Tee Keng Eing v 1. ) Family Optometry Sdn Bhd (BA-24NCC-127-10/2024)

FAMILY OPTOMETRY SDN BHD (No. Syarikat: 202201037698 (1483395-V)

YONG YIT TUNG (No. K/P: 930126-08-5937) EFENDAN-DEFENDAN GROUNDS OF JUDGMENT Introduction [1] In this action, the Plaintiff applied for leave to commence a derivative action on behalf of the 1st Defendant, Family Optometry Sdn Bhd (the ) against the 2nd Defendant, Yong Yit Fung ( ) for alleged breach of fiduciary duties as a director of the Company. [2] This is not an obvious case involving an alleged wrongdoer in control. As 50-50 shareholders and deadlocked directors on the Board of Directors of the Company, neither party can freely sue the other in the name of the Company. They both levelled similar cross-allegations of breach of fiduciary duties against each other. Background facts [3] The Company was formerly known as Famille Optique (Kinrara) Sdn Bhd. It was incorporated on 11-10-2022 and had its name changed to its present name on 5-1-2023. The Plaintiff and Yong are the only 2 directors of the Company and also hold equal shares in the Company. [4] The Company is one of 2 such establishments by the parties, the other being a company named Famille Optique Sdn Bhd. It appears that there was some initial arrangement where each company operated a physical store, and the Plaintiff managed the Company while Yong managed Famille Optique Sdn Bhd. S/N DvMp0/hbpk2ha9knwtc8hA [5] Before the events that led to this action, there were failed discussions between the parties to part ways in both companies. That process began in 2024. The Plaintiff claims that Yong reneged on an agreement in May 2024 to swap shares whereby the shares of the Company would be transferred to the Plaintiff for free, while the shares of Famille Optique Sdn Bhd would be transferred to Yong for RM300,000.00. [6] The Plaintiff focused on issues surrounding that stalled share swap and the ensuing deadlock and distrust between the parties, his disputed resignation as a director and exclusion from access to the premises of Famille Optique Sdn Bhd. As it relates to the Company, the Plaintiff asserted that Yong caused the business of the Company to cease by not cooperating in approving payments to staff, suppliers and for rent since June 2024. Analysis and findings [7] The applicant for leave under section 347 of the Companies Act 2016 ( ) must demonstrate that:

director qualifies);

directors of the Company of his intention to apply for leave;

he is acting in good faith; and

it appears prima facie to be in the best interest of the Company for leave to be granted. (see sections 348(2), 348(4) of the CA and the recent Federal Court guidance in Bhd & Another Appeal [2024] 4 CLJ 499 ) S/N DvMp0/hbpk2ha9knwtc8hA [8] That the Plaintiff qualifies as a complainant is not disputed. To oppose the application, Yong raised a procedural question on the adequacy of a purported 30-day notice to the Company as required under section 348(2) of the CA and asserted that the Plaintiff filed this action for a collateral purpose, an aspect of the good faith requirement. Failure to give proper notice [9] According to section 348(2) of the CA: directors of his intention to apply for the leave of Court under [10] The notice in this case was said to be a letter dated 23 August 2024 from Messrs YW Tan & Co to Messrs SC Fong & Co with the subject Dispute between the Teo Keng Eing and Yong Yit Tung as director and shareholder of Famille Optique Sdn Bhd and Family Optometry Sdn Bhd ( ). [11] This Court notes that the Notice was apparently part of a series of correspondence between solicitors representing the Plaintiff (Messrs YW Tan & Co) and Yong (Messrs SC Fong & Co), initiated by letters dated 12-8-2024 from Messrs SC Fong & Co to the Plaintiff and 14-8-2024 from Messrs YW Tan & Co to Yong, both containing allegations of wrongdoing and demands . [12] The Notice ended with a statement that the winding up of the 2 c shall be the only way to solve the issues between both parties and for the best interest of the companies but it also contained the S/N DvMp0/hbpk2ha9knwtc8hA following paragraph that the Plaintiff asserts to be the requisite notice under section 348(2) of the CA: [13] Yong argued that the above is not a notice under section 348(2) of the CA because it does not appear to be one. It was further argued that since the purpose and function of a notice under s. 348(2) of the CA is to give an opportunity to the directors of the company to consider, respond and accede to a request by the complainant for proceedings to be commenced in the name of the company (Independent Oil Tools Ltd v. Dato' Ramli Md Nor & Ors [2018] 5 CLJ 706; Salina Mohamad Sukor v MVD International Sdn Bhd & Anor [2019] 7 CLJ 807), it should contain details of the intended derivative action. [14] The Plaintiff, on the other hand, argued that it is a valid notice according to section 348(2) of the CA. Relying on the Court of Appeal decision in Abdul Rahim bin Suleiman & Anor v Faridah bt Md Lazim & Ors [2016] 6 MLJ 449 ), the Plaintiff submitted that there is no additional information required by law other than what appears in that section. Therefore, there is no requirement for the Notice to contain any details of the intended derivative action. [15] This Court agrees that there is no prescribed form for a notice under section 348(2) of the CA and that in this case, the Notice was effectively sent by a complainant to the directors of the Company through the agency of solicitors. This Court is also bound by the Court of Appeal S/N DvMp0/hbpk2ha9knwtc8hA decision in Abdul Rahim that section 348(2) of the CA does not require the complainant to set out any additional information, other than that he intends to apply for leave under section 347 of the CA. I will say more on this later. [16] The requirement under section 348(2) of the CA must be complied with and there is no provision for its dispensation. While there is no procedural requirement for details of the intended derivative action to be spelled out in the notice, the intention must at least be clear that the complainant will be applying for leave to file a derivative action on behalf of the company in 30 days. [17] It is not at all obvious that the Notice was issued under section 348(2) of the CA. The Notice does not state that the Plaintiff intends to apply for leave of Court under section 347 or to similar effect; instead, it states that action shall be initiated to stop all business activity and thereafter wind up the company This sounds like a pre-action notice to wind up the companies. [18] The notice may serve no purpose where the alleged wrongdoer is the recipient of the notice as in this case, or it may present a dilemma in cases where pre-action notice may prejudice the intended action, but when it must be given, it is a straightforward procedural requirement considering Abdul Rahim. Considering this, the Court is constrained to find that the Notice does not meet the requirement of a valid notice due to its ambiguity. Accepting the Notice as an adequate notice under section 348(2) of the CA would set a bad precedent for practice. S/N DvMp0/hbpk2ha9knwtc8hA Good faith [19] To also deal substantively with all material considerations, the requirements of section 348(4) of the CA are as follows:

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. [20] It is generally accepted that the best way of demonstrating good faith is to show a genuinely legitimate claim with reasonable prospects of success. According to the Court of Appeal in Celcom (M) Bhd v Mohd Shuaib Ishak [2010] 7 CLJ 808 and as confirmed by the Federal Court in , the test of good faith is two-fold:

an honest belief on the part of the complainant that a good cause of action exists and has a reasonable prospect of success; and

the absence of a collateral purpose. [21] The onus of proof to show good faith is on the Plaintiff, although it is logical that once an honest belief in the cause of action is demonstrated, the onus should shift to the Defendant to disprove it by e.g. demonstrating that there is a collateral purpose for the action. The existence of a collateral purpose does not necessarily negate honest belief in the S/N DvMp0/hbpk2ha9knwtc8hA [22] Honest belief, according to , is tested as follows: [33] It may therefore be surmised that the test for assessing honest belief comprises of both subjective and objective components, namely whether the applicant honestly believes that a good cause of action exists and has a reasonable prospect of success (subjective component), and the applicant may be disbelieved if no reasonable person in the circumstances could hold that belief (objective component). [23] In this case, this Court has disregarded all allegations and cross allegations by the Plaintiff and Yong concerning Famille Optique Sdn Bhd as it is not the subject of this action, and all personal disputes between them regarding the stalled discussions for the share swap. Although these matter in issue is Yong breach of fiduciary duties to the Company. [24] As noted at the outset, the intended derivative action on behalf of the Company against Yong for breach of fiduciary duties was initially grounded on an unspecified allegation of criminal action against Yong and the allegation that he refused to co-operate in effecting payments that disabled the Company from operating. In subsequent affidavits filed, the Plaintiff also raised the following allegations against Yong:

Failure to cooperate with the Plaintiff to sign a letter and/or tenancy agreement to extend the tenancy of the premises beyond 31-10-2024; and

Instruction by Yong to a supplier to transfer rebates belonging to the Company to Jasper Ey sister S/N DvMp0/hbpk2ha9knwtc8hA [25] To digress slightly, leave was granted for Yong to file a further affidavit (which he did in Enclosure 10) to reply to new issues raised in the-open the affidavit exchange. Issue (b) above relating to Jasper Eyewear Trading was a completely final affidavit (Enclosure 11) which this Court disregarded. Liberty was only given to reply and not to raise new allegations as there was no further opportunity to respond to any new allegations. [26] It must not be forgotten that the Originating Summons must satisfy the requirements of a pleading and have some semblance of certainty per Order 7 Rule 3 of the Rules of Court 2012. There must be sufficient particulars to identify the cause or causes of action in respect of which the plaintiff claims relief or remedy. The particulars that the Plaintiff must be tied down to in an application for leave to commence a derivative action, are of the intended derivative action. The Plaintiff cannot raise new allegations and/or rectify omissions in the Originating Summons by way of affidavits filed after the Originating Summons and the affidavit in support thereof. [27] As noted, the Plaintiff did not set out any details of the intended derivative action in the Notice. Though not a procedural requirement according to Abdul Rahim, this Court will say that the failure to furnish sufficient information to identify the intended cause of action cast doubt on the veracity of a threat of action. In this case, the Plaintiff also failed to particularise and/or adduce any evidence in support of the intended claims or provide any quantification of recoverable losses for the Company, and further sought to introduce new allegations with each affidavit filed. S/N DvMp0/hbpk2ha9knwtc8hA [28] Therefore, considering only the original claim by the Plaintiff that Yong had breached his fiduciary duties by refusing to approve necessary operational payments, there was no supporting evidence when such evidence in documentary form is expected to be available to the Plaintiff if it exists (e.g. screenshots of unapproved banking transactions, e-mails or text messages to Yong to follow up, demands from suppliers etc). In other words, there was nothing but a bald assertion of a cause of action. [29] In response, Yong had asserted that the Plaintiff was running the operations of the Company, it was the Plaintiff who decided to cease the -10-2024 without his knowledge or consent and it was the Plaintiff who refused to raise payments since June 2024 for payments to suppliers, salaries and statutory contributions. In relation to the tenancy, Yong exhibited a WhatsApp conversation with the landlord who made it known that it was the Plaintiff who did not wish to renew the tenancy. There were also allegations that the Plaintiff had started a competing business with his girlfriend, diverted sales revenue from the Company [30] Based on the disputed facts and in the absence of any objective corroborating evidence, t if it sued Yong. This Court will further add that this is not a case involving allegations of misconduct or misfeasance, but on management questions such as the judgment of directors whether to pay or not to pay on a request for payment these are internal matters that are subject to commercial considerations that the Court is not normally inclined to interfere with. S/N DvMp0/hbpk2ha9knwtc8hA [31] T from the failed share swap in which he expected to gain RM300,000.00 from relinquishing his shares in Famille Optique Sdn Bhd and full control of the Company. The true cause of the stalemate and the resulting deadlock in the Company is not at all clear, but there is no need for this Court to decide that or even whether the Plaintiff filed this action with a collateral purpose. Frankly, a derivative action cannot force a share swap anyway. [32] action, the decision of this Court is simply that the balance tilted against the Plaintiff on the question of good faith because the intended derivative action is too tenuous to merit further consideration. Prima facie best interest [33] Further and in any event, there is a final threshold to cross. In Seri Timor, the Federal Court referred to the following observations by the Singapore Court of Appeal in Pang Yong Hock and Another v. PKS Contracts Services Pte Ltd [2004] 3 SLR 1: 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 S/N DvMp0/hbpk2ha9knwtc8hA 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 and held that: In the end the question of whether it is prima facie in the best interest of the company to bring an action is a wide one involving consideration of factors beyond the merits of the proceedings. So, broadly speaking, apart from the prospects of success of the action, other factors are the likely costs of the action including legal fees, likely recovery if the action is successful and likely consequences to the company if the action is unsuccessful. [34] In this case, apart from the questionable merits of the intended from the action, the costs of pursuing it will be a drain on the resources of the Company. If leave is given to the Plaintiff, it will no doubt be swiftly followed by an application for leave by Yong. The initiation of claims and cross claims by the parties in the name of the Company will do nothing to resolve the issues between the Plaintiff and Yong or preserve any remaining value in the business or assets of the Company. S/N DvMp0/hbpk2ha9knwtc8hA Conclusions [35] For the above reasons, Enclosure 1 is dismissed with costs of RM7,500.00 Bertarikh : 5 Mei 2025 SGD ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA SHAH ALAM Peguam Untuk Plaintif: Tan Yong Wei, Messrs YW Tan & Co. Untuk Defendan Kedua: Goh Chin Han, Messrs Goh Chin