LIM Titt Huat v Tan Say Keng (WA-24NCC-1032-11/2022)

(M) Sdn. Bhd. terhadap Whai Cheng Auto Parts Sdn. Bhd. di Mahkamah Tinggi Shah Alam Dan Dalam perkara Seksyen 345, 347, 348 dan 350 Akta Syarikat 2016 Dan Dalam perkara Aturan 5, Aturan 7 Kaedah 2, Aturan 28, Aturan 88 Kaedah 2 dan Aturan 92 Kaedah 4 Kaedah-Kaedah Mahkamah 2012 ANTARA LIM TITT HUAT [No. K/P: 611115-07-5161] (atas kapasiti sebagai Pemegang Saham bagi Whai Cheng Auto Parts Sdn. Bhd.) ... PLAINTIF DAN

TAN SAY KENG [No. K/P: 710505-10-5315]

WHAI CHENG AUTO PARTS SDN. BHD. [No. Syarikat: 198701004173 (162843-H)] ... DEFENDAN-DEFENDAN JUDGMENT A. Introduction [1] The plaintiff filed an originating summons, seeking leave of court to defend a suit filed by Roda Berlian (M) Sdn Bhd (“Roda Berlian”) against the 2nd defendant, at Shah Alam High Court Suit No. BA-22NCC-83- 06/2022 (“Suit 83”). [2] I allowed the originating summons, and provided brief grounds for my decisions. The full grounds of my decision are as set out below. B. Background Facts The parties [3] Roda Berlian and the 2nd defendant were set up by two families, the “Lim Family” and the “Tan Family”. [4] The Lim Family holds 40% of the shareholding in Roda Berlian, while the Tan Family holds 60% of the shareholding. The original directors of Roda Berlian are the plaintiff, the 1st defendant and Lim Wooi Boo. [5] The Lim Family and the Tan Family hold 50% shareholding each in the 2nd defendant. The plaintiff and the 1st defendant are the directors of the 2nd defendant. Hostilities between the parties [6] By July 2014, The Lim Family and the Tan Family were hostile towards each other. Several discussions took place, with proposals on the sale of shares. However, no resolution was reached. [7] In 2020, Roda Berlian and the Tan Family instituted Kuala Lumpur High Court Suit No. WA-22NCC-393-08/2020 (“Suit 393”) against the 2nd defendant and the Lim Family. The suit is a claim for breach of fiduciary duties, fraud, conspiracy to defraud and injure, breach of trust, negligence and breach of contract. [8] By April 2021, representatives of the Lim Family in Road Berlian were terminated from the board of Road Berlian. Suit 83 [9] Suit 83 was filed thereafter. It involves a claim for the amount of RM1,131,711.15 alleged to be due and owing by the 2nd defendant to Roda Berlian, for loans and advances provided by Roda Berlian to the 2nd defendant. [10] As the directors of the 2nd defendant are the plaintiff (from the Lim Family) and the 1st defendant (from the Tan Family), this has led to an impasse at the board, with directors of the 2nd defendant not being able to reach a consensus to defend Suit 83. [11] The plaintiff thus filed this action to seek leave for the plaintiff to defend Suit 83 on behalf of the 2nd defendant. C. Assessment and Findings Derivative proceedings [12] The originating summons is filed under sections 347 and 348 of the Companies Act 2016 (“CA”). Section 347 grants the right to a complainant to initiate, intervene in or defend proceedings on behalf of a company, with leave of court. Section 348 sets out the process to obtain leave. [13] The relevant provisions are as follows: “347 Derivative proceedings

A complainant may, with the leave of the Court initiate, intervene in or defend a proceeding on behalf of the company ...

Proceedings brought under this section shall be brought in the company's name.

The right of any person to bring, intervene in, defend or discontinue any proceedings on behalf of a company at common law is abrogated. 348 Leave of Court

An application for leave of the Court under section 347 shall be made to the Court without the need for an appearance to be entered.

The complainant shall give thirty days' notice in writing to the directors of his intention to apply for the leave of Court under section 347.

Where leave has been granted for an application under section 347, the complainant shall initiate proceedings in Court within thirty days from the grant of leave.

In deciding whether or not the leave shall be granted, the Court shall take into account whether –

the complainant is acting in good faith; and

it appears prima facie to be in the best interest of the company that the application for leave be granted.

Any proceedings brought, intervened in or defended under this section shall not be discontinued, compromised or settled except with the leave of the Court.” (emphasis added) [14] For leave to be granted, the requirements in sections 347 and 348 of the CA must be met. [15] First, the applicant must be a “complainant” who has the right to initiate, intervene in or defend proceedings on behalf of a company pursuant to section 347(1) of the CA. [16] Next, the complainant must give 30 days’ notice in writing to the directors of the company, of his intention to apply for leave. This is set out in section 348(2) of the CA. [17] Finally, section 348(4) of the CA provides that in deciding whether or not leave should be granted, the court must be satisfied that: a. The complainant is acting in good faith; and b. It appears prima facie in the best interest of the company that the application for leave is granted. Is the plaintiff a “complainant” under section 347(1) of the CA? [18] The definition of “complainant” in section 345 of the CA includes a member and director of a company. [19] It is undisputed that the plaintiff is a member and a director of the 2nd defendant, and is thus a “complainant” as defined under section 345 of the CA. The plaintiff therefore has the locus standi to file this action. Has the plaintiff given the requisite notice to directors of the 2nd defendant? [20] Under section 348(2) of the CA, the complainant is required to give 30 days’ notice in writing to directors of the 2nd defendant, of his intention to apply for leave pursuant to section 347(1). [21] It is not in dispute that this requirement has been complied with. The plaintiff served a notice dated 7 September 2022 on the 1st defendant, who is the only other director of the 2nd defendant, to inform the 1st defendant of the plaintiff’s intention to obtain leave to defend the 2nd defendant in Suit 83. Is the plaintiff acting in good faith? [22] Section 348(4)(a) of the CA provides that in deciding whether or not leave should be granted, the court must be satisfied that the complainant is acting in good faith. [23] The test to determine whether an applicant is acting in good faith is set out in Swansson v RA Pratt Properties Pty Ltd & Anor [2002] NSWSC 583. Swansson (supra) was referred to in Celcom (Malaysia) Bhd v Mohd Shuaib Ishak [2011] 3 MLJ 636, where the Court of Appeal held that the onus of proof to show good faith is on the applicant, on a balance of probabilities. [24] The Court of Appeal went on to state that this requirement will depend on the factual circumstance before the court. The following passage of the judgment of Palmer J in Swansson (supra) was cited: “Nevertheless, in my opinion, there are at least two interrelated factors to which 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 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.” (emphasis added) [25] Based on the above, two elements must be met to satisfy the requirement of good faith: a. The first is that the applicant must honestly believe that a good cause of action exists, and has a reasonable prospect of success. This belief cannot be based on a bald assertion. b. The second is that the applicant cannot be seeking to bring the derivative action for a collateral purpose, as would amount to an abuse of process. [26] In this case, I am satisfied that the requirement of good faith has been met. [27] The application for leave is made to defend the 2nd defendant in Suit 83. Suit 83 is a claim for RM1,131,711.15 alleged to be due and owing by the 2nd defendant to Roda Berlian, for loans and advances said to have been provided by Roda Berlian to the 2nd defendant. The 1st defendant’s case is that the amount outstanding is set out in the audited accounts of the 2nd defendant, and as such, the 2nd defendant does not have a defence to the claim. [28] A closer look at the accounts however shows that the claim is not as simple as made out by the 1st defendant. The amount allegedly due has not been conclusively proven in existing documents. The amounts referred to by the 1st defendant are reflected in the accounts of Roda Berlian as amounts due by “other debtors” and “other payables” due. There are no further particulars of the amounts due, and the amounts are not reflected as owing by the 2nd defendant. [29] In Ng Hoy Keong v Chua Choon Yang & Ors [2010] 9 MLJ 145, leave was granted to the plaintiff to defend a suit on behalf of the 3rd defendant. The court held the plaintiff had shown sufficient evidence that he was acting in good faith. There were many disputed facts disclosed in affidavits filed by the plaintiff and the defendants, and as such, the court found that the issues could only be determined at full trial. [30] Similarly in this case, the documents before the court show that the claim against the 2nd defendant is inconclusive and in dispute. As such, I am of the considered view that the plaintiff would have the honest belief that there is a reasonable prospect of success in the 2nd defendant’s defence against the claim. In this regard, the first element of good faith has been met by the plaintiff. [31] In relation to the second element to meet the requirement of good faith, namely that the applicant cannot be seeking to bring the derivative action for a collateral purpose, the 1st defendant has mounted two arguments. [32] The first is related to the filing of Suit 393 by Roda Berlian and the Tan Family against the 2nd defendant and the Lim Family. Suit 393 was filed prior to the filing of Suit 83. Part of Roda Berlian’s claim against the plaintiff was allowed by the court. [33] The second is the plaintiff’s prior convictions at the Magistrate’s Court for fraud and dishonestly using forged documents. The 1st defendant further claimed the plaintiff has been disqualified from being a director. [34] The 1st defendant argued that the history of hostility and litigation between the parties, coupled with the plaintiff’s questionable character, are indications of the absence of good faith on the part of the plaintiff in this action. [35] On this issue, I am guided by Tai May Chean v United Eastern Resources Sdn Bhd & Anor [2022] 4 MLJ 779, where the Court of Appeal held as follows: “[71] With respect we do not think that just because there is a history of pending litigation between the plaintiff daughter and the defendant mother, there must then be some oblique or collateral purpose that the plaintiff is here pursuing. [72] Hostility between the parties does not equate to a lack of good faith and neither does it raise any presumption of a collateral purpose on the part of the applicant unless it is a case where the venomous vendetta of the parties has led to vile vilification, clouding all reasonable and rational decision and producing a perverted pursuit for personal gains (see the case of Pang Yong Hock and Another v PKS Contracts Services Pte Ltd [2004] SGCA 18 at paras 20 and 22). [73] Whilst we share the concern of the learned JC in that the court ‘cannot but be alive to the possibility that the plaintiff’s (TMC) conducts by the plaintiff cannot in themselves equate to a lack of good faith by the plaintiff, or lead to a conclusion that the proposed defence of sought to be obtained for the 2nd defendant in its defence of Suit 83 must be considered objectively and dispassionately, and balanced with any the 2nd defendant in Suit 83 is to protect and safeguard the interest of the 2nd defendant. This is clear from the prayers in the originating summons, which relate directly to this purpose. The plaintiff sought leave to defend the 2nd defendant in Suit 83, to file all necessary applications and to control the proceedings. The prayers do not reflect any collateral benefit on behalf of the plaintiff, that would arise from the 2nd defendant defending itself in Suit 83. On the other hand, failure by the plaintiff to take action to defend present action is part of her strategy in furthering her own personal interests in the legal proceedings against the parties therein rather than the interest of the first defendant (UER)’, the court must nevertheless assess her subjective satisfaction of having acted in ‘good faith’ and ‘in the best interest of the company’ by evaluating dispassionately the benefits that she seeks to obtain for the company through the proposed litigation.” (emphasis added) [36] Thus, hostility between the plaintiff and the 1st defendant, and past the 2nd defendant in Suit 83 is being brought for a collateral purpose. [37] Following Tai May Chean (supra), an evaluation of the benefits benefit that the plaintiff may have intended to obtain for himself. [38] I find the primary purpose of the plaintiff seeking leave to defend Suit 83 on behalf of the 2nd defendant would tantamount to a breach of the plaintiff’s duties as a director of the 2nd defendant. [39] From the considerations and findings above, I find the plaintiff has shown that the 2nd defendant’s defence of Suit 83 is not intended to be brought for a collateral purpose, so as to amount to an abuse of the process of the court. Is it in the best interest of the 2nd defendant that the application for leave is granted? [40] The next requirement that the court must be satisfied with is that it is prima facie in the best interest of the 2nd defendant for this application for leave to be granted. [41] In Celcom (Malaysia) Bhd (supra), the Court of Appeal cited with approval the test of the best interest of a company, as expounded in the following passage in Pang Yong Hock and Another v PKS Contracts Services Pte Ltd [2004] 3 SLR 1: “[21] Having established that an applicant is acting in good faith and that a claim appears genuine, the court must nevertheless weigh all the circumstances and decide whether the claim ought to be pursued. Whether the company stands "to gain substantially in money or in money's worth" (per Choo JC in Agus Irawan) relates more to the issue of whether it is in the interests of the company to pursue the claim rather than whether the claim is meritorious or not. A $100 claim may be meritorious but it may not be expedient to commence an action for it. The company may have genuine commercial considerations for not wanting to pursue certain claims. Perhaps it does not want to damage a good, long-term, profitable relationship. It could also be that it does not wish to generate bad publicity for itself because of some important negotiations which are underway.” (emphasis added) [42] The Court of Appeal went on to hold that the application for leave in that case was intended to unwind a corporate exercise undertaken by the parties, which would be a laborious, costly and complicated process. It would also have a disastrous effect on the appellant's credibility and market reputation. As such, it was held that leave should not have been granted by the High Court. [43] In the present case, weighing all circumstances, I find it to be in the best interest of the 2nd defendant that the application for leave is granted. The fact that a claim is filed against the 2nd defendant gives rise to a genuine concern. I had earlier held that the claim against the 2nd defendant is inconclusive and disputed. It is therefore in the best interest of the 2nd defendant to be allowed to defend itself. [44] The court also recognises that the right to defend itself in proceedings filed against it, is a basic right of the 2nd defendant. This is notwithstanding the 1st defendant’s contention that the claim is straightforward and there is evidence to prove the amount owing. The 2nd defendant must still be allowed to defend itself. [45] It should also be highlighted that the 1st defendant is a director of both Roda Berlian and the 2nd defendant. Yet, the 1st defendant has chosen to object to the 2nd defendant defending itself in Suit 83. The 1st defendant’s actions are in wilful dereliction of his duties as a director of the 2nd defendant, and are against the best interest of the 2nd defendant. [46] Taking these considerations into account, I am satisfied that it is prima facie in the best interest of the 2nd defendant for this application for leave to be granted. D. Decision [47] Having found that the plaintiff is acting in good faith in seeking leave to defend the 2nd defendant in Suit 83, and that it would be prima facie in the best interest of the 2nd defendant for leave to be granted, I allowed the originating summons, with costs. Dated 22 December 2023 - sgd - ADLIN ABDUL MAJID Judge High Court of Malaya Commercial Division (NCC6) Kuala Lumpur Counsel: Plaintiff : Isaac Hong Chun Hao of Messrs. Chim & Co 1st defendant : YH Yeo of Messrs. Shui Tai