Plaintiff’s approval of the BIMCO Agreement and the first-year budget cannot give rise to an estoppel against the Plaintiff in respect of subsequent annual budget increases that are not supported. The position taken by the Plaintiff is not without an arguable basis and he cannot be estopped from asserting his interpretation of clause 13 if he approved the BIMCO Agreement on a different understanding of it from the Majority Directors.

It is noted that the Plaintiff had approved a 3.5% increase of OPEX on 2-11-2016, but not without question. His persistence in questioning and disapproval of the automatic increase in OPEX since then is testament to his subjective honest belief that the Defendant is being denied its legitimate contractual rights to reduce actual OPEX. Accordingly, this Court is satisfied that the first limb of the good faith requirement is met on both a subjective and objective test. Breach of fiduciary duties

According to the Plaintiff, the increased OPEX represents a significant portion of the Defendant’s expenditure and these averments in the affidavits, supported by documentary evidence and financial data, were not specifically disputed by the Defendant. The following were additional facts highlighted by the Plaintiff: a) ASM has not lodged its audited accounts since 2015; b) Suresh as the Managing Director of the Defendant has a disclosed conflict of interest as a director, shareholder and ultimate owner of ASM; and c) despite repeated calls, the Majority Directors have refused to force ASM to justify and substantiate the increased OPEX payments.

There is evidence of numerous specific written queries and demands from the Plaintiff about the unsubstantiated OPEX increases, but no satisfactory response addressing the possibility that the Plaintiff’s concerns may be well-founded. It is not obvious that a court hearing the derivative action will construe clause 13(a) of the BIMCO Agreement as the Defendant suggests.

Further and in any event, there is no evidence that clause 13(c) of the BIMCO Agreement has been complied with, and considering that ASM has not even filed statutory accounts, this Court also entertains serious doubt as to whether ASM ever intended to comply with clause 13(d) of the BIMCO Agreement. These are breaches of the express contractual obligations by ASM that the Majority Directors have said nothing about.

It is trite that the Majority Directors owe an overriding duty to the Defendant to exercise due skill, care and diligence and to act in the best interest of the Defendant at all times. In the present context, the Majority Directors were content to accept the automatic yearly increase in OPEX and authorise monthly payments as requested by ASM without any meaningful visibility on ASM’s actual expenditure to justify the depletion of monies paid and held to the Defendant’s credit each month.

The fact that Suresh has disclosed his conflict of interest as Managing Director of the Defendant vis-à-vis the company’s dealings with ASM does not excuse Suresh from his overriding duty to the Defendant when it comes to ASM’s contractual obligations. If anything, it is a circumstance that calls for heightened vigilance and fidelity to the Defendant’s interests on Suresh’s part. This much should also be obvious to the other Majority Directors.

In the circumstances, this Court is of the view that there is also a reasonable prospect of successfully proving breach of fiduciary duties by the Majority Directors. Legal defences to intended derivative action

The Defendant has also raised other defences to the intended derivative action, including: a) Time bar and estoppel: the intended action is time-barred or that the Plaintiff is estopped because he only filed this Originating Summons in 2023; b) Res judicata: the intended action is an abuse of process as the Plaintiff could have but failed to raise his dissatisfaction with the OPEX in earlier litigation but chose to litigate in instalments; and c) Business Judgment: the intended action amounts to interference with the business judgment of the Majority Directors in matters of internal management.

The legal defences above involve questions of fact or mixed fact and law and are not threshold issues with a clear-cut answer. They are to be raised in the derivative action proper. When considering the merits of the intended claim at the leave stage to evaluate whether it is in the best interest of the Defendant to pursue it (discussed below), it is not the function of the court to hold a mini-trial of the intended claim. It is even less so when determining the honest belief of the Plaintiff in the merits of the intended claim.

Collateral purpose

As explained in the Shareholder Advance Case, a collateral purpose sufficient for leave to be denied depends on the motives which trigger the application. A key quality of such a disqualifying collateral purpose is that it is unrelated to the subject matter of the intended derivative action and, ‘but for’ the existence of such ulterior purpose, proceedings would not have been commenced at all. Thus: a) if the plaintiff brings a derivative claim for the benefit of the company, he will not be disqualified from doing so if there are other benefits which he will derive from the claim; and b) disagreements, animus and hostility between directors of opposing factions are not by themselves indicative of a collateral purpose.

The Defendant did not clearly articulate what the Plaintiff’s alleged collateral purpose is other than to assert that the Plaintiff’s actions were calculated to disrupt and destabilise operations due to his personal dissatisfaction with the management and/or to extort a buyout at an extortionate price.

The Defendant has adduced neither direct nor persuasive circumstantial evidence to substantiate either of the alleged motives attributed to the Plaintiff. At best, the allegation remains a bare assertion unsupported by any cogent factual foundation and one that does not accord with commercial or common-sense realities. As noted, personal dissatisfaction, animus, or hostility, without more is insufficient to justify an inference that an application has been brought for a collateral purpose.

Further, it is instructive even if not binding, that the courts have found in other leave applications filed by the Plaintiff that he harboured no collateral purpose in doing so. These are: a) the Shareholder Advance Case in respect of both the sinking of the tugboat and the accounting of shareholder advances; and b) KLHC Suit No: WA-24NCC-629-11/2023 (Management Fee Case). In both judgments, the courts affirmed the Plaintiff’s bona fides and accepted that his concerns regarding corporate governance in the Defendant were genuine. The courts also noted that similar allegations concerning his motives had been rejected in other litigation involving him.

The Defendant has otherwise largely conflated the collateral purpose point with the other elements to be proved for leave i.e. the Plaintiff is said to have a collateral purpose because: a) he is in fact pursuing the intended derivative action with an indemnity from NSSB and was not candid about it; and b) he only resuscitated his concerns via a board paper dated 15- 3-2023 but did not wait for his motion to be tabled and ventilated before launching this action.

Against the contemporaneous records of meetings and communications between the parties on the OPEX issue, the Court is unable to associate any conduct by the Plaintiff as evidence of a collateral purpose: a) The only inference from NSSB’s indemnity is that the minority shareholders support the Plaintiff’s actions as its nominee. b) As for the timing for the launching of this action, the position taken by the Defendant that the Plaintiff delayed but also jumped the gun in filing this action is somewhat contradictory but also disingenuous, especially when considered against the written and minuted oral requests from the Plaintiff and his solicitors for OPEX supporting documents since 2017 until the statutory notice on 29-9-2023, all of which appear to have been stonewalled by the Majority Directors.

Following the guidance of the Federal Court in the Shareholder Advance Case, this Court did not find any valid basis to conclude that there is a collateral purpose at play. Best interest of the company

The requirement that a derivative action is in the best interest of the company is also subject to a two-fold test i.e. whether the claim is genuine and whether commercial considerations affecting the company warrant the pursuit of the claim.

Legitimacy of intended claim

To recap, the intended derivative action is premised on a question of contractual interpretation and, factually, on both ASM’s failure to open its books and account for its actual costs and the Majority Directors’ refusal to enforce the terms to inspect and audit ASM’s accounts.

As a matter of law, it has been clarified by the Federal Court in the Shareholder Advance Case that only a prima facie consideration is required and the test is not stringent to prove that the intended claim is not frivolous or vexatious: “[41] We are therefore fortunate to have the advantage of considerable judicial opinion as to what the relevant provision "prima facie" entails when considering an application for leave. Without having to deal with the case law in detail at this point in the interest of brevity, the general approach of the courts is not to go into the merits of the case and conduct a mini trial but to consider whether the proposed action is legitimate and arguable. [42] Of course, if the claim is considered frivolous or vexatious or devoid of merit, it will be rejected outright. In other words, there must be some reasonable chance of success such that if the claim is proved, the company will stand to gain substantially in financial terms. This avoids the necessity for the court at this stage to attempt any protracted resolution of the dispute as the threshold is not so high as to suggest that the applicant must succeed but only that there is a reasonable basis for the claim (see Mackenzie v. Craig [1997] 205 AR 363; Re F & S Express Ltd [2005] 4 HKLRD 743; Re Myway Ltd [2008] 3 HKLRD; Ang Thiam Swee (supra); Ong Keng Huat (supra)).”

Considerations relating to the merits of the intended claim overlaps with the first limb of the good faith requirement. This Court has found that the claim is legitimate and arguable to meet the good faith requirement. This Court is also satisfied, prima facie, that it is in the best interest of the Defendant to pursue the intended derivative action as the company stands to gain substantially in money’s worth from unjustified overcharging of OPEX by ASM.

Commercial considerations

According to the Plaintiff, the year-on-year increase in OPEX paid to ASM without any accounting or substantiation for the increases have accumulated to USD3,513,642.30 as at March 2023 and is continuing. From 2015 to 2022, the Plaintiff has calculated that the Defendant’s net profit has decreased from 19% to 2% of revenue, while OPEX paid to ASM has increased from 27% to 35% of the revenue.

However, the courts have long recognised that whether or not it is prima facie in the best interest of the company to bring an action also involves consideration of factors beyond the legal merits of the proceedings and whether the company stands to gain in money or money’s worth. In this regard, the Defendant contended that the intended derivative action would induce a breach of the BIMCO Agreement by the Defendant and cause ASM to terminate it, which will in turn have serious repercussions in the operation and management of the tugs for Vale under the HTSA, both of which have been performing well.

The Defendant has painted a largely catastrophic picture of the consequences flowing from the intended derivative action. However, those consequences are contingent upon the suspension of OPEX increments pending trial, a relief which this Court declines to grant.

This Court agrees with the Defendant that it would be premature to make any order concerning OPEX increments before the intended derivative action has been determined. The relief sought under prayer 2(c) of the Originating Summons is, in essence, one of the substantive remedies that falls for determination in the derivative proceedings. To grant it at this stage would effectively pre-empt the adjudication of the very issues in dispute and confer interlocutory relief of a final character before the merits have been fully ventilated. Such relief, if warranted, ought properly to be sought and considered within the derivative proceedings themselves.

In the circumstances, this Court is unable to discern any real or substantial risk to the Defendant arising merely from the commencement and prosecution of the intended action.

The intended derivative action is a straightforward contractual claim brought on behalf of the Defendant to seek recovery of OPEX payments made without proper substantiation and to prevent further unjustified increases in OPEX. The proceedings are necessitated by the Majority Directors’ refusal to enforce the Defendant’s rights under clauses 13(c) and 13(d) of the BIMCO Agreement, a position founded upon a contractual interpretation which this Court has already found to be reasonably arguable and open to doubt.

For the reasons set out above, the Originating Summons in Enclosure 1 is allowed in part and the following Orders are made:

The Plaintiff be given leave of this Honourable Court to commence derivative proceedings in the name of the Defendant against the following parties:

Dato’ Sri Suresh Emmanuel Abishegam;

Jaya Sudhir A/L Jayaram;

Mak Lin Kum;

Ahmad Lutfi Bin Abd Latiff ;

Dato’ Sri Abd Rahim Bin Jaafar; and

Azimuth Ship Management Sdn. Bhd.

If leave is granted –

An order that the Plaintiff be authorised to control the conduct of the derivative proceedings; and

An order that the Defendant pays the costs incurred by the Plaintiff for the derivative proceedings to be initiated on a full indemnity basis, such costs to follow the event of the derivative proceedings; and

The costs of and incidental to this application be borne by the Defendant in the sum of RM35,000.00 subject to allocatur. Bertarikh: 22 Jun 2026 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR Peguam Untuk Plaintif: Jack Yow Pit Pin (Jasper Tan Li Jen, Wee Hee, Lee Ji Kean bersamanya) Tetuan Jasper Hee Partnership Untuk Defendan: Tunku Muhammad Sulaiman bin Tunku Harmy (Azman bin Marsaleh bersamanya) Tetuan Tunku & Partners